Future Telco 2014 en
Future Telco 2014 en
Future Telco 2014 en
DETECON
Consulting
Knowledge@Detecon
Future Telco
Profitability in Telecommunications:
Seven Levers Securing the Future
Consulting
DETECON
Future Telco
Consulting
DETECON
Knowledge@Detecon
Future Telco
Profitability in Telecommunications:
Seven Levers Securing the Future
Consulting
DETECON
Knowledge@Detecon
Future Telco
Content
Foreword
Challenging Future
01. Network is King!
26
34
50
56
72
78
94
Knowledge@Detecon
Focused Innovation
11. Innovation The Future of Telecommunication
128
Enforcement Partnering
13. Successful Partnering Generates New Growth
148
160
Empowerment Wholesale
15. Managed Services Are Entering the Stage of Maturity
Results of a Survey
164
174
188
200
208
224
Future Telco
230
244
250
264
270
286
298
Outlook
312
The Authors
316
320
Knowledge@Detecon
Future Telco
Foreword
Neither the strongest nor the most intelligent survive, but the ones who can best
adapt to change. Darwins insights into the evolution of species (freely interpreted)
can be applied with astonishing accuracy to the telecommunications industry as
well: markets change and force all companies to review their structures, products,
and business models and adapt them to new conditions. This is by no means a
simple process and must be repeated constantly because in our fast-paced world of
today transformation has become a constant.We see this in a positive light. Change
is the driving force behind progress and always offers opportunities as well. Telecommunications companies should welcome transformation and boldly take charge of shaping and advancing it. Detecon International has defined seven fields of
action which open up new opportunities for companies. They begin with modern
network concepts which can be used to exploit to the full the possibilities created by
digitalization. Network capacities must be expanded while simultaneously securing
their integration. Fixed and mobile networks belong together.
Companies should strive to incorporate more agility in their processes and IT systems,
which will enable them to respond faster to changes in customer requirements and
market conditions. Everyone involved in value creation must focus on innovation.
New technologies, new products, and new services pave the way for penetrating new
markets. As they set out in new directions, telecommunications companies will work
together with partners and develop business fields that could not be any further
from their thoughts at this time. Alliances and networks allow the sharing of risks,
faster research, more specific advertising, and the realization of business models
which would be out of reach for companies going it alone.
There are revenue sources in the wholesale business just waiting to be developed in
full. A strong infrastructure can serve as more than merely a unique selling proposition in the competition for end customers. It can also be used for business models
founded on optimized utilization of network capacities and offering various levels
of quality. In the future, retail business will differentiate market segments in g reater
detail. Factors such as variances in the capabilities of network infrastructures from one
region to the next, varying intensity of competition between regions, and of course
the differences in willingness to pay and preference structures of end c ustomers must
be given consideration. Companies which take the right factors into consideration
will be successful on every market and in every segment.
Shaping the markets of tomorrow will be the privilege of those firms which take on
these exciting tasks today. I hope you enjoy reading these articles; may they inspire
you with many new ideas.
Best regards,
Francis Deprez, CEO Detecon International GmbH
Detecon International GmbH
Challenging Future
Network is King!
Dr. Peter Krssel
> Handling the growth in network traffic is
becoming the key task for Carriers.
> Only integrated heavy asset carriers will
have a chance of surviving. Companies which
do business exclusively as mobile network
operators have come to a dead end.
> Seven levers for each value-added stages can
support carriers in securing their profitability
long-term.
> These plans position the companies as a
key director of digital value creation, and
a driver of digital transformation
in business and society.
Network is King!
Challenging Future
10
Cf. Analysys Mason, Wireless Network Traffic Worldwide: Forecasts and Analysis 20132018.
Cf. Petry/Schnitter/Salisbury, Operators Caught Between Scylla and Charybdis How Much Differentiation
Potential Does the Performance Capability of the Networks Really Offer?, DMR 2/2010.
Network is King!
thanks to the enthusiasm for innovations on the part of the OTT players. These
two factors, coupled with the expansion of the broadband infrastructures for
fixed networks, the 3G and 4G hub in mobile networks, and the flat rates being
offered by operators, influence the usage habits of customers because opportunity
generates demand.
The effects produced by the new services, some of which are still in their
infancy (M2M, cloud services, virtualization of end device functions, and the
digitalization of entire branches of industry think of Industry 4.0 and of
peoples private lives), have not yet made much of a splash. It must be emphasized
that these influencing factors are by and large independent of one another. We
assume there is an exponential rather than additive cumulation leading to the
overall effect. So there is no reason to expect an end to the exorbitant growth in
traffic. The fundamental challenge for the carriers will initially be on the side of
the infrastructure.
Carriers face the extraordinary difficulty to be forced to handle the growing
traffic economically with to be upgraded networks by investing enormous
financial resources, even though at this time corporate revenue are tending in the
downward direction or, at best, stagnating.
On the revenue side, the options open to carriers are essentially to increase prices
for current services or to develop new sources of income from innovative services
and new customers. The primary task on the side of costs and investments is the
expansion and efficient operation of modern, powerful network infrastructures
oriented to earnings potential.
Regulatory framework from the political side is lacking
If carriers want to secure their profitability, they must have an important
prerequisite: a regulatory framework offering investment security and sufficient
incentive for decisions in the face of risk.
The political establishment in Europe has in the last few years set forth its demands on carriers with the intent of securing a functioning broadband infrastructure. But support, whether in the form of monetary aid or the creation of
regulatory framework conditions, has generally been noticeable for its absence,
or the proposed concepts have been too tentative. However, there have very
recently been indications of a hesitant change of heart. It results first and
foremost from recognition of the fact that a high-performance t elecommunications
infrastructure is a major competitive factor for industries. Europe has fallen
Detecon International GmbH
11
Challenging Future
behind in the competitive race among the regions of the world. Comparative
statistics of broadband expansion in Europe, Asia, and the USA reveal just how
clearly Europe now lags behind in fixed network and even in mobile services. The
coverage rate of the 4G standard in the USA is three to four times greater than
in Europe. South Korea is a prime example of an FTTH infrastructure which is
more or less full-area coverage and has completely run away from the Europeans.
Regulatory rulings such as the vectoring decision of the Federal Network Agency
in Germany, recent access decisions for the last mile of some national regulatory
authorities, and the initiative of the EU Commissioner Neelie Kroes, responsible
for the European Digital Agenda and author of a new draft for a regulatory
package with an eye on the single European telecommunications market,
are h
eaded in the right direction. While it is true that the initiative aimed at
eliminating roaming fees within the EU by 2016 will wipe out yet another
substantial source of income volume for carriers from the market, a path is also
being mapped out which could allow operators, under certain conditions, to
assign priorities to the handling of services from other providers based on the
payment of monetary charges. This will offer opportunities for better financing
of the required network expansion and force OTT players to contribute to the
financing of the networks.
In the end, the signals being sent out by the regulatory side in Europe are highly
disparate, as was once again demonstrated during the most recent auction of
mobile frequency licenses in Austria. The three mobile network companies
bidding for the frequencies here had to pay really high amounts in excess of two
billion euros.
The network factor: integrated heavy assets as first choice
What does the business model for telecommunications companies which will
be successful in the future look like? The possibilities range from a strict bit pipe
model to a full-service provider. Which model is ultimately most promising is a
question of three factors in particular: the infrastructural base of the fixed and
mobile network, the competitive position on the end customer market, and the
ability to manage partnerships successfully. But the consequences are of even
greater scope.
