Why do Telcos need to rationalise products?

Product rationalization is a wealth accretive activity that generates both hard and soft benefits and it is one of the hallmarks of competitive Telcos that exhibit high TSR performance.

"Good" Telcos like BT and Telecom Italia use product rationalization to become better players by increasing revenue (up/X-sell, reduced time to market) and lowering costs (lower product development/maintenance costs, integration costs).

"Great" Telcos like NTT DoCoMo and Illiad use product rationalization to realize not only hard benefits, as mentioned above, but also to shape the game to their advantage by securing key technologies, partnerships and exerting pricing power in the marketplace.

Season's Greetings

“You may compete with everybody but not with your customers !” Richard Stastny.

I wish you, as well as your family members, a jolly good time during this upcoming festive season.

The end of the year is usually a good time to pause and predict what could happen during the new year. I wanted to start a tradition with the Australian Telecommunications 2007 Predictions Survey, which yielded some interesting prophecies. While I agree with Warren Buffet when he stated that ‘‘I have long felt that the only value of stock forecasters is to make fortune tellers look good’’, there is little harm done with polishing our crystal ball and hypothesising on the upcoming year in Australian Telecom landscape.

In the Access sphere, respondents have predicted that “State Governments spend $billions on building metro area fibre access/backhaul networks to serve their own requirements, and then they open them up to Telstra (Australian incumbent) Competitors”, “First commercial deployment of a WiMAX offer” and that “Hutchinson may divest from its Three network in Australia after the upgrade of its network to HSDPA.” These predictions seem to signal a new age for Australian broadband. 2006 was the year broadband democratised with over 2.3 million Australian homes now with broadband, and with DSL used in 83% of broadband enabled households. 2007 will be the year when broadband becomes an enabler of service and content rich offers. This could result in at least one major PMI engagement in Australia and new billing platforms integration programmes.

In the Service arena, respondents were quick to forecast “iiNet/PowerTel drive VAS packages to SMBs (e.g. mini-managed services like remote backup)”, “Telstra and Vodafone get serious about Small and Medium Businesses (SMB)”, “VoIP based hardware (e.g. Skype/DECT phones, Apple iPhone) is bundled with high-end DSL packages.” 2007 may be the year ISPs use Customer Premise Equipment and Value Added Services (VAS) to their advantage to reduce churn and acquire existing SMB and consumer customers from other providers. Offers like Managed Services, Security, PC support, VoIP and IPTV may become the tip of the spear for ADSL providers willing to integrate them. This would mean complex IMS type of integration work for Telcos in 2007 and beyond.

Content is king, we are told so here are some regal predictions from Telco strategists. “Everyone will offer mainstream content (e.g. music downloads)”, “NewsCorp [or Mac Media Fund] buys Channel Ten”, “Optus and Telstra form more alliances with content owners and advertisers to maintain profitability and defend broadband market share.” Telcos seem to have understood in 2006 that they need to form alliances with content providers to leverage their scale in front of smaller, low costs, operators aggressively rolling out DSLAMs regionally. This shift in thinking is probably not shared among all the employees at the Telcos and this opens opportunities for consultants to help the C suite operationalise their strategies.

We will revisit these predictions in one year to bring some accountability in the process and celebrate the most accurate “fortune teller” among us. With my track record, predicting last year “VoIP over 3G is poised to become a big thing in 2006…” I am sure to get disqualified.

Telecom News

• State Governments get involved in Broadband: A number of State Governments are "taking action where the Howard Government is not."
  
• Sceptical telco applies for $600m broadband fund: Telcos vie for a piece of the Government's Broadband Connect fund.
  
• Google/Orange phone is 'nothing new' - analyst: Rumours abound that Orange and Google are in talks to launch co-branded device.


• Sky and Google Alliance: Wide-ranging alliance covering advertising revenue share, a Sky-branded version of Gmail and UGC video.
  
• Orange Content: Orange UK has jumped aboard the user-generated content train.


