New markets, old competencies

What a busy industry we work in. The range of hot topics keep surfacing. But these are increasingly facets of the same thing, which has to do with emerging mobile broadband and how the technology is unlocking whole new markets.
Probably the biggest single thing that the iPhone has done over the past couple of years is to give us a tangible glimpse of what the future might hold. The iPhone and other emerging smart phones give an insight into the huge range of things you could do with mobile broadband. And we’re beginning to see the problem as not so much filling empty pipes, but getting enough bandwidth out there fast enough to satisfy demand.
It’s not just the creativity of the 85,000-plus apps that are available; it’s the level of integration between them. For example, take Shazam, the application that lets you discover what that song on the radio is, order it through iTunes and then play it on your phone: it’s so much cooler than trying to hum it to some geek in a record store! Mobile broadband creates an almost unlimited set of opportunities for people to deliver goods and services in an entirely different way.
The rock in the pond with mobile broadband is that it drives a totally different set of thinking, business models, relationships and ultimately money from the mobile voice and messaging world. Fixed Internet has pioneered a rethink on different business models where services are generally free at the point of use. So Google, Facebook and many other useful services cost nothing for us to join and use for as long as we want. But in reality, there’s no such thing as a free lunch; it’s of course the sponsor or advertiser who is footing the bill.
These new business models evolved in parallel with the growth of fixed broadband Internet connections and for a while, everyone, including the communications providers, seemed happy with plenty of new revenues and relatively little new cost as Internet services piggybacked on existing voice infrastructure. At least until the tipping point where copper/ DSL has to give way to fiber and the cost of infrastructure is way out of line with potential returns.
So mobile broadband providers can see what’s coming. For them, their networks are so tightly engineered that there’s no piggyback play here – just more billions to spend on new spectrum, 4G base stations and massively fatter backhaul networks. So there’s no wonder that there is intensive interest in new business models, new services and how the money will flow around.

Over the top
There's still a lot of talk about so-called “over-the-top” services, where companies use existing networks to get to their customers. If you’re riding on top of someone else’s infrastructure, the cost of playing with new business models and ideas is very low.
That feeling of being somehow robbed is fairly prevalent in the telecom industry, but actually the feeling exists across the service value chain – many players, especially the content folks, feel that it’s their assets that are leveraging new markets for other people, and somehow it’s not fair. So everyone feels they are under threat from the next guy in the value chain, and everyone is fearful and suspicious of everyone else and their motives.
The key here is collaboration and innovation. You have to admit that while the communications industry remains very innovative at the technology level, it’s not exactly flush with great new ideas at the service level, especially compared to the likes of Apple, Google and Amazon.
Michael Porter once penned a seminal business book on core competencies that basically says that you need to know what you’re good at and what you’re not – leverage the one and minimize dependency on the other. So while I’m not saying that it’s impossible for the communications sector to outgun Apple, Google, Facebook, I’m saying it’s unlikely. But that doesn’t mean that communications companies can’t play to their strengths. They have enormous financial muscle, huge customer bases, unparalleled ability to run five 9s services across hugely complex infrastructure and are chock full of really smart people. They’ve spent 100 years enabling people to communicate with each other, but have left it up to their customers as to what to say on a call. So what they’re not good at is getting inside the skin of a customer and working out the kind of services they might want to use.  
One of their core competencies is enabling and adding value to services that other people can figure out the actual user purpose. And that’s the way I think they should engage in the brave new world of app stores and smart new mobile broadband services.

Social networking
Communications providers can leverage mobile social networking. But how can they make money out of it – isn’t Facebook just another over-the-top application? Facebook is not necessarily cooler or better than everyone else. Social networking just seems to be a natural monopoly. Basically, if all your buddies are on Facebook, why would you consider another site? People tend to flock to the most popular site, and then it’s near impossible to peel them away even if your service is 10 times better.
That’s how the communications industry can leverage new revenues: by tapping into the concept that if everybody wants to be on the same social network, why not be on the same communications network? Not much appeal to people to do that if every mobile or fixed network just gives them vanilla connectivity. But if the service provider enables a richer user experience by adding interesting new capabilities that help bind the group of friends together tighter than Facebook alone can, then the communications player can start to reap some benefits.
These capabilities might simply be a sort of “Facebook Friends & Family” arrangement, where a group of people could get a better rate as part of a named group. But it could go a lot further than that. Unlocking features like location services into Facebook applications so that friends who are physically near each other can meet up; providing enhanced click-to-talk and messaging services over and above that provided by Facebook itself; conference calling, enhanced voice, click-to-talk facilities that actually work and so on. The idea would be to grow affinity groups that are as loyal to the communications provider as they are to their social networking provider.
Customer loyalty drops straight to the bottom line. As TM Forum reported in its latest Insights Research Report on Customer Experience Management, small shifts in customer loyalty can have big impacts on profitability. Loyal customers don’t need tempting with expensive offers to win them back, and they are your best salesperson, recommending your service. 
To make this work properly, mobile providers and social networking market leaders need to go beyond arm’s length partners and really team up. The service provider gets ‘sticky’ revenues and improved profitability, and the social networking partner would instantly broaden and diversify their user base.

Seizing opportunities
There’s an old theory that everyone on the planet is connected by only six degrees of separation among them. That’s some social network to play for! Not all of these people are using smart phones, but within two to three years that number will be 5.5 billion, and the price point for phones with decent browsing capabilities will be very common.
If service providers aren’t quick to grab onto new business models and start monetizing them, they may get overrun by the over-the-top guys who find ways of circumventing them and leaving them to pick up the pieces.
There are lots of other areas where service providers can be enablers. They’re very good at billing and settlements; very good at things like security and authentication. Not every over-the-top application provider is, so by providing application players with more than just bit transport and sharing the revenue, there’s a good role for the service provider once they stop thinking of the content and application guys as freeloaders and the enemy. By thinking of them as partners and providing things that they have real competencies in, they can all start to make money.
Keith Willetts is chairman and CEO at TM Forum