The challenge traffic growth and the need for seamless connectivity across
all infrastructures and the most highly diversified access technologies will force
carriers to build an infrastructure which is increasingly finely meshed and truly
integrated. Carriers with a granular fixed network of full-area coverage and a
12
Network is King!
matching mobile network infrastructure will clearly be at an advantage in comparison with single-business mobile network companies.
Resources at the air interface are proving to be limited. The available spectrum
will be exhausted in the foreseeable future, even refarming will not be sufficient,
and innovative technologies such as MIMO (multiple input, multiple output)
and AAS (adaptive antenna systems) cannot promise to do more than gain a little
time. Sooner or later, mobile network corporations will be forced to make the
cells smaller and smaller.3 The bottom line is that the number of cells which must
be created, maintained, connected to the core network (backhaul), and integrated into network management will increase substantially. At this time, the four
mobile network companies in Germany operate perhaps 80,000 macrocells. In
the middle term, this figure will increase by a factor of 5 at the very least. In addition to these small cells, end customers will utilize indoor cells (WiFi offloading,
femtocells) at their locations.
Not every mobile network company will be able to afford this. In fact, considering the immense investment requirements and the necessity to connect this
large number of additional cells to the core network, the fundamental question
arises as to whether single-business mobile network companies are even capable
of survival at all. Two options, dependent on parameters such as competitive
position and infrastructural base, are moving to the forefront: either doing
without an exclusive mobile network and divesting the network (sale and lease
back), taking advantage of managed service from a third party and, as a kind of
reseller, operating as a service provider or virtual network operator (MVNO) on
the market; or stepping out in the other direction and building up or acquiring
a fixed network. However, a project of this type would presumably be difficult
to carry out on mature markets because suitable options cannot be developed in
every country.
If neither of these options can be realized, or can be realized only under difficult
conditions, there is no choice other than the exit option. We can already observe
movement in this direction on the market, prominently exemplified by Vodafone. The company has divested its mobile network holding in the USA and
acquired the cable television operator KDG in Germany.
Traffic growth will be the prominent driver of consolidation on the market. Size,
volume (scaling effects, cost leadership), and utilization of network capacity
which can be monetized will be decisive for survival on the market.
3
13
Challenging Future
This is why only integrated carriers (heavy assets) will have a chance of surviving.
Companies which do business exclusively as mobile network operators have
come to a dead end. They are left with essentially three options:
> Development in the direction of an integrated carrier by acquisition or
creation of a fixed network (heavy asset)
> Positioning as an MVNO/reseller/service provider (Light Asset)
> Exit.
The priorities for a light-asset approach, an OPEX-dominated business model,
focus less on the refinancing of the networks and more on achieving the g reatest
possible spread between the costs for the purchased wholesale services and the
retail prices which can be realized on the market in conjunction with OTT
partnerships.
If the alternative of the heavy asset approach is chosen, the previously defined
question about the business model must be answered. In contrast to the light
asset model, the heavy asset model is CAPEX-dominated and requires b usiness
logic oriented to the long term. The networks are at the hub of all business
decisions. The necessary investments must be justified by the achievable revenues
and profit and/or be refinanced as quickly as possible (monetarization of the
networks). Primary focus is on improving efficiency in the allocation of CAPEX
and OPEX for the networks, the full utilization of network capacities, and the
increase in revenues.
Efficiency of the networks
Modernization heightens network efficiency
Modern network concepts enable an increase in network efficiency. Virtually all
carriers have taken a step in the direction of IP and are in the process of rigorously
shutting down legacy systems and heterogeneous, service-specific production
platforms which have developed over the course of time and of implementing
IP technology. More advanced steps toward centralization of intelligence in the
network, virtualization of network functions, reduction of active components
and locations in the network, strict application of IT principles to the classic
telecommunications products such as software-defined networks, and, finally,
automation are in the planning stages and undergoing feasibility tests; in a few
cases, some of these steps are already being implemented.4
Concepts of this nature do more than simply reduce CAPEX and, above all,
OPEX; they accelerate and flexibilize innovation, product development, provision
14
Network is King!
and billing of services, and the integration of external partners. In other words,
they create the key prerequisite for the sustained monetarization of the networks
and pave the way for marketing departments to realize innovative p
roduct ideas
and price models, either alone or in collaboration with partners on the market.
Moreover, they reduce dependencies on network component manufacturers and
create maneuvering room in dealings with OTT players.
They are of transformational significance for carriers and implicitly entail precisely
such structural, cultural, and procedural changes. Examples include the closer interaction of the process landscapes of IT, technology, and product development
departments (which are usually strictly separated in organizational structures and
lack adequate harmonization of processes) and partnering capability.
Expansion of network capacities by means of small cells and hetnets
The largest investment items are related to the increase in network capacity
either through the more efficient utilization of existing resources or by the generation or acquisition of additional resources. In the fixed network segment, there
will ultimately be no other choice than to expand the optical fiber infrastructure
in the various FTTx variants such as fiber to the building (FTTB), fiber to the
curb (FTTC), or fiber to the distribution point (FTTDP). This is an u
ndertaking
demanding extremely high investments because it is usually necessary to do
civil and underground work when laying the cable. Enormous investment sums
ranging as high as 93.8 billion, depending on the scope of the estimates and the
planned technology, have been projected for the FTTH expansion in Germany
to achieve full-area coverage.5
The mobile networks have the choice of increasing either the spectral efficiency
of the radio access technologies or the spatial reutilization of the spectrum in
cellular mobile radio systems. This ultimately means a reduction in cell sizes and
an increase in the number of cells.6
The optimization of the spectral efficiency by means of methods such as smart
antennas and MIMO as well as the utilization of higher modulation frequencies
and improved channel coding are the technologies now in use. But they will not
be sufficient to cover the rising demand or to assure viability of certain a pplication
4
5
6
15
Challenging Future
scenarios such as adequate radio coverage in street canyons or availability in buildings. There is simply no alternative to more finely meshed networks. Rather
than a few large base stations with a wide range, usually involving high costs, it
will be necessary in the future to plan, build, connect, and operate additionally a
large number of small, inexpensive cells.
In supplement to the small cells, which will be used primarily outdoors, it will
be necessary to use DSL-connected WiFi routers for end customers (indoors)
as an offload opportunity and to install so-called 3G/4G femto cells with SON
(self-organizing network) capability for improved coordination of potential
interference, all possibly requiring additional expenditures for operators related to
infrastructure and integration. Future access routers used by end customers
should ideally contain both an LTE and WiFi modem. But these devices are
beyond the conventional control of the network operators.
In the end, there will be completely new and enormous challenges in network
planning, roll-out, backhaul, logistics, required installation and maintenance
capacity, location acquisition, roll-out processes, network management, management of increasing interference, and processes for eliminating disruptions.7
Integrated planning of fixed and mobile networks
The concern will be to allocate these investments for the build-up of new grids
or the expansion of existing ones on the basis of market needs and with an eye
on the existing infrastructure to ensure that they deliver an economic profit as
quickly as possible. A precise geographic forecast, as granular as possible, of the
traffic volume is indispensable to guarantee the profitability of local capacity increases.8 It is just as important to regard fixed and mobile networks as integrated
so that the synergies between the two networks can be mined. These synergies
arise from full-area coverage from existing fixed networks, above all from the
locally available WiFi offload capacities, and from the opportunity to provide
low-cost backhaul for the smaller-cell mobile networks of the future. The smaller
the cells of the mobile networks, the greater the synergies between fixed and
mobile networks! The two networks grow together and supplement each other
synergetically. For its part, the fixed network supports the mobile network because
it can divert mobile network traffic (backhaul) or can provide offload capacities
(WiFi/femto cells). In return, the integration of the small cells can contribute to
a substantial improvement in the business case for the FTTx roll-out in the fixed
network.
