Special Briefing
Telecoms 2015: New Game, New Rules,
New Players, but Who Wins?
APRIL 2010
Excerpt
The connected ‘digital economy’, underpinned by telecoms, is evolving fast.
How will it play out in the next 5 years, what are the rules, and who will win?
Telco 2.0 analyses some new scenario thinking by IBM and clarifies the key
issues that need to be addressed.
Telco 2.0™ keywords
Digital economy, telco 2.0, business model innovation, IBM, Scenario planning
Who should read
CXOs, commercial and technical strategists from Telco Operators and Vendors,
digital strategists from other technology and media companies, investors, industry
analysts and regulators.
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Telecoms 2015: New Game, New Rules, New Players, but Who Wins?
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Telecoms 2015: New Game, New Rules,
New Players, but Who Wins?
Summary: The connected ‘digital economy’, underpinned by telecoms, is evolving fast. How will it play out in
the next 5 years, what are the rules, and who will win? Telco 2.0 analyses some new scenario thinking by
IBM and clarifies the key issues that need to be addressed.
Overview
This Special Briefing reviews IBM’s new ‘Telco 2015’ Scenarios, gives a summary of how they fit with Telco
2.0 thinking, and outlines the key issues that executives in Telecoms, Media and Technology sectors need to
address to stimulate strategic growth.
IBM’s 2015 Telecoms Scenarios
IBM’s Institute of Business Value gave a fascinating presentation at Mobile World Congress in February
on Telco 2015: Five telling years, four future scenarios, part of their smarter telecom initiative. It provides
very useful context for the new business models that Telco 2.0 has been proposing to the telecoms industry
to make it more relevant to stakeholders in the evolving ‘digital economy’.
NB. The IBM materials reproduced in this paper are IBM copyrighted and reproduced from IBM's Executive
Statement entitled "Telco 2015 Five telling years, four future scenarios". The full whitepaper can be
requested by emailing IBM at [email protected]
What does this mean for the Telecoms industry?
The Telco 2.0 Initiative is currently focused on developing a clearer ‘roadmap to growth’ for the industry:
having defined the problems and the options, what do telcos need to prepare for, as they continue ‘business
as usual’? We outline our thinking on the roadmap below.
What does it mean for everyone else?
At the same time, what should online service providers, media companies, enterprise CIOs from multiple
vertical sectors, small businesses, governments, investors...and consumers ...be demanding of telcos and
the telecoms sector? Where’s the value and which players can best realise it? What does the new game
really look like, what are the new rules, who are the key players and...who wins?
What to do?
In addition to this analysis, this ‘roadmap to growth’ is a key theme behind the 9th Telco 2.0 Executive
Brainstorm in London on 28-29 April 2010, which drills down on key business model innovation areas around
Digital Entertainment, Wireless Network Economics, Mobile Marketing, Consumer Data/Privacy, Rich
Wholesale, M2M and Smart Grid, Digital Payments/Money, AppStores and Devices. Importantly, underlying
all of this, we’re looking at the issue of how to co-habit with Google, where to collaborate and where to
compete.
Telco 2.0 is also about to launch a new international ‘syndicated research’ programme looking at detailed
ecosystem definition and sizing to help inform the roadmap.
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Table of Contents
Telecoms 2015: New Game, New Rules, New Players, but Who Wins? .................................................... 2
Overview................................................................................................................................................ 2
Table of Contents .................................................................................................................................. 3
Table of Figures .................................................................................................................................... 3
IBM’s Vision of the Future ..................................................................................................................... 4
The Telco 2.0 View................................................................................................................................ 6
Telco 2.0’s Scenarios for 2015 .............................................................................................................. 7
Operators’ approach to the ‘Two-Sided’ Proposition .......................................................................... 12
When to Compete, when to Collaborate? ........................................................................................... 13
Next Steps ........................................................................................................................................... 13
The Telco 2.0™ Initiative ............................................................................................................................... 14
What is the Telco 2.0™ Initiative? ................................................................................................... 14
Why does it exist? ............................................................................................................................... 14
The Opportunity ................................................................................................................................... 15
How to get involved? ........................................................................................................................... 16
Who to contact? .................................................................................................................................. 16
Table of Figures
Figure 1 IBM’s 2015 Scenarios ......................................................................................................................... 4
Figure 2 IBM’s Scenarios: Modelled Growth Vs GDP ....................................................................................... 6
Figure 3 IBM 2015 Scenarios: Revenue Split by Product Type ........................................................................ 7
Figure 4 Money comes from both sides in the ‘Two-Sided’ Business Model .................................................... 8
Figure 5 Telco 2.0 Future VAS Revenue Potential by Application .................................................................... 9
Figure 6 The Telco 2.0 Initiatve Scenario Map .......................................................................................................... 10
Figure 7 Where to play in the Ecosystem? ...................................................................................................... 12
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IBM’s Vision of the Future
At Mobile World Congress in February, Ekow Nelson, from IBM’s Institute for Business Value, presented
some interesting conclusions about the industry’s possible future in 2015 based on a scenario-planning
methodology.
