Convergence: User Expectations, Communications Enablers and Business Opportunities (Telecoms Explained)

CONVERGENCE

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

C. Saxtoft

Written by people in the know, the Telecoms Explained Series for Telecoms Professionals will • Demystify the jargon of wireless and communication technologies • Provide insight into new and emerging technologies • Explore associated business and management applications • Enable you to get ahead of the game in this fast-moving industry Written in a concise and easy-to-follow format, forthcoming titles in the series include the following: Triple Play: Building the Converged Network for IP, VoIP and IPTV Hens & Caballero ISBN: 978-0-470-75367-5 Why IPTV? Interactivity, Technologies, Services Hjelm ISBN: 978-0-470-99805-2

CONVERGENCE User Expectations, Communications Enablers and Business Opportunities Christian Saxtoft

Copyright © 2008

John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone +44 1243 779777

Email (for orders and customer service enquiries): [email protected] Visit our Home Page on www.wiley.com All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to [email protected], or faxed to (+44) 1243 770620. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The Publisher is not associated with any product or vendor mentioned in this book. All trademarks referred to in the text of this publication are the property of their respective owners. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. All opinions expressed in this book are the author’s own and do not necessarily represent the official view of Nokia Siemens Networks. Other Wiley Editorial Offices John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr. 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 6045 Freemont Blvd, Mississauga, ONT, L5R 4J3, Canada Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978-0-470-72708-9 (PB) Typeset in 10/12pt Optima by Integra Software Services Pvt. Ltd, Pondicherry, India Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, England. This book is printed on acid-free paper.

Many thanks to my family, friends and colleagues for their incredible patience, inspiration and help.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xiii

List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . .

xix

PART I: EXPERIENCE OF THE END-USER

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1

Chapter 1:

Communications in a User Perspective . . . . . . . 1.1 History of the Communications Services Users 1.2 The ‘Long Tail’ . . . . . . . . . . . . . . . . . 1.3 A Fragmented User Community . . . . . . . . 1.4 Knowledge: A Human Resource . . . . . . . . 1.5 Summary . . . . . . . . . . . . . . . . . . . . 1.6 References . . . . . . . . . . . . . . . . . . .

3 4 6 10 11 15 16

Chapter 2:

The Convergence Culture Square . . . . . . . 2.1 Different Dimensions to Convergence . 2.2 Social Changes . . . . . . . . . . . . . . 2.2.1 Consumer Production . . . . . . 2.2.2 A Participatory Culture . . . . . . 2.3 Convergence in Thinking . . . . . . . . 2.4 Change Management Challenges . . . . 2.5 Value Perception . . . . . . . . . . . . 2.5.1 Management of User Expectations 2.5.2 Terminal-Based Services . . . . . 2.6 Summary . . . . . . . . . . . . . . . . . 2.7 References . . . . . . . . . . . . . . . .

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17 17 19 19 20 23 24 25 26 28 29 29

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31

PART II: CONVERGENT BUSINESS MODELS Chapter 3:

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Market Trends and Predictions . . . . . . . . . 3.1 Towards End-User Focus . . . . . . . . . 3.2 Changing Patterns in the Communications Industry . . . . . . . . . . . . . . . . . . 3.2.1 Classification of CSPs . . . . . . . 3.2.2 User Behaviour . . . . . . . . . .

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33 33

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34 35 36

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Contents

3.3 3.4

3.5 3.6 3.7

Important Market Characteristics . . . . . . . Value Systems in the Communications Industry 3.4.1 Sustainable Competitive Advantage . . 3.4.2 Brand Value . . . . . . . . . . . . . . 3.4.3 Psychological Factors that Influence Consumers . . . . . . . . . . . . . . . 3.4.4 End-User Influence on the Value System . . . . . . . . . . . . . . . . . Value Grid in the Communications Industry . Summary . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . .

37 39 41 41 43 44 45 48 48

Chapter 4:

Structures and Strategies . . . . . . . . . . . 4.1 The Competitive Environment . . . . . . 4.2 Diminishing Control . . . . . . . . . . 4.3 Web 2.0-Driven Business Models . . . . 4.4 The Sphere of Influence . . . . . . . . . 4.5 User Expectations . . . . . . . . . . . . 4.6 Advertising . . . . . . . . . . . . . . . . 4.6.1 Contents-Sensitive Advertising . . 4.6.2 User Privacy Versus User Benefits 4.6.3 Respect for the User . . . . . . . 4.7 Summary . . . . . . . . . . . . . . . . . 4.8 References . . . . . . . . . . . . . . . .

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51 51 54 55 57 60 64 65 68 70 71 72

Chapter 5:

Strategic Opportunities . . . . . . . . 5.1 Generic Business Strategies . . . 5.2 Quality Versus Cost: A Trade-Off 5.3 ‘Lean Operator’ and Beyond . . 5.4 Summary . . . . . . . . . . . . . 5.5 References . . . . . . . . . . . .

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75 76 78 81 82 83

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85

PART III: TECHNOLOGIES AND SERVICES Chapter 6:

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Enabling Technologies . . . . . . . . . . . . . . 6.1 Core Network Technologies and Systems . 6.1.1 IP Multimedia Subsystem . . . . . 6.1.2 Service Delivery Framework . . . . 6.2 Access Network Technologies and Systems 6.2.1 Fixed-Line Access . . . . . . . . . 6.2.2 Wireless Access . . . . . . . . . . 6.3 Consumer Products . . . . . . . . . . . . 6.3.1 Mobile Terminal Evolution . . . . . 6.3.2 Home Entertainment Hub . . . . .

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87 88 88 91 92 92 94 97 98 99

6.4 6.5 Chapter 7:

Contents

ix

Summary . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . .

101 102

Convergent Services and Systems . . 7.1 Services on Mobile Terminals . 7.2 Television and Video Services . 7.2.1 IPTV . . . . . . . . . . 7.2.2 Internet Video . . . . . 7.2.3 Mobile TV . . . . . . . 7.2.4 Digital TV Broadcasting 7.3 Other Convergent Services . . 7.3.1 Music Downloading . . 7.3.2 Radio Listening . . . . . 7.4 Fixed-Mobile Convergence . . 7.5 Summary . . . . . . . . . . . . 7.6 References . . . . . . . . . . .

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PART IV: BUSINESS PROCESSES IN CONVERGENT COMMUNICATIONS MARKETS . . . . . . . . . . . . . Chapter 8:

Management of Convergent Services . . . . . 8.1 Enterprise Software Environment . . . . 8.1.1 Customer Relationship Management . . . . . . . . . . . 8.1.2 Enterprise Resource Planning . . 8.1.3 Operations Support Systems . . . 8.1.4 Business Support Systems . . . . 8.2 Enterprise System Integration Challenges 8.2.1 Enterprise Architecture Frameworks . . . . . . . . . . . 8.2.2 Service-Oriented Architecture . . 8.3 Enterprise Process Optimization . . . . 8.3.1 Telecommunications Process Framework . . . . . . . . . . . . 8.3.2 IT Process Framework . . . . . . 8.3.3 Cross-network Optimization Challenges . . . . . . . . . . . . 8.3.4 Process Mapping . . . . . . . . . 8.3.5 Simplified Process Loops . . . . . 8.4 Methodologies for Business Process Optimization . . . . . . . . . . . . . . 8.4.1 Business Process Management . . 8.4.2 BPM Automation . . . . . . . . . 8.5 Summary . . . . . . . . . . . . . . . . . 8.6 References . . . . . . . . . . . . . . . .

103 104 106 106 108 108 109 110 110 111 111 113 113

115

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117 118

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120 122 122 124 124

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126 127 129

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129 131

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132 135 136

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139 140 142 142 143

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Contents

Chapter 9:

New Business Opportunities . . . . . . . . . . . . 9.1 The Network – a Managed Dynamic Business Asset . . . . . . . . . . . . . . . . . . . . . 9.1.1 Business Opportunity Management . 9.1.2 A Business Management Paradigm Shift . . . . . . . . . . . . . . . . . 9.1.3 Business Data Requirements . . . . 9.2 Knowledge Based Organisations . . . . . . 9.2.1 Scarcity of Network Capacity . . . . 9.2.2 Scarcity of Service Innovation . . . 9.2.3 Scarcity of Customer Attention . . . 9.2.4 Scarcity of Business Evolution . . . 9.3 Opportunities in Outsourcing . . . . . . . . 9.4 Summary . . . . . . . . . . . . . . . . . . 9.5 References . . . . . . . . . . . . . . . . . .

145 145 146 147 148 149 151 153 157 158 161 162 163

Chapter 10: Management of User Expectations . . . . . . . . . 10.1 Mobile Terminals and Convergence of Services . . . . . . . . . . . . . . . . . . . 10.2 Control of End-User QoE . . . . . . . . . . 10.3 Terminal Characteristics and User Preferences . . . . . . . . . . . . . . . . . . 10.4 CSP Crossroads . . . . . . . . . . . . . . . 10.5 Summary . . . . . . . . . . . . . . . . . . 10.6 References . . . . . . . . . . . . . . . . . .

170 174 175 176

Chapter 11: Billing and Convergent Charging . . . . . . . . . . 11.1 Convergent Charging System Architecture . 11.1.1 Hybrid Tariffs . . . . . . . . . . . . 11.1.2 Mobile Payment . . . . . . . . . . 11.2 Standardized Charging and Billing Frameworks 11.3 Data Sources in Charging and Billing Systems 11.3.1 Charging Data . . . . . . . . . . . 11.3.2 Billing Data . . . . . . . . . . . . . 11.4 Summary . . . . . . . . . . . . . . . . . . 11.5 References . . . . . . . . . . . . . . . . . .

177 178 180 181 182 183 183 184 185 186

PART V: CONVERGENCE AND BEYOND . . . . . . . . . . . .

187

Chapter 12: Innovation and New Opportunities . . . . . 12.1 Categories of Innovation . . . . . . . 12.1.1 Scope of Innovation Processes 12.1.2 Depth of Innovation Processes 12.2 Methods to Facilitate Innovation . . . 12.2.1 Execution Processes . . . . . 12.2.2 Creativity Processes . . . . . .

189 190 190 191 192 193 194

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165 166 167

Contents

12.3

12.4

12.5

12.6 12.7

Innovation Frameworks . . . . . . . 12.3.1 Theory of Inventive Problem 12.3.2 Organizational Challenges . Convergence of Experience . . . . . 12.4.1 Human Interfaces . . . . . . 12.4.2 Social Networking . . . . . Future Trends . . . . . . . . . . . . 12.5.1 Beyond Web 2.0 . . . . . . 12.5.2 Crossing the Line . . . . . . Summary . . . . . . . . . . . . . . References . . . . . . . . . . . . . .

. . . . Solving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 13: The Future of Communications . . . . . . . . 13.1 A Different Paradigm . . . . . . . . . 13.1.1 Changes to the Value Chain . 13.1.2 Convergence Culture . . . . . 13.2 The New Challenges . . . . . . . . . . 13.2.1 The Competence Trap . . . . 13.2.2 Eight Primary Challenges and Opportunities . . . . . . . . . 13.2.3 Overview of Challenges and Opportunities . . . . . . . . . 13.3 The New Horizons . . . . . . . . . . 13.4 Summary . . . . . . . . . . . . . . . 13.5 References . . . . . . . . . . . . . . .

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xi

195 196 198 199 199 200 201 202 203 205 206

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207 208 209 214 215 215

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217

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221 222 223 223

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

225

. . . .

Introduction

Over recent years, a plethora of articles and books have been published about exciting new communications technologies and the new trends that are sweeping across our society with promises of massive changes to the life of every one of us. Discussions have flourished at tradeshows, at workshops, in newspapers, as well as in the broadcast media, and in line with the strong changes heralded in blogs, wikis, podcasts, etc., this has significantly broadened the scope, widened the range of participants and shortened the discussion cycles from commentary-to-response-to-answer-to-new-ideas. For those professionally involved in the evolution of the underlying technology or to the technology savvy end-user who thrives with the new opportunities to express, to consume and to learn, these changes to society driven by new communications technologies will carry their own inherent logic and justification. It is not necessarily technology for the sake of it that drives the enthusiasm and the progress amongst this elite core of front runners. It is as much a joint strong feeling that somewhere in this jungle of new technology-enabled opportunities lie the grains – or already grow the saplings – of profound changes to society, as we know it. A fully connected world will soon become reality with all knowledge (from open sources) ever created by humanity available instantly to everyone everywhere. Behind the innovators and early adopters of new trends and technology, the notion of ‘the long tail’ is an interesting illustration that the baton of changes has already been carried on to the mainstream market. For many so-called ordinary people, not deeply engaged in the technology evolution as such, the new applications and opportunities stand out as extraordinary and are vigorously embraced. Some of the most surprising and extraordinary consequences of the technological evolution are the new opportunities for creation of collective intelligence – effectively knowledge created from the collaboration of many individuals with no formal relationship other than a collective interest in, and knowledge of, particular subjects. Critical mass is created in areas where formal recognized knowledge may be thinly spread across many people who are not otherwise affiliated. The simple amazing fact is that this concept can work incredibly well, of which Wikipedia, the free online encyclopaedia, is a prominent example. Now, ‘convergence’ has been heralded as the next big thing, and most people would argue that it is already happening. Later in this book, much attention will be paid to the definitions, history, present and future of this

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Introduction

most interesting topic, but first it is worth reminding ourselves where the real focus must be – namely on all of us, the consumers and the potential users. Arguably, advances such as the creation of the Wikipedia online encyclopaedia have been fuelled by technology but this is obviously a much too simplistic view. The lower price of access and the improved quality of interaction have been effective in reducing the barrier to communication, collaboration and creativity. This in turn has led to the synergy effects that have spiralled the advances well beyond anyone’s expectations only a few years back. At a first sight, this dynamic environment of evolutionary and revolutionary changes mixed in a complex blend seems to indicate that the longer-term changes cannot be predicted with much accuracy. In the communications industry amongst technology vendors and service providers, there is a growing realization that the main changes and trends of the future will be driven from the end-user community but obviously still be supported and underpinned by new generations of technology. A major objective throughout the history of communications technology has obviously been to focus on the customers and remove the hassle of understanding technology intimately to be able to use it. An important design mantra has been that technology should not get in the way of the services and applications it is designed to deliver. The irony is now that as the entire supply system is rapidly getting closer to fulfilling this ambition, the traditional role of the service provider as a driver is likely to be weakened. In other words, the power is shifting downstream in the value system. The end-user is becoming the true ‘king of the castle’. This newly gained power by the end-users has fundamental ramifications for all the present players in the communications industry. The business organizations, business models and business objectives are being changed fundamentally. The legislative monopoly status of the service providers has long gone in most markets and in most communications industry sectors, but with the technology monopoly also waning, the competition will increase significantly. This is one of the most interesting knock-on effects of convergence for the supply part of the industry – equipment vendors and service providers alike. For the end-user, the new world order in communications means a degree of freedom in choice not experienced before. The way individuals will decide to exercise this freedom to choose will be the single most important factor in determining the future of communications. This book sets out to analyse ‘convergence’ from the perspective of the empowered end-user. The concerns and expectations of convergence across a wide sweep of the population would be significantly different from the technology innovators such as professional developers and early adapters amongst the user community. (This is hypothetically assuming they share the same understanding of this terminology.) Managers in the communications industry, nontechnologist industry players, as well as nonprofessional users will have a number of the same simple questions to ask about how

Introduction

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communications will or can evolve over the next decade. Simple questions that are complicated to answer like the following: • Prices seem to drop rapidly. Will all my communications services be free one day? • The technical possibilities seem limitless. Where will it all end? • It is all very interesting but will it be useful to me? (‘I am not sure I want video-telephony!’). These questions, formulated in business terms, would summarize some of the biggest concerns with the incumbents in the communications industry. What is the essence of the experience offered to the users? What are the viable business models in the future? Who ‘owns’ the relationship with the subscribers? These questions cannot be answered and addressed solely from a technology point of view or an economic point of view. A new insight into the dynamics of the market is required, and a fundamental change of the mindset across the entire range of affected industry players is needed. This is indeed challenging and exciting times. By addressing the complicated subject of convergence from the end-user perspective, the amount of hard technical information in this book has deliberately been reduced to the point where enough detail is available to analyse the impact of technology on the organization of the industry, the business models and (most importantly) the end-user. However, the intention is not to provide a full picture of all available technologies and standards. Where more details may be required about existing and emerging technologies, references are provided to a host of comprehensive textbooks (e.g. [1–3]). The communications market can, broadly speaking, be seen to include three main segments, namely telecommunication technology and services, information technology and services and entertainment technology and services. Convergence noticeably means that these main segments are coming together, but the same is also true for the more fine grain areas within these main segments (e.g. in telecommunications, notably the areas of broadband, fixed and mobile). The whole spectrum of convergence is the wide topic of this book, and the main technologies, market models and user expectations will cover all of the main industry segments. The widest perspective on the communications market and sometimes even the wider media, consumer electronics and IT industries are often required in the analyses to highlight important trends in the market. The book is divided into five parts: Part I focuses on the most important participant in the convergence process, namely the end-user. In Chapter 1, the role of the users in shaping the new world of communications is addressed, and the impact on the industry is analysed in the light of the varied ability and different preferences of users across the entire population. Chapter 2 takes a close look

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at the concept of convergence to illustrate how active user participation is creating a participatory convergence culture. Convergence is shown to create important new crossroads between different areas of expertise, different business models and different user experiences. The use of quality-of-experience as a measure of the perceived customer value is discussed. Part II takes a broad look at the converging business models and the corresponding challenges and opportunities for the different players in the market. Chapter 3 outlines some of the main trends and transformations in the communications market, with focus on changes to the distribution of market power across the value chains and systems. Chapter 4 dives deeper into the fundamental changes to the business models and analyses some of the key drivers and opportunities that originate in changing consumer expectations. Chapter 5 summarizes key strategic management challenges and trade-offs that service providers and equipment vendors typically face. The different challenges across various industry segments are evaluated and compared. Part III turns the attention towards the communications technology enablers. Whilst the aim is not to cover every existing and future technology, some of the most important candidates for future convergent network architectures are analysed. In Chapter 6, the core switching network technologies and systems are outlined. Particularly, the different roles of the IP Multimedia Subsystem and the Service Delivery Framework are discussed. Access network technologies and terminals are covered with a particular view to the impact on the end-user experience. In Chapter 7, the services platforms and the actual convergent services are described. Fixed-mobile convergence is outlined in context of the wider perspective of communications industry convergence. Part IV dives deeper into the intricacies of the business processes in convergent communications markets. In Chapter 8, the complex environment of enterprise software with communications service providers is scrutinized. The integration challenges are addressed and different methods for optimization and automation are analysed and compared. In Chapter 9, the existing network operations experiences are examined with a view to using this unique knowledge for creation of new business opportunities. A number of structural requirements for exploring opportunities beyond ‘traditional thinking’ are defined. In Chapter 10, the important discipline of managing customer expectations is introduced. The requirements of multicapable user terminals are examined. In Chapter 11, the significance of convergence in the charging and billing systems is highlighted, and the sources of customer data are briefly analysed. Part V highlights and categorizes the main problems and opportunities with convergence and discusses the strategic options. In Chapter 12, the main challenges and requirements of enabling organizational innovation to support the process of seeking new business opportunities are analysed. In

Introduction

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addition, a look in the ‘crystal ball’ reveals some of the future technological opportunities and possible social trend. In Chapter 13, the important findings in the book are structured into a ‘survival kit’ that outlines and put in context a number of the challenges that convergence bring. In the final condensed summary section that concludes the book, the findings and recommendations are highlighted. Over the last couple of years, consumers have really started to feel the impact of convergent communications services. At the terminal level, phone calls can now be made via PCs over the Internet and the Internet can be accessed using mobile terminals; equally, television and radio programmes can now be enjoyed over both broadband connected PCs and mobile terminals. Also, at the operator level, the distinction between ‘broadcaster’, ‘mobile operator’, and ‘fixed-line operator’ and ‘broadband provider’ is blurring – in each case, there are examples of industry players ‘bundling’ services together in new innovative ways in an effort both to attract and to retain customers. Blogs, books, analysts, interviews and comments from across the communications industry convey a distinct feeling of being at the beginning of a fundamental change process. This process goes way beyond the communications industry and affects some of the core pillars our society is built upon, crudely summarized in the megatrends of personalization, democratization and globalization. With this book, the intention is not to take on the full challenge of analyzing the impact of convergence in communications on our civilization. It is the aim though to illustrate how this convergence inspired evolution of communications technology and communications business models can be understood and in the end driven from the insight gained by a wider outlook to the interaction with users and the society in general. The technology-centred business mindset that still lingers within many of the business segments in the communications industry is bound to wither away when convergence multiplies technology choices and competition intensifies. Understanding what is happening by drawing on the wide range of experiences and skills from business studies, economics, technology and the fields of softer social sciences, all seen in the context of convergence in communications, is exactly the focus of this book.

References [1] Hanrahan, H. (2007), Network Convergence – Services, Applications, Transport, and Operations Support, John Wiley & Sons, Ltd. [2] Poikselkä, M. et al. (2006), The IMS – IP Multimedia Concepts and Services, John Wiley & Sons, Ltd. [3] Dahlman, E. et al. (2007), 3G Evolution – HSPA and LTE for Mobile Broadband, Academic Press.

List of Abbreviations 3GPP ADM ADSL Ajax API ARPU AS ATIS BBC BCC BPM BPR BSC BSS BT CAPEX C-B-S CDR CMIP CMO CO-OP CORBA CRM CSC CSCF CSP CTAM CTO DIY DLNA DMO DSLAM DVB-H DVB-T e2e EAI EDGE EPC EPG ERP

Third-Generation Partnership Project Architecture Development Method Asymmetric Digital Subscriber Line Asynchronous JavaScript and XML Application Programming Interface Average Revenue Per User Application Server Alliance for Telecommunications Industry Solutions British Broadcasting Corporation Business Control Centre Business Process Management Business Process Re-engineering Base Station Controller Business Support Systems British Telecom Capital Expenditure Clarity-Brevity-Sincerity Call Detail Record Common Management Information Protocol Chief Marketing Officer Co-Operative Open OSS Project Common Object Request Broker Architecture Customer Relationship Management Computer Sciences Corporation Call Session Control Function Communications Service Provider Cable and Telecommunications Association for Marketing Chief Technology Officer Do It Yourself Digital Living Network Alliance Direct Marketing Organization Digital Subscriber Line Access Multiplexer Digital Video Broadcasting – Handheld Digital Video Broadcasting – Terrestrial end-to-end Enterprise Application Integration Enhanced Data Rates for GSM Evolution Evolved Packet Core Electronic Programme Guide Enterprise Resource Planning

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List of Abbreviations

ESB eTOM ETSI FCAPS

Enterprise Service Bus enhanced Telecoms Operations Map European Telecommunications Standards Institute Fault, Configuration, Accounting, Performance and Security FMC Fixed-Mobile Convergence FSF Free Software Foundation GAN Generic Access Network GBA Global Billing Association GDMO Guidelines for the Definition of Managed Objects GGSN Gateway GPRS Support Node GPL General Public Licensing GPRS General Packet Radio Service GSM Global System for Mobile Communications GUI Graphical User Interface HDPA High-speed Downlink Packet Access HDTV High-Definition Television HSS Home Subscriber Server HTTP HyperText Transfer Protocol hw hardware ICT Information and Communications Technology IEEE Institute of Electrical and Electronics Engineers IIMA International Internet Marketing Association IM Instant Messaging IMS IP Multimedia Subsystem IP Internet Protocol IPDR.org Internet Protocol Detail Record Organization IPTV Internet Protocol TeleVision IT Information Technology ITIL IT Infrastructure Library itSMF IT Service Management Forum ITU International Telecommunications Union ITU-T Telecommunication Standardization Sector of the ITU ITV Independent Television iTV interactive TeleVision Kbps Kilobits per second IVR Interactive Voice Response KPI Key Performance Indicator KQI Key Quality Indicator LAN Local Area Network LTE Long-Term Evolution MBMS Multimedia Broadcast and Multicast Services Mbps Megabits per second MMA Mobile Marketing Association MMS Multimedia Messaging Service MSC Mobile Switching Centre

List of Abbreviations

NGOSS New-Generation Operations Systems and Software NPVR Network Personal Video Recording OASIS Organization for the Advancement of Structured Information Standards OBF Ordering and Billing Forum OGC Office of Government Commerce OMA Open Mobile Alliance OPEX Operational Expenditure OSS Operations Support Systems OWL Web Ontology Language PDA Personal Digital Assistant PoC Push-to-talk over Cellular POTS Plain Old Telephone Service QAM Quadrature Amplitude Modulation QoE Quality of Experience QoS Quality of Service RDF Resource Description Framework RFID Radio Frequency Identification RPC Remote Procedure Call RTP Real-time Transport Protocol SDF Service Delivery Framework SDP Service Delivery Platform SDTV Standard Definition TeleVision SFAS Sales Force Automation Systems SGSN Serving GPRS Support Node SIP Session Initiation Protocol SLA Service Level Agreement SMS Short Message Service SNMP Simple Network Management Protocol SOA Service-Oriented Architecture SOAP Simple Object Access Protocol STB Set Top Box sw software TM Tele Management TMN Telecommunications Management Network TOGAF The Open Group Architecture Framework TQM Total Quality Management TRIZ Theory of Inventive Problem Solving UDDI Universal Description, Discovery and Integration UMA Unlicensed Mobile Access UMTS Universal Mobile Telecommunications System UPnP Universal Plug and Play URL Uniform Resource Locator USSD Unstructured Supplementary Service Data VCC Voice Call Continuity VDSL Very-high-speed Digital Subscriber Line VoIP Voice over IP

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List of Abbreviations

W3C WAP WCDMA WiMax WS WS-BPEL WSDL WS-I XML

World Wide Web Consortium Wireless Application Protocol Wideband Code Division Multiple Access Worldwide Interoperability for Microwave Access Web Services Web Services Business Process Execution Language Web Service Description Language Web Services Interoperability Extensible Markup Language

PART I EXPERIENCE OF THE END-USER

There is rich history of technology-driven progress in the communications industry. The users though have rarely had much direct influence on the advances made. Arguably, the voice of the user is stronger just now than ever before during the history of communications, a fact that can be attributed to the growing variety of alternative technical solutions as well as a general change in user expectations towards more individual involvement. Fundamental questions are being asked about the direction this new role of the end-user will take. Who the hell wants to hear actors talk? H.M. Warner, Warner Brothers, 1927

Part I (Chapters 1 and 2) of this book looks at the increasingly important role of the end-user in setting the agenda for the entire industry. The times of centralized planning of end-user contents and services by the communications service providers may be disappearing. In Chapter 1, a brief history of communications services and the end-user requirements leads on to an analysis of the situation today with unprecedented levels of user interaction. At the same time, the user community is becoming more fragmented with skills and interests varying hugely between different customer segments.

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Convergence

In Chapter 2, the concept of convergence is being scrutinized. The importance of combining previously distinct specialist fields and subjects to understand the new opportunities offered by convergence is analysed. In addition, the customer expectations related to the services provided are analysed in relation to the obtained customer value.

Chapter 1: Communications in a User Perspective The communications industry has a long proud history of technology development and deployment. From drums and signal beacons to optical fibre, high-definition television (HDTV) and the Internet in a few thousand years is no negligible achievement. Arguably, the communications industry is amongst a selected band of highly innovative industry segments that continuously have had a profound impact on the development of our civilization. More significant and breathtaking achievements certainly lie ahead of us, and this book will be a testament to this effect. The technologies, which underpin this amazing development, often become the natural centre of attention. Just think of optical fibres and lasers with the capacity of millions of telephone calls, or mobile satellite communications to anywhere on the globe, or Internet access to almost unlimited sources of information on billions of Web pages. This is of course some of the highlights of recent years; the inventions in the early years of the communications industry must have been received by just as much amazement. When Alexander Graham Bell in 1876 received the first of his patents for what would soon after be developed into a telephone, a revolution of interest into this new technology saw his company, which was to become a forerunner of AT&T, soon propelled to prominence (albeit

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Convergence

after the apparently obligatory rocky start). In 1901, Guglielmo Marconi established wireless communication between Britain and the United States. Commercial television transmissions started in the 1940s. In the 1950s, the compact transistor radio followed suit. Later, the evolution of the Internet in the 1980s was followed by the development of the World Wide Web in the early 1990s. The first global system for mobile (GSM) call was made in Finland on the Radiolinja network in 1991, and in 2001 the first 3G mobile network began live operation [1].

1.1

History of the Communications Services Users Now, this was a quick history of technology and some of the famous people who made it happen. Whilst this may possibly be kindling enthusiasm and interest with engineers, computer scientists and historians alike, it is obviously a narrow technology-focused account of the historic development of communications. The users and their requirements are the first ports of call in this book. The aim is to analyse and understand the user requirements and the dual role of the user in the value system as consumers/users and producers. Whilst this may seem natural today, the logic and incentives for addressing user requirements have significantly changed during the history of communications. Communications dates back to the times when the first ‘modern’ humans began roaming the earth several 100 000 years ago. The earliest cave paintings are some 30 000 years old, and writing came about in Egypt about 4000 years ago when the world’s oldest known (hieroglyphic) alphabet was developed. Sign language aside, the human mastery of speech has obviously meant much easier coordination and cooperation, support of technological progress and development of formalized science. This capability has been right at the centre of the success we have had in conquering the world geographically and in building up complex civilizations. The messages passed on through speech became increasingly rich and allowed humans to adapt themselves to new environments – or adapt the environments to them – much quicker than was possible before. As societies evolved, the variety and means of communications obviously grew. Rock carvings, cave paintings, tales, songs, smoke signals, signal lamps, maritime flags, books, courier, newspapers and postal systems ensued. The development and proliferation of new means of communication obviously follow various trends of evolution in society and technology. Increasingly though, the communications capabilities would rely on the organization and coordination within larger communities of people like families, guilds, villages,

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societies, companies and governments. For example, postal mail systems require a significant degree of coordination and synchronization across wide geographies as well as innovative concepts, like the stamp, to function efficiently. In short, the users steadily became fully reliant on common systems for all but the most basic of communications requirements, and for good or bad, monopolies grew and prospered. With progress in technology, the first electrical telegraphs came into operation during the first half of the nineteenth century. The rest is history; so to speak, the modern communications world as we know it was born. However, for the general public, that is for the users, the fundamental dependency on big elaborate systems for communications was, as argued above, founded a long time before. Users increasingly became members or subscribers ‘wired’ into frameworks offered by specific companies who would in turn guarantee a certain (albeit often unspecified) quality-of-service (QoS). Government-owned monopolies or government-granted monopolies were created in the communications industry for a number of reasons and likely with a different mix and weight of motives in different countries: • establish an incentive to invest significantly in infrastructure; • create a means to ensure wide population coverage; • maintain control of an important strategic asset and public good; • ensure a reasonable share of the profits. In these new industry structures, the best interest of the individual user was often not at the top of the agenda. ‘The system’ itself would appear to be the main objective rooted deeply in the monopoly mindset often focused on providing a certain set of standard services to the general public. In most geographical markets, this rigid market pattern is obviously changing very rapidly now. Customer focus has been a mantra in wide parts of the communications industry for a decade or two. Personalization of terminals and services has surely progressed at a stunning speed. Still, a looming question is how deeply these changes have penetrated into the genes of the industry yet and fundamentally changed the thinking, the planning, the organizations and the company cultures. Obviously, history is an important source of learning from where one can attempt to extrapolate trends into the future. In the past centuries, users have had little choice but to subscribe to the services of a limited number of major communications providers. In recent decades, the choice has widened considerably with open competition in many communications technology segments, still, the users have largely had to content with what was offered. In recent years though, the power of the users to ‘own’ and control their own communications means has seen a formidable return.

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Convergence

The changes yet to come will continue and further amplify this deeprooted fundamental transformation of the communications industry. Rapidly progressing business models that introduce concepts like no or weak subscriptions, free services, multiple access and notably user-generated contents are seriously challenging the industry fundamentals of the past and present. The following sections will take a closer look at these trends.

1.2

The ‘Long Tail’ In traditional marketing models, a push–pull mechanism is assumed between consumers on the one hand and producers on the other. Producers push products and services towards consumers while consumers pull the same goods towards themselves. The balance in this system can obviously be changed for example by effective marketing campaigns to create strong demand from the consumers. In the communications market the players (here consumer and producer) typically have quite distinct roles in this process. Based on usually extensive market research, the producer will often assume the sole responsibility for the creation and evolution of their product and/or service portfolio. However, consumers can ‘vote with their feet and money’ by purchasing or rejecting the offered products and/or services. Some buyers (e.g. business buyers in large companies or representatives of other significant user communities) can exert considerable pressure on producers and may obtain a direct impact on decisions about the product portfolios. This is part of a natural balance between supply and demand, where the prospect of high volume and/or premium prices will influence portfolio decisions made by the producers. Importantly now, across a wide range of businesses and consumer segments, this fundamental logic behind the economics of high volume and/or premium prices is being seriously challenged. As a seemingly unstoppable trend across the globe, ordinary consumers have assumed an increasingly active role in the creative process related to the continuous evolution of the human knowledge base that in turn forms the basis of all new inventions. These inventions include products, services, processes, business models and so on as well as the creation of entirely new social structures and patterns. Changes are significant across many areas of society but most noticeable in the increasingly digitized worlds of entertainment and information. These changes are driven (or supported) by significant advances in technology but also by more fundamental changes to our world. The question, to what extent the new technology is the source of change has no single answer. It has been argued that there are fundamental

Chapter 1: Communications in a User Perspective

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underlying trends that would cause significant changes to the organization of our civilization. One trend is the globalization of many of the most important challenges we face. The environment and the global efforts towards solutions to waste and pollution problems is a prime example. A few decades ago, the weather was a truly local phenomenon with the same experiences shared between people inside a limited geographical area only. Global warming has changed all this significantly, for example weather statistics for Australia suddenly become highly relevant for citizens in the United Kingdom. The fight against terrorism is another example of the increasing globalization. Notably, the threat of war and terrorism is particularly significant when it comes to protecting operations headquarters with centralized computer and communications systems. In reality, these concerns led to the world’s first distributed packet-based network (the Advanced Research Projects Agency Network), a predecessor of the global Internet. New global networks and the soaring number of links between people have, as argued by Nørretranders in his book Civilisation 2.0 [2], formed a fundamentally new basis for the organization of our society. Technology advances in electronic integration, optical transmission, broadband techniques, storage media and application software development have led to overall system specifications where some of the traditional bottlenecks of limited transmission bandwidth, limited storage capacity and limited computation capacity are rapidly waning and disappearing. Fifteen or twenty years ago at the infancy of the Internet revolution, fibreto-the-home or other high-specification cable technologies were generally seen as the only viable solutions for proper broadband services, wired or wireless. Whilst few fundamental technical problems appeared unsolved, the economic impact of rewiring the world with cables, notably outside the big cities was very significant. Asymmetric digital subscriber line (ADSL) technologies have changed all this. Whilst there are still significant interest in fibre/cable technologies – notably for new HDTV services – the impact of ADSL on affordable access and thereby democratization of the Internet medium should not be underestimated. The abundance of storage space and of computation power, notably at a rapidly decreasing cost per unit of bit stored or clock rate obtained, further helps to reduce former technical as well as economical bottlenecks. The evolution of the software and particularly the user interfaces serve to widen the appeal beyond the technology savvy enthusiasts, reduce social bottlenecks and individualize the access experience. All this signals a significant change of focus from technology towards the end-users, as shown in Figure 1-1. Empirical estimates for the evolution of technologies give rough indications of the rate of progress in various technology areas. For integrated circuits, Moore famously observed in 1965 that the rate of increase in the complexity of integrated circuits was fairly constant [3]. A notable illustration being the number of transistors on microprocessors that has roughly

8

Convergence

Personalisation Democratisation Technology centric

User centric Globalisation

Figure 1-1. End-user focus – a strong trend fuelled by communications convergence.

doubled every two years for several decades. Another prediction of less quantifiable and more humorous nature but nonetheless very important for the user experience is Wirth’s law (attributed in Reference [4] to Thomas Reiser) that states ‘Software gets slower faster than hardware gets faster.’ This ‘law’ is illustrated by the fact that booting a PC takes as long or longer than 20 years ago, because the growth in software (and services) complexity in some areas seems to match or even exceed the hardware improvements. Despite the self-fuelling spiral of hardware and software requirements, the broad picture is that fundamental changes are seen across many industries, particularly the industries of telecommunications, information and entertainment enabled by significant technology advances. A new ‘economics of abundance’ is beginning to appear where ‘everything becomes available to everyone’ [5]. With free and open access to all services and information, fairly unrestricted by technological, economical or social boundaries, the freedom to choose becomes a formidable force in driving preferences and requirements back through the value chains and systems to service providers and equipment vendors. An interesting consequence for the global market economy stimulated by the Internet is that the cost to consumers of finding, reaching and buying niche products or services is falling dramatically. This means that the variation of goods in the global marketplace is likely to rise – and indeed, it has. There is ample statistical evidence of the impact on demand of having online availability of goods compared to off-line availability. To illustrate the market diversity graphically, bars that are proportional to the total sales for every unique item are drawn. These bars are then organized in descending order with the biggest selling item to the left. The resulting demand bar diagram (for simplicity, usually shown as a continuous smooth curve) will often approximate a long-tailed exponential-type distribution [5]. As depicted in Figure 1-2, there are a number of layers of complexity to the notion of ‘the long tail’ when applied to individual users of communications services. The variety of service suppliers may range from the traditional big dominant market players to small niche suppliers of specialized contents

Chapter 1: Communications in a User Perspective

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Sales (£)

iTunes

Ranking of service providers (e.g. online shops)

Folk

Sales (£) Ranking of service categories (e.g. music genres)

Title 1 Title 2 Title 3

Sales (£) Ranking of service variations (e.g. song titles)

Figure 1-2. ‘The long tail’ of service providers offers immense variety and choice. Each service provider may offer a range of service categories adding a second dimension to the abundance of alternatives. The service categories may sometimes be divided into more detail.

(book titles, songs, ring tones, etc.). For each of the service providers, the range of services offered may be wide and include popular high-volume services as well as niche services with a limited target group. Within the individual service categories, there may again be a range of choices, for example for contents, that in a similar fashion will follow an exponential demand curve with some popular ‘hits’ and many less popular choices. This new multidimensional abundance of choice is an important and significant trend. The number of service providers across the communications industry has exploded, particularly with the soaring popularity of the Internet, the total made up of a complicated interweaved patchwork of companies, organizations, interest groups and individuals. Whilst, for example, blogs would often be aimed at narrow user segment (offering few and similar service components), other generally more commercially oriented service providers like Amazon.com would diversify into umpteen different service components and subcomponents. Amazon has diversified from being an online bookstore to also selling a vast variety of items such as magazines, music, DVDs, videos, electronics, computers, software, clothing, accessories and shoes – and inside each of these categories the variety is immense.

10

Convergence

When looking at a typical demand curve for online products, a number of characteristics are repeated across different businesses such as online book sales, CD music, MP3 music and videos. The first observation is that the tail of the distribution is indeed very long. In 2006, the inventory of the Amazon.com online bookstore was a staggering 3.7 million titles. The next observation is that there is surprisingly much sales related to the far reaches of the long tail of the distribution where the sales numbers for individual books are modest but the amount of books are vast. For Amazon.com, it is estimated that books outside the top 100 000 best-sellers represent as much as 25% of the total sales [5]. The Long Tail represents a market demand characteristic which makes business models viable that address the opportunity of selling a large number of items each in small quantities. The three dimensions of the service offering depicted in Figure 1-2 suggest significant dynamics in market positioning between big market players addressing a wide service offering and small market players (e.g. individuals) addressing niche market segments.

1.3

A Fragmented User Community Rarely a week goes by without a product announcement for a new trendy communications gadget. At the same time, the number of service providers as well as contents providers steadily grows. For the end-user, the choice is becoming much more complicated. The market offerings are no longer divided between easily discernable services such as telephone and television, or radio and Internet access. Further, the choice in many markets is no more between similar offers from a limited number of players in these formerly distinct industry segments. In short, convergence has pulled down a lot of these old commercial boundaries and significantly widened choice as well as the range and the scope of opportunities. The technology enthusiasts, visionaries and early market adopters amongst the end-users will be truly thrilled. Whilst drivers are very different in the business and home markets, these people do in general take a pleasure in discovering new capabilities and quickly become willing users of the new technology [6]. However, the conservatives and the sceptics amongst the end-users are much less likely to embrace the new market conditions, and the changes driven by convergence will at first be observed with much hesitation or even trepidation. The visionaries and the conservatives are obviously not homogeneous groups, and the differences and variation will be significant. It is evident though that there is a distinct divide between ‘the younger’ and ‘the older’. The ability or more likely willingness to take on the new technology seems to be falling strongly when people get older (see box).

Chapter 1: Communications in a User Perspective

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   evidence of a significant difference in communications usage patterns between young adults and the general population: for example, 16–24 year olds spend on average 21 minutes more time online per week, send 42 more SMS text messages, but spend over seven hours less time watching television. Source: UK Office of Communications, The Communications Market 2006, [7]

These trends have led to a situation now where an apparent gulf is opening up between different groups of communications users and where an increasing number of people are growing weary of the additional complexity the new technology brings [8]. There is obviously a broad middle ground but differences appear to sharpen between people who just want the simple traditional services like telephony (and text messaging), television and radio and the users who would not want to miss any new feature even when of little objective use at all. In a 2006 special report about Consumer Engagement with Digital Communications Services [9], the UK Office of Communications (Ofcom) states that ‘   . many consumers (roughly 50%) do not feel confident or competent with technology – and are frequently happy to devolve responsibility for this to others in their household   ’. Such a result confirms the general feeling experienced and shared by a wide range of people interviewed during the period of writing this book that there are significant communities of people with IT skills insufficiently developed to take full advantage of modern communications services. Whilst the delivery platforms are complicated technically, the applications/services and contents should ideally be simple to use and technology-neutral. This is not the case yet in many communications technology segments where a significant part of the customer base is ‘lost’ over deeply rooted technology talk and excessive complexity of additional features around core functionality. Circumstantial evidence to this claim has probably been gathered by most people who have been asked for help to connect and configure a video recorder or a mobile phone for an (often) older family member, friend or neighbour. Significant additional research into causes and effect in this area appears to be required to allow a much deeper service penetration into the entire population.

1.4

Knowledge: A Human Resource The fundamental and continuous processes of knowledge creation and knowledge diffusion are essential to the degree of impact communications technology have and will gain on the evolution of our modern society. Undeniably, the latest advances in communications networks and gadgets suggest a revolutionary impact on the works sphere, that is the way we work, where we work and how productive we are, as well as on the private

12

Convergence

sphere, that is how we communicate, how we spend our leisure time and how we learn. Technically, the communications industry is progressing at a breathtaking pace with miniaturization of terminals, soaring bandwidth for data streaming and no shortage of new tools and applications. The information volume and availability is likewise exploding with proliferation of services and a virtual information overflow potentially representing endless new opportunities for everyone involved. Knowledge generation itself, that is in the form of hard scientific technical progress, may be in a state of perpetual accelerated innovation and produce a firm foundation for growth in the technology segments of the communications industry and beyond (through various spill over effects). Yet, there are a number of structural problems developing that are inherent to knowledge-based economies. Knowledge-based economies are defined as economies with a high proportion of knowledge-intensive activities. For the further analysis, a clear distinction between knowledge and information is useful. ‘Knowledge is fundamentally a matter of cognitive capability (i.e. involving conscious intellectual activity such as thinking, reasoning, or remembering). Information, on the other hand, takes the shape of structured and formatted data that remain passive until used by those with the knowledge needed to interpret and process them’ [10]. Whilst information can be copied at a low cost, knowledge is not easy to document and transfer to others. Specifically important in the area of communications are the concerns that knowledge is unevenly distributed, access to knowledge is often inefficient and tacit knowledge is not effectively dissipated. In a report by the Basic Skills Agency, an independent national agency for basic skills in England and Wales supported and funded by the UK government, the basic skills in literacy and numeracy of UK adults were analysed in 1999. The report concludes that of the adult population, 20% were not functional literate (e.g. given access to the alphabetical index of the Yellow Pages, they failed to locate the page reference for plumbers) and more than 30% had numeracy problems (e.g. failing on tasks like calculating the area of a room that is 21 x 14 ft, with the aid of a calculator) [11]. Strategic changes and action plans have been implemented, and some victories have been claimed; however, problems rooted in education systems are usually stubborn and hard to change overnight. In 2007, 4 in 10 children in England are still leaving primary school (at the age of 11) without having reached expected levels in each of the three focus subjects of reading, writing and mathematics [12]. The technological evolution of the communications sector has traditionally been driven primarily by knowledge generation, in the form of R&D and within professional communities. With companies, innovation provides an opportunity to set them apart and temporarily assume a monopoly position with new products or services [10]. The consultation of ‘lay experts’ (often superusers) in the development process is a well-established practice,

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but an important question is to what extent this process covers the full width and depth of different requirements in the population. The quoted statistics suggest that there is a vast group of people who face various barriers to being further integrated into the community of advanced services users. This group may account for as much as half of the population notably with significant variations across different regions. These partly overlapping categories of people count a wide variety of population segments including the technology antagonists, the fundamentally incapable (e.g. illiterate or disabled), the older generation with lacking ICT skills as well as people who for whatever reasons, being for political, social or other motives, are plainly not interested. At the same time, the user segments targeted for advanced communications services has widened very significantly over the last 8–10 years. Effectively, the uptake of services has moved from targets groups of technology enthusiasts and early adapters only to covering most segments of the entire population. In recent years, new service areas, for example related to Internet and mobile phones, have grown significantly beyond the support of early adopters and technology enthusiasts. By early 2007, 64% of UK households had a fixed-line or broadband Internet connection, and the number of active mobile connections per 100 population was 117 (84% of adults were reported to be using a mobile phone) [13]. In 2000, the Internet penetration stood at below 30% and the number of active mobile connections per 100 population was below 70% [14]. This represents a tremendous growth, and the pertinent issue for the industry to address is whether this change in size and profile of the user base has been sufficiently reflected in changes to the services offered. This change from addressing engaged superusers to also targeting, and notably serving the best interests of, apprehensive so-called technology laggards is a monumental challenge for the entire communications industry. For a simple illustration of this changing market conditions, see Figure 1-3. Notably, the change in the user community has happened gradually over a long time, that is a decade or more. During this period the (tele)communications industry, and notably the mobile and broadband segments, has been busy expanding the customer bases at a rapid pace and aggressively building out networks. The growth is now naturally slowing as the population penetration for some services, particularly for mobile phones, is nearing 100%. It would appear that during this period of frantic growth (with a single remarkable blip in the market when the speculation-driven dot-com market crashed), the awareness in the professional part of the industry of a widening population of nonexpert users and their different needs has only recently begun to take root. Naturally, the focus in the industry has shifted markedly towards deepening the user relationship by offering new value-added services, but the recent history in this area has been a mixture of successes and failure with many new data services struggling to gain mass-market acceptance.

Convergence Cumulative population penetration of service 100%

Customerled market

Technologyled market

ar gg La

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Figure 1-3. Over a decade of strong growth in mobile and broadband markets, the new subscribers have shifted from being technology-enthusiastic innovators and early adopters to hesitant late majority users and laggards. The subscriber categories are adopted from Reference [15].

Discussing user-centric mobile devices in a 2007 blog contribution, Peter Cochrane, the former Head of Research at British Telecom (BT), pointedly writes ‘At no point during this growth in mobile communications did the industry do any more than try to replicate the fixed-line history of the telephone. It was about connecting people by voice.’ Later, Cochrane comments ‘    the tail is now wagging the dog and customers are pushing hard for what they want, and sooner or later they will get it   ’ [16]. Often, the solutions to close the gap between user ability and technology complexity have been seen as a combination of increased technology awareness, education in the population in general and the creation of more user-friendly services. Whilst this simple observation is obviously true to some degree, this also ignores the problem discussed above that a significant minority (or maybe even as much as half) of the population does not have the urge or the ability to embrace the new technology in its present form. Convergence in technologies and services offers a historic opportunity to include and actively involve a much wider part of the population, but for any significant inroads into these new customer segments beyond the most basic of services, the technology must be truly user centric with the remaining whiff of technology focus and technology talk fully removed.

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In Figure 1-4, changes in service usage over time are shown for different user segments and different versions of the service. For example, some hesitant ‘late majority’ users may slowly be getting on to basic instant messaging (IM) services whilst the ‘early adapters’ would already have used and moved on from a range of increasingly advanced (and trendy) social networking services. Cumulative population penetration of service

Time

1st generation of service 2nd generation of service 3rd generation of service

Figure 1-4. The uptake of services follows different usage profiles for different user segments.

The Information and Communications Technology (ICT) savvy users are first to adopt new services but also first to move on. The less enthusiastic and/or non-ICT savvy users will take a lot longer to pick up the required skills to embrace the new trends. Often, services will never reach the point of significant uptake with these user segments, and this is often a clear indication that the service was not evolved to cater for different user profiles during the lifetime of the service. Initial success of a service carries no guarantee of success with the important ‘early majority’ and ‘late majority’ categories of users.

1.5

Summary The depth and variety of markets for products such as books and music has exploded with the emergence of online shops. Numerous narrow titles with small sales figures collectively add up to a considerable part of the overall market. This easy availability of specialized contents also allows individual consumers to create and sell their products or services to a

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Convergence

much larger audience and thereby add an entirely new dimension to online markets alongside big established companies. The growing ‘long tail’ of products, services and contents represents a strong additional force in market convergence. This ever-mounting engagement and interaction of users in the creation of contents and shaping of services is an important trend in the communications industry and well beyond. Arguably, communications service providers (CSPs) may soon no longer be the primary market drivers of communications services but increasingly drift towards a role of mediator and change-enabler. The synergy and collective knowledge creation amongst technology savvy users also lead to a polarization of user capabilities and interests, with a large group of users that risk dropping out of the mainstream high-tech focused market. To these users, much hyped so-called innovative services will not mean more technology but more user friendliness with less (visible) technology.

