The VPF has become a must-attend conference for anyone focused on service innovation in telecoms, with over 200 attendees this year, its certainly bucking the trend we're seeing in conferences closing.  This conference brings together a diverse mix of the telecom value chain: the IP Exchange and data center providers (Terremark, Telx, CRGWest); innovative applications that have a communications bias (Fonolo, Vidtel); traditional mobile, fixed and broadband operators (Rogers, Orange, Telecom Italia, Verizon, Swisscom); service layer suppliers (Oracle, Telcordia); enterprise communication service providers and integrators (Backflip, ifbyphone); and good mix of the Voice 2.0 leading lights (jahjah, Jaxtr, Tom Howe).

Keynote Session was from Gary Kim.  Bottom-line was the major transformation facing Operators is changing business models.  Simply witness the focus on bundling, advertising, exposing capabilities to applications (Telco API), etc.  

Telecoms in Uncertain Times Session.  Mike Lee (CSO Rogers) captured the essence of the discussion with his three points.  The move from commoditized linear TV (broadcast) to on-demand, the culture change to open and real-time; and the critical importance of regulation to foster innovation through market forces.  Mike's point of the cable operator's focus away from commoditized broadcast highlights a perplexion a feel with mobile operators who focus on broadcast TV.

There was also an interesting discussion on why the US is relatively low on the broadband league tables.  In my opinion it's simply due to inadequate US regulation on LLU (Local Loop Unbundling) pricing that stifled new entrant broadband ISPs in the US, which have been a driving force of innovation in markets such as the UK and France.  However, on the flip-side of that issue is it has enabled Verizon to roll-out FiOS, so for about $100 I get triple play (hundreds of channels including on-demand HDTV, broadband (20/5 Mbps) and good old fixed line voice (which I still use as its good quality and reliable). If I compare this bundle to UK prices, its a fair deal.  That last point on good old fixed line voice was also raised by Gary Kim, he stated that he's changed his mind on voice, it is not a commodity, because mobile voice, Skype voice and PSTN voice are different, and the use cases are starkly different.

Carrier Hotels Session (Internet exchanges, interconnect (meetme rooms) and data centers).  These guys are witnessing the confluence of the internet going video, the flattening of the internet (as content providers connect directly to networks) and the explosion of SaaS (Software as a Service).  It's interesting to note the background of some of the exchanges, one with a property management background explained that they get $4-5 per sqft when they rent to people; and $30-50 per sq ft when they rent to computers.  The focus of this industry is concrete, AC, power and interconnect.  These exchanges provide a possible point for operators to interconnect their service delivery capabilities.

My session on Telco 2.0 and Web 2.0: making Money Together? brought together Telcom Italia, Oracle, Swisscom and Orange.  Francesco Fraccalvieri focused upon describing NexTIM, their website for exposing new services for their '360 degree innovators,' their early adopters.  Ty Wang, Oracle reviewed their experiences across both operators and application developers, highlighting the importance and challenges of exposing customer profile information and charging.  Stefan Kuentz, Swisscom described both their consumer and business experiences in exposing capabilities.  Asha Vellaikal, Orange described their broad range of activities across Orange's Widget, picture sharing and OpenID APIs, which are now coordinated through the Orange Partner site.  

The discussion demonstrated the proactive approach operators are taking to foster service innovation, but highlighted the dichotomy of operators taking an approach focused on protecting customer sensitivities and experimentation; while application developers are focused upon speed to cash and the freedom to innovate.  This brought up the role of application aggregators such as uLocate, which can play an important role in managing this dichotomy.  The issue on how the diverse operator initiatives can be aligned to present a common front to application developers was left unanswered.  However, I'll take this issue up on a later weblog entry.

Voice Mashup Session: provided some specific real-world applications from ifbyphone, Jaduka, Jaxtr and Backflip on how communications can be embedded into business processes and everyday activities.  For example, improving the accuracy of lead generation for new car sales.  Many of these required customization to the specific enterprises requirements.  This raise the important role local SIs (System integrator) and how carriers need to expose capabilities that SIs/VARs can use for the SMB segment.  Here BT's relationship with RingCentral provides a small but useful proof-point.

