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Friday, May 11, 2012

The telecoms industry and a dual-dilemma problem

I had an interesting late-night Twitter spat with Keith McMahon last night, about the appropriate future model for telecoms operator strategy. He disagrees with my stance on Telco-OTT (operators launching their own pan-Internet services) and reckons that it will accelerate "value destruction". I'm adamant it's inevitable even if it does imply cannibalisation and revenue decline taken at a macro industry level.

Thinking about this more today, I've realised that my view can be explained quite simply. The telecom industry is (as far as I can tell) the first to face two classical "dilemmas" simultaneously:

  • The Innovator's Dilemma: The title of Clayton Christensen's seminal book on disruptive innovation (from which I take a great deal of inspiration, including my company name). It refers to well-managed, profitable companies watching disaster unfold, as they ignore a low-cost / low-profit new technology because it targets only adjacent markets, and would threaten cannibalisation if applied to their own. But it improves over time, gaining strength and scale, and eventually kills them anyway, as it expands from adjacencies to core.
  • The Prisoner's Dilemma: This is a famous thought-experiment applying "game theory" to collaboration and cooperation. Do two prisoners remain silent & complicit - both receiving short sentences - or does one frame the other, going free while the other languishes in jail? Or, if both try to betray each other, they both get long sentences. (Edit: Martin Geddes has pointed out the different game if you change the apostophe to prisoners' dilemma)
The parallels in telecoms should be obvious. IP communications, new styles of voice & messaging, and smartphones are the disruptive innovations, while following the rigid federated/interoperable model of telecoms (or "defecting" to #TelcoOTT) is the equivalent of cooperation vs. self-interest.

However, there are differences here which make the situation even more painful for the telecoms industry.

On the disruptive innovation front, the telcos' response has been made even more lethargic by the distraction of slow-moving, expensive and inappropriate solutions like IMS. And rather than just having scrappy startups driving the disruption, we have the force of behemoths like Google, Facebook, Apple and Skype. Add in the fact that ordinary telephony and SMS seems to be "going out of fashion" and that LTE represents a "market transition" forcing a change from the incumbents at precisely the wrong time, and you see the problem. I don't disagree with Keith's view that telco bundling is important - but it implicitly requires having valuable things to bundle.

And the prisoner's dilemma is skewed by the addition of time as a critical factor. First-mover advantage for the "traitors" might be sustainable, albeit at the likely cost of the unfortunates who stay quiet - or who procrastinate for too long. This is why the argument I've heard in the last few days, that Telefonica's TU Me launch might spawn another 50 Telco-OTT Me-TU's is fallacious. Most of those will be TU Late. (ahem, sorry...)

The collaboration option is also subject to regulatory intervention, as well as even more delay - witness the push-back of VoLTE launch by Verizon to late 2013, and the ongoing farce of RCSe's supposed arrival. It's certainly not "just there" and as I wrote last week, it's doubtful that it will ever "just work" in a way that users actually want.

Extensions of these dilemmas apply in other telecom areas too - content and TV, commerce and payments, identity, cloud services and so forth. The details differ somewhat, but the story is the same.

Keith suggested that the #TelcoOTT approach was likely to lead to "value destruction" and "Dante's Inferno". I see his point, although I'd choose another example from more recent popular culture. If you're going to risk everything, then Fight Club's Tyler Durden isn't a bad role model "I say never be complete, I say stop being perfect, I say let... lets evolve, let the chips fall where they may." (And yes, I do remember the movie's ending. And there are plenty of other quotes I like, that are unprintable on this blog, but help yourself).

I'm not anti-telco. But I am realistic that solving those two dilemmas, simultaneously, needs some pretty radical moves. The industry en masse hasn't taken those moves. It's largely paralysed, shackled to the walls of its cell, by the manacles of legacy and interoperability. And now individual members can hear the executioner approaching, and some of them want freedom, rather than going to the gallows together.

Yes, Telefonica's TU Me - or its OTT mobile wallet solution or WiFi "onload" service - might not succeed. But they're all better than sitting and moaning about one's dilemmas in a support group, while the world collapses around you.

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8 comments:

juan said...