1.6

References [1] GSM World Website, http://www.gsmworld.com/about/history.shtml, 2007. [2] Nørretranders, T. (2007), Civilisation 2.0 – the ‘Age of the Links’ (in Danish), Thaning & Appel. [3] Moore, G. (1965), Cramming more components onto integrated circuits, Electronics Magazine, 19 April. [4] Wirth, N. (1995), A plea for lean software, IEEE Computer, 28(2), 64–68, February. [5] Anderson, C. (2006), The Long Tail, Random House Business Books. [6] Moore, G.A. (2004), Inside the Tornado, Collins Business Essentials. [7] ‘The Communications Market 2006’, Office of Communications (UK), 10 August 2006. [8] Armstrong, R. (2007), It’s a tough call, The Independent, 4 July. [9] ‘Consumer Engagement with Digital Communications Services’, Office of Communications (UK), 2006. [10] Foray, D. (2006), The Economics of Knowledge, MIT Press. [11] Moser, C. (1999), A Fresh Start: Improving Literacy & Numeracy, Basic Skills Agency Report, UK. [12] Meikle, J. (2007), Slow progress on the three Rs falls short of government targets, The Guardian, Wednesday, 8 August. [13] ‘Communications Market Report’, Office of Communications (UK), August 2007. [14] ‘The Communications Market 2004 – Telecommunications’ (Chapter 6), Office of Communications (UK), 2004. [15] Rogers, E. (2003), Diffusion of Innovations, Fifth Edition, Free Press. [16] Cochrane, P. (2007), Peter Cochrane’s Blog: Don’t Mess with Mobile Users, http://networks.silicon.com/mobile/0,39024665,39168386,00.htm?r=1, 7 September. Reproduced by permission of Peter Cochrane.

Chapter 2: The Convergence Culture Square

2.1

Different Dimensions to Convergence Convergence is one of those overly used, and misused, words that all vendors want to have their products and services associated with, and all consumers seem to either loathe or love. In the press, it often seems to embody all change around us as an expression of all new and trendy. There is no single definition of convergence, and different authors define convergence in different yet usually complementary ways: The ‘technology author’: Convergence identifies a general pattern in the evolutionary process, namely the tendency to bring entities together, for example the coming together of classical telecommunications, the Internet, information technology and broadcasting, the ability to offer multiple services on a single network or the ability to offer the same service via more than one medium [1].

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Convergence

The ‘media author’:    the flow of content across multiple media platforms, the cooperation between multiple media industries, and the migratory behaviour of media audiences who will go almost anywhere in search of the kinds of entertainment experiences they want [2].

Without limiting the analysis to a single definition of convergence, some of the important areas involved will be briefly outlined. Notably, these different dimensions are partly overlapping adding considerably to the complexity of any attempt to categorize and define the different threads that make up the full fabric of ‘convergence’: • Network convergence: Different technology segments are served by the same network architecture. For example, the IP multimedia subsystem (IMS) acting as a common core network for fixed and mobile telecommunications networks. • Services delivery convergence: Different services traditionally delivered on specific carriers are combined on a common IP carrier as illustrated by the increasing use of voice over IP (VoIP) technology for voice transmission on data networks. • Services convergence: Applications and services that originate from different industry segments integrate into richer experiences independent of the underlying supporting technologies, as illustrated by convergence of broadcast radio and Internet radio. • Terminal convergence: Refers to the integration into fewer devices [personal digital assistants (PDAs), smart phones, etc.] with many features that used to be available on individual specialized devices only (cameras, word processors, electronic games and MP3 players). • Contents convergence: The generation of contents become increasingly coordinated across media sectors. Transmedia consumption combines experiences from television, Internet, gaming, telephony and so on. • User culture convergence: Subcultures of consumers in the various media sectors merge into true multimedia communities that increasingly influence the mainstream information and entertainment cultures. • Business convergence: Denotes the multitude of new partnerships, alliances and acquisitions across the old industry demarcations between, for example, telecommunications, entertainment and information technology (IT) that trigger new organizational structures, new strategic relationships and new business models. • Digital convergence: By adding yet another dimension to the definition, convergence may also include the combining of the 3C areas of

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Communications, Computing and Consumer electronics. In this book, the 3C convergence is dealt with only to the extent required for illustrating the impact in the communications space. Convergence is all this and certainly more. Thinking out of the box is immensely hard (if fundamentally possible at all!), and as we progress along the trail broken by convergence, new horizons and depths of insight will emerge. Convergence is a journey and a process, and the desired destination is yet hard to define and articulate. Some suggest that the concept of nextgeneration network is that vision, but as the categories outlined above show, the implications are very wide in scope and beyond technology only, certainly both the business transformations and the wider cultural ramifications are significant.

2.2

Social Changes Before diving into details of all the implications of convergence in all its constituent components and their consequences for the end-users and the communications industry specifically, it is important to understand some of the social changes in the modern world of the twenty-first century. These changes are not only related to the convergence of communications but are part of common deeper running trends.

2.2.1

Consumer Production ‘Ordinary’ consumers (and users) of communications services are rapidly becoming very dynamic producers of contents, activities that are seriously challenging the de facto monopoly of media companies on contents creation. The creativity and productivity of the consumers cover a wide space in respect of scope, of depth and undoubtedly also of quality: • Technorati.com (an Internet search engine for searching blogs) claims to be probing more than 100 million blogs, many of which provide regular services to devoted user communities on virtually any topics imaginable [3]. • The English version of the online dictionary Wikipedia has more than 2 million entries all based on voluntary unpaid contributors who dedicate their time and share their knowledge. Entries are continuously changed, corrected and amended by the user community [4]. • YouTube, the Internet website for sharing of video clips, streams 1.9 billion minutes of video a month (August 2007) [5].

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Convergence

The consumer production is not at all related to Internet-based services only. For a lot of consumer production, the Internet is merely, but importantly, a low-cost omnipresent distribution channel. Think of freeware (copyrighted but free computer software) and open source software where IT and telecommunications applications are made available by their creators for everybody to use free of charge. The ‘Free Software Foundation’ (FSF) is a nonprofit organization that has set up terms for the use and amendment of software (sw) code. FSF is notably the organization behind the GNU/Linux operational system (Linux kernel, utilities and libraries from the FSF GNU project) usually referred to as Linux. The ‘general public licensing’ (GPL) is a widely used free software license that requires anyone who distributes the Linux kernel to make the source code (and any modifications) available to the recipient under the same terms. A study estimated that the Debian GNU/Linux version 2.2 contained over 55 million lines of source code, claimed to correspond to an estimated 14 000 (voluntary) person-years of development time [6]. Also in many other areas outside the direct high-technology focus of this book, the consumer production is very significant. These areas include obvious activities such as self-scan supermarket checkout and do it yourself (DIY) home improvement, but also parenting and home caring for the elderly are essentially unpaid consumer production. A clear distinction between producer and consumer is useful for economic modelling. However, production by consumers is such an important part of our culture and increasingly so with the recent wide availability of ICT. In their book Revolutionary Wealth, Alvin and Heidi Toffler suggest that voluntary unpaid user production represents a value similar in size to the production recorded within the money economy. This production is significantly boosted by the Internet culture and is fuelling revolutionary changes in our society towards a new ‘knowledge-intensive economy’. Toffler notably coined the term ‘prosumer’ as a common term for individuals or groups that to various degrees produce as well as consume products and services. Prosumption is becoming a very significant factor in the wealth creation in a vast number of different areas of our life and is further itself becoming an exponent of a significant culture shift to be further explored in the next section.

2.2.2

A Participatory Culture In his book Convergence Culture – Where Old and New Media Collide [2], Jenkins gives a fascinating insight into the strong and increasingly active participation and influence on the corporate media business of millions of consumers. The newest trends in entertainment, IT and telecommunications are fuelling a ‘convergence culture’ that is growing in significance at a stunning pace. The knock-on effect of these cultural changes are felt across the film industry, the gaming industry, the printed media, the Internet

Chapter 2: The Convergence Culture Square

21

industry, as well as the music industry and has a distinct but yet dawning influence on the traditional telecommunications businesses.    consumers are using the new media technologies to engage with old media content, seeing the internet as a vehicle for collective problem solving, public deliberation, and grassroot creativity. Jenkins, Convergence Culture – Where Old and New Media Collide, 2006, New York University Press [2]

Convergence in communications represents a cultural paradigm shift where users are actively seeking participation ranging from organized information sharing to semiprofessional low-budget media production. At the same time, the media cooperations are actively encouraging fan communities to develop emotional attachment, but the same companies do also worry about possible infringements of copyrights and general loss of creative (and commercial) control. In recent years, a number of famous Hollywood blockbusters have been notable vehicles for media convergence. The officially licensed material for the six ‘Star Wars’ feature films and ‘The Martix’ trilogy includes a vast range of television productions, books, comics, games and other multimedia contents. This technique of ‘transmedia’ storytelling obviously draws a woolly line between marketing and innovative media evolution, and traditionalists have argued that films should be fully appreciated in their own right and not rely on the viewers to engage across the full range of media to understand subtle details of the plot. Whilst these science fiction films have been at the centre of some of the most commercially successful media franchises of all times, the related consumer activities outside of the tight control of the media companies may be the first indications of a completely new media culture. It appears that considerable media power can be exerted through collective intelligence. Therefore, the media companies obviously follow the direction of activity in the vast number of online fan communities closely. At YouTube.com (a website for video sharing where users can share, view and upload video sequences), tens of thousands of entries are returned on searches for The Matrix and Star Wars. The majority of these clips are home-made productions that tap into the science fiction universes of the professional productions by changing, expanding and sometimes mocking or spoofing original media productions. Mixed with sampled clips from the original films, one can experience any conceivable variation of Lego figures in fierce Star Wars style lightsaber fights or youngsters dressed in black like The Matrix agents acting out famous scenes from the films. The variety is immense, and the most popular clips have been downloaded several million times. The consumer participation has hit the main-stream mass market with reality television series like ‘Pop Idol’ that was originally screened by

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Convergence

Independent Television (ITV) in the United Kingdom (with many spin-offs in other countries, like ‘American Idol’ in the United States) and ‘Big Brother House’, a concept invented by the Dutch production company Endemol, that has also enjoyed virtual global success. Reality TV is a fairly new category of partly unscripted television that features ordinary people (or sometimes celebrities) instead of professional actors. A second level of participation by the public is by regular voting through telephone, text message or the Internet, where the outcome of the programme depends on the votes cast. In Big Brother House, a group of people is isolated from the outside world but under the 24-h surveillance of television cameras. Periodically, housemates are evicted from ‘the house’ as a result of public voting. Likewise, Pop Idol was a talent contest to find the best new pop singer based on viewer voting, later to be succeeded in the United Kingdom by the similarly formatted ‘X-Factor’. X-Factor was sponsored by mobile phone vendor Nokia and subsequently mobile phone retailer Carphone Warehouse, and had a stunning 200 000 people entering auditions for the 2007 series.

Roughly a third of all customers who participated in American Idol (an annual American televised singing competition) through text messaging had never even sent a text message before. [American Idol] has done more to educate the public and get people texting than any marketing activity in this country [USA] to date. Midwestbusiness.com, AT&T Wireless Text Messaging Takes Center Stage, 2003 [7]

Media convergence can become a very strong tool for generating additional value for consumers through exploring the synergies that exist between the different media. Like in the example boxed above, mobile phone usage can be boosted by integrating public Short Message Service (SMS)-based voting into television shows. On the other hand, this participatory characteristic of the show is likely to be boosting interest and thereby ratings. Mobile service providers are notoriously spending considerable resources on first raising the awareness of new services with the hope then subsequently to turn occasional users into regular users. Crossmedia synergies, possibly happening over the duration of a television series, can increase the probability that customers will remain active users of telecommunications services in the future. Although often used interchangeably, a useful distinction can be drawn between the concepts of user interactivity and user participation. ‘Interactivity refers to the ways new technologies have been designed to be more responsive to consumer feedback. Participation, on the other hand, is shaped by the cultural and social protocols. Participation is more open-ended, less under the control of media producers and more under the control of media consumers’ [2].

Chapter 2: The Convergence Culture Square

2.3

23

Convergence in Thinking Convergence in communications is obviously a process driven top-down by the incumbent companies in the communications industry, such as the dominant equipment vendors, the licensed service providers and the big Internet portals, as well as bottom-up by individual users. Convergence represents a true cultural shift in the communications world where all players are forced to learn new skills, to understand the opportunities and business logic in other market segments and on this basis to reposition their engagement in the industry.

Convergence does not occur through media appliances, however sophisticated they may become. Convergence occurs within the brains of individual consumers and through their social interactions with others. Jenkins, Convergence Culture – Where Old and New Media Collide, 2006, New York University Press [2]

Convergence is emphasizing the importance of understanding new opportunities in the intersection between entirely different technology fields, between vastly different business models, between a multitude of content sources and between different cultures for interaction with the consumers. The sheer diversity in this cultural square of communications is the main challenge for all of the industry players-users/consumers and suppliers/producers alike. The users have embraced this new opportunity with stunning enthusiasm and innovative spirit, the variety of which the first part of this book have only begun to unveil. Somewhere in the middle of this new cultural square, the CSPs and the contents providers are faced with difficult choices and problems that require a much more holistic understanding of the options and requirements than before. Whilst the knowledge as such may be available in their organizations, the organizational infrastructure to combine different fields and experiences may not. For example, the business opportunity map for a mobile contents supplier or a cable network operator would have been a lot simpler just a few years back. Figure 2-1 shows the ‘convergence in thinking’ required between the scientific fields of technology, business, economics and people (the term ‘people’ is in this case representing the knowledge and experience that would fall under the common heading of ‘softer’ social sciences). The knowledge areas outlined in Figure 2-1 represent some of the important components in the web of skills that will favour successful players in a convergent communications industry. By combining and leveraging knowledge and practices across different technologies and business methodologies, the opportunities of innovation and creativity vastly increase. Notably, this will help creating the ‘Medici

24

Convergence Technology

Business Strategic management

Strategic innovation

Service-oriented architecture

Business process management

IP multimedia subsystem Enterprise resource planning

Organizational design

Operations support systems Billing

Competitive advantage

Service delivery framework

Customer relationship management

Convergence in thinking

Hyper growth markets

Quality of experience Brand management

The long tail

Economics of knowledge

Inventive thinking Marketing Behavioural science

Advertising Economics of attention Prosumption

People

Economics

Figure 2-1. ‘Convergence in thinking’ reflects the diversity of ideas that emerge when skills and abilities from different expertise areas are mixed.

effect’, a metaphor for creativity and innovation generated at the intersection between different fields. In his book The Medici Effect, Frans Johansen takes the reader through a number of real-life business anecdotes and research paper results that unravel some of the mystery about the sources of creativity and innovation. His main conjecture is that the opportunities for getting new innovative ideas will massively increase in the intersection between different fields, disciplines and cultures [8]. Two types of ideas are defined: ‘Directional ideas’ are generated by combining and refining concepts from within a single field (such as telecommunications), whereas ‘intersectional ideas’ combine multiple fields (e.g. ‘artificial neural networks’ at the intersection between computer science and biology). In these intersectional areas between different fields, innovation is more likely to happen because of the sheer volume of new combinations of ideas and concepts available. Over the next decade or two, convergence will create a melting pot of different skills and fields that represent the most significant opportunities of groundbreaking innovation for all players in the industry.

2.4

Change Management Challenges In enterprise organizations, change management is a structured process that tracks, monitors and manages changes. In relation to organization evolution and management, the field of change management has developed into a main subject in its own right combining aspects of several scientific areas

Chapter 2: The Convergence Culture Square

25

to include psychology, engineering and business. For a thorough analysis of change management as a strategic business discipline, refer to Reference [9]. As discussed throughout this book, convergence is bound to trigger fundamental changes in the operational environments as well as significant strategic management challenges with all players in the communications industry. These changes will become more complex with technical choices, business opportunities and user expectations increasingly interrelated as shown in Figure 2-2. Enterprise system integration Technical choices

Terminal convergence ‘Next-generation network’ deployment Asset sharing and outsourcing

Business opportunities

Internet-style service delivery Business model transformation Quality of experience

User expectations

Customer focused services Participatory convergence culture Time

Figure 2-2. Convergence emphasizes the challenges of simultaneously addressing and coordinating technology choices, business opportunities and user expectations.

Striking the right balance between these different requirements is a challenge for business leaders, but as always, the users will cast the final vote. An important yardstick for the long-term success of future business restructuring is therefore the value of the services delivered as perceived by the end-user.

2.5

Value Perception Crossnetwork-capable tools for planning, simulation and optimization of communications networks are required, and network parameters must be planned and configured to match expected usage patterns. Uptake of new services must be forecast, and after launch the actual traffic generated must

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Convergence

be monitored closely – sometimes even in real time. Most important is to understand the user’s satisfaction level, to manage the user expectations and thereby to jointly optimize the user experience and own business objectives.

2.5.1

Management of User Expectations The width and depth of services offered in the communications market is growing rapidly for consumers and business users alike. Whilst services grow in complexity, parallel business communities (referred to as the value grid in Chapter 4) are added to the market thereby increasing choice and competition. In this environment, end-users are increasingly exercising the opportunities related to open access and competing offers. In a response to this trend, the CSPs can attempt to build up loyalty by means of bundled offers at low cost, joint billing and better integration between bundled services. Present service bundles can usually be categorized as convergence at the downlink end of the value chain (i.e. with focus on sales and marketing rather than technology and networks). In addition, the tripleplay and quadruple-play offers are characterized by merging value chains/ systems from different communications industry sectors like telephony (fixed/mobile), broadband and television. Inside the individual industry sectors (e.g. mobile telephony), there exist another two separate levels of competition between (i) different technologies [e.g. between Universal Mobile Telecommunications System (UMTS) and worldwide interoperability for microwave access (WiMax)] and (ii) peer service providers (e.g. Vodafone and Orange). Refer to Chapter 4 for deeper structural analysis of the communications industry. The end-users will obviously be torn between the convenient service bundles and the unrestrained open market choice. There is no doubt that both options will be exercised and will coexist. When a significant part of the end-users are taking on the responsibility of choosing and configuring their own basket of services, the ability of the incumbent CSPs to control the full end-to-end user experience is obviously diminishing. Another interesting trend though (discussed in detail in Chapter 4) is that the CSP themselves are decreasing their control of the end-to-end delivery chain by outsourcing, asset sharing and by extensive partnering with third-party players (e.g. mobile service providers work closely with Internet players like Google and eBay). All this suggests significantly less control by any one player in the market (except the user itself) of the end-to-end user experience. At the same time, the widespread expectation with end-users is that for most communications services the responsibility for the service quality and the user experience rests with whoever issues the bill – usually the CSP.

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27

Established measures of customer satisfaction are often based on the quantities of QoS and quality-of-experience (QoE). Notably, the QoE is a subjective measure as well as a relative measure of the customer experience with a CSP. The QoE is determined by the actual objective end-2-end (e2e) QoS relative to the customer’s initial service expectations. As discussed previously, the control of the e2e QoS is drifting out of the full control of the CSPs. Therefore, it is of outmost importance to understand what the customer expectations are for the service experience and how these expectations can be managed. The customer’s service expectations fall in two main categories grouped under the headings of ‘Quality’ and ‘Value’. Quality relates to the mostly objective measures of availability, performance and contents (i.e. it is there, it is quick, it is relevant). Value, however, relates to the mostly subjective measures of value-for-money and opportunity cost (i.e. the preference of a particular service means the rejection of other alternative similar services). The ‘Value’ category goes well beyond using traditional technical measurements to estimate the QoE. Customer satisfaction in a highly competitive market with many commoditized services is often primarily cost-driven unless sustainable differentiation can be achieved by developing and offering innovative services, new business models, unique branding and so on. Management of customer expectations is for many industry players a new organizational skill. In major parts of the communications industry, there has been a strong organizationally embedded belief that improved service quality would automatically improve customer satisfaction. This has resulted in considerable focus on optimizing the network technology, for example with immense focus by mobile operators on optimizing the dropped-call-rate using regulator-approved drive test routes and specifications. A key question is what impact the detailed actual dropped-call-rate (often of the order of 1%) has on the overall customer satisfaction. It has been demonstrated that for Web users, there is a nontrivial nonlinear relationship between QoS and QoE [10]. This means that in certain quite significant parameter ranges, the end-user experience (or user perceived QoE) does not change with improved QoS KPIs. Management of actual customer expectations involves a number of different organizational units such as operations, marketing, sales and customer care. In the presales phase, frank and honest information about the expected service delivery bottlenecks and shortcomings (in particular when outside control of the CSP) are likely to be appreciated by the users and will create an atmosphere of trust that is needed when parts of the uncontrolled delivery chain may fail. In the after-sales and care phase, there will be many opportunities to understand and affect customer expectations by correlation of present and historic QoS data, usage data and charging/billing data. For example, when usage by a particular user of a particular service drops off,

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Convergence

there may be a possible correlation with the connections time experienced when accessing the Internet, the location of the user when downloading big files, the size of the latest bill and so on. This information can be used in call centres or through active polling (e.g. via SMS) to actively influence and realign the user expectations. These opportunities will be further analysed in Parts II and IV of the book.

2.5.2

Terminal-Based Services There is a complex relationship between customers and service providers, and the key to understanding how services are best managed and businesses best optimized relies heavily on the complex quantity of QoE. The QoE depends on the e2e service quality and the perceived value of the contents but notably also depends on the customer expectations. The customer expectations are shaped by a number of factors inside the control of the service provider (purchasing experience, call-centre responses, charging plan, etc.) as well as a number of factors largely outside the direct control of the service supplier (trends/fashion, competitive offers, etc.). The growing storage and processing capabilities on the terminal gradually blur the end-user perception of what functionality is network-based and what is terminal-based. For a number of categories of services, new technology based on caching of information will greatly reduce the impact on the perceived QoE from a temporary network outage, that may appear whilst the user moves between two hot spots. Conversational communications services like mobile telephony voice services rely on a stable connection throughout the call, and without a connection the service breaks. For other services like Web browsing, the connection is only used part of the time. Fluctuations in the quality of the network connection may be successfully masked by buffering the actively used Web page – a feature available in most present browsers. With future browser advancements, the contents of all recent Web pages browsed by the user are likely to be stored automatically on the mobile terminal [11]. When the terminal is offline, Web work such as reading favourite blogs and news sites can be conducted with little degradation of user experience. When online again, the history database in the device will be updated automatically. The emergence of off-line browsers will have significant ramifications across the mobile segment of the communications industry. This new application technology is expected to considerably improve the end-user experience of service continuity irrespective of the network coverage and quality. For some services (notably Web browsing), this can relax the requirements on networks to perform at the highest quality across all geographies and for some services favour architectures based on islands of high-grade hotspots in a sea of lower-grade connectivity.

Chapter 2: The Convergence Culture Square

2.6

29

Summary Convergence means different things to different people, and in this book, no single definition has been adopted. Convergence is related to the areas of technology, users and business models, as well as to all subsegments of the communications industry and beyond, to include all the players in the computing and consumer electronics industries. An important visible trend and driver of convergence is the growing participatory culture with increasing consumer production of contents. A significant challenge related to convergence is the requirement of multidisciplinary insight to take full advantage of the new opportunities convergence brings. All incumbent businesses are being drawn out from their comfort zones and are suddenly faced with challenges that relate to fundamentally new technologies, fundamentally new business models, fundamentally new user reaction patterns and a fundamentally new economics landscape. Finally, the expectation of the users and the value as perceived by the users are going to be key metrics for understanding user requirements and thereby managing and driving progress in the convergent communications industry.

2.7

References [1] Hanrahan, H. (2007), Network Convergence – Services, Applications, Transport, and Operations Support, John Wiley & Sons, Ltd. [2] Jenkins, H. (2006), Convergence Culture – Where Old and New Media Collide, New York University Press. [3] Technocrati, www.technorati.com, September 2007. [4] Wikipedia, www.wikipedia.co.uk/, September 2007. [5] Now Playing on YouTube: In-Video Ads, Mercurynews.com, www.mercurynews. com/business/ci_6686088, 22 August 2007. [6] González-Barahona, J.M. et al. (2002), Counting Potatoes: The Size of Debian 2.2, http://people.debian.org/˜jgb/debian-counting/counting-potatoes/, 3 January. [7] AT&T Wireless Text Messaging Takes Center Stage, midwestbusiness.com, www. midwestbusiness.com/releases/viewrelease.asp?postID=163, 16 April 2003. [8] Johanssson, F. (2006), The Medici Effect, HBS Press. [9] Hayes, J. (2002), The Theory and Practice of Change Management, Palgrave Macmillan. [10] Khirman, S. and Henriksen, P. (2002), Relationship between QoS and QoE for public internet services, , Proceedings of the 3rd Workshop on Passive and Active Measurement, March. [11] Google Gears API, http://code.google.com/apis/gears/, 2007.

PART II CONVERGENT BUSINESS MODELS In science, an ecosystem is defined as a complex dynamic system in which living organisms interact with each other and with the environment. Notably, the organisms in the ecosystem can have parasitic or symbiotic relationships. In the business world, this analogy is often used to describe the complicated relations and dependences between the various players in the market. Communications market ‘ecosystems’ share many characteristics with nature itself. Rather than modelled over the ‘law of nature’, however, the transition from highly regulated traditional monopolies to an organic network of interrelated organisms is best analysed with conventional economics theory. The primary model used in this study draws on business management concepts from traditional value chain analysis. New business models are expected to replace existing business models, new technologies are expected to replace existing technologies and new services are expected to replace existing services. However, the picture is not so clear cut in practice, the television did not wipe out the radio and movies, the internet has not wiped out newspapers and CD-ROMs have not wiped out the printed book. ‘Yet the reality is that while new communications technologies may not wipe out earlier ones, they certainly change the ecosystem’ [1].

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Convergence

Part II (Chapters 3–5) of this book analyses the evolution of fundamental structures in the communications market. This is to prepare the reader for the subsequent analysis of the future convergent landscape, where a thorough understanding is needed about the present market structure and the main trends. Chapter 3 focuses on identifying the important parameters that characterize convergent markets and the main drivers for change that new end-user requirements instil. The subsequent knock-on effects of these changes upstream in the value system with the operators and equipment vendors are shown to be very significant. Chapter 4 addresses the changes to the sphere of influence experienced by communications service providers due to the fragmentation in an increasingly convergent market. The significant differences between the three different industry cultures of telecommunications, information and entertainment are analysed, notably in the context of advertising and consumer privacy. In Chapter 5, the generic strategic opportunities for all players in the communications market are outlined. Important new trends and business models are assessed and the threat of being ‘stuck-in-the-middle’ in the wake of market convergence is analysed.

Reference [1] Naughton, J. (2006), Our changing media ecosystem, in Communications – The Next Decade, a collection of essays prepared for the UK Office of Communications (Ofcom) (Ed. Ed Richards, Robin Foster and Tom Kiedrowski), November.

Chapter 3: Market Trends and Predictions

Consumers in the twenty-first century are increasingly difficult to segment. The product and service requirements in ‘the long tail’ (Chapter 1) are stunningly complex, and the strong trend seems to be one of more diversity rather than any clustering around a limited number of standard options. ‘The long tail’ of diverse end-user interests and activities is testament to a pattern of change where end-users increasingly take control of their own communications services experience.

3.1

Towards End-User Focus For CSPs, the external business environment has in recent years become increasingly complex, a process fuelled by a range of fundamental changes to the industry. At the same time, the end-users of communications services have been subject to a growing pallet of offerings that reflect the new enhanced capabilities.

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

C. Saxtoft

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Convergence

A key question is how the industry’s capability of delivering services that are ever more advanced are best balanced against the end-user value deducted from the same services. In other words, how can the ‘supply’ most efficiently stimulate the ‘demand’ and vice versa. The answer to this question is linked closely to the QoE that represents the users’ true experience related to the propositions offered by service providers. QoE will be further analysed in Part III of this book, but sufficient at this point is to note that QoE is a relative measure that highly depends on the customers initial expectations. Expectations notably change significantly over time. As discussed already in some detail, the wide-ranging concept of convergence is arguably the present single most important agent for change in the communications industry and beyond. The process of convergence is becoming a major catalyst for the transformation of our society as a whole, with telecommunication information and entertainment readily available anywhere, at any time and to a steadily growing number of users. In the past, many landmarks in the history of the high-tech consumer have been reached by driving compelling technology into the market to stimulate interest and usage with technology enthusiasts and visionaries, later then to sweep any mass-market scepticism aside by massive marketing campaigns and by dropping prices for standardized product offerings. Successfully used by most dominant software vendors and hardware vendors, there are many indications though that this business model is up for revision. The challenge to the existing business models and market structures come from vast numbers of Web-empowered individual users, user communities and new small businesses. On a large scale, new service contents is generated by these users individually or as collective intelligence – intelligence that emerges from the collaboration between many otherwise unrelated individuals. Convergence is a notable strong agent for these changes throughout the industry.

3.2

Changing Patterns in the Communications Industry Cynics may argue that ‘change’ is the only predictable long-term characteristic of the communications industry. This chapter will look into some of the possible long-term trends in the industry by qualitative analysis and by extrapolating accessible data from the recent past. It is true though that the number of new technologies, new service, new customer use cases, new business models and in general, the impact of the communications industry on our society and culture as a whole is as significant as ever before.

Chapter 3: Market Trends and Predictions

3.2.1

35

Classification of CSPs In Figure 3-1, a high-level outline of some of the main players of the communications industry is depicted. The communications industry breaks down into a telecommunications industry part (illustrated by telephony-based services), an information industry part (illustrated by Internet-based services), and an entertainment part (illustrated by broadcast-based services). Across the entire communications industry, there are two main physical access technologies that at present represent distinct market segments, namely wireless networks [subdivided into GSM, WiMax, FM radio, satellite, etc.] and wireline networks [subdivided into Plain Old Telephone Service (POTS), DSL, various cable technologies (coax, fibre), etc.]. Also, a big industry segment is mostly access agnostic to include the media companies and Internet service providers. Industry

Telecoms Telephony

Information

Entertainment

Internet Access Wireline

Broadcast Fixed network operator Cable network operator

Wireless

Mobile network operator Media

Either

Online service providers

Figure 3-1. The present main players in the communications service provider market mapped into a simple matrix of three industries and their main segments. The arrows illustrate important objectives of future business expansion for these players.

The width and depth of variation across all the big and small companies, industry organizations and vendor partnerships engaged in the communications industry is beyond simple categorization, but the rough segmentation of the communications industry shown in Figure 3-1 can be used to categorise the present main players and their primary tactical (short-to-middle-term) objectives. The mobile network operators are looking actively to mobile TV and other entertainment services as a means to widen the services portfolio and support stagnating or falling average revenue per user (ARPU). In the media industry, broadcasters are, however, actively seeking a foothold in the Internet arena with online news services, radio pod-casting and by experimenting with making recorded TV programmes available online (e.g. BBC iPlayer [1]). Like the mobile network operators, fixed network operators are experimenting with new services. Television over broadband can be either streamed directly or stored onto the viewers’ hard desks. Fixed-mobile convergence (FMC) represents another strong focus particularly by the fixed

36

Convergence

network operators (see Section 7.4 for more details). For the cable network operators, a common approach is to add mobile services to the multiplay portfolio by partnering or acquisition (e.g. in the United Kingdom, cable operator NTL Telewest acquired Virgin Mobile by the middle of 2006).

User Behaviour This section will take a closer look at some of the main trends in the changing user attitudes and behaviours with specific focus on the consumer part of the market. Statistical data from the UK market are used in the examples to quantify the observed changes. The total cost of communications services was 4.6% of total household expenditure in 2005 and fell in real terms by 1.5% in 2006. During 2005, the real price of a typical ‘basket’ of residential communications services (fixed, mobile and broadband) fell by 5% and during 2006 by 9%. As the usage increased and prices went down, consumers were in short using more and paying less. In Figure 3-2, the daily use of communications services in 2006 by UK consumers is shown. Despite an expanding range of new services available to many consumers, the amount of time spent watching television and Minutes of use per day per person 250 200 150 100 50 7

4

Share of use

50%

Share of expenditure Relative cost of service

ile ob M

Fi xe d

et er n In t

di o Ra

n

0

Te le vi sio

3.2.2

39%

8%

2%

1%

27%

3%

11%

25%

34%

1

0.12

2.4

28

69

Figure 3-2. Average daily usage of communications services in the United Kingdom [1–3]. The relative cost of the services per consumed minute varies significantly.

Chapter 3: Market Trends and Predictions

37

listening to radio each day continued to comfortably exceed the number of minutes spent making landline or mobile phone calls [1]. At the same time, the spending on the telecommunications services is relatively much higher per minute of consumption. For example, mobile services are 69 times as expensive as television per minute of use, a ratio that is certain to come down when mobile TV services grow in popularity. The numbers shown have not been adjusted for the growing trend of consumers performing ‘media stacking’, that is more services are being consumed simultaneously. This means that the total media consumption of more than 7 h per day, calculated by adding the individual service usage figures in Figure 3-2, is likely to be somewhat less because some of the minutes are counted twice. The usage pattern for communications services has always been markedly different between younger and older users reflecting their different interests. A shift towards an even more pronounced difference in usage patterns was recorded in 2005 amongst young users (16–24 year olds). The 16–24 year olds watch more than 25% less television than older adults, and their viewing is declining at a faster rate. However, the young adults use the Internet more but only by a less noticeable margin of about 10% [1]. The young adults are more likely to use digital services, and their ownership of new technologies devices is generally larger than the population as a whole.

These are the ‘children of the internet age’ many of whom have never known a life without home computers, games consoles, mobile phones and online connectivity. They are accustomed to more ‘on-demand’ delivery of services: they want to contact their friends whenever and however is most convenient; they expect to watch TV programs and listen to radio stations which interest them; they want to create their own online presence, and connect directly to others with similar tastes and interests. UK Office of Communications, Communications Market Report, 2007 [1]

The following analysis will address a number of convergence-related trends in the communications market place that would indicate significant structural changes to the industry.

3.3

Important Market Characteristics The ping-pong game of changing usage patterns that triggers new technology development that again triggers new ways of using technology is a well-known driver for continuously improved user experience as well as economic progress. Convergence is part of this ping-pong and even plays at both sides of the net – as a driver of technology evolution and as a driver of service/usage evolution. The impact of convergence on the communications market can be analysed from at least two perspectives, namely related to the market supply mechanisms and related to the market demand mechanisms. The

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Convergence

perspective of the supply side relates to characteristics that dictate the scope of propositions offered by all the different levels of suppliers, subsuppliers and sub-sub-suppliers in the industry. This perspective is important for understanding all the dimensions along which the industry can evolve (or contract). On the supply side some of the most important market characteristics (with examples of parameters) are as follows: • Industry organization (merger, acquisition, insourcing, partnering, asset sharing, hosting, outsourcing, divesting). • Access technology (mobile, fixed, broadband, broadcast, satellite). • Service delivery model (walled garden, contents brokering, open access). • Service segment (radio, television, Internet, printed media, telephony). • Business model (advertising, transaction, subscription). Note that these market characteristics will evolve, for example new access technologies can be added to the list, when they become a viable commercial alternative in the relevant market. The perspective of the demand side of the communications market relates to characteristics that dictates the requirements of all the users. This perspective is important for understanding the dimensions along which the user requirements can be met. On the demand side some of the most important market characteristics (again with examples of parameters) are: • Brand preference (fashion, quality). • Scope of proposition (single play, double play, triple play, multiplay). • Service continuity (single access, multiple access). • Service availability (hot spots, everywhere). • Service interaction (consumption, participation, community). • Service quality (best effort, guaranteed). • Information diversity (media specific, media agnostic). • Information relevance (general, segmented, individualized). • Billing structure (prepaid, post-paid, hybrid). • Proposition flexibility (standard packages, individualized packages). The characteristics on the demand side are mostly end-user related but for businesses, for example the ‘scope of proposition’, could instead relate to concepts such as best-of-suite or best-of-breed.

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Table 3-1 illustrates how some of the important parameters on the supply side and the demand side can be mapped. Note that the proposed mapping is not the only possible but illustrates how specific market supply characteristics primarily relate to certain market demand characteristics.

Market supply topics

Customer demand topics

Industry organization

Brand preference,

Scope of proposition

Access technology

Service continuity,

Service availability

Service delivery model

Service interaction,

Service quality

Service segment

Information diversity, Information relevance

Business model

Billing structure,

Proposition flexibility

Table 3-1. Convergence relates to the market supply side as well as the corresponding customer demand side.

A group of important parameters that characterizes a convergent market has been listed, and links that relate supply to demand have been identified. The next step is to analyse how the industry as a whole will reorganize to address the new challenges triggered by convergence.

3.4

Value Systems in the Communications Industry The concept of value chain provides a systematic means of displaying and categorizing basic activities performed by firms in any industry [4]. The activities in the value chain are divided into primary activities and support activities. The primary activities are those that are involved in the creation and delivery of products and services. The support activities are the generic company functions (management, planning, human resources, finance, etc.) that support the primary activities. In the classic version of the value chain theory, the value chains of individual companies in an industry combine into value systems that represent larger streams of related activities across an industry. The term ‘supply chain’ has been avoided because supply chain activities are usually referred to in the context of the logistics around transforming raw materials and components into a finished product that is subsequently delivered to the end-customer. Whilst very important, the logistical management and control functions of the supply chain are outside the scope of this book. The objective is at a higher level of abstraction to map the existing structure in the communications market and to understand how the

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Convergence

links between the main players are changing to adapt to the new topology of the global business network. For the benefit of the analysis in this book, the most interesting part of the value system for the different segments that the communications industry span starts at the equipment vendors and finishes by the end-users. The top part of Figure 3-3 depicts this key part of the value system. The chosen focus is particularly on the CSPs (e.g. Vodafone and BT) and some of the related main players such as equipment and tools vendors (e.g. NSN, Cisco), contents mediators (e.g. Google, e-Bay), contents providers (e.g. Sky, Disney) as well as the end-users (e.g. private users, businesses). Infrastructure construction

Network operations

Service delivery

Contents brokering

Contents creation

Marketing & sales

Care

Tools vendors Service providers Contents mediators Contents providers End-users

Figure 3-3. A simplified value system for the communications industry. Solid black arrows mark the traditional business areas for the industry players. Dotted-line greyed arrows mark future target areas.

The value system serves to organize and highlight the main constituent parts of a typical global business network. Most end-user services in the communications industry would rely on some sort of a communications infrastructure as the medium to convey and exchange information. A selected band of large multinational equipment tools vendors as well as a host of smaller specialized vendors provide this infrastructure. The fragmentation of the infrastructure business is considerable in many areas, for example, in the specialized segment for Operations Support Systems (OSS) and related services the number of different vendors runs into the several hundreds. Applying an installed infrastructure to serve specific business needs is a traditional line of business for the service provider (specifically the network operator). Outsourcing the access business is a trend fuelled by the shared wish of the tools vendors and the network operators to move down value chain. Whilst convergence is not a direct cause of this trend, the ensuing complexity of the business environment is a strong incentive to refocus the business on core competences and competitive advantages often seen to be further downstream in the value system in the areas of service delivery, contents mediation and contents creation. The bottom part of Figure 3-3 maps the traditional business areas as well as new coveted business areas for the present players in the industry.

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3.4.1

41

Sustainable Competitive Advantage Many of the parties in the value system are actively seeking to shift their business focus towards the higher-expected margins downstream (towards the end-user) in the value system. At the same time, there is a noticeable but less pronounced trend also towards increasing the control of the upstream tiers of the value system to remain in charge of the full end-to-end service experience. For example, the ongoing consolidation of independent telecommunications operators in pan-European or global groups (Orange, Vodafone, Telefonica, etc.) has considerably increased the negotiation power with equipment vendors. This in turn means increasingly coordinated pressure on vendors to develop bespoke solutions like mobile phones with specific operator-branded features. When the players in the industry value systems actively follow strategies to move down (and/or up) the value system, a most important question arises: Can these companies develop a sustainable competitive advantage in their new chosen competitive battlefields? For example, a common concern of telecommunications operators would be that the technical network operations activity is becoming ‘commoditized’ and that in the future healthy margins and future growth are found mainly in the areas of service delivery and contents creation. There is a widespread concern amongst operators of becoming stranded at the high end of the value system. For example, the (now former) Orange Group Chief Executive Sanjiv Ahuja warned in March 2007 that carriers need to improve their customer experience to avoid becoming ‘content pipes’ [5].

3.4.2

Brand Value As competition sharpens in most markets, the factors that differentiate the offered products and services become increasingly refined. Sometimes, the factual differences between competitive offers may even be overridden by brand loyalty. The CSPs are obviously keen to understand what parts of their business that can transform into a source of sustainable long-term differentiation. Arguably, in many national markets that have enjoyed several decades of open competition for communications services, the difference between the main players may often be relatively insignificant. This is illustrated by high churn rates in many markets (as high as 30–50% annually in some mobile markets) which seems to suggest that temporary marginal benefits offered in the latest marketing campaign is often seen as reason enough to change service provider. In an increasingly competitive market with many technology differentiators gradually being commoditized, the importance of the brand will increase. In addition, when companies shift their focus down the value system, many traditional skills become partially obsolete (e.g. the

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Convergence

knowledge about how to operate networks) and new competitors must be taken on (e.g. in the area of contents creation). A strong brand may be one of the only sustainable company assets that reach right across the value system to include the old focus areas as well as the new strategic target areas. Obviously, this view may be slightly worrying to some technology focused traditionalists given the notorious fragile and fickle nature of brand popularity. With convergence combining the different market segments, competition on brands adds an entirely new dimension to the marketing strategy. From competing ferociously with competitors that have similar organizational skills and business models and are working in the same technology niche, the competition will intensify further with much added cross-nichecompetition. For example, the contents providers and contents brokers from the Internet world will compete against contents providers and contents brokers from the mobile communications world. Every year ‘Interbrand’ and ‘Business Week’ publish a joint survey of the world’s best brands ranked by brand value [6]. To be considered, the brands must have a minimum brand value of US$2.7 billion, achieve about one third of their earnings outside of their home country, have publicly available marketing and financial data and have a wider public profile beyond their direct customer base. Not unsurprisingly, the truly global Internet brands like Google, e-Bay, Amazon and Yahoo make the top 100 along with major equipment vendors such as Samsung, Nokia, Cisco, Sony, Dell, Siemens, Microsoft and Intel. Disney, MTV and Reuters are the highest placed media companies. Big regional service provider groups with global aspirations such as Vodafone, Orange and BT are not present in this top 100 global survey. National surveys of the strengths of brands is conducted by the ‘Superbrands’ organization that looks at both expert and consumer opinion on branding. The Superbrands selection process is somewhat different from the global Interbrand survey. A Superbrands council puts together lists of brands, and the final ranking is based on the individual votes of the members of a large representative panel of consumers or business people. The judging criteria are (i) Quality – does the brand represent quality products and services? (ii) Reliability – can you trust the brand to deliver consistently against its promises and maintain product and service standards at all customer touch points? (iii) Distinction – is it well known in its sector? Is the brand suitably differentiated from its competitors? Does it have ‘a personality’ and values that make it unique within its market place? In the 2007/2008 consumer survey in the United Kingdom [7], the major international Internet players and equipment vendors were still well represented in top 50, together with media groups like the BBC [4] and Sky. Amongst the telecommunications service providers Vodafone came in as 64th, Orange was 95th and BT made a meagre number 212 on the Superbrands list in the United Kingdom. In the 2007/2008 business-professional survey in the United Kingdom [7], the major international Internet players, equipment vendors and media

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groups (BBC now #1) were again well represented in the top 50. A noticeable difference was that the telecommunications service providers had now moved right into the top echelon with the BT brand at 4th position, the Vodafone brand claiming 7th position and the Orange brand achieved a respectable 36th place in the ranking. There is a noticeable difference between the business-to-customer surveys and the business-to-business surveys in the perceived strengths of some of the traditional communications brands. Interestingly, the business professionals rate these brands much higher than the consumers do. The strength of their brand is a primary asset for any company in the communications industry. Insight into how this strength varies across the different main customer segments is obviously of primary importance to planning – particularly at a strategic level. If brand was really to be the only sustainable advantage that future companies in the communications industry enjoy, there would and should be significant concerns in many industry boardrooms. The UK Superbrands studies of brand strength suggest that in the consumer market the brand strength for the big regional telecommunications players is much lower than for the media companies and the big global Internet players. If these results can be extrapolated to all markets and segments and would prove stable over time, this would suggest that in the private consumer segment there is a bias towards the big Internet and media players. In the corporate customer segment, however, the telecommunications players are rated every bit as high as the Internet companies are. Section IV of this book will further focus on the competitive strengths and weaknesses of both the traditional telecommunications players and the new giant Internet powerhouses. A strategy for an industry symbiosis between these two industry segments, based on unique competitive advantages in each segment, will be outlined and analysed.

3.4.3

Psychological Factors that Influence Consumers To model consumer buying behaviour, a range of factors that have an impact on the buying decision must be considered. These complex components include cultural factors (such as values and social class), social factors (such as position in family and reference groups), personal factors (such as age, occupation and economic circumstances), as well as psychological factors. In previous chapters, different development patterns in our society as well as technological advances have been analysed to explain why people seem to be driven by certain needs at particular times. Clearly, there are also additional psychological factors that influence a person’s preferences and buying choices. These factors are motivation, perception, learning and beliefs [8]. For the sake of further understanding the mechanisms behind brand success, these psychological buying factors will be analysed in more detail. Motivation of consumers to buy relates to the needs products and services are designed to satisfy. According to Abraham Maslow, these

44

Convergence

needs can be organized in a hierarchy from the most pressing to the least pressing. In descending order of importance these layers are physiological needs (e.g. hunger), safety needs (e.g. security), social needs (e.g. sense of belonging), esteem needs (e.g. recognition) and self-actualization needs (e.g. self-development/realization). The classic Maslow hierarchy of needs typically helps sales people and marketing people to understand how their products and services fit the expectations of consumers. In the market for communications products and services, all of the Maslow needs are often represented. For example, to some users a mobile phone is essential to their job/business. If the basic voice service fails, the consequences could be economically dire and the user may (in some countries) go to bed hungry. At the other end of the spectrum-of-needs, a mobile phone with Internet access would allow the user at leisure to follow the latest development, for example, in the world of arts. Convergence is a new dimension adding to the complexity but also the attractiveness of the offers and thereby the motivation to buy convergent products and services. Perception is ‘the process by which an individual selects, organizes and interprets information inputs to create a meaningful picture of the world’ [9]. People may have different perceptions of the same product or service for three different reasons: (i) customers pay varying degrees of attention to a particular service in a crowded market, (ii) customers tend to interpret information in support of preconceptions, (iii) customers are forgetful but tend to remember information that supports their believes. That is, consumers (refer Maslow needs) obviously act in accordance with their perception. Learning describes a change in an individual’s behaviour formed by experience. Marketing people attempt to build up demand for products and services by creating associations with existing preferences and thereby underpinning their sales case. Related to the learning factor, the beliefs and attitudes of the consumer also affect the buying behaviour. Beliefs may be based on knowledge, opinion or faith. Whilst beliefs and attitudes can be changed through marketing campaigns, it may often be easier to adapt products to fit existing attitudes rather than attempt to change them.

3.4.4

End-User Influence on the Value System The end-user is becoming a much more active player in controlling the end-to-end QoE. The growing competition following on from convergence of services and the widening of user offers allow the end-user to choose freely the individual components of the service proposition (terminal, access method, service provider, etc.). This trend is particularly well illustrated in the market for Internet-based communications services where the traditional customer care function known from telecommunications operators is replaced by lighter functions often primarily based on customer self-care.

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Effectively, the users are continuously making active decisions related to their service set-up. The first reaction is often not one of calling a service number for help but increasingly to churn. If technology and applications do not work or if the services and contents do not appeal, then users often have little concerns about changing the supplier. That is, the barrier to change is steadily lowering in many areas. The implications of reduced subscriber loyalty are very significant for the business of the CSPs, and even more so if the strong relations to their subscriber through the call centres are being weakened. Customer call centres represent a vital opportunity for maintaining and developing customer intimacy, for up-selling of services, for increasing the overall service experience and for managing customer expectations. It is very important to retain the trust and positive expectation with subscribers and to convey the feeling that addressing problems to call centres is a better option than to change CSP – the latter option becoming ever easier with barriers to change lowered by de-regulation, new technology and stronger competition. A way of maintaining customer loyalty is by adding value well beyond fixing the problem (the subscriber could probably often ‘fix’ the problem themselves by merely changing communications service supplier). To differentiate in the first place and then later sustain this advantage, the added value for the subscriber should be based on the unique knowledge by the operator of the end-user service preferences, usage profile, charging plans, spending pattern and so on.

3.5

Value Grid in the Communications Industry All parts of the communications industry are becoming ever more competitive and increasingly competing services are offered by players from across all the main sectors (telecommunication, information and entertainment). This means that the linear thinking along single-value chains for the individual companies and single-value systems for the industry segments must be stretched considerably to capture the nature and direction of the dynamic market changes. For example, in mobile communications, mobility has been a main differentiator for many years in a market segment served by usually no more than three to five licensed national operators. Gradually and slowly, but surely, this oligopoly status held by relatively few players has been challenged by technology advances, for example, based on VoIP with the underlying access based on Bluetooth, wireless local area network (LAN), WiMax and so on, and the list will continue to grow with new technology progress in the future. This new competition does not represent a single type of threat – the variation is significant and the amount of new potentially competing players is vast. Effectively, this adds another full dimension to the competitive industry landscape for strategic planners to deal with.

