| The Flat-Rate Paradox and the Search for New Business Models   By Keith Willetts, Chairman and CEO, TM Forum Just when you thought it was safe to stream all the video you want and download all the huge files your heart desires, pay-as-you-go charging models are back stalking the land and pressurizing “all-you-can-eat” flat-rate plans. In April, Time Warner started billing some customers based on how much bandwidth they used. As you can imagine, customers were unhappy when it was announced that the company would expand the trial run of this new billing system. The company relented, but not before saying it really has no choice and needs to come up with a new way of doing business because the current model simply isn’t viable. Crocodile tears time? Well not really, but we do need to take a look at the paradox that has gotten cable, DSL and mobile broadband providers into this conundrum. By offering a flat rate for all-you-can-eat data, providers are significantly lowering the barrier to entry for many customers who otherwise might not have signed up. This is especially true for today’s smartphones such as the iPhone. When people hear horror stories of bills for downloading applications and movies, they are very put off using the service. So flat-rate billing has been one of the keys to growth, especially for Apple’s App Store. So service providers go the flat-rate route and build up their customer base. But here’s the paradox: more customers on your network downloading ever more data creates the need to invest in more backhaul or cell infrastructure at great cost to the operators. So for every new app on the App Store or every movie clip, the service providers get nothing but cost – the ‘over-the-top’ (OTT) provider gets the benefit. So service providers are entering a “screwed if you do, screwed if you don’t” world where it’s becoming very hard to recoup these capital investments in network upgrades. This is the same paradox (with a good deal of regulatory messing too) that has slowed the move from copper to fiber on the world’s access networks. It’s All about the Apps
So we have a position where all of the new value is being created by OTT players like Apple with none of it going to the underlying providers, be they cable, DSL or broadband. That’s at the heart of the net neutrality debate. But it’s clearly not sustainable if two parties are involved in providing a service but one gets all of the revenues and the other gets all of the costs. It’s the same thing with mobile advertising. If the advertiser is getting money from a client to deliver mobile ads, what does the phone company get out of it? If all they get are more costs from more data going over their network, don’t expect them to get excited. Let’s start with the customer who simply won’t put up with huge and unexpected data bills. A recent example that came up at Management World in Nice was a guy travelling abroad and using a neat mobile app to check in online with his airline - when the bill came in it cost the traveler $75 for the roaming charges to check in. Here’s a more personal example: in the first week of having my shiny new UK-based iPhone, I managed to run up over $100 in charges by downloading a few e-mails while on a trip to the U.S. So good luck Time Warner, but in reality, I’m not sure that you can put the flat-rate genie back in the bottle. We also see mobile broadband providers rolling out bronze, silver, gold or platinum packages with differing data volumes and quality of service included with each, but that’s exactly what the customer, application, web and handset developers don’t want to see. The Two-Sided Business Model
So what’s the answer? If flat-rate versus pay-as-you-go is an unresolved paradox, how can service providers share in the revenue they are enabling with content developers, application developers and the like? At last month’s T8 World Summit, which ran alongside Management World in Nice, over 30 CxOs spent time discussing this business challenge. Service providers today are now in danger of falling quickly into the black hole of being only a bit carrier, but there’s still time to salvage their fate. What we were discussing was opening up new services, not aimed at end users this time but at other application and service providers who want to get access to customers and have a range of enabling services available to them. These range from simple transport and other basic services like cloud computing, authentication, security, billing, customer care, etc., all available on a virtual basis. So instead of just a one-sided business model where you get revenue only from end user customers, the idea is to move to a two-sided business model where application or content vendors and other companies from verticals like government or healthcare supply revenue for the use of those enabling services. Think of it this way: FedEx will get a parcel from point A to point B. If you also want them to handle the customs process, they’ll do that too for an additional fee. It’s up to you what you want them to do and what you’d like to do as the customer. The best current example of this is Amazon, whose cloud computing model I’ve talked about before. Not only do they have a massive computing infrastructure for the delivery of goods to customers like you or me, they’ve also extended their internal trading platform to allow third parties to sell their own wares. And they offer a slew of value-added services on top of the basic platform, such as handling payment, delivery and more, allowing the business to decide what to pay Amazon for. They now make a great deal on their income from enabling these third-party traders to do business. For a small merchant, dealing with Amazon is an easy decision because they