Figure 1 IBM’s 2015 Scenarios
‘Clash of the Giants’
If the addressable market expands but the industry consolidates, we could expect to see a ‘clash of the
titans’ between a few huge telcos and Web 2.0 platform players - or essentially AT&T versus Google.
‘Survivor Consolidation’
If consolidation without growth occurs, we could expect a sort of nightmare scenario - huge, monopolistic
operators and stultifying conservatism.
‘Generative Bazaar’
But things get interesting if competition, rather than consolidation, dominates; Ekow argued that we might
see either a "Generative Bazaar", if both fragmentation and growth occurred, or else a "market shakeout", if
the fragmentation persisted without growth. What's really interesting is his description of these two scenarios.
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He characterised ‘Generative Bazaar’ as follows:
Barriers between OTT [Over The Top] and network providers blur as regulation, technology and competition
drive open access. Infrastructure providers integrate horizontally to form a limited number of network cooperatives that provide pervasive affordable and unrestricted open connectivity to any person, device or
object, including a rapidly expanding class of innovative asset-light service providers.
That's very Telco 2.0-like, especially the mutual dependence between open access to shared civil works
infrastructure and agile, service- and application-led, software-based entrepreneurship.
‘Market Shakeout’
What about the more pessimistic of the two? ‘Market Shakeout’ is quite Telco 2.0 as well:
Under prolonged economic downturn, investors force carriers to disaggregate assets into separate
businesses with different return profiles, and retail brands emerge to aggregate and package services from
disaggregated units. The market is further fragmented by government, municipality and alternative provider
initiatives (e.g. local housing associations or utility) that extend ultra-fast broadband to gray areas, while
private infrastructure investments are limited to densely populated areas. Operators look for growth through
horizontal expansion and premium connectivity services sold to application and content providers as well as
businesses and consumers.
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The Telco 2.0 View
We think that there isn't really that much difference between these last two scenarios. Investor pressure for
network sharing and tower-selling would be even more powerful in the context of prolonged macroeconomic
gloom, and that the lure of cheap VoIP - Skype on mobile - would be even stronger.
We're arguably already seeing this – a subtheme at Mobile World Congress last month was carriers making
deals with OTT voice players, notably Skype and Fring, and now Nokia too. (Ed. – the strategy execs from
these three companies will be at Telco 2.0 Exec Brainstorm on 28-29 April in London).
The following chart compares the different scenarios in terms of forecast growth relative to GDP.
Figure 2 IBM’s Scenarios: Modelled Growth Vs GDP
You should be able to see that the ‘Generative Bazaar’ scenario delivers the best result for ‘Telecoms
Services Growth’.
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Moreover, the better the industry is expected to do in these scenarios, the more revenue will come from
connectivity rather than legacy voice or content as the following chart shows.
Figure 3 IBM 2015 Scenarios: Revenue Split by Product Type
Telco 2.0’s Scenarios for 2015
The Future is more Horizontal...
Like any good scenario plan, some of the value of IBM’s work comes from seeking to identify which
scenarios are most and least likely. In our view the dimension of consolidated/vertical versus
fragmented/horizontal is not really meaningful since consolidated/vertical is already the legacy industry
structure and it seems increasingly clear that we are moving inexorably to a horizontal future (as shown on
the right of the first IBM chart).
...not necessarily Fragmented...
In other words, the x-axis of the chart really plots time rather than likely future states. Having said that, it is
really not clear if the industry will be fragmented in the long term or not, since it is perfectly possible to have
horizontal consolidation as Google has shown in the area of advertising. We don’t think, therefore, that
‘horizontal’ and ‘fragmentation’ should be linked together.
...and there are new opportunities too
What’s also missing from the analysis is a sense of new growth opportunities for the telecoms industry.
‘Communications, Connectivity, and Content’ are the existing industry service categories. But where are the
B2B payment services, marketing services (beyond advertising), identity services, richer wholesale and
content delivery services and, indeed, ‘voice 2.0’ or what we refer to as ‘communications-enabled business
processes’?
