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Monday, March 12, 2012

The concept of the "minute" is killing the phone industry

We don't measure the value of communications in terms of time.

Movies aren't priced by the hour. Radio isn't sold per-minute. Books don't cost more if you're a slow reader.

Telephone calls are priced per-minute or per-second because that is reflective of the industry's cost structure (and billing sophistication) about 100 years ago. When you had a physical copper connection between points A & B, with a human doing the switching, both capex and opex had fairly logical temporal-based components.

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We already see with mobile data that a blend of volume, duration, use-case, location and maybe even congestion levels can be used as the basis for service pricing.

Yet voice telephony is always priced and measured with a time component, even if it's for the basis of statistics. I did a client workshop on VoIP yesterday, and thought how ridiculous it is that even voice innovators like Vivox have to use "billion minutes" as a measure of scale and size, even for non-traditional use cases like in-game chat.

Do you think Apple measures Siri's usage and success in terms of minutes of speech?

Is a 3-way conference call worth 1.5x as much as a 2-way phone conversation?

Do military radios measure usage minutes & bill back to each regiment?

The insidious effects of "the minute" bleed across the industry. It forces companies to chase after unprofitable or unattractive segments. It leads to arbitrary pricing by vendors. Roaming models look stupid & anachronistic because they are time-based. Our need for a uniform measurement unit creates stifling regulatory hoops & weird market inefficiences. It legitimises the equally absurd measurement of data "consumption" in terms of megabytes.

Now there is obviously the basic question of "if not minutes, then what else?". Unfortunately, we don't have a fundamental SI unit for the "value" or "utility" of human communications. But that doesn't stop us pricing other forms of communication appropriately.

I don't measure the number of words in my blog posts or reports (although I use page-count as a rough marker for the style of document). I certainly have no idea of how many words I've ever written, or whether I've put "pen to paper" more this year than last.

It seems ironic that the industry continually harps on about commoditised data and "dumb pipes", when the legacy telephony system is the dumbest it could possibly be. Why is gossip priced and prioritised in exactly the same way as negotiation or deal-making? Why are all of these speech-based transactions and content-flows going "over the top" of the telephone network, and why isn't VoIP based around monetisation? Where are the vocal optimisers and deep-conversation-inspection boxes? Where is the voice analytics engine?

I regularly ask operators "why do people make phone calls anyway?" and rarely get a good answer. We happily avoid examining exactly what all these minutes are for. How much is made up of long conversations between family members? Interminable dial-ins to conference calls? Quick 30-sec information blasts "No, I'm in the other pub, round the corner"?

It's ridiculous that a $700bn industry has so little idea of how and why and where it adds value to people's lives, which problems it solves, and which needs are unment. How much human communication and psychology isn't well-served by a minutes-based system?

The fact is that the minute is fundamentally an anchor to the past, when all voice was "telephony" and all telephony was "voice". The faster we get rid of our duration-centric obsession, the more likely we will be able to profit from The Future of Voice, before others less confined beat the telecoms industry to the punch.

Note: Martin Geddes & I are running a new series of Future of Voice workshops (combined with Telco-OTT) from April, starting with London (26-27 Apr) and the US East Coast (14-15 May). More details and sign-up available by emailing information AT disruptive-analysis DOT com

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Kevin Kieller (No Jitter and UC Strategies Author) said...

Interesting thought exercise however some of the examples strain the premise.

Some things are billed based on time and this is ok. For example, I bill my consulting expertise by the hour.

Typically pricing models reflect scarcity. If, as mine is, your time is a limiting factor then you may choose to bill for it.

You don't bill by word for your blog entries because they are not scarce resources.

Your argument thus comes down to, are minutes a scarce resource for telcos? I would answer in some cases yes and in some cases no. This is why I get a cable modem at my home on an "all you can eat" data plan while I still pay minute rates for long distance calls on the same "wire". Some of this is historical momentum and some is reality.

In the end, I think you raise some good points. Be careful what you measure (and more careful how you bill!) because this will influence behaviors.

Tsahi Levent-Levi said...

I side with Kevin on this one...
My thought was on the cost of a psychologist - based on hours and not by a "project" or how much you need him. Or a parking lot - where you pay again by the hour.
I think the problem of billing calls in a different way than minutes is the fact that it is hard to impossible to know the relevance/importance/type of call without doing DPI and beforehand.
Would you pay for a consultant if he told you his price after the effect - when he knows how much value he gave you - or would you rather close the price with him beforehand?

