True personalisation for broadband & Internet access: The "Insurance" business model

I drive an unusual car. I live in central London, but unusually have a garage. I've never had a speeding ticket or major accident. I'm male, in my 40s, and work as a telecoms consultant. I drive less than 6000 miles a year. I can be considered an "enthusiast".

All of these are risk factors that insurance companies number-crunch each year, before offering me their annual premium. Some companies decline to offer cover. Some companies specialise in assessing various of the risk factors above, and can price keenly. Some have "live" agents & underwriters involved while others just use an online form and a big computer. They have different tweaks and tunes, such as levels of cover and varying excess (deductible) fees if you claim. If you have an accident/claim-free year, they will probably offer you a discount next year and beyond.

And that's the insurance industry's approach to pricing. It uses something similar for home insurance, health insurance and so on. The details of what and how prices are calculated vary by country, based on culture and law (eg in Europe they're not supposed to discriminate prices based on gender despite women generally being lower risks).

Telecoms, on the other hand, prefers the subscription-based model, with published price plans and perhaps a few add-ons, as well as overage and so-called value added ("out-of-bundle") charges like roaming.

Yet at the moment, much of the telecoms world is:

a) Suffering from a decline of the services which lend themselves best to plans (calls, SMS etc)
b) Trying to work out how to price broadband, given rising usage and declining costs of infrastructure, and a messy relationship between the two.
c) Trying to work out how to balance broadband and Internet access value, perhaps with additional services such as IPTV or new "managed services" completely separate from vanilla, Neutral Internet access (as I wrote about yesterday).

Also, as my colleague & erstwhile debating partner Martin Geddes points out, certain network behaviours (and applications) are worse "citizens" than others, creating problems and congestion. "Greedy" applications can almost be thought of as denial-of-service attacks on other users, consuming excess resource and causing "stationarity" problems. Something similar is true for mobile devices with poor transcievers, or even location - if you live in a basement, you probably consume more of your "fair share" of radio resource than someone on the second floor of a building with big windows. Then there's consideration of signalling (eg on/off applications always ppinging the network) as well as traffic volumes, and so on.

So maybe the telecoms industry should take a leaf out of the insurance companies' book.

Instead of getting a monthly subscription, you get quoted an annual "broadband premium". Watch lots of YouTube over LTE? Access Facebook 74 times a day from your smartphone? Drive a knackered old phone with a lousy radio chip? Download 20MB of emails at 9am in Kings Cross Station? Then sorry, but you're a poor broadband risk, and your premium is going to be really high.

The interesting thing is that if there's enough competition at a retail level (eg with MVNOs or new forms of wholesale), there ceases to be a need for full "transparency" on pricing. Each operator collects its own set of variables, crunches it through its own algorithm, and comes up with a personalised quotation. It also analyses your real usage and "risky online behaviour" to refine its premium next year. Maybe we see the emergence of companies similar to credit-scoring that rank your broadband social/anti-social scores.

Yes, there would need to be a whole range of safeguards put in place. It wouldn't be a direct copy of the insurance business. But it would certainly be a more interesting - and perhaps fairer - way to price broadband and Internet access services. (There would probably need to be assorted regulatory changes too, I know, as well as privacy challenges).

My general view is that business models - and revenues - are driven by the OSS/BSS function in telecoms. Network innovation and network-resident policy functions there to enforce certain things, manage/optimise some others, and monitor and measure statistics - but is not at the core of business model innovation. You only need to look at the years of futile and failed attempts to use DPI and PCRFs to create so-called "application-based" plans. By all means instill more intelligence in the control-layer of the IP core to manage costs and aspects of customer experience - but that's not where the revenue side of profitability will stem from.

And from the OSS/BSS side? You've been talking about "personalisation" for years, and more recently "big data". The problem has been that personalisation hasn't really been personal ("what bolt-ons do you want to buy, based on a central core plan?"). The insurance approach would need very big data to be effective, and would by definition deliver completely personalised prices.

Now yes, I know all this is a bit of a straw-man. It would be hellishly difficult to do, especially with legacy networks and legacy charging/billing systems. But I'm really curious about whether people could actually see it working, if we started from a green-field situation.

Sidenote: this is the type of properly "out of the box" thinking you get if you employ Disruptive Analysis as a consultant or business advisor. You might not agree with all the ideas - but the point is to stimulate *real* business-model and technology innovation, not just a warmed-over iteration of the last century's ideas. Contact information AT disruptive-analysis DOT com. Don't Assume.

EU Net Neutrality Laws: Kroes must ignore ETICS/ETNO proposals for sending-party pays on the Internet

Note: I'm working on a separate full blog post about network quality, purpose, flow-management & the Internet (reflecting my frequent Twitter fights with Martin Geddes). This is a specific set of comments about European Net Neutrality and the upcoming draft law coming from Neelie Kroes at the Commission.