Overall the VPF was a pleasant surprise, it presents a cost effective event to meet the main players across the ecosystem of communication service innovation.

Reviewing the financial reports of many mobile operators shows a similar story in how their costs breakdown.  There's roughly an 80:20 split between operational (80%) and capital (20%) expenditure.  Capital expenditures cover the amortized investment in the licenses and building the network infrastructure.  The bulk of a mobile operator's costs are operational expenditures, hence the importance of EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) as a metric of an operator's financial performance; generally in the 25-35% range.

The operational expenditures breakdown into roughly:

• 40% Marketing and sales, building the brand, paying for all those TV adverts, sponsorship, subsidies on phones, etc;
• 25% Interconnect, cost of calls terminated on other operators, generally a regulated cost structure;
• 20% Technical operations; and
  
• 15% Other costs covering customer care, offices, etc.

Diving into Technical Operations in a little more detail, it roughly breaks down three ways between:

• 7% Transport, most mobile operators have to rent E1s or T1s from incumbent carriers.  As mobile broadband grows, operators need to find ways to have this cost grow in line with revenue not data volume;
• 7% People, hot topic and the focus of outsourced network operations a roughly $10B business, which is about breaking down organizational silos to enable better teamwork, removal of redundancy and leveraging economies of scale; and
• 6% Other (maintenance and site leasing), here we see suppliers being squeezed on maintenance contracts and options such as site sharing.

Other hot topics such as LTE (Long Term Evolution) and Flat IP are really about managing the longer term capital investment as data traffic grows.  But the part of the financial analysis I've not mentioned yet is the revenues.  A tougher nut to crack than managing costs, but nonetheless the biggest number in the financial reports, and one that is most open to competition.  Hence, just using the raw numbers in an operator's financials to weight the priorities; revenue maintenance / growth should be as important as all the cost saving measures combined.

Survival is the mother of innovation.  As customer behavior, rather than technology and competition, significantly impacts a service provider's business, threatening the core revenues; the Telco API (Application Program Interface) is one method for operators to foster innovation on their networks.  The Telco API enables operators to expose capabilities from their networks such as location, presence, charging, authentication, etc.  Based upon twelve studies [Reference 1] performed with operators around the world, the Telco API has the potential to raise ARPU (Average Revenue Per User) by 36% across operator branded, co-branded and third party services.

Just exposing the Telco API is not good enough; operators must implement an application developer community (innovation community).  Making it easy for applications to get on the operator's network, easy to be discovered by early adopter customers, and all within an easy to use community tool that enables continuous application development to get the 'recipe right' for the local market.  Based upon extensive market surveys on forty developer communities six corner-stones of community success are identified [Reference 2]:

• Known the Audience: identify and build a strong relationship with the innovators;
• Tools and Education: there's never enough sample code;
• Communications and Marketing: Sell your best geeks, others will follow;
• Metrics linked to business performance;
• Business Model baked into the API; and
• Integration into the operators' core processes - the innovation community is owned by the CEO.

After building the brand and the network, the application developer community (innovation community) is the next most important leg of an operator's business.

Full text of the "Opening Up the Soft Service Provider: The Telco API" paper.

Technology Appraisals, a consultancy based in the UK, has recently completed a comprehensive global study on "Low Cost & Mobile VoIP."  The study profiles 30 new mobile players in detail and gives summary tables, illustrations and comparisons. It provides a clear picture of who is in this business, where they come from, where are they operating, who is backing them, and what is on offer.

I maintain a list of about 700+ Web/Telco 2.0 application companies, which includes the low cost and mobile VoIP players, and this report showed I'd missed several, so it's definitely comprehensive.  The providers evaluated include Barablu, cellity, Challenger Mobile, Cubic / MAXroam, EQO, fring, Gizmo, iSkoot, JAJAH, Jangl, jaxtr, mig33, MiNO, MobileMax, MOBIVOX, Morodo / MO-Call, Nimbuzz, PhoneGnome, Raketu, Rebtel, Skype, TalkPlus, Talkster, Tpad, TringMe, Truphone, Velofone, Vyke, WiFiMobile, and Yeigo.