are getting access to a global market and very sophisticated services using a single large infrastructure. But that analogy breaks down a bit with telecom and cable companies because they are very fragmented - you’d potentially be dealing with over 1,000 providers to cover the world. This tells me there are three possible scenarios to all of this: First, it’ll never happen because it’s just too difficult. Second, it will happen because everyone will agree on a set of standards, so a two-sided business model could be ubiquitous. Or third, we’ll see the emergence of intermediaries who sit between the guys who provide the enabling services and the guys who want to use it. Clearly you don’t have to be a phone company to provide this type of service, but it’s exactly the phone – and cable guys – that need to take a look at how Amazon or Google are leveraging their massive service infrastructures. A senior telecom executive once said to me, “we had the equivalent of Google in our labs years before they got big”. Five years from now, it would be really easy to see the same missed opportunity for telecom and cable companies and instead of becoming key enablers of the digital economy, they were looking the wrong way and saw applications and ‘OTT’ service companies as the enemy rather than their best potential customers. Amazon grasped that nettle when they opened up their platform to companies that competed with them at the retail level. But in doing so they not only tapped into wholly new revenues from merchants, they grew their own retail business too because the end customer saw the range of goods available on Amazon growing to nearly always have whatever they wanted – so they made Amazon their first choice for online shopping. Phone companies and cable companies are really good at a lot of underpinning service issues. They were, after all, the very first ‘online’ service providers. But getting your head around being an enabler, means working closely with people you may regard as the competition at the retail level. Making a fundamental change to your business model is not easy if your company is run by accountants or committees and not charismatic leaders. It’s not really a surprise that Amazon, Google and Apple all have strong and visionary leaders – anyone care to mention a similar name in telecom? Back to top
Service Transformation for the Next-Generation Operator  By Preston Gilmer, Senior VP Product Marketing, Sigma Systems
If you attended Management World 2009 in Nice last month, it was very apparent that today’s service providers look and feel differently than ever before. The event keynotes included executives from non-traditional communications providers, such as the CTO of online retailer Amazon and the CEO of Virgin Entertainment Group. If attendees took anything away from the show, it was that the communications industry is undergoing a paradigm shift that is challenging the definition of Communications Service Providers (CSPs). Underway is an evolution, whereby access technology is less important than the ability to move beyond basic offerings such as broadband and voice to deliver any number of additional services that meet the expanding needs and habits of consumers and enterprises. CSPs are reinventing themselves as Next-Generation Operators (NGOs) to remain competitive. You can recognize a Next-Generation Operator because it’s the “traditional” service provider that’s offering non-traditional services. The NGO wants to sell you services via every access technology you use: TV, mobile, laptop and desk phone. This new breed of operator understands that in today’s competitive market, the winners will be able to rapidly introduce new services and service bundles, increase ARPU and reduce operations costs. A number of drivers are fostering the emergence of the Next-Generation Operator. These include: - Traditional voice carriers now offer more complex and diverse services, including IPTV, mobile and video on demand.
- Cable operators are making aggressive market-share grabs in residential and business voice services.
- Non-communications companies, such as Google and eBay, are becoming competitive carriers. Web-based telecom companies, such as Jajah, Jaxtr and Fring, are relatively new competitors for SMB voice services.
- Investments in infrastructure or acquisitions ― such as mobile carriers buying landline providers, telcos acquiring cable providers or cable providers launching mobile services — are stimulating the rollout of new services and service bundles.
While NGOs come from a variety of industries and have vastly different networks, the common denominator is the need to provide flexible, bundled services, in many cases to both residential and business customers. NGOs need to roll out multi-play offerings, including video, broadband, VoIP, mobile and business services. They also need to be flexible. According to Martina Kurth from Gartner Group, “Next-Generation Operators have similar needs at the service and customer layers — the need to eliminate technology and service silos in order to provide converged, multimedia services; and the need to provide an excellent and personalized customer experience. Operations Support Systems must address these fundamental Next-Generation Operator requirements.” OSS for NGOs: The Importance of Service Transformation
Any discussion of Next-Generation Operators is incomplete without addressing the need for service transformation through best-of-breed service fulfillment and management solutions. By moving services out of silo-based environments onto a single services platform, the Next-Generation Operator is better positioned to deploy new services quickly, create non-traditional service bundles, and identify up-sell opportunities.
