Hugh Roberts looks at how service providers are developing their offerings and the consequences it may have for OSS/BSS systems which are already in place
Depending on your viewpoint, 2006 has either seen the marketplace for consumers wishing to purchase communications services get substantially simpler – or quite possibly the opposite. Historically, companies were set up to exploit discrete customer needs: a fixed wire telephone company for your home phone; a cellular operator for your mobility; an ISP for accessing the internet (with or without the availability of premium content and hosted services); and a satellite or cable provider if you wanted to increase your broadcast choice.
Although there was some crossover – with offerings such as cable telephony and video on demand – it wasn’t too difficult to work out which company to go to for which service. Perhaps more importantly, it was a fairly easy matter to identify how much you were likely to pay for each, and how you were going to get charged and billed for each.
Then overlaps and virtual offerings began to occur. In the UK, for example, cable providers extended their telephony offering to include broadband, and in some markets the choice of alternative voice providers multiplied into the hundreds, existing high street brands and ISPs started to offer virtual fixed and/or mobile services, and the mobile companies themselves – both network operators and MVNOs – now offer fixed, broadband and entertainment services. Even the satellite players are getting in on the multi-play act.
In the new world order of communications, aggregated branded multi-service bundles and M&A are now radically reducing the number of companies that customers can buy services from. While ‘voice’ is consequently getting cheaper and this is being presented as ‘a good deal’ for the customer, even with all-you-can-eat pricing being applied across the board, it is surprisingly difficult for subscribers to work out exactly what they are going to pay, and whether it will actually be a less expensive and better quality overall level of service than was available before. In a number of cases customer rebellions have been highlighted in the media as these companies struggle to overcome the challenges of rolling out network and OSS infrastructure to keep up with demand, and BSS systems to integrate their customer information management and provide seamless and trouble free customer services with unified billing.
In any multi-play bundled offering it seems to have become a golden rule that at least one of the key elements should be positioned as ‘free’, but most consumers have learned the hard way that there is no such thing as a free lunch. In many cases the small print, thresholds and cross contingencies on the usage of the other services for full qualification are extremely complicated and difficult to work out.
And all this before customers have to make sense of the choice of ‘delivery channel’ for converged services such as broadband Internet access or streamed video to mobile. Curiously, early usage indications show that the majority use of IPTV is in the home and not in ‘a mobile context’, and that a large proportion of this usage occurs in the same room as a TV set capable of accessing the same content! The sophistication of games has certainly increased on mobile phones, but the range of communications services now available on games consoles, and even within gaming environments themselves, put the majority of handset enhancements to shame.
Bigger (and ‘wider’) is apparently better in the opinion of the new aggregated operators, but is this merely about the ability to leverage economies of scale? The primary driver – at least in markets where the penetration levels of one or more of the core service offerings is high – is to do everything possible to retain customers, increase their loyalty, and hopefully also capture and increase revenues from them. Clearly, the larger the number of services a customer has from one provider, the less likely he is to churn, not least because of the increased lifestyle disruption caused. However this is only part of the answer. There is a critical need for the services themselves to be ‘sticky’, or the whole value proposition may be compromised. Customers are getting smarter: it is no longer enough to have a brand, or premium content, or low (and understandable) pricing, or good quality customer service – all of these are now required to be competitive.
So, is it possible for the small and niche players to be winners? At the backbone layer, the answer would appear to be a resounding ‘no’. The satellite and cable industries have already reduced to a minimum and the number of pure ISP players is rapidly reaching the same point. No one is entirely certain exactly how many mobile network operators are viable in a given marketplace, but the evidence from the US is that in most developed countries the number is probably too high. There are some niches evolving in the infrastructure domain as new technologies such as WiFi/WiMax develop, but even these niches are rapidly being squeezed between the dominant operators and the growing positioning of ‘social information infrastructure,’ such as state or city owned metropolitan networks.
Notwithstanding some brand and service differentiation (reflecting different operators’ market segmentation strategies and consequent capture of premium content offerings), it is getting harder to tell the difference between the companies that remain in the marketplace, irrespective of where and how they originated. There is a growing customer expectation in highly penetrated and competitive markets that any CSP should be capable of offering a full (virtual or real) multi-play package and that substantial price reductions or cross-product discounts should accrue.
This would be the end of the story, apart from the fact that three factors are coming together to turn the existing communications industry structure on its head:
The mechanisms for revenue generation within the telecoms value chain are changing
The so-called ‘X-Factor’ companies such as Google and eBay/Skype are changing the value proposition for CSPs from one based solely on subscriber revenues to one which sees customers as both source of income and key resource in the chase for advertising and service sponsorship money. Revenue splitting with subscribers for ‘customer generated content’ is emerging as a prime source of income and loyalty for service providers – an ecosystem based on ‘trading relationships with everyone’ is replacing the ‘uni-directional revenue flow’ model.
As adverting-derived income erodes customer content revenues even further (moving from ‘all-you-can-eat’ to ‘free’ to the subscriber), eCommerce and financial transaction processing will take their place as critical revenue drivers (although content will remain the primary support for brand positioning). Prepaid (real-time) micro transaction expertise is one area in which the telecoms industry can claim to be significantly more advanced than any other, and the scale of repatriation of funds to family and friends from northern to southern hemisphere via mobile phone is testament to this.
The industry is going to restructure along horizontal rather than vertical lines under both regulatory and commercial pressures
The EU’s support for structural separation – the splitting of the infrastructure and services divisions – is well documented. Citing the break up of AT&T into the Baby Bells in the US in the 80’s, and OfTel’s (now OfCom) requirement for BT to establish ‘operationally separate’ business units in the 90’s as precedents, the Commission seeks to guarantee fair access and to promote competition and investment across the region.
Commercially too, this makes sense. Building a business around the ‘bit pipe’ is, an extremely profitable business, but only if aggregated to achieve economies of scale; owning multiple technology channels and platforms to be able to ensure best cost/QoS delivery and avoid ‘disruptive technology’ pitfalls; and perhaps most importantly of all, to trade only in a B2B context, as the cost of maintaining a full consumer brand presence would be unsustainable.
Affinity groups are rapidly growing in importance as the primary mechanism for delivering high value service to niche customer groups
The secret of affinity groups (as opposed to communities of interest) is that they are driven by customer pull rather than service provider push. These have existed on the Internet for some time, but it is with the inclusion of mobility that their true value will be realised. It may be that ISP expertise and experience in handling closed user groups may prove their most important and lasting legacy to the communications ecosystem.
If an affinity group has access, content and mobility included within its remit, how does this differ from an MVNO multi-player? The structural answer is ‘not a lot’! The marketing answer is, of course, ‘quite a lot!’, and comprehending this will be the secret to understanding the ‘4G’ environment as it evolves. The niche players of the future will be the Customer Lifestyle Providers (CLPs) supported by a combination of Virtual Service Enablers (VSEs) and Network Service Providers (NSPs).
So, turf wars? For the operators that have successful subscriber and partner relationships, the transition may not be too uncomfortable. Thought should go to the larger ISV and SI players in the OSS/BSS supply chain, whose product sets, deployment models and value propositions may be based on architectures and business unit inter-relationships that no longer match the requirements of their existing customers as they evolve from one-dimensional caterpillars into four+-dimensional butterflies.
Hugh Roberts is Associate Strategist - Logan Orviss International