Berlin V2

© SmarterMobile Ltd 2009. www.smartermobile.com 1

Paul WadeSmarter Mobile Limited


You get what you pay for - how high quality, reliability and

customer services will secure future revenues


A personal viewThe theme of this conference is around the influence of the OTT

players, specifically the questions posed were:

• Silicon Valley start ups dominate, what can Telco’s do to get back into the game?

• Controlling end to end delivery chain what can we learn from apple?• Voice revenues under threat?• Your branded button• Mobile cloud, customers trust you with their data not Google• Mobile broadband benefits the internet companies dilutes operator brand

and value

In the next minutes I would like to advance some thoughts ( or wild guesses depending upon your point of view!)

I claim no special insight or market influencing opinion just some observations

from someone not originally from the Telco Industry.


Ok, the Mobile industry is run by some very smart people, but it seems there is a popular perception they are not as smart as those at the top of Google or Apple - why?

Take this scenario advanced by the OTT advocates: Smartphone's with internet capability are rising rapidly as a proportion of handset sales, so that in the first three months of this year they made up 47% of sales in western Europe.

This leads to a popular view from the business (for that read investment) community that:

“Throw that forward a few years, and we're all effectively walking around with what are effectively mobile computers in our hands, connected to data networks. Computers? That means we could make a voice-over-internet call, for free, rather than using valuable (and costly) voice minutes. Even better, you could call another mobile (because that's a computer too), and it would be completely free. No roaming charges, no costs! It's the ultimate dream for the everything-must-be-free crew. And Microsoft will be monetising it all.”

Introduction


In practice this means….


So is it fair to say that the mobile carriers have lost the innovation spark to the over-the-top providers?

The perceived wisdom is yes… but it that the case?

For Free?

Why does everyone just assume the networks will be there for them to use,

abuse and plunder at no cost to themselves.

How many business models have you seen from start ups to mature business

that make the assumption that the networks will always be there to run their

services across?

So, Free for one person means a cost to another…..

The end for Mobile operators?


So is it fair to say that the mobile carriers have lost the innovation spark to the over-the-top providers?

The perceived wisdom is yes… but it that the case?

For Free?

Why does everyone just assume the networks will be there for them to use,

abuse and plunder at no cost to themselves.

How many business models have you seen from start ups to mature business

that make the assumption that the networks will always be there to run their

services across?

So, Free for one person means a cost to another…..

The end for Mobile operators?


Back to the questions

Silicon Valley start ups dominate, what can Telco’s do to get back into the game?

What game? Network effects are most enduring when they create unique customer

experiences, not just cost advantages: Skype 170 million active monthly users

provide it with a big cost advantage vs. peer-to-peer rivals, which incur costs through inter-connecting to others’ networks.

Yet low costs are seldom enough to capture new markets, where the nature of the

offering can evolve rapidly. Atari had huge scale economies in video games, yet it

let upstarts like Nintendo and Sega win through creating superior customer experiences.

Technology is forever re-writing the rule book.


at a glance the Microsoft / Skype deal seems to demonstrate the potential for

impressive synergies, as weaving Skype into Microsoft offerings builds powerfully unique propositions across the mobile space

but where is any mention of the available spectrum to manage these services

even mentioned in the valuations placed on these type of deals?

There seems to be the general assumption that Mobile is like the internet, need more capacity? then just lay some more fibre!

Where is this capacity to come from? 4G / LTE ?

OK - but who pays for that and how?

A marriage made in heaven?


Controlling end to end delivery chain what can we learn from apple?Is Apple a good model for the Mobile operators? For example Apple isn’t too

worried about its IPad competing against net books, a product that the company doesn’t make. It is not worried about its ITunes controlling the music industry, it does not “make” music just wants to control access to it.

So should the role of a mobile operator to control the entire eco system?

Think Vodafone Live! and Vodafone branded handsets, or T zones, have they been a real success story?

But would Apple want to control the network user experience, if so how will it

project its “brand values” into something like that.. paint the towers glossy white and have nice logos on them?

So is the Apple model the one to follow?


Voice revenues under threat?

Recent headline: Mobile Carriers Must Accept a New Reality: VoIP Anywhere?

Actually the biggest threat to voice revenues come from the Mobile Networkoperators themselves, after all they can choose to allow VoIP apps on their network or not, what they cannot control is price cutting of basic voice costs from other networks, in particular the growth of the “no frills” MNVO’s, it is these commercial pressures that are driving down voice revenues not VoIP or other similar services that run over data.

And data?

There is an argument that cheap “all you can eat” data plans do fuel VoIP usage and in turn leads to the rapid devaluation of data prices.