InfoStack said...

Operators can't answer your question because they think customers call them. If they thought for a moment that all a person wants to do is call someone else often on another network and that they are merely "facilitators" to a session, they might begin to think differently. Horizontally. If they start thinking along the latter, then they would begin to understand what their true marginal cost and develop pricing, software and marketing constructs that would better amortize the cost of rapidly depreciating technology. As vertically integrated carriers out of touch with their customers they are doomed.

Emanuel Fleishman said...

I like Kevin's observation "Typically pricing models reflect scarcity".

Take pricing of Business Class tickets vs tickets "for the rest of us". The need to reach certain destination is shared by all travelers. But few seats seem to provide better experience.

"Scarce" by definition means rear, not allocated or released on demand, not adaptable to circumstances, rigid. In telephone transmission these used to be time-slots, with dedicated routing for emergency calls. Load-indifferent time-sots are now replaced with much more flexible usage of transmission resources, yet emergency calls still require special routing to assure 100% availability.

The point is that, in general, service may be acquired by different means. Each path has its own pricing structure. General purpose call can be measured in minutes, or not measured at all if this fits operators strategy. It can be measured by number of calls if stranded resource is signalling plane processing. Whatever keeps is simple and human-understandable is OK.

Signalling is actually good point for thought as Cellular Operators are now complaining that Cellular Signalling infrastructure was not designed for in-session signalling as used by Add-driven Mobile Apps. Signalling plane is the new scarce resource and those abusing it should be tiered differently.

mgraves said...

The retail broadband industry has already shown that any existing business will tend to promote the perception of scarcity even in the face of plenty. They will ensure that the psychology of scarcity defines the pricing model upon which the industry is based. All of this occurs even as wholesale bandwidth providers have struggled in the face of extremely low rates of return.

In the US ILECs are starting to argue for abandoning the DSL business altogether. They say it's just too costly to sustain. Verizon is promoting a new fixed LTE service as an alternative to building out FiOS further, even as they argue that they are on the verge of running out of available bandwidth for their new LTE network.

Here again, the perception of scarcity serves their goals. The reality is that, unlike FiOS or DSL, they can get away with offering the wireless service on metered terms. There's additional revenue in the billing model.

Anonymous said...

I'm sorry Dean but this is a rather hackneyed viewpoint, doesn't suggest or event hint at any credible solutions and seems like just another excuse to take a pop at operators. Yawn! A complete waste of 5 minutes of my life. Some of the comments are much more thought-provoking

Dean Bubley said...

Thanks to all. Apologies for the delayed response - I was away last week with a client & buried in "my day job".

Kevin - good points, but perhaps I didn't articulate what I was saying clearly enough. I wasn't really arguing for some sort of "flat-rate telephony", more that the rigid concept of the phone call (Person A calls Person B for X minutes) is itself harming the industry & stifling innovation.

Tsahi - also a good point. But again, you're focusing on "calls" as the fundamental - perhaps only - form of voice-based telecoms. It's possible to create *multiple* voice services and applications, each with their own business model - and perhaps billing/charging model. Trying to squeeze all distant human verbal communication into the same form is no longer realistic. In an idea world, we'd have entirely different "products" for concluding a business deal vs. having an hour's gossip, the same way we use different social networks or messaging apps for different use-cases.

Infostack - I agree. The question is "as a facilitator, what can I do to add value to this instance of communication, or the ongoing story of communications between these people"

Emanuel - the signalling discussion is very relevant & underscores my point. It's not just for packet connections either: many people "abuse" circuit signalling with things like free "missed calls" as well. However, because the operators have been so obsessed with minutes & MB, they have chosen not to illustrate the value of signalling resource to their users via pricing or other mechanisms. Consequently, they can't really complain now if people are using the signalling in ways not originally expected. It's going to take a lot of education.

Mgraves - Interesting; I hadn't read about the DSL move. I'd be interested in the take of people like Dave Burstein & Benoit Felten on that: my understanding is that fixed broadband is profitable if done well. The idea of going LTE-only is ridiculous in my view - not least because the other signal we're seeing is that WiFi & femtocell offload / small-cell backhaul is pivotal to 4G being workable.

Anonymous - That's a pretty incoherent rant, which I suspect is more driven by "just another excuse" to "take a pop at" me. I know I've tweaked some self-important noses recently, but you'll have to do better than that. Ironically, "life wastage" probably *is* appropriately measured in minutes, as it's a scarce resource, so you've conveniently proven my point.

