Coming Down from the Ledge: A Response to Peak Telecoms

I recently read a thought provoking article by Martin Geddes entitled “Peak Telecoms.”  It reads like a prophetic warning that, years from now, people will point to and say “and that’s when the bubble burst.”  Mr. Geddes’ background seems to be strongly rooted in the world of traditional telcos mobile phone carriers, while my own comes more from the world of Internet services and startups.  I think we agree on the fundamental assertion of his article: existing telco business models are tapped out and further growth (outside the temporary relief of developing nations) is a fantasy.  As he points out, whatever margins the carriers enjoy today, razor thin though they may be in places, they rely on carrying voice or text traffic.  But even those revenues have no cost basis that is justifiable in any world outside the carriers’ own distorted pricing structures.  According to an eye-opening article called “Text Messaging is the Biggest Scam of the 21st Century“, cell phone users pay between $75,000 and $1,533,742 per gigabyte of text message traffic.  $1.5M per GB does not compare well against the price of 3G data services at around $6 per GB, and even worse against 4G or broadband costs.  And if anyone thinks this scam is going to last forever, I’ve got some lovely seaside property in Kansas you really need to hear about.

So we know that costs are out of whack with pricing, and it follows that, eventually, the market will squash such a business model.  Carriers still have some time to get off this crazy train before it turns into a fireball.  What to do?

Build OTT services now; cash in before someone else does

Over The Top seems to be the strategy that most carriers are pursuing, and for good reason.  “We already own the network and the subscriber, why not upsell?”  It is solid enough thinking, but it can be deceptively hard to execute well. Most carriers are already doing this in some form.  But it is done grudgingly, in a “me too” kind of way, and with all the enthusiasm of going to get a root canal.  Verizon refuses to even call it “hosted PBX,” preferring instead the murky, industry insider terminology of “IP centrex.”  IP centrex…now there’s a service I just can’t live without.

What about other OTT services? Forget the flashy consumer-focused services like video for a minute and think about what what businesses need: to stay in touch with their customers.  Let’s start with the easy ones: “cloud” call centers and phone systems, where the carrier’s network itself becomes the cloud.  This would not be as much a technology problem as a marketing and user experience problem.  Carriers still have compelling value in the form of five-nines availability and a service footprint that only another carrier can match.  Pair that with a beautiful, functional UI and call it “cloud”.  Forget charging per-minute and start charging per-seat or per-feature.

But to really make waves, carriers should look further.  Google has the right idea in combining and seamlessly integrating all the communications channels we use daily.  What if you could get your email, instant messaging and voice traffic (both VoIP in the browser and on the mobile phone) from one site? What if that site was att.com?  Forget targeting consumers right away and focus where Google is not as strong: businesses.  Give them a powerful set of tools, their own domain name, branding and identity, and make it all seamless and easy to use.  Allow them to scale up from 1 employee to 1,000 and then 1,000,000.  Maybe even invest in budding projects like Disapora to bring social networking into the mix.  Use and deliver these tools in such a way that they federate seamlessly, not only internally, but with the rest of the world.

Add new features to the network to drive usage and make customers sticky

Adding features to the network is hardly a novel concept.  The idea here is to provide value to the subscribers by delivering features that are unique to the carrier.  Historically, this has met with limited success for two reasons: feature fatigue and unworkable user interfaces.  How many of us have features on our mobile voicemail boxes to organize and retain old messages, set different outgoing messages or even reply to messages directly?  The answer is probably almost all of us, but how many actually use it? Close to zero.  Why? Feature fatigue is part of it: there are so many things we can do that we stop bothering to care after meeting the basic needs.  But probably more importantly is how awkward these features are to use.  No one wants to sit with one ear glued to the phone waiting for the maddeningly slow IVR prompts to finish informing us of our options before getting to the business of using the feature.

Now, given the choice, how many of us would like to have our mobile phone voicemail delivered to email? Or even to check it on the web with handy contextual information like the Gravatar image of the person leaving the message, and perhaps a link to reply via email or Twitter?  The keys to success here are three-fold: 1) Provide innovative services that are actually useful; 2) Take a lesson from Apple and make them easy and pleasant to use; and 3) Let the world know! Marketing and evangelism will be crucial to bust the mold of “yet another ho-hum service my carrier provides that nobody uses.”  Complacency is a killer.

Outsource innovation but keep ownership of the customer

First, let us all agree to one stipulation: innovation is a culture, and one that carriers do not cultivate enough.  The most innovative and game-changing services do not come from the complacent establishment.  Instead they come from Internet-time startups and entrepreneurs who can rapidly test, discard and retest new ideas as often as they change their socks.  Does this sound like a typical mobile phone carrier to you? No, me neither.  But, what if a carrier could encourage innovation on their network without giving up control of the subscriber?  What if telcos opened up the network to outside innovators, enabling them to build compelling apps that run inside the carrier but provide services the carrier never imagined?  Imagine Google Voice, but instead of needing a brand new phone number from Google, it just worked on your existing mobile phone with your existing phone number. Imagine having a web UI for reading and writing text messages and having the conversations perfectly synced with your mobile when you leave the house.  Imagine having a service watch your text messages for contextual information like street addresses or events and adding them to your calendar automatically.  Imagine changing your phone from “ring” to “silent” and having calls from everyone other than immediately family go directly to voicemail.  The information streams needed to drive these ideas are only easily accessible from within a carrier’s network, but the best execution will likely happen outside their walls.  What to do?

One very exciting possibility here is an evolving open standard called Rayo.  Rayo offers the possibility for carriers to extend control over calls, messages, location and presence to external developers in a secure and manageable way.  Rayo is not just a technology scratching a tiny itch; it is a fundamental shift in the way we think about telephone calls and devices.  The success of so many Web 2.0 companies has been related to the APIs they offer.  Rayo offers the possibility for a carrier to turn a phone call into a rich API, allowing innovation anywhere, while being able to charge everyone for the privilege.  Rayo is such an exciting topic that you will see more conversation about it in the coming months.

Admittedly, this approach has the potential to blow up in your face if you do not handle it just right.  But so do automobiles and airplanes.  Nothing that changes the world comes without risk.  Still, this approach of outsourcing the ideas and execution probably offers the least risk and the lowest cost of entry to the innovation game while still retaining security over the resulting revenue.  And if done correctly, it enables otherwise staid and boring telcos the opportunity to become something exciting again.

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