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Convergence

When the technology-driven changes have begun to increase the competition in areas such as the access networks, there is a distinct knock-on effect in other parts of the value system that also gradually become battlefields for new increased competition. For example, mobile Internet access has begun to challenge the market dominance held by broadband network suppliers. This increases the opportunities for the mobile operators but also the competition in their traditional core market where the end-user service offerings with the main Internet players will result in walled gardens of selected contents being transformed into open access environments. In Figure 3-4, three of the communications industry sectors (fixed telephony, mobile telephony and broadband) are illustrated as parallel value systems that in the past were largely unrelated and unconnected.

Infrastructure construction

Network operations

Service delivery

Contents brokering

Contents creation

Marketing & sales

Care

Fixed Past

Mobile BB

Triple-play

Present

Convergent services

Future

Figure 3-4. The three parallel value systems for the fixed, mobile and broadband industries are gradually merging.

Over time, these parallel value systems gradually begin to interact and slowly merge starting at the downstream end of the value system. When the interaction between the different value systems evolve and mature, the tier where the value systems merge is expected gradually to move upstream. Eventually, the three industries would be completely converged at all tiers between the service deliver capability and the end-user. Only the technology-specific domains would remain separate although progressively so managed and planned as one network.

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Worth noting is that different drivers are dominant at the various stages of the process of increasingly merged value systems. At the time of writing, the multiplay market proposals (triple-play and quadruple-play offers with three or four of the key service categories of mobile telephony, fixed telephony, broadband and television) exemplify convergence at the marketing/sales tier of the value systems. In the future, convergence of organizations for seamless service experience is characterizing convergence at the service delivery tier of the value system. As illustrated in this example of multiplay convergence, many of the most interesting industry dynamics are linked to the exploration by the industry players of opportunities in the value systems in three dimensions [10]: • Vertically: Companies seize opportunities in parallel value systems at the same tier – for example by cross selling of services developed in the broadband or Internet industry to the mobile market. • Horizontally: Companies look upstream or downstream in their own value system for opportunities – for example mobile operators create home websites and contents for their subscribers. • Diagonally: Companies target opportunities upstream or downstream in other parallel value systems – for example fixed operators may use statistical customer spending patterns to plan contents creation in the mobile world. Collectively, the multiple opportunities that link across different tiers and/or different linear value systems form a grid referred to as the value grid [10] (Figure 3-5). The value grid is an effective model for illustrating and analyzing changes in complex industries with multiple interactions between different but

V Fixed

Triple-play H

Mobile BB

Present D

V ertical dimension:

Across parallel value systems but within same tier

H orizontal dimension:

Within same value system but across tiers

D iagonal dimension:

Across parallel value systems and across tiers

Figure 3-5. Three dimensions are available for cross-linkage of business opportunities within or between parallel value systems.

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Convergence

related industry segments. This insight will be taken forward in later chapters to analyse and illustrate how the now budding interaction between different parts of convergent communications industries will evolve.

3.6

Summary There is a clear difference between young and old people in the adaptation and acceptance of new digital media. The big picture is that the younger generations are more frequent users of PCs and mobiles and the older generations more frequent radio listeners, television viewers and printed media consumers. Significant changes are certain to take place as the ‘children of the Internet age’ come of age. For new market players, the emerging ‘long tail’ philosophy means that the barriers to entry in the market are low and keep coming down. At the same time, the switching costs for end-users are also lowering whilst the cost of acquiring customers often remains high. On the Internet, users are increasingly and continuously making their own free choices about the mixture of applications to use and the configuration of these applications. This DIY mentality is very different from the traditional telecommunications model based on rigid service offerings, walled garden-style data access and heavy customer care organizations. The old conception of isolated market segments organized in separate business systems has led to the development of strategies focused on controlling a larger part of the value system, for example, with focus on content ownership and control. The emerging fragmentation of the ownership of end-user QoE will result in fundamental changes to the industry structures where new complex relationships are formed between different players to deliver services to end-customers. These can be represented by a network of connected value chains and value systems, that is referred to as the value grid. This means that it is no longer sufficient to think of a company as a member of a closed self-contained system isolated in its own market. All players will increasingly become parts in a network that produces its own change and manage the future of the industry in close collaboration with competitors and consumers alike. By understanding how a company’s relationship with other members of the value grid will evolve, its managers and strategists can better plan for how their activities are likely to affect the grid and how other players must be approached as partners and competitors.

3.7

References [1] ‘Communications Market Report’, Office of Communications (UK), 2007. Reproduced by permission of Ofcan. [2] Broadcasters’ Audience Research Board in UK, www.barb.co.uk, 2006.

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[3] Radio Joint Audience Research in UK, www.rajar.co.uk, 2006. [4] Porter, M.E. (1985), Competitive Advantage, Free Press. [5] Pearce, J.Q. (2007), CTIA: Orange CEO Warns Against Carriers Becoming ‘Content Pipes’, www.moconews.net, 28 March. [6] The BusinessWeek/Interbrand Annual Ranking of the 2006 Best Global Brands, Interbrand Press Release, 28 July 2006. [7] Official Top 500 Brands 2007/2008, Superbrands, www.superbrands.com/uk/, 2007. [8] Kotler, P. (1991), Marketing Management – Analysis, Planning, Implementation, and Control, Prentice-Hall International Editions. [9] Berelson, B. and Steiner, G. A. (1964), Human Behaviour: An Inventory of Scientific Findings, Harcourt Brace Jovanovich. [10] Pil, F.K. and Holweg, M. (2006), Evolving from value chain to value grid, MIT Sloan Management Review, 47(4), 72–79.

Chapter 4: Structures and Strategies In many national markets, parts of the communications industry has a recent history of liberalization of the business environment that not too long ago was dominated by national monopolies. The main telecommunications flag carriers in major Western economies saw the first real competition in their core business in the early 1980s, but the major steps towards full liberalization in telecommunications as we know it today were put down in legislation only as recent as the 1990s. In 1954, the first tightly controlled commercial TV channel in the United Kingdom, ‘Independent Television’, was launched as the third TV broadcast channel, and only in 1982 ‘Channel 4’ began operations. The first legal commercial radio in the United Kingdom was launched in 1973.

4.1

The Competitive Environment Whilst the communications market has been widely liberalized and opened to competition for many years now, the different access technologies (e.g. wireless, wireline, broadcast) have isolated the market in islands, albeit

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

C. Saxtoft

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Convergence

quite competitive, with limited cross interaction. Typically, for example, only a maximum of three to five licensed operators in each country have during the 1990s and early 2000s offered mobile telephony and mobile data services. These individual national markets have often been quite homogeneous although the operators have generally managed to offer portfolios of services with some variations. The individual operators have in this way obtained a noticeable level of differentiation by meeting specific customer needs in specific segments. These mechanisms are common in a competitive services market, and the degree of differentiation and the number of market players are significant characteristics of the competitive environment. When market access was liberalized in the US airline industry in the 1980s, direct competition on all routes became possible. According to a survey by the Civil Aviation Authority, prices declined by 2–3% when a second carrier entered a previously monopoly route and 10–35% when the third carrier began flying the same route [1]. A similar pattern would be observed in the UK telecommunications market in the 1980s, where a duopoly existed between BT and Mercury. When this ended in the early 1990s and local competition was introduced, charges fell by about 10% [2]. These examples indicate that at least three players (and most likely more) are required for a strongly competitive industry to form. Note that pure competition is seen where different profit rates are achieved by lower-production costs only and not where price premiums are achieved. The wider the scope for differentiation, the more players are required for prices to be driven down (close) to a market with pure competition. The objective in this book is not to quantify the impact of competition on prices. The important point to make is that despite frequent references by the main market players (notably service providers and equipment vendors) to the strong, aggressive and real competition they face, the competition can (and is likely to) get stronger yet. The reason for this is notably that the present partly sheltered competitive environment is going to open up. Effectively, this means that whilst competition was ripe amongst the individual players, the primarily technology-originated monopoly that the industry as a whole enjoyed was often not challenged. This isolation from viable outside competition may have been an important part of the explanation for the high perceived valuation of spectrum when in April 2000 five mobile operators in the United Kingdom paid more than £4 billon each for 3G mobile licences. The competition from outside the tightly knit mobile industry was at that point barely visible in the horizon. A major effect of convergence in communications is that more companies compete for the attention and the money of the same customers in the bigger combined market segments. As discussed above, the number of players in any market is a critical factor in shaping and determining the competitive characteristics of this market. Monopolies (or in fact any deviation from free competition) are notorious for leading to inefficiencies followed by a degree of complacency. Hence,

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an important question is whether this history will have a significant longterm impact on the structure and strategic thinking in the communications industry. If a permanent structural damage to the business foundation in the communications industry has been the result, then this damage is more than likely to be exposed when convergence across the much wider industry kicks in and competition increases. In Figure 4-1, some of the generic main steps in the evolution of the competitive landscape within the communications industry are outlined. # Service providers Pure/monopolistic competition

Many Oligopoly Duopoly

1

Monopoly Time

Liberlization→

Convergence→

Competition in one technology domain

Competition across technology domains

Figure 4-1. The industry structure evolves through different phases of increasing competition. Convergence marks the beginning of competition across different technology domains.

The main generic steps in the communications industry evolution would be: • Traditional monopoly (one company). • Duopoly (two companies). • Segment-centred oligopoly (a few companies). • Emerging cross-segment competition (several companies). • Industry-wide pure competition (many companies). The term ‘pure competition’ assumes that undifferentiated products and services are offered in the market by many sellers. In fact, the service providers are likely to continuously be able to differentiate their products to some extent. This market structure is in economic terms called monopolistic competition but is often for simplicity (although not entirely correct) referred to as pure or free competition.

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Convergence

Obviously, some of these steps outlined in Figure 4-1 may never happen due to particular characteristic of the individual industry segments. For example, in the United Kingdom, two mobile operating licences were granted initially, and in 1985, Vodafone and Cellnet (now O2) launched operations in a regulated duopoly. In 1994, Orange and one2one (now T-mobile) launched their services, and in 2003, the 3G operator ‘3’ became the fifth mobile operator in the United Kingdom creating a five-way oligopoly. Wireless LAN hotspots, Internet VoIP services, satellite telephony and potentially WiMax are disruptive technologies that will gradually induce more and more competition in the convergent mobile communications market segment. With stiffening competition, a noticeable and important trend is expected to be a change from focus on controlling ones own value system towards collaboration with other players in the same or parallel value systems. For some players, this may be a painful transition, but it is strongly believed that the market will reward the swift and agile players in the middle-to-long run.

4.2

Diminishing Control The competition faced by the communications service providers is now multidimensional. When the markets were liberalized in the 1980s and 1990s, the main competition was with companies that used similar technology, similar organizational setup and similar sales channels. Now, these old competitors face a common threat from new entrants with completely different business models that are often based on competing network technologies in the core network, in the access network and for the user terminals. The traditional competitive response by communications service providers of seeking tight control of the value system has arguably worked with a fair degree of success. Customers have had to accept close ties to the operators but have, however, experienced the benefits of fully controlled and managed service packages. The ‘walled garden’ service delivery principle is a prominent example:

Walled garden In the mobile industry, a longstanding debate has been focused on the benefits or the drawbacks of ‘walled gardens’. A walled garden may for example be a virtual Web environment that provides users a structured simplified easy-to-use gateway to a selected range of applications and data. Open access, however, provides unrestricted access to any applications and any data available on the World Wide Web. Until recently, open access has had little active support with many mobile operators. Key reasons quoted have been security as well as the often unsatisfactory quality experienced on many Web pages adapted to cope with the limitations (e.g. small screen) of the mobile handset.

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When choice increases for the end-user, there is mounting pressure on every tier in the value system to facilitate opportunities rather than dictate certain options. This trend is in line with the soaring self-awareness and increasing market power experienced by consumers in ‘the long tail’ (Chapter 3). The result of the changes towards a multidimensional competitive landscape is that the competitors of yesterday in some specific segments become allies in protecting their market by leveraging common strengths in the face of new competition from other market segments. For example, 3G mobile operators share a common interest in promoting the 3G technology over other access alternatives. This obviously means making sure that the 3G technology is as strong a part as possible of the value systems that emerge from the cross industry convergence. A key conclusion is that the promotion of the particular industry segments is best done in an open networking fashion where benefits are gained from the synergy between different players rather than based on the differences between players. The risk is that of reducing the competition to a traditional zero-sum game (e.g. between mobile contents and Internet contents) where the losers would be marginalized in the battle for consumer attention and potentially lose control of the market.

4.3

Web 2.0-Driven Business Models In a traditional competitive economy, any real or expected customer demand will trigger a subsequent vendor supply. When alternative products or new customer requirements emerge, the market will favour different business models. Figure 4-2 shows this market transformation process. Soaring bandwidth

Competition

Changing social attitudes

Old business models

Market

Service proliferation

User generated content

Handset evolution

transformation

New business models

Co-operation

Service continuity

Figure 4-2. Industry structures and business models evolve in response to important changes to the existing business environment.

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Convergence

In the market for communications services, these fundamental economic mechanisms of supply-demand combined with significant technical advances have caused the number of services to explode with literally thousands of different services now being offered in an increasingly competitive market place. The business model, where a few dominant companies fully control the entire services supply to millions of users, is coming under considerable pressure as discussed in previous chapters. In the telecommunications segment, a new breed of flexible business models based on user choice, openness and focus on core competences are evolving. This trend expected to trigger the next major market diversion has been dubbed Telco 2.0. ‘Telco 2.0™’ defines any business model where connectivity is supported by a sustainable economic model. This means the end of artificial cross-subsidies between services and connectivity. We assume an all-IP world where choice of applications, devices and platforms is entirely driven by user preference. Telco 2.0 Manifesto, Telco 2.0 Initiative, 2007 [3]

Telco 2.0 warrants the introduction of Web 2.0 principles in the telecommunications industry. This business model brings new focus on openness, sharing and distribution where knowledge is created collectively, where service execution is distributed, where access is unrestricted, where interfaces are open and where eventually the decision power and future of the industry is collectively owned between vendors, operators and users. In Figure 4-3, the existing business model, dubbed 1.0, and the new 2.0 based business model are compared with respect to the interaction between the different players in the value system.

1.0 Business model • • • •

Product based Protected knowledge Centralized hierarchies Walled gardens

Listen

• • • •

Knowledge based Shared knowledge Networking Collective intelligence

Service provider

Supplier

2.0 Business model

Listen Consumer

Promote

Promote

Collaborate

Collaborate Service provider

Supplier Facilitate

Consumer Facilitate

Figure 4-3. The telecommunications business model is undergoing fundamental changes from 1.0-style product orientation to 2.0-style knowledge orientation.

In practice, the new business model will have a very significant impact on the way services are created, consumed, experienced, charged

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and managed. The evolution scenarios of the existing communications business models will be further analysed in the next section.

4.4

The Sphere of Influence Figure 4-4 shows a simplified view of the main components of a traditional voice or data services delivery system. Right up to the user terminal, all functional links in the chain are owned or at least controlled by the communications service provider, for example a fixed or mobile operator. Charging and Billing £

€ ¥ 3rd party Control Switching Routing

User terminals

Access network

‘Other’ services platforms

Bearer services platforms

Figure 4-4. The main components in the service delivery architecture of a traditional (tele)communications service provider are the user terminal, the access network, the core network, the services platforms and the charging/billing system.

One of the main characteristics of the ‘2.0’ wave of changes to our world in general and to the communications industry in particular is the beginning decentralization of ownership of the end-user experience. Chapter 2 discussed the impact of contents being generated in the long tail by thousands of users and/or small companies collectively. This inherent democratization element of the 2.0 changes means that end-users to a much larger extent will assume responsibility of the services delivery. The enduser will freely choose the delivery mechanism as well as the services from a range of options enabled by convergence in technology as well as convergence of the end-user services. Effectively, this means that the traditional end-to-end service providers will gradually lose control of the end-to-end user experience. The domain fully controlled by any single service provider will shrink for a number of reasons:

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• Access network and core network  Asset sharing becomes a popular cost reduction strategy  Outsourcing grows into main stream operations  Competing technologies adds choice and competition  Convergence brings different market segments together • Service platforms  Walled gardens disappear  Open browser-based access becomes the norm  Convergence ease service access across market segments • Charging and billing  Flexible charging scenarios  Advertising-based subscriptions  ‘Subscription-less’ users that shop around In the access network, significant changes are happening to the ownership. This part of the delivery chain is gradually seen as less of a key differentiator and asset sharing, outsourcing, hosting and so on are increasingly explored as effective means to lower the operating expenditure. The core network is (still) seen as more of a differentiator with respect to the service delivery capability, for example for mobile and fixed telephone network operators. Notably though is that the core of the Internet is completely shared between many players and that the service delivery capability has no single owner in any geography nor for any individual users. The service delivery capabilities are still quite closely tied to the individual technology domains. This is changing rapidly though, for example, the IMS is expected to play a significant role in supporting FMC (please refer to Chapters 6 and 7 for more detail). In parallel with the roll-out of IMS, another distinct change is that many services will increasingly be delivered over the open Internet with full continuity of service experience across different access network technologies and core network technologies. Charging and billing schemes are not likely to be affected by the first waves of asset sharing and outsourcing, but a couple of related trends are worth noting. First, advertising-funded communications services is a business model that attracts lots of attention and would potentially transform the way many existing communications services are charged for. Some crude and intrusive advertising schemes that, for example, interrupt telephone calls for the insertion of advertising have in the past been put to market and failed. Technology advances now offer more subtle schemes (e.g. context-sensitive advertising on the mobile screen). Obviously, in broadcasting and on the

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Internet, fully advertising-funded services are common and with gradual convergence of technology and services the telecommunications world is also ripe for change. Another potentially very significant charging scenario revolves around the loser coupling between communications service providers and (some of) their customers when communication will not require a subscription or an affiliation with the traditional telecommunications service provider (e.g. VoIP mobile calls do not necessarily require a service provider SIM). Figure 4-5 shows how the sphere of full control over service delivery capabilities is gradually diminishing for most CSPs. It may be expected that in a few years, time the influence and control of the CSP will in some markets be largely restricted to the core network, key charging/billing capabilities and a business core of value-added service delivery capabilities that play to the inherent strengths of the particular CSP.

£ ¥

Control Switching Routing

The domain controlled by the CSP shrinks

Figure 4-5. The sphere of influence by communications service providers across the end-to-end service delivery capabilities is gradually reducing. This general picture will show considerable variation across different services, type of service provider and geographies.

When the sphere of influence by communications service providers deflates, two questions arise: (i) how can the customer QoE be managed? and (ii) how can the revenue stream for service providers be maintained when the ability to differentiate and add value apparently diminishes? The next section will analyse the first question in more detail as a precursor for the

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comprehensive analysis of the relation between QoE, customer expectations and business evolution in Part IV. The second question goes to the core of the ability of the market players to differentiate and grow in the emerging convergent industry. This topic will be further addressed in Parts IV and V where processes and delivery mechanisms are scrutinized, and the crucial organizational ability to innovate will be analysed in significant detail.

4.5

User Expectations The user’s experience of the delivered service quality is relative to their initial expectations. As communications service providers gradually lose control of the end-to-end service experience, the user gradually gains or takes control (obviously with the technology savvy users leading the bunch) by making conscious choices about terminals, terminal applications, access technology, services provider, contents provider and so on. It is important that this shift in responsibility towards the end-user is matched by a similar shift in expectations for the responsibility of the CSPs; otherwise, the CSPs are left with high customer expectations and no means to fulfil them. Mechanisms must be in place that focus on making it clearer to the end-user what service components are delivered by whom and at what quality. For example, the mobile Internet experience arguably still falls somewhat short of the ‘real’ Internet experience. It is very hard though for the end-user to separate out the potentially detrimental effect of available bandwidth, screen size, mobile browser, search engine, the mobile adaptation of contents or indeed the characteristics of the actual website itself. The role of the CSP in the value system is obviously changing significantly. A number of the traditional strongholds of the CSP – like the access network itself – appear to become less significant differentiators. This change has been anticipated in the telecommunications industry for a number of years and follows a trend towards separating the network provider functions from the service provider functions. Many service providers have subsequently formed strategies for moving down the value system aiming to create and manage not only the end-user services but also the contents packages. Providing services contents is a relatively new discipline for many communications service providers and a complex network of partnerships as well as new competitive frontlines would be formed in the process. A crucial assumption though is that it is possible for communications service providers to successfully move down the value system and shift the main technical skills and business objectives from network to services and towards contents. A closer look at the key competitive competences and advantages is obviously required to establish how this process is best supported and managed. In Part IV of this book, the fundamental challenge

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of identifying the optimal role of communications service providers in the industry value grid is analysed in much more detail. A significant difference between the typical Internet service provider and the typical telecommunications service provider lies in the relationship with the customers. Whilst Internet service providers in general have a quite superficial view of the profiles of the individual customers, the communications service providers would often have a deep relationship and have available a wealth of specific present and historic customer data about spending patterns, service preferences and so on. Notably, the communications service providers have unique real-time data about the customer behaviour that represent a distinct competitive advantage even when the entire value system is being reorganized. Full visibility of the usage of services, that is about what services are being used, where services are being used (home or on the road), when services are being used and detailed profile information about who is using the services over the 24 h of the day will allow a range of new business opportunities to be pursued. Marcus Fabius Quintilianus, circa A.D. 35–100, lectured and wrote about rhetoric and education. One of his most famous schemes is a set of interrogative pronouns: Quis, Quid, Ubi, Quibus auxiliis, Cur, Quomodo, Quando (Who, What, Where, With what, Why, hoW, When). Quintilianus’ conjecture was that answering these questions would be the basis for solving any given problem.

The customer data available to the communications market players vary significantly with their market segment and position in the value system. To illustrate these differences, seven detailed categories of customer data are identified. These categories relate to the way data are accessed and consumed. At the bottom of the pile is the information about the geographical location of the user. The next level up relates the data consumption to an individual or a company and then the point in time the service was used. More details are added by information of the means of access to data (i.e. with what terminal) and what actual data has been accessed. The next pertinent question is how the users access the data, that is the method by which data is acquired (bulk download or specific enquiries, pushed data or pulled data, etc.). Finally, knowing the real intentions of the user will give insight into the more fundamental question of why contents were accessed in the first place and what expectations were for the outcome. • Where: This category includes data about where the main services are consumed. Obviously, this information is available to telecommunications operators but in general not to Internet players. • Who: This category includes personal data about the subscriber (individual or company) such as name and address but also specific

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present and historic billing data. Typically, this would be available to telecommunications operators (except prepaid customers), whereas Internet players would often have access to a terminal ID only but no user identity. Only individualized devices like mobile terminals or personal accounts on the Internet would reveal truly personal data. • When: This category includes data about the time of consumption. That is, mobile service providers register all calls and their respective timestamps. Broadcasters, however, have a more fragmented and statistically based knowledge of when (and what) programmes are viewed. • With what: This category includes data about the terminals as well as the access technology used. • What: This category includes data about the exact contents the customer accesses. For example, Internet search engines register and store all search words entered by their customers. Whilst telecommunications players transport the bits, they will often not know about the detailed contents. • How: This category includes data about the methodology the users apply to data retrieval and consumption. Also, this category includes user data about the correlation between service characteristics and user behaviour. • Why: This category includes data about the reasons or the requirements that drive service usage. Typically, the data collected from networks, from customer databases and from charging/billing systems will not give much insight into the real drivers of service usage. This information can be gathered by various forms of market analysis based on questionnaires, interviews and so on. Figure 4-6 offers a coarse mapping of the main strengths of different communications market player in relation to the understanding of customer behaviour across all the categories outlined above. For strategic planners in the communications industry, there is an important conclusion to note. Whilst, for example, Internet players and telecommunications players increasingly become competitors as convergence draw the two industry segments closer together, the differences (roughly illustrated in Figure 4-6 by large nonoverlapping parts of the circles representing information and knowledge spheres) provide ample opportunities for the businesses to coexist and collaborate. This point is further elaborated in Figure 4-7 that shows how the detailed usage data can be (i) utilized internally as a means of creating a market position of sustainable differentiation and/or (ii) to collaborate with other industry players to provide more individualized and targeted services (including advertising) to the end-customers. Again, user approval of datasharing is certainly likely to be required for personalized data, but statistical impersonalized data about key user segments would also be seen to carry significant commercial potential with a lot less privacy issues attached.

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Data characteristics Why Market analysts

How

Internet players

What With what means

Broadcasters Telecoms service providers

When Who

Broadband providers Where Everyone

Group

Individual Customer

intimacy

Figure 4-6. The degree of customer intimacy is mapped against the available customer data characteristics. Quite different data is available to the various players in the communications industry.

Value system Network operations

Infrastructure construction

Service delivery

Contents brokering

Contents creation

Marketing & sales

Customer care

Customer intelligence Where

Who

When

With

What

How

Why

(what means)

Cross-industry collaboration

Figure 4-7. Usage data and customer data are available from various sources spread across different market players. This is a source of differentiation but also an opportunity for collaboration.

Chapter 9 will further analyse opportunities for the players in the communications industry to coordinate operations and collaborate. Obviously, any planned use of detailed customer data must be approached with due consideration for possible infringement of user security and privacy. The following sections will take a closer look at these potential problems by first scrutinizing a topic that is always likely to heat up discussions about defining reasonable boundaries between customer private interests and commercial business interests, namely ‘advertising’.

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4.6

Advertising Google, the company behind the world’s most popular search engine at the time of writing, is arguably also one of the most successful companies across any industries in recent years. The Google ‘philosophy’ is articulated in Ten Things Google has Found to be True [4]. The first commandment of this extraordinarily ambitious manifesto is ‘Focus on the user and all else will follow’ holding Google to make no changes whatsoever that do not offer a benefit to the users (a message also condensed into their famous catchphrase ‘Do no evil’). Customer focus is already close to the heart of most communications service providers and has arguably been for a long while – at least the marketing rhetoric is thick with assurances to this effect. The pertinent question now is whether there is yet another level of deeper customer focus not yet tapped into by the communications market players. In their own rarely humble words, Google’s point of distinction is ‘anticipating needs not yet articulated by our global audience, then meeting them with products and services that set new standards’. The dedication and methods used for anticipating the user needs are likely to have been a main reason behind their success. The Google business model is based on revenues from (i) offering the search technology to other companies and (ii) advertising displayed on the Google website and other websites. Very importantly, the advertising on google.com is always relevant to the searches made by users. On the face of it, these search keywords meet a marketing executive’s sweetest dream that potential customers articulate their interests if not buying intentions before adverts are posted and paid for. In reality, customers’ purchasing decisions are very complex and highly influenced by cultural, social, personal and psychological factors [5]. As analysed in Chapter 4, the cultural factors include fundamental aspect such as nationality, religion and social class. The social factors include family status and social roles. Personal factors include age, occupation, economic circumstances and lifestyle. Psychological factors include the motivation to buy and the perception of the offer. Clearly, a few keywords typed into a search engine do barely begin to represent the preferences of the potential buyer except for simple commodities. The often long history of detailed customer data that communications service providers keep in their billing system databases, service platforms and other customer registers would add significant additional depth to the process of managing customer expectations. Chapter 10 will look at the requirements on the enterprise software system and processes for addressing these challenges. Possible customer resentment and potential complicated legal complications are issues that are feared by communications service providers as potential consequences of combining and integrating context-related advertising into service offerings. The legal and cultural implications will vary widely between countries and across continents.

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Rather than attempt to analyse and rationalize all these issues across various geographies, this chapter will as an example focus in more detail on some of the successes and failures experienced by Google, one of the world’s most notorious front runner and trail breaker in the area of contents-sensitive advertising. At present, Google dominates the Internet advertising industry but does not enjoy the same strong position in the fast growing market for mobile advertising [6, 7]. This growing opportunity has sparked a plethora of competitive moves by Google, and by competitors like Yahoo and Microsoft, to include a long list of recent acquisitions.

4.6.1

Contents-Sensitive Advertising In 1998, Google was founded by Larry Page and Sergey Brin in a garage in Silicon Valley, California. Less than 10 years later, the company had grown to a staggering $10B+ annual revenue business (by 2006) with more than 13 000 employees (June 2007) [8]. The exponential growth in the valuation of Google and the Google brand is testimony to the power of an advanced Internet search technology that has attracted millions of regular users across the world. Notably though, the main commercial breakthrough for Google was the realization that unobtrusive targeted advertising based on the search words typed into the search engine would be immensely more valuable than the existing generic one-size-fits-all advertising methods. Technically, the success behind the Google search engine has been focused on an in-house application called PageRank used for ranking websites according to the perceived importance to the users. The system is based on the number and importance of links into Web pages and would not like earlier generations of search engines rely only (or mostly) on the frequency of search words on the page. By deploying this more advanced algorithm, there was suddenly a new way available to users for conducting an Internet search and find useful prioritized answers swiftly. To the user, the benefit was a significant improvement to the notorious problem of having valuable search hits embedded in an immense and growing amount of search noise. Whilst the competitive advantage of Google is usually seen to relate to innovations in search engine software and services, the advanced search algorithms deployed and the swift response times usually enjoyed by users mean that vast clusters of standard servers are required to underpin the search engine. The number of servers is believed to be running into the (many) tenths of thousands with a high degree of softwareenabled robustness to hardware (hw) failures. This sometimes overlooked company asset also represents a significant barrier to entry for new potential competitors that would find it hard to scale their operations even with the right ideas for a potentially improved search experience.

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A key to the success of Google appears to be their consistent focus on user experience. The clean white home page with the Google search box, a minimum of information and no advertising has been a powerful trademark. The search results and the adverts are clearly separated to underline the message of impartiality. There are no intrusive pop-up windows or rolling banners, and all adverts are written in plain text. The effective quick and to the point search engine has reduced the time required for search, thereby effectively getting customers on from the Google website as quickly as possible. This is actually no advantage from an advertising viewpoint, and this was originally a main concern of industry analysts that initially favoured the fuller wider Web experience with e-mail and a wide range of contents offered by competitors like Yahoo and AOL. In the end, the sheer number of users who are continuously drawn in to google.com have turned out to amply compensate for the shorter time each individual spends on the site. Increasingly, the interface to the Internet is becoming synonymous with Google for many of its regular users. From a single-minded focus on search, Google is now rapidly enlarging their footprint in a wide number of areas downstream in the value system. By typing requests directly into the Google search box, the user can get travel directions, dictionary lookups and so on. Vast databases of pictures and videos are available for upload, and users can add new entries. In addition, Web-based calendars, word processing and spreadsheet programs are available with free online storage. As convergence of communications services is gaining pace, the coveted goal of service continuity across different technologies is coming much closer to reality. The next step of having unrestricted access to all personal information from anywhere is also getting a lot closer. Online storage of data, managed by big (trusted!) Internet players, is obviously a strong viable contender as a key enabler of this transformation. From this follows that the dominant market position of Microsoft in the desktop market (and the role of the personal computer as the centre of the computing universe) will also be tested because of the convergence-triggered changes to user preferences and usage patterns. This discussion is continued in Chapter 10 with further analysis of the impact of Google’s plans for Google Gears, ‘an open source browser extension that lets developers create Web applications that can run offline’, thereby narrowing the gap between online and off-line applications. Obviously, the concentrated use of more and more applications with big Internet companies such as Google and Yahoo can cause serious concerns about integrity, privacy, security and potential misuse and fraught. When Google, in April 2004, launched the Google Mail service, the announcement was met with significant resistance and anger in the media and with users. The reason was that Google computers as an integral part of the free mail service would read the private e-mails and context-related advertisements would be triggered by the content of the mails. This neat technical/commercial idea had crossed a line with the public having too significant implications related to potential privacy infringement. Google

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had always retained data that associate a computer IP address with all Google search queries, but with Google Mail, the search data could now be related back to individuals because identities and names were required to sign up. Google reacted by vigorously defending their position. One of the main points in the defence being that machines, not humans are reading the mails, something that is done routinely with other e-mail applications in search of viruses and spam. Another main point was that the service is innovative, free and voluntary to sign up for. Several other privacy issues (such as ownership issues related to mail back-ups) have received public attention in the following years, but several years after launch, Google Mail is still available and with ads in the original format, but it is unclear how much effect the privacy issues have had on user uptake for the service. Surely, the debate has been started and is unlikely to end any time soon – the fundamental question is to what extent user privacy has been and can be invaded [9]. Based on how they handle the deep and extensive data they possess about most of us, the public opinion may at some point be more critical about the power concentrated with individual Internet power houses like Google. Effectively, Google has become a Swiss Army Knife of information retrieval and has notably with plans to digitize vast numbers of books (in US libraries) been making significant headway towards its mission of making all the information in the world freely accessible and usable. This was in short the Google story about the rise of an Internet giant, but a number of the learnings are interesting and relevant in relation to the analysis of convergence in communications particularly related to the incumbent industry players: • The privacy and security implications of utilizing personal data are complex and sensitive issues. However, with focus on the expectations and sentiments of the end-user, these concerns can be contested and addressed. • Advertising that is targeted and experienced as nonintrusive can lead to mutual benefits with all the parties involved, that is users as well as service providers and third-party advertising businesses. • Voluntary participation, transparency and open communication are necessary components for building trust with the end-users. These are very powerful learnings for the telecommunications, information and media industries and particularly related to the consumer privacy issue that is widely regarded as a major challenge. The learning from the Google story may suggest that ‘fortune favours the brave’ and that a similar testing of the waters in other industry segments such as telecommunications could be about to happen.

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In the build-up to major future battles of interests and market dominance between the Internet players and the telecommunications incumbents, further turbulence has been created by two 2007 initiatives by Google. First, Google has launched an open platform for mobile terminals called Android in direct competition with existing mobile terminal vendors and second, Google has stated their interest in acquiring wireless spectrum in the United States in direct competition with existing mobile service providers. These moves underline the new challenges as well as the new opportunities created by convergence in an increasingly open and competitive communications industry.

4.6.2

User Privacy Versus User Benefits The areas of data safety and user privacy are extremely sensitive and must be treated very seriously and thoroughly. The author firmly believes that anything but the highest standards of conduct may threaten to taint the image and brand of communications service providers, and hence damage long-term business prospects. These particular concerns probably reflect the reasons why advertising and active pushing of contents in the telecommunications industry has been approached with such trepidation even though various simple technical solutions are available, such as promotions by SMS or Web banners. However, there are strong reasons to bring this up in the context of industry convergence because the different communications industry segments that are rapidly coming together or even merging have approached this topic very differently. Free contents mixed with advertising have characterized the predominant business models with commercial radio and television stations for many years. The advertising is not personalized but is often aggressively blended in with the contents, sometimes to the degree where advertisers have paid for their products to appear in films and programmes. For example, major mobile phone companies have openly compensated producers with big sums for product placements in blockbuster movie series like James Bond and The Matrix [10]. On the Internet, advertising based on search queries or e-mail contents (refer Google Mail) has been widely accepted to have some benefits to users, that is adverts have been seen to carry positive informational value to the users. Regarding the topic of user surveillance and ‘big brother’ conduct, the Internet search companies generally keep records for months and years of all search queries. These data can be traced back to individual computers or even individual users if other data are available, like personal subscriptions to e-mail services. With some studies suggesting as many as one in four queries being related to adult contents (2006 study by watchdog Family Safe Media [11]), one would expect a significant latent cause for

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concern over privacy. Still, there appear to be no slowing down in the use of search engines. At ‘MySpace’, the popular social networking website, users create online profiles and connect with friends or others with similar interests. It is common to find personal information posted voluntarily by individual users [12]. This would include data such as name, date-of-birth, address and mother’s maiden name (often used in security checks), and all this can be related to other personal contents posted on the website in the form of pictures, chat rooms logs, blogs and so on. It is clear that the Internet industry players as well as the users of the Internet medium often have a quite different view to privacy and data safety compared to the much older and more traditional telecommunications industry that is different again to the radio and television industry segments. This dilemma covers a wide span of issues around conducts and data characteristics, for example related to: • generic contents versus targeted contents; • intrusive advertising versus voluntary opt-in advertising; • public data versus private data. In Figure 4-8, a selection of communications services have been characterized into two dimensions, namely, technology delivery style (i.e. push or pull) and the distribution audience (i.e. everyone, group or individual). The traditional communications services of voice telephony and TV/radio broadcasting are positioned at the opposite extremes of this classification. Broadcast television is pushed regardless of whether anybody is tuned in,

TV over-the-air

Targeted adverts Mobile marketing

Push

Cable TV Search engines Social websites Pull Voice telephony

Everyone

Group

Individual

Figure 4-8. Communications services can be characterized by the delivery style (i.e. push or pull) and the distribution audience (i.e. everyone, group or individual).

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and the contents is usually mixed aggressively with advertising. However, telephony-related services are usually highly individualized offerings where users actively request (or reject when called) the service. Internet services provided by search engines are initiated by users, but the format and contents of the response is to a large extent controlled by the provider of the search engine service. As the proverbial snake in the paradise, Internet services and the related targeted advertising has opened a new range of opportunities but also potentially opened up for a complex issue with personalized push-based services.

4.6.3

Respect for the User    with a little ingenuity and lots of respect for the user, wireless marketing can and will succeed. At the very least, the invasion of the handheld is certainly a revolution the marketers can’t ignore. Bayne, Marketing Without Wires – Targeting Promotions and Advertising to Mobile Device Users, 2002, John Wiley & Sons [13]

For the wireless market and the wireline market, many of the main issues regarding communications marketing are the same, and a considerable concern is the data security and privacy expected by the end-user. Best practices should in short look after the user interests as the most direct way of building trust and thereby long-term business opportunities. For advertising to provide value, it should always be targeted, compelling, and possibly interactive, and convey personalized information that is not just boiled down versions of generic information. It is important to remember that across countries and continents, the expectations, practices, standards and legislation vary significantly. An analysis of this vast geographical variation is beyond the scope of this book, but for further studies of this area a list of industry bodies is given below that are formed to address the issues globally of best practices in communications marketing: • ‘Mobile Marketing Association’ (MMA) aims to actively establish industrywide, national and international best practices and guidelines for mobile marketing. The code of conduct proposed by MMA is divided into six categories: choice (users to opt-in to receive mobile messages), control (users allowed to easily opt-out), customization (targeted as requested by users), consideration (users to receive something of value in return), constraint (limit quantity pushed towards users) and confidentiality (data to remain with service provider unless user permission is granted) [14].

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• ‘Cable and Telecommunications Association for Marketing’ (CTAM) ‘focus on cable telecommunications marketing and provide education, practices and industry insight’ [15]. • ‘International Internet Marketing Association’ (IIMA) is an organization that ‘helps marketers understand the value and potential of marketing on the Web and strives to raise all marketers’ abilities’ [16]. • ‘Direct Marketing Organization’ (DMO) ‘advocates industry standards for responsible marketing and promotes relevance of advertising as the key to reaching consumers with desirable offers’ [17].

4.7

Summary In large parts of the communications market, the competition is strong but not entirely free due to significant technology boundaries between large market segments as well as a significant degree of differentiation inside the individual market segments. These boundaries inside of the communications business environment will be reduced when convergence opens up for stronger direct cross-segment competition. In the wake of these changes, the dominant business models will change from being focused on controlling the value system towards increased collaboration with ‘old’ competitors (e.g. for asset sharing) as well as players in other parallel value systems (e.g. for multiplay offers). Incumbent communications service providers have attempted to stem the tide by moving the focus down their value chains. Whilst moving towards unified service operations for contents management and contents creation, traditional communications contents providers are set to clash with the Web 2.0 business models of the Internet based on collaboration, facilitation and collective knowledge. For some services in some segments, the players are already embracing the 2.0 mode of operation, but for the bulk of their operations, a key question is to what extent individual communications service providers or whole submarket segments (such as telecommunications) will be leading, or be lead, into the new 2.0 era. With growing end-user influence in the new industry business model, the power to manage the full end-to-end user experience is slowly drifting beyond control by any individual market player. Whilst multiplay offers a higher degree of coherence in some parts of the market, the individual elements in the services packages are increasingly delivered by a few dominant contents brokers and fed by ‘the long tail’ of the contents market. For communications service providers like Vodafone and Orange, this effectively means that their ‘sphere-of-influence’ in their respective value systems is shrinking. Competitive advantage in the future convergent communications industry will be based on the organizational ability of communications service

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providers to utilize the specific mix of network data, services data and customer data available to each of the players in the market. Individualized context-sensitive advertising is an important example of the use of detailed customer data, but notably this raises a number of important questions related to data security and customer privacy. A thorough understanding of customer expectations and respect for customer choices are key components of a successful business model based on advertising. The telecommunications industry segment, the Internet industry segment and the broadcasting industry segment have very different records in this area, hence, a significant culture clash is in the making. In many market segments, convergence will strengthen and diversify the competition felt by the communications service providers (as analysed in Chapter 3). In this changing environment, the ability of communications service providers to work effectively across the organizational boundaries will be important to build sustainable competitive advantage. In Chapter 10, the analysis will focus on the crucial link between the technical organization and the business organization internally to communications service providers and how it can and must be strengthened.

4.8

References [1] ‘Airline Competition in the Single European market’, Civil Aviation Authority, London, November 1993. [2] ‘Communications Outlook 1995’ (Chapter 5), OECD Report, Organization for Economic Co-operation and Development (OECD), Paris, 1995. [3] Telco 2.0 Initiative, Telco 2.0 manifesto, www.telco2.net/manifesto, 2007. [4] Ten Things Google has Found to be True, Google website, http://www.google. com/corporate/tenthings.html, 2007. [5] Kotler, P. (1991), Marketing Management – Analysis, Planning, Implementation, and Control, Prentice-Hall International Editions. [6] Boulton, C. (2007), Mobile Search Ad Growth Stokes Google-Microsoft Fires, www.eweek.com, 12 September. [7] Vise, D.A. (2005), The Google Story, Pan Books. [8] Wikipedia (‘Google’), www.wikipedia.co.uk, 2007. [9] Greenberg, A. (2007), Can A Search Engine Know Too Much?, Forbes.com, http:// www.forbes.com / 2007/06/11/google-security-privacy-tech-cx_ag_0611 google.html, 11 June. [10] Lev-Ram, M. (2006), James Bond’s new temptress, Business 2.0 Magazine, http://money.cnn.com/2006/11/15/magazines/business2/bond_phones.biz2/ index.htm, 17 November. [11] Family Safe Media Statistics, http://familysafemedia.com/pornography_statistics. html#keyword-trends, 2006. [12] Marsden, R. (2007), My daughter has put her details online. Should I worry?, The Independent, Section: Extra Cyberclinic, Wednesday, 4 July. [13] Bayne, K.M. (2002), Marketing Without Wires – Targeting Promotions and Advertising to Mobile Device Users, John Wiley & Sons.

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[14] Mobile Marketing Association, website, www.mmaglobal.com, 2007. [15] Cable & Telecommunications Association for Marketing, website, http:// www.ctamnetforum.com, 2007. [16] International Internet Marketing Association, website, www.iimaonline.org, 2007. [17] Direct Marketing Organization, website, www.the-dma.org, 2007.

Chapter 5: Strategic Opportunities The Concise Oxford Dictionary defines ‘Opportunity’ as ‘a chance or opening offered by circumstances’ [1]. It is clear that in times of significant change, like the convergence-powered industry transformation that has been the focus of Chapters 3 and 4, opportunities will be many. It is also clear that the much sharper competition formed by more players competing in larger open markets will create a significant risk and that some of the incumbent players will struggle to remain competitive. The convergent (hyper-)competitive market place is expected to gradually force all players to sharpen up strategic plans and make sure that no ambiguity is preventing unrelenting focus on exploiting core competitive advantages. This may be an even tougher challenge compared to the present circumstances where most of the big communications service providers are covering many tiers in the industry value system for control as well as risk mitigation. This picture of full and open competition is idealized, and the reality is likely to be that changes will take many years to penetrate the communications industry fully, by which time new waves of change will have kicked in. These perpetual changes will blur the overall picture and to a certain degree offset the clear impact of increased competition. Important

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to acknowledge, though, is that despite much ‘temporary tactical noise’, fundamental underlying drivers in the industry are changing for good. For the communications industry, this is in some respect a step back to the fundamental questions for any company in open market places. That is, what is our reason to be? and how can we build on our strengths to prosper?

Opportunity is missed by most people because it is dressed in overalls and looks like work. Thomas A. Edison, U.S. inventor (1847–1931)

5.1

Generic Business Strategies So far, the focus has been on the changing structures of the communications industry and the way this transformation will have a profound impact on the roles of the individual companies as well as consumers. In particular, the interfaces in the industry value grid to new possible collaboration partners as well as new competitors have been addressed and analysed. This analysis has been conducted in the context of the convergence-driven reduction of the ‘sphere of influence’, for the communications service providers, particularly in the telecommunications sector. Analysis of the value grid will help strategic planners to analyse and plan new activities in their value chain and to abandon other activities when judged non-strategic. The next step is obviously to build strategic evolution plans to match. In this chapter, the focus will be on the further opportunities individual companies have for making fundamental strategic choices about the market position of their business. These choices are obviously of outmost importance for the position of the company in the industry. In his book Competitive Strategy [2], Michael Porter sets out the framework of a simple much-cited model for generic successful strategic approaches to out-performing other players in a competitive industry. The possible generic strategies analysed by Porter are as follows: • Differentiation (industry-wide uniqueness as perceived by customer). • Overall cost leadership (industry-wide low-cost position). • Focus (target a particular market segment). Porter’s conjecture is that rarely will a company be successfully able to pursue more than one strategy as its primary target. Figure 5-1 shows this model for generic competitive strategies. To exemplify how the mapping into the different categories of generic competitive strategies works in a mature competitive industry, one can

Chapter 5: Strategic Opportunities

Industry wide

Particular segment

Uniqueness perceived by customer

Low-cost position

Differentiation

Overall cost leadership

Quality of communications services

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Figure 5-1. Three generic competitive strategies are available for companies to pursue in open competitive markets.

briefly look to the European passenger airlines industry. When companies like Ryanair and easyJet entered the airline industry in the 1980s and 1990s, the incumbent players like British Airways and Scandinavian Airlines were struggling to compete on price whilst maintaining their traditional focus on business customers, and financial problems followed. In Porter’s terminology, these players became ‘stuck in the middle’ between the different generic strategies of ‘differentiation’ and the ‘overall cost leadership’, none of which were pursued and implemented consistently. Also shown in Figure 5-1 are typical focus areas (the ‘bubbles’) often pursued as complementary ‘strategic objectives’ by communications service providers: • quality of communications services; • operations efficiency; • technology and service evolution. Whilst there is a rough mapping suggested between these focus areas and Porter’s generic competitive strategies, it is important to note that the focus areas of the communications service provider can vary between an operational (short-term), a tactical (mid-term) as well as a strategic (long-term) perspective. Porter’s strategies are inherently long term, but companies may operate in a state of transition for many years whilst the market matures and unrestricted competition becomes commonplace. The transition of the various segments of the communications market from traditional state monopoles to open competitive market places is now either well underway or completed as already analysed in Chapter 4. In

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the general communications market, pure competition will never happen due to the complexity of the services offered, but as convergence stiffens the competition in the market, all players may have to consider strategies with characteristics along the categories in the generic competitive strategies model. These changes would happen first for activities in the upstream part of the value chains and initially affect basic undifferentiated services like plain voice telephony. The struggles of Easymobile, the mobile service provider branch of the easyGroup, to make an impact in the European market is testament to the fact that even a no-frills voice (and SMS) offer at low cost may be right in terms of a narrow strategic focus in the market, but customers are still the final judge of success or failure. This illustrates an apparent contradiction between Porters’ model and the reality that many communications service providers seem to be pursuing all three generic strategies at the same time, that is by reducing the services prices, by developing new service for differentiation and by focusing on particular customer segments. Effectively, the market players still benefit from pursuing these mixed strategies in an imperfect market. The pursuit of more than one of the generic competitive strategies has seen another business model evolve, where communications service providers operate different market strategies by independent organizational units. For example, a low-cost no-frills service sold over the Internet often under a different trade name and a comprehensive traditional service sold via the usual sales channels such as chains of high street shops. An important consideration is that operational targets (often with a narrow scope) should be closely linked to strategic targets (with a wider scope and a much longer time horizon) to avoid suboptimization in a narrow part of the business. For example, pursuing operational/ tactical cost reduction in a particular network operations department will not necessarily help the service provider towards a strategic position of ‘overall cost leadership’. This particular strategic problem is worth closer investigation.

5.2

Quality Versus Cost: A Trade-Off Projects for optimization of the operations environment with communications service providers are naturally often focused on the operationally important themes of ‘quality of communications services’ and ‘operations efficiency’. For example, fixed line subscription replacement where end-users would terminate their fixed line subscription in favour of a mobile-only subscription is in many markets happening more slowly than anticipated a few years ago. Some main reasons appear to be (i) cost-driven bias towards cheap fixed line subscriptions, (ii) a (perceived) gap in quality/reliability between the

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two technologies, (iii) FMC solutions offer combined benefits from the two technologies (see Section 7.4 for details). For small projects with an operational or tactical time frame, the ‘Quality’ (often measured as QoE) and ‘Efficiency’ [often measured as operational expenditure (OPEX)] can often be optimized independently. For example: • Quality: Training of staff may reduce the average network faults investigation time. • Efficiency: Utilization of leased lines may be increased through replanning. Obviously, there is a point in this process where quality can be further increased only by reducing the efficiency (i.e. increase the cost), and there is a point where cost can be reduced further only by reducing the quality. The trade-off between cost and quality for service providers pursuing different strategies is shown in Figure 5-2, where the scope for the changes (whether operational/tactical or strategic) is indicated by shaded elliptical areas. Also indicated in the figure is the usually impossible strategy of simultaneously pursuing high quality as well as low cost where service providers risk being ‘stuck in the middle’ between two strategies, none of which would be implemented consistently.

St r

at

eg

ic

Cost

Ta c

tic

al

Differentiation

c tu ‘S k in e’ dl

id

em th

Low cost

Quality

Figure 5-2. A trade-off exists between ‘Quality’ and ‘Cost’ for large strategic communications projects.