Furthermore, service transformation for NGOs must involve the ability to customize solutions for subscribers and offer an array of advanced functionality, including advanced advertising solutions. NGOs need a federated view of the subscriber — including subscribed services, devices used, location and preferences — in order to provide personalized services that will increase retention and ARPU in today’s highly competitive environment. Service transformation offers the following benefits for Next-Generation Operators: - Increased Profitability and accelerated time-to-revenue by deploying residential and business services faster and delivering innovative service bundles
- Increased Productivity through automated provisioning and activation of voice, video, data and wireless services
- Increased Customer Satisfaction resulting from reliable service fulfillment, reduced order fall out, and self-service portals
- Reduced Operations Costs realized by removing silos, automating processes and eliminating unnecessary manual tasks
- New Business Models, including advanced advertising and usage-based services
Too many existing back-office systems are struggling to scale effectively in order to support the increasing number of service offerings and related orders, and the increasing subscriber penetration rates in growth markets. A Next-Generation Operator requires a highly scalable, cost-effective and common operations model that spans all deployment sites. This common OSS platform incorporates a service-oriented, network agnostic approach to fulfillment that allows rollouts of re-usable services to be orchestrated in an integrated and efficient manner, eliminating the slow and expensive silo-by-silo or organization-by-organization approach of the traditional CSP.
Preston Gilmer is a 20-year veteran of the telecommunications industry and has extensive experience at AT&T Bell Labs, Tellabs, CommTech Corporation and ADC. He has held director and senior executive level positions in product management, strategic planning, partner and corporate business development and corporate marketing. Mr. Gilmer’s background includes 13 years in software management system products including EMS, NMS and OSS systems. He holds a Bachelor’s degree in electrical engineering technologies from DeVry Institute of Technology, a Masters in Telecommunications from DePaul University (Chicago, USA) and an MBA in marketing from North Central College. He can be reached at Preston.Gilmer@sigma-systems.com.
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Emerging Markets: The View from Brazil  By Monica Zlotogorski, Vice Chair, Latin American Advisory Board, TM Forum & Editor, Inside Latin America
TM Forum just delivered its first worldwide Regional Spotlight in São Paulo, Brazil last month, which gathered together an impressive number of local Service Providers and local and international suppliers. These Regional Spotlights were created to enable an open forum to exchange strategic ideas and experiences aimed at helping service providers reduce costs, generate revenue faster and deliver a better customer experience. I was lucky enough to arrive in São Paulo a day before the event. I grew up in Montevideo, Uruguay, a city of about 1.5 million people, so for me, there has always been something quite overpowering and at the same time thrilling about being in São Paulo. It is the 7th biggest city in the world and the most heavily populated in the entire Southern Hemisphere. São Paulo is an amazing melting pot, where people from 100 different ethnicities live together. It is also a clear testimony of the fundamental transformation that the Emerging Economies have been undergoing in the 21st Century, and in particular, an unambiguous reflection of the state of the Brazilian economy overall, which is going through a deep transformation. Brazil is the largest national economy in Latin America, the world's 10th largest economy (the 9th largest in purchasing power). Clearly, Brazil is one of the fastest growing economies in the world. According to Goldman Sachs, which coined the term BRICs in 2001 to refer to the top developing economies in the world (Brazil, Russia, India and China), that by 2050 the economies of these four countries could overshadow the collective economies of the richest countries in the world. The global financial crisis has impacted the Brazilian economy, which showed a GDP growth of -1.0 percent this year, but it is already witnessing signs of imminent recovery and is expected to grow by 3.5 percent in 2010, getting out of the current recession probably before the U.S. economy does. A huge part of Brazil’s future economic strength is directly linked to its continuing strategy to achieve sustained technological innovation, and the force of its communications sector is an important part of it. For those of us that have been lucky enough to visit Brazil often, this transformation is quite apparent. Transformation Essential to Success