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The New Opportunities use a ‘two-sided’ Business Model
Followers of Telco 2.0 will know that we have modelled the opportunities in these areas, as described in the
charts below, and are working with the industry (and 3rd party industries who may want to use more
sophisticated telecoms platform services) to help realise the growth potential.
There will be three parts to successful operators in the future
Side 1:
Upstream Customers
1. Core Services:
• Voice, messaging, media and data
delivered to and paid for by end
users
Side 2:
Downstream Customers
1.
Developers
Core
Services
$$
Retailers
2. Distribution Platform:
• Third-party delivery of access, data,
voice and messaging
3. VAS Platform:
New B2B
Platform
Services
Government
Media
• Enabling services for third-party
providers
Advertisers
Utilities
Financial
Services
© STL Limited •
Proprietary and Confidential
2.
$$
Distribution
Platform
Millions of
Customers
Thousands of
Segments
3.
$$
VAS
Platform
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Figure 4 Money comes from both sides in the ‘Two-Sided’ Business Model
For those new to Telco 2.0, and for those in need of a refresher, our vision of a future ‘digital economy’ is
based on the following themes, issues and questions that any predictions of the future need to address.
We are seeing a move along two dimensions:
•
•
From ‘one-sided’ to ‘two-sided’ business models;
From distinct ‘telco’ and ‘web 2.0’ products and services, to blends, mash-ups and hybrids of the
two.
We have previously created a model of the size of the potential opportunity in the ‘Two-Sided’ Telecoms
Market Opportunity and the Future Broadband Business Model Strategy Reports, (which is also about to be
updated – see here).
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2009 Telco2.0 study provided top-down view of the VAS opportunity –
by service capability by vertical industry
Identity, Authentication & Security
15
Advertising, Marketing Services & Biz Intelligence
37
E-Commerce Sales
9
Order Fulfilment – Offline
9
Order Fulfilment – Online (E-content)
3
Billing & Payments
26
Care & Support
26
Total
125
Total Market: $125 Billion
© STL Limited •
Proprietary and Confidential
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Figure 5 Telco 2.0 Future VAS Revenue Potential by Application
Source: Telco 2.0 - The ‘Two-Sided’ Telecoms Market Opportunity Report
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Telco 2.0 Scenarios
In our view, the important dimensions of the scenario matrix are 'Who Pays?' for the service, and 'Whose
Product?' is being delivered.
What the future will look like is becoming clearer BUT who does what
and the detail of different players’ business models remains hazy
Telco 1.5:
3rd Party and/or
End User
(2-sided)
Digital
Web 2.0
• Personalised Telco Economy 2.0
and 3rd-party
• Alloys, blends or
services –
mash-ups of Telco,
controlled by Telco
‘OTT’ and 3rd-party
products & services
that leverage Telco
&/or others’ assets
Free-to-User:
• Google
• iPlayer
• Amazon
Marketplace
• eBay
Who
Pays?
End User
only
(1-sided)
Telco 1.0:
• Retail – Telco
controlled services
Telco
Hybrid:
Web 2.0
• Retail – Telco and
‘OTT’ products
• Eg. FacebookVodafone
• Skype
• Microsoft Windows
• Amazon Retail
Hybrid
User Subs:
• Key question is who
plays what role in the
future and who captures
most value:
•
•
•
•
Telcos?
TMT vendors or enablers?
Internet players?
Other third-parties?
Other Service
Providers
Whose Product?
© STL Limited •
Proprietary and Confidential
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Figure 6 The Telco 2.0 Initiatve Scenario Map
We see ‘Telco 1.0’ - where the end-user (consumer, enterprise, SME) predominantly pays the telco for
telecoms products - shrinking. Telcos are moving (slowly) into ‘Telco 1.5’ and ‘Hybrid’ areas (see chart
above) using better retailing solutions from certain vendors. At the same time, the web 2.0 and ‘Over The
Top’ market (dominated by big players like Google and Facebook) is getting more and more entrenched and
powerful.
In our view the ‘Clash of the Titans’, described by IBM, is not a ‘possibility’, it is absolutely going to happen –
but it is part of the story not the conclusion. Telcos will continue to partner with these major players who fall
squarely into the ‘frenemy’ camp (part friend, part enemy) and will compete hard to control the interface
between ‘upstream’ organisations (especially advertisers) and end users.
So, the future ‘Digital Economy 2.0’ we describe in the chart above is approaching, but the rules have
changed and there are new players emerging and so the key question is who wins – is it telcos or others?