However, will this continue? Perhaps not, we now see cracks in this proposition with Carriers dumping the “all you can eat” models for a tiered price

book, so perhaps like other markets, the law of supply and demand will prevail?


Your branded button

Brand ? what brand?

In the consumer space it has been shown that the Mobile operator brand is not

a key driver, the likes of Google, Facebook, YouTube etc have demonstrated that they are far more powerful than any mobile brand.

So what commercial value will a “branded button” have?

Again think of “walled gardens” like Vodafone Live! T-zones…. They have gone the way of the wired internet portals….quietly into oblivion

So does the “Branded Button” concept has more value to a OTT provider giving

direct access to their services?


Or should that be called Apps?

But think Business as well

Where are the true business Apps? Where are Oracle, IBM, Sage etc?


Mobile cloud, customers trust you with their data not Google

But do they? In fact do they trust anyone or everyone?

The market seems to divided along the lines of consumers trust everyone until it goes wrong, and business trust no one until they prove themselves.

A key question is that business drives most of the high value traffic across networks, so will business’s trust the OTT providers? Skype's peer-to-peer nature makes it inherently unreliable. When superpeers fall down, the network degrades fast, as happened last year, with an outage that even Skype couldn't fix due to a subtle bug, because it was on computers it didn't control.

This where the Mobile Operator does have a commercial advantage, it has a network it can control ( but not necessarily own) and fix and a customer care environment to placate the customer, OTT providers don’t and are unlikely to have, the cost is just too great for their business models.


Mobile broadband benefits the internet companies dilutes operator brand and value

Platforms enable new markets:

Technology platforms can create new markets in unexpected ways. The

designers of the first integrated circuits scarcely imagined the mobile phones, let alone the mobile applications, that their invention would

make possible.

Skype, Google and similar companies ( and more as yet unheard of services to come ) are Intermediaries, and intermediaries tend to be disinterested in new markets; they create a near-term hassle and

have uncertain long-term impacts.

No, Intermediaries identify a market opportunity and exploit it ruthlessly even to the detriment of the host it feeds off.


So what have we learned about OTT providers?

Lets look at Skype ( apologies for picking on them again!) , The trouble is that Skype is one of those great internet ideas that can't be integrated into as many places as you might think.

Because even while all of our analogue conversations are being digitised, the phone system is one of those technologies so deeply embedded in our culture that you can't get it out. Try calling people , it is more likely it was

a mobile phone number in your address book, not a Skype handle, that you

looked for.

When you look at Google, it dominates search and search advertising, making maps free, offering mail storage for free, giving away the operating system smart phones. They're all aimed at undercutting anything that puts a price barrier in the way of people getting online, but again will you look for someone’s Gmail user name

or a mobile number?


So what have we learned about OTT providers?

However, both Skype and Google ( and other OTT service providers) need mobile partners to make their business cases work!

The challenge is how the Network operators see themselves… to become a dumb

pipe or not?


As phones get smarter, pipes get dumber.

In the era of app stores and handset makers launching their own Software-as-a-Service (SaaS) offerings, mobile carriers will continue to struggle with the issue of who 'owns' the customer.

Terrified of becoming a dumb pipe reduced to selling commodity voice and data services, some will try to innovate with their own SaaS products, most of which will fail, while the smartest players will partner and invest in innovate start-ups.

So will the switch from 3g standards into all IP network infrastructure (4g) will turn mobile operators to broadband providers? If so, as the pipes get increasingly clogged up carrying all of this data, will the networks will start to focus on and highlight their competitiveness based on the '3 Cs':customer service, coverage and capacity, and step away from large-scale portal, application and media development efforts?


The Value, Role and Performance of the Mobile Operator

In an era when interactions—both personal and commercial—increasingly are carried out in the digital world, many executives of mobile-oriented businesses are wondering what the role of the operator will be in the future.

They are also wondering how they should structure this channel to help drive customer loyalty, competitive differentiation and, ultimately, profitable growth.

It is fact that many vendors of mobile phones are making dual SIM smartphones and Apple is rumored to be working on an iPhone that allows

you to choose from a variety of mobile operators in your locale.

This echo’s the explosive growth in the fixed internet when PC manufacturers started shipping hardware “pre-programmed” with a choice of ISP providers that allowed the buyer to choose their connection they wanted. This commoditized the service and retained the device manufacturers Brand equity.


AppleInsider reports: “A patent recently granted to Apple could wrest power away from the wireless carriers by creating a mobile virtual network

operator (MVNO) system that would allow networks to bid against each other over wireless services provided to iPhone users.”

So we are heading towards a world of mobile dumb pipes…?