About two years ago I did a report on a "Market Assessment of VoIP Bypass Roaming and Operator impact / Proposition: Regulations, Tariffs, Deployment Options / Feasibility, Market Feedback, Operator Business Case, and Operator Impact Analysis / Proposition."  As mobile broadband is now taking off we're entering a phase where the opportunities for "low cost and mobile VoIP" are increasing.  

As roaming rates increase for those outside the EU.  For example, Informa Telecoms and Media claims that in general roaming charges have risen by around 163% since the EU capped rates at 0.49 euros a minute for making calls and 0.24 euros for receiving them within the EU.  The attractiveness of these services increases.  An analogy is frequently drawn between these companies and Skype, in that it did not significantly impact the landline market, because of the inconvenience of being at the PC and have a headset connected; and to the recent failures of Jangl and TalkPlus compound this view.  As always the obvious takes longer to happen than we think, mobile access to the internet "was going to happen in 2000," and 8 years later its just taking off.  With start-ups they only have about 2 years to wait for the market, after which time the investors pull the plug.  So such failures are part of the innovation process, as investors place bets on when the market will take off.

However, given the smarts of a mobile phone and laptop, the applications can become 'hidden' from the user experience, i.e. I just select a contact in my address book and call, then the application makes the decisions behind the scenes on how the call is made.  All I see are greatly reduced roaming rates.  We're already witnessing niches adopting these applications, particularly families that are spread across several countries, small and medium sized companies with operations in several countries, and of course students.  As the usability issues become transparent to the core use case of "select contact and press green button," it will be interesting to see if these niches are able to drive into a broader segment of business customers that can impact operators into action.

Sigma Systems' first User Conference (June 4th-6th, Barton Creek Resort), explored the next generation of consumer and business oriented services, including insight and discussion around emerging trends and technology developments in the following areas:  targeted advertising, evolution of commercial VoIP & data services, global deployments in mobile broadband services, evolution to on-demand services, converged applications over video networks, data and multimedia services and IT back-office transformation.  In the OSS Consolidation article I included Sigma Systems in the Service Fulfillment Landscape.

At the user conference I ran the panel session "Where's the Mobile Industry Going?" with John Namovic, Managing Partner at Deloitte; and Wedge Greene, Industry Guru.  The session's objective was to help the audience understand how mobile is going broadband from those working on the 'bleeding edge' of the mobile industry. Providing a comprehensive global overview of the mobile operator's evolution to broadband; including network evolution, new services and applications, emerging business models (MNO vs. MVNO), and review of important lessons learned.  In particular we'll be reviewing mobile broadband services, evolution to LTE (Long Term Evolution), xVNO economics (Virtual Network Operator (where x = mobile, fixed, converged and possibly even cable)), and FMC (Fixed Mobile Convergence) successes and failures.

Summary of panel discussion:

LTE Summary
1) What is Long Term Evolution (LTE)?  

• Also know as 4G, LTE is an OFDM (Orthogonal Frequency Division Multiplexing) radio system that can flexibly use radio spectrum, rather than the restrictive paired 5 MHz spectrum of old mobile radio systems.  In a 10MHz slot you could see 100-150 Mbit/s of capacity, though it's not much more spectrally efficient than HSPA+ (High Speed Packet Access).  See my Mobile World Congress 2008 article for a discussion on HSPA+.  The big advantage LTE has over WiMAX is global volume; LTE will be adopted worldwide, with DoCoMo and Verizon Wireless leading the way.  LTE also includes some useful operational features, but I'll not go into that here.

2) What are the operator's drivers to adopt LTE?  

• Utilize new frequency bands being auctioned, for 3GPP and 3GPP2 at 1.7 GHz, 2.1 GHz and 2.6 GHz. 
  
