Monday, 30 November 2015

Dichotomy of the modern ‘telco’ Part II – content strategy

The previous article discussed the challenges faced by the telcos and this that their content strategy is possibly misplaced in the internet era.  An alternative is suggested..

Telcos have long struggled with content.  This article makes some suggestions that play to their strength.

If phone calling were invented after the internet, how would voice calls be delivered? 

Yup, it’s what Skype, WeChat, WhatsApp are doing.  In fact voice is merely a type of content in the internet ecosystem.

Content is king

The irony is that telcos for a long time, as far back as 20 years when they entered the ISP business, knew they needed a content strategy. But the fact that voice is content completely eluded them.  If they did, meaning they fully grasps content in the context of digitisation, their strategy forward would have been different.

“Remember ringtones? They were what passed for a content play in the 1990s telecoms industry” - ‘Telecoms groups find it difficult to connect with content strategies’, Financial Times, 23 Nov. 2014.

Instead telcos have struggled to profit from content.  When they first entered the internet access business, they thought access a loss leader and that content would make up for it.  They were mistaken.  In fact access increases revenue significantly and is quite profitable.  And while they are right to target a content strategy they seem neither structured nor have the organisational culture yet to execute and compete within the industry.

But they were mistaken.  Broadband is wrongly assumed to be a loss leader.  In fact it increases revenue significantly and is quite profitable.  And they are right to target a content strategy but they were neither structured nor have the organisational culture yet to understand and compete within the industry.

Take video.  They had a video plan all along but they saw this as a classic telco triple-play and not in the larger context of the content sector.  Voice, video and data in a single subscription would have worked pre-internet, not post.  Can they compete with local cable tv?  If they need time to do so, there’re NetFlix and Amazon, both not even at their prime.  Reselling looks a better bet.  Worst, it’s only a matter of time before original programming is directly accessible or through HBO and the like.  And YouTube which has surpassed tv for the bright young things could be the real competitor.  Providing video as part of triple-play is short term because like voice, it’ll pass them over.  And like ATM, telcos could misspend billions in a strategy past, losing the initiative to the global players.

Taking WhatsApp as a example, if telcos understood the internet economy early they will have created a ‘WhatsApp’ to replace traditional voice but then it’s culture will dictate that it’s offered within their infrastructure!  End of a good idea.

Content is progressing towards what telcos ironically call ‘OTT’ services

Telcos’ perception of content may have limited their execution. They have attempted content plans, often taking the cue from Silicon Valley but mostly to no avail.  Sometimes it appears random.  Wouldn’t finding areas that play to their strength be better?

Phone calls are person to person.  In the internet this is the peer-to-peer model, but with a difference. They could figure this out and look at ways to use a model familiar to them.  They could seek inspiration from M-Pesa, the Kenyan phone-based p2p payment scheme by Safaricom, a telecoms group.  That’s playing to their strength.  What’s more, M-Pesa’s co-creator Vodafone saw its churn there reduced to below 0.1%.

Telcos already take deposits. Once a senior executive told me they considered offering some form of banking service but said they will never get the license.  That world has changed.  The Indian government through the Jan Dhan Yojana scheme to provide each Indian household with a bank account by 2018 issued light touch licenses for ‘payment banks’ designed to appeal to mobile-phone companies’.  And in China, barrier to non-Banks have been lowered.  And if tech industry can......!

Four other areas related to data, each of which can stand alone or be combined to add value are location data, data, their being carriers of data and trust. 

Telcos have location data, something of value to digital businesses.  Further by the very nature of their business they have plentiful of data like consumer demographic.  Big data and analytics are well discussed topics but telcos don’t seem to have leveraged their advantage enough to serve the digital sector.  They could also consider services related to telcos being carriers of data.  Think secured data, security, end-to-end delivery and the like.  Telcos have long offered the latter but instead of networks, they could think in terms of data.  Finally trust is a cornerstone of the digital economy and consumers trust telcos so maybe something to run with.  The trust industry is still at an early stage. 

Most of all, telco 2.0 is really a communications provider.  But communications may not look like a "call" at all.  If they can unshackle from the 130-year thinking, maybe they’ll also think of communications in terms of social linking, conversations, messages, etc.  Facebook, Snapchat, WeChat, blogs are all about communications, as is broadband services.  This is not to suggest that they try to create another Facebook but that this line of thinking may help them create something to their strength along the lines of communications.  Consider sms that by itself has no value.  It is generated by one person to another.  But aggregated over time, conversations create indirect value, like WeChat and Facebook creating value from social postings. Celcos however make money directly from sms.  And left it at that.  These show a difference in strategic thinking.  A modern telco can leverage on indirect value creations to complement the direct method.  And they need to get it that data now has a lot of value.

Whatever it is, telcos should bear in mind the borderless nature of digital businesses, a natural for digital firms but seemingly a challenge for telcos.

Whatever will be will be

With the transition from voice to data, many telcos seem less sure of themselves.  As the old voice model is swept away, this is a period of rediscovery and trying to find its feet with new business models.  Telcos will add content/OTT and this is why they ought to be mindful over their negativity over net neutrality.  The business of voice is now moving irrevocably on to the WeChats, WhatApps and Lines of the internet messaging world.  Even if telcos want to upend them with their own version, the networking effect that had worked for the telcos now works against them.    Instead they could participate directly in the digital sector by leveraging their strength.  Alternative, focus on the core task – connecting people – and let others work out what to push down the pipes. 

Next week, we’ll discuss the cause of change.  It may point towards what ‘telco’ 2.0 would look like.