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We explore these questions in much more detail in our forthcoming report on Future Broadband Business
Models 2.0, but for now the key questions we’d like you to consider are:
1. Could ‘OTT’ players take value by becoming bigger aggregators and/or enablers of telecomsenhanced e-commerce? Players such as Google use their knowledge of end users and upstream
players, coupled with Telco connectivity, to facilitate the delivery of a wider portfolio of products and
services (their own and third-party).
2. Could other smart intermediaries take value by aggregating telco (and others’ assets), leaving
telcos as commodity providers of raw materials? Ubiquitous, advanced telecommunications
capabilities are a pre-requisite for the success of the ‘digital economy’. A number of organisations who
are looking at playing a role in the aggregation of telco capabilities could capture most ‘platform’ value.
3. Could telcos take value by becoming trusted aggregators and/or enablers of e-commerce via real
B2B support services? This was the original Telco 2.0 model we envisaged back in 2006, where
operators work together to leverage their core assets to build a set of interoperable platforms that help
third-parties improve the effectiveness and efficiency of their everyday business processes.
In determining the answer to these questions, we believe there are two important factors:
ƒ
Operators' approach to developing the ‘two-sided’ business model proposition
ƒ
The extent to which telcos can collaborate to kick-start the market place in which they could all succeed
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Operators’ approach to the ‘Two-Sided’ Proposition
End-users and service businesses, the key players in the ‘digital economy’, do not generally buy ‘raw
materials’ and then manufacture their own solutions. Instead they seek ready-made products and convenient
services. An approach in which telcos simply expose raw assets via APIs is, therefore, unlikely to succeed.
Determining where and how to add value to ‘upstream’ customers is a
key strategic question for telecoms operators
Increasing value to user, but where is optimal position for Telcos?
Raw material?
• Element of a thirdparty solution that
has little use/value
in its own right:
•
E.g. Location or
SMS API
Part-processed?
Product or Point solution?
• Core and standalone
component of a thirdparty solution:
•
• Usable on its own
by customers:
•
E.g. Specific, relevant
customer information
and anonymisation for
Telco 2.0’s text-based
local search use case
© STL Limited •
E.g. Advertising
exchange enabling
advertisers to buy
inventory and
deliver ads based
on customer profile
Proprietary and Confidential
Services?
• Integrated onestop-shop:
•
E.g. Integrated
advertising agency
and network
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Figure 7 Where to play in the Ecosystem?
Clearly, operators do not have the skills to develop complete one-stop shop services in every area of market
opportunity. Determining where they play on the continuum described in the chart above (individually, but
also collectively in local markets and/or globally) is a key strategic decision and will vary by:
ƒ
Vertical Market. In some industries, operators will have strong skills and markets will be fragmented
enough to offer more scope to provide more complete solutions and services. In other markets, with wellestablished ecosystems and/or stronger vertical integration, operators will play more of an enabler or raw
material provider;
ƒ
Geography/region. For example, where individual operators have a strong (50%+) market share (in
Turkey and Japan for example) they will be more aggressive in adding more value to the core Telco
platform;
ƒ
Horizontal telecoms capability. Different operators, or sets of operators, will have different skills and
asset qualities and may wish to take greater or lesser roles in the marketplace depending on their
specific circumstances.
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When to Compete, when to Collaborate?
When, where and how should and can telcos legitimately co-operate to create new markets? When do the
benefits of working together to create mutual opportunities and ‘float all boats’, exceed the benefits of headon market competition? What are the bounds of anti-trust when it takes collaboration to create new
competition?
This is another important strategic question for operators and will also vary by vertical market, by geography,
and by horizontal capability. For some opportunities, particularly where new customer connections are
needed (e.g. for Smart Grids) operators may choose a go-it-alone strategy. In others, where upstream
service providers need to be able to reach all Telco end-users in a certain geography or domain (e.g.
Advertising), operators will need to collaborate (even if this ends up yielding some value to third-party
aggregators).
Next Steps
The continuation and development of this analysis will feature in our research over the coming months and
will be the key focus of the 9th Telco 2.0 Executive Brainstorm in London on 28-29 April 2010 and follow
up events in 2010.
We are also embarking on a syndicated analysis project to explore the potential ecosystems, business
models and market sizes for specific ‘Digital Economy 2.0’ opportunities. This will address the key strategic
questions outlined above.
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The Telco 2.0™ Initiative
What is the Telco 2.0™ Initiative?