The total number of wireless subscribers in Brazil has reached about 155 million, which implies an impressive growth of 21 percent year over year. But wireless penetration is now over 80 percent, which will imply slower growth in the coming years and a different set of challenges for Brazilian operators as saturation and market maturity achieve new levels. The top four wireless service providers in Brazil - VIVO, Claro Brasil, TIM Brasil and Oi – will inevitably be affected by more aggressive competition and will require a different strategy to avoid customer churn and to be able to grab a bigger portion of higher value subscribers. Clearly, there’s still room for growth outside the saturated areas. Oi and Claro Brasil extended their market share compared to previous months (Oi has gone outside its traditional region). But VIVO has already felt the pressure (because of the current economic crisis, but I believe some trends are here to stay), and has evidenced a slower subscriber growth and lower ARPU, making margins go down. TIM Brasil is aiming at high-value customers, but increasing competition will put pressure on subscriber growth and ARPU. As markets mature, and operators are faced with rapid changes in technology, increasing competition, uncertain regulatory environments and a uncertain global economy, service providers are challenged to transform themselves into more agile, more customer focused competitors. Competing on “just” price and promotions to prevent customer churn is no longer sufficient and, quite honestly, doesn’t make much business sense either. As markets become more mature, customers become more educated and begin to expect and demand a better customer experience. The balance between cost efficiency and an unparalleled customer experience is the new challenge for Brazilian service providers and is essential to achieve business profitability. As markets mature, standards and best practices become more relevant and vital because they enable solutions to tackle the business issues and market pressures derived from stronger competition. Many emerging markets are in the same (or even better) conditions as some developed economies to achieve the next wave of change. Thanks to the process of globalization that the world economy has experienced in the past decade, business transformation processes no longer require an extensive, multi-year design and plan. Most importantly, the tools and knowledge to achieve such transformation can now reach any market in the world. We hope to be back in this region to continue the fruitful exchange that was experienced during the Regional Spotlight. As the Brazilian economy continues to expand and local service providers increase their pace in the direction of business transformation, I know we will be back soon. Back to top
Exactly How Profitable are Services and Bundles?  Many service providers haven’t got accurate data about the profitability of services despite this being the baseline for their business cases. Solutions are available to tackle this central issue.
By Priscilla Awde Asking most companies if they can accurately measure the profit and margins on every product or service would be something of a nonsense question. Such calculations would automatically be incorporated into product design, and rigorous financial analytics applied from concept to sale. Knowing exactly what profits come from where and which products have high or low margins is fundamental to business decisions. Why is it not the case in the communications industry? Evidence suggests that few service providers know the exact margins on every service. Or, if they do, they are likely to have only post launch data. “Operators don’t know product margins accurately, and it’s a big challenge,” says Ernest Margitta, director, product marketing, Tribold. “They measure revenues at the general ledger and aggregate levels using coarse-grained information. There is no level of detail, so no information about which services perform well, which margins are increasing, and which are not.” If this is so, how do service providers manage their businesses; know how much revenue to share with partners or make profits in a bundled, flat-rate world? While regular income from monthly subscriptions is predictable, if they don’t want to lose money on bundles they must know more about the services they contain. Content Encounter Program
It is answers to exactly these questions that TM Forum is incorporating in its Content Encounter program of cutting-edge, real-world demonstrations. Looking at how the service landscape is changing as advertising, content and digital media become more important, profitability is now part of the program, says Rebecca Sendel, director of marketing for TM Forum’s Collaboration Program. She says, “We have added product lifecycle management [PLM] into the Content Encounter program so information on monetization and profitability can be fed into TM Forum standards – like the Business Process Framework (eTOM) and Information Framework (SID) – and the interfaces between systems defined. Information pulled from many places, including usage data, content management systems, advertising and third-party billing must flow between systems so operators can determine profitability. They must be able to model all service costs, such as royalties and internal accounting, and feed that information into billing and advertising systems.” In lightly loaded data networks, almost any service makes money provided marketing communication costs are met and, during boom times, service providers do not need to sweat percentage points. However, says Margitta, with competition eroding profits, breaking products down into supporting components to understand and manage them is critical, especially when contracting with third-party suppliers. Total View
He argues, “Until recently there were no tools to do this. Now service providers can see all the resources and component parts from concept to billing to network, giving them a total view of what it costs to offer each product. Enterprise product management technologies support a deeper understanding of services and focus not only on revenues but on margins.” New analytical tools eliminate the practice of randomly allocating costs across the product portfolio. Details of the financial value of services, their performance and contribution to the company are fundamental for business decisions. Knowing when to launch and tear down services according to their profitability is critical in fast moving competitive markets. “Operators need an end-to-end view of services, how in line they are with business planning and the overall business model and where they can make profits,” says Jorg Kessler, head, BSS Support Systems, Nokia Siemens Networks. Margins after Delivery