• Finally use unpaired (TDD) spectrum resources.
• CDMA operators with no future upgrade path can use LTE in existing spectrum to provide increased capacity and new services. 
  
• GSM operators without 3G licenses can use LTE to upgrade the network.
• Fixed network replacement in rural areas could use LTE. 
  
• Mobile operators HSPA coverage can use LTE selectively, building as the network needs to grow.

3) When is LTE likely to happen?

• Verizon and DoCoMo will likely have a commercial launch in 2010. 
  
• For the rest of the world, HSPA+ will be a significant impediment to LTE adoption, as well as the change-out in the core network required.  So LTE will likely be delayed until 2011-2013.

4) What should a CableCo do?

• Verizon realizes that global volumes matter, and is moving away from its "CDMA island' to LTE. 
  
• WiMAX makes sense in developing nations that lack a copper infrastructure to provide voice and mid-band internet access.  However, a lack of spectrum co-ordination leads to the creation of lots of 'WiMAX islands.' 
  
• For a MSO with spectrum, WiMAX is the only game in town at the moment, though wait 3 years and there will be a global standard that leverages global volumes which is critical for CPE cost management. 
  
• Recommendation for MSOs is to focus on what your customers want: the battle is video as Verizon and AT&T enter the market.  The mobile part of a quad play will become important in the US market (all those shared minutes plans), the battle isn't there yet and an MVNO could be a stop-gap.  Perhaps it makes sense to wait for LTE, than bet on the "son-of-LMDS/MMDS."

FMC Summary (not covered in session)
1) What is FMC?

• The most successful FMC service by far is the mobile phone, if by FMC you mean Fixed Mobile Conversion.  When consumers have unlimited nights and weekend minutes, FMC offers little benefit.  So let's take an enterprise centric perspective, there are 4 approaches to FMC:

1. The handset centric dual-mode approach where the enterprise replaces the mobile network with short-range radio (WiFi, DECT or Bluetooth) in the office.   They retain the mobile network for off-premises mobility.
2. The enterprise uses signaling and/or VPN (Virtual Private Network) functionality to give it more control over call routing and costs.
3. The mobile operators' favorite, is the substitution approach.
4. An evolution from (c) is the inclusion of femtocells in the office network, generally to offload some of the mobile traffic from its own backhaul network.

2) What are an operator's drivers to adopt FMC?

• For a fixed line operator as an attempt to stop fixed line revenue erosion, e.g. BT Fusion.
• For US mobile operators to manage indoor coverage, e.g. Sprint's AIRAVE femtocell trial.
• For a mobile operator it's to offload traffic from its backhaul network (femtocell).

3) What is happening with FMC today?

• For consumer: BT Fusion has failed, Sprint's AIRAVE (Femtocell) is still in trial after 9 months, though Orange Unik is achieved success with 500k+ customers.
• For enterprise: Most enterprises view the 'integration' and 'dual mode' approaches as unproven technologies.  When IT decision makers think convergence, it isn't about FMC; their convergence perspective is around voice and data (IP telephony).

4) What should a CableCo do?

• FMC has struggled as the benefits do not accrue to the customer; the benefits mainly accrue the operator.  So any FMC voice or internet access service must be transparent to the customer before they'll take off.  However, there are a range of FMC services that are gaining traction, for example Slingbox: watching my cable service on my PC or mobile when I'm away from home.  Accessing my home DVR from my mobile or laptop to record a program a colleague just mentioned while I'm in the office.  Home security service (e.g. home WiFi camera) enabling secure remote access from a PC or my mobile.  The list goes on...  What these services have in common is allowing me to do something new that I could not imagine doing 10 years ago and has value to me.  10 years ago I could call from home, and FMC has not changed that, only made it a little more complex and frustrating when I thought I was on the home hub, but instead was on the mobile network, so my international call cost $5 rather than 50c so I've got to waste an hour with a CSR (Customer Service Representative)...
• Recommendation for MSOs: Only use FMC for the basic services when it's completely transparent to the customer (and that includes handset range).  Focus upon new services that leverage cable's unique position in people's lives, cable = video.