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• ‘Stuck-in-the-middle’ (refer Figure 5-2.): Service providers with no single and clear strategy focus on small tactical projects for cost reduction and/or quality improvements. • Low cost or differentiation (refer Figure 5-2.): Service providers with a clear strategy pursue this strategy through large strategic projects for cost reduction or quality improvements. As discussed above, there are fundamental underlying strategic processes that can be changed for the long term good of both cost-base and perceived quality. Operational goals are best pursued by operational projects, whereas strategic goals are best pursued by strategic projects. Pursuing a strategic goal by a long string of incremental steps of improvements is less likely to be successful. For example, there is a risk to service providers of entering into a ‘death spiral’ with cost reductions that affect the service quality. This may have a negative impact on the Average Revenue Per User (ARPU) that results in additional pressure for yet more cost reductions. The strategic industry model (Figure 5-1) proposed by Porter arguably gives a fairly ideal view of the competitive landscape. The model suggests that only three different business strategies are sustainable. In reality, most products or services in the market are not either the cheapest or the best but aimed to strike a balanced trade-off. For example, a car with features perceived as ‘good’ by a well-informed potential buyer sells at a price perceived as ‘acceptable’ to the same person. What this means is that this consumer finds the proposition on offer optimal because (i) no other car at a lower cost will offer the same quality of features (or other features at a perceived higher value) and (ii) the same money cannot buy another car with better quality of features. In general, all combinations of cost and quality that are considered optimal by a well-informed buyer are said to reside on the ‘cost-quality frontier’ [3]. Now, with reference to Figure 5-2, being ‘stuck in the middle’ is the appropriate label for companies that consciously and actively pursue several strategic positions at the same time as, for example, illustrated by the extreme positions of differentiation and cost leadership. Porter’s model was developed before the Internet era took pace, and it is seen to work particularly well in a traditional production industry where products (or services) are sold in a competitive market at a price. In an increasingly services-oriented communications industry, key differentiators are arguably moving towards intangible assets such as ‘knowledge’ and ‘customer intimacy’. Whilst these areas are also flavours of ‘differentiation’ or ‘focus’ strategies, the model offers somewhat less insight into the distinguishing characteristics between some of the new business models in the market. For example, the Internet company YouTube (acquired in 2006 by Google for US$1.65 billion) is offering its basic service to its consumers for free whilst relying on advertising for revenues. In the more traditional

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consumer commodity industry, low-cost home products retailer IKEA has effectively managed to pursue simultaneous differentiation and low-cost strategies. In the communications industry, one of the main challenges that convergence presents to the communications service providers is the merger of the telecommunications model mostly based on billing and the Internet business model strongly based on advertising. Also, the ‘free’ model with no direct cost presented to the consumer is gaining some momentum across a broader range of industries such as the software industry (free operational systems, word processors, games, etc.) and the music industry. In October 2007, the English rock band Radiohead released their seventh studio album ‘In Rainbows’ through their own website for fans to download free of charge. This was the first major established band to embrace a completely new business model based on indirect revenue streams, such as merchandise sales and extra sales of concert tickets [4]. If the cost-quality framework for gaining market position partly collapses into a ‘free’ (or initially a flat fee) culture, quality (or differentiation) becomes the sole decision parameter in some market segments. The communications industry is facing some challenging market trends.

5.3

‘Lean Operator’ and Beyond In recent years, ‘lean operator’ has become a widely accepted strategic reference model in the telecommunications industry [5]. In short, the ‘lean operator’ model promotes the objectives of (i) ultra low-cost operations’, with (ii) highly flexible infrastructure for fast reaction to market changes. This ambition goes to the heart of the generic strategic trade-off between low cost and quality (or differentiation that can be achieved, for example, by consistently being first with the newest services) [2]. The Tele Management Forum (TM Forum) is a strong proponent of the lean operator concept. ‘Lean operator’ embodies the industry’s response to a market situation where for most services the revenue per unit falls faster than the cost per unit. The TM Forum orchestrates and supports standardization such as New-Generation Operations Systems and Software (NGOSS) as a means to reduce the cost-base for the entire industry by reducing the ‘integration tax’ and provide a common and structured view to essential business processes. Obviously, the TM Forum standardization frameworks would support any generic strategy, such as differentiation or cost leadership, chosen by a communications service provider. Hence, the ‘lean operator’ strategy is a way forwards for the industry as a whole. ‘Lean’ would give all the market players specific benefits and thereby better the health of the industry as a whole. Still, there is plenty of room for competition with every company following their own generic strategy.

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The TM Forum is also actively focusing on the next wave of transformations in the industry to expand and even move beyond the ‘lean operator’ strategic aim. For example, the Telecom Media Convergence group has been set up ‘to identify and drive resolution of issues related to operating and managing quintuple play (Voice, Video, Data, TV and Wireless) and converged networks within the service providers’ [6]. Notably, the Telecom Media Convergence group is working on a vision for the ‘Converged service provider’. It may be argued that communications service providers are unlikely to win a market leader position merely by following standards developed and published by organizations like the TM Forum. However, the service providers would be likely to suffer dearly from not following standards. An interesting point in the context of convergence is that different market segments in the communications industry will draw significant mutual benefits from better standards that allow leaner operation in their particular segment of the industry. Before convergence, the relative isolation of these segments would to some degree allow all the players to pass higher costs (e.g. due to proprietary technologies with high integration and operations cost) on to the end-users. With convergence and the stronger competition that follows, this is no more possible.

5.4

Summary In all competitive industries, the competitors will gravitate towards strategies that may either be one of three extreme generic strategies: • Low cost • Differentiation • Focus or in general find an optimum position on the ‘cost-quality frontier’. This transition process may take many years, and many communications service providers are today simultaneously pursuing more than one strategy (e.g. high quality as well as low cost). The point here is that whilst no model will be universally applicable over time, the application of a well-established strategic model to new business challenges will highlight similarities as well as differences between the existing business models and the emerging new business models – and this is exactly the objective of this analysis. Operational/tactical projects focused on either quality or low cost may miss overriding strategic objectives and result in suboptimization in a limited part of the business. Successful optimization of the main strategic operations processes will re-generate the ability of the communications service

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provider’s organization to cope with the significant changes in the market such as the proliferation of new carriers and services. Strategic changes to these processes will in turn affect operations cost and quality. Several years ago, the aviation market changed significantly with the emergence of low-cost carriers, and traditional players suffered without clear focus in their business. The communications market is now also on the brink of fundamental changes and communications service providers risk ‘getting stuck in the middle’ if they do not have a clear strategy for the future. Changes to strategies for communications service providers have in the past taken a long time to materialize with major players often watching each other closely but no one making decisive moves. When changes happen, strategies are unlikely to be implemented in their pure form but will be mixed and matched across different markets and customer segments. Convergence is expected now to significantly accelerate this process.

5.5

References [1] [2] [3] [4]

The Concise Oxford Dictionary, Clarendon Press, 1990. Porter, M. (1980), Competitive Strategy, Free Press. Saloner, G. et al. (2001), Strategic Management, John Wiley & Sons, Inc. Radiohead album set free on web, BBC News, http://news.bbc.co.uk/ 1/hi/entertainment/7037219.stm, 10 October 2007. [5] Warner, J. (2005), Lean Operator, Business transformation for Services, TeleManagement World presentation. [6] TM Forum, www.tmforum.org/browse.aspx?catID=2815&linkID=31594, 2007.

PART III TECHNOLOGIES AND SERVICES Technologies come and go. Some survive longer than others, and some never make it from the laboratories to the shop floor. New technologies pushed into the market reflect new scientific break-throughs as well as changing consumer preferences. It is a very notable trend that the rate of change is accelerating: • It took about 10 years for the number of mobile subscriptions in the United Kingdom to outnumber the fixed network subscriptions that had been build up gradually over the preceding 100 years [1]. • The mobile replacement rate is hovering around the 2-year mark in Europe and is even less for young users [2]. • The social network website Facebook has grown by 541% over an 8-month period in 2006/2007. Facebook was visited by 6.5 million unique users in August 2007 corresponding to 20% of all active Britons online [3]. In the increasingly competitive and convergent communications market, many combinations of technology enablers and services increasingly overlap in form and function. In this environment, it is noticeable that there is often little friction to changes. Consumers are able and willing to express their preferences by quickly moving their attention and subscription (where required) towards the best or trendiest offers.

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The ongoing transformation of the market structure and the rapidly increasing consumer power will change the traditional role of the communications service providers and equipment vendors. The professional part of the industry is likely to be challenged as the acknowledged driver of change and pushed towards a facilitator role where the user activities are supported rather than guided and restricted. This means that the customer focus will have to be taken to new heights where the technology becomes almost invisible and the customer choice and customer value are taking the centre stage.

Technology is a word that describes something that doesn’t work yet Douglas Adams (1952–2001), author

Part III (Chapters 6 and 7) of this book dives into the details of the underlying technologies, the systems and the services that enable the varied communications propositions on offer to consumers. The aim is to provide a broad overview of a number of important technical topics. A deeper technical analysis is outside the scope of this book, and the reader is referred to the comprehensive specialized literature. In Chapter 6, a number of the most important enabling technologies in the communications industry are outlined with a specific focus on convergent technologies that span formerly separate technology domains. Key core network technologies, access network technologies and terminals technologies are included in this analysis. In Chapter 7, a number of key services and systems that will emerge in the wake of convergence are analysed. As an important example, televisionand video-based services are examined across a number of different access methods and user terminals.

References [1] ‘Communications Market Report’, Office of Communications (UK), August 2007. [2] One Out of Four European Mobile Users Replace Their Phone Every Year, http://www.telephia.com/html/insights_050806.html, 8 May 2006. [3] Nielsen/NetRatings, www.nielsen-netratings.com/pr/pr_070925_UK.pdf, 25 September 2007

Chapter 6: Enabling Technologies

The technologies on their own are obviously only a catalogue of options that the market players can pursue or reject. The success is dictated as much by the inherent qualities of the technology in question as by a range of other factors that affect end-user buying decisions to include marketing and sales promotions or other factors such as fashion and perceived health and safety issues. For companies, there are further concerns such as market strength, supporting partnerships and regulatory issues that must be addressed. The history is ripe with tales of supposedly superior technologies falling by the wayside and with what was perceived technically less advanced competitors coming to dominate the market. Classic textbook battles were VHS versus Betamax in the home video market and Apple versus Microsoft in the personal computer market. For all of the market players, the timing is obviously critical, being too early in the market is often as bad as being late. You will risk exhausting scarce resources to build up awareness and capabilities, only for other companies with a later entry strategy to benefit. Likewise for example, the first buyers of new technologies with significant network externalities (i.e. the value of a product or service depends on the number of other users of

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the same service – e.g. video telephony) risk losing out if the market changes direction. In this chapter, the aim is not to provide a complete overview of all available technology options. A selected number of important technologies are highlighted and discussed in the context of convergence, and with only little emphasis on the hard technical characteristics such as system architecture, interface protocols and implementation standards. Also, the variations in standards and practices in different countries and across different continents are beyond the scope of this book. For a full coverage of all technical details, refer to a range of comprehensive technical books available in the market such as The IMS – IP Multimedia Concepts and Services by Poikselkä et al. [1], Network Convergence – Services, Applications, Transport and Operations Support by Hanrahan [2], Telecommunications Convergence by Shepard [3] and HDTV and the Transition to Digital Broadcasting: Understanding New Television Technologies by Cianci [4].

6.1

Core Network Technologies and Systems Real-time services and the Internet protocol (IP) do at the face of things not make up an ideal combination due to the inherently unreliable or best-effort nature of IP-based packet-switched networks. However, the reliability of IP can be handled efficiently by upper layer protocols, and the overall system performance has obviously proved adequate for an exploding number of usage areas in transport and switching and thereby as a basis for a plethora of applications and services. Present circuit-switched systems that are based on the principle of establishing a dedicated circuit channel to the user terminals for communication will coexist with packet-switched systems for years to come, but circuit-switched systems are expected to be phased out eventually. In the following subsections, the focus will be on a number of new technologies and systems for control and service delivery capabilities in the core network.

6.1.1

IP Multimedia Subsystem In the book The IMS – IP Multimedia Concepts and Services by Poikselkä et al [1], the IMS is defined as ‘A global access-dependent and standardbased IP connectivity and service control architecture that enables various types of multimedia services to end-users using common Internet-based protocols.’ The concept of IMS has been introduced as an enabler of a new generation of exciting and rich services to be provided by CSPs. Particularly, the IMS has

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been widely promoted as the only uniform, flexible, economic and secure way of allowing Session Initiation Protocol (SIP)-enabled terminals to establish IP-based peer-to-peer and peer-to-contents connections. The IMS-enabled services will typically let different service components like voice, video, messaging, presence and various other services be used simultaneously in any conceivable combination. During already established voice calls, one of the parties on the call can, for example, initiate a video session to share stored video clips or stream live video, only later in the call to terminate the video session again and share another data session or a game or any other application or multimedia service. At the same time, the availability of the people on the call can be updated to a presence server that can share this information with potential new callers. Refer to Chapter 7 for more details of some of the individual services enabled by IMS. The IMS was originally specified by the wireless standards body ‘ThirdGeneration Partnership Project’ (3GPP) as part of the vision for evolving mobile networks beyond GSM. In the later Releases 6 and 7 of the 3GPP specifications, also wireless LAN, code division multiple access (CDMA) and fixed telephony systems are supported by IMS. The joint support of fixed and mobile systems makes IMS a strong driver of convergence in the core network. A key characteristic of the IMS architecture is the split into three main planes or layers. Notably, this architecture means that the transport or bearer services are separated from the IMS signalling network and session control services and that the provisioning and management of services are separated out in its own layer. The three layers [1] are named (i) ‘user plane’ (sometimes also referred to as transport plane), (ii) ‘control plane’ and (iii) ‘application plane’. In Figure 6-1, a simplified overview of the layered architecture of IMS is depicted.

Application plane Application server

Application server

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Application server

Control plane Home subscriber server

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Call session control function

User plane SGSN

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GGSN

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Media gateway

Figure 6-1. A simplified view of the layered IP Multimedia Architecture. The IMS is a collection of different functions, linked by standardized interfaces (not shown).

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The main functions of the three IMS layers are briefly discussed: The user plane comprises the capabilities for access into the core network as well as functionality for IP data packet connectivity. Part of the user plane is the General Packet Radio Service (GPRS) core network with the main elements of the gateway GPRS support node (GGSN), that functions as an interface into the packet core network, and the serving GPRS support node (SGSN), for functions such as packet routing and mobility management. The IMS architecture is independent of access methods and is supporting a range of IP connectivity networks such as GPRS, wireless LAN and DSL. The control plane sits between the user plane and the application plane and performs the key role of management and routing of the call signalling. A number of important functions reside at this layer. This is notably to include storage of subscriber- and service-related data in the database called home subscriber server (HSS) and the ‘call session control function’ (CSCF) that plays the main role in registration, creation and release of user sessions, as well as user authentication, peer network management, resource allocation and creation of charging data. The application plane provides the infrastructure for creation, management and provisioning of services. Application servers (ASs) for services like presence and messaging will host the functionality required for these services in such a way that independence of the access technologies is ensured. The application plane manages interfaces to key functionalities like user management and charging. An IMS session can be initiated by any session initiation protocol (SIP)-enabled user terminal. SIP is an application layer protocol used for establishing, modifying and releasing IP-based multimedia sessions. Basically, a SIP INVITE request triggers a complex sequence of events that result in the establishment of a session. The IMS standards have evolved during a decade of work under the auspices of the European Telecommunications Standards Institute (ETSI) and 3GPP. During this prolonged specification phase, the world has changed very significantly as this book is a strong testament to. Like it is now a daunting task to predict with any degree of accuracy the future 10 years on, it was impossible 10 years ago to predict where we would be today in terms of technology, business environment and socioeconomic development. Throughout the different 3GPP releases (from the early 3GPP Release 99 to the present Release 7), the IMS specifications have adapted significantly to these changes, for example by embracing new services and new access methods. There have though been significant concerns and question marks raised over some of the fundamental premises that IMS rests upon [1]. Proponents of IMS have argued that an open, modular and standardized technology like IMS is the best and cheapest way for service providers to offer services and likewise for users to obtain the best service package. In addition, IMS is seen as the direct way towards convergence of the fixed and mobile areas, as well as convergence of voice and data services. The alternative future without IMS is seen as one of proprietary solutions for

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service delivery. In recent years, the emphasis has been notably broadened from a dominant focus on rich service delivery to an additional strong emphasis on the cost reductions, particularly in the fixed networks that a convergent core network would bring about. IMS sceptics have emphasized that IMS fundamentally is an architecture for controlling and steering the distribution of content and thereby supporting a business mindset and model of the past. This is because the user requirements arguably move towards facilitating free and unrestricted access to consume and create contents, unhindered by any platform ownership or format. Architecturally, it has been argued that IMS is too complex for longtail application development and contents sharing and that the CSCF could possibly disappear and the application layer functions be accessed with ‘plain’ SIP in a framework based on Web services (WS) [5, 6]. The jury is still out on these fundamental questions, but it appears that a significant majority of service providers are slowly but surely moving towards an IMS-based strategy [7]. The degree to which this strategy will be successful depends significantly on the supporting strategies adopted by the service providers with respect to the wider questions of business models and future position in the value system of the communications industry. Also, the big Internet and software powerhouses like Google, Yahoo, Microsoft, MySpace and Facebook are building up highly popular multimedia architectures. These platforms will provide capabilities for service creation and execution that will challenge for a market position partly overlapping with IMS and the evolving concept of service delivery framework (SDF).

6.1.2

Service Delivery Framework With the emergence of standards like IMS for system interworking, service control and service development as well as the growing convergence of voice and data services, the foundation for new advances into open platforms and frameworks for service delivery and management has been laid. Below is a list of some of the functions required: • Third-party contents management • Third-party relationship management • Personalized advertising and promotions management • Digital rights management • Revenue assurance management • Multichannel delivery management • Service creation • Service execution

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• Service provisioning • Network interfaces and abstraction • Charging support. The architectural entity that would constitute all these functions is generally referred to as a ‘service delivery platform’ (SDP). It has become clear though that the architectural elements required by different CSPs are not the same and that flexibility is required for combining elements from different vendors in an optimum framework. These additional requirements have led to the concept of a ‘service delivery framework’ defined as a framework for building platforms [8]. Note that at the time of writing, there was no common definition of the concepts of SDP and SDF agreed in the communications industry and neither was there consensus about the exact constituent elements. The sheer complexity of the SDF requires significant focus on standards, open interfaces and multivendor integration capabilities. Particularly, welldefined interfaces into the OSS, Business Support Systems (BSS) and the IMS are needed. This increased focus on open nonproprietary multivendor systems has also changed the dynamics in the supplier market for service creation and service execution environments. Previously, it was a network technology-driven market for telecommunications equipment vendors only. Now, the door has been opened to a wider range of players to include traditional IT vendors, software powerhouses and system integrators. This change is yet another sign of growing market convergence. A majority of the SDP/SDF vendors stress the importance of a common integration environment based on a service-oriented architecture (SOA) in their product offerings. This is further underlining a strong undercurrent of convergence in IT and telecommunications technologies. With the emergence of flexible SDF frameworks based on standardized components and interfaces, the CSPs are given an unique opportunity to adapt to the fundamental market changes driven by convergence. This can help to build frameworks that specifically target their competitive advantages, in particular market segments in a way that reflects their specific history and competences.

6.2

Access Network Technologies and Systems Technology overviews are given for selected access systems for fixed-line access as well as wireless access.

6.2.1

Fixed-Line Access The ubiquitous twisted pair copper telephone line in the subscriber local loop is the traditional access medium for fixed telephony. In recent years,

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new techniques have allowed broadband services to also be delivered over the same medium. Also widely deployed are cable networks based on various electrical and optical transmission technologies. These broad categories of broadband access technologies will be further analysed.

6.2.1.1 DSL Technologies Digital Subscriber Line (DSL) technologies are used primarily in copper twisted-pair networks traditionally deployed in Plain Old Telephone Service (POTS) systems. DSL is a popular widespread and cost-effective way of delivering broadband services to residential users and small businesses. Technically, the DSL technologies use a lower-frequency band for traditional telephony and a higher band for data services. The two signals are separated at the customer premises by a passive electronic filter before decoding for which highly complex digital signal processing algorithms are used in the DSL modem. Further upstream, the subscriber line links to a digital subscriber line access multiplexer (DSLAM) where a large number of individual DSL connections are connected. The reach of the signal on the line determines the location of the DSLAM. The maximum distance of typically a few kilometres between the DSLAM and user premises depends on the specific DSL technology deployed. A wide range of different DSL technologies (often referred to as xDSL) have been developed. Two of these technologies with the widest deployment are listed below [9]: • Asymmetric Digital Subscriber Line (ADSL) supports an asymmetric traffic scheme. Different standards exist but typically, ADSL provides up to 8 Mbps downstream and 1 Mbps upstream. • Very high-speed digital subscriber line (VDSL): VDSL is capable of supporting up to 50 Mbps downstream and 1 Mbps upstream with secondgeneration systems achieving even higher bandwidths. The maximum distance is a few hundreds of meters at the highest bit rates. The fast evolution of xDSL technologies for increasingly higher bandwidths is significantly widening the portfolio of services that can be delivered. With a bandwidth of a few hundreds of kilo bits per second, low-quality television can be streamed over xDSL. The standard MPEG-2 codec can compress DVD-quality video to within 3 Mbps and HDTV can be delivered over links of 10–12 Mbps capacity. New codecs like MPEG-4 promise further compression and raises new requirements for the compatibility of the user equipment. Whilst Internet protocol television (IPTV) over DSL is already a reality in many markets, this industry segment is still at the stage where the right technologies and business models are actively being tested and defined.

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6.2.1.2 Cable Technologies Traditional cable networks are analogue systems with tree-like one-way distribution architectures based on coaxial cable. From local distribution points/splitters, the signal is distributed to residential homes and terminated at the TV set top box (STB). The next-generation cable systems have seen upgrades of the technology on a number of fronts, for example the systems go digital, the systems become partly (or fully) optical and an upstream return channel is being added. This history of changes has taken the cable business to the point where direct competition with modern ×DSL technologies networks is enabled. The growing availability and popularity of HDTV and interactive highbandwidth services has spurred a new surge of interest in extending the optical fibre networks to residential homes.

6.2.2

Wireless Access Main contending technologies for the future wireless broadband access networks are 3G mobile network technologies and their gradual evolution towards 4G, WiMax and wireless LAN. For a comprehensive overview of other technologies to include satellite communications, the reader is referred to References [3,10,11]. Television broadcasting is covered in Section 7.2.4.

6.2.2.1 Mobile Broadband Evolution The most widely deployed cellular technologies in the world are based on the GSM Association (GSMA) and third-generation partnership (3GPP) specifications. The first GSM standards were developed in Europe during the 1980s, with different parallel standardization activities running in the United States and in Japan. These radio access standards were targeted at voice and simple data services, initially limited at a peak data rate of 9.6 kbps. Higher-data rates followed with GPRS and later enhanced data rates for GSM evolution (EDGE) that has pushed the peak bit rates into the hundreds of kilo bits per second (kbps) and thereby enabled a range of new multimedia services based on voice, text and video. At the same time, 3G systems specification work started on wideband code division multiple access (WCDMA). The 3G standards were developed to ensure partial backwards compatible with the GSM standards, for example, WCDMA came with compatible interfaces to the existing core network. All future radio access networks can use the same core network if the defined Iu interface specifications are met. For the user terminals, however, backwards compatibility with existing terminals was not possible because WCDMA is based on very different coding and modulation principles in the air interface. This requirement of user terminal replacements

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is unfortunately inherent to all enhancements to the mobile network air interface in the near future where more advanced technologies are deployed for higher bandwidth and quality. New research into radio transmission technologies aims to optimize/ maximize the data rates and quality offered to the end-users within a given available transmission bandwidth, and at a low cost. Generally, when transmission is noise-limited, the data rate can be raised when the received power level is increased. This can be achieved by higher-transmitter power, by shrinking the cell or by a more advanced receiver design (e.g. by multiple receive antennas), thereby effectively increasing the signal-to-noise level at the receiver. However, the dominant source of radio-link impairment is often interference from the communication to other handsets rather than noise. In this case, signal-to-interference ratio is the critical system parameter. Although the impact on the radio link is similar to that of noise, a long list of subtle differences complicates the crucial choice of optimum modulation schemes. For a comprehensive analysis of present and future radio technologies, refer to Reference [12]. A practical way of providing high data rates with moderate power levels is to use higher-order modulation where more than one bit of information is communicated per modulation symbol. The 16 quadrature amplitude modulation (16QAM) scheme used in high-speed downlink packet access (HSDPA) is an example of such a modulation scheme where four bits of information is provided in one modulation symbol. In Figure 6-2, a simplified view of the 3GPP evolution from GSM to the still aptly named ‘long-term evolution’ (LTE) is depicted with the intermediate steps also

2G GSM

→ 4G

3G EDGE

WCDMA

HSDPA

HSPA+

2/0.38

14/5.7

42/11

LTE

Downlink/Uplink Peak Data Rate Mbps

a few 100ths

a few 10ths

>100/50

Legend GSM = Global system for mobile communications EDGE = Enhanced data rates for GSM evolution WCDMA = Wideband code division multiple access HSDPA = High-speed downlink packet access HSPA+ = Evolved High-Speed Packet Access = Long term evolution LTE

Figure 6-2. Continuous evolution of mobile radio access technologies enables a growing number of convergent services for the end-users. LTE is the next big step in 3GPP standardization.

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shown. Also listed in the figure are the peak data rates for the various access technologies. To enable support of services such as mobile TV, broadcasting was introduced in the WCDMA standardization (Release 6) in the form of ‘Multimedia Broadcast and Multicast Services’ (MBMSs). MBMS allows broadcasting (or the related technique of multicasting) of data to all subscribers to a service in the MBMS area. An MBMS area typically covers a number of cells. LTE is a fundamentally different mobile technology with significant changes again in the air interface, in the access network architecture and in the interface to the core network. In addition, LTE is specified for better service response times with a design target of 10 ms latency (unloaded network roundtrip time). Backwards compatibility with existing systems has not been a firm design requirement for LTE, that is purely optimized for IP traffic. This optimized LTE radio access network architecture consists of only one type of node – the evolved NodeB (eNodeB). The LTE-compatible evolved packet core (EPC) will cover equivalent functions to the present GGSN and SGSN.

6.2.2.2 Additional Wireless Technologies The range of wireless technologies is wide and varies significantly between different countries. In this section, two of the potentially most important technologies, WiMAX and wireless LAN, will be further discussed to briefly illustrate some of the important convergence-driven changes in technologies and business models. For more detailed studies there is a wealth of specific textbooks available [3, 9–11].

6.2.2.2.1 Worldwide Interoperability for Microwave Access WiMAX is a radio access technology based on the Institute of Electrical and Electronics Engineers (IEEE) 802.16 family of standards. Unlike the 3GPP standards of HSPA+ and LTE, WiMAX specifications are more fragmented and offer a number of options for the transmission technologies. WiMAX has evolved into ‘fixed WiMAX’ systems (based on 802.16d) aimed at fixed wireless broadband access and ‘mobile WiMAX’ systems (802.16e) with support of mobility for nomadic and mobile use. The potential maximum bit rates are comparable to HSPA+. The impact of WiMAX on the communications market will significantly depend on the exact technology and business model implemented. WiMAX, deployed in regulated or unregulated spectrum, can potentially provide services ranging from fixed broadband access to support of nomadic and portable terminals or even full terminal mobility. A critical success criterion for the WiMAX industry is to simultaneously get the necessary scale in number of supported terminals and matching network coverage for profitable business models to emerge.

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Sprint, the US telecommunications operator, has been a very visible advocator of WiMAX technology with a vision ‘to incorporate WiMAX technology in a range of computing, portable multi-media, interactive and other consumer electronic devices. The intent is to wirelessly enable the multitude of stand-alone consumer electronic devices that currently lack connectivity or Internet access, thereby facilitating digital life amid a new era of user-generated content’. [13]. WiMAX may potentially be an important disruptive technology in the convergence of communications.

6.2.2.2.2 Wireless LAN A wireless LAN is a technology based on IEEE 802.11 standards that allows broadband communication at up to 11 Mbps (802.11b standard) or 55 Mbps (802.11a standard) in a local area. Wireless LANs can be deployed in wireless routers in residential homes or in public network hot spots such as airports, coffee shops or motorway services where it may be either charged for or provided as a free service. The coverage is much dependent on technology and implementation details but ranges in the order of a few tenths of meters to a few kilometres. With wireless LAN technology preinstalled in many computer laptops and mobile phones, and with large commercial networks of wireless LAN hotspots available, this technology offers wide coverage for nomadic wireless access at a usually low cost to the end-users (flat rate charging or free). The Wi–Fi Alliance tests and certifies the interoperability of wireless LAN products. Shared access to wireless LANs across the world is the business idea behind FON, a private company but funded by major Internet players Google and Skype. Consumers can agree to share their private wireless LAN on a separate secure channel on their wireless router with other FON customers who roam inside the coverage area. In a deal announced with BT in the United Kingdom, three million BT broadband customers are invited to join the FON community with the interesting potential (as a convergent technology) of creating a country-wide dense network of wireless LAN ‘hot’-spots [14].

6.3

Consumer Products The two main topics of this section are (i) the evolution and future of the mobile terminal for access to communications services when away and (ii) the ‘home entertainment hub’ for access to communications services when at home. New television and video services are specifically covered in Section 7.2.

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6.3.1

Mobile Terminal Evolution The convergence of user terminals goes significantly beyond communications technologies and services alone. In fact, many user terminals widely used for communications services now cover a wide range of capabilities across the previously much less integrated 3C areas of Communications, Computing and Consumer electronics. A notable example is the variety of the so-called smart phones with broadband data access and significant computing power that merge traditional phone capabilities with the PDA, the MP3 player, the camera, the portable computer and a number of other components across the 3C arena [10]. Mobile terminals come in a vast variety of shapes, sizes and categories, and with a huge range of capabilities. Typical main categories of mobile terminals include mobile phones (including smart phones), PDAs, portable (multi-)media players, hand-held game consoles and compact laptop PCs. Any conceivable combinations of these categories have been or are likely to be developed and put on the market. Effectively, all mobile terminals are increasingly becoming small computers with significant storage capacity and computation power. The result of these progressive changes is that the distinction between the different categories of mobile terminals is rapidly disappearing. It is well outside the scope of this book to analyse this market in all detail, and just a few examples related to the main theme of convergence are given: • Internet tablets are hand-held terminals optimized for Internet access via a wireless connection. These devices are cheaper and handier than devices based on the full complexity of a PC. An example of this category is the Nokia N800 that connects wirelessly via wireless LAN or Bluetooth and features a 4.1 in screen. • A new trend in the market for mobile terminals is signalled by significant market moves from some of the biggest players in the wider 3C industry, such as Apple (iPhone), Skype (Skype Phone) and Google (mobile operating system ‘Android’). Also players like HiFi equipment vendor Bang & Olufson (B&O) and fashion house Armani have produced branded phones (in collaboration with established phone manufacturers). There is a range of obstacles to fast convergence of terminals mainly related to standardization. The mobile phone market is a lot more fragmented compared to the PC computing market with respect to hardware platform, operating system and application integration. Whilst, for example, most mobile terminals are based on a relatively low number of mobile software operating systems, the dominant ones being Symbian OS and Microsoft Windows Mobile, then proprietary features and applications are still dominant. Naturally, terminals must be able to use a range of wireless networks and protocols for ubiquitous access and make intelligent decisions about

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what access method to use based on a range of parameters such as quality expectations, bandwidth requirements, cost and power consumption. The user terminals are destined eventually to become an increasingly integrated part of the human environment in a role that has been dubbed ‘pervasive’ or ‘ubiquitous computing’ [15]. The main difference to existing terminals would be a much higher degree of integration of applications, terminals and networks into the physical environment to include wireless environmental sensors, biometric sensors, speech recognition, computer vision and intelligent reasoning powered by artificial intelligence. The mobile terminal is set to become an integrated hub for communications within the personal/local environment with full access to the global environment.

6.3.2

Home Entertainment Hub Present in most homes in countries like the United Kingdom is a wide range of consumer electronic equipment such as televisions, satellite receivers, personal computers, digital video recorders, gaming consoles, DVD players, telephones, radios, security systems, broadband modems and a number of other increasingly intelligent equipment to include climate systems, household appliances and so on. Convergence in communications (as well as digital convergence) means that the boundaries between many of these categories of equipment is blurring and will eventually disappear. At the same time, convergence means that these equipment categories begin to interface electronically and offer synergies to the consumer in the form of cheaper access to contents, new services and added convenience. Obviously, this has raised requirements and expectations for overall control of the home environment, and this central position in the home of the consumer is being pursued by many of the main industry players in the communications industry and beyond. In various types and forms, the concept of ‘home digital media hub’ or ‘home entertainment hub’ is seen as the main control point in the home for service delivery. The future functions of the home entertainment hub are likely to evolve from a number of the existing equipment categories, a few of which are discussed below: • Personal computers may be the obvious open and versatile integration points for consumer equipment in the home. This is a main premise for the Windows media centre, a software application designed to serve as a home entertainment hub that offers remote control of a long list of home equipment. In addition, the Apple iMac G5 is positioned as a home entertainment centre, and HP as well as Intel offer specialized PC-based media centre technologies. Notably, the designs that have a set top box (STB) look with front status display, and remote controls help to literally bring the PC out of the study and into the living room.

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Traditional unique PC features, such as extensive memory/storage and substantial processing power, are now often matched by several other platforms to include digital video recorders (DVRs), gaming consoles and smart phones. Whilst the PC offers versatility and open access, a number of the most popular functions such as Internet access, email, gaming and media access can be delivered by other platforms. • Video game consoles like Sony Playstation, Microsoft Xbox and Nintendo Wii are effectively all powerful computers. On the Wii console, for example, features like wireless LAN and Web browsing are available and help this platform taking significant steps towards full connectivity with other home devices. That is, the big vendors of video game consoles such as Nintendo (with more than 13 million Wii game consoles sold worldwide by September 2007 [16]) are getting into a comfortable position to take on the market for home entertainment hubs. Characteristically, the video game console market struggles with a lack of standards that requires game developers to replicate their products across a number of proprietary platforms. • Television set top boxes (STBs) are supplied by TV providers (including IPTV and satellite TV operators) for signal decoding. The STBs have reached the mass market and exposed a large audience to the (still immature) concept of an integrated home entertainment unit when often offering features additional to the core functions. For example, STBs may have built-in DVRs, feature a large internal hard drive and offer simple gaming options. • Digital video recorders increasingly offer functions that gradually bring this technology into contention for the central position as home entertainment hub. A popular brand of DVR (particularly in the United States) is TiVo that allows the users advanced features, such as pause, rewind, and replay of live television, and recording of programmes based on key words. TiVo devices can be connected to a local network to share recordings with PCs and gain access to a range of third-party network contents such as weather forecasts and traffic reports [17]. • Home gateways would typically be routers that connect upstream to the Internet using DSL technology and connect downstream via Ethernet or wireless LAN to other household equipment such as PCs or wireless phones. The Orange Livebox is an example of a wireless router that offers broadband connectivity and enables VoIP services [18]. Wireless connection of game consoles for online gaming and functionality for using the Livebox as a network printer server are significant additions to this category of home equipment that used to be ‘dumb’ boxes. This equipment may evolve into a home entertainment hub that connects between other home equipments. • Mobile/portable terminals will also play an important role in the home entertainment environment. With smart phones such as the Nokia N95

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being Universal Plug and Play (UPnP) compatible, the mobile terminal is a serious contender for claiming a position as the universal media remote control. These different solutions for obtaining the coveted position as the preferred home entertainment hub are some of the main contestants in what has been dubbed ‘the battle for the digital living room’. Consumer equipments like PCs, gaming consoles, STBs and televisions are bound to converge, but the main direction of the technical evolution and the time frame for mass-market adoption is still hard to predict. Digital Living Network Alliance (DLNA) is a crossindustry collaboration of industry companies in consumer electronics, computing and mobile devices. The large membership notably include main industry players such as Sony, Microsoft, Nokia, Philips, HP, Motorola and Samsung. The DLNA website says ‘Members of the Digital Living Network Alliance share a vision of a wired and wireless interoperable network of Personal Computers (PC), Consumer Electronics (CE) and mobile devices in the home enabling a seamless environment for sharing and growing new digital media and content services’ [19]. DLNA publishes a common set of industry design guidelines and grants the use of a DLNA certified logo. The building blocks of the DLNA interoperability guidelines are as follows: • Media format (e.g. MP3, JPEG) • Device discovery, control and media management (UPnP) • Media transport [hypertext transfer protocol (HTTP), real-time transport protocol (RTP)] • Network stack (IP version 4) • Network connectivity (wired, wireless LAN, Bluetooth). UPnP is a set of network protocols published by the UPnP Forum with the objective of enabling easy and seamless implementation of home networks. UPnP runs across most common communications media including phone lines, Ethernet and wireless LAN.

6.4

Summary Convergence has been a hot topic in the communication industry since the early 2000s. Technically, convergence is expected to foster a multimedia environment where voice, audio, video and data can be seamlessly exchanged between users. A range of complicated technical challenges related to convergence are being addressed in standardization bodies and research organizations across

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the globe, and a number of technology enablers for implementation of a converged communications environment are being developed. Hosts of different technologies developed by hundreds of equipment vendors are enabling the progression towards convergent networks and services. A selected part of these options have been outlined to illustrate some of the main trends and to provide a backdrop for the analysis of new business opportunities in the later part of the book. The relevant enablers include network technology as well as consumer technology.

6.5

References [1] Poikselkä, M. et al. (2006), The IMS – IP Multimedia Concepts and Services, John Wiley & Sons, Ltd. [2] Hanrahan, H. (2007), Network Convergence – Services, Applications, Transport, and Operations Support, John Wiley & Sons, Ltd. [3] Shepard, S. (2002), Telecommunications Convergence, McGraw-Hill. [4] Cianci, P.J. (2007), HDTV and the Transition to Digital Broadcasting: Understanding New Television Technologies, Focal Press. [5] Barraclough, C. and Torrance, S. (2006), How to Make Money in an IP-based World, TELCO 2.0, STL, June. [6] Harrowell, A. (2006), Staff Writer, A Pointless Multimedia Subsystem?, Mobile Communications International, www.allbusiness.com/primary-metalmanufacturing/foundries-nonferrous/4104136–1.html, October. [7] Finnie, G., IMS deployment update: promise and challenges, Heavy Reading, 5(12), pp 1–59, July 2007. [8] Dykes, P., Vendors align with operators’ service-delivery needs, but there are still problems to overcome, specifically regarding standardization, 3G wireless broadband, Informa, 9(17), p 14, 26 September 2007. [9] Simpson, W. and Greenfield, H. (2007), IPTV and Internet Video – Expanding the Reach of Television Broadcasting, Focal Press. [10] Zheng, P. and Ni, L.M. (2006), Smart Phone & Next Generation Mobile Computing, Morgan Kaufmann series, Kaufmann Publishers. [11] Dahlman, E. et al. (2007), 3G Evolution – HSPA and LTE for Mobile Broadband, Academic Press. [12] Holma, H. and Toskala, A. (2004), WCDMA for UMTS – Radio Access for Third Generation Mobile Communications, Wiley. [13] Sprint Nextel Cites WiMAX Network Progress for 2007, News Release, http://www2.sprint.com/mr/news_dtl.do?id=15000, 8 January 2007. [14] BT and FON launch the world’s largest Wi-FI community, BT Press Release, 4 October 2007. [15] Sahaa, D. and Mukherjee, A. (2004),Pervasive computing: a paradigm for the 21st century, IEEE Computer, 36, 25–31. [16] Nintendo Consolidated Financial Statements, www.nintendo.com, September 2007. [17] TiVo website, www.tivo.com, 2007. [18] Orange UK website, www.orange.co.uk, 2007. [19] DLNA Overview and Vision Whitepaper, Digital Living Network Alliance, http://www.dlna.org/news/DLNA_white_paper.pdf, 2007.

Chapter 7: Convergent Services and Systems

A seemingly endless line of new communications services are continuously being introduced in the market. For many incumbent service providers, the number of different services in their portfolio will reach into the hundreds. The choice is wide and varied, but the fact is that few services make it to true mass adoption. Obvious all-time successes with significant uptake are important society-defining services such as voice telephony, radio, television and Internet search. At the next tier of services, e.g. SMS adaptation has been huge and very profitable for mobile service providers. In 2006, SMS accounted for more than 17% of the total mobile services revenue in United Kingdom, second only to the revenue of voice services [1]. Whilst some services are obviously very successful, there are many services that fail to make any impact on the market despite huge development investments and thorough market research. For example, the uptake of push-to-talk over cellular (PoC) has been struggling outside the United States, and video telephony has still not quite reached the mass market despite recent renewed momentum with the broadband radio access support of mobile video telephony. The obvious question is what factors are important for creating a successful ‘killer’ service or ‘killer’ application.

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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In his best-seller The Tipping Point – How Little Things Can Make a Big Difference, Gladwell analyses what are the necessary components are for reaching the ‘tipping point’, where an epidemic rise, for example, in the sales of a product (or service) is triggered [2]. In this book, several detailed examples are given on how small subtle changes to the product or to the marketing campaign result in big changes, ranging from generating soaring sales of ‘Airwalk’ trainers to vastly improving the stickiness for educational children’s television programmes. Whilst service quality is obviously a very important characteristic, a marketing campaign based on ‘a push in the right place’ may be equally or even more important. This involves planned interaction with the innovators and early adapters amongst the users, with the people and systems that connect and spread the news between potential customers, as well as with the ‘sales people’ or advocators who can convince the rest of us. These three distinct character traits are not very common and would not in general be found in individual persons. Marketing plans must address each of these groups of people separately. This chapter provides an overview of applications and services that will or may play a role in driving and shaping the broad market framework for communications convergence. It is meant to give an overview only, and a number of important segmentation parameters in the market will fall outside the scope of this book. Although obviously of importance for detailed market planning the following analysis will not in any significant detail look at the distinction between services offered to different customer segments, such as consumer services and business services; also variations between different countries will not be addressed. For further in-depth analysis, refer to the following References [3–5].

7.1

Services on Mobile Terminals A distinction exists between services on mobile terminals based on (i) application servers that may ultimately be integrated in a complete IMS framework or (ii) services enabled in a third-party environment, for example, via a mobile Internet browser. Potential differences between the two very different approaches to service delivery have been identified in a number of areas, such as security, quality, cost and flexibility, and discussed for years in the communications industry. The perceived benefits of either solution (or more likely a combined solution) as experienced by users will be the make or break criteria for each service. To exemplify some of these new market challenges, two widely used mobile services will be briefly analysed: Messaging services include SMS, often referred to as text messaging, Multimedia Messaging Service (MMS) that allows sending of multimedia objects and Instant Messaging (IM) that enables real-time text-based communication. The SMS and MMS are amongst the most widely used and profitable mobile data services, but there are signs that this dominant market position

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may be under increased pressure from new entrants. In South Africa, a mobile IM application named ‘MXit’ has proved very successful with millions of subscribers. It allows users to send and receive text messages to/from PCs and other phones running the same application. These messages are sent and received via the mobile Internet rather than with standard SMS technology. Users can also exchange messages with online chat applications such as MSN Messenger. The wider impact on the SMS business of mobile service providers of such disruptive technologies will be seen in the next few years. The ambitions are certainly high – the stated MXit mission is ‘To secure 2% of the world GSM phone population by the end of 2008’ [6]. Mobile search on mobile phones is becoming increasingly important as the number of mobile phones is significantly exceeding the number of PCs. Particularly in countries where personal computers are rare, the mobile phone browser offers many new opportunities for the users. A number of limitations exist to the use of mobile Web and mobile search like screen size, navigation facilities and speed. To improve the interoperability, usability and accessibility issues related to mobile Web usage, the ‘Mobile Web Initiative’ is set up by the World Wide Web Consortium (W3C). The aim is to develop best practices and technologies for the mobile Web with the support of some of the biggest service providers and terminal manufacturers. The format and presentation of the contents on the mobile Web is (naturally) different from the ‘real’ PC-based Web experience, and this fact has caused a degree of frustration with users who increasingly will expect seamless service continuity across different access methods. Adding to these disparities in the area of mobile search services is the often-used practice by service providers of changing the prioritization of the search results to favour links to contents on their own mobile contents platform. On an open mobile platform, the users may choose to access search engines via the Web portal of a mobile service provider or can alternatively use a search client that may be preinstalled for better performance. The collaboration between Internet search providers, such as Yahoo and Google, and mobile service providers, such as Orange and Vodafone, is motivated by a mutual interest in providing the best service package to the customers. However, there are obvious conflicts of interest in these partnerships, and their success and progress over the next year or two will give important indicators of the future power balance in this part of the convergent communications industry. Other notable mobile services in their own right or as part of other service offerings are: presence, PoC, conferencing, e-mail, video streaming, downloading, personalization (e.g. ring tones), location-based services, video telephony, gaming, mobile payments, social networking and (although usually not counted as a service) advertising [5]. Television and video services naturally attract significant attention across all sectors of the communications industry. Therefore, these services have been specifically analysed in the next section.

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Convergence

Television and Video Services After decades of relative stability, the existing business models for broadcasting are set to change significantly. The influence of the Internet as a strong social change agent sets new norms and expectations for the consumption of video and television. At the same time, huge advances in technologies for compression, transmission, storage and processing of media data have opened up for new ways of distribution. Consumption of media data can broadly be divided into two categories: television and video. The distinction between these two categories was very clear in the past given that television was broadcasted and consumed ‘live’, whereas video could be viewed at any time chosen freely by the user. With new technologies for electronic storing and easy access to contents, the services are increasingly converging. For example, personal video recorders increasingly come with big hard disks and advanced time shifting capabilities. In addition, television can easily and with few limitations be place shifted, that is viewed on a PC connected to the Internet or on a mobile phone. Four (still distinct but converging) categories of services will be discussed below: IPTV, Internet video, mobile TV and digital TV broadcasting. There are a number of big questions in the industry that this analysis will provide a better background for understanding: • Is appointment-based television dead? [7] • Will the personal computer and the television set merge into one unit? • Is TV a passive sit-back pursuit or an active lean-forward engagement? [8]

7.2.1

IPTV IPTV is a system that uses IP technology for delivery of television services on a broadband connection, but IPTV has also many similarities with traditional broadcast television. A number of channels are bundled for delivered to traditional television sets but with several additional benefits of IPTV [8]: • Two-way connection to the IPTV set top box (STB) allows more user interactivity such as remote voting and information searches. • The user can choose what channels are delivered to the STB. This means that a wide choice is not necessarily hard limited by the bandwidth of the physical broadband connection. • Video on demand (VoD) allows users to browse online programme or film catalogues and have their personal choice delivered directly to their television. • Network personal video recording (NPVR) services allow users to record real-time television on a network server for later viewing.

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However, there are a few limitations related to the technology used for delivering IPTV services although the limitations can all be addressed with various technical solutions. First, an inherent sensitivity to packet losses and delays can occur when the IP equipment is simultaneously used for delivery of other IP-based services such as Internet access and VoIP. Second, there is a requirement of a separate termination point (e.g. an STB) for all the individual terminals such as televisions and PCs used for IPTV. To illustrate these architecture and technology issues a simplified architecture of a typical IPTV system is sketched in Figure 7-1. Home

Head end

Service platforms

Distribution point

Home gateway

TV set top box

(contents gathering)

(e.g. VoD server)

(e.g. DSLAM)

(e.g. Orange livebox)

(e.g. Sky STB)

Figure 7-1. Typical architecture of an IPTV system.

The main components of the IPTV architecture are explained by following the media data from left to right in Figure 7-1: 1. The function of the head end is to gather contents and compress the data into the chosen format for transmission (e.g. MPEG-2 or MPEG-4). At the time of writing, MPEG-2 developed by the ‘Moving Pictures Experts Group’ was the dominant standard. 2. Service platforms will provide a variety of specialized contents for the users such as video on demand (VoD) and advertising. Other specific contents such as local news channels are also hosted here. 3. Depending on the distribution technology (whether fibre, satellite or DSL), the equipment, for example a DSLAM, will perform a range of functions to include switching of data packets based on customer channel selection. 4. The home gateway facilitates the integration of broadband connectivity to various terminals in the home. 5. Typically, the IPTV termination points in the home is the TV STB. The STB interfaces to the user’s remote control and manages the channel/service selection by communicating with the network-based equipment (e.g. DSLAM). A large HD-drive may be installed inside the STB for recording, later viewing, and functions such as pause, replay and slow motion of live television [9]. The business models adopted by the IPTV provider can be based on a number of schemes but would typically rely on a combination of subscription, video on demand and advertising. In the advertising industry,

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there are a couple of concerns related to the value of advertising in this set-up [4]: (i) ad-skipping where users fast-forward through ads and (ii) ad-timeliness where programmes are watched long time after they were broadcast (e.g. adverts for Christmas trees will be of little value in January). Whilst this is not directly an issue for the end-user, the business models will inevitably be less dependent on advertising and compensated by a potentially higher-direct subscription cost. The transmission technology options and the impact of transmission bandwidth limitations were addressed in Section 6.2.1.