7
8
16
Network is King!
9
10
11
12
17
Challenging Future
> The most far-reaching form of cooperation ends with a network operator
divesting its own network, transferring it to a third party, and acting strictly as a
reseller, virtual network operator, or service provider with respect to customers.
This option essentially corresponds to the light asset approach described above.
Carriers which have a strong infrastructural base for both fixed and m
obile
networks on a market have a unique opportunity to score points, especially in
wholesale business, as a consequence of the demand for network expansion briefly
described above and the imminent roll-out of small-cell networks and their
integration. They can force other competitors out of the infrastructure business
and consign them to the position of virtual network operators or resellers.
Business models based on QoS in wholesale
Besides the aspects of wholesale business revolving primarily around the question
of securing the required network capacities and network coverage on national
markets, additional opportunities result from the ICTization of the world or
the Internet of Things. New business fields such as cloud services, XaaS, or
M2M are leading to the dramatic gain in significance of worldwide connectivity
which functions seamlessly no matter which of the many and diversified
access technologies are in use. This achievement is subject to the conclusion of
interconnection agreements, either direct or indirect, with as many access network operators as possible around the world. The laws of large numbers apply
to this business as well so that production and delivery at low cost are possible.
However, the transport of the data traffic also has aspects of quality. Providers
must be able to attach various quality parameters such as delay, jitter, or packetloss p
robabilities to the transport.13
QoS differentiation in retail
An alternative to driving wholesale business is the chance to offer a superior
network infrastructure exclusively to the companys own retail division and to
initiate competition based on quality in the hope that end customers will be
willing to open their wallets to pay for this quality. But this is an approach which
will be difficult to turn into reality in view of the intense price competition,
established flat rates, a lack of awareness on the part of many customers that there
is any shortage (in the fixed network, at least, best effort is still sufficient for most
applications), the performance capability of cable network operators, and the
13 Cf. Gerlach/Knoben/Schellschmidt, Everything Flows The emerging cross-industry ICTization changes
competition within the wholesale business 2032, DMR 2/2012.
18
Network is King!
19
Challenging Future
Network is King!
21
Challenging Future
22
Network is King!
elements, by using the mechanisms of an emotional bond. Carriers must complete the step from service excellence to true customer enthusiasm. All of the
customer touch points must be optimized in terms of a thrilling customer
experience.24
As they strive to monetarize the networks, marketing departments must obey
the dictates of efficiency and effectiveness just like the technology and IT departments. The marketing investment in the form of so-called customer acquisition
costs (CAC) and customer retention costs (CRC) must be strictly aligned with
customer value. Initial experience in the area of customer self-service reveals that
the creation of positive customer experiences and an improvement in the perception of customer service in compliance with important design principles for the
underlying IT architecture can definitely go hand in hand with cost reductions,
which in some cases are substantial.25 It is important that the actions related to
marketing and sales are embedded in a framework of consistent target systems,
defined KPIs, and corresponding steering logic across all of the various marketrelated corporate divisions and channels. This framework must take into account
the situation of the specific company and the market conditions so that actions
and performance measurement can be correctly controlled.26
Basically, the prerequisites for generating true customer loyalty and enthusiasm by
means of a positive customer experience are good for carriers. Together with their
partners, integrated carriers have at their disposal an extraordinarily attractive
service portfolio which has the emotional and rational attributes n
ecessary to
open access to the exciting world of digital experience of the 21st century in all
of its many facets to their customers.
Seven levers for the integrated carrier of the future
The present business situation for many carriers is characterized by stagnating or
even declining sales, rising need for investments, high levels of debt, and falling
profits. The causes lie in the tremendous growth in traffic, the success of the
OTT players, and the keen price competition among the carriers. As long as
the earnings per bit continue to fall dramatically and the costs per bit cannot be
adjusted to match (as a minimum) the speed of the decline, many carriers will
find themselves confronted with the issue of their survival in the middle term.
23
24
25
26
23
Challenging Future
Only integrated heavy asset carriers will be able to master the problems economically. Companies which do business exclusively as mobile network operators
have come to a dead end. They will not survive on mature markets. They have
the options of divesting their own networks and operating as resellers or MVNOs
or of merging with a fixed network operator and developing into an integrated
heavy asset carrier. If neither of these options can be realized, the exit is the only
remaining choice.
But the challenges described above remain for the integrated heavy asset carriers
as well. They must on the one hand provide additional resources and work on
their production and marketing efficiency, while on the other hand they at least
slow down the decay in the earnings per bit and develop new sources of income.
Detecon experts have identified seven levers which can support carriers in
securing their profitability long-term. The following articles describe the significance and effects of these seven levers for each value-added stages of an integrated
heavy asset carrier.
Carriers which understand how to plan, build up, operate, and monetarize
their networks highly efficiently will survive. Realization of economies of scale,
integrated network expansion aligned strictly with economic profit criteria,
implementation of modern network concepts, close linking of network and
IT, d
evelopment of new sources of income and innovative price models, and
successful acquisition of end customers through attractive own products and
services and innovative offers organized in partnerships are the success criteria for
a sustained and profitable positioning on the market.
24
Network is King!
A successful realization of the plans briefly sketched above will create substantial
opportunities for telecommunications companies. These plans lay the foundation
for securing profitability long-term, positioning the companies with respect to
customers as a key director of digital value creation, and developing from a party
driven by digital transformation in business and society to a driver of this transformation.
Figure:
Challenges
Strategic options
Mobile
Traffic
growth
Infrastructure
heavy asset
Netw
is Ki ork
ng!
OTT
Player
Resale
light asset
4. Enforcement Partnering
5. Empowerment Wholesale
No
activity
2
No
activity
Price
competition
Resale Infrastructure
light asset heavy asset
Attractivity of position
5 = high 1 = low
Source: Detecon
25
Interview
26
Question: What kind of influence do the capital market and banks have on the
telecommunications industry when it comes to the challenges of the future? How
great is the capital markets influence, and what impact does it have?
Rothauge: The influence of the capital market and banks is always particularly
powerful when funds to finance activities are required. In view of the enormous
magnitude of the investments currently needed to ensure that the networks are
prepared for the future, the capital market is a weighty factor indeed. However,
the interesting phenomenon here is that the mechanism for direct influence
during the financing of new investments additional third-party capital, for instance is as a rule of less relevance than the mechanism for indirect influence,
the way the governing bodies of the companies are influenced by shareholders or
lenders. The capital market always concentrates on the highest possible return on
capital, and many telecommunications companies find it difficult to satisfy the
demands of the capital market precisely in this respect.
Specht: The differences in the time horizons of the various parties can also be
problematic. Generally speaking, investors prefer fast realization of their returns.