Telco 2.0™ is a collection of research, brainstorming and consulting services designed to catalyse change in
the Telecoms-Media-Technology sector.
ƒ
Telco 2.0™ Research & Analysis
ƒ
Telco 2.0™ Executive Brainstorms
ƒ
Telco 2.0™ Consulting
The Initiative stimulates new ways of thinking about Business Models, Service Portfolios and Technical
Architectures.
Created by boutique analyst and consulting company, STL Partners, the Telco 2.0™ Initiative was launched
in May 2006 and is supported by the GSM Association, among other organisations around the world.
Since we launched the concept of the 'Two-Sided Telecoms Business Model', the approach has been finding
increasing resonance at senior levels in both mature and fast growth markets.
Why does it exist?
Key challenges for strategists who work in or with the telecoms industry are:
ƒ
Overall Strategy: How is the digital economy evolving, what are the best strategic responses and the
most profitable market opportunities?
ƒ
Voice and Messaging: How best to innovate core service offerings to add value and grow revenues?
ƒ
Data and Broadband: How to ensure incentives and rewards are better aligned across the [digital
content] value chain?
ƒ
New Communications Services: How can latent telecoms capabilities be better exploited to address
new market opportunities?
Conventional Answers are Unsatisfactory
Leading strategists now agree that today's predominant 'one-sided' telecoms business model does not
provide sufficient answers to these questions, for telcos or for other players in the digital economy.
Something new is needed.
Challenges to the Telecoms Industry
IP has changed the game and many growth markets are maturing rapidly. The lines between industries are
blurring and everyone is after the same consumers. This is causing disruption in the telco industry, for
operators and their partners. Greater levels of creativity are needed to address the following issues:
ƒ
The vertically integrated Telecoms business model is under attack from all sides: tougher regulation,
new technology (most notably VoIP and open spectrum), disintermediatory new entrants, and advancing
customer expectations.
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ƒ
P/E ratios suggest little investor belief in this improving. They have low confidence in 'converged' or
triple/quadruple-play bundles providing high returns.
ƒ
Operators are making investment decisions in Network & IT, Products & Services, and Mergers &
Acquisitions without a clear view of the future.
ƒ
92% of respondents to an STL online survey replied that 're-thinking the strategic role of the operator' is
a key priority.
ƒ
85% of senior execs said the current telco business model will no longer deliver sufficient growth. (Telco
2.0 Survey, November 2008)
ƒ
There is an urgent need for all players in the telecoms value chain to review and renew their business
models.
The Opportunity
Fortunately telecom's companies possess a whole host of assets that could be exploited much more to
support new, sustainable market growth. The key is for telcos to create open platforms that help other
service providers (enterprises, SMEs and government) interact with end-users in more efficient ways than
they can today.
Telco 2.0™ 'two-sided' telecoms business model
We call this the 'two-sided' telecoms business model, delivering value to and generating revenue from 3rd
party service providers as well as end-users. The 'two-sided' business model has consequences for the
design of existing services such as conventional voice, messaging and data/broadband products (e.g.
see Voice & Messaging 2.0 "What to learn from - and how to compete with - Internet Communications
Services") and also creates opportunities to create new revenues and B2B Platform Services.
Our analysis shows that in 10 years time this new business model could deliver up to 30% growth in annual
revenues to operators and dramatically enhance the value of the industry to the wider 'digital economy'
(Please see: Future Broadband Business Models "Beyond bundling: winning the new $250Bn delivery game"
and The 2-Sided Telecoms Market Opportunity "Sizing the new $125Bn platform services opportunity")
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To realise this ambition we need to re-think not only our organisational and technology structures, but also
how we collaborate across a wider ecosystem.
How to get involved?
ƒ
To start to explore the opportunities in more depth see our reports or attend one of our Executive
Brainstorm events
ƒ
To access our searchable knowledge base of information, case studies and learning, please see our
Executive Briefing Subscription Service here
ƒ
To engage and act with the industry we invite Telcos to join the Telco 2.0™ Operators Club and Vendors
join the Telco 2.0™ Partners Programme
(email: [email protected])
ƒ
To explore the strategies appropriate to your organisation arising from these developments use
our consulting services
ƒ
We also use our insights, contacts and experience to help clients evaluate and implement innovative
strategies and applications, and to create new business opportunities - email [email protected]
ƒ
To keep up to date with the latest news please see our widely read blog or sign up to our newsletter
For more detail, please see the full Telco 2.0™ Manifesto
Who to contact?
Enquiries to: [email protected]
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