• Telstra steals 3G show with Next G: Telstra’s blitzkrieg national rollout of a high-speed 3G network has undercut the chances of any competing network.
  
• Microsoft tests new VoIP server: Microsoft has started testing new server software that allows corporate customers to make phone calls through its Office suite of business software.
  
• Telstra's structural separation debate: The debate around a separation between the infrastructure and services arms is back on the table.

Telecom Trends

• Mobile VoIP: Example of a Mobile VoIP value proposition where the value proposition is built around group context and presence.
  
• Free VoIP Centrex capability: Sign-up for a free account to experience the power of Asterisk, the leading VoIP Open Source PBX.
  
• Least Cost Routing made easy !: This free service aggregates your Voice Service Providers into one, allowing you to conduct price arbitrage among VSP like 10 cents quality calls to Australia from here, or free international calls from here, here and here.
  
• Telco 2.0 ‘Disruptors’: “PhoneGnome is to fixed lines what WiFi handsets are to mobile.”
  
• True Pioneers: Congratulations to the 47 technology pioneers for 2007, (Truephone, SlingMedia, Bridgeport Networks among others.)
  
• FMC is go, says survey: Over 65% of Operators Will Have Implemented FMC Into Their Service Platform Within the Next Three Years.
  
• Telcos fear Web 2.0 : 75% of telco insiders lack confidence in Telcos' ability to create long-term sustainable growth in new environment.

Telecom News

• Commander stalked by SingTel: Commander Communications emerged as a potential takeover target following speculation Singapore Telecommunications could launch a bid valued at more than $540 million.


• ReelTime to offer permanent movie downloads: In an Australian first, ReelTime will soon offer download-to-own (DTO) movies, with new releases available on the same day as retails stores.


• ISPs scramble to produce 8Mbit plans: After Telstra's announcement of new ADSL1 port pricing, ISPs are hurriedly doing the sums on what their new plans will look like.


• Telstra releases ADSL2+: BigPond has finally released ADSL2+ plans, and has also updated its ADSL1 line up, bringing it somewhat up to date with competitors.


• Optus caught short on international bandwidth: OptusNet broadband customers are once again crying foul as they enter their second week of slow speeds and high latency when attempting to browse international sites.


• FTTH in Brisbane? The Queensland Government is attempting to bypass Telstra and build its own fibre to the home network in metro Brisbane.


• Optus announces wholesale ADSL2+: Optus has formally announced its wholesale ADSL2+ service, which will allow other ISPs to offer 24Mbit speeds and phone services via ULL later this year.


• Telstra gets bad news on ULL: Telstra today confirmed that it had been forced to offer a ULL price of $17.70/month to competitor iiNet, after the ACCC provided an Interim Determination on an access dispute.
  

Telecom Trends

• Clipcomm BS-T100V converts VoIP to your mobile via Bluetooth.
  
• Copyright Office rules that consumers can legally unlock cellphones
• Orange, SFR team up to ease parking in Paris
  
• New partnership gives Sprint Nextel users Windows Live Search
  
• Google chief says: "Your mobile phone should be free"
  
• Sling - Personal Video Player- announces Symbian SlingPlayer, partnership with 3
  
• Mobile phones make payments at Coca-Cola machines
  
• Optus trial brings Traffic Intelligence to road users

Let me ask you an enigmatic question!

“While we are doing a decent job at keeping our eyes on the ball, I am increasingly concerned that the end-users are already off playing something other than ball….” Anonymous.

Allow me, if I may, to tell you a short story.

Did you know that Einstein was a famous prankster? He detested touring universities to talk to esteemed faculty members, whose sole purpose was to shine during conferences by asking, what they thought to be, sophisticated questions. Not only was Einstein tired of constantly hearing the same questions over and over again, but his driver, who looked somewhat like him on a bad hair day, started to predict the answers Einstein would give to common questions.
One day, while feeling under the weather, Einstein asked that he take the wheel while his driver present the material he had heard times and times before. After the presentation, a young faculty member asked a rather difficult and uncommon question to the Einstein look alike. Upon hearing the rather enigmatic question, the driver, posing as Einstein, replied “This question is so trivial that I will let my driver answer you!” Let me ask you an enigmatic question! Are you confident in the ability of Telco operators to create a sustainable future for themselves in an increasingly IP-based world? Only 18% of more then 250 industry insiders think so according to this survey.