7.2.2

Internet Video Flexibility, low cost and IP ubiquity are the most important reasons to transport video signals over the Internet [8]. At the same time, there are wellknown drawbacks and issues related to Internet video such as bandwidth demand, service quality and digital rights management. In reality, hundreds of millions of Internet video downloads every day from a range of popular websites amount to strong endorsement of the technology [1]. Internet video services usually make relatively short video clips available for downloading over the Internet, but Internet video can also take the form of real-time streaming often with questionable picture quality. The later option is also referred to as Internet TV and differs from IPTV mainly by the fact that the service provider cannot control the delivery. A successful streaming service would benefit from low delays, no storage requirements in the terminal and full interactivity – all available at the cost of a stable high-bandwidth connection to the network. A downloading service has many of the opposite qualities to streaming, notably a significant latency on all but very high-bandwidth networks. Progressive download offers a compromise between these extremes by allowing playback to start when only part of the video file has been downloaded. With better transmission media and changing viewing patterns in the future, the differences between IPTV and Internet video will become less pronounced. This process of further convergence is also expected to be reflected in merging business models where at present the revenue for Internet video (e.g. from advertising) mostly goes to the portal providers, whereas for IPTV, a significant part of the revenue goes to the contents providers.

7.2.3

Mobile TV Mobile TV represents a group of services and technologies (to include IPTV) that deliver television services to mobile terminals. Fundamentally, two methods exist for delivering mobile TV, namely broadcasting services based on one-way transmission to all subscribers in a specific area and

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unicasting/multicasting-based services where individual service requests are delivered over a dedicated two-way mobile carrier. A wide range of technologies are available for delivering mobile television services, each with advantages and disadvantages with respect to spectrum utilization, required network resources, standardization support, picture/sound quality, capacity for more channels, scalability in user uptake and ultimately cost. For a thorough analysis of the available technologies, refer to Reference [10]. To illustrate the main technological principle and important alternative business models in a convergent communications industry, two scenarios are further analysed in this section: (i) Mobile TV delivered over a 3G mobile network and (ii) digital video broadcasting – handheld (DVB-H). Mobile TV delivered over a 3G mobile network can benefit from an existing distribution infrastructure. By using streaming technology, the television signal arrives in real time and is displayed to the user immediately. Multimedia Broadcast and Multicast Services (MBMS) is a new 3G in-band mobile delivery technology (3GPP Release 6) that uses multicast distribution in the core network instead of point-to-point links to each user device. A significant advantage to service providers is the sharing of network transmission resources. The considerable use of precious 3G spectrum and network capacity for mobile TV services is partly offset by the fact that many 3G networks are still lightly loaded, that is, the required capacity is readily available but questions must be asked about the scalability and long-term viability of 3G-based television solutions. However, new higher-bandwidth 3G technologies such as HSDPA and eventually LTE (Section 6.2.2.1) will obvious add more data capacity to the 3G network and thereby support viable business models based on mobile television services delivered on 3G mobile networks. Digital Video Broadcasting-Handheld (DVB-H) is a terrestrial TV broadcast technology developed as an extension of digital video broadcasting – terrestrial (DVB-T). DVB-T is the digital technology that over the next few years will replace traditional analogue terrestrial television in many countries to include most of Europe. DVB-H has been developed to allow minimum terminal power consumption and robustness to mobility and indoor reception. Important to note is that whilst 3G-based mobile TV is compatible with present mobile user terminals, then DVB-H will require a new generation of DVB-H-compatible terminals. The broadcast model used also inherently suffers from a lack of terminal return-path for a breed of interactive services (such as instant voting, instant shopping, etc.), a problem that can be solved though by using a mobile data channel for uplink interaction.

7.2.4

Digital TV Broadcasting The era of analogue television broadcasting that began in the 1940s is slowly coming to an end. The replacement technology of digital broadcasting brings

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the potential for more channels, better quality, interactivity and new features like the electronic programme guide (EPG). Note, services similar to some announced new services like EPG can also be available on analogue technology. Digital broadcasting systems are technically more complex than analogue broadcasting systems but ever cheaper electronic processing elements have all but eliminated this drawback. The International Telecommunications Union (ITU) recommends that broadcasters across the globe switch off analogue broadcasting by 2010 [11]. In some countries, the new technology will be implemented gradually, for example, in the United Kingdom where digital broadcasting will be rolled out region by region to be completed by 2012. In this book, only digital broadcasting will be discussed. Digital standard definition television (SDTV) with a 4 : 3 aspect ratio is seen to compare favourable with traditional analogue television, but a much more significant and noticeable improvement in picture quality is expected with the emergence of HDTV with a 16 : 9 aspect radio inherited from the film industry. Uncompressed HDTV signals require a bandwidth of about 1.5 Gbps, and data reductions of 50:1 or larger are often used to reduce the requirement on the distribution channel. MPEG-2 is the commonly used standard for the compression codec. A number of steps in the convergence of the traditional television and the traditional PC have been taken with a range of interactive television (iTV) features such as tele-audience voting that steers the direction of some television programmes. Common to advanced interactive features is the requirement of a back channel (often provided via the Internet) between the television and the remote application servers. This in turn opens up to the wider potential of targeted advertising well known within the Internet industry. Targeted advertising is based on user profile knowledge such as statistics of previous viewing choices. With virtual billboards, where commercial graphics are inserted as part of the scene, as often seen in broadcast sports events, there seems to be virtual unlimited opportunities for the advertisers. Obviously, not all of these opportunities would seem to be in the best interest of the consumers. Whilst it would be premature yet to announce the immediate death of television set as we know it, the distinction between television and personal computing is rapidly diminishing.

7.3

Other Convergent Services

7.3.1

Music Downloading Music downloading has become an interesting example of convergence in the media industry. Music sales used to be almost entirely controlled by record companies. Artists would be signed on contracts to produce music

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to be sold on records (vinyl or CD) through high-street shops. Now, most links in this value system are under immense pressure. High-street shops have seen competition from Internet shops like the iTunes Music Store, and the CDs are gradually being replaced by downloaded MP3 files. Whilst growing strongly, the revenue share of digitally downloaded music still only accounted for 6% of the market in the United Kingdom by 2006 [1]. Some successful artists have started to produce music independently and in some instances experimented with making the actual music available to consumers free of charge expecting the wider exposure to stimulate other sales such as concert tickets [12].

7.3.2

Radio Listening Radio listening is slowly but surely falling despite a widening choice. Over the 5 years to the end of Q1 2007, the reduction was 5% on average with the listening by 16–24 year olds down by 13% [1]. The reason for the fall will partly be due to new competing technologies and services available, like audio downloading. A podcast is a media file, such as an MP3 audio file, that is typically downloaded over the Internet. The file may contain a radio show that can (unlike a direct broadcast) be played back at any time on a PC or a portable device. Podcasting creates a compelling alternative to oldfashioned broadcast radio and helps to further blur the distinction between the different media. In addition, podcasting techniques allow every PCliterate person to create home-made radio programmes and easily distribute them. Internet radio is radio broadcasting over the Internet. Unlike podcasting, Internet radio is based on data streaming not downloading. The business model is usually centred on a mixture of advertising and subscription. A high degree of personalization of the radio experience is seen with intelligent services such as Pandora [13] that offers continuous music radio via PCs or mobile phones. Pandora predicts and plays a random selection of music with ‘key music attributes’ (such as harmony, rhythm, and instrumentation) with a similar profile to the listener’s preferred artist, song or composer.

7.4

Fixed-Mobile Convergence FMC is a complex set of communications capabilities that aim to bridge the two traditionally separate technology areas of fixed access and mobile access. No single definition of the concept exists across the communications industry, but to the end-users, there is a series of common potential advantages like improved convenience, lower cost, higher coverage and wider service choice. The seamless call continuity between wireless and

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fixed networks (really, cellular and fixed wireless) is the main characteristic of an FMC service. The FMC solutions offered by communications service providers will range from fairly simple systems for handover of voice calls from mobile to wireless LAN to wide portfolios of advanced converged services based on IMS. The number of different solutions available is vast, and the specific features reflect the different competitive characteristics of the service provider (fixed, mobile, broadband, hybrid and various types of partnerships), the different technologies (wireless LAN, UMA, IMS based and femtocell) and the very different system characteristics (when to hand over calls and what network to hand calls over to) [14]. For example, the BT Fusion FMC solution available from BT in the United Kingdom is offered together with mobile partner Vodafone. The premise of this service is to use the same mobile phone when at home and away but to have calls to/from home routed on Bluetooth or wireless LAN through the BT Home Hub connected to the core network via ADSL. In addition, BT open zone hot spots away from home are included in the service. This category of solutions will attempt to provide an easy to use low-cost proposition to compete against a range of partly free alternative services based on VoIP. A number of technologies can be labelled under the wide heading of FMC solutions or seen as competing technologies in the same market segment. A few of the most important ones are briefly outlined: Unlicensed mobile access (UMA) is a system that offers seamless connection on a dual-mode mobile phone between, for example, a wireless LAN and a mobile network. UMA principles are standardized by 3GPP and developed under the name of generic access network (GAN). The customers are offered seamless services in a combined service packet, like with BT Fusion and Orange Unique in the United Kingdom. VoIP is arguably the biggest present driver for FMC. Full service portfolios with advanced data services are likely to require an IMS environment [with voice call continuity (VCC) for standardized handover between different radio domains] for seamless integration between the mobile and the fixed environments. Due to the inherent IP protocol overhead, the bandwidth utilization with present modems and header compression techniques is not as effective as for the highly optimized circuit-switched voice service. This raises questions about the short/medium term viability of VoIP over mobile carriers. Over the long term, the LTE technology is expected to finally put an end to the era of circuit-switched mobile networks. Naked SIP is a nickname for technologies based on SIP but without IMS. SIP is available now on a growing range of smart phones and allows personto-person VoIP calls over wireless LAN. SIP is used in a number of different ways by Internet service providers such as Truphone and Fring to enable low-cost or free mobile VoIP calls. Incumbent service providers have been cautious adapters to this trend and have in some markets disabled key VoIP functionality on subsidised handsets [15].

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Femtocells are typically based on simple compact mobile network NodeBs that are installed in the subscribers’ private homes. Notably, femtocells will work with existing GSM/UMTS handsets. Low-deployment cost is a requirement to compete effectively with wireless LAN-based solutions. A strong impetus towards FMC is experienced from fixed operators who see a significant threat of fixed mobile substitution where mobile users are encouraged, often by dedicated charging schemes, to use the mobile phone at home. ‘Homezone’ is such a service where calls on a designated cell that covers the subscriber’s home are charged at a lower tariff. Femtocells are effectively an extension of the homezone principle. By offering a FMC solution, often with mobile operator partners, the fixed operators can maintain a degree of control of the customer service offering. The home gateway is effectively a ticket to future business opportunities such as IPTV and gaming. At the same time, the mobile operators may promote services that support fixed mobile substitution to secure their strong control of the customer relationship.

7.5

Summary The market for communications services and applications is undergoing very significant changes across a tremendously wide range of propositions for residential users as well as corporate users. This chapter has focused on three areas of considerable importance in this space, namely, mobile services, television and video services and services related to FMC. Whilst these areas have been looked at separately, with a view to understanding the benefits and challenges they raise in their own right, there is an increasing amount of overlap typical of the growing convergence across markets and services. The competitive environment in the communications industry is in the process of radical changes. From a number of directions, a new breed of players are entering the centre stage of the communications market with a long string of initiatives and acquisitions that allow contents and services to be delivered to customers in collaboration with and in competition against existing CSPs. Notable new strong players in increasingly wider segments of the communications industry are Facebook, Google, Apple and Microsoft. The progress and future of the convergent communications industry and specifically the resulting challenges and opportunities presented to all the incumbent players will be further analysed in Part IV of this book.

7.6

References [1] ‘Communications Market Report’, Office of Communications (UK), August 2007. [2] Gladwell, M. (2000), The Tipping Point – How Little Things Can Make a Big Difference, Abacus.

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PART IV BUSINESS PROCESSES IN CONVERGENT COMMUNICATIONS MARKETS Reduction of OPEX through process automation is increasingly important to all communications industry segments. This is particularly true for network and services sectors where automation is aimed, for example, at reducing repetitive tasks across vast numbers of network elements. In the creative sectors (contents formation, marketing, etc.), the commoditization of tasks and services is naturally less pronounced but a key side effect of convergence is that of growing reuse and cross-selling between communications industry segments. Enterprise software systems designed with process automation in mind will naturally underpin a smoother evolution towards a future business environment where maximum automation is achieved in all major business processes. The role of the enterprise systems for successful migration of business objectives from existing technology-defined industry segments towards a convergent customer-focused communications environment is described. The structure of main business processes is analysed and possible improvements are suggested. Traditionally, communications service providers are internally organized in multidimensional structures along technology boundaries (radio, transmission, core, OSS, BSS and service platforms), operational boundaries

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(design/planning, rollout and operations), customer boundaries (private, enterprise and partners) and functional boundaries (technology, marketing and business). This boundary-rich organizational set-up also reflects the general conception that technologies like radio network and enterprise software systems can be treated and optimized separately. This means that the network operations would often be seen as a prerequisite to the business organization but not really as an integral part of the business itself. The logic behind such a separation is likely to be challenged with further focus on competitive advantages in the wider convergent communications market, particularly when the real-time customer data derived from the operations environment gradually becomes a dynamic source for identifying new revenue. This is the topic of much further analysis in Part IV. Chapter 8 covers the main components of the enterprise SW environment, the integration challenges for enterprise systems and the available methodologies for business process optimization. In Chapter 9, the concept of business opportunity management is introduced. A number of likely business bottlenecks and areas of potential new business opportunities are identified. In Chapter 10, the understanding and management of customer expectations are addressed. Terminal convergence and some of the main user requirements in this area are analysed, and the new opportunities and threats to all communications service providers are outlined. In Chapter 11, convergent charging systems are described with a view to understanding the benefits of integrating Business Support Systems (BSS) with other enterprise software components. The data that reside in the charging and billing systems represent a considerable source of differentiation yet to be fully explored.

Chapter 8: Management of Convergent Services Across different industries, a range of fundamental generic business objectives and practices are shared. A notable example is ‘Lean Manufacturing’ which was first adopted in the automobile manufacturing industry and has since been utilized successfully also in a wide range of service-oriented businesses. In the telecommunications industry the, ‘Lean Manufacturing’ techniques have been given a specific telecommunications business interpretation, namely ‘Lean Operator’, a concept strongly supported by the TM Forum. As part of their mission, TM Forum is working to help the communications services industry become lean, efficient and thereby more profitable. This concept was comprehensively analysed in Chapter 5. The TM Forum has developed and published the ‘enhanced Telecoms Operations Map’ (eTOM) which is a business process framework that aims to describe all enterprise processes used by a service provider. A comprehensive reference point for process engineering this framework enjoys almost universal acceptance in the telecommunications world. In a parallel effort, the IT community has developed the IT Infrastructure Library (ITIL) a widely accepted approach to IT service management. Work is ongoing between the TM Forum and the IT Service Management Forum

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(itSMF) to identify best practices that combine the eTOM and ITIL service model frameworks. For more details on this effort, refer to Section 8.3.2. The enterprise system environment with CSPs typically consists of a high number of disparate sw systems. For big CSPs this amounts to hundreds of platforms, tools and applications spread across the main enterprise areas of customer relationship management (CRM), enterprise resource planning (ERP), Business Support Systems (BSS) and Operations Support Systems (OSS). Traditionally, these enterprise areas have been fairly isolated, separated by organizational boundaries and served by organizational clusters of specific competence such as ‘technical’, ‘finance’, ‘marketing’ and ‘customer care’. Further, separate groups of mostly specialized sw tools vendors and suppliers of various professional services support the different functional segments. As the end-user communications market is going through rapid changes driven by convergence, these existing rigid enterprise-wide business structures are increasingly struggling to keep up with the pace and direction of changes such as shorter service life cycles and increasingly open access. A primary reason that present systems are struggling to cope is that the fundamental architecture of the business environment does not underpin any significant interaction between the technical systems (OSS and BSS), the customer systems (CRM and BSS) and the financial systems (ERP). As an example, the consequences are often unknown regarding (i) financial impact of customer dissatisfaction or (ii) customer impact of technical problems. In reality, there is a strong requirement of significant interaction between all the different enterprise areas represented in the massive sw systems that are in live operation with a typical service provider. Discussed in more details in subsequent sections, the unrestricted interaction between these different sw systems will allow a much tighter alignment of financial systems and customer systems with technical systems. The resulting nonsiloed business optimization will become a strong catalyst for improved business performance. The latter point is the main subject of Chapter 9.

8.1

Enterprise Software Environment Often, ‘enterprise software’ is loosely defined as a software that solves enterprise-wide problems. The CRM, ERP, OSS and BSS are seen as jointly constituting the main parts of a typical operator enterprise software environment. Interaction between all of these systems is required for detailed analysis and management of a service provider business, for example to identify high-revenue customers, understand their requirements and continuously provide them with a superior service. The close interaction between the CRM, ERP, OSS and BSS is schematically shown in Figure 8-1. The ‘Business Control Centre’ (BCC) is a higher-level framework that undertakes the demanding task of integrating business processes across the

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Enterprise resource planning (ERP) Customer relationship management (CRM)

Business Control Centre

Operations support systems (OSS)

Business support systems (BSS)

Figure 8-1. CRM, ERP, OSS and BSS constitute the main components of the enterprise software environment with a typical CSP.

various enterprise systems. Depending on the actual system configuration, the function of the BCC may become fully supported within the context of the existing enterprise systems and will in this case constitute a virtual process framework. More likely though is that some additional capabilities will have to be added and that one (or more) of the enterprise systems, for example the OSS, will host the additional functionality and act as a window into the added functional capabilities that constitute the BCC. The functional properties of the BCC include (but are not limited to) the following functions: • Business dashboard: Offers a consolidated near-real time view of analysed business parameters from across the entire enterprise sw environment. • Business process manager: Linked to the dashboard, the business process manager adds a capability to monitor, initiate and terminate strategic business processes. • Business data interface: Provides a single interface point for coordinated access to enterprise-wide business data. For example, the strategic planning of the business evolution across the areas of sales, marketing and service development is coordinated by the processes originating within the framework of the BCC.

In Chapter 6, the concept of SDF was analysed. At the time of writing, there was no consistent agreement across the industry about the scope of the SDF and little standardization. It is clear though that the SDF overlaps and interfaces to key elements from the traditional enterprise software areas of CRM, BSS and OSS as indicated in Figure 8.2.

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Business Control Centre

Operations support systems

Service delivery framework (SDF) Business support systems (BSS)

Figure 8-2. The SDF forms an important part of the scope of the BCC.

The SDF forms an important part of the wider system context of the business control centre and adds additional functional properties such as service creation, service execution, partner management and management of third-party service components for contents and advertising.

The main characteristics, the history and the trends within the individual enterprise software areas are outlined in the following sections.

8.1.1

Customer Relationship Management CRM is a methodology and a set of tools that supports an enterprise in managing customer relationships. Primarily, the CRM will support and automate integrated end-to-end processes across the front-office business areas of sales, marketing and customer service. The forerunners of CRM systems were a range of personal tools for sales people and later company-wide tools for maintaining customer data. These tools first came into the market in the 1980s. Developed for this purpose, the ‘personal information manager’ was a software application that performed the function of a personal organizer of information that sales people would like to hold about their customers. This functionality has evolved into a range of tools and applications, such as Sales Force Automation Systems (SFAS), that now form part of the wider scope in today’s mature CRM suites. All of the key CRM functions require thorough knowledge of the customer to include demographic details, behavioural patterns and preferences. This data would have been acquired from a wide range of sources and should

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ideally be available from a single centralized data-warehousing environment integrated with the CRM. Often CRM systems are classified into three types [1]: 1. Operational CRM: Concerned with the automation of business processes including front-office customer contact points and call centres. 2. Analytical CRM: Involves the capturing, storage, analysis and interpretation of customer-related data. 3. Collaborative CRM: This part of the system provides services and infrastructure for interaction between a company and its customers via multiple channels. Across these CRM categories, Payne [1] has identified five main crossfunctional CRM processes that must be considered by most organizations: 1. Strategy development process 2. Value creation process 3. Multichannel integration process 4. Information management process 5. Performance assessment process. Strategy development is not a task of the CRM, but the CRM must exactly reflect the corporate line with respect to business strategy and notably customer strategy (including customer segmentation and focus on valuable strategic customers). The value creation process addresses the objectives of delivering value to the customer and at the same time maximize the lifetime value of the customer to the company. Multichannel integration is concerned with the integration of a combination of many communication channels to the customer. The information management process is about organising and easing the use of information on customers, and the performance management process concentrates on the collection of customer information for enhanced customer profiling and for creating metrics to measure and analyse results. The data collection and data visualization for the front office of the service provider must be carefully targeted to strike a balance between the depth and the complexity of data, the staff skill levels and the customer requirements. Interfaces to OSS, ERP and BSS will typically be required. For example, the OSS can track the behaviours and the whereabouts of the end-users in considerable detail and make this information available online to the call centre function in the CRM system. This will enable a prompt, precise and up-to-date environment for the typical customer encounter.

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Enterprise Resource Planning Enterprise resource planning (ERP) is a concept that aims to integrate all departments and functions across a company (finance, human resources, etc.) onto a single software framework. Like for the CRM environment, the ambition is ultimately to run all systems off a single (virtual) database such that data can be easily shared and help to improve communication between departments. ERP is often referred to as back-office software; hence, some of the main areas covered by a typical ERP are as follows: • Order tracking and management • Inventory tracking and management • Financial/business information for senior management. There is a potential wealth of additional functions that may be integrated. These applications include workforce management, production management, sales/marketing management and procurement management [2].

8.1.3

Operations Support Systems OSS refer to the systems used by CSPs to perform general management functions [fault, configuration, accounting, performance and security (FCAPS)] as well as inventory, planning, provisioning and maintenance related to the communications network and services infrastructure. Over the last three or four decades, the evolution of the OSS has been boosted significantly by computers increasingly taking over tedious technical and administrative tasks that used to be entirely manual. The UNIX operational system became a de facto standard in large parts of the communications industry and many proprietary OSS applications dedicated for particular technologies and equipment vendors emerged. In 1988, the telecommunication standardization sector of the International Telecommunication Union (ITU-T) defined the telecommunications management network (TMN) reference model for a hierarchical telecommunications management system by proposing a partition of the functional areas of management into layers. This architecture identifies functional layers of telecommunications management, notably for business management, service management, network management and element management. Conceptually simple and intuitive, this architectural view has dominated the OSS industry ever since. The detailed implementation guidelines were set out in recommendations such as M.3010 (architecture) and G701 (information model), but the original somewhat rigid architecture has evolved. The interface protocols between OSS and network elements as well as between peer systems and hierarchical systems were standardized.

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The prevailing target standard for open interfaces during the 1990s was Q3, based on common management information protocol (CMIP) and Guidelines for the Definition of Managed Objects (GDMO). Compliance to Q3 and TMN standardization became universal requirements in the telecommunications world. Later, the primary focus on Q3 and CMIP gradually disappeared as the steep learning curve for development and the complexity of implementation of Q3 protocol-based systems became increasingly apparent. The focus shifted towards common object request broker architecture (CORBA), a protocol that allowed developers to build distributed applications with relative ease. CORBA rapidly became popular, but standardization failed to make a smooth transition to the emerging Web technologies based on Java. Today, CORBA shares the fate with Q3 as fairly niche technologies (still widely used though, e.g. in telecoms backbone networks) that once promised to conquer the world. TMN layering is now implemented by using whatever protocols are appropriate. The simple network management protocol (SNMP) has become one of the de facto standards for Internet and telecommunications management between the network elements and the element management systems. During the late 1990s, the TOM and a few years later the eTOM business process frameworks were developed by the TM Forum. Originally focused on (but not specific to) the telecommunications industry the eTOM promotes a framework for end-to-end process automation of the business and operations processes that deliver information and communication services. Very widely accepted in the industry, eTOM builds on the ITU-T TMN recommendations. In particular, the layering principles of the original TMN pyramid are still applicable. The TM Forum is working with ITU-T to harmonize the eTOM and TMN models. At almost the same time, extensible markup language (XML) became the next big interface protocol in the communications industry. The position of XML was further strengthened by the emergence of simple object access protocol (SOAP). SOAP is a protocol for exchanging data based on XML across computer networks and is an integral part of the web services stack. A number of competing software architectures and protocols have been proposed and a number of lively discussions are ongoing in blogs, standardization forums and so on. Notably, refer to Erl’s reference book on Service Oriented Architecture [3] for more details. The lowest layer of the OSS architecture is closely wired into the telecommunications network elements with detailed access to all management functionality. Usually, several layers of functional abstraction are implemented on top of the element management layer; these layers include the network management layer, the service management layer and the business management layer. The OSS also provides a range of functions related to provisioning of customers and related services to the network infrastructure.

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Business Support Systems BSS can be defined as systems dealing with customer-related processes such as receiving orders, processing bills, invoicing, collecting payments, calculating charges, call rating and so on. The crucial functions of charging and billing are based on agreed service contracts as well as call detail records (CDR) and pay-per-view records collected from the communications network and services platforms. Higher complexity of convergent services such as multiplay bundles is increasing the load on the charging and billing systems, and it is a challenging (and potentially differentiating) capability to provide a single bill for the end-users. The part of the charging and billing platform related to customer account management relies on internal or external functions for CDR data collection, conversion, mediation (filtering, correlation) and forwarding. Various other customer data relevant to the rating process must be collected from external systems. The requirements of closer integration between OSS and BSS have been underlined recently by closer collaboration between the main industry standardization bodies in these areas. In May 2007, the Global Billing Association (GBA) that focuses on billing and BSS related issues globally became part of the TM Forum. In the areas associated with charging, billing and revenue management, industry demands of coordination, integration and automation are likely to be better met under the joint umbrella of TM Forum [4, 5]. In Chapter 11, the challenges and opportunities specifically related to billing and convergent charging are analysed.

8.2

Enterprise System Integration Challenges Integration of enterprise software systems must be approached as a multidimensional task in time (i.e. upgrades) and space (i.e. interworking). Backward compatible technologies and flexible processes designed into modern enterprise systems ideally minimize but cannot eliminate the notorious ‘fork-lift upgrades’ where old systems tied to bulky proprietary hardware must be removed completely. The requirement for system interworking is that different applications in different systems can be used flexibly in the same business process. ‘Swivel chair integration’ where operators turn from one system to the next (using a swivel chair) to manually enter the same data is unfortunately still a more than occasional practice that standardization bodies like 3GPP and TM Forum are working hard with vendors and service providers to eradicate. Obviously, there are compelling business reasons for promoting scenarios where the different enterprise software system areas can interface, interoperate and eventually synergize:

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• Historically, the different enterprise sw system markets have been disconnected. • Market changes increase pressure for Internet-style agility and lower cost. • Successful business process automation requires new integrated system designs. The inter-system operation will obviously mean that open interfaces must be defined and implemented, but open interfaces alone will not change the way data are processed and used. Certainly, a more fundamental approach is called for than applying new mastic sealant between existing building blocks. The overall objective is to specify, create and support the means for a unified sw environment at the heart of the operations environment with every service provider. This objective will first require fundamental changes to the way the key players in the industry interact and to key components of the sw systems. The required changes would imply that: • End-user requirements will drive requirements for operator process changes and subsequent software system interworking. • Enterprise software platform vendors must engage in discussions to share a common vision for enterprise software unification. • Enterprise software platforms must offer generic capabilities for use across different enterprise areas, that is effectively separating software engines and contents. To address these challenges in the software platform market, new portfolios of integration-friendly enterprise systems must be developed and deployed. The required properties of the new enterprise software platforms are for an efficient integration of the technical systems into a holistic business management environment. Although this is a fundamental change, the actual implementation must for efficiency and speed of implementation be based heavily on existing software modules, shaped and configured for the new environment. A process-driven integrated enterprise architecture must flexibly control the multiple dimensions of the software environment: • Enterprise domains: CRM, ERP, OSS and BSS. • Management system layers: Element management, network management, service management and business management. • Business areas: Mobile, fixed, broadband and media. • Systems, interfaces and data ownership: Internal to service provider and external to service provider.

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• Variation in process maturity: Manual processes, semiautomated processes and fully automated processes. Unless the underlying software platforms and software applications are open and flexible, and not tied to any particular domain, layer, product or vendor, then full interoperability (to include use of common practices) will be hard to achieve in practice. In addition, this separation of software contents and platforms/engines is an important prerequisite for effectively raising the degree of process automation.

8.2.1

Enterprise Architecture Frameworks Often enterprise application integration (EAI) tools (from sw vendors like ILog, Tibco Webmethods or IBM) are used to integrate disparate enterprise software tools. EAI tools provide adapters that support integration across different communications protocols, including SOAP, CORBA, Java Message Service and a range of terminal emulation protocols. By providing the ability to route messages across different protocols, EAI tools would enable integration of most proprietary enterprise software products. Whilst mapping of protocols is useful, some of the most difficult integration problems relate to mapping of data between inconsistent and often conflicting data models. A number of general architectural frameworks exist, each of which has its particular characteristics. To illustrate these principles, two commonly used enterprise architecture frameworks are described below.

8.2.1.1 The Open Group Architecture Framework The open group (that is responsible for maintaining the UNIX standard) has developed ‘the open group architecture framework’(TOGAF). TOGAF consists of a detailed method and a set of supporting tools for design, planning, implementation and governance of an enterprise architecture. The architecture would normally be modelled at four levels or domains, namely, business, application, data and technology. Originally designed as a way to develop the technology architecture for an organization, TOGAF has evolved into a methodology for analyzing the overall business architecture. The first part of TOGAF is a methodology, called the architecture development method (ADM), for developing the architecture design. It has the following nine basic phases: framework and principles (preliminary phase), architecture vision, business architecture, information system architectures, technology architecture, opportunities and solutions, migration planning, implementation governance and architecture change management. The second major part of TOGAF is the enterprise

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continuum. This is a collection of architectural building blocks and models developed to ease the process of architecture design. In summary, TOGAF is not an architecture but a framework for designing and describing an architecture. TOGAF enjoys support from service providers as well as some of the leading software vendors.

8.2.1.2 The Zachman Framework The Zachman framework provides a universal ‘language’ to facilitate communication, research and implementation of an enterprise architecture. It is a logical structure for representing the important business components of an IT organization or business. The framework is built around a 6 × 6 matrix where the columns represent various business process steps that can be modelled (scope, business model, system model, technology model, components, system), and the rows represent viewpoints from which the processes can be described (data, function, network, people, time, motivation). The cells of the matrix describe key requirements and processes for managing complex IT enterprises. The scope of the four architecture domains of TOGAF aligns well with the first four rows of the Zachman framework.

8.2.2

Service-Oriented Architecture Various definitions of SOA exist, but it can be defined simply as ‘an architectural principle that offers a palette of reusable services components by means of loosely coupled interacting software agents’. In the literature, SOA has been closely linked with Web Services (WS) standards. Whilst this linkage is not a hard requirement, it is a well-suited foundation for the SOA implementation. World Wide Web Consortium (W3C), Organization for the Advancement of Structured Information Standards (OASIS) and Web Services Interoperability Organization (WS-I) are the main WS/SOA standardization organizations responsible for key standards like extensible markup language (XML), simple object access protocol (SOAP), Web service description language (WSDL), universal description, discovery and integration (UDDI), Web services business process execution language (WS-BPEL) and ‘basic profile’ (set of proposed versions of all of the above standards for a recommended architecture). Important components of the Web services framework are the ‘Operations’ (units of work’), the ‘Services’ (units of processing logic), ‘Messages’ (units of communication), and ‘Processes’ (units of automation logic). In a WS/SOA architecture, all data formats will be represented in XML, the messages may be SOAP encoded and the Service contract descriptions WSDL compliant. A ‘service contract’ formally specifies all the details of a service that must be shared with other services for the services to interact. This principle

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referred to as ‘loose coupling’ allows services to remain independent whilst interacting within a predefined scope. This is in contrast to the closely coupled principle of ‘inheritance’ used in most object-oriented programming. Other key concepts and principles of a SOA design are listed below: 1. services are reusable (i.e. designed for potential reuse); 2. services abstract underlying logic (i.e. only the service contract is visible to the outside world); 3. services are composable (i.e. services may compose other services); 4. services are stateless (i.e. state management is deferred to messages); 5. services are discoverable (i.e. support the use of a discovery register or directory).

Application layer

Service interface layer

Business process layer

An important characteristic of a SOA is that layers of abstraction can be introduced to simplify the system architecture. A layer of business-centric services can encapsulate the business logic as modelled for example on a business process management (BPM) platform. Likewise, the application logic and technology platforms can be abstracted by another dedicated SOA layer of application services thereby removing proprietary details in the SOA implementation. The business process part of the modelling is represented by yet another layer – the orchestration service layer – that through process services uses WS-BPEL to model workflow and full business processes.

WS-BPEL process service mapped to a business process

Orchestration service layer Business service layer Application service layer

Physical service encapsulation

Figure 8-3. Illustration of the primary layers of a SOA. Grey bubbles represent SOA-based services. Reproduced by permission of Prentice Hall.

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The three service interface layers combined represent the internal and external interfaces of the business: (i) application service layer, (ii) business service layer and (iii) orchestration service layer. See Figure 8-3 for an illustration of the SOA layers. Migration of any proprietary system architecture towards SOA principles can be a significant undertaking. A phased migration program will include the use of various wrapping techniques to expose existing proprietary functionality via open standardized interfaces. Regarding the physical implementation a point for further investigation would be the performance of the platform, for example to include a comparison of traditional remote procedure call (RPC) communication with SOAP. The SOA concept is likely to become a main reference frame in the ongoing transformation of the communications industry towards further process orientation and automation.

8.3

Enterprise Process Optimization The dominant telecommunications process framework and the dominant IT process framework will be analysed.

8.3.1

Telecommunications Process Framework Management of telecommunications networks in a way that reflects true customer requirements has been a challenging objective in the industry for many years. Particularly stubborn problems have been faced in establishing strong operational links between the customer services organization and day-to-day operations for planning, management and optimization. These tasks have been addressed by the ITU TMN standards and more recently targeted by the TM Forum in the NGOSS programme. Layering of functionality is a fundamental characteristic of most telecommunications-specific management applications. Historically, this view was first formalized in the TMN architecture as further described in Section 8.1.3. The TMN interpretation is based on the notion that successive management layers gradually abstract the technology view of the (e.g. mobile) network components into a technology agnostic business view. This conceptual view works well for a relatively simple business model such as a fixed line service provider that offers a basic uniform voice service to all customers. Increasingly though, the service definition tends to develop towards a more segmented and at the same time holistic end-to-end view of how the customer, the service and the surrounding environment interact. This higher complexity underlines the importance of tighter integration of the enterprise software systems. Many segments of the telecommunications industry have already progressed significantly into this regime where the

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interpretation of the simplified TMN model of interaction via well-defined interface points (e.g. between the service layer and the business layer) must be stretched considerably to cover new business requirements. In many ways, the simple TMN model has defined and shaped the thinking specifically in the OSS industry, but the impact of the model goes well beyond the OSS arena. Inspired by the original TMN concept, layering is used in more recent efforts to describe and categorise telecommunications application areas, notably, in the eTOM developed by the TM Forum. The TM Forum specifications are again used in other industry bodies to define business process requirements [ITU-T, open mobile alliance (OMA) and others]. In Figure 8-4, the eTOM model is shown:

Strategy, infrastructure & product Strategy & commit

Infrastructure lifecycle management

Product lifecycle management

Operations Operations support & readiness

Fulfilment

Assurance

Marketing & offer management

Customer relationship management

Service development & management

Service management & operations

Resource development & management

Resource management & operations

Supply chain development & management

Supplier/partner relationship management

Billing

Enterprise management Strategic & enterprise planning

Enterprise risk management

Enterprise effectiveness management

Financial & asset management

Stakeholder & external relations management

Human resources management

Knowledge & research management

Figure 8-4. The TM Forum eTOM model defines all of the major business processes of an enterprise. Reproduced by permission of the TM Forum.

The TM Forum members now count all the main industry participants to include a wide range of enterprise software vendors (OSS, ERP, CRM and BSS), consultants, enterprise service providers and end-customer service providers. This broad range of contributors has considerably helped to widen the scope and usage of the TM Forum recommendations. Figure 8-5 shows a simplified mapping of the enterprise areas of OSS, ERP, CRM and BSS onto the eTOM model. Note that a thorough and detailed mapping would be down to the definitions of the individual enterprise areas, for example the customer relationship management within the eTOM

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Operations

Infrastructure Lifecycle

Product

Operations

Lifecycle

Support &

Management

Management

Marketing & Offer Management

Fulfilment

Assurance

Billing

Readiness CRM Customer Relationship Management

Service Development & Management

Business Resource Development & Management Control Centre Supply Chain Development & Management

Service Management & Operations

Resource Management & Operations

OSS

BSS

Supplier/Partner Relationship Management

Enterprise Management Strategic & Enterprise Planning Financial & Asset Management

Enterprise Risk Management Stakeholder & External Relations Management

ERPEnterprise Effectiveness Management

Knowledge & Research Management

Human Resources Management

Figure 8-5. Schematic mapping of the main functional categories of OSS, ERP, CRM and BSS onto the TM Forum eTOM model. The Business Control Centre coordinates actions across all other functional categories.

framework is very broadly defined and larger in scope than some definitions of CRM [7]. In addition, some overlaps exist between the very broadly defined enterprise areas. Under the auspices of the TM Forum, open interfaces between various components of the eTOM model are being analysed, put forward in proposals and further developed in initiatives like the TM Forum OSS through Java (OSS/J) program and the TM Forum Co-operative Open (COOP) project. Still, there are no widely adopted practical guidelines that address the problems of how the traditional enterprise software systems interface to other main systems in the increasingly complex business environment of a CSP. Chapter 9 will further discuss some of the requirements for the multiple interface points between the different enterprise systems (OSS, ERP, CRM and BSS) traditionally developed in some degree of isolation by different vendors in the wider sw systems market.

8.3.2

IT Process Framework With CSPs, the telecommunications network operation has usually been organizationally separate from the IT network operation. With convergence of telecommunications and IT technologies, the skills required become more

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similar and the processes deployed to manage the equipment throughout the full lifetime converge. Whilst the eTOM would typically guide the network operations processes, then IT processes have usually been designed around the structures and objectives of the ITIL. ITIL is a library of IT industry best practices described in a series of books that each covers a particular IT management topic. These detailed descriptions give comprehensive task lists, recommended process flows and system quality requirements that can be applied to any IT organization. ITIL was developed in recognition of the increasing dependence on IT by organizations and has gradually shifted the centre of attention towards more focus on the management of IT services [8]. ITIL is generally acknowledged as the most widely accepted set of practices for IT service management. The ITIL practices are issued by the UK Office of Government Commerce (OGC) that also acts as a sponsor of a number of best practices programs. In the 2007 Release 3, ITIL is based on a core of five books that focus on the service lifecycle: • service strategy; • service design; • service transition; • service operation; • continual service improvement. Compatibility between ITIL and eTOM is obviously important, particularly given the historically different and independent development paths for the two frameworks. The itSMF has worked with the TM Forum to obtain a coordinated view of the two frameworks with respect to vocabulary, process mapping and overall objectives. Initial work in this area suggests that the scopes of ITIL and eTOM overlap but that they can work together successfully by combining eTOMs business perspective and wide scope with ITIL’s details and process best practice definitions [9]. The alignment of scope and operational implications of best practice processes from the IT and telecommunications communities are major challenges to be faced by the combined effort of the future post-convergence industry. Whilst the eTOM and ITIL frameworks in some areas are seen to be complementary, more work on real alignment is required to understand the detailed implications across a large number of existing processes and practices where overlaps and contradictions exist.

8.3.3

Cross-network Optimization Challenges Convergence of communications technologies, seamless service experience and multiplay communications service packages increasingly

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toughen the competition and result in wider choices and significant cost reductions for the end-users.   , for the first time in five years, as a proportion of total household expenditure, average UK household spend on communications services fell slightly – from 4.63% in 2004 to 4.60% in 2005. This decrease was predominantly down to falling prices, particularly in fixed line telecoms, which more than offset increases in take-up and usage. Office of Communications, The Communications Market, 2006 [10]

Where options exist, conscious choices must be made by the user. With increasingly more electronic gadgets featuring network connectivity (phones, PDAs, portable computers, game consoles, etc.), there will often be a choice of terminal for accessing whatever chosen application or service. For example, a voice telephone call can be initiated from a VoIP client on the home computer where the call could be free, on the mobile terminal for convenience or on the fixed line terminal to combine a degree of convenience and low cost. Other choices are available depending on the location of the user whether at home, in the office or on the move – and likewise for many other commonly used applications/services that can be accessed from different types of terminals. Further, with multi-access terminals, a choice of access network will often be available. Finally, the contents mediator (e.g. an Internet service provider) is selected and the actual contents is browsed and viewed. These choices can be narrowed down significantly by bundled and managed packages that offer volume discounts and ease-of-use. This will obviously suit some users, whilst others will embrace the opportunities of open access at all levels of the value system. The more complicated and diverse the usage pattern of the end-users, the more complicated the management of the underlying technology becomes. For network providers, service providers and contents providers, this complicates the task of optimizing usage and planning investments in production machinery (or in colloquial terms, ‘sweating the assets’). Efficient centralized management of disparate communications systems has always been a challenge for CSPs. A number of different suppliers typically supply the network and terminal equipment, and although often ‘standardized’ to the extent that the end-user experiences a seamless service, a wealth of proprietary characteristics would usually pile onto the system management challenge. Multiple equipment technologies, multiple equipment generations and multiple interface standards are notorious for complicating the picture even further. Vendors, service providers and standardization bodies address the multivendor management challenges vigorously (along with the other disparities discussed above), and it has by planning and design caused relatively few visible problems for the end-users in the past. This general observation obviously ignores the often small but nagging compatibility problems many

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people face when buying a new television, a new telephone or a new computer. Important to the end-users though is that with emerging convergent technologies, the various compatibility challenges do become increasingly visible. This reflects in a range of different issues related to coverage, service continuity, quality and so on. Further, the cost may vary quite significantly between the different available options. The optimization challenges for CSPs are now to balance the capacity in the individual access and core networks for optimum utilization and thereby lowest cost whilst shielding the end-user from the side effects of partly incompatible networks and technology. The latter task is obviously getting a lot harder when multiple service providers share responsibility for the service experience delivered to individual users. In Figure 8-6 the complexity of the network operations tier in the industry value grid (refer Figure 3-5) is illustrated. From the end-user point of view, this complexity may be very visible as the same contents can obviously be delivered and consumed in umpteen different ways. Fixed

UMA

WLAN

WiMax

GPRS HSDPA

Figure 8-6. Many different combinations of user terminal, network access, services platform and contents provider complicate the operations management challenge.

Efficient solutions to the cross-network optimization challenge is of key importance to the success of convergent networks in terms of controlling the capital expenditure (CAPEX) and OPEX for the operators, as well as the QoE for the end-user. Tools that work with different access network technologies for planning, simulation and optimization are required. Network parameters must be planned and configured to match expected usage patterns (e.g. mobile GPRS network territory settings will balance the number of timeslots dedicated to packet-based traffic and circuit-switched traffic). Uptake of new services must be forecast, and after launch the actual traffic generated must be monitored closely – sometimes even in real time. Most important of all though is to understand the customer expectations and the customer satisfaction level to maximize the QoE.

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135

Process Mapping Significant progress has been achieved under the leadership of TM Forum, and many equipment and tools vendors have for some years now promoted increasingly complete ‘end-to-end’ solutions. An important objective is to optimize the bearer network based on a holistic view of the required ‘quality of all services’ the network must support. Ideally, the achieved quality level for all individual services can be monitored using various measurements and statistics with a feedback loop to continuously review and optimize network settings. The architectural and organizational challenges are multiple, but the eTOM and ITIL process models provide the industry with structured frameworks. Being the wider and higher level framework of the two only the eTOM model will be used in the following broad analysis. To implement eTOM and NGOSS principles in the organization of a CSP involves three steps according to the TM Forum-sponsored book NGOSS Distilled [7]. These three steps are as follows: 1. Evaluate existing processes and develop a plan for mapping to the eTOM framework by dividing the organization into an appropriate number of business units for mapping purposes. 2. Map key organizational processes to a level 2 eTOM diagram (one level of details deeper than shown in Figure 8-4, refer to www.tmforum.org for all details). This identifies areas where a more detailed level 3 mapping is required to differentiate and also identify gaps with no processes mapped to it. 3. Map processes to the next level of detail (eTOM level three) to visualize how subactivities of existing processes can be grouped into new processes that align better to the eTOM structure. When an organization has mapped its processes to eTOM, the full NGOSS framework of recommendations can be brought into play. Whilst in principle a straightforward methodology, many inherent organizational and system characteristics will considerably complicate the process of completing the mapping: • Tools, applications and software platforms developed for a proprietary architecture dictate a certain process flow. • Organizational history has evolved the skills of employees in support of a certain process flow. • International operations across multiple affiliates mix many organizational cultures. These obstacles to freely defining new process flows also illustrate the problems that arise from a chronic lack of standardization in the past,

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a problem the TM Forum NGOSS framework is being developed to address. Now, NGOSS and eTOM are extremely rich on details and complicated beyond the highest level of aggregation. In addition, it is acknowledged that many practical problems must be addressed for successful implementation. Given the investments required to change organizations, software systems and the skills of people, many of the benefits derived from compliance to NGOSS are likely to be experienced only in a tactical or even strategic time frame. A company-wide business case for a full NGOSS transformation will therefore inevitably rely on a list of assumptions that notably depend significantly on the market evolution and the expectations of future business models as discussed in Part II. The framework itself and the implementation issues related to NGOSS mean that a full understanding of the benefits of NGOSS is complicated at best. A sufficiently detailed understanding probably extends only to a small core of people in each organization focused on the enterprise software platforms and applications. At the same time, the strategic implications of ever-changing business conditions and the impact on requirements for platform evolution would be addressed primarily by strategic planners and senior management. Some of the important drivers for renewal of the software environment are as follows: • Reduce the cost of integrating new network elements and new applications (often referred to as the interoperability tax or integration tax). • Raise the level of abstraction from a network focus to a business focus based on a strong orientation towards services and customers. • Integrate the software environment across all enterprise areas for additional synergy in preparation for company-wide adaptation to new industry-wide business models. The daunting scope and complexity of real-life business processes for CSPs represents massive organizational challenges. The next section will look at some of the structural similarities across different eTOM processes that may help to simplify the transformation of organizations and software systems.

8.3.5

Simplified Process Loops Live system implementations of the eTOM process model shown in Figure 8-4 have, at the time of writing, seen its most mature implementations in the enterprise software area of OSS. Main drivers in this area have been reduction of the integration tax and a drive towards an operational focus on services and customers. In addition, automation based on

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a standardized process environment is seen as a vehicle for lowering the operations cost. With many CSPs, dedicated organizational units look after the network platforms and services platforms. In each of these areas, an important part of the operations management processes can in a simplified view be summarized in the following main steps [11]: • collection of data; • analysis of data; • provisioning. Interestingly, these generic process steps are not specific to a particular TMN or eTOM model layer. This means that generic tools and generic process fragments that are related to each of these process steps can be partly reused. In Figure 8-7, independent optimization loops are for shown for the eTOM layers of resource management and operations, service management and operations and customer relationship management. For clarity, the processes have been simplified and the naming slightly harmonized. Triggers for these optimization loops are the problem management processes and life cycle management processes. This means, for example, that a service event generated by the service problem management process step will activate a manual, semiautomatic or automatic process for service data collection that in turn will activate the service quality analysis process that will result in resource activation via the service configuration and activation process. Likewise, a planning tool in the resource development/delivery process

Fulfilment

Lifecycle management

Product development/ delivery Services development/ delivery

Resource development/ delivery

Customer relationship management

Service management

Resource management

Customer requirements prioritization Services configuration and activation

Network provisioning and allocation

Assurance Customer QoS/SLA analysis Services quality analysis Network quality analysis

Customer data collection

Customer problem handling

Services data collection

Services problem management

Network data collection

Network problem management

Figure 8-7. Collection of data, analysis of data and provisioning constitute the main components of the operational optimization loops. The problem management processes and lifecycle management processes are triggers of the process loops [12].

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area may generate a configuration file that the network provisioning and allocation process step will implement in the network (that again will generate new data for analysis, etc.). Note the particularly busy and important point in this model where optimization loops from all the model layers are funnelled into single coherent sets of instructions for the ‘Operations’ staff to implement in the network (i.e. the network provisioning and allocation process step). Coordination between the different model layers is obviously required to avoid clashes of interest related to individual network resources. A crucial point is that the different optimization loops related to different layers in the process model are similar in structure. In principle, this means that the same generic tools in different configurations can be deployed in all of the optimization loops thereby greatly reducing the complexity of the overall system whilst at the same time simplifying the crucial interoperability between the different layers. The available data sources and the related data analysis and optimization are important to a successful optimization process. These areas will therefore be discussed in more detail.

8.3.5.1 Data Sources for Analysis and Optimization The data sources used for the loop optimization processes are diverse and complex. A few of the main data sources are outlined below: Passive network data collected from the network in the form of alarms and performance statistics are notoriously focused on the health of the network elements. Few of the alarms would give any indication of direct customer impact (due to coverage overlap, system redundancy, fault tolerant transmission protocols, etc.). The real impact on services and customers can often not be thoroughly evaluated without additional data. Active network data measurements will provide a more accurate view of the end-user customer perception. Active measurements can be collected from distributed agents across the network. The agents will emulate mobile terminals by performing simulated transaction requests at scheduled intervals. This method can provide full 24 × 7 statistics but will add to the network load and essentially provide representative snapshots only. Still, the use of active measurements is seen as a powerful yet simple way of gathering intelligence about services performance and customer perception. Traffic data are based on real-time traffic reports generated by networkswitching units such as the Mobile Switching Centre (MSC) and the SGSN in mobile networks. Traffic data can provide very detailed customer-specific records, for example for each GPRS session for each SMS sent or received and for each voice call. Being real time and user specific, detailed service level agreements (SLAs) can be monitored and real business indicators can be extracted.