(Separately, I don't "take a pop at operators" anyway - just their more unrealistic business models and ill-conceived collaborative efforts. I've spent a big part of recent months being extremely complimentary about certain telcos - hence my new report on more than 100 of their OTT-style offerings.)

Lynne said...

I think this argument was stronger 5-10 years ago. As smartphone use has increased, voice usage is declining and data usage is spiking. Thus, the minute of voice communication holds less value for both consumer and provider. There are also demographic usage factors as play in declining voice communication. There's a new stat that shows that in teen/young adult mobile communications, SMS increased from 50% to 60% of smartphone usage in just a year. Younger users are prolific SMS/data users vs. holding voice calls.

As more consumers adopt smartphones, I expect SMS and data usage to increasingly overtake voice. In the corporate/enterprise user segment, voice will continue to hold while eventually being overtaken by VOIP usage (driven by products like Webex, Skype, etc.).

Dean Bubley said...

Lynne - thanks. I agree that *telephony* use is declining, but that it is because it is a 100-year old application that isn't really fit-for-purpose any more, especially compared with more optimised forms of communication. It was a neat invention by Mr A G Bell, but we've got many more options now, courtesy of Moore's Law & open OS's.

There are plenty of signs that *new* and well-designed non-telephony voice services can remain important though - and grow in both user acceptance and perhaps revenue. In-game voice chat is a great example of this, as is Apple's Siri and similar offerings (including some from operators such as SingTel & DoCoMo).

My point is that those new voice applications are not generally measured in minutes of use - or rather that such a calculation is largely irrelevant.

Doug Varney said...

Dean, On my first read, I took your blog post as a not very helpful "the world should be different" but without describing what the end state would be or how to get there. [Somewhat aligning with Anonymous comment]. But on my second read, it felt you were going in a very different direction. As new voice "products" are offered, then don't shackle them to the old "per minute" model. The old world will wither away because the pricing isn't relevant - focus on getting the pricing model right on the new stuff.

How much do you cover in this area on the Future of Voice workshops?

Dean Bubley said...

Hi Doug

Thanks for the feedback. Yes, re-reading the post myself I can see that it perhaps does initially convey "oh, everything should be flatrate", or perhaps the classic "voice is free".

As you note, that's not my point at all - more that new voice "products" are fairly orthogonal to duration as a metric: there ought to be other sources of billable value, either to the user or perhaps third-parties.

Yes, this is the type of discussion that is absolutely central to the FoV events. Martin Geddes & I start off by boiling down human communications into fundamental psychological drivers, and then looking at how creating new voice services around context, analytics, mashups etc. might change the game.

We're expecting to do out next US event on 14-15th May. Venue TBA as it's partly driven by sponsor preferences, but East Coast. Please also get in touch if you would like to know more about private workshops. dean DOT bubley AT disruptive-analysis DOT com


paulindo said...

Opening line "We don't measure the value of communications in terms of time" carries the theme that human communications (mainly Voice) has a "value" which transcends measurement in terms of "duration of call". Whilst that may have some truth its not the whole truth. Its also quite subjective and difficult to measure, and indeed can often be retrospective like "that was a complete waste of time" meaning I didn't get the outcome I wanted (on a call) or perhaps I didn't enjoy that movie at all!!

Arguments lke "Movies aren't priced by the hour" are simplistic and evasive. They kind of are in fact, as they tend to be quantised. A typical movie is around 90 minutes of "human playing time" or consumption time. We can fast forward it in seconds. Perhaps a movie quantum ranges from 1 to 3 hours. But 10 hours? No, this becomes 5 episodes of 2 hours, and 5 purchases. Would I pay the same for a 5-minute short video as a 90-minute feature film - again no. Same with books, music, most media. Its quantised for market consumption. Each quantum has more-or-less the same cost of production. Each quantum has an underlying relation to "consumption time".

So for mine, any argument that says humans ascribe *NO* value to time is fallacious.

If we accept at all the premise that Telco's can charge for network usage, that is, the network is not a free resource, then we are left with problem of how to quantify and price usage. And what I see is that market forces have produced a whole range of quantum for Voice, yes traditionally "the minute" but also now bundles are designed to avoid the consumer feeling "calls are time metered", e.g. all you can eat for a month.

I think if you want to attack principles of "value" in calls things like ascribing different value to location and/or destination number dialed or even "who carried the call" seem alien to the utility of a call.

So what value should one ascribe to that 20 second call to 911 that saved a life?