Moreover, they like glass-clear transparency in the assessment of the r ecoverability
of their investments. This is often contrary to the long-term investment cycles
related to investments in the network infrastructure.
Question: What needs to be done to promote the willingness of the capital market to finance new network infrastructures?
Specht: Investors must be convinced of the recoverability of their investments.
Unfortunately, they have suffered a number of disappointments in this respect in
the past. Technological trends have turned out to be shorter-lived than originally
expected. Decisions made by the regulating authorities in Europe have also
heightened competition and increased pressure on prices. Regulators here have
set for themselves a different focus from that in the USA and other countries.
European consumers have had good reason to celebrate average revenue per
user in mobile networks is only half as high as in the USA.
Rothauge: The decisive point is a change in the price mechanisms. Telecommunications is the only large infrastructure-based industry in which prices have been
declining for years. This trend has been accompanied by a creeping devaluation
of the infrastructure. Price stabilization would be highly desirable; indeed, the
establishment of a trend in the direction of slightly rising prices for infrastructurerelated services would be ideal, especially with respect to network connections.
27
Interview
The severe competition has frequently forced players to throw their plans along
these lines out the window. But they have also been guilty of not thinking their
price strategies completely through or of being too short-sighted.
Question: What price strategies should telecommunications companies pursue
to achieve this objective?
Rothauge: The sharp rise in traffic volume for every single customer resulting
from the new ways the telecommunications infrastructure is being used represents
a key opportunity for leverage in this issue. Mobile Internet is regarded as the
major driver in mobile networks; this role is played for fixed networks above
all by video content. In the USA, for instance, 30% of the traffic is related to
the utilization of video content from Netflix alone. Here is a unique chance for
the telecommunications companies to push through higher prices for higherspeed connections, especially since the competition is naturally limited as a rule
because profitable expansion will be possible solely for one single higher-speed
infrastructure. The customers need to utilize the new services will inevitably
lead to greater willingness to pay for faster connections especially if customers
are intelligently introduced to these new services. The conflict described so
frequently between OTT providers such as Netflix, Hulu, or Lovefilm and the
telecommunications providers is in reality a symbiosis: both sides are dependent
on each other for their success. But this is precisely the issue where providers
must maintain their price discipline. Ill-conceived price reductions related to
connections are absolutely counterproductive.
Specht: Moreover, a greater willingness to substitute on the part of customers
could prove to be helpful from the companies perspective. If the trend to
immaterial consumption continues, it is certainly imaginable that customers
will devote a greater portion of their budgets to telecommunications services.
This would be balanced by limitations in their purchases of CDs, DVDs, or
magazines, for example.
Question: Maintaining price discipline would be much simpler if the competitive landscape were more strongly consolidated. In comparison with the USA, the
landscape of the telecommunications companies in Europe is highly fragmented.
There is only a handful of carriers in the USA; their number in Europe is
almost unmanageable. Does Europe need to play catch-up in consolidation of
the players? How important is size as a factor?
28
29
Interview
Question: What characterizes carriers which would like to play an active role in
defining this consolidation process? How important are the stock prices, market
capitalization, or other financial KPIs?
Rothauge: Consolidation is first and foremost a question of financial strength.
Carriers with a high stock exchange value and a low level of indebtedness when
viewed, for instance, as the ratio of net indebtedness to operating profit are i deally
positioned; indebtedness in particular is of extremely great importance because
the investors initially have few benefits from the advantages of the consolidation.
But shareholders often regard mergers with a critical eye because there have been,
and there still are, many examples of counterproductive developments. Evidence
of such developments can be found in the extensive write-offs of goodwill which
have followed some of the mega-mergers. Mergers put a tremendous burden on
management and employees, frequently diverting concentration away from the
market and customers and causing companies to fall behind their competition.
These are reasons why the capital market as a rule tends to be critical in its assessment of large mergers, especially international ones, while smaller, more easily
manageable acquisitions are viewed with greater approval.
Specht: Credibility plays an important role, as does managements track record
with acquisitions and integration. When they look back, investors have seen
too many expensive acquisitions in our industry which did not fulfill growth
expectations or result in the scope of synergies as planned. One example from the
German market is the investment of France Tlcom in Mobilcom.
Question: What dos and donts should carriers take to heart if they want to be
attractive to the capital market in their consolidation scenarios?
Rothauge: In my opinion, the clearest and most consistent strategy possible is
decisive when it comes to consolidation. It is hard to explain why an incumbent
which is the market leader in its home country should suddenly buy the number
four on the mobile market of a neighboring country when it has no experience
in that country and cannot point to a convincing development strategy for the
asset. In other words, if a carrier has achieved success by pursuing an integrated
strategy with strong network depth, it should also stick with the model in the
event of international expansion. If the carrier pursues an asset light strategy,
then it should continue to do so. Above all, it must be possible to demonstrate
clearly the added value of an acquisition; at a minimum, the purchased asset
should offer an opportunity to apply once again an added value strategy which
has already been realized with success.
30
31
Interview
Rothauge: To start with, the carrier is not a supplier to the OTT provider; as
a rule, it has its own relationship to the end customers. The way carriers see
themselves is characterized in part by arrogance, in part by fear. They would be
better served by a more sober self-appraisal. Clearly: there would not be a single
customer interested in fast Internet access without the millions of services and
content from Internet companies. This means that carriers have benefited greatly
from the OTT providers. The key question is whether the carriers have the skills
required for success as Internet content providers and whether this role would
be of overall benefit. Deutsche Telekom has just sold a highly successful Internet
provider like ImmobilienScout24. This clearly demonstrates that vertical
integration produces added value only if and when network connection and
content have an especially close relationship. This is the case for video and
television offerings, for example. There are some concrete examples in this
specific area which show how carriers can become successfully established with
their products and services.
Question: How do you appraise the middle-term chances of survival for smaller
regional or local carriers within a country and for so-called resellers? Arent the
latter especially at risk of being pushed out of the market, sooner or later, by the
OTT providers?
Rothauge: I dont see any risk of this happening at all. Local carriers are concentrating more and more on the network connection in their local environment.
What point would there be for an OTT provider to develop in this area? It
is certainly possible for OTT providers to become successful resellers of telecommunications services, but this will presumably not happen at the expense
of existing resellers. The latter are involved in hard-fought competition with
the carriers anyway and have created marketing strategies which are difficult for
OTTs to copy, just as the carriers have a hard time copying the content services
of the OTTs. However, we could imagine completely new reselling approaches.
The future will presumably see highly successful M2M resellers who do e specially
lucrative business in the realization of M2M strategies for specific customer
groups and applications. Equally imaginable is the development of online game
providers into successful resellers of speed options for Internet access.
Specht: There are several city and regional carriers which have already reached a
critical mass and which would find buyers if the current investors wanted to sell.
However, the vectoring decision by the German Federal Network Agency and
the draft of the new regulatory statutes in Europe pose some risks for carriers
especially with respect to their access to the local loop. I share Mr. Rothauges
32
opinion about resellers and MVNOs. More than a decade of interaction between
network operators and market has produced strong and, above all, lean p
roviders.
Moreover, it is imaginable that special rights will be granted to resellers and
MVNOs in the course of further market concentration such as a merger of O2
with E-Plus. In Austria, for example, 3 was required to guarantee access to up
to 30% of the network capacity to as many as 16 MVNOs at agreed terms and
conditions for ten years as part of its acquisition of Orange Austria.