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Terminal usage data are available from active or passive agents installed on customer terminals. This data source is individualized and the data will vary significantly depending on locally specific signal strength (where applicable) and service availability as well as on individual service preferences with users. The data can in principle represent a nearly undistorted picture of the real customer experience. Customer data are available from a variety of registers and databases that reside in the switching platforms, service delivery framework (SDF), charging or billing platforms and CRM system. A fundamental requirement of any convergent management system is the capability to combine and condense diverse sources of data into a compact customer- and services-oriented format that holds key information about real customers’ QoE. This would take the form of individual key performance indicators (KPIs) or key quality indicators (KQIs) for all offered services or groups of services, as well as metrics for delivered customer value and derived revenue. Optimization processes can be initiated by different operational procedures, notably (i) proactive optimization and (ii) reactive problem management. Both of these operational procedures (and any hybrid procedure) can be supported by the loop optimizations processes discussed earlier in this section. Whilst technical systems based on standardized process frameworks like eTOM may provide fully operational procedures that consist of a number of well-documented standardized steps, the subsequent management of these end-to-end processes requires specific formalized methods and tools. This requirement is the topic of the next section.

8.4

Methodologies for Business Process Optimization Process orientation is a driving theme behind an industry-wide effort to ensure that tools and applications are developed for flexibility and fit with the main operating processes, used across a wide range of industry segments to include very different areas such as banking, car manufacturing, and communications. Organizations like the BPM Institute [13] and the BPM Forum [14] are actively facilitating knowledge sharing amongst BPM professionals, for example, by offering training and by organizing workshops and conferences. This section outlines key methodologies for business process analysis and optimization. Key characteristics of operations processes and business processes are analysed and linked to the practical problems of business process optimization with CSPs.

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Convergence

Business Process Management BPM is the most recent industry attempt at a framework for achieving process-based organizational efficiency. Historically, BPM is following on from initiatives such as total quality management (TQM) and business process re-engineering (BPR). The BPM methodology rose to prominence in the 1990s and has gained significant momentum over the last 5 years. Like other management concepts, BPM has been through phases of significant overselling but is now maturing and widely regarded as an important topic for the agenda of senior CPS management. BPM is often proposed as a remedy to compete in the new convergent global business environment with market drivers such as the strong growth in the Internet industry, the significant knowledge-based growth in Asia and notably an increasing commoditization of traditional premium-rate services which means increasing focus on the underlying cost base. BPM can be described as a means to optimize the interactions between people, processes and technologies. An extensive group of BPM tools vendors and BPM consultants address these areas. To achieve overall operational excellence, the organizational structure of companies and the various layers of business processes owned by the individual organizational units must support joint strategic objectives. This relation is illustrated in Figure 8-8. From

Strategic objectives

follow

Business processes

that define supported by

Organizational structures Operational processes

Figure 8-8. Strategic objectives must be linked closely to the structures of processes as well as organizations.

Various well-established BPM methodologies, techniques and tools are available for business process design and optimization. Usually, these concepts would be applied to a particular existing process or cluster of processes identified as particularly important to the company. The art of deducting optimal processes from business objectives (i.e. the linking of the top two tiers in Figure 8-8) is in general not well understood theoretically and not strongly underpinned by structured methodologies or tools. In addition, there is often little support available for identifying the processes that would benefit most from optimization under a BPM framework. Therefore, experienced BPM consultants are important for identifying the best process targets for automation.

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A few general rules apply though. When an individual in the organization alone manages a full process or a major process step, the benefit of having this process or process step managed by a formal tool is likely to be limited. However, when the final objective of a BPM project is full process automation, all subprocesses must be mapped because a full description is naturally the first step towards full automation. In a BPM project, the people, processes and technology are all tightly managed by a structured project framework. Many authors in the rich selection of books on the topic advocate different (but essentially not too dissimilar) project phases and contents [15–17]. A typical BPM project would go through the following main steps: • Understand and map the present processes, organization and objectives. • Analyse root causes that determine the performance of present business processes. • Evaluate multiple process designs and get buy-in from the target organization. • Deliver and validate the design against agreed objectives. • Deploy systems and integrate processes, people and systems into a new process environment. • Conduct required training and deploy procedures for process control. • Review and improve process metrics, process architecture and training requirements. The operations-focused processes are often event-based and typically consist of a string of technical steps that may be either automatic or manual. At a higher abstraction layer, business processes will trigger or include these operations processes. High-level business processes can loosely be defined as a group of processes that addresses strategically important activities in an organization. At the highest level, these activities narrow down to a few wide-scoped objectives such as ‘overall business result’ and ‘future business prospects’. At the lower abstraction levels, the business objectives or tasks break down into increasingly concrete technical processes. An example of such a chain of increasingly more detailed process objectives is shown below (with example metrics): 1. Overall business results (success measured in Euros and/or stock value). 2. Efficiency in meeting customer SLAs (Euros). 3. Efficiency in managing ‘production machinery’ (Euros or people). 4. Multi-vendor network configuration management (People). 5. Vendor-specific network element configuration management (People).

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Each (lower) level of abstraction adds more possible solutions to the original problem. For example, conformance to customer service level agreements (SLAs) may be ensured by a range of different alternative measures such as optimization of the existing network and/or adding more capacity in the network. These measures may involve taking a calculated risk (measured in Euros) of not fulfilling the SLA.

8.4.2

BPM Automation Automation of processes is a desirable step but it is only seen to be effective when applied to underlying efficient operations. A common pitfall is to ignore existing fragile ‘black box’ processes that the organization is reluctant to change. Therefore the focus may drift towards the edges rather than be at the heart of the problem. In this situation the technology applied for BPM automation is unlikely to solve the problem before the people/organization and the processes involved have been properly addressed. A BPM project would often not have to involve a technology solution in order to be successful, but on the other hand an automation project can be very successful in making processes more effective. Shortly outlined below are a number of components that may form part of a fully automated BPM solution [15]: • Process modelling and design tools help to map processes consistently • Simulation tools are designed to identify process bottlenecks and perform early benchmarking • Activity-based-costing tools help to optimize processes for lowest cost • Workflow process engines automate the execution of process transactions and events • Business rule engines allow the business people to flexibly and quickly change business rules (without the help from IT) • Business activity monitoring tools track process performance measures in near-real time (e.g. based on performance targets established with concepts such as Balanced Scorecard)

8.5

Summary When different industry segments slowly merge because of convergencedriven changes to technologies, user preferences and business models, the existing processes will come under increasing stress. The new business

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environment will require the players in the communications industry to scrutinize and review their main business processes. The main enterprise areas, represented by the software frameworks of ERP, CRM, OSS and BSS, have for many years been operated in (part)isolation. The growing competition and new business opportunities triggered by convergence have underlined the importance of further integration of these enterprise areas. A number of new technologies, platforms and operations frameworks such as Web Services (WS), enterprise service bus (ESB), Service Oriented Architecture (SOA) and Business Process Management (BPM) have been proposed, developed and promoted by a myriad of individual companies as well as cross-industrial bodies. Successful players in the future are likely to be based on these new techniques notably SOA and BPM are seen by industry analysts to be very important ingredients in a future strategy that is aimed at increasing the organizational agility and the ability to cope with change. By combining the two methods in a common programme the shorter integration time expected to result from a SOA framework will effectively supplement the quicker adoption of process changes with BPM [18]. The TM Forum has developed the eTOM enterprise process framework. Real-life business processes are complicated at best and optimization usually a daunting task. A simple model for business process optimization that focuses on similarities of the optimization loops across different network abstraction layers has been proposed. Generic tools can be used in the optimization loops at the different abstraction layers thereby lowering the overall system complexity. BPM has emerged as a principle for structured management of business processes. All business process management optimization activities must address the people, the processes and the tools involved. For high-level business processes, the scope extends across all enterprise software areas and organizational units.

8.6

References [1] Payne, A. (2006), Handbook of CRM, Butterworth-Heineman. [2] Garg, V.K. and Vakharia, B. (1999), Enterprise Resource Planning Strategy, Jaiko Publishing House. [3] Erl, T. (2005), Service-Oriented Architecture, Prentice Hall. [4] GBA Homepage, www.globalbilling.org/gba, 2007. [5] IPDR.org Homepage, www.ipdr.org/, 2007. [6] Enhanced Telecom Operations Map (eTOM): The Business Process Framework, TM Forum, GB921, 2004. [7] Reilly, J.P. and Creaner, M.J. (2005), NGOSS Distilled, The Lean Corporation. [8] van Bon, J. (Chief Editor), Introduction to ITIL, The Stationary Office (TSO), 2005.

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Convergence [9] eTOM The Business Process Framework – For the Information and Communications Services Industry, Application Note V, An Interim View of an Interpreter’s Guide for eTOM and ITIL Practitioners, TM Forum, GB921V, Release 4.6, 2005. [10] ‘The Communications Market 2006’, Office of Communications (UK), August 2006. [11] ‘Services Based Network Management’, whitepaper, Christian Saxtoft, Nokia, 2005. [12] ‘OSS by 2010’, whitepaper, Christian Saxtoft, Nokia, 2005. [13] BPM Institute, website, www.BPMInstitute.org, 2007. [14] BPM Forum, website, www.BPM-forum.org, 2007. [15] Jeston, J. and Nelis, J. (2006), Business Process Management, Practical Guidelines to Successful Implementations, Butterworth-Heinemann. [16] Arora, S. (2005), Business Process Management, Process is the Enterprise, www.bpm-strategy.com. [17] Process Improvement for Strategic Objectives (PISO), http://www.newcastle. bcs.org/piso.php, 2007. [18] Malinverno, P. and Hill, J.B. (2007), SOA and BPM are Better Together, Gartner.

Chapter 9: New Business Opportunities Dictated by increasingly stronger competition, all communications industry players are under continuous pressure to improve and optimize their operations performance and at the same time to sharpen their strategic plans and objectives. The process of identifying concepts, building models and platforms, launching customer products and managing new business opportunities will involve all the constituent parts of the enterprise software systems that have been analysed in Chapter 8. Chapter 9 will go into more details about some of the benefits to service providers across all segments of the communications industry of combining information across different enterprise software systems. In particular, it will be analysed how combined network/customer statistics can become a competitive advantage and be used for identifying new business opportunities.

9.1

The Network – a Managed Dynamic Business Asset In this section, some of the potential benefits of a tighter integration of the network operations and the business operations with a CSP will be analysed.

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Business Opportunity Management The enterprise software systems (CRM, ERP, BSS and OSS) are often viewed as covering distinct categories of functionality that are limited to particular organizational units and business tasks. These generalizations often serve to stereotype the systems, the organizations and the processes set up around them, with the result that important synergy effects are not acknowledged. For example, the view of the OSS is often that of an operational tool for optimizing the communications and IP networks, for identifying and solving problems and for provisioning the network, the services and the customers. As will become clear later, with some key additions, the same OSS combined with BSS, CRM and ERP systems can also become a tool for business executives to identify, implement and manage new revenue opportunities. This evolution would mean that new important business opportunities could be grown from the basis of a more detailed understanding of the network – now seen as a dynamic business asset. For this paradigm shift to take place, detailed knowledge of capacity and quality as represented in KPIs must be combined with near-realtime tools for data collection and analysis. Interfaces between enterprise software systems platforms are required to integrate and automate these processes, and formalized BPM tools will be required for managing the new cross-functional business processes that connect the network operations organization and the business teams. With convergence of communications and IP technologies progressing rapidly, the tasks of the traditional OSS and BSS are becoming increasingly more complex. The number, variety and complexity of network nodes and services platforms are increasing fast while the pressure to reduce cost puts all new investments under scrutiny. Many of the traditional OSS functions (such as configuration management and fault management) are usually not operationally critical in the sense that end-user services would be immediately affected by a temporary OSS outage. However, when call-bearing network equipment falls over, the response time of the OSS for initiating corrective action becomes a critical parameter in re-establishing the expected service availability. Important main functions of the technical enterprise software systems are (i) network optimization, (ii) service problem fixing and (iii) network/service/ customer provisioning. In particular, (i) and (ii) represent the traditional engineering view of a communications network as an engine that must be maintained and kept running continuously and as a matter of highest priority. With convergence, the communications market is undergoing a significant historic transformation. Business models are changing rapidly, and agility in all organizational layers ranging from network operations to business planning is becoming of outmost importance. Whilst network quality and service quality targeted at 99% availability will continue to be significant, there is increasing pressure on all CSPs to develop capabilities for continuous and flexible renewal of the underlying business models.

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The knowledge with CSPs about network technology and customer expectations must be acknowledged as a primary company asset that forms a valuable basis for business owners to identify new business directions. In a purely business-focused view, the communications network should be seen as a dynamic platform for new business opportunities. The task of transforming the technical enterprise software systems from problem-solving-and-optimization-platforms to becoming active tools for identifying, provisioning and managing new business opportunities will be analysed further. The synergies obtained by combining features from all of the enterprise software platforms are obvious, but to illustrate principles, the following examination will initially focus on the OSS.

9.1.2

A Business Management Paradigm Shift Problem management and network optimization are main functional areas inherently associated with the OSS. Usually, operations organizations would use the OSS primarily for technical network management and optimization, thereby targeting carrier grade services quality and at the same time cost efficiency in operations. At the same time marketing and sales planners would naturally focus on the business opportunities that the present and future markets offer. The tools and processes applied are usually not directly related to the OSS but would typically be based on a different set of off-line business planning tools. This traditional system architecture where different tools are used for problem management and business planning is illustrated at the left-hand side of Figure 9-1. Business mgt environment Business planning

Business planning

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Data Service Data Data

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Problem handling

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Business control centre

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Figure 9-1. By integrating technical operations tools into the business management processes, the network can be seen as a dynamic integrated business asset and a source of new business opportunities.

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The right-hand side of Figure 9-1 shows a future scenario where the systems for technical network management are integrated with business systems and processes. With this combined holistic view, the network can be analysed and managed as a true dynamic business asset, and business layer problems will become drivers of network- and services-related fault resolution. As discussed in the following sections, the implications of this conceptual change can be significant and effectively constitute a business management paradigm shift.

9.1.3

Business Data Requirements A key to the creation of an integrated framework for the Business control centre (Figure 9-1) is to collect, combine and analyze data from a wide range of available data sources such as network elements (e.g. switches), databases and registers. The number of data sources is potentially very high, but the challenge here is to select data sources that specifically contribute with business insight rather than network insight. To narrow the scope, it is desirable to specifically look for data in the seven categories represented by the 7W data areas introduced in Chapter 4, that is (i) Where, (ii) Who, (iii) When, (iv) With what, (v) What, (vi) hoW and (vii) Why. Obviously, an important characteristic of the data is the granularity in ‘space’ (scope in terms of #network elements and #statistics) as well as in ‘time’ (frequency/granularity of measurements). The ‘space’ dimension includes the relationship between the collected data and the abstraction level in the model used to represent the capabilities of the installed network assets. Here, the network layer, the services layer and the business layer will be referred to in accordance with the TMN (functional layer) and/or eTOM (business process framework) models. For the main observations New business Process orchestration Customer care Data

Data

Why do the users use our services? hoW are the services being used? What services are being used? With what terminals / access-technology? When are the users active? Who uses the services? Where on the network is the traffic?

Problem handling

Business control centre

Figure 9-2. Availability of the 7W data in near real time will increase the focus in customer care and give business planners better means to manage existing business processes as well as to identify new business opportunities.

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and conclusions made in this chapter, it is not necessary to specifically differentiate between the functional view and the process view represented by the two models, respectively. Figure 9-2 depicts the data collection process based on the 7W data categories. If made available in near real time, the collected data can be used as a basis of operational business decisions that can supplement tactical and strategic customer and business-related decisions, for example, made on the back of weekly or monthly management reports. Availability of comprehensive and well-analysed data sources is obviously a key to successfully identifying, launching and managing new business opportunities. Having the right data available at the right time is a necessary foundation, but obviously a few mores steps are required for business results to materialize. For this purpose, the simplified optimization model introduced in Figure 8-7 that constitutes the three steps of data collection, data analysis and provisioning will again be used. It is worth highlighting that this model works equally well at different abstraction layers, that is as a network optimization model as well as a business optimization model. In general, the key objective of most business opportunities is a measurable monetary benefit. This means that as long as the focus is firmly set on the cost-versus-benefits of new initiatives, then opportunities can be sought and identified at all functional layers as well as process areas in the enterprise. These include the network operations, the service portfolio definition, the customer management and the business development.

It is a capital mistake to theorize before one has data. Insensibly, one begins to twist facts to suit theories, instead of theories to suit facts. Sir Arthur Conan Doyle (1859–1930), author of crime fiction

9.2

Knowledge Based Organisations In the field of economics, the acknowledgement and subsequent alleviation of ‘scarcity’ is of central importance. Scarcity means that the accessible resources are insufficient to satisfy all needs. In classic economic theory, the consequence of this is that demand and supply will adjust to balance resource allocation in an open economy.

British economist Lionel Robbins first proposed the following definition of economics in a 1932 essay: The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. An Essay on the Nature and Significance of Economic Science, Macmillan [1]

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Traditional economics is based on the concepts of production factors such as labour, capital, materials and energy. As the world is rapidly moving on from being a production-dominated economy epitomized by the Ford-assembly line at the beginning of the twentieth century to becoming a knowledge-dominated information economy, the knowledge and information resources are also increasingly viewed as critical production factors [2]. Notably different to the other production factors, knowledge and information are not exhaustible. What is scarce is the capacity to acquire, understand and use them in meaningful ways. Knowledge is not easily transformed into the object of standard economic transactions. Effectively, it is often a difficult process to buy knowledge because the information about the characteristics of what is sold is asymmetrically distributed between the seller and the buyer. Lundvall and Johnson [3] proposed a widely quoted division of knowledge into four categories. These four components of knowledge are as follows: 1. Know-what: This type of knowledge relates to facts. 2. Know-why: This type of knowledge relates to the laws of nature, society and so on. 3. Know-how: This type of knowledge relates to skills and capabilities. 4. Know-who: This type of knowledge relates to the combination of information and social relations. The four different kinds of knowledge must be obtained from different data sources and information channels. In the communications industry, the knowwhat and know-why knowledge sources can often be deducted from measurements, statistics, from analyst reports and in general from a number of open or sometimes commercially restricted references. However, the know-how and the know-who are knowledge sources much more tacitly embedded in the company structure as well as the way the company interacts with external parties including customers. The division and diverse origin of the crucial company asset of ‘knowledge’ is important to acknowledge when preparing and planning for the new competitive post-convergence environment where companies with a very different history, knowledge base and knowledge structure will compete head-to-head. Further, in a knowledge-based economy, it is increasingly important to continuously learn in all of the four knowledge categories, that is to acquire ‘hard’ knowledge as well as the soft competences to use this knowledge. Intercompany relations to form so-called knowledge networks will often be part of the equation to spread cost and risk – obviously know-who is of key importance to engage effectively with a range of external partners. With the four knowledge categories in mind, the concept of economic scarcity will be applied to the communications business to identify

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bottlenecks and areas of potential new business opportunities in the following areas: • Network capacity • Service innovation • Customer attention • Business evolution.

9.2.1

Scarcity of Network Capacity The communications network represents a massive investment for the players operating at the network layer in the communications industry. In particular, the local loop (fixed) and the radio network (mobile) are very expensive network parts. The report RAN Sharing: Cutting the Cost of Mobile Broadband estimates that for a mobile network, the cost of the radio network roughly constitutes 80% of the total network cost, and the network-related costs constitute around 30% of the total combined OPEX and CAPEX excluding interconnect fees [4]. A common requirement for addressing business opportunities related to optimizing the utilization of the network capacity is a thorough understanding of the load pattern on the network obtained by correlating versatile sources of information from the network in the form of traffic reports, statistics, KPIs, terminal data, probe data and so on. Capacity planning is the art of managing the expansion of the communications network based on detailed analysis of statistics from the network as well as forecasts of future network load. Capacity planning is technically a nontrivial and extensive exercise – for example, the elements of the mobile network base stations analysed during capacity planning and optimization would typically include ‘power amplifier/receiver’, ‘channelization code’, ‘Iub (interface universal NodeB) transmission’, as well as the actual service-bearing ‘channel elements’. Capacity planning and optimization are repeated regularly (e.g. monthly). Prioritization of capacity upgrades would often be based on KPIs related to actual signalling and call statistics, but may not necessarily be related to the exact service mix and what customer segments are impacted. By making this information readily available to planners, a more focused and up-to-date capacity planning and optimization process can be supported. In Figure 9-3, a hypothetical load profile of a mobile network is shown. Over the 24 h of the day, significant load variations are experienced. On individual cells in real networks, the load would range from less than 10% in off-peak periods to more than 90% in busy-hour peaks. As shown in the figure, there is naturally a significant difference between network-wide average load and single-cell load in real time (or averaged over a short period of time).

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Legend Never busy Sometimes busy Always busy

Network-wide average load

0% 00:00

12:00

24:00

Single-cell real-time load

Figure 9-3. The load of mobile networks varies over the 24 hours of the day leaving significant capacity at off-peak hours unused. The unused capacity (white area) would often be comparable in size to the used capacity (grey areas).

The differences between the mean-load as typically featuring in monthly management reports and the near-real-time variations in the real network represent a business opportunity that additional 7W-style data (Figure 9-2) could bring to life. Not only will these data potentially highlight the available capacity in every local area (e.g. mobile cell or base station controller (BSC) catchment area), but the data will also reflect the potential customer requirements (and thereby opportunities) that the ‘where’, ‘who’, ‘how’ and ‘why’ questions would reveal. System functions and applications that allow data from across a number of sources to be analysed (e.g. network data and customer data) is an important part of the Business control centre capability discussed in Section 8.1 and illustrated in Figure 8-1. A particularly interesting but also challenging problem relates to the case where multiple overlay networks (2G mobile, 3G mobile, WiMax, etc.) are planned from the same convergent operations centre, and the distribution of traffic volume across the different networks can be optimized to match specific service characteristics or customer requirements. Optimization of the joint network capacity would potentially generate additional business opportunities (e.g. for reselling surplus off-peak capacity) or allow dimensioning of the network peak capacity to be lower thereby reducing the network CAPEX as well as subsequent related OPEX. Statistics collected from the network and customer base are potentially additional sources of revenue for service providers. Key information can be extracted from this data by monitoring location information over time, for example to predict travel times and congestion for motorists as well as to provide statistical evidence for road traffic planners. For internal use, the 7W data may, for example, become a useful supplement to mobile drive tests and support marketing people with the planning of new services and marketing campaigns.

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By improving the understanding of the network utilization and the customer’s spending patterns, it becomes possible to support wider business processes that aim to search for and identify new potential business opportunities.

9.2.2

Scarcity of Service Innovation Throughout this book, innovation is hailed as a key component of future success that must be applied to all aspects of the business organization, processes and strategy. Innovative use of the network capacity naturally leads on to the requirement of innovation in the service creation process. Service innovation is seen by many service providers as the most important means to differentiate propositions to their customers. When executed successfully, service innovation is an effective way, not only for growing new revenue streams by expanding or deepening the customer relations but also importantly to earn the opportunity of charging an ‘innovation premium’. The following prerequisites of a successful service innovation process will be analysed in more detail: • Intra-company organizational synergy (relates to the organization) • Cross-industry learning (relates to the knowledge network) • Consumer behaviour in a convergent market (relates to the customers).

9.2.2.1 Intra-company Organizational Synergy Previously (in Chapter 8 and Section 9.1), the importance of combining data sources from across different enterprise systems to compete in increasingly competitive convergent market places has been highlighted. This, for example, means that hard technical network data is analysed in the context of service usage data and combined to solidify and add value to segmented customer charging/billing data. The system platform requirements for such cross-area data management will be significant and so will the new organizational challenges.

   we have emphasized that CRM is a cross-functional process. This approach requires cross-functional working and a major transition from the classic ‘silo’ mentality to a more ‘customer-centric’ view of the world. Successful CRM demands that members of different functions such as marketing, information technology and human resource management work together. Paine, Handbook of CRM, 2006, Butterworth-Heineman [5]

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Many companies in the communications industry appear to experience notable tension between their main organizational units and particularly between any two of the sales organization, the marketing organization and the technical organizations such as operations or R&D. For example, marketing people would sometimes stereotype their IT colleagues as technology nerds, IT people may characterize the sales people as profit obsessed suits and the sales people would look to the marketing people as out-of-touch PowerPoint addicts. Needless to say, none of this is supportive of the type of collaboration needed to make the most of the cross-organizational synergies so strongly needed. The literature is rich on analysis of the causes and solutions to these problems. ‘Strategic management’ as a managerial discipline is the highest level of organizational activity. A main focus of strategic management is exactly the cross-functional issues that will enable an organization to best achieve its objectives. The detailed scope of these activities is beyond this book, for further reading refer to Reference [6] for a thorough introduction to this important topic.

9.2.2.2 Cross-industry Learning Earlier in this chapter, the term ‘knowledge-based economy’ was introduced. In a knowledge-based economy (or knowledge economy), companies will increasingly seek growth and manage the learning and knowledge creation internally as well as in the links to other players in the value system. This change has come about as ‘knowledge’ is often viewed as a fundamental economic resource alongside of (and even challenging for importance) the traditional resources such as labour and capital [7]. In the knowledge economy, companies become integral parts of knowledge networks that span and often go beyond their own value systems. This will help spread the cost and risk associated with innovation but also ‘to gain access to new research results, to acquire key technological components of a new product or process, and to share assets in manufacturing, marketing and distribution’ [2]. The knowledge economy is a result of a number of fundamental changes to our society that have been described and analysed comprehensively by various economic organizations, research institutes, writers and futurists [7–10]. Information and Communications Technology (ICT) is arguably the backbone of a knowledge economy, but the actual role of ICT in driving growth in the world economies has been widely debated. Controversial theories were published in the 1990s about the ‘productivity paradox’ that for some industries suggested a fairly weak impact of ICT on the economic growth [7]. A more recent battlefield is centred on assertions that the impact of the new ICT technologies either (i) is fully consistent with conventional economics theory or (ii) constitutes an entirely new paradigm.

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In their book Revolutionary Wealth [9], Alvin and Toffler, who are writers and commentators rather than economists by profession, challenge some of the primary characteristics of mainstream economics. Their conjecture is that wealth creation in the twenty-first century society cannot be solely understood by industrial-age economics founded on the concept of scarce resources. The new deep economic fundamentals according to Toffler are time, space and knowledge. The challenge for our generation with respect to ‘time’ is to synchronize the different rates of speed by which the different parts of our society move ahead (exemplified by the quick-moving private enterprises and the slow-moving public sector institutions). ‘Space’ captures the challenges of increasing globalization of our society by new technology as well as the rise of India and China in the world economy. Finally, ‘knowledge’ is seen as an inexhaustible source of wealth generation in the present and future society. In his book Civilisation 2.0, Nørretranders, an author of philosophy and popular science, describes the emerging new worldwide civilization based on information technologies as belonging to the ‘age of links’. The most important characteristic of this emerging society is the focus on linked distributed systems rather than centralization. The cost of distribution is significantly lowered in many areas, not only for today’s digitized information products but also for tangible specialized products such as books, beer and (organic) vegetables where new techniques have enabled economically viable local microproduction. Technology is also lowering the barrier into many segments of the communications industry (such as ‘long tail’ contents creation) where the traditional dependence on economics-of-scale has been negated. In his book The Medici Effect [11], Johansson summarizes key sources of innovation in our society into three distinct main forces: (i) the increased mobility of people who create geographical, social and cultural diversity, (ii) the convergence of science that increases the cross-discipline synergy and (iii) the technology advances notably in computation. These main forces combined are seen to provide the best basis for creativity and innovation for individuals, for companies and for our society as a whole. Cross-industry learning is rapidly becoming a vital survival skill for companies operating in the communications industry. It is of obvious key importance to actively embrace this trend by company policies that encourage knowledge creation, facilitate links to knowledge partners, develop systems for knowledge management and utilize knowledge as the main source of competitive advantage.

9.2.2.3 Consumer Behaviour in a Convergent Market It is sometimes striking how bumpy the evolution path for new communications services can be. Cynics may with some justification claim that when the communications industry occasionally comes across a new super-popular

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service, it often happens more by luck than design. For example, consider the history of the ubiquitous hugely popular SMS. Originally, SMS was developed with applications like telemetry in mind, and only later driven by the opportunities of offering a service for sending text messages between mobile handsets. The more recent and immensely significant trend of user-generated contents analysed in previous chapters has also come as a significant surprise to most incumbent players in the communications industry. Within a span of a few years, some of the most powerful companies in our new information society have grown from launch to billions of Euros in market capitalization. Ebay (founded in 1995) was the most used service in the United Kingdom in 2006 with more time spent on eBay than on any other website. Social networking sites Bebo, MySpace and Facebook are all in the top ten of popular sites and none of them existed before 2003 [12].

   So probably three years ago we would have thought that the internet, especially mobile internet, would be around downloading music, pictures, videos, and yes, it is about that, but user-generated content is going to be big. [13] Bernard Ghillebaert, Chief Executive, Orange UK (interviewed about the popular Orange ‘buff and rough’ service where posted pictures are rated by other users)

In the communications industry across both mobile and fixed players, the IMS has been widely praised as a key technology and architecture for launching new rich services quicker and cheaper. Much of the initial IMS emphasis has been on ‘new innovative services’ such as PoC and video sharing. Despite significant support in the equipment and handset vendor community, these service have (at the time of writing) made a limited impact in many markets. In the United Kingdom, the proportion of revenue from SMS messaging was 17% while revenue from non-SMS data applications stood at a meagre 5% in 2006 [12]. With this mixed record of accomplishment in service innovation within the (tele)communications market, a key question is what limits this critically ability to understand and predict customer’s requirements. Also, there appear to be structural issues with the interpretation of market surveys as the resulting uptake of services after launch has often been slower than expected. In 2005/2006, a considerable survey was conducted by Office of Communications (Ofcom) in the United Kingdom [14] that looked into the consumers’ attitude and motivations towards digital communications services. This report provides statistical evidence behind a detailed categorization of the communications market dividing the users into five segments (Enthusiasts, Functionalists, Economisers, Abstainers and Resistors). The survey also identified some of the benefits and drawbacks that large parts of the users see with new communications technologies.

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A majority of 70% of the respondents agreed that ‘Technology in general makes life better’, but a significant part of the users also had some reservations about the ability of technology to improve their life. • Eighty-six per cent felt that everything gets more and more complicated and hard to use. • Fifty-four per cent thought they did not get the most out of the products and services they already owned. • Forty-seven per cent agreed that the pace of change may be too fast for them. Apparently, there is a majority of users who experience various degrees of unease about the new communications technology. It is essential to address these concerns to reach out to all users and successfully penetrate services into the true mass market. Important to further analysis of customer behaviour in the new convergent markets, the Ofcom report [14] also shows that the majority (68%) of consumers have the same broad attitude towards each of the four main digital communications areas: TV, radio, the Internet and mobile phones. That is, many of the issues related to penetration of new technology into existing or new markets are similar across the different segments of the communications market.

9.2.3

Scarcity of Customer Attention ‘Economics of attention’ is a socioeconomic discipline concerned with the concept of information overload. In a traditional production economy, the economic mechanisms for managing scarcity (e.g. related to the effective distribution and market saturation of goods and services) prevail. Information and knowledge, however, are not scarce resources in the sense that there is a limited supply in the market. Still, complex market issues exist, for example, around the management of copyrighted material and patents [7, 15]. Whilst information is not a scarce resource, the overflow in itself results in a growing lack of attention by the consumers, and increasingly more effective attention traps are required. As a result, attention, or ‘rented ears and eyeballs’, becomes the primary raw material required for successful consumer engagement. The importance of clever filtering and search methodologies is an obvious consequence as is reflected in the vast success of Internet companies such as Yahoo and Google who enjoy huge revenues from context-sensitive advertising. Obviously, it is important to build systems and services that are focused on managing, reducing and targeting the wealth of information available rather than provide more and more information to the consumers. This logic would apply to the user terminal manufactures, to the application

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manufacturers and to the contents and service providers. Most people have probably struggled with the tens of buttons on standard remote controls, the proliferation of menus on phones/PDAs or maybe the more than six billion hits returned from an optimistic search for ‘help’ on a popular Internet search engine. The information richness in the world is vast and rapidly rising. The actual amount of information has interestingly been estimated by a project group from the University of California at Berkeley [16]: • Eighteen exabytes (billions of gigabytes) of new information travelled through electronic channels in 2002 divided between telephony, radio, TV and the Internet. • Five exabytes of new information was recorded in 2002. This information was stored as prints, film or on magnetic/optical storage media (mostly hard disks). The recorded new information grew at a rate of approximately 30% a year. Whilst dwarfed by the aggregate information stored on private hard drives, the Internet represents the biggest openly available pool of information ever available to humanity. Obviously, there is much repetition and material of questionable quality, poetically estimated by Sturgeon’s Law: ‘Ninety percent of everything is crap’ (by science fiction author Theodore Sturgeon). This sea of information, much of which has no objective quality or value, may still in itself represent a subjective benefit to many people. In his book The Economics of Attention, Lanham [15] discusses the inadequacies of an idealized standard model for human communication called the clarity-brevity-sincerity (C-B-S) model. In our oral culture, people often talk for the sake of having a conversation, and to keep up the interaction, whilst at the same time convey snippets of information. This mix of concise C-B-S communication and long-winded rhetorical gap-fillers is a characteristic of human communication. This duality is represented by subtle balances between ‘important’ knowledge and light-hearted ‘gossip’, between surprises and the expected and between the intensive and the extensive. The Internet is a classic example of an always-unpredictable medium that fulfils most of these tacit user expectations. This degree of irrationality, unconsciously built into many user requirements, is a subtle point to keep in mind when designing new services. In the end though, it is the competitive economics of attention that will tell us what service, what access method and what terminal that will do best.

9.2.4

Scarcity of Business Evolution In Chapter 3, the changes to the internal value chain and the external value system for the main players in the communications industry have been

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analysed. In the following, the focus is on the actual process of change (organizationally and strategically) to companies in the communications industry as well as changes to the industry itself. The nature of organizational change, as portrayed in the literature, seems to be divided between two alternative lines of development. The first proposition is that change evolves gradually over time, whereas the second proposition suggests that changes happen over relatively short periods of time followed by relatively long periods of stability [17]. Either of the two evolution scenarios can be predominant in different companies, in different industry sectors and at different points in time. Any degree of hybrid combinations may obviously also exist. The specific barriers to change or the drivers towards change will determine the course of events. These barriers and drivers deserve a bit more analysis: The ‘gradualist paradigm’ suggests that fundamental change can evolve through continuous incremental changes with no major discontinuities. The focus of this philosophy is one of doing things better by continuously tinkering, adapting and modifying. Three types of organizations that may not go through periods of discontinuous change have been identified: (i) self-organizing and highly adaptive organizations, (ii) companies in nichemarkets or in slow-moving sectors and (iii) organizations with sufficient ‘fat’ to absorb the inefficiencies associated with ‘misalignment’ [17]. The ‘punctuated equilibrium paradigm’, however, challenges the conception of gradual continuous change. In his book, The Tipping Point: How Little Things Can Make a Big Difference, the journalist and author Malcolm Gladwell [18] analyses a number of examples of nonlinear social changes. ‘The tipping point’ is the name used to describe the point in time where changes begin to take epidemic proportions. Inside organizations or across entire industries, sheer inertia has been cited as a cause of potential quasi-stationary stalemate where the difference between organizational objectives and organizational alignment gradually reaches breaking point and radical changes ensue. Three causes of inertia have been identified [19], namely: • Shared cognitive frameworks and mental models: Shared mental models can restrict attention to ‘thinking within the frame’ • Motivational barriers: Related to fear of losing control given the amount of cost and effort already committed • Obligations: Existing relationships and generated commitments will remove the ability to change. In the communications industry, no specific change management practices have been established as a de facto norm. There appear though to be reoccurring patterns for different industry segments, particularly where all the players share a similar history and regulatory position. For example, this used to be the case in some markets (before convergence began to change

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the market dynamics) where the three to four mobile service providers in a particular geography would often be organized in a very similar way and further share the very same operations philosophy. Convergence is applying a growing pressure of unprecedented proportions on any organization in the communications industry that is not continuously adapting to change. When the ‘tipping point’ is reached for these companies, a painful change process strongly imposed by external forces is expected. Many of the traditional communications industry players with their history of first monopoly status and later oligopolistic competition are the more likely (if not very likely) victims of this inevitable development. Detailed analysis of organizational models and organizational structure are outside the scope of this book. One, albeit rarely replicated, organizational model stands out as particularly innovative: Lars Kolind was the chief executive officer of Oticon (the world market leader in high-tech electronic hearing aids) during a 10-year period from 1988 to 1998 where dwindling market performance was turned around to strong growth and market leadership. In his book The Second Cycle: Winning the War Against Bureaucracy, Kolind analyses the familiar pattern of successful profitable companies that at times of success forego and miss the opportunity to maintain and nurture an innovative company culture (the very trait that led the company to success in the first place) and build new competences to ignite a new powerful growth circle. Instead, companies become complacent and bureaucratic and set the company in direction of a vicious circle of decline, a process of decay often well in progress before any problems are visible in external financial reports. The remedy Kolind successfully applied at Oticon was a relentless focus on the knowledge-creation processes and devised a new flat flexible organizational model he refers to as ‘a spaghetti organization of rich strands in a chaotic network’. Kolind’s aim was to reduce bureaucracy and create a new mental model that would underpin the collective pool of creativeness with the employees. A main characteristic of the spaghetti organization is that people are encouraged to initiate projects based on new ideas, to assemble virtual teams in the organization and then to apply for company resources to support the projects. Other staff invited to join a project team can accept or decline at their own discretion. This makes for a fast-moving, flexible, self-motivating and efficient organization where formal hierarchy is kept to a minimum, where middle management becomes an informal entrepreneurial competence, where innovative ideas and people interaction skills become central and where old-fashioned management styles based on pulling rank all but disappear. Kolind summarized his experience in the following way: ‘I had a vision that we would work according to a common goal, and we would empower the staff to the maximum level. I knew that innovation was the name of the game although we didn’t use that word at that time. I knew intuitively that innovation would take place if we let people with different backgrounds

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work together and inspire each other so that the engineers and the marketing people and whoever got to inspire each other. Therefore I broke down the walls’ [20].

9.3

Opportunities in Outsourcing The TM Forum uses the following definition of outsourcing: Outsourcing is when an enterprise contracts out one or more of its internal processes and/or functions out to an outside company. Outsourcing moves enterprise resources to an outside enterprise while keeping a retained capability to manage the relationship with the outsourced processes [21]. Outsourcing programmes with CSPs span a wide range in terms of scope, ranging from hosting of selected platforms by third parties to complete outsourcing of entire network operations. Whilst cost reduction is a very significant driver of outsourcing, there are a number of other benefits to the CSP, such as [22]: • Focus on what is believed to be the core competence, for example the service provider business rather than the network provider business • Access to world-class technologies, processes and skills with the outsourcing partner • Sharing of the risk related to maintenance and evolution of network and operations platforms • Partner for innovation in an increasingly complex market place. Outsourcing in the communications industry is in its early years, but the benefits discussed above are expected to act as strong drivers. Whilst these drivers would always have been valid, the market dynamics are now changing very significantly. Convergence has sharpened the competition by adding another degree of competition between different industry sectors that address the same customers (e.g. WCDMA/GSM operators vs. WiFi/WiMax operators). Outsourcing will have other important operational implications for the CSPs. When part of the network and service delivery infrastructure is outsourced, the visibility of network status and trends may easily diminish along with the network-originated intelligence about customer behaviour, preferences and experiences. As discussed earlier in this chapter, it is very important that access to this crucial information is retained, most likely through contractual agreements and well-specified interfaces to the outsourcing partner. Asset sharing is another mechanism for cost reduction, risk sharing and knowledge pooling. In this case, the network assets are shared with

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competing service providers with all assets under such an agreement operated jointly to the same high standard. In the past, the inclination of competing GSM operators to share infrastructure costs was fairly weak as long as every player in the market shared the same high cost level. When other industry players outside the small band of GSM operators suddenly become capable of offering competing mobile services, the GSM operators share a much stronger interest in lowering the general cost base in their own industry segment. Outsourcing and asset sharing are seen as potentially very significant sources of cost reduction, for example, with rough estimates of up to 20– 30% savings expected from sharing of radio access networks between two mobile service providers [23, 24].

9.4

Summary With ever stiffening competition driven by convergence, there is a growing focus with CSPs on tools and processes for developing and supporting new revenue streams. An opportunity and budding trend in the industry is the increasing integration of processes across all enterprise software platforms to include CRM, ERP, BSS and OSS. The coordination and management of this new multidimensional enterprise software landscape is done in a Business control centre for discovery, verification and management of new business opportunities. This shift towards a holistic business orientation in all process design, referred to as ‘Business Opportunity Management’, is based on 7W data (Where, Who, When, With what, hoW and Why), which represents a set of data sources that have not traditionally been combined systematically for the purpose of new business discovery. New business opportunities are expected to arise from a number of imbalances in the business environment such as: • The majority of the available network bandwidth is often not utilized (mostly during off-peak hours) • A minority of the customers generate the majority of the revenue (mostly business customers) • Advertising is a major revenue source in broadcasting and Internet businesses but insignificant in telecommunications. The business value of the network and customer statistics increases when the data is updated in close to real time. Notably, this also means that the technical challenges to obtain the data grow significantly. By addressing these business-affecting issues, existing revenue streams can be further strengthened and new revenue opportunities identified. Business

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opportunity management will rely on tools and processes for business people, marketing people and sales people to chase new sources of revenue from detailed and current knowledge of the existing network infrastructure and customer base.

9.5

References [1] Robbins, L. (1932), An Essay on the Nature and Significance of Economic Science, Macmillan. [2] The Knowledge Based Economy, Organization for Economic Co-Operation and Development, Paris, 1996. [3] Lundvall, B. and Johnson, B. (1994), The learning economy, Journal of Industry Studies, 1(2), 23–42. [4] ‘RAN Sharing: Cutting the Cost of Mobile Broadband, Unstrung Insider’, 6(5), May 2007, www.unstrung.com/insider/details.asp?sku_id=1669&skuitem_ itemid=1021. [5] Payne, A. (2006), Handbook of CRM, Butterworth-Heinemann. [6] Saloner, G. et al. (2001), Strategic Management, John Wiley & Sons, Inc. [7] Foray, D. (2006), The Economics of Knowledge, MIT Press. [8] David, P.D. and Foray, D. (2005), Accessing and expanding the science and technology knowledge base, STI Review, No. 16, OECD, 2005. [9] Alvin and Toffler, H. (2006), Revolutionary Wealth, Doubleday. [10] Nørretranders, T. (2007), Civilisation 2.0 – The ‘Age of the Links’ (in Danish), Thaning & Appel. [11] Johanssson, F. (2006), The Medici Effect, HBS Press. [12] ‘Communications Market Report’, Office of Communications (UK), 23 August 2007. [13] Orange boss learning the ‘buff or rough’ lesson, The Guardian, 10 August 2007. [14] ‘Communications Market: Special Report – Consumer Engagement with Digital Communications Services’, Office of Communications (UK), 13 July 2006. [15] Lanham, R.A. (2006), The Economics of Attention, The University of Chicago Press. [16] Lyman, P. and Varian, H.R. (2003), How Much Information, School of Information Management and Systems, The University of California at Berkeley, www2.sims.berkeley.edu/research/projects/how-much-info-2003/, 2000. [17] Hayes, J. (2007) The Theory and Practice of Change Management, Second Edition, Palgrave Macmillan. [18] Gladwell, M. (2000), The Tipping Point: How Little Things Can Make a Big Difference, Abacus. [19] Gersick, C.J.G. (1991), Revolutionary change theories: A multilevel exploration of the punctuated equilibrium paradigm, Academy of Management Review, 16(1), 10–36. [20] Kolind, L. (2006), The Second Cycle: Winning the War Against Bureaucracy, Wharton School Publishing. [21] Enhanced Telecom Operations Map (eTOM) – The Business Process Framework, Telemanagement Forum, GB921, 2004.

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The services portfolio offered by most Communication service providers (CSPs) is growing vividly. VoIP, mobile TV, location-based services and Internet browsing are examples of new mobile service categories that in various combinations and configurations form the backbone of many new products offered to customers. Whilst communications services would traditionally be network based, the evolution of terminals with vast memory capacity and large high definition screens already means that most available mobile (and portable) terminals feature a range of terminal-based services that require no network connection at all (e.g. calculator, FM radio, calendar, clock, maps, etc.). Obviously, the terminal-based services can often be enhanced with network connectivity (e.g. new games download and over-the-air gaming) but increasingly, the boundaries between network-based services and terminal-based services are blurring – see Figure 10-1. For example, mobile terminals are now available with geographical maps permanently loaded into memory, but alternatively maps can be downloaded from the Internet on a fast packet-based network connection for a similar service experience.

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Convergence Network based services

Terminal based services

Figure 10-1. Network-based services compete with terminal-based services in an increasingly complex and competitive market.

10.1 Mobile Terminals and Convergence of Services Mobile terminals are increasingly capable of communicating across different access networks. This means that a number of different access network protocols are supported on the terminal, but as yet not always with the capability for smooth service handover at network boundaries. The different networks that users roam between may (i) be owned by the same service/network provider, (ii) be owned by different service providers or network providers and (iii) the network may be owned in part by the subscriber (typically a wireless LAN in the home). In addition, the technology and services used may vary widely, for example from traditional GSM circuit-switched voice to packet-based VoIP. The tightly knit relationship between the user on one side and the service provider on the other side has started to loosen albeit slowly. The service providers are often heavily subsidizing mobile terminals, but an important question is to what extent this will continue in the future with the terminals increasingly becoming portable computers/game stations/video recorders/and so on. A new breed of portable devices will become SIMless units with VoIP clients replacing traditional subscription-based voice services. Whilst these trends suggest that the relationship between the service provider and the user will be weakening, the richness and wider scope of the services packages offered will help to strengthen the links to the customers. For example, triple-play offers and quadruple-play offers are promoted to increase user convenience and value, and thereby the stickiness of the total service package, or in other words to increase the barrier to churn. Figure 10-2 shows two simultaneous trends that main service offers are seen to follow: (i) Bundled services – a mostly cost/value-driven trend towards large service bundles that aim primarily at increasing the stickiness

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of the offer and (ii) Individual-specialized services that differentiate through high quality, unique contents or even a perceived low price for individual services. Scope of proposition

Service packages

Terminal and service convergence Service bundles

Differentiated services

Terminal and service semi convergence Business competitiveness

Figure 10-2. Service offers to customers follow two trends: (i) integrated low-cost offers (e.g. quadruple-play service bundle) and (ii) nonintegrated differentiated offers (e.g. mobile TV).

Convergence of communications terminals is often seen to reflect a Swiss army knife philosophy where a single device can do everything. By having several devices that interoperate, users can mix and match independent elements and achieve many of the benefits of full convergence while still maintaining a larger degree of flexibility [1]. This concept of ‘semiconvergence’ is, for example, reflected in the separation of the television and the video recorder into two separate devices. Although integrated units are available in the market, convergence into one device has in this case only proved a limited success. For portable devices, the incentives to integrate may arguably be different. The Internet tablet (e.g. Nokia 800) was introduced in the market without a mobile network transceiver, but with the ability to use any mobile terminal as a mobile Bluetooth modem. Still, the worldwide collapse of the noncellular PDA market in favour of the smart phone is a testament to the fact that semi-convergence can be a bumpy road to navigate.

10.2 Control of End-User QoE CSPs increasingly face the dilemma that customers perceive the service provider as the owner and single responsible party for the e2e Quality-ofExperience (QoE). At the end of the day, most communications customers would hold as ultimately responsible whomever they are paying their bills to. This is where the traditional CSPs have some of their greatest strengths and weaknesses. If a customer of a mobile service provider buys a terminal with a subscription to mobile Internet and the service is slow, it is often the mobile service provider who will be blamed for the problem – not the Internet company

Convergence

Customers Terminals 2010s 2000s

Services Service Core Access

1990s

Convergent industry

that hosts the service or the infrastructure service provider that owns the backhaul links. This will be a challenge particularly for mobile service providers since many customers may not yet be able / ready to understand the boundaries between terminal and network. This situation is different to other areas in the wider 3C industry (Communications, Computing, and Consumer electronics) where the separation of technology and contents is often more generally accepted. Owners of PCs would probably be more likely to understand the root cause of a service problem and address the right tier in the value system, that is hardware provider, software provider, contents provider or broadband provider. However, there is a wide grey area though where customers who do not understand the technology sufficiently well will address their concerns to call centres. Misunderstanding instructions, simple configuration errors of user equipment and so on can account for a major or even majority part of the call volumes into call centres. In the scenario outlined above, the service providers are set to partially lose control of the ownership of terminals as uniquely branded communications devices, for example VoIP calls (e.g. using services like Fring [2]) do not necessarily rely on the SIM cards to link the device to a particular user identity or service provider. In addition, as the services on offer increasingly become Internet oriented, the control of the service consumption is likewise moving out of the tight grip of the service providers towards browser-based open access. Finally, the access network and core network can be changed flexibly on the fly by the end-user by actively roaming onto another network, and the networks may even be co-operated by service providers in asset sharing and national roaming schemes aimed at reducing the overall operating cost. Effectively, the traditional close relationship between the service provider and the customer is weakening in all of the four traditional stronghold areas of terminals, services, core network and access network as shown in Figure 10-3.

Technology specific handset

Service Core Access

Mobile

Services

Broadband

Subscriber

Terminals Broadcast

Customers

Fixed

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Prosumer Multimedia terminal Open access/browsing Flexible core and/or internet Multiple access methods

Walled garden Dedicated core network Dedicated access network

Figure 10-3. The links between service providers and customers are potentially weakening in all of the key areas of services, terminals, core network and access network. As a result, the traditional business silos in the communications industry are disappearing.

