Triple Play Blog

The communications market is becoming highly diversified, with providers introducing many varied innovative services. The way I see it, branded Mobile Virtual Network Operators (MVNOs), such as supermarkets or entertainment companies, are successfully attracting subscribers through non-communication sales channels, using highly competitive pricing.

Traditional wireline players and Internet Service Providers (ISPs) are introducing dual-mode WiFi / cellular offers that enable subscribers to have one number, one phone and one bill for all calls.

Internet players are developing mobile strategies using PC-based communication and messaging. Bundling service packages that combine Voice over IP (VoIP), broadband access, and mobile services are proving highly successful in winning and keeping subscribers.

Last, but not least, fixed-mobile substitution from Mobile Network Operators (MNOs) still represents strong competition to fixed communication providers, especially incumbents.

In the face of such strong and diversified competition, how can operators and service providers ensure long term growth?

FMC is an opportunity for all operators and service providers

Fixed-Mobile Convergence (FMC) is one tool that allows operators to challenge the competition, increase market share and raise ARPU by becoming a total communication supplier across fixed and mobile networks.

MNOs, ISPs, alternative operators and incumbents can all use FMC to defend their markets against any type of competition, while achieving the service differentiation and value that leads to increased revenues.

Each service provider or operator type will need to adopt a different approach and deploy services in line with their existing market position and long term objectives. FMC will be at the core of each offering and the key to its success.

While I was waiting for a flight departure today, I picked up the Wall Street Journal Europe and read with interest an article about the proposed split of Eircom’s network operations from its service activities.

The article struck me because it relates very well to my recent discussions with telcos and service providers. Traditional telcos are in a soul-searching mode; they are facing new competitors like Google, Ebay/Skype, Yahoo, who have built strong businesses by investing in branding and customer intimacy instead of network infrastructure; as a result, these web-based service providers are enjoying high margins and growing revenues. It is easy to understand why many telcos would want to emulate this approach. As an example, Orange CEO Sanjiv Ahuja was recently quoted saying that “Orange is transitioning from a communication business to a communications, information and entertainment business.”

Now to the killer question: - what if there was another way for Orange and the others?

A recent post by Jim Enck claims that telcos are making most of their money selling minutes and bites: BT Openreach and Wholesale accounted for 70% of positive operating free cash flow (EBITDA minus capex). Wholesale was 77% of the equivalent figure for KPN's fixed business in 2005. Yet, they are all trying desperately to compete on services and content.

Here is where Eircom comes into the picture. Or rather Eircom owner Babcock and Brown Capital, who is planning to split the Irish telephone company into 2 distinct parts: a company running the network and another company offering services over that network. Babcock figures that the valuation of the network operating company would soar as a result.

But beyond pure valuation, a split may also be a smart strategic move for other European telcos. When you think about it, running a network requires vastly different skills than providing personalized services for communication and entertainment.

Typical traits of an infrastructure business
• Favor communication over content
• Care about IMS, central control
• Guaranteed Quality Of Service
• Risk-averse
• Leverage economies of scale
• Traditional corporate culture
• Focus on cost effectiveness
• Physical assets

Typical traits of a service business
• Content-driven, Web 2.0, mash-ups
• Mix communication with content
• Don’t care about IMS (P2P is OK)
• Monetize context & bundles
• Best-effort communication
• Risk-prone, innovative corporate culture
• Community approach
• Virtual / branding assets

If the Eircom split is successful and other telcos follow a similar strategy, we will end up with 2 types of operators in the future.
1. Branded service providers who sell to end-users
2. Integrated fixed-mobile infrastructure operators, who behave like utilities and who sell network capacity to service providers

The market is still in an early stage; however, BT is already operating a separate unit for wholesale, and the EU’s telecoms regulator is known for favoring a split between networks and services.

-Erik

When I talk about quad play, I sometimes get the comment “very few people will pick Internet access, telephony, TV and mobile services from a single provider”. I completely agree; in fact, most users will only be interested in two or three of the services. However, here is the trick: the number of service combinations is higher with quad play. While double play yields 3 different service combinations, the number goes up to 7 with triple play and 14 with quad play. A service provider with quad play capabilities therefore is in a stronger position to provide specific combinations of service bundles for specific consumer segments.