He adds, “Although operators are looking at effective PLM to determine the effects of new services on existing portfolios, turnover and expected customer numbers, and are modeling services, many can determine margins only after products are delivered – which is too late. They need to do PLM starting with planning processes through provisioning to billing to determine the value add.” Much of the fault can be laid at the door of the perennial problem of legacy systems. They do not communicate, data is not shared between silos, and there is no single view of customers or the services and packages they use. “Service providers need to transform the entire IT infrastructure and implement activity-based costing, which feeds into financial systems to include all elements of service design and launch. This is a leadership not a technical problem – the tools are available now, but operators are not using them,” says Dr. Hossein Eslambolchi, chair of technical advisory for Intelliden and Chairman and CEO, 2020 Venture Partners. “The processes managing bundled services must be converged but are not, which is a huge problem worldwide.” Service providers need one comprehensive data collection and correlation system spanning all services, making information available to relevant business process. “Operators must be able to view data from several angles to see what works and what does not,” says Michael Manzo, chief marketing officer for Openet. “They need to segment the subscriber base and assess what customers are doing.” Unbundling Bundles
Flat-rate bundling is one answer to inaccurate statistics. Although this is a useful model because it is easy to see where revenues come from – predictable monthly income – the trick is still to understand individual service costs. “Lots of service providers believe flat-rate is an easier, simpler model, but they have to know the cost, value, business performance and impact of services and measure and know user behavior to calculate profits,” explains Liam Maxwell, vice president, products, Oracle. “They must use business analytics to ‘slice and dice’ network data to see which bundled services are being consumed. They must have the base data even in a flat rate model, capture detailed usage information, know what network resources are required, their costs and when and how much capacity to buy.” Flat-rate packages often result in low quality for the majority and high CapEx/OpEx to keep up with traffic growth. ‘Flat-rate’ is a misleading term as service providers cap ‘unreasonable’ capacity usage and mix bundles with à la carte services. “Operators charge incrementally where they don’t control the cost of services,” says Tom Erskine, vice president of product marketing at Convergys. “Their focus is on creating effective bundles, and their profitability is more important than the profit of underlying components. Operators must squeeze more out of service delivery: automated, real-time operations and business support systems (OSS/BSS) can reduce costs.” Next Stop: A Holistic View
Identifying how the network is being used, by whom and for which services means infrastructure resources can be allocated more efficiently. There are tools to establish policies by individual user, connection and device, but these are often set at broad, general, default levels and not rigorously implemented. The next evolution, suggests Simon Aspinall, director of Cisco’s Internet Business Solutions Group, is deep packet inspection that monitors all network traffic and looks inside packets.
“The tools are there to see data and traffic flowing across networks, what applications consume most time and capacity, plus individuals’ behavior. Once operators see the traffic generated over the network and identify the capacity required to deliver services, they can see revenues compared to costs and therefore the margins on one service.” Monetizing Revenues
All operators must consider how to monetize revenues and reduce the delivery costs per bit of data. The technologies are there, but operators will have to set tariffs differently, argues Margaret Rice-Jones, CEO at Aircom International. “They will have to become more like public transport where the amount paid is reflected in the service level,” she says. She adds, “Operators know they must have greater links between marketing and technical departments to ensure new services and costs can be modeled and understood before launch.” Yet many focus on cutting OpEx and CapEx, reducing churn and attracting new customers rather than service margins. If service providers want better control and lower operational costs, they must build next-generation networks and mesh the whole environment, according to Gabriel Racah, director, messaging marketing, Comverse. “The rationale behind ‘all-you-can-eat’ packages is to drive up traffic so service providers must prepare networks and systems for the huge surge in demand and resulting need for more and more capacity. “Service providers care about the cost of services but also about getting large numbers of subscribers on high-tariff, high-margin, monthly bundled packages. Operators also seek new revenues from other sources like advertising,” he says. However, different models apply around the world. In immature markets, exponential growth in subscriber numbers changes the way service providers operate. In these largely prepaid mobile markets, average revenue per user (ARPU) is typically low, and the focus is on building networks, increasing penetration and gaining market share. Tracking Profitability