AHP Capital Management GmbH is an assets management company for private and
professional clients approved by the German Federal Financial Supervisory Authority. AHP
offers tailored assets management in collaboration with reputable custodian banks to private
clients and advises professional investors as well in selected investment fields.
Bankhaus Lampe is one of the leading as well as one of the few independent private banks in
Germany. Founded in 1852, the traditional institution is wholly owned by the Oetker family.
Business activities concentrate on comprehensive customer support for well-to-do private
customers, midsize companies, and institutional investors.
33
Future Network
Architectures
Dr. Stefan Schnitter, Dr. Uli Bornhauser
> The choice of the right network architecture is the
decisive factor to balance competitive targets
as cost reduction, quality and flexibility.
> From a wealth of principles and trends as SDN, NfV,
Multi-Layer networks and others Telcos have to
choose the appropriate one and to develop an
end-to-end network architecture.
> Since many trends in evolving network architectures
require changes not only to the technology itself
but also to the Telcos organization and processes,
the main non-technical boundary conditions to
implement these trends have to be discussed.
34
35
in the last decades. Classical examples are the convergence of fixed and mobile
networks, the development towards next generation networks, and the migration
from purely IPv4-based to fully IPv6 capable networks and services: Traditionally
coming from separated fixed and mobile networks as well as products, operators
have understood the benefits from converging these domains. While integration
has often already happened from a marketing perspective, technical and product
integration are often still ongoing processes. Merging mobile and fixed networks
and realizing saving potential requires lengthy adjustments in the network infrastructure, IT systems, processes, and organizations. And while first products and
offerings show that convergence may have an essential impact on the product
strategy, the long term roadmaps for integrated services often do not exist yet.
The basis for developing towards a next generation network is the deployment
of and migration towards an all-IP network. Knowing the necessity of building
a unified service platform, switching off specialized legacy technology, realizing
significant OPEX and in the long run CAPEX savings, most operators started
to build all-IP networks in the last decade. However, the complexity of emulating
POTS features, providing the quality and robustness customers are used to, and
migrating customers from legacy technology took significantly longer than estimated. This observation is also true for business services where Telcos are still
operating legacy SDH networks to provide leased line services. As a result, most
operators are today in the middle of the migration process towards all-IP networks. Switching off legacy technology and realizing significant savings is often
still a long way to go, increasing the OPEX demands in the migration phase. The
resulting heterogeneity and diversification in technology drives IT complexity,
which has a negative impact on the time-to-market for new products, services,
and network adjustments. Mainly compelled by the rapid distribution of always
online devices into the mass market, more and more operators have recently
started to introduce IPv6 in their networks. The deployment of IPv6, long-time
blocked by the chicken-and-egg problem of missing IPv6 content and missing
IPv6 end-to-end connectivity, will keep operators busy for the next years: Not
only network elements, but also security concepts as well as underlying IT and
management systems need to be adjusted.
While tackling the established challenges like fixed/mobile convergence, all-IP
migration, and IPv6 deployment blocks important resources, operators already
perceive the impact of the current challenges. As results of this pressure, operators
think about models to generate new revenues (e.g. high quality transport for
selected content providers) and quick but risky ways to cut costs (like introducing so called fair use policies in flat rate markets).
36
37
are usually provided by the same supplier (Cisco, Huawei, Juniper). In this sense,
todays network equipment still resembles very much the mainframe computers
from the past and SDN is on its way to change this.
In SDN architectures, in order to spate the forwarding and control functionality
one or several (logically centralized) controllers are introduced. This is done to
achieve several benefits for future network architectures: The control functionality does not need to be implemented in every network device, which leads
to simpler and potentially cheaper network devices. Device vendors can focus
on efficient forwarding and edge functionality instead. The network control
functionality is closely related to the services and their requirements having a
separate and central controller allows for implementing new service or features
faster and more flexibly. Currently, the features of services are coupled quite
tightly to functionality of network devices so this increased flexibility introduced
by an independent controller is a major step ahead. SDN based architectures also
allow for an increased granularity of control up to the control of individual traffic
flows. The introduced flexibility is maximized, in case other IT principles, like
rapid prototyping or open source, are applied to the control software.
Another presumed benefit of the SDN architecture is the network abstraction
that is implemented with the controller. As network infrastructure gets more
and more complex - abstraction is the key to master this increased complexity.
SDN controllers are used to abstract from the physical network view to various
logical views on the network topology that is presented to network services and
business application via open interfaces.Open interfaces are another benefit from
the SDN concept: In particular north-bound interfaces will enable operators
to offer network capabilities to third parties. There is a multitude of business
models that can be implemented via north-bound interfaces, e.g. enabling 3rd
parties to offer own services on the operators network, controlling the quality of
OTT services or implementing information services. North-bound interfaces to
3rd parties are a key component when an operator wants to implement a smart
pipe business model.3
Although, the first products to implement SDN are already commercially
available (e.g. OpenFlow based network controllers), the SDN concept is still
under development. In particular what granularity of control is used between
the controller and the network devices leaves room for interpretation: Initially, a low-level control of individual traffic flows was considered whereas today
38
Application layer
Network
application
Business
application
North-bound interfaces
Control layer
SDN CONTROLLER
South-bound interfaces
Infrastructure layer
Optical
transport
(v)Switches
Router
Firewalls
Core
Source: Detecon
39
There are clear differences in the maturity of SDN architectures for different use
cases: SDN in the data center is entering the market today. Since there is the
complementary trend of network function virtualization (NFV) and network
operators will be implementing more and more services in data centers, all
SDN use cases for the data center will become relevant for traditional network
operators, too. Using SDN to implement a higher level of dynamics and flexibility for the creation of services is currently tested by large service providers (e.g.
NTT DoCoMo, Telefonica,) and will be implemented in operation within
one year. Implementing SDN in the wide area networks (WAN) of operators
with focus to increase network utilization is rather a mid-term use case first
implementation exists for example in Googles WAN between data centers.
Introducing the SDN concept in their future network architectures, operators
can therefore expect OPEX reduction and an increased service flexibility in the
short term and CAPEX savings in the mid- to long-term. If it seems compelling
and attractive now for operators to leverage the cost and monetization benefits
from network and IT convergence it is far from easy to implement. Besides the
challenge to create a converged IT and network technology strategy, the largest
challenge lies in the Telcos organization and processes. IT and network processes
that are currently independent and often different in their underlying principles
need to be integrated. Additionally Telcos need to build up product development
units that are able to make use of the increased flexibility that SDN architectures
bring. Finally, Telcos need to transform themselves much more into software
companies in order to fully utilize the benefits of IT and network convergence.
Network architecture option 2: convergence of network layers
Within organization and technology itself, different layers of the network infrastructure were typically planned and operated separately. This divide-andconquer approach has its advantages since it splits the tasks of network planning
and operation in separate and independent subtasks. This enables to develop
each network layer Cables, Fibers, Wavelengths/DWDM, Ethernet, IP/MPLS
individually and at its own speed. Naturally this is not the most efficient network architecture since optimization opportunities across network layers are not
leveraged.
The increased pressure for efficiency and cost reduction has led to three main
trends that all target at leveraging the benefits of a converged multi-layer network. Firstly, there is the trend of integrating the network equipment itself.