Young singles may only be interested in Internet + mobile phone, while families with children may want Internet + TV + fixed line telephony.

Successful service providers will be the ones who are able to offer lifestyle service bundles targeted to groups of users according to their interests and usage patterns. The service combinations offered by Quad play create differentiation for lifestyle services.

We all know that differentiation drives higher ARPU, AMPU and RGUs!

-Erik

A new MVNO was launched in the US yesterday: Red Pocket Mobile. It targets 4 million well-educated and wealthy Chinese-Americans in New York, Los Angeles and San Francisco. The service is based on Motorola Razr phones with menus and content in Chinese. International calls to Taiwan, China and Singapore will be charged the same as domestic calls and subscribers can choose their own local Chinese numbers.

Another ethnic MVNO will be launched by E-Plus in Germany in mid October: it is called “Ay Yildiz” (moon star, the name of the Turkish national flag) and is targeting the 2.6 million Turks living in Germany.

If MVNOs like these are successful, a natural next step will be to broaden the range of services aimed at the same communities with TV, radio, web, content, etc. Is the ethnic approach a way to build profitable quad play services?

-Erik

I recently posted a comment on the potential disruption of cellular services by dual-mode WiFi/cellular handsets. Now ABI Research says that femtocell Access Points (APs) may in turn disrupt dual-mode WiFi/cellular…

Femtocell APs (or 3G APs) are small cellular base stations which connect to a broadband connection at home or in an office. According to ABI, femtocell APs offer greater network efficiency, better wireless coverage and are simpler and cheaper than WiFi for fixed mobile convergence services. "Some operators now believe that they don't need to subsidize more expensive Wi-Fi-enabled handsets; they can use the handsets they have, and put femtocells in the home," ABI's Philip Solis says.

European service providers are still betting on the dual-mode approach: this week, France Telecom / Orange announced its dual-mode Unik handset, which will be launched October 5th in France, the UK, the Netherlands, Spain and Poland.

We’ll see which technology will win. In any case, I expect the most successful service providers to offer quad play bundles targeted at different consumer needs.

-Erik

This week I attended IDC’s European IT Forum and listened to Chris Anderson speak about his Long Tail concept. He used examples such as Amazon and Rhapsody to explain how online retailers can profitably sell niche products to a “long tail” of previously underserved, micro-segmented markets. I have wondered how the same concept could be applied to triple play and quad play: after all, recently launched MVNOs focus on specific consumer markets such as families with young kids (Disney mobile) or young American males (Amp’d mobile). Disney has a multi-play approach by leveraging their brand across content, TV, radio, them parks, etc.

I had a chat about this with Chris, and he confirmed that MVNOs are the “beginning of a Long Tail” in telecoms, but they are not as micro-segmented as online businesses. According to him, a couple of catalysts are still missing to enable the real Long Tail on mobile phones: 1) cheap broadband and 2) better GUIs. In other words, the mobile phone experience has to get closer to Web surfing. When that happens, quad play services are sure to get a boost!

-Erik

For the past several years, France has become one of the world’s most dynamic VoIP and triple play markets. There is a large choice of several service providers (Free, Neuf, Orange, Club-Internet) and triple play packages start at cut-throat prices: 29.99 Euros per month. Now triple play providers are adding mobility with dual-mode WiFi/cellular handsets.

Neuf is the first to market with its Twin phone, which connects to your home WiFi network or to a GSM network while outside. More interestingly, it also connects to any Neuf community WiFi hotspot outside your home: Neuf claims 50,000 access points worldwide! This “user-built” WiFi network is made up of other Neuf user WiFi boxes, French railway hotspots, the ADAEL network and the FON community. This means unlimited calling to fixed lines in all of the European Union, China, Singapore, Taiwan, Australia and New Zeeland. For the US and Canada, calls to both fixed and wireless numbers are included.

Neuf has found a nifty solution to the power challenge on dual-mode phones with a manually activated “WiFi button”. With this feature, Neuf claims 250 hours standby time in GSM mode, 50 hours in WiFi and 4 hours of talk time.