There is less emphasis on profit, revenues or margins; flat-rate bundling is less important than innovation, connecting and keeping customers. However all service providers everywhere benefit from building PLM and analytics into service design. Dominic Smith, marketing director at Cerillion, advises, “It’s more realistic to track the profitability of customers than services: low-value customers are fine if costs are low, yielding margin growth. High-value customers may cost a lot to support and maintain, so the cost of services outweighs revenues achieved. Tracking the cost of service delivery shows which products cause the most queries into call centers. Competition forces service providers to look closely at how businesses are run and how to make money without heading down the dumb pipe route.” Over-the-top Concerns
There are concerns that so-called over-the-top companies – such as Google and YouTube, which use service providers’ infrastructure without investing in it – are taking over, relegating mobile operators to bit pipe providers. Emma McClune, principal analyst, Current Analysis, says this is leading network operators to look “at the cost of acquiring, maintaining and managing customers and provisioning services. To make services more profitable, they are stopping high margin activities like handset subsidies and building up the SIM business.” Determining margins, profitability and revenues means implementing new analytical tools rigorously end-to-end. In a service industry it is not an easy task, says Terry Norman, senior analyst, Analysys Mason, especially since “mobile telecom particularly is a young, immature and growing industry that has only gone through two or three major technology innovations. The industry is moving so fast, it’s difficult to get a clear grip on what’s happening and very difficult to work out profitability and uptake. Operators have had to take big risks, offering what subscribers might want tomorrow.” Firm Grasp
It seems there are few excuses for not having a firm grasp of service margins on which to build profitable business. The tools are available; now service providers just need to implement them. Back to top
Why Your Organization Shouldn’t Miss Team Action Week  Team Action Week is the place where industry leaders from across multiple TM Forum teams get together to set direction across larger strategic areas and devise roadmaps for future work. The heart of TM Forum is the Collaboration Program, and Team Action Week is where the collaboration projects come to life. Many of our flagship teams and programs are meeting at Team Action Week in less than 2 weeks, including:
- Business Process Framework (eTOM)
- Information Framework (SID)
- Application Framework (TAM)
- Interface Program
- Revenue Management
- Value Chains Initiative
In addition, you’ll have the chance to participate in special activities and cross-team meetings that only happen at these face-to-face events.
With industry leaders from across multiple TM Forum teams together, we take the opportunity to set direction across larger strategic areas and devise future roadmaps for future work.
Also at Team Action Week, there are special events and meetings that bring together interest groups for in-depth discussions about how to progress TM Forum standards and best practices for their industries.
Some highlights of these special sessions include:
Cable Industry | Extensive meetings including Cable Interest Group; IPDR Users Group discussing Best Practices, Interoperability Testing, and Usage Data Management Roadmaps; and Cable Industry Customer Experience Workshop | | Defense Industry | With proximity to the Washington area, these meetings promise to be well attended. Meetings include: Defense Interest Group; Policy based management discussions; security management discussions | | IPsphere and Service Delivery Framework | IPsphere/SDF joint meetings where teams will look at ways to draw their work closer toward a gold standard for service delivery to the industry | | SOA / Service Delivery Framework Industry Group Workshop | An Industry Group Workshop on Friday with other groups doing work regarding Service Oriented Architecture (SOA) and Service Delivery Framework/Platforms. We are currently hoping for participation from ATIS, Oasis and OMA. | | Resource Management | The Resource Management team will be meeting to bring together resource management experts to share common concerns and work approaches in using TM Forum Frameworks and APIs. The team will coordinate across the TM Forum Solution Frameworks to ensure the TM Forum delivers consistent solutions to the industry in a timely manner. | | Catalogue Team | The Catalogue Team will meet to identify and coordinate all the Framework and API work necessary for TM Forum to deliver catalogue management enablers to the industry. | | Managed Customer Experience | A relatively new effort, the Managed Customer Experience team will be meeting to formulate their ongoing work plan and identify key industry drivers and priorities. | Nowhere else can you meet with industry leaders from service providers and the full range of suppliers and make decisions that will directly affect your organization. Remember, you can attend for one to all five days. Just check out the Agenda, decide which meetings you want to attend, and then click here to register today!
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