Media companies are the biggest threat for telcos

"Not the other telcos, playing in the market, but the media companies in the world are the major threats for the telcos. They will become their main competitors."

It is a pretty black-white, probably somewhat exaggerated assumption, but it is meant as a provocation to the telcos to force them to start thinking about their future portfolio.

Take a look at Viacom, Vivendi or Bertelsmann. They all create, manage and distribute content. For distribution, different channels are used : TV and radio broadcast, print, DVD, CD, call centers ... From their point of view, the telco networks with ADSL or VDSL are just another distribution channel.

No telco is able to create content, they are too inflexible and sluggish to react fast enough. It is not their core business. The only chance to enter this space is to buy a market leader for media. However, this is too expensive for the telcos, they don't have the money for such adventures.

But what, if we turn it around. What if Bertelsmann would buy, say, Deutsche Telekom ? They would obtain the access to the end users and a professional organisation to manage this access. The "Bertelsmann package" could look like this :

• DSL connection,
• flat rate for domestic calls
  
• access to your favorite magazine online,
  
• Bertelsmann Book Club membership,
  
• 10 free musik downloads and
  
• 2 VoD
  

for 50 € per month.

Not "Call-'n-Surf comfort", but "Call-'n-Listen-'n-Watch-'n-Read-'n-Surf comfort" ... or "the spirit to create". A more powerfull message to the market, isn't it ? The combination of first class content, first class marketing and first class connectivity.

Telcos are running into a big revenue and ebitda problem, since revenue is declining and most of cost cutting has been leveraged. They are at the crossroads : find a way to offer value added connectivity and increase revenue or become a target for take-over.

Of course, telcos could enter into cooperations with the media corporations, but the latter are used having full control about what they do. They simply can't afford to have negative impact on their image. They are very conservative regarding their channels. Innovative about what they do, conservative on how they do it !

I'm sure, it will not take so long anymore, before we see this happen. And I beg, Google or eBay will kick it off !

Quo Vadis Telco - Telco 2.0

Why this Blog ?
I started this blog to structure my thoughts on what it could mean : Telco 2.0. I've been working in the telco industry for over 15 years now, and there is a dramatic change going on and depending on how the telcos react, they could become a real big or a non-relevant player. It all depends on their ability to adapt to the web 2.0 philosophy.

I have heard the presentation of Don Tapscott, "Wikinomics: Winning with the Enterprise 2.0", a presentation from the "Enterprise 2.0" Conference in Boston last June. (http://enterprise2conf.vportal.net/?m=browse.au&auid=20) A very interesting point of view. It is much about collaboration, meaning a lot of successful initiatives or companies just provide a platform, content comes from the users. Look at Wikipedia, eBay or Google. However, they all use the internet. The internet only works, as long as many people can access the internet. This access (and the underlying network infrastructure) is provided by ... telcos and cable companies. That's good, you can't go without them. However, they bring hardly any value in the internet value chain, they are exchangeable. There is hardly any difference between a dsl-access from provider X, Y or Z and in the end, it is always the same copper or fiber cable. And since most of the core services the telcos offer are provided on a flat rate base, how will they -apart from the pure connectivity providers- earn money in the future ? (As a matter of fact, flat rates are the death of a telco.)

Not so easy to answer. It seems to me that the telcos even don't know, how they will look like in the future. Some of them have defined themselves as access and connectivity provider (or simply said : bit-pipes), others try to enable services, but no new service seems to really take off. E-Plus' iMode did not attract the european market, Vodafone Life or T-Zones are not really successful and wapping was a creeper. It seems, that the telcos are waiting for ... what are they waiting for ? I don't think, they know.

What is the core business of a telco ?
Let's go back to the roots : What are the core competencies of a telco ?

1. Connecting people - or in the new economy : connecting things, being it people, computers, cars, ... simply anything.
   
2. Furthermore, telcos are able to manage huge amounts of information (CDRs e.g.) and
   
3. Telcos are able bill the services used, in a real on-demand or utility based mode.
   
4. Telcos have a reliable infrastructure. (How often did you experience an outage of the PSTN network ?)
   

Apart from some technical improvements like GSM, UMTS, ISDN or even IP, the business model didn't change for the past 100 years : you dial a number, some enddevice rings, and you get connected. Even the internet works in the same way, the numbers being IP addresses. As deregulation has forced the prices to drop, telcos have started to offer triple or quadruple play, meaning the bundeling of different services. Everything is bundled now. On the other hand, revenue growth was anorganic, fueled by acquisitions. Consolidation in western europe is more or less finished, some targets are left in eastern europe. Bundling and buying will not save the future of the telcos. They need to go back to organic growth, but how ?

Information gathering
For the remainder of this article, I will concentrate on the telcos serving endusers, not on connectivity providers or MVNEs. As said before, successful companies like eBay or Google act more or less as an intelligent catalist of information, provided by the end-users. They are using pieces of information, that are left behind by the users and combine them with new information. The most important information, that telcos have or are able to gather is, that they know, where people are since they have the physical connection to the endusers. If you combine this information with what is gathered in the data warehouses of the telcos, you have a good starting point, but it is not enough. It is all implicit information. Telcos need to enhance the information base with information, explicitly supplied by the endusers. Some marketing people of the telcos have told me, gathering information is a legal problem and therefore not possible. I disagree ! Most of us publish our mobile phone numbers, email addresses, credit card numbers, etc. in the internet, more or less secure and in closed communities, but nevertheless. This means, if people see a value in disclosing some information, they will do. However, to gather explicit information, telcos need to play an active role. If they allow, to be reduced to a bitpipe, they will not survive.