This is the beginning of a trend which could be very disruptive to cellular operators. If I live and work in a large city covered with my community’s WiFi hotspots, how much will I spend on cellular services in the future?

-Erik

Erik Larsson, Vice President Marketing, Netcentrex Converged IP Communications, Comverse

Erik Larsson is responsible for driving the overall marketing activities for converged IP communications within the Comverse group. Before the acquisition by Comverse, he played a significant role in reinforcing Netcentrex’ image and position in the marketplace and developed the company’s reputation as a leader in VoIP applications using his extensive knowledge and experience of the telecoms environment.

Prior to Netcentrex, Erik held senior marketing positions at Nortel and Genuity / Level 3, and has a track record of managing successful marketing initiatives both for early-stage and established high-tech companies. He has published a number of articles in specialized media and is a frequent speaker at industry events.

Erik Larsson has a MS in Engineering Physics from KTH (Sweden) and an MBA from the Kelley School of business (USA).

Randal E. Waters

Randy is Vice President CIPC Market Development for Comverse and brings 24 years of engineering and leadership experience in the telecom switching industry. Prior to joining Comverse, Randy founded a venture capital financed telecom company, Carrius Technologies, and served as its President, CEO, COO, and finally CTO. Carrius developed and delivered a programmable softswitch to the marketplace. Randy served as Chief of Applications Technology at Taqua Systems responsible for architecting and developing its next generation Class 5 softswitch. Previously at Alcatel, Randy directed the architecture and development of the Call Server Softswitch and the next-generation Signaling Server STP, and also directed the development of the International Megahub STP product. Prior to Alcatel, Randy directed the development of the Nexus SCP, Telestar Tandem Switch, and the DaVinci Service Node at IEX Corporation (acquired by Tekelec). While at Bell Laboratories, Randy managed the development and deployment of a nationwide packet data service, as well as developed and tested software and hardware on the 5ESS Class 5/4 switch. Randy has masters and bachelors of Science degrees in Electrical Engineering from the University of Oklahoma.

We all know that service providers that deploy a triple play radically reduce customer churn, but they also set themselves up for new and exciting services.

I caught this one today and said to myself, I would so use this! UK incumbent telco, BT, has signed an agreement with Video Performance Ltd. (VPL), a UK music industry organization that licenses the broadcast and public performance of music videos. With this agreement, a subscriber can access music videos on demand from his living room. I can't tell you how long it's been since I've seen Devo's Whip It, but it's been too long. As Apple has shown, there is a real appetite for increasing the richness and spontaneity of our entertainment choices. I think BT is on to something here, and I'm sure it's not the last neat value added service that triple play will deliver. Now, if I could just find out how to watch some of those old Cars videos....

OK. So I am here at the VOIP Possibilities Show in Dallas this week and I have a few observations. First, I am thrilled that I am seeing such well run and targeted trade show alternatives to the normal line-up of VON (Spring/Fall/Europe/Canada/Asia/CES), SuperComm, etc. Shows such as VOIP Possibilities (ILECs/RLECS/CLECs) and Digital Cities (municipalities) next week in DC are very well tailored to the needs and interests of those particular markets, without the hype, cost, and "vendors staring at each other" that you may find with some of the bigger shows. As a Marketing guy trying to spread a marketing budget across several different markets, it is refreshing to have these shows as an avenue to get the message out.

The other observation I have is how quickly IPTV is spreading in the ILEC market. It is cool to see a market dominated by many "mom and pop" telcos being so progressive and aggressive in their roll-outs of Telco TV. My hats off to all of them. It bodes well for us providers of integrated triple play solutions that this trend is occuring in the farthest reaches of telco land (can someone say Alaska?). Of course, adopting a video strategy for telcos is a necessity for these guys, as next-gen carriers, CLECs, and MSOs come knocking on their doors.

One other totally unrelated thing: have you noticed how violent the online Vonage ads are? Especially the one with the snowmobile guy flying across the road and crashing in what was surely a seriously injurious or even deadly crash? I hope that doesn't become a metaphor for Voice over Broadband providers like Vonage who are a little weak when it comes to a video offering. He-he, couldn't help myself. :-)

-Brian

Brian Mahony, VP Marketing, NetCentrex