Why is it that Telco financial analysts, consultants and practitioners feel so gloomy about the ability of the Telco sector to create wealth? Let James Enck give you 10 reasons. The truth is that Telco is a sector that we love to hate. The oracles of the efficient markets have descended upon us and rendered their judgement: Access is out, Services and Content are in !

I like to think that I play a small part in turning the tide by allowing my clients do the “right things right”. The question becomes are they playing the right game? My driver has not come up with the answer yet.

VoIP over 3G

VoIP over 3G is poised to become a big thing in 2006. Skype has just released its Pocket PC and Windows Mobile versions. I am told that a hack for smartphones even exists. Early reports from users attest to the voice quality of the Skype codecs (mostly iLBC) and it sounds promising when used with a processor over 200Mhz.

Furthermore, I am told also that Global IP Sound has released a new version of their codecs for the Pocket PC platform. Finally, 3G mobile operators are sharpening their pricing and Wimax looming on the horizon is a guarantee that the market will remain healthy in the coming years.

But a back of the envelope calculation makes me doubt about the economic viability of using VoIP over 3G. A quick overview of the data offers from Three and Vodafone Australia show me that based on a conversation using the iLBC codec (using those excellent benchmarks) would cost from 46 Australian cents on Three, 35 Australian cents on Vodafone up to AU$ 7.5 per minute when you go over your allocated 1GB per month and five times as much when you call from overseas (which would most likely be a GPRS call, hence not robust enough for a VoIP call).

Those rates have to be put in the perspective of a traditional voice call on those operators which cost, after discount, between 7 and 8 Australian cents. VoIP calls over 3G costs therefore five times as much as a traditional cellphone call and is currently limited to small capital centric footprints.

The unique exception would be using the iBurst services which would cost as low as 7 cents per minute. Such a service could then seriously contend as a fixed line/ADSL/mobile replacement provided they sign-up the right agreements with mobile manufacturers such HTC, retailers and customer premise equipment like Linksys One.

VoIP Call Cost in the USA

Michael Robertson, whom I admire for his entrepreneurial talent and technological flair has started what I regard as an inevitable trend in 2006. He is the founder of SIPphone, one of the best VoIP service providers and backer of the increasingly popular Gizmo Project, which has started a price war against Skype and MSN Messenger. Yahoo! Has followed suit selling USA for 1 cent per minute.

He claims “Unbelievably, SIPphone, backers of Gizmo Project, is making a profit at 1¢ per minute calls. Our cost is close to 1/2 a cent per minute. What you're witnessing is the march to free calling that I talked about a year ago.”

Although it is undeniable that in 2006 Jeff Pulver’s vision that voice will go the way of Gilette’s razors (give away the razors to recoup your margin on the blades), I cannot help but asking where Michael is buying USA at $0.005 per minute with per second billing after the first second. Last time I checked, USA continental (excluding Puerto-Rico, Alaska, Hawaii and obviously Canada) was trading for $0.008 1/1. It is impossible to make a profit with a $0.002/min margin because of slippage in connection times with the SIP/H323 protocols.

What I suspect is happening is that Yahoo! and SIPphone are playing the same game the calling card companies are playing, making a small margin not on the per minute rate but on the billing increment. Most calls last less then 3 minutes and have a 2/60^th chance of ending exactly on the dot. SIPphone makes a loss for those calls but gains by charging full minute increments to customers while being charged per second by the carriers. Some calling cards companies even charge per three minute increments and offer sub-wholesale per minute rate. Imagine a three minute and one second call costing you six minutes.

