Sexy telecoms

What are the features you find more important to choose a handset? Shall it look nice and sexy, shall it have the cutting-edge technologies, or is it simply because it has a nice price? Most probably the answer will depend on who you are, but one thing is for sure, 70%-80% of the non-voice revenues in 2006 came from SMS service. This means beyond doing voice calls, most of the people use handsets to send SMS, and thus, sophisticated services such as TV broadcast and location services (just to mention a few) are not really being used by people. Given that voice and SMS are the appliances that people really use, why is the telecom industry still looking for a "killer application"? A straightforward and consensual answer is that voice revenue margins are continuously eroding and fresh ideas that keep costumers connected are needed.

As the mobile value chain is very fragmented, the industry founded some years ago OMA (Open Mobile Alliance) with the intent of creating interoperable applications. The number of applications standardized by this organization body is huge and it involves the latest advanced technologies. However, it seems adoption of these technologies is slow and revenues mobile operators get from them accounts for a very small part of the pie.

So what's the main "problem" with that? Are these applications expensive to develop or are network operators charging too much for the services they provide? Maybe the answer is both! Some researchers point that mobile phone industry is becoming very similar to the PC industry. As we know, (and as in PC), companies are evolving from vertically integrated to integrators of parts (which are made from other more efficient companies). This is true in most technologies when interfaces between parts of a system become standardized and a single company is able to take advantage of economies of scale and expertise by doing just one part of the system. These kinds of companies are already part of the mobile value chain and some of them perform very well. Regarding the rates applied by MNOs, these new services are not deployed at a low cost, as companies cannot jeopardize themselves. However, it's becoming clear that network operators own an infrastructure that can carry all these applications' bytes. Some experiences are being held - for example, this month in Frankfurt you could subscribe a T-Mobile service that enables sending an MMS to e-mail addresses by a flat rate of €10. Thus, new price structures and utilization patterns will drive the adoption of mobile services.

However, what are the main forces that make people choose their mobile phone? In the developed countries, where purchasing power is higher, people tend to buy handsets for what they look like and not for the features or "complicated" applications they run. The top example is the Motorola RAZR which is a slim phone with an emphasis on design. Another example of this is the partnership between some mobile manufacturers and style brands - for example Motorola teamed with Dolce & Gabbana, and Vodafone with Ferrari. Another example could be Vertu (manufacturer of luxury handsets fully owned by Nokia) that are hand-crafted and where design and luxury are the differentiation factors.

So, maybe there is not a perfect approach but several approaches and the winner, as ever, is the one which delivers what the customer wants, because that... is sexy!

Network neutrality

Most of us have already heard about Network neutrality; there are several definitions for it, but the basic principles are: networks that don't favour some destinations over others, or classes of application (eg WWW) over others (eg online gaming or VoIP).
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After making huge investments on building FTTx new networks across the US, companies such as AT&T and Verizon point their fingers to big internet companies by saying they are using their networks for free without any return for those carriers:

•AT&T CEO: “Google, Yahoo! are getting a free ride on AT&T expensive new network – we have spent a lot of capital and we have to have a return on it!”

•Verizon CEO: “Google, Microsoft and other providers ought to share the cost!”

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On this discussion there are different positions to be taken - some argue networks shall be neutral and others don't. Arguments on the net neutrality side are accusing AT&T and Verizon for blocking innovation for start-ups and small companies.
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Some opponents to net neutrality, put the question on a different angle; Odlyzko, University of Minnesota: “What makes them think that they are going to charge Google, as opposed to Google charging them?”
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However, this discussion might not be new, fast broadband connections already cost more than slower, both for consumers and business. Given that carriers had put big money on new fast networks, on thing is for sure, or telecoms charge subscribers more or they pursue new business models where big internet companies and content providers pay part of the bill.

The Telecoms

IDATE and LECG (two consulting and research firms) had made public a study on Telecoms in Europe last January. The report was prepared for the Brussels Round table, a forum of leading EU telecommunications operators and equipment manufacturers that include Alcatel-Lucent, BT, Deutsche Telekom, Ericsson, France Telecom, Philips, Siemens, Telefonica and Telecom Italia.

This work analyses the current situation of the telecom industry along all its value chain as the sector contribution for the European economy.
Based on surveys made next to this industry’s key players, the main medium and long term driving forces that impact the industry are identified.
These main forces are:
- Changing end-user expectations, behaviours and usage patterns,
- Technology forces (telecoms, media and other tech fields),
- Globalization transitions,
- Regulation and public policy.

Given this environmental analysis, and based on the trends of the above mentioned forces, three possible scenarios for the 2015 European Telecom scene were built. As depicted in the figure below, telecoms can go as a trap (Telecopalypse), intermediate (Convergence Compromise) or favourable (Evernet). Each of this is characterized as follows:

Telecopalypse – For this scenario, there is a stagnation of the sector. It presents a situation were carriers might delay or cancel new network investments in face of policy regulations that favor network neutrality in opposition of application-based competition. The broadband availability is seen as modestly improved with low fiber and HDxPA deployed mainly in urban areas. The result is the telecoms transformed in a utility-like industry given the contracting industry-wide revenues.

Convergence Compromise - In this scenario high-speed fiber and mobile broadband is fuelled by infrastructure competition in dense urban areas in opposition to DSL coverage in less populated areas. Diffuse strategic choices are followed by operators, some focusing on Pan-European consolidation and fixed-mobile integration and others targeting the dedicated infrastructure provision. In this context, regulation is focused in ensuring retail-based competition through unbundling, facilities-based competition in dense urban areas, traffic prioritization and commercial freedom for converged services.

Evernet – The Evernet scenario introduces new services in the business-to-business and public administration domains (e-gov, e-health, machine-to-machine) generating cross sector productivity gains for the Euro economy. Broadband becomes a very important component for Europe, thanks to strong infrastructure competition resulting in the proliferation of multiple fiber and high broadband wireless access networks. Given this, the sector creates ample growth opportunities for both infrastructure and application providers. This scenario is possible in a context where a European public policy encourages cross-industry collaboration and a regulatory framework which stimulates fixed and mobile broadband facilities-based competition.

This report is issued in a time where the European telecom sector faces many challenges, such as market saturation (and maturation), deflation, regulation and competitive risk. It does not point any special direction and is not biased on a specific scenario. Although many of the variables studied can change in pace and direction, it gives a good outlook on the sector and important trends to look at.

The report can be downloaded here.