40
4 www.networks.detecon.com
5 Cf. Fritzsche/Schweigel/Rhong, Integrated Planning, p. 114 pp. in this volume.
41
42
43
may even not be maintained at all but calculated from schemes when they are
required.
The difference between static and dynamic approaches in different domains can
be illustrated based on two examples: the access network and data centers. In
a dynamic access network design, the customer behind an access line is always
determined when its link comes up. Based on that process, the line is re-provisioned with the customer profile. A mapping between lines and customers,
which may become incorrect in case of re-wirings, is not maintained. Thus, the
network can be flexibly extended and adjusted; for example if access ports fail,
the process of replacing defective ports can be delayed until a reasonable number
of ports is replaced simultaneously. In a static access network design, the access
network is planned and provisioned once. Existing customers are never re-wired
due to capacity reasons or port failures, for example. Instead, spare ports for new
customers are planned in advance, uplink bandwidths are statically planned in
advance with sufficient reserve, and defect ports are immediately replaced. In
turn, reconfigurations beyond initial fulfillment and assurance are never required.
Also in the data center domain, similar strategies can be applied: Using a d
ynamic
approach, service end-points in the data centers can be flexibly adjusted between
data centers according to available and required resources. The distribution of
users to end-points may be varied depending on load, hardware defects, and
other aspects. If a static approach is applied, data centers are planed and built
once. Even if physical resources fail, planed spare capacity makes sure that users
dont have to be shifted. Strictly applying a static scheme (in contrast to the access
domain), defect hardware is simply disabled. The data center is operated until
productivity falls below a certain threshold. Once this happens, the whole data
center is renewed.
Whether static or dynamic designs are more economical depends on various
aspects. Generally, the number and complexity of processes differ. Applying
a dynamic design usually increases the number of process executions.
By
avoiding that data runs out of sync, manual intervention can still be
prevented efficiently. In turn, static designs avoid that some processes must
be applied at all. However, this is bought by spare capacity, an initial deployment with full capacity, and thus CAPEX. A decision between dynamic and
static approaches therefore also tends to be a decision between investments in
IT systems and development vs. network and service infrastructure. Note that
static approaches usually also require a more precise planning over a longer
period. While a djusting dynamically to changes in the network allows to rely
on short-term forecasts, planning and building long time ahead increases the
44
business risks that come along with unexpected developments and inaccurate
forecasts. Consequently, the reasonableness of a design principle in a certain
domain significantly depends on the external boundary conditions: if an
environment is highly volatile and requires high investments, static approaches
seem less suited.
A Case Study
The architecture trends sketched here may be applied in various different ways in
a network in general. Suitably combined and adjusted to the external edge conditions, they may help to evolve todays infrastructures towards more lean, automated, and thus cost efficient designs. A case study in this section illustrates how
the different trends may be applied and do interact in an overall architecture for
an integrated operator. The case follows reasonable developments that are visible
in projects started at different operators. It leads from the access network, via
the aggregation and backbone domains, to traffic offloading to interconnection
partners (external peering and upstream) and data centers (internal).
Access Domain
A high level of automation and the avoidance of customer and product specific
configurations are measures with high leverage to reduce operation expenditures
especially in the access network.
In a converged design for an integrated operator, the access network provides
connectivity across a wide area for both, fixed and mobile customers. A low
level of traffic aggregation in that domain as well as the continuous development process in urban construction and customer locations, densities, demands,
and expectations rather requires frequent changes in that domain over time.
Based on this boundary condition, access networks should be rather flexible,
following a dynamic design where a high level of automation is reached through
recurring discovery and configuration. The access technology should be kept
flexible, too; this allows operators to use the best access technology for different
areas, stretch capital expenditures for network modernization (e.g. fiber rollout),
and selectively improve the competitive situation where required. Since multivendor strategies are common and very much recommended in the access network,
device configurations should be as generic as possible and it is useful to i mplement
an element abstraction layer that separates functional from vendor-specific configuration activities.
45
Aggregation Domain
The main task of the aggregation domain is providing IP edge functionality towards customers and the final port aggregation towards the backbone. A flat
design preferably as a single aggregation layer keeps required capital expenditures low. The IP edge functionality focuses on transport services like IP connectivity, quality of service (QoS), traffic isolation, and bandwidth limitations
only. In the mid-term network architecture development the IP edge function
may also be virtualized with the NFV concept.7
To keep interdependencies low and flexibility high, the architecture follows next
generation network concepts and separates further services from the transport
domain towards data centers. Enforcing customer profiles, devices must be continuously provisioned and reconfigured. Thus, the IP edge should consist of highly
unified and simplified devices. In the upstream direction, CAPEX requirements
can be met through multi-layer integration of optical and IP logical transport.
Here, a static design seems reasonable, as profound adjustments beyond capacity
extensions are rare.
Another important aspect in the aggregation domain is the balance between
customer ag-gregation and provided redundancy: Required capital expenditures
and available topology diversity usually does not allow for full link redundancy in
downstream direction towards access nodes; however, especially for high-margin
business products, link-redundancy in upstream direction is essential.
Traffic Offloading Interconnection and Data Centers
As a general rule, it seems reasonable to bring network interconnections (e.g.
peering with other operators) and data centers as traffic offloading points as close
as possible to the demand i.e. the customer. In practice, the right number of
locations requires careful planning and depends on various aspects such as the
commercial aspects that mainly drive peering agreements, the existing fiber infrastructure, redundancy, and quality requirements imposed by services.
Data centers evolve towards flexible and shared resources where all elements
for service creation (e.g. mobile core, IMS, AAA), auxiliary network functions
(e.g. firewalls, load balancer, etc) and the network within the data center itself
(switches and virtual switches) are implemented in a virtualized manner: Services
instantiated on virtual machines can be flexibly shifted, deployed, chained
7
46
and terminated according to changing demands. Apart from some services that
are highly critical for business continuity, resources for network, computing and
storage can be shared. In such a highly dynamic environment, traffic flows must
be precisely and flexibly programmed, making SDN a perfect choice.
Backbone Domain
Telcos can choose to develop backbone networks in two different directions: The
first option is to reduce the backbone to as few as possible locations as p
ossible
or even to remove it completely. This approach requires a larger number of
(potentially paid) interconnections with other operators and a larger number of
data centers that host content delivery networks (CDN) to reduce the amount of
traffic that needs to be offloaded to other operators.
Figure 2: In future network architectures, new trends will find entrance in all domains.
Interconnection
Fixed/Mobile
integration
3G/4G
...
eNo
Nod deB
eB
SDN
SDN
misc
OLT
Fiber
Dynamic discovery
& configuration
Cooper
Service
virtualization
WIFI
Backbone
router
WIFI access
Last Mile
Access
Aggregation
SDN
SDN
Data center
Backbone
Offloading
Source: Detecon
47
The second option is to build and actively develop a highly efficient backbone
network that allows optimizing the costs for interconnection and number of
data centers and which is used as well to transport traffic of wholesale customers.
In this case multi-layer network architectures will be implemented to ensure
efficiency, integrating network devices from optical and packet domain and
optimizing planning and operation across network layers. In a converged backbone that transports traffic for a large variety of different service types a fine
granular control of flows and the centralizing of the control plane becomes more
important, making SDN also a design model for the backbone domain in midterm.
It is a strategic decision for the operator which of the two directions to follow in
the backbone domain depending on its business/wholesale strategy.