The network centric paradigm
From their nature, telcos have network centric business. They own the connection to the enduser, being it the physical line (with the information stored in the switches) or the air connection (with the information mainly stored in the HLR). This information can be accessed in a very fast and reliable way. It is this information, that differentiates telcos from other market participants ! Concentrating on using and correleting this information in an intelligent way, will bring more value into the connection. Telcos could offer this information to value added service providers or use the information to set up their own services. Furthermore, they will limit the competition to only a very few players, the other telcos in the market. And the incumbants even have a better position : they can combine fixed and mobile, in most european countries as the sole market player ! It is much easier for them than entering unknown markets like media creation or IT services. It will bring the telcos back to what their main role is : connecting people, driving collaboration.

Some examples

Network centric convenience
I have 4 physical phones : my mobile, my office phone, the phone in my home office and my private phone. At least the first tree of them contain the same numbers. However, each time someone changes his number, a triple change is needed, at least. Why ? All my phones are connected to the same telco. Why isn't this telco able to enable automatic update. Technically it should be possible. The same is valid for mail-boxes : each phone has its own mail box. Why ? Google just bought a company that offers a solution for this problem. And if someone, listed in my names directory, calls my mailbox, I will be told later on the number of the person that called me. Why not the name of the caller ?
And if we think about converged fixed-mobile networks, I should have one number for fixed AND mobile. The end device that is most convenient for me at this moment should ring, if someone calls this number. It is the idea behind BTs bluephone or the failed T-One phone. Technically, it is possible, but currently, implementation is inconsequent.
Who else can implement such technical solutions, if not the telcos ? Moreover, Google & Co. would have a much harder position, if the telcos find back to their unique value !

The ring tone model
Let's look at the example of ring tones. It is a big market. The telco offers are "me-too" approaches, where endusers can download a ring tone. Lot of competition, no differentiation. The real money is earned by Jamba & Co. Why do the telcos allow this ? With a little bit more creativity, they can earn money with ring tones. Think about the following model : A telco agrees with e.g. iTunes that they will provide ring tones in the format needed by the different mobile phones. The telco provides a portal to the endusers. This portal allows the enduser to define a link between a ring tone and a caller. The enduser has do disclose his type of mobile phone to the telco (bringing potentially useful information to the telco !!!). The ring tone will be transferred to the mobile phone in a way, that the ring tone can only be used as defined in the portal. Probably, an agreement with the mobile phone providers might be needed, but telcos tend to have excellent contacts with them. Each time a ring tone "rings", enduser will be charged a small amount via his bill. This works with post- as well as with prebilling. iTunes will get his part of the revenue, rest will stay at the telco. It might be attractive to the endusers, as they get more flexibility in the ring tones, without being obliged to purchase the ring tones. It is a kind of "pay-as-you-use". If we go one step further, endusers could publish ringtones, created by themselves. They would get a credit each time someone else uses this ringtone. Telco act here only as the catalyst, linking the players together.

Conferencing
Let's look into another example : the very popular telephone conferences. We all have experiences with them. It's really a crazy procedure : Somebody sends you an invitation for a call including dial in number and passcode. You accept the invitation, resulting in an entry into Outlook or Lotus Notes. As you are probably in your car or in a train at the time of the call, you have to write down all the details. Then you dial in into the call and enter passcode. It is very annoying, isn't it ? And the conferencing companies make a lot of money with it. The telco just gets the money for the call. Again, the telco just serves as a bitpipe. Why is this necessary ? Since I've accepted the invitation, I could disclose the number I would like to use for the call, e.g. my mobile number. When the conferencing system knows this number, the system could call me and link me into the call. Much easier. In the IP world, this could be a service offered by a telco resulting in revenue for the telco.

Automated Meter Management
Let me finish with another example that demonstrates the potentially unique position of telcos. It is known, that utility companies are thinking about more dynamic business models, forced by deregulation and the increasing prices for energy. In several countries utility companies are testing daytime dependent rates for energy : higher prices from 9 to 12 a.m., lower prices during night. A bit the same as what happened in the telco industry in the 90's. However, if the utility companies want to implement this kind of tarifs, they need to know, how much energy was used during the different tarif periods of a day. This poses a big problem for them. Currently, they have a very simple rating system : they come once a year, read your energy meter, make the difference with on year ago, multiply with your tarif and send you the bill. If they need to read your meter multiple times per day, how will they do ? However, almost each house is connected to the telephone network. Technically, there is no problem to plug a very small communication unit into the telephone box, connect this unit to the energy meter (via powerline e.g.) and read the information everytime that it is needed. It is comparable with CDRs, and telcos are used managing this huge amount of information. They could even offer to the utility company to perform the prebilling and rating, even to create the bill. It is a win-win for both of them and the business case works. You can extend this model to e.g. medical surveillance or home security.

Summary
Currently the telcos are degraded to a commodity, a simple bit-pipe. Money is made by others, using the telco infrastructure, making them exchangeble and vulnerable. Telcos need to play a more active role to exploit their core strength : connecting the world. They have to put more value into the connection, value that the endusers are willing to pay for.