Does it add up? Who will pay for network investment?The fundamental issue of how to deliver content and services is one that continues to dominate the industry– and the future take-up of advanced (bandwidth-hungry) services is dependent on this infrastructure being in place.

Given the average cost of deploying a tower is in excess of $100,000 plus running costs for up to 25 years, the cost of establishing new network infrastructure runs into 000’s of millions, this is a cash hungry business to be in and investors want a profit. Ultimately, the consumer has to pay.


However, if the consumer will have to pay “commercial “ prices for Google, Skype etc who in turn will have to pay for all that network investment, will they depart in droves to seek other “free” services?

If so, what will the diminishing audiences have on the advertising revenues of the

OTT providers, how will that effect the balance of power between the OTT providers and the mobile operators?

Consider the idea that in fact despite the hype, financial power and brand, the OTT providers are in fact transitory animals and the enduring element of the mobile ecosystem is the Network itself, in the end no network = no services

= no Google, no Skype etc

The industry must adapt to new business models to pay for the ever increasing demands for more network capacity…. question remains ,


How?

Let’s look at an example


This is what customer’s think they want


This is what they specify

“Pull together all information you have, we will select the best afterwards”


This is what the customer’s really need


What MNO’s manage to do


A segmented approach

In my own area of experience I think one battle ground will be around the

high value customers, and in most markets that means Business users. Can a

Google or Skype provide the service a business needs?

Lets examine the demand side

Is there a revenue opportunity?


the Segment Profile

• Fast – track decision makers, when the business case merits it.

• Early adopters of new products and services.

• Relatively consistent needs across business size and vertical –– Network quality – Value for money– Effective Problem resolution– Expert Technical support

• Critical applications are -– E-Mail from Lap tops, tablets and Smart phones– Access to IT systems for sales force– Access to IT systems for field service– M2M services


Yes - businesses are different to consumers

• They do not view Mobile as a product or service, to them it is a commodity and one they have to buy out of necessity to run their businesses.

• They are virtually unaffected by Brand, they take telephony as a given in much they same way as water, electricity or other utilities.

• They are not interested in bearer technology, they would be just as happy using Fixed, Mobile, VoIP, WiFi providing it is cheap, reliable and meets their needs.

• They are not interested in Tariffs only the bottom line cost.

• They do not understand the Telco’s obsession for trying to differentiate between Voice and Data, to them it is all one.

• They are not really interested in applications if they need configuring.

• They are too busy running their businesses to have time to learn all about Telco products and services.


and are difficult to deal with!


Customer Positioning

Value attributes (of target segment)

Low Industry standard High

Price attractiveness

Simplicity of offering

Ease of paying, recharging

Handset subsidy

Handset portfolio relevance

Appropriate tariffs

Relevant services

Channel

Customer services

Loyalty programs & Incentives

Network quality

Branded ServiceBusiness MVNO No-Frill Service


Confusing?

Value attributes (of target segment)

Low Industry standard High

Price attractiveness

Simplicity of offering

Ease of paying, recharging

Handset subsidy

Handset portfolio relevance

Appropriate tariffs

Relevant services

Channel

Customer services

Loyalty programs & Incentives

Network quality

Branded ServiceBusiness MVNO No-Frill Service

? ? ? ?

? ? ? ? ?


The future?

So ask yourself is Google, Apple or Skype likely to want to step into this arena?

Well not unless they buy the network, and then can they bring their “lean & mean” type of operational style to play?

Or will they will probably end up at as MVNO’s as the highest point in the Mobile the value chain:


MVNO Business Models:

MNO

Radio Network(Access)

Net-ID(own IMSI

own MSISDN)

Switching and Transport(own HLR,

MSC)

Service Platform

Customer Contact

Base Product

Service Provider

Customer Contact

Base Product

Enhanced Service Provider

Additional Service Aspects

Customer Contact

Base Product

Quasi MVNO


MSC)

Service Platform

Customer Contact

Base Product

Full MVNO

Net-ID(own IMSI

own MSISDN)


MSC)

Service Platform

Customer Contact

Base Product

Re - Seller

Base Product

Hybrid Business Models

Pure MVNO Model

ResellerModel

RevenueMargins

Investment

Risk

The likely OTT MVNO space


So I my opinion, the Skype's, Facebook’s, Google’s ( and who ever comes after them) will still need the Network Operators.

And like the Lions at the circus, they will be entertaining, dangerous and manageable.

But, just don’t turn your back on them or they will bite!


Smarter Mobile LimitedWainscot, Heath Road, Warboys, Huntingdon,

Cambridgeshire PE28 2UWCompany registration Number: 6826239

Thank you.

Berlin V2

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