The decision is yours!
The trends for future network architectures form a tool-box for operators that
can be used to cope with todays and tomorrows challenges. Which tools to use
and how to prioritize them, is a question that depends on the operators specific
situation. From the architecture options mentioned above we have extracted nine
and evaluated them based on the typical situation of a incumbent Telco with
a full-service portfolio (fixed and mobile). The nine architecture development
options are:
>
>
>
>
>
>
>
>
>
48
Based on its own specific situation, Telcos should make their own assessment
of these options for future network architectures and create an implementation
roadmap. The success of implementing new and innovative network architecture
concepts will depend significantly on the question if Telcos are able to converge
their organization along with their network architecture. For most of the
architecture options, a focus must especially be set on the integration of IT and
network organization and processes.
Some of the opportunities for future network architectures raise again the
questions if the Telcos want to focus on services development themselves or
prefer partnering models for example with OTTs. This business decision needs
to be taken by the Telco based on its own strategy and capabilities. The good
news from the network and its architecture is: You are free to choose both will
be supported and possible!
Figure 3: Time and impact evaluation of network architecture options
High
FM transport
Financial Impact
Multi-layer
plan and
operate
Full automation
(static/dznamic)
FM Core
SDN for
services
NFV
SDN in WAN
SDN in DC
Multi-layer
hardware
Medium
Now
Mid/term
Source: Detecon
49
Interview
50
51
Interview
instance, which take into account the optimal interaction of fixed and mobile
network expansion and the relevant technological developments. By s ignificantly
tightening the meshing of product development, technology, marketing, and
sales, we also ensure that the network platforms which have been built are used
to their full capacity more quickly and we amortize our investments.
All three of these focal points are being driven forward in concrete programs and
projects.
Question: What principles is Telekom Deutschland using as the basis to optimize
the further expansion of network capacities in terms of efficiency or while simultaneously sparing the investment budget?
Martin Bouchard: The expansion of our network is oriented to need, i.e., on the
basis of principles oriented to customers and competition. Our customers receive
from us the network they need so they can make optimal use of the services they
utilize at the right place, for the appropriate device, with the necessary bandwidth and quality.
However, this also means that we do not necessarily provide the greatest bandwidth; instead, we offer as much bandwidth as the customers need but in
excellent quality. This is the reasoning behind our current focus in many cases on
FTTC (fiber to the curb) expansion, which is less demanding on resources, over
FTTH (fiber to the home). A significant part of this newly created infrastructure
will serve as the foundation for future expansion stages, at which time we will
bring optical fiber even closer to customers.
Question: How important do you believe the following technological trends and
technologies will be for Telekom Deutschland with respect to the not-so-distant
future: SDN, virtualization, small cells, WiFi?
Stefan Rinkel: SDN, virtualization, small cells, and WiFi are completely separate subjects which will each gain in importance in its own way. That is why it
is very important to be at the cutting edge of technological development and to
integrate it early into the technology portfolio. With this in mind, we here at
Telekom are active at international conferences and in standardization work. Of
course, some key questions are still waiting for an answer such as when the new
52
technologies will be ready for the market and in what scope an expansion appears
to be optimal from an operational and an economic viewpoint. But the future
is clear: We will virtualize more and more network functions and utilize various
technologies even more holistically so that we can satisfy our customers demands
for bandwidth.
Question: What major factors limit the selection of the optimal technology, and
just how great is their impact?
Stefan Rinkel: Besides the issues of financial and personnel resources, there are
limitations with respect to the availability of services we procure on the market,
ranging from civil engineering to IT support services. In addition, we constantly
ask ourselves how many projects the company can and wants to manage parallel
to one another. In this context, a project portfolio management which functions
effectively plays a weighty role.
Yet another key question asks when new technologies will be available at a carrier
grade level, i.e., when they will be ready for the market and technologically mature and can be offered by multiple manufacturers. Telekom Deutschland places
great value on innovation leadership and works with its partners to drive technological innovations forward, but at the same time we do not lose sight of a multivendor strategy and the deployment of mature technologies.
Question: What convergence topics will be the most important in the future for
you: convergence of network and IT, convergence of fixed and mobile, convergence of the network layers, or other areas?
Martin Bouchard: Telekom is an integrated player. We offer our services, both
in fixed and mobile networks, across all network levels. Convergence topics hold
a key position when it comes to differentiation in competition. As networks are
being converted to IP technology, the convergence of network and IT as well as
the convergence of network levels are already playing an outstanding role. The
convergence of the networks (fixed and mobile networks) is even now reality at
the planning and roll-out levels and will continue to be expanded. At the service
level, we are in the process of developing a genuinely hybrid product which will
link fixed and mobile networks even more closely for customers.
53
Interview
54
AtNew
the Forefront:
Network Strategies
Network Expansion
keep Telecommunications
Oriented to Customers
Business
and
profitable
Needs
55
Virtualization
Is Transforming the
Telecommunications Industry
Dr. Osvaldo Gonsa, Dr. Arne Chrestin, Lothar Reith
> Virtualization has the potential to transform
the telecommunication industry.
> Virtualization could become an outstanding
catalyst for transformation in the competition
against Internet software giants.
> Innovation management and product
development are at the epicenter of the
changes triggering virtualization in the
telecommunications industry.
> The merging of network operation and
IT service management driven by virtualization
is both a challenge and an opportunity to
re-engineer and to simplify processes
in network operation.
56
command code.1 The latter are known as virtual machines (VM) because this is a
logical rather than a physical allocation. When time-sharing processes are
running, for instance, virtual machines become active either alternatively or as
needed. The virtualization software creates an abstraction layer which models
the available hardware resources multiple times, depending on capacity, for the
upper layer of applications and services.2
The application of server virtualization to network functions which previously
ran on dedicated hardware and in the future will run on standard servers as
VNF (virtualized network functions) has triggered a process of transformation.
Network functions virtualization (NFV) continues to drive this transformation.
SILO Deployment
APP
APP
APP
APP
APP
APP
OS
OS
OS
OS
OS
OS
Virtualization Software
Source: Detecon
1
2
Cloud Computing Uncovered: A Research Landscape, Mohammad Hamdaqa and Ladan Tahvildari,
ADVANCES IN COMPUTERS, VOL. 86, p. 41, 2012. ISSN: 0065-2458.
An Introduction to Virtualization: Amit Singh, January 2004,
retrieved from http://www.kernelthread.com/publications/virtualization.
Detecon International GmbH
57
58
Google, and Amazon. But how will virtualization impact the telecommunications industry?
Significant savings in CAPEX and OPEX: initially OPEX, later CAPEX as well
Virtualization can legitimately claim to have high potential for the reduction
of CAPEX and OPEX: Substantial savings in CAPEX, which result from more
efficient utilization of server capacity, have been obtained in the financial services
industry, manufacturing, and in health care companies.4
Telecommunications operators fear, however, that substantial CAPEX savings
cannot be expected from virtualized network functions over the short term,
perhaps not even over the middle term. For one, it will take some time until
possible competitors of the established infrastructure providers have gained the
experience and trust which will enable them to compete effectively in essential
network functions. For their part, established telecommunications infrastructure
vendors will keep prices of virtualized systems at a high level for as long as
possible so that they do not cannibalize their traditional hardware-based business
any sooner than necessary. On the other hand, additional costs could actually
be incurred because of the necessity to create special solutions for the transition
period in which virtualized and non-virtualized functions co-exist and this will
also lead to additional CAPEX investments.
