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How can Communications Service Providers benefit from the Digital Economy: 3 Future-State Models

David Sliter.jpg 

A Discussion with David Sliter, VP and GM HP Communications and Media Solutions

 

What is the Digital Economy?

 

Let’s define the digital economy.   Someone’s done this for us on Wikipedia:    

                  

“In this new economy, digital networking and communication infrastructures provide a global platform over which people and organizations devise strategies, interact, communicate, collaborate and search for information.” 

 

To which I would add “people, organizations and machines interact”, since increasingly the digital economy will be about machines interacting without human intervention such as in Machine to Machine (M2M) services where a heart monitor signals a problem to a doctor, a car communicates with the cars around it or a coffee vending machine calls for more coffee. 

 

For the purposes of the telecom ecosystem, we can divide the players simply into two groups – those that provide some aspects of networking and connectivity and those that provide services over this network without providing or having operational control of the network:   so called “Over the Top” (OTT) players. 

Over the Top players include Google, Facebook, Microsoft (Skype, Office 365), Yahoo, Netflix, Hulu and a massive variety of others.  Connectivity providers include Telecommunications companies, fixed and mobile, new entrants such as Google Fiber, Wi-Fi players, Cable operators, Internet Service Providers and more.    As can be seen with groups such as Google Fiber and SK Telecom’s various social media services, cross-over between the two can also occur.

 

What characterizes these two groups and what issues do they face?

 

In one sense there is a synergy between the two since Over the Top players, for the most part, expect ubiquitous connectivity funded by the consumers of their services (i.e.. the end users) – they do not generally fund network connectivity.   Connectivity providers meanwhile benefit from the “always connected” need of their end-users due to the increasingly essential nature of OTT services.  

Connectivity consumers: organizations, businesses, consumers, and machines, increasing want reliable, low cost, mobile connectivity.    For these groups, it is key to provide a tunable connectivity service where the user pays for what they want in terms of bandwidth, quality (latency, jitter, reliability) and they get it predictably.   It is important to note that for some applications such as voice and video, latency also as important as bandwidth.   For some applications, such as distributed sensors, cost will be critical, and bandwidth needs low.

 

The dilemma for connectivity providers is that connectivity consumers are not necessarily prepared to pay for the full cost of this connectivity.      They compare the connectivity costs to the services provided by an OTT, which are often presented as free (even though subsidized – examples:  LinkedIn, Twitter, or Facebook).    So to the consumer it is not clear why they should pay significant amounts of money to connectivity providers when the actual service they want to use the connectivity for is provided, as far as they can see, for free.   An example would be the intense Facebook user who also does messaging via Facebook and uses Facetime or Skype for video and voice calling.

 

Therefore there is constant pressure on connectivity providers to provide a better tuned service, cheaper, and with high reliability.   Meanwhile some of the services the connectivity providers made money on are also being absorbed by Over the Top suppliers – for example voice communication and messaging. 

 

So what is the future for CSPs in this new Digital Economy?

 

Telecom operators, both fixed and mobile, are starting to see declining revenue in developed markets, as voice services become a feature rather than a price per minute service, SMS messaging use declines due to replacement OTT applications, and users expect data service pricing to continue to decline.  In developing markets revenue growth is flattening as new users are coming in on lower cost plans, and existing users expect price declines.

 

However, all is not doom and gloom for the connectivity providers.     It is clear that they are in the middle of this new connected digital economy.   However, less clear is how they should monetize this position.   Ubiquitous connectivity is the common denominator of all of these services.    Connectivity providers provide the connectivity and digital network and therefore many of the business opportunities presented in the digital economy are adjacent markets for them.  

 

This strategy of going after adjacent business opportunities sharing characteristics of the core business has real potential for CSPs as it does for all businesses (see “Beyond the Core” by Chris Zook or “Crossing the Chasm” by Geoffrey Moore).  And some of these markets are expected to see massive growth.   These include content services, Machine to Machine and vertical-specific connected services across many verticals, cloud services for business and personal cloud, home services, mobility for enterprise customers, financial services and more.

   

Furthermore connectivity providers have another valuable asset:  customer data.   Customer data can be monetized in multiple ways, and used to offer better experience for the connectivity providers own services .    

 

I can talk more about both these adjacent markets and customer data monetization since we have some innovative solutions, but I suggest we save it for another interview.

 

Going forward we see a spectrum of business structures for the Communications Service Provider spanning across three key models.  

 

What are these three key business structure models?

 

Within HP we regularly analyze the telecom market with our top strategists.   This year's analysis identified these models and future state.  These three structures form archetypes or models, that we are already seeing characteristics of in many CSPs.   Here are the three structures with their definitions:

 

1) Network Access and Transport business

 

This is a high volume, low margin, highly predicable business which provides connectivity.    Its characteristics are always on, totally reliable and highly cost efficient.   It partners with other network providers and provides services differentiated by SLAs.

 

2) Information and Financial services business

 

This entity provides services based on leveraging both knowledge of the customer and billing and financial services strengths.   This entity will harness a powerful combination of structured big data and unstructured world class context analytic tools to form: compelling promotion services, new revenue streams, a key role in market research, and customer service excellence.   The CSPs strengths in mass billing will be harnessed into a full set of financial services.

 

3) Value-added service incubator or service factory.

 

The CSP becomes a “shopping mall” for services which they can “broker” for enterprise and organizations, as well as consumers.  Some services are CSP-owned, others incubated, and some are invested in, while others are brought on via partnerships.  CSP strengths such as brand, billing relationships, security, bundling, and customer care can be effectively used.  CSPs will partner tightly with OTT providers in this entity to leverage their strengths and build a stronger overall portfolio.

 

A  CSP probably will have some of each of these models and will chose to focus more or less on each based on its own market conditions.  Additionally CSPs are trying many different organizational structures to address these three models – but let’s save that topic for another interview.

 

Rich’s note:  this is the first in a series of blogs addressing the Digital economy and its impact on Communications Service Providers and the telecom industry.

Comments
data center acquisitions(anon) | ‎08-06-2013 08:18 AM

Very useful information,you have shared over here.It would be very beneficial for those,who are looking for starting their career in telecom sector.

 

Thanks for sharing!!!

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About the Author
Richard Arthur has enjoyed the last two decades of the wild ride that has been the communications industry since deregulation. He is curre...
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