There is something of a battle of words/blog-posts going on between the Commission's spokesman Ryan Heath and a Net Neutrality advocate called Jeremie Zimmerman and his organisation Quadrature du Net. It centres on a leaked draft of the upcoming European telecoms laws which will govern (article 20) network traffic management and related issues. In particular, the debate centres on the concept of a European "specialised service" or "Assured Quality Service" or ASQ, which appears to be some form of prioritised data traffic.

My perception is that Kroes is trying to find a way to allow certain (limited) ways to let telcos offer differentiated broadband services, but without reflecting the idiocy of earlier proposals' like ETNO's attempts to enforce termination-type regimes on the public Internet. I think Kroes (and telecom vendors) are doing a poor job at articulating the idea that such managed services would be for "new broadband use-cases" such as broadband-connected health monitors, environmental/fire sensors, CCTV, corporate homeworking or whatever.

Most discussion seems to centre on the perceived risk of Facebook / Google / Broadcasters etc buying "priority lanes" to the detriment of other web startups. This is a pointless and irrelevant strawman argument.

Personally, I think Hell would freeze over before FB or YouTube or the BBC actually paid for users' traffic or QoS, unless forced. The so-called sending-party pays / 1-800 model for mobile apps or even most fixed-line TV services is an unworkable myth, as I elucidated in last year's report on the topic. It's much more likely that telcos will end up paying Google for premium server access, than vice versa as long as decent Neutral Internet access is provided at the same time, as a pre-requisite.

A lot of this confusion relates to the continued conflation of the terms "broadband" and "Internet" by many in the industry. I wrote about this important semantic difference here.

The intent of any new Net Neutrality legislation must be to ALLOW & encourage the creation of new non-Internet broadband services, but to DISALLOW any attempt to change the current business model of the Internet, which is working fine. In other words, it needs to be framed in a way to help create NEW revenues and opportunities for network operators, without allowing them to restrict or tax the current businesses of Internet-based content and apps players.

My view is that the contended document from the Alcatel-Lucent led project ETICS is a prime example of what must NOT happen. It is written from the same flawed school of Internet Economics as the risible "sustainable Internet" nonsense from ETNO-sponsored consultants ATKearney a couple of years ago. ETICS utterly fails to make a clear distinction between the Internet and any new forms of QoS-managed access. I would hope that the European Commission treats it with the contempt it clearly deserves.

The ETICS model might be a feasible idea for separate non-Internet access based services (although I doubt  the commercial & technical practicality), so I have no problems with it being tested, as long as it is done in a fashion to "quarantine" it away from today's Internet. If it's successful, it will need to win from adjacency on its own two feet, not be superimposed on the existing Internet access/peering business.

My view is that prioritised data / managed services are OK as long as:

1) They are kept completely distinct from Internet access (ie are delivered from servers with a direct connection from the telco's infrastructure or elsewhere, not transiting the public Internet)
2) They are not branded as Internet services, or sold in a bundle with Internet Access. This may mean that they also cannot share the top-level brand with an Internet-based content or application source (ie no "YouTube Premium", but something like "GasCo Energy Meter & Control" or "FireCo Sensor & Alarm Service" would be OK). Possibly, this could be done by disallowing such services to use the Internet DNS, or perhaps prohibit them from running within normal Internet browsers, or on apps delivered from Internet App Stores. They need to be ringfenced from the public Internet as far as possible.
3) There is no or limited implicit negative/deprioritising effect on Internet Access concurrently running on the same access/transport connection, arising from the use of managed services by the same customer or their neighbours
4) There is no attempt to create something that looks like a "termination fee" model for public Internet services. Either the user pays for specific managed services (like IPTV today) or perhaps an upstream content/app provider is allowed to pay (eg an employer paying for home-workers' connection) as long as it is 100% clear that the service is not related to the Internet (see point 2)

As Martin Geddes will no doubt point out, point 3 is mathematically and technically very hard/impossible. That, however, is not the EU's problem - it is vendors' and operators' problem if they want to offer such services. I propose that a very simple legal approach is used - managed services should ONLY be sold by telcos on networks which provide Internet Access with guaranteed minimum speeds & maximum latencies, not those marketed with maximum speeds. As long as the customer is guaranteed a decent minimum level of open, best-efforts Internet (howsoever delivered), then the rest of the broadband service is fine to experiment with.