©Thet Ngian Chen, (2012, 2013, 2014, 2015).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Thet Ngian Chen and with appropriate and specific direction to the original content.

Monday, 23 November 2015

Dichotomy of the modern ‘telco’ - Lost in Translation

Telco = telecommunications company
Tel = telecommunications = telephone = voice  
Telco = voice company

Telcos were built on voice but with voice only a fraction of their revenue today, the term ‘telco’ is now a misnomer.  Once internet access was an add-on to phone lines, now telephones are an add-on to broadband lines.  Grasps the implications and you’ll understand how the telco industry is transforming.

The voice business model that some say many telco executives still adhere to, is passé.  And have been since the internet.  But with the data model replacing it, telcos will actually become stronger.    This is the crux of this series of five articles that will touch on change triggered by the machinery of the internet economy (digital economy), how they could respond and what telcos may look like in the near future.  Reordering of the industry is likely.  Second tier telcos that get this and it’s not as simple as it seem can look forward to the opportunity.  Coming to terms with the different environment, different operating culture, a very different business model is the first step.  Emphasis is on Asian telcos. 

As far back as 30 years, the telco industry started digitising and later embraced data technology but somewhere along the way....

Lost in translation
Remember ATM (and ISDN)?  These were strategically correct attempts by the powerful telco equipment suppliers to play in the data arena.  Most have collapse today.  And the reason is their arrogance trying to force a square rubber peg into a circular hole misreading, misunderstanding the data business.  ATM was optimised for voice, not data applications though you’ll never guess - their hype machine went overdrive suggesting it was great for everything.  Telcos bought into this and burnt billions.

Today, most incumbents in the region are executing the last part of their much vaunted triple-play strategy – video.  But is triple-play still the right strategy in an internet era?  Their shareholders should ask this.  With voice revenue in terminal decline, will this video plan follow?

There’s still money to be made from voice and they must of course maximise any revenue they can but they shouldn’t lose sight of the long term.  Reselling cable tv in the fibre bundle looks a better bet than trying to become a cable tv provider. Or the way the digital industry executes video strategies.

They don’t talk about triple/quad-play in the internet industry

Rather, it’s about content, online services, streaming.  And data services (ISP), voice app (internet messaging), video (YouTube, Netflix), gaming.  This illustrates a difference between the two industries. 

A triple-play network is one in which voice, video and data are all provided in a single access subscription.  While the telco industry bundles, in the internet industry it is left to the various players.  Users have a choice.

If telcos want in in the digital industry, a better understanding of the differing operating model and culture helps.

 “Culture eats strategy for breakfast” – Peter Drucker

It defines the business since culture affects how people behave and the way people behave from moment to moment without being told to.

The culture of the data business model, of the internet, is open.  A telco’s closed.

Traditionally the telco ecosystem is unto itself.  Integrated tightly, they own and control 100% of it; infrastructure, services, equipment, partners, customers.  Organisationally, they control from the top with a command culture.  The mentality is ‘build it and they will come’.  Consumers?  They need us more than we need them.  Partners are often viewed leerily – why should they profit from our infrastructure?  An integrated billing system is considered            customer service!  Trouble is, they are tied to 130-year thinking from that first call made.  Things have now changed but there are vestiges of such a culture. 

“Comcast this month announced an internet video service of its own – Stream – that will include broadcast channels and HBO for $15 a month. It’s only for its own internet customers” – AP, 23 July 2015

The digital industry is about partnerships

While telcos profit within its own ecosystem, it’s the cacophony of players that makes the internet’s.  And while competitive detestation is there, they understand that together they make the market hum.  Thus its culture is one of being inclusive, peer-oriented, collaborative, participative, that is, it has an open ethos.  More on culture here, but this shows the wide gulf.  This must have a strategic impact as the telco industry re-fits into a data economy.  And the irony is, many startup telcos recruit their senior management from traditional telcos!

Whatever it is, the transition is proving a challenge.

The frustrations can be felt

The telco industry calls the online content/services providers ‘OTT’.  ‘Over-The-Top’ is normally a derogatory term.

They could be smarting from losing, until the internet, their core voice business.

Research firm Analysys Mason estimates that between 2013 and 2017, voice revenue for the telecommunications sector is set to drop by US$38 billion. On the flipside, data revenue is set to grow by US$128 billion in that same period.

Maybe they also find it hard to lose control over their business since telcos once controlled everything within their ecosystem.  Now they have to cede some to the WeChats, Facebooks, Netflixs.  Maybe that’s over the top!

More likely it’s cultural, and change.  The data industry is a world apart from that of voice.  It’s not easy to adapt.  Telco executives, especially the incumbents, steep in the old culture, evolved from a regulated monopoly had a sense of entitlement.  ‘Build and they will come’ doesn’t work as before, unless you get help from the regulators.  Online, in trying to build a content business, telcos find it disconcerting that they may not come because they have choices.  Now it’s about the best value, great user experience, reasonable prices.  And talk of the great opportunity, "the fourth wave" digital services with connected cars, healthcare and the like looks different this time - it may not fall on their lap but to others who see this not as the platform but a solution design challenge.

Que Sera, Sera

Telcos should not lose sight of the changes.  The potential is now larger.  Going global was a challenge 20 years ago.  The new environment offers another chance. If they shed the legacy mindset, embrace open and play by the new rules, new business models, they’ll get there and sooner.  But not in the form they envisage.

Telcos knew for a long time that content is king and that they needed to be in the space.  This and how such a strategy has morphed are discussed in the next post.


©Thet Ngian Chen, (2012, 2013, 2014, 2015).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Thet Ngian Chen and with appropriate and specific direction to the original content.