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Tuesday, October 30, 2012

Telcos' role as "speaking agents" in voice telephony will inevitably be disintermediated

Imagine, if you will, a business where hundreds or thousand of independent service providers link millions of customers with a complex network which enables long-distance communications, earning a commission each time the users make a payment.

I am, of course, talking about travel agents selling flights.

Like many other agency or brokerage-type business models, they have seen revenues and margins drop precipitously because of the Internet, especially where they historically occupied bricks-and-mortar premises. They have often been disintermediated by new web-based businesses with different cost structures (eg Expedia) or airlines selling direct (EasyJet, JetBlue etc).

The buying of airline tickets is not a "service" as such. It's just a normal function of the airline along with flying the planes, baggage-handling and maintenance. (Yes, I know they contract out certain bits, but that's not a service from the passengers' viewpoint).

Some offline travel agents have nevertheless survived, along with a new tier of online aggregators / affiliates (Kayak etc). If you want to book a round-the-world flight, you'll probably still go to an expert, although even there I've seen online systems gain in sophistication.

Other travel agents have gone down a bundling route (eg lowest-common denominator package holidays) or specialised in unusual destinations, demographics or unique adventures or experiences (eg The Adventurists). Often they will make money from ancillary services (accommodation, visas etc) rather than the flights. Some package operators have vertically-integrated and now own their own airlines.

Why is this relevant?

Well, firstly because this illustrates an important problem with the Future of Voice that many of my august peers seem to overlook. We over-focus on increased supply of telephony (so-called OTTs, MVNOs, new entrants like Free in France) and don't focus enough on peaking or decreasing demand for telephony. When was the last time you actually phoned a travel agent to book a flight? There are simpler better (not just cheaper) ways to do it.

But it's the second point that's more important - philosophical, even.

Today's telcos are often just acting as "speaking agents". They just intermediate between you and the person you want to talk to, over a distance, taking (effectively) a commission from the value of your conversation.

That is not a sustainable business model. It is ripe for disintermediation.

Speaking at a distance is not obviously (or exclusively) a "service" proposition. You don't need an agency involved, unless it adds significant value. In some cases, bundling can be "value" but only if it's cheaper or much more convenient than buying the components separately. Some of colleague Martin Geddes' ideas on Hypervoice (adding context & actions to voice streams) are valuable. DoCoMo's cloud translation service is value. Numbers have value for instances where you're calling someone new, or to a place (eg for a pizza). Emergency calls have value. There is some value in "quality", but it's not really enshrined in simple network QoS.

But connecting two friends or work colleagues together for a basic phone call does not involve any provision of value beyond the access layer. In fact, the restrictions of the phone call format may detract from the value of the conversation.

I know the analogy is not perfect. But the "speaking agent" model is going to become ever more niche. We only think of it as a service because of the ancient history of the telegraph, and then the use of manual intervention to connect you to your recipient's line.

(That model still exists in some instances with personal assistants "Hello, is that Mr Bubley? I'm connecting you to Mr X now". Ironically the only time in recent memory that's happened to me has been when speaking to representatives of the ITU before the recent conference in Dubai).

While telecom users might sometimes be lazy in switching, they're not stupid. Trying to eke out the last bits of growth in voice telephony-agent business makes sense, but blaming it on those "dastardly OTTs" is completely missing the point. Voice communications is already moving to cheaper/richer applications (eg Skype) and it's about to become embedded in the web (via WebRTC - I'm speaking at the conference in SF in Nov).

The idea that regulators (who are usually tasked with improving value to consumers, as well as competition fairness) will happily sustain a basic speaking-agency model long into the future are over-optimistic. Once ministers and regulators pick up on the idea that "voice" doesn't have to be a service, but can just be a function or application, the world will likely change rapidly. We will see efforts to decouple the valuable aspects (eg emergency calls) and provide them perhaps as a standalone service or basic citizen right.

If telecom operators want to continue to fight their corner, they need to:

  • Think deeply about the "agency" dilemma. Are you really just brokering (and metering) peoples' conversations?
  • Work out how to add real value to conversations. This will need careful segmentation of *why* people make calls, and look for unmet needs for specific contexts. It's ridiculous that we use the exact same product for a sales call, as we do for calling a relative overseas.
  • Promote the use of telephony and other voice services much better. 
  • Stop focusing myopically on the OTT bogeymen on the supply-side, or you'll miss the real elephant in the room, which is falling demand for an ageing and clumsy product.
  • Decouple the number from the service and access. While there is still some value in E164 numbers, the perspective of number=identity is extremely flawed. 
  • Review how your accountants do revenue allocation of voice telephony from bundles. I believe that it is often massively overstated to begin with
  • Understand the difference between voice & telephony, and between services & apps/features
  • Ensure your billing & OSS systems are up to the challenge of new business models - freemium, sponsored, differentiated or affiliated services etc.  Stop thinking that the "minute" is the fundamental unit of telephony.
  • Tell regulators to stop thinking in minutes, and to understand that the very nature of voice comms is changing.
  • Warn your investors & explain what you're doing (if you think Utility valuations are bad, have a look at Agencies of various types)
  • Get up to speed on the threats & opportunities from WebRTC. It's probably the most disruptive thing I've seen in more than 5 years. I'm doing a presentation on what it means for telcos, and also sitting on a panel at this conference next month.
There's a ton of other stuff I could add here. But it's critical to avoid the complacency from some of my rival analysts that it's all fixable, if you just hang on to the number and do some clever bundle-pricing. That is pure wishful thinking.

Martin Geddes & I did a Future of Voice / Telco-OTT workshop in London last week. Sign up to both his & my mailing lists and we'll let you know about our 2013 schedule soon. Or if you'd like to arrange a private workshop or brainstorm session, contact me at information AT disruptive-analysis DOT com .

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