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For the service provider, this new operational scenario is significantly changing the entire operational set-up as well as the all-important relation to the customers. Management of the QoE is no longer achievable in a purely e2e fashion; hence, effective management of customer expectations will be crucial. Traditional wisdom would suggest that the true user experience could be gauged by somehow monitoring the true terminal-to-terminal performance, for example by installing monitoring agents on the terminals. Surely, this is a major step forward in understanding the users exact usage patterns and the actual Quality-of-Service (QoS) delivered. What is missing though is a deeper understanding of the customer expectations seen in relation to the quality of the delivered service. For example, with multiple choices of access network as well as choices of service provider, the customer may be happy with a voice service that has a low-quality mean-opinion-score if the relative cost to the customer is also low. At the heart of QoS management and QoE management is the ability to develop a sufficiently accurate standardized model of the services offered. Various industry bodies and numerous vendors are pushing ahead with specification and implementation of increasingly complete e2e service models. At the same time, a strong undercurrent driven by convergence in the communications market causes diversion and fragmentation of the e2e responsibility for QoS and QoE. In Figure 10-4, these trends are shown. Complexity of e2e service model

Controlled by 3rd parties

Controlled by main service provider Time Convergence→

Figure 10-4. E2e service models are continuously maturing. At the same time, the convergence driven fragmentation of the e2e chain will reduce the ability of any single service provider to monitor and control the full e2e service experience.

The consequence of this loss of control may be that there is a limit to how far the e2e service models can be developed before convergence-induced real-market complexities would slow down and delay further progress in

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relative terms. Note, this is a quite high-level general conclusion – some individual services may obviously follow very different evolution patterns. In general though, this could potentially be a serious obstacle to developing a full e2e object model in a reasonable time frame for the communications network and services. If in reality the complexity turns out to grow at a faster pace than the initiatives in the industry, notably in standardization bodies, to structure and reduce the complexity, the underlying ambition must be revisited. Again, this schism goes to the heart of some of the differences between two of the main communications industry sectors. In the telecommunication world, the controlled quality delivery mode for services require models to be precise and complete. However, in the Internet world, the best effort delivery mode is dominant, and the service models need less refinement. From increasing convergence and more competition follow that these models will coexist but converge and the differences will diminish over time.

10.3 Terminal Characteristics and User Preferences The development of portable communications user terminals has gradually added more and more new features well beyond what used to be available on the traditional phone, such as MP3 player, radio and television. Also, clock, calculator, calendar, Internet access, camera, music, video, word processor, GPS and so on are all features that increasingly are or will become natural parts of advanced user terminal specifications. At the same time, these much-improved terminals are getting lighter, smaller and trendier. The ability of terminals to connect to different access networks is also fast evolving. For example, multiplay terminal capabilities for access to mobile telecommunications networks on different continents based on different standards are becoming increasingly common. Likewise, within a specific geographical area, the various access methods offered such as wireless LAN and WiMax will be used to connect intelligent terminals adapted for a range of different radio access protocols, coding schemes and frequencies. A key question is now whether a single terminal will ultimately cover all or most requirements for the typical gadget-hungry users. That is, will a single unified terminal become the preferred solution in the mass market or will semi-convergence prevail? Whilst the number of features integrated in a single terminal grows, the performance of the features is often compromised. The nominal specifications may often be surprisingly good though, for example with integrated MP3 players approaching that of mid-range specialized MP3

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players and the pixel-count of integrated cameras being at a par with mid-range specialized cameras. At the time of writing though, the best 5-megapixel cameras built into mobile phones were still trailing the specialized cameras of similar specifications by a wide margin when it came to the design of lenses, refinement of features and hence the quality of pictures. Whilst this rough initial analysis may suggest that the gap appears to be closing between integrated and specialized devices, it must be noted that there is a full range of interdependent user experience parameters and requirements to consider: • Standard functionality • Specialized features • Performance and quality • Usability and ergonomics • Durability • Fashion • Service and warranty • Availability and distribution channel • Battery time • Cost of ownership • Warranty • Price. It is worth keeping in mind that some categories of consumer electronics seem to have reached a plateau in the evolution of form, format and technical capabilities. Essentially, most standard pocket calculators look the same they did 20 or 30 years ago and for all intents and purposes perform at the same level. Other device markets have obviously take over the aim and ambition to deliver a portable palm-sized computer, and pocket calculators are now mostly developed for a specific set of features at a low price. At any stage in the ongoing technological evolution of user terminals, there will be a trade-off between the number of features included in any single device and the performance of the individual features. Figure 10-5 below illustrates this trade-off. In Figure 10-5, the little star on the graph represents a particular terminal with a number of integrated features. The graph itself is shaped like a hockey stick suggesting that when the ideal principle of one feature per device is departed, the compromises will be most significant (the curve is steep),

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Convergence Terminal and feature performance Today’s state of the art terminal performance for single feature

Today’s terminal performance Feature richness of device Today’s state of the art feature integration

Figure 10-5. An inherent trade-off exists between feature richness and feature performance of any terminal at any stage of the technological development.

whereas shared common platform capabilities like large memory and highdefinition screen will compensate some of the trade-offs as the diversity of features grows. Obviously, these compromises and the individual relative weights attached to all the user experience parameters will direct the users buying preferences. The statistical variation of user preferences across the performance of the technology on offer is shown in Figure 10-6.

Terminal and feature performance

Distribution 100% of customers with a certain expectation of feature performance 0%

Today’s terminal performance

Feature richness of device

Figure 10-6. User preferences will vary significantly with respect to terminal and feature performance.

Over time, technology will continuously improve and user expectations will likewise increase as shown in Figure 10-7.

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Technology performance as well as customer expectations evolve over time

100% Future terminal performance Today’s terminal performance 0%

Feature richness of device

Figure 10-7. Technology advances and growing user expectations will continuously drive integration towards higher but ever-moving targets.

Terminals are likely to converge much further, but it is not expected that a single unified terminal which integrates all applications in one unit will be developed even in a medium-to-long time frame. In the short-to-medium run, technological limitations, standards incompatibility and lack of market homogeneity are important obstacles to terminal convergence. For example, adaptation of various makes, models and versions of handsets to interactive Web applications is a key challenge, and the optimum screen size still raises a fundamental contradiction between the requirements of portability and the QoE for video-based services. From these considerations, the user terminals can be seen to follow a crude classification into three main categories shown below with examples of traditional elements in these categories: • Small mobile terminal (traditionally a phone). • Medium portable terminal (traditionally a laptop PC). • Large stationary terminal (traditionally a TV). Obviously, sensors and microtags (such as ‘radio frequency identification’ – RFID) as well as specialized terminals such as printers and fax machines are also part of the wider scope of device integration. Traditional off-line specialized devices like cameras and MP3 players are expected to more commonly feature with online capabilities. At the present state of technology, only the size of the screen on mobile terminals would seem to pose a fundamental limitation to the theoretical possibility of integrating all applications into one portable device. However, the easy standardized access to the Internet from PCs is not likely to be emulated for mobile handsets in the short run. The differences in screen

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dimensions, operating system, memory size and so on call for bespoke browser technologies adapted to the individual phones. For an optimum experience on the handset though, many big mobile operators have signed agreements with Internet companies like Google and Flickr that involve having third-party clients installed on the phones. An inevitable consequence of the proliferation of new features on the terminals, the tight connection between the terminal and the network/service provider (as usually the case in present telecommunications subscriptions) will loosen over the coming years.

10.4 CSP Crossroads New techniques such as ‘asynchronous JavaScript and XML’ (Ajax) for improved interactive use of Web applications on stationary or mobile terminals will potentially improve the user experience on terminals also without an application-specific client installed (if required, the clients will probably be downloadable from open source) [3, 4]. By this time frame, a full open Internet model will be in operation for the segment of users with high-end mobile terminals. The question now remains how incumbent CSPs can successfully handle the inevitable transition from walled garden style services offerings to open guided access to any conceivable service or application. Contents mediation agreements have been announced during 2006 and 2007 between many of the big European and North American mobile operators on one side and major Internet players on the other side. With open access to an (Internet) world of information, a key question is whether and how present successful telecommunications service providers can successfully become contents providers. The contents, applications and products offered by most telecommunications service providers have in the past usually been developed in-house in evolutionary stages triggered by new technology advances such as wireless application protocol (WAP), GPRS, MMS, etc. The agreements with major Internet players are signs of increasing open mobile access to Internet applications and contents. Notably, the business model is still controlled and orchestrated by the incumbent telecommunications service providers. Gradually, the technological barriers to free open and unrestricted Internet access is expected to disappear, and the mobile browser will become a primary interface to any open Internet applications. At this point, service providers may risk a significant decrease in the uptake of own applications and services with user preferences drifting towards the ubiquitous Internet applications from Google, mySpace and a range of other fast-growing players.

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However, incumbent service providers potentially have a considerable competitive advantage in the form of unique segment-specific competences, rich customer/business data and a close customer relationship. These business assets must be acknowledged and used for developing new services in combination with new open Internet access technology. The difference between these two extreme scenarios is referred as the ‘Opportunity span’ for present telecommunications service providers as shown in Figure 10-8. User demand for contents and applications developed by telecoms service providers

Leverage unique competences

MMS

‘Opportunity span’

WAP

GPRS

Compete head-to-head Year

Convergence→

Figure 10-8. Traditional contents and application creation in the telecommunications industry will increasingly compete against open Internet-style access. Mobile data services are used for illustration.

In Chapter 9, it was analysed in more details how telecommunications service providers can bring unique knowledge and data sources in play to explore new market opportunities and thereby maximize the ‘Opportunity span’. Technology limitations allow telecommunications operators another couple of years of industry segment isolation on a range of network-enabled services. Beyond this time frame, only slight technical and commercial friction appear to limit open access to any Internet applications. This scenario represents a sizable risk for some incumbent service providers as well as a considerable opportunity for all CSPs.

10.5 Summary As businesses, technologies, terminals and user services converge, the competition at all levels of the industry value systems increases significantly. The fragmented communications world becomes a unified multimedia world of much larger complexity and with a much wider scope of choice for

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the end-users. In an intermediate time frame, there will be sound business opportunities for companies that can clear a path through this jungle of enduser opportunities that otherwise will confuse all but the most technology savvy customers. Eventually, the freedom of choice will open up for a much more complex relationship between CSPs and customers, and the control of the enduser QoE will only be partially owned by any individual player in their value system. Management of the customer expectations will become a primary business objective alongside the more traditional management of QoS and QoE. User terminals are becoming increasingly complex with more and more features packed into one device. Whilst further convergence seems inevitable, a balance will be reached in a trade-off between quality and convenience. With present technologies, the screen size seems to pose the only major limitation to further terminal consolidation. For the CSPs, an ‘Opportunity span’ exists between one set of business models that leverage unique capabilities for the players inside a particular industry segments and another set of business models that promote headon competition in all market segments. For example, telecommunications operators should think very carefully before engaging on a long-term strategy of competing head on with established Internet players in building contents and services that naturally reside on the Internet.

10.6 References [1] The Nokia N800 and Semi-Convergence, allaboutsymbian.com, http://www. allaboutsymbian.com/features/item/Semi-Convergence_Can_you_have_your_ cake_and_eat_it_with_the_Nokia_N800.php, 6 March 2007, Krisse. [2] Fring, website, www.fring.com, 2007. [3] Garrett, J.J. (2005), Ajax: A New Approach to Web Applications, www. adaptivepath.com/ideas/essays/archives/000385.php, 18 February. [4] Zheng, P. and Ni, L.M. (2006), Smart Phone & Next Generation Mobile Computing, Morgan Kaufmann series, Kaufmann Publishers.

Chapter 11: Billing and Convergent Charging The billing and charging systems are increasingly becoming key components in the creation of an excellent overall customer service experience. These systems are critical to the business success in the long term by enabling sustainable competitive advantage and lasting customer satisfaction. The focus in the communications industry is shifting away from a network-andservices-oriented view to a customer-centric approach, and this change is reflected particularly in the next-generation charging systems. Billing and charging systems are major components of the BSS, which together with the OSS, CRM and ERP form the main enterprise software system components. During most of the history of billing and charging systems in the communications services industry, the focus has been almost entirely on off-line post-paid billing. In the 1990s, prepaid offers became widely spread in the mobile telephony industry. This effectively made mobile services a massmarket proposition by opening market segments that could not be reached with post-paid contract offers and led to tremendous growth rates. For this new market segment, a separate breed of online charging systems was required. The concept of paying in advance made real-time or near-realtime charging capabilities a necessity to minimize the risk to the service providers.

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Fundamentally different to the existing billing systems, a new distinct billing/charging capability has been built up with most service providers in the mobile telecommunications industry. With growing complexity in the services offers, higher volumes, and higher prices for non voice services, there is a rising need for a common solution capable of charging users in real time whatever be their payment scheme. Obviously, legacy systems designed for traditional off-line invoicing cannot meet these requirements.

11.1 Convergent Charging System Architecture Convergent charging is a unified charging approach that serves prepaid customers as well as post-paid and hybrid customers in the same system using homogeneous processes. The migration from existing disparate systems, a process that many service providers have started already, is a significant task that would most often be undertaken gradually. Three major steps are identified for ‘typical’ convergent (online) charging projects: 1. Charging solution for convergent network. 2. Convergence of prepaid and post-paid charging. 3. Convergence of charging for customer care. The first big step is to upgrade both the existing online and off-line charging solutions to operate with convergent networks based on different access technologies, services platforms, contents mediators, user applications and so on. Next, the prepaid online charging solution is extended to include postpaid customers as well, hence serving the entire customer base from the same platform. Finally, the convergent charging solution is integrated with the CRM and ERP systems to enable much improved integrated processes for customer care. The benefits of integrating all the enterprise systems are potentially very significant as already pointed out and analysed in Chapter 9. The synergies that can be extracted from the combined data resources of the enterprise systems are untapped sources of insight into the customer behaviour and preferences. With reference to Figure 9-2, which depicts the 7W customer data categories (Why, hoW, What, With what, When, Who and Where), the data sources that reside in the charging and billing systems combined with the data sources of the OSS and the CRM system will cover all of these areas. As argued previously, the 7W categories of data are valuable sources of information for marketing and business planning. A possible eighth ‘W’, called With whom, will considerably increase the potential benefit of this already extensive data set. The call records that are the basis for much of the available customer data also include the called party. This means that

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the social networks of all customers is potentially known to the CSPs. Again, any attempt to explore and exploit this knowledge will meet concerns over privacy infringement (and rightly so). It is, though, the same category of data that also attracts the attention of advertising wholesalers like Google and Microsoft and helps to drive the market valuation of social networking websites to dizzy heights. In Figure 11-1, the transformation of the charging and billing systems is outlined. The role of the Business control centre as a vehicle for integrating business processes across the different enterprise systems of CRM, ERP and OSS was analysed in Section 8.1.

Enterprise resource planning (ERP)

OSS CRM ERP

Online Offline charging billing system system Prepaid Post-paid

Customer relationship management (CRM)

Business Control Centre

Operations support systems (OSS)

Billing & convergent charging system Unified BSS

Figure 11-1. Evolution of charging systems from separate entities to a high degree of integration with other enterprise software systems.

The migration to a complete convergent charging solution is a big project usually with a significant price tag, a non-negligible risk, but also huge benefits. The benefits originate from system rationalization, organizational efficiency and business evolution, which are as follows [1, 2]: • Remove the duplication of charging and billing systems for prepaid and post-paid customers. • Simplify business processes related to customer acquisition, service provisioning and so on. • Offer unified charging and billing for multiplay packages. • Enable individualized granular service packages across the combined prepaid and post-paid customer base (e.g. family discounts where parents have a post-paid package and the kids have prepaid accounts). • Bonuses and discounts based on usage (e.g. promotional bonus download of music soundtracks).

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• New source of real-time marketing data about post-paid customers (e.g. for targeted offerings). • Advice of charge (e.g. the cost including possible volume discounts or other promotions is shown on the portal before downloading of video clips would be initiated). • Cross-selling opportunity when customers contact call centres (e.g. notify about other accounts in a family package running close to spending limit). • Reduce revenue leakage for post-paid subscribers. Arguably, the most significant benefit to CSPs is the flexibility to support new service packages based on online charging data.

11.1.1 Hybrid Tariffs ‘Hybrid tariffs’ can be defined as ‘a range of tariffs and charging options enabling the combination of post-paid and prepaid features, either through the restructuring of tariffs (by removing set monthly fees, for instance) or through investments in billing and convergent charging solutions’ [3]. For CSPs, hybrid tariff schemes represent yet another mechanism for breaking down old barriers between different technology areas. As analysed earlier in this book, the convergence of networks means that stronger competition is following and much more flexibility and opportunities for the end-users become available. Also addressed are the issues related to the convergence of services where the boundaries between traditional telecommunications services, broadband services and broadcast services vanish; and again, choice, convenience and the customer experience improves. Effectively, all this means that with convergent charging, the hard boundaries between prepaid customers and post-paid customers will begin to disappear. Typically, the stereotyped prepaid customer has been seen as someone who either could not afford a full subscription or, maybe due to other priorities, wants tight control with the spending on communications services. Importantly though, both the prepaid and the post-paid charging schemes have characteristics that would benefit either of the customer categories. Post-paid customers have limited visibility of spending beyond monthly bills and are therefore likely to value capabilities like the following: • Advice of charge prior to using services. • Visibility of current spending totals including regular notifications. • Ability to control spending by setting hard or soft thresholds. • Immediate use of accrued bonus points. • Usage-related special offer announcements.

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These functional capabilities would typically require online BSS functionality modelled around the traditional post-paid system methods. On the other hand, prepaid customers are often left with standardized service packages and are likely to value capabilities such as the following: • Access to all services, not just a subset available for prepaid customers. • Individualized services packages and payment schemes. • Participation in loyalty schemes. • Personalized customer service. These capabilities would typically require traditional post-paid functions in addition to the existing prepaid system functions. For convergent charging, an important benefit to the CSPs is that individualized targeted offerings are likely to increase stickiness and reduce churn. For end-users, the benefit is again one of choice and convenience. Hybrid tariffs open up to a smooth continuum of payment schemes across the entire range of prepaid and post-paid opportunities. Post-paid contracts with no monthly fee is the first step towards a hybrid scheme that would remove the boundary between prepaid and post-paid customers. Notably, these first changes may not initially require any modification of the billing system but when gradually introducing additional and more appealing features (such as capping of total or service-specific spending, and notifications of spending above predefined thresholds), a convergent online charging solution will be needed.

11.1.2 Mobile Payment Mobile payment can be defined as the act of processing a payment for goods or services with a mobile device such as a mobile phone, PDA or other such terminals [4]. Mobile payment is a significant opportunity for operators of mobile networks to offer new services and revenue streams based on various techniques such as mobile terminal micro-payment. This will, for example, allow users to pay for car parking using a mobile terminal, thereby substituting parking meters. The payment system behind mobile payment can be based on a number of different methods such as SMS (text messaging), unstructured supplementary service data (USSD – standard for transmitting information over GSM signalling channels), interactive voice response (IVR – prerecorded messages allow the caller to select options from a voice menu) or via the Internet [5]. Amongst a wide range of payment options added to the services armoury of mobile terminals are the options for the subscriber to recharge their accounts, for example through online top-up by SMS or over the Internet.

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Potentially, mobile payments offer more flexible payment options for shopping and purchasing of services. Specifically in countries where standard banking services are not available to everyone, mobile payment services offer an alternative option, for example for micro-payments and other banking services. For these services to become viable from a technical and business standpoint, a range of issues must be addressed such as diverging banking standards, regulatory obstacles, integration into existing payment systems and international roaming. Notably, the benefits in this business model rely on critical mass of customers as well as terminals and commercial systems compatible with mobile payment.

11.2 Standardized Charging and Billing Frameworks The IMS represents a special challenge to the charging and billing systems. For example, within an IMS-enabled SIP session, the users can flexibly add new service components (e.g. send and share data contents whilst having a voice multiparty conference). Such changes to the SIP sessions must be understood by the charging system that should be capable of applying different tariffs for different service components that may be added and terminated at different times throughout the session. A real-time charging environment is required for ad hoc credit checking and subsequent credit reservation for the additional services. The IMS charging mechanisms must be able to support prepaid services and post-paid services. The characteristics of both these systems have been standardized by 3GPP in Releases 5, 6 and 7, but the standardization process has been drawn-out and complicated [6]. The hard boundaries between the enterprise system areas, notably OSS and BSS, are disappearing and this trend is underlined by closer collaboration between the main industry standardization bodies in these areas. In May 2007, the Global Billing Association (GBA) became part of the TM Forum. In the areas associated with charging, billing and revenue management, industry requirements of coordination, integration and automation are likely to be better met under the joint umbrella of the TM Forum [7, 8]. Although the GBA is now part of the TM Forum, it is expected at least in the short run to continue operating in much the same way as before. The GBA objectives are to: • help communications companies maximize the efficiency of the whole billing process; • assess the impact of new services and technologies; • promote billing issues and the importance of billing.

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A number of other organizations are wholly or partly dedicated to charging and billing standardization. A few of the most important bodies are listed below: • 3GPP for online Ro interface standardization [9]. • Alliance for Telecommunications Industry Solutions (ATIS): Communications technology standardization focused on North America: Billing is handled in the ATIS subgroup ‘Ordering and Billing Forum’ (OBF) [10]. • ITU-T: The telecommunications standardization division covers tariff principles and accounting methods [11]. • GSM Association (GSMA): Activities include standards for the content and format of billing [12].

11.3 Data Sources in Charging and Billing Systems 11.3.1 Charging Data In a convergent online charging system, all the data used can be assigned to one of three categories. 1. Subscriber data can be further differentiated into static subscriber data and dynamic subscriber data. The static subscriber data will include personal information about subscribers, such as customer type, reference to subscriber contract, selected tariffs, tariff options and personal settings like friends and family numbers and home zone definition. The dynamic subscriber data consists of monetary accounts (denominated in local currency), nonmonetary accounts (such as volume and time accounts of additional promotional units) and usage counters (monitoring the usage of chargeable service components online such as #peak minutes or #weekend calls). Usage counters can be utilized to charge product buckets (e.g. SMS charged by the dozen) or to provide statistical data. Management of this dynamic subscriber data poses a big challenge to charging systems because it is read and written synchronous to the call control. 2. Product data consists of information such as product ID and tariff information that describe individual products/services, and also product bundles with their prices, bonuses and discounts including recharging vouchers. The introduction of new products may require changes to the existing rate plans. This means that mechanisms must exist

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for online definition and activation of new usage counters or monetary/nonmonetary accounts with no system interruption. 3. Usage data documents all events relevant to charging and is usually kept for a long time due to legal or regulatory requirements. This data repository is also used to serve customer information requests and internal business processes like financial accounting and revenue assurance. Growing requirements to keep data for increasingly longer periods of time impose significant system requirements on storage and analysis capabilities. Specialized off-line billing systems are expected to be gradually phased out and integrated into the convergent charging environment. The customer data that resides in the off-line system will be absorbed into the new convergent charging environment.

11.3.2 Billing Data In traditional off-line telecommunications billing systems, the originating toll switch (the source of toll call transactions) will create a data record with all the usage parameters for every call or data session. These records are generally referred to as CDRs and are used as the basis for rating the call and subsequent billing of the customer [13]. The CDR format varies between systems but would typically comprise information about time, call duration, caller ID, number dialled and call completion status. Customer account records contain the detailed information about customers that the billing system needs to generate bills. The customer account records include current data as well as historic data, in most billing systems to contain at least the following selected items [13]: • Account identifier (unique number, e.g. the telephone number that identifies a customer). • Account name (name of the individual customer or company). • Billing address (address on the bill). • Credit classification (assessment of the customer’s creditworthiness). • Credit history (record of outstanding balances, late payments, etc.). • Balance and payment history (current balance, recent payments, etc.). • Market segment (customer characteristics: type of service, projected spending, type of business, etc.). • Payment method (credit card details, etc.).

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To generate a bill, the billing system will have mechanisms for collecting, validating, storing and maintaining data about products and services. The data required are as follows (selected items only): • Product or service name (unique name). • Type of charge (fixed charge, monthly charge, usage-based, etc.). • Pricing plans (contractual rates, billing cycle, promotional information, etc.). The procedures underpinned by the billing systems as well as the actual data stored in the billing databases are obviously of critical importance to a number of other systems in the wider range of enterprise systems. A number of day-to-day financial management capabilities with CSPs rely on efficient interfaces to billing systems. Most of the customer account information is gathered during the sales and provisioning processes. For exchange of data, multiple interfaces exist to other systems such as sales support systems, provisioning systems, fraud management systems, accounting systems and bill print systems. Key information for analysis of the service usage profile by individual customers can be deducted from the customer account records. Combined with a thorough analysis of the CDRs, a comprehensive picture of the customer profile to include preferences and behaviour can be obtained.

11.4 Summary The main drivers for the rationalization of disparate online and off-line systems are as follows: 1. Inefficient duplication of capabilities between prepaid and post-paid. 2. An opportunity for supporting new services by more advanced and flexible charging and billing mechanisms. As the predominant business models from the Internet market and from the telecommunications market converge, the advertising-driven free access model on the Internet will challenge the subscription-based rated access in the telecommunications market. Modern billing and convergent charging systems are able to span these different worlds as hybrid business models emerge. Advanced charging system capabilities are increasingly becoming a competitive advantage that can leverage new customer propositions and support innovative business models. As the focus shifts from technology features towards customers’ experience and expectations, the strategic

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ownership of charging systems with CSPs is expected to gradually move from the Chief Technology Officer (CTO) organization towards the Chief Marketing Officer (CMO) organization.

11.5 References [1] ‘Prepaid Post-Paid Convergent Charging’, whitepaper, Ericsson, www. ericsson.com/technology/whitepapers/3027_pre_post_conv_charg_A.pdf, April 2005. [2] ‘Convergent Charging and Care’, Nokia Siemens Networks, www.nokiasiemens networks.com/global/SSP/Solutions/Convergent+charging+care.htm, 2007. [3] ‘Prepaid convergence: the evolution of hybrid tariffs’, Elsa Lion, Ovum report, 29 June 2007. [4] Wikipedia (‘Mobile Payment’), http://en.wikipedia.org/wiki/Mobile_payment, 2007. [5] Karnouskos, S. et al., (2004), Mobile Payment: A journey through existing procedures and standardization initiatives, IEEE Communications Surveys & Tutorials, Vol. 6, No. 4, pp 44–66. [6] Poikselkä, M. et al., (2006), The IMS – IP Multimedia Concepts and Services, John Wiley & Sons, Ltd. [7] GBA Homepage, http://www.globalbilling.org/browse.aspx?catid=4323, 2007. [8] IPDR.org Homepage, http://www.ipdr.org/, 2007. [9] 3rd generation Partnership Project, www.3gpp.org, 2007. [10] Alliance for Telecommunications Industry Solutions, www.atis.org, 2007. [11] International Telecommunications Union, www.itu.int/ITU-T, 2007. [12] GSM Association, www.gsmworld.com, 2007. [13] Hunter, J. and Thiebaud, M. (2003), Telecommunications Billing Systems, McGraw-Hill.

PART V CONVERGENCE AND BEYOND With convergence the changes to the communications industry are quite dramatic and fast, and the incumbent players risk being swept into this vortex of change in a reactive response to stronger competition rather than by own choice and desire. An inevitable outcome of the stronger competition is lower end-user prices. The impact of lower prices on end-user uptake of services has been widely studied with somewhat mixed conclusions [1]. It does appear, however, that at least for some services in some markets, the prices are elastic. This means that when prices drop and usage increases, the net-effect is higher revenue. Obviously, new business models would ideally grow out of present strengths as reflected in the degree of company-wide creativity and the ability to implement innovative ideas. A general obstacle appears to be that several dominant structural barriers to innovation in the communications industry exist. As analysed in the following chapters, these barriers can be effectively removed when properly understood and acknowledged. In Part V of this book, the requirement of innovation as pointed out in previous chapters is much further scrutinized. Finally, the knowledge gained previously is organized in a summary of recommended structural changes to business processes and the underlying business cultures. In Chapter 12, a thorough analysis is conducted on a number of principles and techniques related to innovation. Although a key to most competitive advantage, innovation is seen to be of even higher importance in a convergent business environment.

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Chapter 13 is the final chapter of the book and the main challenges for the different industry players are summarized. Eight focus areas are highlighted that need special attention to hedge obvious risks and make the most of a range of new opportunities that convergence in communications brings about.

Reference [1] HSBC, Ovum question standard view of elasticity in users’ response to price cuts, Mobile Communications Europe, 29 May 2007.

Chapter 12: Innovation and New Opportunities

Innovation can shortly be defined as the process of bringing in new ideas and making changes [1]. Whilst several other variations of this definition may arguably be equally valid, the important components of innovation are (i) idea, (ii) process and (iii) change (or result). For example, Johansson [2] summarizes these steps as ‘Innovative ideas are realised.’ Consider for a moment the implications of a company not being innovative. This company must sell what everyone else sells, sell it in the markets everyone else sell, sell it in the markets everyone else serve. With little differentiation, this company will often operate in a commodity market with razor-sharp margins. This is indeed a valid and solid business model for many companies where operational excellence is their competitive advantage. Innovation on the other hand would inspire customers and address their needs in a new way, thereby creating opportunities for new growth.

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12.1 Categories of Innovation Innovation is a multidimensional concept that is not limited to inventing new products and services. Because innovation is the combination of idea, process and change, any innovative ideas must be transformed into sustainable revenue streams and/or lasting impact on the society to qualify. To better capture the complexity and variation, innovation will be categorized by ‘scope’ and ‘depth’. The innovative ‘scope’ refers to the individual components of the value chain for companies, that is logistics, marketing, sales and customer care. The innovation ‘depth’ refers to the relative impact on operative, tactical or strategic goals, for example ranging from small incremental process changes to strategic innovation essential to the long-term survival of a company.

12.1.1 Scope of Innovation Processes The concepts of value chain, value system and value grid have been addressed in detail in Chapter 3 of this book. This analysis focused on the communications-specific activities and used the ‘value’ model to explain some of the industry dynamics, in particular between different industry segments. It is now time to look more closely at the activities carried out by the individual players in the market. For CSPs, service innovation is obviously of crucial strategic importance and usually a primary target for innovation in the company. As important, though, are the many supporting activities that constitute the value chain [3]. The innovation required around the supporting activities in a company would include the following: • Supply chain innovation: Innovation occurs in the processes of sourcing of input components or products from suppliers and through the delivery of output components or products to customers. • Order processing and distribution innovation: The implementation of new or significantly improved production or delivery methods is an important foundation of effective cost management as well as a source of differentiation. • Marketing innovation: The development of new improved marketing concepts involves the clever combination of a range of components to include promotions, bundling and pricing. • After-sales-care innovation: Increased customer focus in the after-sales phase has a significant impact on customer retention. Convergence requires the introduction of new tools and processes.

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• Business model innovation: This activity involves the full range of existing and new methods for creating competitive advantage and generating value in the market. • Human resources and organizational innovation: The company organization must reflect and support the targeted position in the industry. The methods for compensation of employees can promote or suppress an innovative culture. • Financial innovation: New financial tools and services are developed by combining basic financial features such as hedging, risk sharing and credit evaluation in innovative variations or combinations. In each of these company activities, there is usually ample scope for further innovation. Whilst innovation is certainly possible and may be required across all activities in the company value chain, it is important to keep in mind that the innovation initiatives will vary significantly when it comes to the timing, range and depth of impact on the company’s future. The next section will look further into different categories of innovation and their respective impacts on the company.

12.1.2 Depth of Innovation Processes Four different categories of innovation, defined in the book 10 Rules for Strategic Innovators by Govindarajan and Trimble [4], are listed below in the order of increasing impact on the related business: 1. Continuous process improvement. 2. Process revolution. 3. Product/service innovation. 4. Strategic innovation. The four types of innovation differ not only by measures such as length of time for implementation and expense, but notably also by the uncertainty of the result. Continuous process improvement can often be organized in a series of changes to single process steps that can be implemented fairly quickly and inexpensively. More significant changes to processes can be large undertakings that involve significant planning, time and investment. Major product and service innovations would require even greater investments over considerable time and at significant risk. Finally, strategic innovations will be the initiatives that define the long-term survival of companies and will need several years to achieve results. Strategic innovation is obviously of outmost importance and has been analysed in a significant number of targeted publications [4–7].

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First, it is useful to think of an organization’s capacity for innovation as a product of creativity and execution. The creativity part (generating ideas) is often the primary focus with most companies but the execution must also be leveraged [4]. Whilst creativity can sometimes (temporarily) rely on a few highly powered individuals in a company, the ability to execute is a genuine company-wide skill that must become an integral part of the company culture to succeed. The crux of the problem with developing a company culture that supports innovation is that whilst this is of crucial importance to the longterm viability of the company business, the present core business is still contributing most of the revenue and often will for a number of years to come. Hence, this is likened to a cuckoo chick devouring the food its foster parents bring, when a new innovative strategic business area will have to feed off the core business for a long time. The organizational tension this causes goes right to the centre of the ability of companies to undertake genuine strategic innovation programmes. Customer focus is seen as an important part of the company culture in most modern communications enterprises. What this involves in the context of embracing innovation is very important. To the core business, focus on customers often equates to understanding and supporting current customer needs. To the new business (i.e. the objective of the strategic innovation programmes), customer focus means anticipating and supporting future customer needs. If I had asked people what they wanted, they would have said faster horses. Henry Ford (1863–1947), founder of the Ford Motor Company

12.2 Methods to Facilitate Innovation Innovation is often, consciously or unconsciously, being regarded as a branch of art the performance of which requires specially gifted divinely inspired individuals. The reality is that the process of innovation can be broken down into its constituent parts and analysed using existing wellresearched and documented methods. Having said this, most scholars would appear to agree that a creative mind and at least an average amount of good luck will always help. At any level in the value chain, it is important to create an entrepreneurial mindset that will support a permanent process for progress where every individual feels the obligation to look continuously for new opportunities. In a simple view, innovation can, as discussed above, be divided into the components of ‘execution’ and ‘creativity’.

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12.2.1 Execution Processes The organizational ability to plan and execute new ideas is the focus of much research. Inherent problems of managing and planning around innovation are the issues of high uncertainty and high risk. A few methods and theories are briefly outlined below: • Discovery-driven planning is a method for planning and management of initiatives for which direction and outcome are not yet known. Discoverydriven planning is based on the continuous documentation and testing of assumptions in the absence of hard knowledge [5]. • Theory-focused planning is a planning approach for managing strategic experiments. Strategic experiments precede strategic innovation by testing the viability of unproven business models. Theories are built to identify metrics that can measure the performance of new businesses. These theories must be built with testing in mind [4]. • Tornado marketing is a theory for developing marketing strategies in hyper-growth markets. The tornado is a period of intense mass-market adoption when the marketplace switches over to a new mode of operation and long-term market shares are defined [6]. • Blue ocean strategy is a method for creating a new uncontested market space (also see Section 12.3). ‘Tipping point leadership’ is proposed as a method of making fundamental changes happen quickly ‘when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea’. Tipping point leadership builds on the (often not utilised) fact that in every organization there are people and activities that exercise a disproportionate influence on the overall performance of the company [8]. Managing the risk associated with innovation is always a key concern and it is a specific key component in the first two planning methods outlined above. Important is the organizational ability to continuously learn from mistakes and rapidly take corrective action. Notably, the methodology used must maximize learning at a minimum cost.

[Entrepreneurs]    invest in projects that have limited or containable downside risk, in order to test the potential of an idea to deliver substantial returns at some time in the future. McGrath and MacMillan, The Entrepreneurial Mindset, 2000, Harvard Business School Press [5]

For the strategic plan, the right timing of the execution is obviously of high importance, and often a strong sense of implementation urgency is required: ‘when opportunities are fleeting, it is sometimes more expensive to be late

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than to be wrong   ’ [5]. In general, though, the strategic planning process is inherently long-term and thorough. The next section will take a closer look at some of the tools and processes that can help to work creatively and take the results beyond the limitations of an entrenched mindset.

12.2.2 Creativity Processes A number of idea-generating techniques exist to help individuals or groups kick-start the process of innovation. Since it is beyond the scope of this book to cover fully this important area, a short outline is listed below for reference and inspiration [9]: • Brainstorming is a technique that forces individuals and groups to make many random attempts to solve a difficult problem by initially generating (without criticism and analysis) a large number of ideas. In later stages of the process, the ideas are combined and improved. • Problem reversal is a technique for challenging traditional thinking patterns by stating problems in reverse. By changing a positive statement into a negative one, the participants are forced to look at things backwards, inside out and upside down. • Morphological analysis is a method for exploring all possible solutions along the structural dimensions of a complex problem. Dimensions are broken further down into values and parameters that are all assessed against each other in a structured process. Nonviable combinations are then methodically eliminated. Techniques such as ‘brainstorming’ and ‘problem reversal’ are based on a random generation of ideas, and the ‘morphological analysis’ is a method of collecting and organizing knowledge about a problem. Yet other related groups of algorithms are based on the refinement of old systems used for the invention of new systems. These methods and techniques are simple and enjoy significant popularity. Particularly the ubiquitous brainstorming technique appears in many companies to be an important element for kicking off creative processes. To highlight some of the potential pitfalls that a too superficial approach to innovation processes and tools may bring about, it is illustrative to take a closer look at the benefits and challenges related to successfully using brainstorming as a technique to stimulate creativity and generate new ideas. In his influential book Applied Imagination, Osborn proposed that groups could vastly increase creative output by using the method of brainstorming [10]. The technique is centred on a few simple rules about how groups should work. The fundamental idea is to create as many ideas (including unusual ideas) as possible without inhibiting the process by early

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criticism and analysis. Existing ideas can subsequently be built upon and combined into new improved ideas for further evaluation. The running of brainstorming sessions can take various formats but would often be led by a chairperson who would formally steer the process of generating ideas, elaborating on ideas and categorizing ideas. Brainstorming in its basic form is intuitive, easy to understand and usually seen as productive in the sense that it always generates a result. The unfortunate fact, though, is that in many well-documented experiments the productivity of group brainstorming, in terms of quantity and quality of ideas generated, is consistently much lower than for individuals brainstorming on their own. The difference in productivity is as much as half the number of ideas when the effort of a group is compared to that of the same number of individuals making contributions. The quality of the ideas does not favour the group brainstorming either. A thorough overview of the efficiency of brainstorming is given in Reference [2]. Various variations of brainstorming techniques have been proposed to combine the benefits of individual idea generation with the synergy effects of the group. It is clear, though, that without a structured approach to brainstorming as an innovation technique, the main benefits served may be that of a pleasant exercise for team building rather than a sharp efficient tool for innovative problem solving. The next section will dive deeper into some of the formal methods for innovation that further formalize the process of innovation in what can be referred to as innovation frameworks.

12.3 Innovation Frameworks In Section 12.1.2, different types of innovation were ranked according to the depth of impact on the enterprise. Strategic innovation covers the most extensive strategic changes to companies, and as such usually includes significant investments, long implementation timeframes and significant uncertainty or risk. ‘Through strategic innovation, corporations can not only stay ahead of change, they can create change’ [4]. The creative process that leads to strategic innovation can be guided by various methodologies. In the book Blue Ocean Strategy by Kim and Mauborgne [8], ‘blue ocean’ is used as a metaphor for a new marketplace with no competition, created by the innovators and first movers in an industry, and ‘red ocean’ symbolizes the corresponding competitive market that innovative companies would strive to move beyond. The distinct characteristic of this different strategic approach is the focus on a business logic called ‘value innovation’, which emphasizes value as well as innovation, thereby avoiding incremental value building, that often results with focus on value in itself without innovation. Notably, the lack of direct competition in the blue

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ocean will allow companies to pursue a wide range of strategic objectives such as high product quality or low cost. The transformation of mindsets from traditional thinking to strategic innovation is obviously a challenging but also a necessary requirement in most companies – particularly for players in convergent markets that may be ripe for significant changes. A technique used to achieve this is guided by asking the following four questions: 1. Which of the factors that the industry takes for granted should be eliminated? 2. Which factors should be reduced well below the industry’s standard? 3. Which factors should be raised well above the industry’s standard? 4. Which factors should be created that the industry has never offered? These questions can be used to challenge the existing industry’s strategic logic with respect to the product or service factors that create competitive advantage [8]. To identify uncontested markets, there is an obvious need for ‘lateral thinking’ (‘out-of-the-box thinking’) for shifting the attention away from entrenched traditional ways. Many existing tools and methods are approaching this particular problem from various different angles. To maximize the inspiration and width of contributions for the creative process of trawling for new ideas, it is important to cast the net wide. This is achieved by maximizing coordinated contributions from different sciences, different strategic partners, different functional areas, different organizational units and so on. Convergence is an inevitable trend that will drag all communications industry players into its vortex of changes and significantly accelerate the requirements for innovation. This is no longer the option only for a few front runners across the industry, as everyone is forced to rethink their product/services offering, market position and business model. The next section will introduce another interesting theory of inventive problem solving that has been around for a long time. This innovation framework is now gradually broadening the original focus on product innovations to include areas such as services and processes. It is the strict formalism characterizing this methodology that warrants the separate attention.

12.3.1 Theory of Inventive Problem Solving TRIZ is a Russian acronym for a ‘theory of inventive problem solving’. Proposed by Genrich Altshuller and developed from 1946 onwards by a community of supporters, TRIZ is a methodology, a tool set, a knowledge base and a theory for generating innovative ideas and solutions [11].

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As a way of structuring innovative thinking and development, TRIZ was created as an abstraction of the ‘world’s best solutions’, based on extensive studies of innovative ideas registered in patents across many industries. TRIZ supports a systematic, step-by-step procedure. The fundamental observation made by Altshuller is that whilst the number of new innovative ideas is vast, the number of categories of benefits that these innovations create is limited. In fact, only 39 fundamental inventive factors have been identified so far, each of which represents a set of improvements to technical problems (in TRIZ terminology referred to as ‘technical contradictions’). The list of innovative factors comprises many well-known concepts like productivity, reliability, ease of use, shape, power consumption and so on. Problems, for which innovative solutions are sought, are systematically analysed and the desired benefits as well as the unwanted side effects are identified. This combination of conflicting requirements is the basis for the reduction of the scope of likely solutions to a limited number of about 40 inventive principles (called navigators), again based on statistics derived from the analysis of thousands of patents. The navigators cover a wide range of methods for transformation of the original solution into a new innovative solution. Examples of navigators are ‘segmentation’ (disassemble an object into individual parts, for example a multi-stage rocket); ‘inverse action’ (reverses flow or turns the object upside down, for example by generating a current in a swimming pool so that the water moves but the swimmers do not); ‘mediator’ (use another object, maybe temporarily, to transmit an action, for example optimization of industry processes for liquid crystal screen manufacturing) or ‘matryoshka’ (the principle of Russian nested dolls, for example used for developing a telescopic fishing rod) [11]. Essentially all solutions follow the same general pattern of problem solving as shown in Figure 12-1. First, a particular problem is diagnosed

Reduce problem to ideal model

Transform problem by selected navigators

Diagnose problem and define goal

Verify solution and assess improvement

Figure 12-1. TRIZ model for a structured optimized innovative process.

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and the ‘ideal result’ is defined. Then, the contradictions of the problem are identified and ideas for solutions are generated using selected navigators (this step involves using a number of TRIZ-specific tables). Finally, the solution is verified and the improvements are assessed. Various commercial computer programs exist for support of the entire process. The fundamental principles of TRIZ apply to any inventive thinking process related to development of new products, services, processes, organizational structures, social structures and so on. Still, as the examples above illustrate, the methodologies that underpin TRIZ were originally biased towards the challenges of mechanical construction and industry processes. Various research projects suggest that there is promising potential for enhancing TRIZ in the services domain [12] as well as in the area of BPM (TRIZ-based process innovation is referred to as P-TRIZ). TRIZ is reported to be used by companies like Samsung, Ford and Apple to support creative product development [13,14]. Computer Sciences Corporation (CSC) has used TRIZ when consulting in business process optimization [15]. Whilst TRIZ cannot directly solve any problems, the methodology significantly narrows down the good options for creative inventors to consider. The fundamental idea behind traditional methodologies such as brainstorming that rely on ‘trial and error’ techniques is significantly improved by shifting the focus to systematically analysing the statistically most likely directions of progress first. TRIZ is a comprehensive and complicated methodology that requires significant training to master. On the other hand, innovation is a key competitive parameter in the industry today, so the stakes are high. With little study of TRIZ, it becomes clear that there is a distinct structure in the vast amount of innovative ideas that play an important role in the evolution of our civilization, let alone the small part related to further developing competitive capabilities in the communications industry.

12.3.2 Organizational Challenges An organization’s capacity for innovation is the product of creativity and execution [4]. The process of generating ideas has been covered in previous sections but without a strong process for change the execution will suffer. Strategic innovation presents specific challenges to established companies that unlike start-ups have major organizations optimised for supporting significant ongoing business activities. Established companies have powerful organizational assets that can be used to strongly boost the execution of new business ideas, but at the same time bureaucracy and entrenched thinking is often seen to have a strong tendency to counter innovation [4, 5]. The objective of strategic innovation is to establish new waves of opportunities to supplement existing business areas when sales curves have peaked

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and begin to decline. Strategic and innovative ideas will often take years to develop into established core business opportunities and during this period there will be significant ambiguity related to the outcome. During periods of organizational stress (for example caused by falling sales) the pressure on the existing lines of business will grow significantly, and the battle over falling budgets will often see long term strategic programs loose out. To overcome these long odds strategic programs must have support from senior management – preferably the CEO. This is to keep the new strategic business ideas separated from the structures and processes designed specifically for the mature core business. Given that plans are often based on untested assumptions, processes for strategic programs must focus on short cycles of documented learning (e.g. testing of assumptions) rather than traditional rigid program management and long-term revenue projections.

12.4 Convergence of Experience In this chapter, some of the intricacies of the innovation process have been analysed, and notably, a number of methodologies to support this process have been outlined. To help develop a more concrete starting point for applying these methodologies to the context of convergence in communications, this analysis will now turn to some of the fundamental changes to present services that convergence is likely to bring about. Further, the focus will be on some of the interesting present trends that may become dominant in defining how we will learn about and consume services in the future.

12.4.1 Human Interfaces Human beings are normally attributed with the five classic senses of sight, hearing, touch, smell and taste. Of these senses, the sight and the hearing are the main human information interfaces targeted by most electronic communication equipment at present, but a number of technologies are becoming available for touch pressure-sensitive buttons and surfaces also. Crude applications like mobile phone vibrating alerts are already taking small steps towards using the pressure perception as yet another way of exchanging information by means of ‘intelligent’ electronics. Whilst senses are native, skills are practised abilities to perform certain tasks well, such as reading, writing, talking, listening and critical reasoning. When browsing multimedia information on the Internet or watching subtitled films on the television, a range of abilities would come into play. The process of acquiring knowledge is obviously not strictly text-based and does include the skills-based element of attentively watching still or motion

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pictures. In line with this, teachers would often talk about three different learning styles: (i) visual learning (learn by seeing), (ii) auditory learning (learn by hearing) and (iii) kinaesthetic learning (learn by doing) [16]. A vast number of electronic communications services exist. As technology, legislation and society as a whole evolve, existing communications services are gradually merging into joint convergent multimedia services, where different individual services are packaged for a richer service experience. Convergence of services means that many existing boundaries between services are gradually lost. This process is outlined in Figure 12-2.

Single media Services Hearing (Auditory)

Sight (Visual) Touch (Kinaesthetic)

Multimedia Present

Telephony (POTS) Broadcast radio

Printed media Messaging

Television Video-on-demand Picture telephony Electronic books Internet Games

Future

Multisensory Virtual reality

(Vibrating alert)

Figure 12-2. Hearing and sight are the main human senses that interface with electronic communication services. With convergence, the variation of services increases and the service categories gradually merge.

Terminals will differ in shape and design, and individual preferences mean that almost any combination of the available service components is likely to be applied somewhere. The number of access technologies, core network technologies and service delivery environments will explode and with it the variation of usage patterns and the range of individual choice. Multimedia communications services will assume an increasingly involved and integrated role for most people although every user will progress down this road at a different pace.

12.4.2 Social Networking Social networking websites offer a social facility or service that connects people with family, friends, colleagues and potentially any other person who has registered. Users can create detailed profiles that can be enriched with photos and videos; and users can exchange messages, write blogs and so on. Access to private profile data can be limited to a defined range

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of other users, but not so though for candidates to the 2008 US presidential election who all publicly embrace this new medium with rich open entries. Five out of the 10 most popular websites in the world by October 2007 were social networking sites, most of them growing at a very fast rate [17]. Facebook, one of the biggest social networking sites at the time of writing, has an estimated 4% of the global Internet users visit their site every day. Websites that attract high volume of traffic obviously draw the attention of advertisers and companies such as Google and Microsoft that sell advertising space on websites. The commercial interest in social websites drive the market evaluation up; for example, Facebook has been valued at an estimated (although extremely fickle) $15bn [18, 19]. The undeniable success of social networking websites in attracting new users is fuelling (and is fuelled by) the development of thousands of new user-developed applications and features, like web widgets for example for picture or video processing. A gradual but fast evolution from university campus experiment to global social network may now evolve to include proper user-driven application development platforms and budding business environments. The term ‘social operating system’ has been used to describe this phenomenon. A ‘social operating system’ can be defined as ‘a social networking site like Facebook or MySpace that seamlessly integrates activities, including entertainment and shopping, to become a platform for online living’ [20]. An interesting question is now whether the social networking websites will become the real powerhouses for defining and evolving online living in the future. This threat or opportunity is already of crucial importance to the strategy of web-portals like Yahoo and mobile operators like Vodafone. The latter has signed an agreement with the social networking website MySpace, allowing Vodafone mobile subscribers to access MySpace on the move. The future direction for the communications industry depends on how the different players will benefit from this style of convergent business symbiosis.