Anyway, all this discussion around per minute fees is academic if US based VoIP providers are hit with Universal Service Fund charges for both on-net and off-net calls. This bill, if enacted, would seriously hamper the development of VoIP in the USA. Vonage, Time Warner, Skype, Broadvoice may then elect to relocate their operations overseas so as not to be subjected to this charge.

Free is...well free ! (to 14 countries)

When thinking of France, one thinks of wine, cheese, Paris, attitude?. VoIP would certainly not come to mind but think again will you?

France is poised to become one of the hottest market for VoIP origination and transport of the G8 countries as its customers, fed-up with incumbant France Telecom, adopt en-masse alternative carriers like Free. Free who is by far the most aggressive ADSL and triple-play provider in France has now included free calls to 14 countries into its 30 Euro monthly subscription which includes IPTV, ADSL 2+ (up to 24Mbps) and obviously VoIP.

The 14 countries are Germany, Australia, Austria, Canada, China, Spain, USA, Ireland, Israel, Italy, The Netherlands, Portugal, the UK and Singapore. In essence, Free has released most of the countries which trade circa or below the 1 US cents wholesale.

James has some interesting stats about the French VoIP adoption which he got from here:

18% of the population over 12 has no fixed line phone
7% of the population over 12 uses voice over DSL (via Freebox, Livebox, or other access-provider based product)
4% of the population over 12 uses Skype or another IM client capable of voice.

Skype 2.0 Release

Skype 2.0 has been released here sporting the following new features according to the FAQ:

"What are the new Skype features [in Skype for Windows 2.0]?

* Best ever call quality.
* One-to-one video conversations with anyone, anywhere in the world.
* Contact list grouping – organize your Skype contacts anyway you like by creating groups for 'colleagues', 'friends' and 'family',etc.
* Mood message and local time display - so your contacts know where you're at and how you feel.
* Improved web presence through Skype buttons - display your Skype status on your blog or webpage."



There is much speculation on fellow bloggers' sites on how Skype is headed for some rough times. First came reports of employee defections after the eBay merger from OM and Andy, then channel canibalization with the incorporation of features that used to be the "sacred garden" of Skype affiliates who invested in R&D hoping for some time before Skype would eventually give it for free.

I would add to that the emergence of a P2P SIP protocol, the release of more SIP compliant hardware such as sub $100 Wifi phones, the competition from Microsoft (which has included a wideband codec in its latest release of MSN) and Gtalk.

In a nutshell, I predict that Skype has acted, not unlike ICQ in its heydays, as a catalyst for mass adoption. It was certainly not the first tool to allow point to point voice and and video chat and PSTN VoIP (MSN has offered it more than 5 years ago in partnership with IconnectHere) but it was the first tool that actually works most of the time and works well.

It is only a matter a time before competition, and especially open source competition, would catch-up and give eBay a run for its billions.

A VoIP Explorer is born !

This weblog covers the Voice Over IP (VoIP) sphere from a practionner's point of view. I will engage our readers in a dialogue about VoIP developments. I contend that VoIP is to voice, what email is to fax, namely a cheaper yet richer way of achieving the same results. On the verge of true mass adoption, I trust we should learn from the past to achieve the fullest potentials of VoIP technologies.

I wish this exchange of ideas to be informative and practical, unbiased and thoughtful, courteous yet incisive. I intend on building a federation of contributors from all horizons to discuss topics where they bring original and thought-provoking point of views. In our discussions, I propose to assume readers are fluent in VoIP, computing and internetworking terminology.

Topics cover VoIP related disruptive technologies, business models and solutions. My first three posts will reflect my views on the economics of the wholesale VoIP business model, I will also explore the last-mile fallacy, and I will attempt the ultimate "one-stop-shop deployment post" with links to all the necessary hardware/software/service providers to get an SME started with VoIP.

I invite you to bookmark this blog as you can expect regular postings and lively discussions around VoIP issues.

A VoIP Explorer is born, long live the VoIP Explorer!