A mobile broadband Tipping Point has been reached: HSPA (High Speed Packet Access) is 'good enough' for customers and prices have fallen by a factor of 16 in less than two years.  Three UK (H3G UK) now offers mobile broadband prepay, 10 GBP ($20) buys up to either 1GB or 1 month of access, and its prepay so for regular travelers are no longer subjected to the extortionate 15 GBP ($30) per night internet access charges at UK hotels.  Specifically on the 'factor of 16' data point using Three UK as an example, in '06 the price per MB was 8p/MB, it is now 0.5p/MB (contract package 15 GBP per month for 3GB).  Mobile broadband is growing faster than any previous service, including voice.  Operators are talking about annual subscriber growth rates of over 400%, in one case 100% per month!  It reminds me of the good old 'mobile-gold-rush' days in the '90s, and aren't we supposed to be in a recession?  Mobile Broadband is generally a USB HSPA modem connected to a laptop.

However, the problem is this has happened at the same time as two other trends:

• The internet has gone 'video,' so data traffic is growing exponentially on these broadband ISPs; and
• Computing has gone personal; laptop penetration in some countries is close to 40%.  As data points: the Asus Eee laptop costs between $300-$400, and there will be roughly 40 million laptops sold this year in both the US and Western Europe.

In the UK, the BBC iPlayer is causing fixed broadband ISPs (Internet Service Provider) to complain, customers are now regularly consuming multiple GB per month through their ISP, most of it watching video.  Also new internet-connected HD (High Definition) devices such as the Sony PS3 provide access to games demos and video trailers (all available for free to the customer) where one demo often requires >1GB of data.  The fixed broadband ISPs are now revisiting their network economics.  

For Mobile Operators they the advantage at the moment that customers do not yet expect 'unlimited' mobile broadband access, so the 1, 3 and 7GB limits are not yet a significant deterrent.  However, even with such limits and customers now more readily filling those limits, hence mobile operators must change their network economics from 1c per MB to 0.1 c per MB.  Note, a typical smart phone uses about only 10MB of data per month on average, so laptop access has the potential to increase usage per device by a factor of 100!   The average mobile data bit rate per subscriber was about 10 kbit/s per session, a fixed broadband ISP's average was 25 kbit/s ('07).  Fixed broadand ISPs are estimating their average rate will grow to 70 kbit/s by (2010 or 2011).  The driver as mentioned before is video consumption over HTTP, iPlayer (P2P video), P2P (Peer to Peer protocol) sharing, Sony PS3 downloads, etc.

This tipping point creates a number of opportunities.

On the services side:

• The Mobile web is not just about smart-phones; it's about mobile laptops.  The web is not just about desktop PC access, it's about mobile laptop access.  The use cases are different, hence the opportunities.
  
• With Bluetooth coming as standard in most laptops sold in Western Europe the opportunities for VoIP bypass are significant.  But it will be interesting to see what substitution really takes place.  It can not replace my mobile phone, but it could help save me a few dollars for expensive international calls when I'm settled at a coffee shop.
• Those places where people sit and wait: train stations and trains, coffee shops, airports, in the back of the car, etc. will be far more likely to have sophisticated internet devices connected.  Presenting opportunities in customer service, customer retention, marketing, ways of selling and doing business.
• For enterprises this also changes the mobile office, enabling greater transparency and security of enterprise applications.
• And as discussed at length in other articles on this weblog, provides new opportunities for the Telco API to enhance the web experience of those mobile laptops.

On the network side:

• The core network of mobile operators is going to need to flatten, and do so quite rapidly.
• The backhaul network in mobile operators is already a well covered topic, announcements between O2 and BT show the solutions being adopted.
• HSPA+ is required not for speed, but for the capacity it offers to meet demand in high traffic zones.  HSPA+ was discussed in my Mobile World Congress Summary.
  
• The usual device delays that 3G and HSPA has suffered, may not impact LTE (Long Term Evolution) as greatly as its first application may not be a smart-phone, rather a USB mobile broadband modem powered from the laptop.