12.5 Future Trends There are compelling marketing and sales opportunities available for offering wider multiplay packages of services across different communications industry segments. At the cost of a discount to the customers for bundling their purchase with a single supplier, there are distinct advantages in deepening the customer relationship to increase loyalty and decrease churn. Further up the value system, the potential of leveraging crossmedia contents offerings represent up-sell/cross-sell opportunity that most CSPs have just started to explore, mobile TV and advertising being obvious targets.

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Service continuity across different technology platforms and media segments is expected to become a high priority requirement that is more likely to be dealt with effectively when all components are controlled by the same CSP or a close partnership of service providers. This in turn supports the trend in the industry towards consolidation into larger multimedia partnerships or even mergers. Further yet up the value system, bigger units are likely to exploit scale advantages in convergent networks, service platforms, as well as enterprise software systems. Where does all this leave the users then? Despite strong customer focus, all the main driving forces behind the industry involvement are naturally motivated by profit. New technology and cheaper, better and richer services are bound to follow, but a narrow short-term commercial focus by the CSPs is likely to miss some of the new real opportunities of user engagement that convergence also brings. The following sections will take a closer look at some important trends that may contribute to the evolution of the communications industry a few years out in the future.

12.5.1 Beyond Web 2.0 With some interactive and individualized so-called Web 2.0 services already in widespread use, obvious questions relate to the next waves of disruptive changes. A gaze in the crystal ball (naturally) reveals a somewhat confusing picture, with many yet slowly converging ideas proposed. However, a wide area of new opportunities can be classified under the new common denominator of ‘Web 3.0’ that is yet to be accurately defined [21, 22]. The concept of ‘mash-up’, where different applications are combined to add new value, is an example that characterizes what may be seen as typical Web 2.0 capabilities; for example, the Google Maps Application Programming Interface (API) has been used widely to integrate location information onto personal or company Web pages. Another quality of Web 2.0 is the extensive tagging and linking of Web pages that amount to extremely interconnected and interactive practices for accessing and consuming the information available and interacting with other people on the Internet. The abundance of information on the Internet (or rightly the World Wide Web) is at the same time its strength and its weakness. Computers are effective at displaying and linking information, but the interpretation of the data and the assessment of the relevance of data are usually left for humans to do. Queries to Web search engines such as Google invariably return millions of hits, and despite intelligent electronic ranking of the hits an often extensive manual exercise of sifting through virtual mountains of information follows. A problem is obviously that most of the Web contents would not be following formal machine-processable semantics but is rather made for

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humans to read and understand. The ‘semantic web’ is often regarded a key characteristic of what a growing number of people refer to as ‘Web 3.0’. From this would follow much improved data integration and application interoperability, and machines would take over some of the present tedious human-only interactions and enable the following: • an artificial intelligent powered Web for quasi-human decision making; • a transformation of the Web into one large virtual database with machinereadable Web pages; • ubiquitous connectivity for anyone on any terminal and with high bandwidth. These daunting challenges are being addressed by the World Wide Web Consortium (W3C) that works on common standards for formal descriptions of concepts and information. The vision behind this work is for everyone to annotate their websites using a standardized metadata language such as ‘resource description framework’ (RDF) to enable automated interoperability. Obviously, a shared description or model of ‘all’ data is required to define abstract concepts and relationships. For this purpose, an advanced general data model (called an ontology) that is not related to a particular system must be defined and instantiated in a modelling language such as the W3C Web Ontology Language (OWL) [23]. With increasingly intelligent systems available for information retrieval and data analysis, a plethora of new services and systems will emerge across all platforms and terminals. Of notable potential are the contextaware applications where the services and data offered to the users depend on context, that is the present conditions and situations as well as the history of pertinent events. The parameters included may be location data (such as position and movement), sensory data (such as temperature and ambient noise level), personal data (such as preferences and language skills), history data (such as recent service use and past purchases), future data (such as travel itinerary and diary) and so on. In a business-to-business environment, the semantic web would be a strong driver of deep and widespread process automation.

12.5.2 Crossing the Line By June 1975, Wozniak, the co-founder of Apple Inc., had developed the first computer that allowed the use of a keyboard to type characters and show them on a computer screen [24]. Today’s world would be inconceivable without computers with these fundamental features, but

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three or four decades ago the main interfaces to computers were complicated front panels of switches and lights, punch cards, line printers and fan-fold paper. It is hard to overestimate the importance of this feat. At the time, the idea of a personal computer had barely been conceived, and only a few visionary people dared talk about computers for private use. The ease of use that Apple fronted in the market with their leading Apple II computer was destined to change this perception fundamentally. What now looks basic and logic was a true paradigm shift back then. This short part-history of the early days of home computers illustrates the problems in any attempt at predicting future trends. Often, it is only when technology is seen in live action with a wide audience that the potential is really appreciated. But even then, the fickleness of public opinion, the timing of product introduction, the product design (and quality) and a long list of other potential reasons may cause innovative ideas to go the way of the dodo or take long to materialize, such as pen computing, which after decades and some of the best-known failures in Silicon Valley’s history still attracts regular attention [25]. With little prospect or hope of doing the future any real justice, a few seeds for thoughts are provided below, with speculations about what the next waves of changes may bring to shore: • Second Life (www.secondlife.com) is a structured social-networking/gamestyle environment where virtual characters called avatars can move around in a virtual 3D world and undertake a range of activities such as buying and selling of products and services, and communicate, for example, via chat and messaging. There appears to be almost unlimited scope for more and more realistic 3D modelling and artificial intelligence-based video gaming with increasingly realistic and detailed scanned computer models of real people. Virtual reality 3D headsets/glasses are likely to enhance the experience. • In his book Uncommon Sense, Cochrane ponders over the growing trend of embedding artificial electronic devices such as pacemakers and pain relief modules in the human body: ‘It is increasingly apparent that we are on course to becoming a part of our own technology’ [26]. Implants like radio frequency identification (RFID) tags for identification and mobile phone implants for communication could technically become reality fairly soon. Maybe some of these ideas would be too intrucive and cross the line with many users; big brother surveillance ethics as well as health and safety issues would certainly be at the top of most people’s list of concerns. Still, the question is whether we really understand some of these future

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possibilities well enough to pass judgement just yet. Already today, services with potential for significant growth but well outside the boundaries of traditional communications business areas are being seriously analysed by the big CSPs. For example, at the ‘Telco 2.0™ Initiative’ workshop in October 2007, Executive VP Thierry Zylberberg presented the France Telecom/Orange vision for an e-health programme that targets medical services particularly to the elderly and disabled. E-health can be defined as ‘use of information and communication technologies to meet the needs of citizens, patients, healthcare professionals/providers and policy makers’. In an aging population with growing life-style-related health problems, this niche area is potentially big business estimated to grow at 15–20% per year for the next five years and expected to be worth E1.9bn in France alone by 2010 [27]. By not outright rejecting options outside our comfort zone, which may not be understood yet in full, we are certain to improve our ability to create knowledge and latitude for informed future evolution strategies.

12.6 Summary In the words of Peter Drucker, a prolific writer of management literature, ‘Innovation is change that creates a new dimension of performance.’ The ability of companies to adapt to change in ways that create new opportunities through (pro-)active management of own skills and knowledge is obviously important to all the players in the communications industry. Convergence is now creating a melting pot of new opportunities for the nimble to exploit. In this chapter, the elusive concept of ‘innovation’ has been analysed with a view to understanding some of the likely shortfalls in many organizations. An innovative culture consists of the knowledge and incentives to ‘create’, as well as the organization and the strategy to ‘execute’. Importantly, the innovative culture must span not just the organizational units that develop sellable new products and services but the entire organization. There is a considerable literature of experiences about ‘innovation in practice’ to learn from. The idea that innovation is an art form somewhat beyond structured methodology and management is challenged by a wide analysis of a number of innovation methods and frameworks. It has been demonstrated that there are clear structures to the creative process that apply across many scientific fields and areas of experience. This strongly suggests that there are substantial opportunities for improvement to any trial-and-error methodology that may be presently in use. The long-term future of the communications industry is very hard to envision, let alone be too specific about. The range of opportunities is almost unimaginable but a broad outlook, the widest range of skills and an open mind will be key tools for tackling the challenges ahead.

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12.7 References [1] The Concise Oxford Dictionary, Clarendon Press, 1990. [2] Johansson, F. (2004), The Medici Effect – Breakthrough Insight at the Intersection of Ideas, Concepts, and Cultures, Harvard Business School Press. [3] Porter, M.E. (1985), Competitive Advantage, Free Press. [4] Govindarajan, V. and Trimble, C. (2005), 10 Rules for Strategic Innovators, Harvard Business School Press. [5] McGrath, R.G. and MacMillan, I. (2000), The Entrepreneurial Mindset – Strategies for Continuously Creating Opportunity in an Age of Uncertainty, Harvard Business School Press. [6] Moore, G.A. (2004), Inside the Tornado, Collins Business Essentials. [7] Hesselbein, F. et al. (eds) (2002), Leading for Innovation, Jossey-Bass. [8] Kim, W.C. and Mauborgne, R. (2005), Blue Ocean Strategy, Harward Business School Press. [9] Kotler, P. (1991), Marketing Management, Seventh Edition, Prentice-Hall International Editions. [10] Osborn, Alex (1979), Applied Imagination: Principles and Procedures of Creative Problem Solving Third Revised Edition, Charles Scribner’s Sons. [11] Orloff, M. A. (2006), Inventive Thinking through TRIZ, Springer-Verlag. [12] Zhang, J., Tan, K.-C. and Chai, K.-H. (2003), Systematic innovation in service design through TRIZ, Proceedings of the EurOMA-POMS 2003 Annual Conference, Cernobbio, Lake Como, Italy, 16–18 June, Vol. 1, pp. 1013–1022. [13] Lewis, P. (2005), A perpetual crisis machine, Fortune Magazine, 19 September. [14] Raskin, A. (2003), A higher plane of problem-solving can the theories of a dead russian dissident solve your company’s most vexing technological challenges? A cult of business consultants swears that they can, Business 2.0 Magazine, 1 June. [15] Computer Sciences Corporation, www.csc.com, 2007. [16] Overview of Learning Styles, Learning Styles Online website, www.Learning-Styles-Online.com, 2007. [17] Alexa, website, www.alexa.com, October 2007. [18] The battle for Facebook, The Independent, Business Analysis, 26 September 2007. [19] ‘Facebook and Microsoft Expand Strategic Alliance’, Microsoft Press Release, 25 October 2007. [20] Wired Magazine, website, http://www.wired.com/culture/culturereviews/magazine/15–08/st_jw, August 2007. [21] Markoff, J. (2006), A Web guided by common sense?, The New York Times, 12 November. [22] Spivack, N. (2006), The Third-Generation Web is Coming, www.KurzweilAI.net, 17 December 2006 (blog comments – July 2007). [23] Colomb, R.M. (2007), Ontology and the Semantic Web, IOS Press. [24] Wozniak, S. (2006), ‘iWoz’, Headline Review. [25] Inventor puts hopes in computer pen, International Herald Tribune www. iht.com/articles/2007/05/29/technology/pen.php, 30 May 2007. [26] Cochrane, P. (2004), Uncommon Sense, Capstone. [27] Zylberberg, T. (2007), New Services: The Next Step, www.francetelecom.com/ en/financials/investors/presentations/investor_days/att00039656/12-newservices.pdf.

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In a few years’ time, when the tidal wave of convergence has inflicted its damage on existing business systems and structures, a new industry landscape will emerge. There will be massive changes surely, but many of the well-known classic services are obviously likely to survive in the long term – and for good reasons, they are addictive and useful. We will still make phone calls, we will still watch television and we will still surf the Internet. It may be though that the phone will double as the television remote control, that the television service will be highly interactive and that the Internet will be experienced in a virtual world with your virtual alter-ego roaming a 3D shopping mall. These futuristic scenarios are not really science fiction or particularly revolutionary technically, and for the keen and technology savvy they have been available or thereabout for a while. The main changes over the next couple of years are likely to be that many more of these advanced technology use cases will have been brought into mainstream use and obviously that there will be yet other new generations of futuristic services that will emerge in the horizon. Revolutions are notoriously hard to predict though, as history usually shows.

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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The popular new services and usage patterns will mix with the existing ones. A basic old-fashioned telephone voice call is not likely to go out of fashion, but our present idea about this, as a service closely related to a particular piece of hardware (e.g. the phone) and a particular service provider (e.g. mobile operator), is fundamentally changing. The boundaries between traditional existing electronic communications services such as radio, television, Internet and telephony are blurring and will gradually disappear. The reasons for television traditionally being broadcast and for telephony initially being wire based only are down to technology limitations and public media regulation. Both of these potential inhibitors are gradually disappearing, first through waves of liberalization in the 1980s and 1990s and then by convergence in the 2000s and 2010s.

They always say time changes things, but you actually have to change them yourself. Andy Warhol (1928–1987), artist

13.1 A Different Paradigm In Chapter 3, an analysis was conducted of the business opportunities that arise when businesses reach across established parallel value systems such as the fixed, mobile and broadband segments in the communications industry. This resulting so-called value grid is an environment where different-albeit-related technical fields are merging and different business cultures interact. This new business environment formed by convergence brings formerly distinct market segments together and is likely to result in a surge of new intersectional innovation (i.e. formed at the intersection between different fields of expertise). As convergence increasingly smears the boundaries between different access methods and services, existing conceptions of market structures and business models are fundamentally challenged. Terms like ‘mobile operator’ or ‘Internet company’ will have distinct meanings only when there are distinct technical or other characteristics that distinguish these categories. With a number of technical alternatives to providing mobility for users of communications services, the mobility is no longer a distinguishing factor. The press release to announce the launch of Blyk, a mobile service provider funded by advertising only, positions the company as a mobile network (for the users) and a media channel (for the advertisers) [1]. The British Broadcasting Corporation (BBC) had a regular UK audience on bbc.co.uk of more than 15 million in 2007 and achieved the third biggest reach for any UK site (with only Google and MSN ahead). The total number of page impressions (requests to load a single page of an Internet site) to bbc.co.uk averages over 3 billion per month [2]. ‘Broadcaster’ and ‘Internet

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company’ today describe two distinct service provider profiles of the BBC but in the long term these profiles will inevitably merge. These changes gradually defy the logic of referring to companies like the BBC as broadcasters with reference to a particular way of distributing media content. The world is moving on, and with it the services we consume, the expectations we have, as well as the language we use. For example, there is an pertinent challenge of finding a colloquial name for the convergent multimedia terminal we presently refer to as a (smart) phone.

13.1.1 Changes to the Value Chain Now, an obvious question to ask is, what changes the next wave of innovation will bring? First, more innovation in itself will create more dynamics, less predictability, more opportunities, more threats – in short, a volatile but potentially high-growth business environment characterized by new technologies, organizational transformation and different business models. The direction of these changes has been the main topic of this book. To exemplify the depth and width of the changes to come, it is useful again to take a closer look at the value chain for a large CSP. The analysis will begin with the users, and in some detail look at the possible changes to the concept of subscription as the predominant customer relation model. Next, the present customer care model heavily based on call centres will be scrutinized, leading to an analysis of some of the future marketing and sales models (see Figure 13-1; also refer to Chapter 3 for more details). The rest of the value chain has been extensively analysed in previous chapters.

Infrastructure construction

Network operations

Service delivery

Contents brokering

New payment models

Contents creation Consumer participation

Marketing & sales

Contents creation

Marketing & sales

Customer care

Viral marketing & advertising

Customer care Empowered call centres

Figure 13-1. The value chain for a service provider is likely to undergo significant change prompted by convergence.

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13.1.1.1 User Preferences: A New Payment Model When prepaid mobile phone services were widely introduced in the mid1990s, users got for the first time a real choice of enjoying popular telecommunications services without being tied into a subscription with a service provider. This model has obviously proved popular with many users, being the preferred payment model for 65% of all mobile users in the United Kingdom in 2006 [3]. As discussed in Chapter 11, convergent charging methods will gradually eradicate most of the differences between the prepaid and the post-paid payment models, leaving a continuum of options based on either monthly fee, consumption-based fee or a bit of both. For subscribers to communications services, the perceived benefits of the subscription model would be convenience, price and ,in general, any special privileges offered by the service providers to this customer segment. On the other hand, service providers are keen to build a lasting relationship with the higher-spending contract customers. Triple-play and quadrupleplay offers are key parts of their retention strategy, building a broader value proposition for customers and thereby increasing stickiness and lowering the churn. The business models for broadcast television are based on advertising, subscription, licence fee or combinations of the three. With television viewing increasingly popular on personal computers and mobile terminals, the existing business models will have to be increasingly flexible to accommodate service continuity across terminals and access methods whilst maintaining accountability and control. A complete makeover of the business models in this complicated area will happen over a prolonged transition period, as the politics related to transition of the old media monopolies have demonstrated. Amidst concerns that technological advances would mean that a licence fee based on television ownership could soon become redundant, the UK Department for Culture, Media and Sport stated in a 2006 whitepaper, A Public Service for All: the BBC in the Digital Age, that ‘The television licence fee remains the best way to fund the BBC and will remain its main funding mechanism throughout the next ten years’ [4].

13.1.1.2 Customer Care and the Future Call Centres Call centres are arguably some of the most important vehicles for improving customer satisfaction, strengthening customer retention and thereby reducing churn. This assessment is notably valid in the telecommunications industry, where call centres are seen as an important competitive battleground and account for a significant part of the budget and staff for service providers. The employees in call centres are counted in the thousands for big traditional service providers in the fixed, mobile and broadband communications industry segments. At the other end of the scale, a generation of new Internet-based service providers operate with much different and notably lighter customer care

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organizations. Skype, a popular service provider of VoIP services with peaks of 9–10 million concurrent online users worldwide in 2007, has an online self-help troubleshooting facility and a lightweight customer support service that works via e-mail. Google, the company behind the successful Internet search engine, has organized users in user communities or topical help groups. These groups are voluntary unpaid unmoderated groups for all users to discuss applications, troubleshoot problems and share ideas. Google employees also participate in dialogues and trouble shooting but on an ad hoc basis [5]. With Skype offering (partly) free telephony and Google offering a range of free content services and applications ranging from satellite pictures to e-mail, significant service charges do not inflate the customer expectations. Competition is of course again the main incentive for these companies to deliver good quality services. When it comes to customer care, the free services approach does not necessarily lean itself towards heavy spending. The preferred solution here is customer involvement in the form of self-care and free peer advice for troubleshooting. Another important influencing trend related to call centres is in play. For pretty much every conceivable communications service in the market, the cost (measured in time, as well as money) of changing service supplier is steadily going down. This means that for a wide range of services, the trouble of changing service provider, that is to swap Google for Yahoo, is a lot less hassle than to work out the root-cause and solution to service problems by working through any established customer care system. It is sometimes easier to simply vote with the feet (or wallet) than to fix problems. Obviously, these considerations are less valid for services with strong network externalities (i.e. the value depends on the number of other customers, e.g. friends on a social network site), for services with unique/differentiated contents (e.g. satellite maps on Google Earth) or for services sold in bundles that increase the switching cost (e.g. triple-play offers of telephony, broadband and television). Clearly two opposing trends are in play: (i) the Internet model with light unpretentious customer care organizations and (ii) the telecommunications model with heavy ambitious customer care organizations. The high QoS and QoE focus in the telecommunications industry and the predominant best-effort quality in the Internet industry further underline the differences between these segments. There are two key questions: (i) to what extent the stronger competition (triggered by convergence) will improve the QoS sufficiently for best effort to suffice in both domains and (ii) to what extent the closer customer orientation in the market will favour stronger customer care organizations. Call centres are primary contact points between CSPs and the customers. The opportunity to use the customer interaction not only to fix immediate trivial problems but also to engage with the customer for better use and benefit of the available services is a challenge and opportunity that could see the call centres become true drivers of new business opportunities.

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The required integration of enterprise software systems and availability of wider coherent data sources have been the topic of previous chapters. Such empowered call centres would potentially put incumbent service providers in a much better position to compete (and collaborate) with the new breed of Internet-based competitors. The outcome of the clash between Internet and telecommunications business models will dictate the degree to which future technical solutions will be QoS focused and differentiated for various quality levels. This will in turn set the direction of investments in all the enterprise software systems, in customer care systems and in the network itself. Final answers to these difficult questions are likely to be given only by the future direction of the market itself, in the complex interaction between technology evolution, customer expectations and new business models.

13.1.1.3 Marketing and Sales: Viral Marketing and Attention Economics The marketing and sales philosophies are obviously quite different in different parts of the communications industry. For mobile operators, more than 50% of the net OPEX is today used on marketing and sales (to include handset subsidies) [6]. In comparison, the direct marketing and sales cost to the end-users is very low for a long list of large successful Internet companies (to include, for example, Google and Skype). Increasingly, many communications market players rely on word of mouth (spoken or electronically) as the primary method for creating awareness of new services. Organized in viral marketing programmes, existing customers are encouraged by various (often) nonmonetary incentives to pass along marketing messages voluntarily. These incentives may take a variety of different forms and shapes such as interesting promotional video clips or games but would often constitute offers of goods/services or participation in groups, forums, organizations or communities that individual users feel their friends or colleagues would benefit from. Where strong networking externalities are present (e.g. on Skype or Facebook), the referring party also will benefit. When Blyk launched their advertising-funded (partly) free mobile network in the United Kingdom, subscriptions were available on invitation only (from friends or from the company itself via a limited number of targeted campaigns) [1]. Only time will show to what extent viral promotions will penetrate all segments of the communications industry. For business-to-consumer interactions, advertising and subscription represent two of the main business models in the communications industry. The advertising model allows a simplified interface to consumers as no advanced provisioning systems and billing systems are required. On the other hand, the relation between the users and the service provider may be significantly weaker and leave the service provider vulnerable to direct competition as well as fickle mood and fashion changes in the user

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community. Whilst appearances may convey the message of a more laidback culture in the Internet industry, the daily battle for attention is fought very hard indeed. In Figure 13-2, the collision of different business models is depicted. The main focus of the analysis throughout this book has been the convergence ‘vortex’, where dramatic market changes are happening and the future power balance is defined between new companies and incumbent companies in the convergent communications industry. Telephony Convergence ‘vortex’ Different business models converge

Broadcasting

Communications

Internet

Figure 13-2. Convergence in communications causes a collision of different business models for example based on billing and/or advertising.

For business-to-business interactions, the historic differences between the market players may appear to be less pronounced, but again competitive advantages can be gained by challenging and changing the existing business models in innovative ways. Google set up a 24-h marketplace for advertisers where thousands of words and phrases that people regularly type into the Google search engine are auctioned online. The buyers pay for their adverts to be automatically shown when their particular search words are used. This efficient system for auctioning of adverts has propelled Google into a commanding leader position in the online advertising market [7]. The present business models for traditional communications service providers are coming under significant pressure from the different but also extremely versatile internet-style business models. Whilst neither exhaustive nor definitive a number of business models widely used on the internet are briefly outlined below [8]: Brokerage Advertising Infomediary Merchant

(brings buyers and sellers together and facilitates transactions) (provides content and services mixed with advertising messages) (provides independently collected data to assist buyers and sellers understand a given market) (allows wholesalers and retailers to offer goods and services)

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Manufacturer Affiliate Community Subscription Utility

(reaches buyers directly and thereby compresses the distribution channel) (allows affiliated sites to provide click-through to the merchant in return for payments) (a community model based on user loyalty that supports social networking) (users are charged a periodic fee to subscribe to a service) (an on-demand model based on pay-as-you-go fees)

Whilst some of these business models may not be directly applicable to all present communications services, they will require increasing attention by all players in the communications market.

13.1.2 Convergence Culture New and old media have reacted differently to the gradual changes in the communications industry. An emerging culture shift has led to an environment where users are seeking out and testing new opportunities of active participation based on social interaction and media contents contribution across different electronic enablers. In this new convergence culture, the most innovative consumers and their mostly Internet-based knowledge communities are used, for example, in the gaming industry to discuss, assess and test new products. Active users (or fans) are often seen as valuable collaboration partners that add value to and help promote products. In the same vein of collaboration, the fans in some of the new industry segments such as gaming are often allowed a degree of freedom to use and change copyrighted material for noncommercial purposes. At the other end of the spectrum, the old media companies in the film, television and music industry have been very actively pursuing copyright infringements. For a more detailed account of these complicated interactions between users and media, refer to Jenkins’ book on Convergence Culture [9]. The frustrations by some users are summed up in the following quote: ‘They want us to look at but not touch, buy but not use, media content.’ Realizing that being at war with their core users is not expedient, boundaries are (slowly) being redefined between users and media companies. User participation in popular media is an important cultural phenomenon that has keen supporters and stern opponents. A plenitude of blogs and websites are evidence for the fact that tens of thousands of ordinary people, young and old, enthusiastically write Harry Potter fiction, create Superman videos or make their own music inspired by commercial tracks. The supporters see this ‘fan-art’ as a social mobilization of potentially inactive people now energetically engaged in a range of creative art forms and thereby develop important media literacy. The opponents see this as the pinnacle of commercial exploitation by an industry that often aims for the

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lowest common denominator, and for kids a threat to the efficient learning at school of traditional skills such as reading and writing. A more-than-budding trend of a distributed Internet-based society was cooled down for a while with the implosion of the dot.com bubble in the year 2000. Still, innovation and initiative would appear to be distributed to a significant degree across a diverse list of highly charged individuals, user communities, small start-up companies and big global corporations. Whether user participation in media and content creation will grow into an overpowering trend in the future or end up as a niche segment remains to be seen. Both parties in this dialogue, the users and the industry, will have ample opportunities to rethink existing assumptions before they push ahead. Communications companies would generally assent that their long-term success depends on their ability to exceed competitors in building loyalty and affection with their key customers. Increased user participation is an opportunity to differentiate and begin a transition towards a new business model. This should play to the strengths of (some) communications service providers based on rich and deep network data, service consumption data and customer data. Particularly the telecommunications industry is a rapidly growing player in media convergence and may well be in a position to tip the balance in favour of more user participation and popular media power – repaid by expected user loyalty and a firm position of strength in the new consolidated communications industry.

13.2 The New Challenges This concluding part of the book will dive further into some of the reasons behind and solutions to the structural problems in the communications industry that have been uncovered and analysed earlier. In previous chapters, the all-important methods, processes and organizational structures for continuous innovation were outlined and related to successful operation in a convergent, more interrelated and more integrated industry. Some of the future, and still speculative, technology areas that may bring about the next wave of new opportunities have been analysed. The business challenges and business opportunities created by the disruptive market conditions are expected to exist during and after waves of convergence-related changes. The essence of these findings will be summarized in eight key messages for companies in the communications market.

13.2.1 The Competence Trap In recent years, significant changes have been experienced in our society triggered by remarkable advances in the communications technologies as

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well as the mechanisms that bring these new opportunities to market. The proliferation of mobile terminals, Internet access and rich entertainment offerings have taken us to the brink of a future ideal communications-centric world where all data (related to telecommunications, information and entertainment) will be available in electronic format to anyone, anywhere and any time. It is obvious that these changes can have a profound impact on our daily life. Some of these effects may be neutralized or alleviated by yet more technology and services. For example, the intrusive nature of mobile phone calls wherever you are and whatever you are doing can be addressed by intelligent presence services, which convey your availability to potential callers before they choose to connect. This again raises a whole new raft of issues and concerns about privacy. Other side effects of increasing use of electronic media is the gradual demise of the printed media and the cultural inheritance that is wired into the act of reading and writing physical books and newspapers. Further, potential health problems like obesity may arise from uncontrolled (excessive) use of electronic media. It is not yet clear whether convergence is likely to aggravate or improve the present situation where physical inactivity is often blamed on the lure of the 3C (Communications, Computing and Consumer electronics) equipment and services. Convergence across all tiers in the value systems of the communications industry has brought about significant changes for the producers as well as consumers of communications services. Whilst changes may always be a cause for concern, it is believed that the opportunities in the communications industry vastly outnumber the potential problems, and that few if any of these will cause long-term worries to the users. In areas such as remote working (working from home or working whilst on the move), the omnipresent broadband access and growing service continuity can finally fulfil years of promise of higher efficiency and less physical travels to the benefit of environment as well as individuals. Whilst very important, a further analysis of these wider issues concerning the impact of communications on our society falls outside the scope of this book. An industry sector can be seen to constitute a ‘community of practice’ where the participating companies and individuals share an understanding concerning what they know and what they do [10]. The community would normally have a domain-specific knowledge base that guides practices. When different industry sectors start competing for reasons such as the emergence of new technical inventions, the knowledge bases of the different areas will also compete, and eventually one will become dominant and displace (or merge with) the other. This intellectual battle is an important backdrop to the competition between the different communications industry sectors that convergence is bringing together or at least a lot closer. In any industry segment, a fair amount of inertia and old thinking tends to maintain and confirm companies in their existing business models and strategy. This is referred

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to as a ‘competence trap’ [11] that represents the flip side of the policies companies have for building of strong competences in areas that support existing business plans. These companies may risk missing the opportunities brought by structural transformations in the market and be trapped with traditional thinking that would leave them exposed at times of change. Notably, companies in communications market segments that for a long period of time have benefited from particularly favourable market conditions should be attentive to any signs in their organizations of falling into the ‘competence trap’. Key to the managerial and organizational discipline of ‘strategic management’ is a thorough understanding of the cause of the problem that adjustments to the company strategy are set to address. In addition, a particularly important part of industry analysis is tracking of competitors’ strategies and predicting their future moves [11]. For example, to plan the most appropriate strategic response, it is obviously important to establish whether falling ARPU is caused by strengthened competition from similar operators with similar service offerings or whether the revenue loss is a result of different services from new players in other related industry segments competing for the same customer attention. The first scenario may emphasize strategic activities for brand building, whereas the second scenario may trigger strategic partnering to widen the service offering. Important in the communications industry is that companies avoid becoming blinkered by many years of uninterrupted success and make sure that the strategy-forming part of the organization maintains the skills to accurately read and respond to new business patterns in changing markets. Suboptimal responses would fail to correctly address the new problems and opportunities, thereby potentially making the affected companies enter into a partly self-inflicted spiral of decline. The next section will summarize the main findings about the structural problems that are triggered by convergence in communications and also address the strategic management choices that business leaders will face.

13.2.2 Eight Primary Challenges and Opportunities Service providers in the communications industry have challenging threats as well as promising opportunities to manage in the coming years. In this book, the focus has been on both the external factors and the internal factors that their businesses depend upon. In the following overview, the main external factors have been divided under ‘user focus’ and ‘market focus’ and the internal factors have been divided under ‘strategy focus’ and ‘business focus’. An inspiration in part for this structure is Michael Porter’s classic model of the five competitive forces that determine an industry’s attractiveness and profitability. Porter’s five forces are (i) bargaining power of

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suppliers, (ii) threat of new entrants, (iii) bargaining power of buyers, (iv) threat of substitute products or services and (v) rivalry among existing firms [12].

13.2.2.1 User Focus I Attend to Layperson Expectations – By Creating Foolproof Interaction with Communications Services Books have existed for hundreds of years and their use is engraved in our cultural genes. Notably, a book does not require a user manual. On the other hand, the way we use modern ICT changes very regularly and often requires up-to-date knowledge about the latest additions and tweaks in the user interface. In itself, the term ‘user interface’ implies that the users somehow have a matching technology interface. First in Chapter 1 and later in Chapter 9, the ability of the average consumer to use present communications technologies and services was analysed. As much as half of the population may not be able to or are not particularly disposed to using ‘advanced’ communications services such as the mobile Internet. In communications industry segments where the penetration of key services has pushed well beyond the 50% mark, this lost and sometimes forgotten group of consumers represents a significant growth potential that is not often addressed in a coordinated fashion by current market players. II Institutionalize User Power – By Facilitating Users’ Contents Generation and Consumption The metaphors of ‘killer application’ or ‘silver bullet’ are often used to describe the elusive next (hopefully exceptionally) successful service to be launched. Picking winners and dodging losers is an increasingly important skill with the number of options soaring and with higher frequency of change in the industry regarding service launch and growth. Some of the most profitable (telecoms) service of recent years have been text messaging and ring tones (and other accessories), and later the immensely popular interactive Web 2.0-style services (e.g. sites that upload pictures and invite other users to vote). These services were all successful initially because of strong user-pull. The incumbents in the professional part of the industry will benefit from a much closer interaction with the users, and thereby help facilitating usage and creativity rather than controlling and directing progress.

13.2.2.2 Market Focus III Play to Own Strengths – By Using 7W Data to Build Sustainable Competitive Advantage In all segments of the communications industry, there are distinct competitive advantages enjoyed by the incumbent players. When convergence

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opens up to stronger competition, the different industry competences will become threads in the canvas that supports a new competitive as well as collaborative industry order. The depth and width of knowledge about customers and how, when and where services are consumed forms a distinct profile that characterizes and distinguishes each of the communications industry segments (refer the 7W profiles analysed in Chapter 4). Unless these distinct competences are acknowledged and exploited, entire industry segments risk a significant collective loss of competitiveness following convergence. On the other hand, if the identified synergies can be achieved, then increased value for the consumers will result and trigger growth in the entire communications industry.

IV Prepare for Hyper Competition – But Also Acknowledge This as a Source of New Opportunities Strong competition is often blamed for failures to meet business expectations in the communications industry. Whilst this may objectively be true, the convergence of services and business areas is rapidly adding new groups of players to the competitive landscape. For example, mobile operators in many national markets have enjoyed the relative benefits of oligopolistic competition (market dominated by a small number of companies); a situation that is changing with new companies making entries into this market segment (notably the Internet powerhouses, but also fixed operators and various other new entrants). The result is a larger more competitive market, but also a market with more opportunities for everyone. Brand is likely to be an important differentiator when service providers increase their focus on the downstream parts of their value chain closest to the customers.

13.2.2.3 Strategy Focus V Recognize Knowledge as a Scarce Resource – By Fostering Innovative Organizations A re-occurring theme in the literature about innovation is a strong emphasis on diversity in skills, styles and cultures. The mixture of ideas from people with different professional history, different educational background, different organizational position and, in general, different outlooks creates an ideal incubator for innovation. Convergence is forcing very different companies with different fields of expertise to suddenly compete directly, thereby creating an ideal backdrop for innovative change. New knowledge is now required in a number of additional supplementary areas; not only in the competitors’ expert fields but also with respect to general skills related to change management, knowledge management and strategic management. Companies with organizations and senior management that possess the widest set of skills and the strongest ability to adapt to change will gain a competitive advantage.

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VI Create an Integrated Business Framework – For Combined Technology and Customer Focus The technical software platforms with companies in the communications industry must move beyond technology to become true enterprise business systems. Organised around the concept of a ‘Business Control Centre’ these systems must support coordination of existing business activities and provide frameworks to identify and grow new opportunities. A challenge for the industry incumbents is that new Internet players, such as social networking sites, may grow into virtual service delivery mechanisms bypassing the traditional service suppliers. Intelligent use of combined network data, customer data and services usage data is a competitive advantage the incumbent service providers can exploit with more emphasis. CSPs should actively support user creativity, facilitate horizontal industry collaborations, and support and manage the full set of user requirements and expectations.

13.2.2.4 Business Focus VII Support the Economics of User Attention – to Grow User Satisfaction and New Opportunities User attention is the focus and main currency of attention economics. In advertising, the attention of the customer ears and eyeballs can be translated directly into revenue. There are significant variations across the communications industry in the focus and aggressiveness of the advertising methodologies. For example, the Internet search engine companies have grown big on targeted advertising, using a number of techniques and processes that the fixed and mobile telecommunications service providers have traditionally discarded as intrusive and privacy infringing. When convergence brings different market segments to overlap, a common de facto code of practice will develop and all competing players will have to change their entrenched thinking to remain competitive.

VIII Adapt Collaborative Business Models – as Walled Gardens Disappear The existing business models of incumbent CSPs must be reviewed when new entrants introduce disruptive changes to the existing market dynamics. Lack of competition and sheer inertia in the consumer market with customers that are passive in the face of unclear alternatives has allowed some incumbents to maintain above-market prices for many years (e.g. on international calls). Whilst such market segments may provide a reliable yet shrinking cash cow, this business model represents a passive submissive approach that does not in general foster new opportunities or develop the market. Only collaboration will transform a vertically controlled business model (based on walled gardens and focus on controlling the value system) into a more horizontally collaborative business model (with the emphasis on industry collaboration and facilitation of user activities).

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13.2.3 Overview of Challenges and Opportunities Figure 13-3 shows the span of challenges and opportunities within the four chosen focus areas of ‘user’, ‘market’, ‘strategy’ and ‘business’. Within the ‘user’ focus area, attention is required at both ends of the spectrum of user – with the expert users and with the novices, where very different opportunities reside. In the ‘market’ focus area, the internal competitive advantages must be balanced against the changing competitive situation in the industry. In the ‘strategy’ focus area, knowledge creation in all organizational units must build the momentum for a broader view of how technology and business objectives interact. Finally, in the ‘business’ focus area, the user attention is becoming the main currency in the new convergence economy, where radically new collaborative business models will dominate the industry landscape. Note that the model outlined in Figure 13-3 is not meant to be a complete representation of the new business environment that follows from convergence in the communications industry. The emphasis is on eight structural problems that are important areas for communications providers to consider in their response to convergence-related market changes. The research and analysis presented in this book points to growing strategic significance particularly in these eight areas.

USER FOCUS Attend to layperson expectations tech-novices

Institutionalize user power super-users

MARKET FOCUS Play to own strengths own strengths

Prepare for hyper competition industry dynamics

STRATEGY FOCUS Recognize knowledge as a scarce resource awareness

Create an integrated business framework goals

BUSINESS FOCUS Support the economics of user attention customer centric

Adapt collaborative business models industry synergy

Figure 13-3. Triggered by convergence, four main focus areas expanded in two directions summarize the challenges and opportunities for players in the communications industry.

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13.3 The New Horizons The proliferation of consumer-produced Web 2.0-style services across different access methods and service delivery technologies has positioned communications convergence as a dominant factor in a wave of fundamental changes to our society. This relates very widely to the way we organize and operate businesses, interact in communities and communicate as individuals. In this process, the power of consumers to impact the technology itself, the way it is applied and the contents available has obviously increased significantly. It is therefore of paramount importance that convergence is treated not only as a technology transformation process but as a society-changing trend where the focus increasingly should be with the consumers as the true drivers and owners of the changes convergence will create.

If anything is certain, it is that change is certain. The world we are planning for today will not exist in this form tomorrow. Phil Crosby, American writer, 1926–2001

As emphasized throughout this book, changes will be profound and challenging with traditional hard differences becoming more gradual, less pronounced or maybe even disappearing in a wide range of areas: • between online and offline; • between wireless and wireline; • between broadcast and narrowcast; • between narrowband and broadband; • between mobile and stationary; • between prepaid and post-paid; • between passive and interactive; • between free and fee; • between consumer and producer; • between subscriber and user; • between information and entertainment; • between expectation and experience; • between private and public;

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• between competition and collaboration; • between controlling and facilitating. The list of changes is long. What a challenge , what an opportunity!

13.4 Summary A few decades ago, mostly big companies with dominant market positions controlled all the industry segments that constitute today’s communications industry. This would range from the telecommunications monopolies, to the Web 1.0 Internet (with information pushed by a limited number of big companies and organizations) to the regulated broadcasting industry with limited end-user choice. During the same period, technology evolution was the main driver of progress. In the evermore convergent communications industry, the increased choice and competition has meant a significant change of power in favour of the user. The take-it-or-leave-it attitude of service providers in the past is replaced by a renewed focus on user requirements and expectations. Convergence is effectively putting the user back in the driver’s seat. With the transformation of the communications industry unfolding rapidly, this book has introduced readers to the new challenges seen by all the main players in the value system. A strong focus towards the user’s expectations is increasingly required and the growing importance of seeing the world from the user’s vantage point has been analysed and emphasized. The main conclusions are summarized in eight tenets organized in the four focus areas of ‘user’, ‘market’, ‘strategy’ and ‘business’. Convergence has turned out to be a much more complex topic than first appearances would suggest. Obviously, convergence is a massive challenge, and the sheer complexity of the new technology has often taken centre stage and acted as the main industry driver. In the years to come, the ultimate fully powered judge of convergence will be the users who would often be oblivious and indifferent to the underlying complex technology and for whom convergence is simply about more choice and more value.

13.5 References [1] Blyk Goes Live, Press Release, www.about.blyk.com/press/, 24 September 2007. [2] BBC Annual Report and Accounts 2006/2007, www.bbc.co.uk/annualreport/, June 2007.

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Convergence [3] ‘Communications Market Report’, Office of Communications (UK), August 2007. [4] ‘A public service for all: the BBC in the digital age’, whitepaper by the UK Department for Culture, Media and Sport, March 2006. [5] Google groups, http://groups.google.com/grphp?tab=wg, 2007. [6] Jungermann, F. (2006), Outlining key differences in operator operational efficiency, IIR conference on Outsourcing & Managed Services for Telecom Operators, Amsterdam, 3 March. [7] Vise, D.A. (2005), The Google Story, Pan Books. [8] Rappa, M. (2008), ‘Business Models on the Web’, http://digitalenterprise.org/ models/models.html [9] Jenkins, H. (2006), Convergence Culture – Where Old and New Media Collide, New York University Press. [10] Wenger, E. (1998), Communities of Practice: Learning, Meaning and Identity, Cambridge University Press. [11] Saloner, G., Shepard, A. and Podolny, J. (2001), Strategic Management, John Wiley & Sons, Inc. [12] Porter, M.E. (1985), Competitive Advantage, Free Press.

Index

3C industry 168, 216 3GPP charging and billing 182 IMS 89 radio access 94 7W interrogative pronouns 61–3, 148, 178 Access network technologies 92–7 Advertising contents sensitive 65–8 general 64 user protection 70–1 Amazon.com 9–10 Apple, PC history 203–4 Application plane, IMS 90 Asymmetric digital subscriber line (ADSL) 93 Asynchronous JavaScript and XML (Ajax) 174 Attention economics 24, 212 Basic Skills Agency 11 Blue Ocean Strategy 193, 195–6 Blyk advertising funded CSP 212 media channel 208 Brainstorming analysis 195 overview 194 Brand value 41 British Broadcasting Corporation (BBC) bbc.co.uk 208 iPlayer 35 payment models 210 British Telecom (BT) 97, 112 Browser, off-line 28 Business control centre (BCC) 147, 179 Business data 148–9 Business model framework 39–40

Internet 213–14 Telco 2.0 56 Business opportunity management 146–7 Business process execution language, web services (WS-BPEL) 127–8 Business process management automation 142 principles 140–2 Business process re-engineering (BPR) 140 Business support systems (BSS) 124 Business, focus area 219–20 Call centres convergence of 210–211 internet style 211 Call detail records (CDR) 124 Capacity planning 151 Change management 24–5 Churn rate 41 Civilisation 2.0 155 Clarity-brevity-sincerity (C-B-S) model 158 Common object request broker architecture (CORBA) 123 Community of practice 216 Competence trap 215–17 Competitive forces 217 Competitive strategy, Porter model 77 Consumer production 19–20 Consumer, service usage 36–7 Control plane, IMS 90 Convergence definition 17–19 in thinking 23 ‘vortex’ 213 Convergence Culture 20, 23, 214–215 Convergent charging architecture 178–80

Convergence: User Expectations, Communications Enablers and Business Opportunities © 2008 John Wiley & Sons, Ltd. ISBN: 978-0-470-72708-9

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Index Convergent charging (Continued) business benefits 179 project steps 178 Core network optimisation 134 Core network technologies 88–92 Cost leadership, strategy 76 Cost-quality frontier 80 Customer data billing 184–5 charging 183–4 Customer expectations, management of 26–8 Customer relationship management (CRM) analytical 121 collaborative 121 operational 121 overview 120 Customers, weakening relations 167–70 Data sources for analysis and optimisation 138–9 Democratization, industry trend 8 Differentiation, strategy 76 Digital Living Network Alliance (DLNA) 101 Digital subscriber line (DSL) 93 Digital TV broadcasting 109–10 Digital video broadcasting – handheld (DVB-H) 109 Digital video broadcasting – terrestrial (DVB-T) 109 Discovery-driven planning 193 e-health 204 Easymobile 78 Economics of abundance 8 Economics of attention 24, 157–8 Enhanced telecom operations map (eTOM) 129–31, 135–6 Enterprise resource planning (ERP) 122 Enterprise software 118–24, 130–1 Entertainment, industry segment 35–6 Extensible markup language (XML) 123 Facebook 201 Family Safe Media 68 Femtocell 113 Fixed line access 92–4

Fixed-mobile convergence (FMC) 111–13 Focus areas, overview 221 Focus, strategy 76 Free download, Radiohead 81 Free Software Foundation 20 Global Billing Association (GBA), objectives 182 Globalization, industry trend 7–8 Google Mail 66–7 overview 64–8 user communities 211 Gradualist paradigm 159 High-speed downlink packet access (HDPA) 95 Home entertainment hub 99 Home gateway description 100 IPTV 107 Homezone 113 Hybrid tariffs 180 Information definition 12 industry segment 35 global total 158 Innovation categories of 190 depth of impact 191–2 directional ideas 24 execution 194–5 intersectional ideas 24 organisational challenges 198–9 processes supported 190 service creation 153 strategic 191 Interactive television (iTV) 110 Interactive voice response (IVR) 181 Interbrand, survey 41 Internet market segment 35 penetration 11 tablet 98, 167 video 108 IP multimedia subsystem (IMS) 88–91 IP television (IPTV) 106–8 IT infrastructure library (ITIL) 131–2 IT Service Management Forum (itSMF) 117–18, 132

Index Knowledge based economy Knowledge components of 150 definition 12 network 154

149–51

Lean operator 81, 117 Linux 20 Literacy, in UK 12 Long tail, the 6–10 Long-Term evolution (LTE) 95–6 Loose coupling, SOA 128 Marcus Fabius Quintilianus 61 Market, focus area 218 Market, supply & demand 38–9 Mash-up 202 Maslow hierarchy 44 Medici Effect, The 24, 155 Messaging services 104–5 Microsoft 66 Mobile Internet 60 Mobile marketing 69–71 Mobile payment 181–2 Mobile search 105 Mobile terminals characteristics 170 evolution 98–9 feature performance 172–3 sales parameters 171 service trends 166–7 Mobile TV 108–9 Monopolistic competition 53 Monopoly 5, 53 Moore’s law 7 Multimedia broadcast and multicast services (MBMS) 96, 109 Multimedia services, convergence trends 200 Music downloading 110–111 MySpace 69 Network load 151–2 New generation operations systems and software (NGOSS) 81, 129, 135–6 Next generation network 19 Office of Communications (Ofcom) consumer attitude 156–7 household spend 133 service consumption 36–7 Oligopoly 53 Ontology 203 Open group architecture framework, the (TOGAF) 126–7 Operations support system 122–3

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Opportunity span 175 Opportunity, definition 75 Optical fibre access 94 Orange IPTV 107 user-generated content 156 Outsourcing cost savings 162 opportunities in 161 Personalization, industry trend 7–8 Post-paid charging architecture 178 customer requirements 180 Prepaid charging architecture 178 customer requirements 181 Privacy issues 67, 68–70 Process optimisation loop 136–8 Prosumer, definition 20 Punctuated equilibrium paradigm 159 Quality of experience (QoE) control of 167–9 expectations 27 telecoms vs. Internet 211 trade-off 79 Quality of service (QoS) best effort vs. managed 211 customer satisfaction 27 Radio frequency identification (RFID) 173, 204 Radio listening 111 Reality TV 22 Revolutionary Wealth 155 Scarcity business evolution 158 customer attention 157 economics of 149–50 network capacity 151 service innovation 153 Second Cycle, The 160 Secondlife.com 204 Semantic web 202 Semi-convergence 167 Service delivery framework (SDF) 91–2 Service delivery platform (SDP) 92 Service layer, SOA 128 Service-oriented architecture (SOA) OSS 123 overview 127–9 SDF 92

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Index Session initiation protocol (SIP) 90 Simple network management protocol (SNMP) 123 Simple object access protocol (SOAP) 123, 127 Skype 210 Social networking, overview 200–201 Social operating system 201 Social websites 69 Spaghetti organization 160 Sphere of influence 57–9 Strategic management 154, 217 Strategy, focus area 219–220 ‘Stuck in the middle’ 77, 79 Superbrands surveys, 41 Sustainable competitive advantage 41 Technorati.com 19 Telco 2.0 56, 204 Telecom Media Convergence group 82 Telecommunications, industry segment 35 Television set top box (STB) 100, 107 Theory-focused planning 193 Theory of inventive problem solving (TRIZ) optimized innovation process 197 overview 196–8 Tipping point, The 104, 159, 193 TM Forum charging and billing 182 eTOM 117–18, 129–31 lean operator 81 process mapping 135–6 Tornado marketing 193 Total quality management (TQM) 140 Transmedia storytelling 21 Triple play offers 46

Uncommon Sense 203 Unlicensed mobile access (UMA) User plane, IMS 90 Users fan-art 214 focus area 217–18 learning styles 200 privacy 66–7

112

Value chain changes 209–10 model 39–40 Value grid 45–7 Value innovation 195 Value perception 25–8 Value system model 39–40 user influence 44 Very high-speed digital subscriber line (VDSL) 93 Video game consoles 100 Video on demand (VoD) 106–7 Viral marketing 212 Walled garden 54, 58 Web 3.0 201–2 Web b, 2.0 business model 55–56 new trends 201 Web Ontology Language (OWL) 203 Web services (WS) 127 Widget, Web 201 Wireless LAN 97 Wirth’s law 8 World Wide Web Consortium (W3C) 105 Worldwide interoperability for microwave access (Wimax) 96–7 YouTube

19, 21, 80

Zachman framework

127