Yes, within that Internet connection there's the same vagaries from all the various Internet applications fighting for capacity, but that's fine. The technical implementation of this can be left up to the operator - could be a cable MSO using separate dedicated RF frequency bands for Internet vs. non-neutral services; could be using some clever contention/policy-type software & network kit; could be lighting up two fibres or separate wireless connections and so forth. It doesn't matter - the bottom line is that all this happens without the user's Neutral Internet access being notably affected from today's model, except the telco has to provide a guaranteed minimum speed/latency as an SLA (measured appropriately, perhaps with a standard benchmark set of apps determined by the regulator).

It's quite possible that all that is too hard. In which case, the operator concerned (outside Finland at least) always has the option of just not selling Internet access at all.

To reiterate - I'm looking for Kroes and the Commission to articulate a way to allow the creation of new, ringfenced and clearly-labelled managed broadband services. But there needs to be extremely clear safeguards and harsh sanctions to protect the availability, price and usability of today's as-neutral-as-possible public Internet alongside. There needs to be clear blue water - in branding, marketing and technology - for any non-Neutral "specialised services" compared with the Internet. The Commission must ensure that telcos and their vendors avoid both consumer confusion and duplicitous or clumsy ETNO-style attempts to alter current Internet business models.

Quick thoughts on Microsoft + Nokia acquisition

So... I called that one very wrong indeed. I've consistently laughed at the notion that Microsoft would acquire Nokia, as it seemed such a strategically stupid thing for it to do (for Microsoft at least).

I suspect Steve Ballmer thought the same way as me - hence his decision to retire last week. I'm bet that the Board (& presumably Bill Gates) had some "robust" discussion about this.

[Note - technically MS has actually just bought the Devices & Services unit; Nokia remains as an independent company with a 148yr history]

Some quick thoughts (mostly ones that I think other analysts won't cover):

• MS has decided against following Oracle down the trend towards "IT-isation of the network" by leaving NSN out of the deal. Wouldn't surprise me to see IBM or HP step up to the plate, though.
• But on the other hand, it now has a ton of Oracle-powered (ie Java) devices in its portfolio as it's picked up Nokia's featurephone business as well as smartphones
• On the other hand, this reduces any fears that the Windows Phone / Lumia line could suffer mid-term if Nokia's finances had worsened. MS will be able to put its full marketing/distribution muscle to use
• This is mostly irrelevant to anything that Skype is/will be doing, although I'm sure plenty of people will insist that 2+2=5. (Sidenote: Skype is more about extending enterprise comms with Lync, as well as integration with X-Box, Office & Outlook)
• So, the "big guys" for integrated consumer software/device/app ecosystems are now Apple, Google and Microsoft, with Samsung and maybe Sony playing in "everything but an OS". Will be interesting to see if Amazon or Huawei try to crash the party as well (via BlackBerry or HTC perhaps).
• It's entirely unclear if this acquisition helps or hinders Microsoft in the tablet space. WinRT has been pretty pointless so far.
• This isn't especially helpful from the perspective of WebRTC, as it further entrenches the Chrome vs. IE vs. Safari/iOS divide. That said, Nokia has been quite keen in the past as it tends to be fairly web-savvy. Wonder if we'll see Samsung get friendlier with Firefox or maybe acquire Opera?
• Expect a whole new round of IPR lawsuits now that Nokia's patent portfolio has been detached from its devices business. Microsoft has got a licence, but has (wisely?) decided against fully entering that fray as a patent owner.
• The line "will draw upon its overseas cash resources to fund the transaction" suggests that this is partly a tactical move to reduce taxation of repatriated profits
• Qualcomm's role of silicon arms merchant (or indeed ARM merchant) to all the main handset families is underscored here.
• Nokia's huge (and in some places still-loyal) footprint of featurephone users *might* be leveraged to give the flagging PC market a boost, if it can convince them to leapfrog low-end Android tablets and get proper computers instead
• MS has licenced the Nokia brand & will use it to "extend its service offerings to a much wider group"... ie people who don't know/understand/see relevance in the Windows brand, especially non-PC owners.
• The remaining bits of Nokia are actually quite interesting/cool when viewed as a "new company" - a reinvigorated NSN facing the shift to NFV/SDN, the HERE mapping unit and its R&D/patent unit. It's got rid of the stuffy old phone business and can now concentrate on the cloud, where all the action is going to be
• This also means that "New Nokia" has a bunch of new prospective clients, notably Apple (which let's face it, could use some decent maps)
• There will probably be some truly horrible attempts to combine Lumia + Xbox in a couple of years' time
• This will have near-zero effect on Microsoft's enterprise business for the foreseeable future. I can't see corporate users switching en-masse to Windows Phone, especially in the era of BYOD

I'll try add to this as other things come to mind. But overall, this is much more positive for "New Nokia" than it is for Microsoft, in my opinion.