Dean, just 2 comments:
It seems for you Telco-OTT means a telco creating an OTT solution.
In my personal view TelcoOTT is a solution that provides communication capabilities over the top (using normal data connectivity), and it could be created by a traditional telco or for another type of company (what people say "OTT"). I am not pro-telco as I suffer the "telco times of decission" and I like Whatsapp, but I think telcos may have their own rich messaging alternative based on their strenghts, and one of them is to deliver something common to all territories and all device tiers (not only smartphones). Whatever they can offer can be "flavoured" as OTT if they have 2 databases, SIM customer clients and non-SIM based customers. It is our bet.
Regarding your second point: I agree that it is better do something than do nothing, but I would like to know whether the ones promoting one option are not only promoting their option or also trying to stop the other alternative. You know, politics :-)

Dean Bubley said...

Juan

I take your point, and OTT-flavour of a common telco messaging base platform *might* still work. I still need to understand your exact proposition, and for example whether you could simultaneously have (say) Orange and AT&T RCSe apps running on the same device, if they were sufficiently different that the user wants both.

And yes, politics *absolutely* plays a part in this. Usually it's the more powerful "traditional" part of operators that tries to kill the Telco-OTT division, but I guess that over time we'll see the reverse happen as well. One of the areas of advice Martin Geddes & I give on our Telco-OTT workshops is how to avoid the "white blood cells" killing the transplant organ. A lot of telcos are institutionally structured to reject this type of approach - eg dealing with the billing system, legal departments and so on.

Telefonica is fairly unusual, in that Digital is empowered to "just do things" independently of the Mother Ship. It certainly appears that it speeds time-to-market. I haven't seen any evidence that it's actually slowed the other parts of the business.

Dean

Terence Eden said...

I quite agree. The one thing that I think that you're missing is that new services have to be disruptive *across* the industry. Having a messaging service which only works on your MNO is next to useless. Having a "disruptive" service which works in one country, on one network, on one handset.... that's the opposite of disruptive!

I've had a play with RCS-e. It's pretty nice but, sadly, it's an over-engineered telco solution. Designed for interconnects and terrifying UML diagrams.

Wide ranging simplicity, that's what's needed. Not sure how they get there, though!

juan said...

Dean,
Regarding to your question, a native device client can co-exist with a Joyn App client if it can be configured (using menu) and not using autoprovisioning based on SIM. Then you can run 2 Joyn accounts (1 associated to the SIM number) and other "as OTT". The technology allows that.
We want users to have several Joyn accounts (SIM and non-SIM based) and created the App Server to manage diverts, rules, etc. We want users connecting natively, using apps, and also as web (HTML5, basic HTML in feature phones) and working in WebRTC.
And most important, to provide the right interface to engage developers, the language they speak: REST.
How many of the say so "TelcoOTT" right now are doing what internet companies do, make themshelves platforms with easy to use API to let 3rd parties add value as Facebook, Twitter, Youtube, etc? I give a lot of credit to Whatsapp, but not too much to the copies.
RCS-e is very flexible, and a lot of things can be created on top without needing ad-hons to the standard.

Bob M. Hendriks said...

Dear Dean,

I think all technology leaders face both dilemmas at a certain point of time; When old technolgy is being replaced by new. One recent example that illustrates this is Kodak, the 133-year old company that invented the hand-held camera and now files for bankruptcy protection. They actually were the company that invented the digital camera, but didn’t go to market with it because they thought it would cannibalize their existing business. Eventually, the market caught up (even cameras in virtually every phone) and Kodak has not been able to turn around their position, with the bankruptcy as a result. If they would have embraced the change, they probably would be one of the market leaders of today.

Madmax said...

Dean,

I fully support what you say. Witness the launch of BobSled by T-Mobile USA, which is an OTT play and cannibalizes its own revenue to some extent.

Paul K said...

Dean, there is also a fundamental difference between telecoms and any other industry: all data/voice/text must travel over a network, and someone must maintain that network. This is very different from a traditional Innovator's Dilemma like Kodak's: film cameras are simply outdated and unnecessary for the vast majority of people. In telecoms, all of the competitors and innovators rely on the network.

Dean Bubley said...

Paul

Not *strictly* true. There are some non-network forms of voice communications such as walkie-talkies or private mobile radio.

But in any case, plenty of other industries depend on private infrastructure. Take the road network, for example. It is built and maintained by governments or (sometimes) private companies, either from taxation or direct payments such as tolls. It is almost always decoupled from "OTT" applications of roads such as haulage, bus companies & private use of vehicles.

Same thing with any industry dependent on electricity. The Grid gets paid for & maintained irrespective of the profitability of electricity-dependent ventures.

The argument in telecoms is much the same.