Management World: No surefire cure for dumb pipe disease

While the general agreement is that the telecoms sector is withstanding the recession well (despite the ongoing trials of Alca-Lu, it’s problems stem from way before the global meltdown), there is note of hysteria here at the TM Forum’s Management World event in Nice.

Everywhere you turn, ways for operators avoiding being relegated to dumb pipes and are touted. None of them is entirely convincing, hence the hysterical edge.

Rory Sutherland, vice chair of advertising agency Ogilvy UK, was a humorous, thoughtful and lively key note speaker who says he is optimistic about the future of mobile advertising, citing, with some surprise, the fact that people are prepared pay for apps on their mobile phones that they wouldn’t pay a penny for on the internet.

Some interesting models are emerging around the apps – see today’s analystwire from Ovum on the subject.

He also admits that he underestimated the importance of impatience and idleness to mobile advertising, in that increasingly we want what we want NOW, rather than waiting to get online when we get home and that people are prepared to watch TV on their mobile phones rather than get off the sofa to watch the 40 inch plasma screen TV in the next room. Both of which have potentially have big implications for advertising too.

Nevertheless he stressed several times that the business model for mobile advertising was by no means clear to him and avoided any mention of operators playing a crucial role – in great contrast to the received wisdom on the subject one always gets from the telecoms end of the so-called value chain.

And please note that in today’s Ovum analystwire, much is made of AdMob’s agility in exploiting the iPhone phenomenon, but AdMob’s business model is entirely independent of operators – another example of a successful over-the-top (OTT) application, the operators’ bogeyman.

Michael Manzo, CMO of Openet, has ideas about how operators can force the OTT players to pay them money to use the carriers’ infrastructure. His company specialises in event processing and transaction management solutions, and, most pertinent to this argument, policy management products.

He says, “There is a real bush fire going on. In the last eight months we’ve had 30 or more RFPs for these products, all based around fair usage, and note that on fixed and mobile networks. The operators understand they need to take action because they network are becoming saturated and they see policy management as the key to avoiding becoming dumb pipes.”

He adds,” Policy and charging for usage = control and monetization”.

His proposition is that the carriers embrace the OTT model instead of seeing it as the enemy. He reckons operators should propose to the likes of Google, YouTube, Yahoo, Hulu and the rest, that their content delivered will not be counted as part of the user’s fair usage limit and that their traffic will get priority – so long as the infrastructure provider get 10%, say, of the revenue share.

Manzo insists that this would be in the interests of the operator who makes money and has a sustainable business model (whereas the continuing escalation of flat-rate pricing he argues is not sustainable in the near future because there is not enough revenue coming in to invest in more bandwidth) the consumer gets high quality delivery of what they want for free and the content service provider is happy to have a guaranteed higher QoS.

I can’t see how he’s going to get Google to cough up 10% of its revenue and what about all those instances of where no money is being made? Two of the internet’s biggest brands and most popular destinations, Facebook and YouTube, have not found ways of monetizing the terrific activity they generate.

I also suggested that any attempt by the operators to do this will be mired in the regulatory, legal and civil rows about privacy, network neutrality/discrimination and so. Manzo insists this is not so and while he acknowledges the mess that Phorm, Front Porch and other user behaviour tracking, ad-serving software have got themselves into, he points to the unopposed progress of Project Canoe in the US.

There six of the biggest cable providers have set up and are funding an organisation, Project Canoe, which is a clearing house for ad serving. The adverts will be targeted on the basis of publicly available information, such as the $160 billion direct mail industry in the US has relied on for decades.

He insists there has been no opposition to this proposal and points to the fact that in the US and elsewhere, the direct mail industry actually subsidises the postal service for consumers. If it weren’t for direct mail, the cost would be prohibitive, making the business models of Amazon and eBay, for example untenable.

All great food for thought, but I still can’t see how the fate as dumb – or at least not that smart – pipes is to be avoided.