Monday, March 10, 2008

Interesting read and event from STL (Telco 2.0)

STL Partners (who trademarked the Telco 2.0 term), the firm of Simon, Martin, Keith et al, plan to do another brain torturing event in April. I was lucky to get a view of the accompanying report (they will also present some entirely new research). Their concepts are thought-provoking, highly original and totally worthwhile for anybody in the industry, or even with an interest in business models in general.

I will not try to replicate the report, or even give a summary, but I do wish to put anybody interested on the right track, as the report (165 pages) is quite a challenging read. I also recommend the STL blog to come prepared.

In short, the message is that new wholesale is telco's salvation.

The building blocks of their views may be presented as follows:

1. All-IP is a given. STL is specifically looking beyond it (for which in itself they may be applauded, because most people are still trying to get to grips with NGNs per se) and sees the broadband incentive problem, the problem of all-you-can-eat pricing, as well as the threat for operators to be reduced to dumb pipes. Of course there are several ways out of this: fix the flat-rate or all-you-can-eat pricing (see Benoit's post), embrace the dumb pipe (if you wish to forego a big revenue opportunity), or follow STL (design new business models). Obviously, STL is presenting itself as the sector's saviour.

2. Hence, new business models are needed (or rather: revenue models). STL's answer involves the two-sided business model (see from slide 47 of this Arvetica presentation), implying operators should view themselves as logistics services companies, making use of their specific strengths. I suppose the cable industry could be an example too, where upstream partners (networks) are teamed with and shared revenue with. Networks should be seen as platforms, where operators, upstream (content and application providers, ecommerce, payment systems, advertising (cf. Project Canoe in the NYT ) etc.) as well as downstream (device and set-top box makers) meet. It also involves breaking-up and re-assembling the value chain. Effectively, the BSP (broadband services provider: ISP + apps) is born. Focus of the report is on exploring new wholesale opportunities and partnering in all its manifestations (co-op, sharing, outsourcing).

3. Also, STL give a top-down market approach, estimating the global telecoms market (at the retail level). It is set to double from 2006 to 2017 (from GBP 680 to 1300bn), with the share of the largest 12 countries dropping from 50% to 40% (from GBP 341 to 514bn). This implies a 3.9% CAGR (same as during the 2001-2006 period). However within the numbers (they asked me to be a little discreet about them) are big variances: access is very low growth (esp. mobile), the platform thing (and wholesale to a lesser extent) is where future growth opportunities are. Keep in mind however that these numbers are the results of STL's assumptions, not the other way around, and therefore they are basically the result of reverse engineering.

4. Input is mainly STL's own qualitative research about distribution systems. They see both parallels (mainly in shipping) and early movers (such as Amazon). Further, STL use a large-scale survey among industry workers, consultants and analysts.

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