During the initial phases of the implementation of virtualization in a telecommunications network, virtualized network functions will operate in parallel to the
existing network of non-virtualized network functions in the form of d
edicated
hardware appliances. Operation of this equipment will not be suspended until
the new technology has convincingly demonstrated its reliability taking into
account the depreciation periods as well. So additional OPEX costs for parallel
operation can also be expected.. However, in the middle and long term, OPEX
savings will represent the lions share of the potential for cost reductions. Virtualization favors a trend to consolidation and site locations reduction which is
generally going on anyway and offers substantial potential for the reduction of
personnel expenses in network operation. Moreover, virtualization can reduce
expenses for energy, e.g., by shutting down servers when there is little traffic
and through more effective utilization of server capacity and the resultant lower
requirements for area and cooling; overall, there can be better exploitation of the
scaling effects in both the network infrastructure and the network operators IT
infrastructure.
59
Moderne Netzkonzepte
60
Ovum Decision Matrix: Selecting a Virtualization and Cloud Management Solution, 2013/14.
Ovum Report: Virtualization and Cloud Management, An introduction for IT Management , 04 Apr 2013.
Detecon International GmbH
61
62
IBM Global Business Services, The Innovation Paradox in the Telecom Industry, 2006.
ment of new business fields and cooperation with new partners from other
industries while process innovation leads to a rise in operational efficiency. This
study points out that business model and process innovation has proved to be
substantially more effective than product innovation for heightening p
rofitability.
The overemphasis on product innovation in the telecommunications industry is,
at least in part, a consequence of the high requirements for capital and the r elated
lock-in with only a few manufacturers with whom the operators are engaged
today because of the high barriers to change. This gives them a strong incentive to
utilize existing systems to the greatest possible extent and to continue operating
with the current business model.
The transition to virtualized network functions can be expected to result
in CAPEX savings of only minor scope initially, but there will be substantial
cost savings in the OPEX area. The demand for capital will decline significantly overall. The lock-in to a limited number of manufacturers will also
break up. This development will allow a sharper focus on business model and
process innovation in the telecommunications sector as well. Moreover, the
generation of new opportunities on virtualization will encourage business model innovation directly.8 Thanks to their resources and infrastructure, telecommunications operators could better play up their unique selling propositions
and compete more effectively with OTT providers such as Google, Facebook,
and Amazon. The use of open source supports increased cooperation with large
developer communities. This trend will play an important role in this context.
Powerful innovation capability is a prerequisite for telecommunications
companies if they do not want to end up as nothing more than a pure bit carrier
in a less attractive position in the value chain.
Shortened product cycles improve network operators agility
Virtualization heightens network operators agility in the development of new
services in a number of ways. Virtualized network functions can be started
up and shut down again on the existing virtualization infrastructure at only
marginal cost. There are no lead-in times for planning, ordering, delivery,
63
64
65
Customer
Strategy, Infrastructure and Product
Strategy and
Commit
Infrastructure
Lifecycle
Management
Operations
Product
Lifecycle
Management
Operations
Support and
Readiness
Fulfillment
Assurance
Billing and
Revenue
Management
Enterprise
Management
Strategic and
Enterprise Planning
Enterprise Risk
Management
Financial Asset
Management
Enterprise
Effectiveness
Management
Stakeholder and
External Relationship
Management
Knowledge
and Research
Management
Human Resources
Management
Source: Detecon
Detecon International GmbH
67
69
70
The experience from the first wave of investments is evidence of how meaningful
it is for telecommunications companies to rethink their business models and
organizational structures. In our estimation, however, it will be some time before
established network operations understand virtualization as a catalyst for transformation and at least five years before virtualization is being used on a wide
scale. Every network operator sets its own pace. As soon as it becomes clear
how operators can be liberated from manufacturer lock-in, and as soon as clear
evidence of superior quality of open source software is provided by important
open source projects, the competitive environment and the entire market will
change from the ground up. Network operators who refuse to go along with this
transformation will, in the middle to long term, lose their competitiveness.
71
Interview
Interview
72
Die FunktionThe
der intelligenten
Network Must
Steuerung
Take Over
von
theDatenverkehr
Intelligent Management
muss das Netz
of Data
bernehmen
Traffic.
73
Interview
74
Die FunktionThe
der intelligenten
Network Must
Steuerung
Take Over
von
theDatenverkehr
Intelligent Management
muss das Netz
of Data
bernehmen
Traffic.
Question: What are the major trends for telecommunications operators when it
comes to new sources of income in the coming three to five years?
Apel: For many people, communications services play a role which is of equal
importance with the supply of electric power. The demand for constant a vailability
of the Internet will continue to rise. Communications networks are even today
virtually omnipresent; we use them at home, while on the go, during leisuretime activities, and at work. Without these networks, our lives would not only be
poorer because of the loss of opportunities to communicate we would also be
substantially less prosperous.
The communications industry will concentrate on providing network access to
people at any time and at any place. The key to success for network operators
is in the provision of high bandwidth in conjunction with the greatest network
availability. Over-the-top Internet players like Google, Facebook, and Amazon
cannot provide such services not yet. But the giant Internet brands need these
services more than ever before. The shifting of more and more data and services
to the cloud will only reinforce this trend. Network operators can upgrade their
port-folios in the cloud. Integrated network and data center services Infrastructure as a Service combine high-value network services with high-availability computing and storage capacity. But if we look at network production based
on NFV and SDN, the same general operating conditions apply equally to both
worlds. Genuine convergence between telecommunications and IT will then be
a reality.
Another important element is the expansion in the number of partnerships. Network operators and Internet players should see themselves as partners, not as competitors. There are certainly inhibitions here in view of the competition among
them in important sectors such as video, voice, and Web services. N
evertheless,
the large brands on the Internet need especially high quality for their services.
This is where network operators can play their trump cards. They can produce all
of the services, in a controlled and guaranteed quality, in very close proximity to
customers. Internet players value this very highly. If both sides show the required
flexibility, they will be able to find business models which are a good fit.
75
Interview
76
Network Must
Take Over
theDatenverkehr
Intelligent Management
of Data
Traffic.
Die FunktionThe
der intelligenten
Steuerung
von
muss das Netz
bernehmen
77
Future Broadband
Communication Between
Wishful Thinking
and Reality
Dr. Hans-Peter Petry
> Conventional strategies for infrastructure
implementation can not cope with the growing
data demand. This is in particular true for future
mobile broadband communication.
> Depending on the data rate growth forecast, a
substantial gap between demand and
performance will exist.
> Small Cell architectures offer a way out
of the dilemma.
> But: implementation is not trivial and
requires some paradigm changes.
78
79
other areas as a means of increasing efficiency, which can provide one more o rder
of magnitude. So we are completely justified in stating that optical fiber is a
medium which can keep pace with the growth rates of future networks without
any trouble, and it is already being used to a significant degree in core networks
today.
Far greater problems are encountered in the access area. International statistics
such as those of the OECD (last revised 2012) clearly reveal that the permeation
of broadband connections using optical fiber technology varies widely from one
country to the next. Japan and Korea lead the rankings with values of 60% to
65%, Europes leader Sweden posts 34%, while Germany is near the bottom of
the list with barely 0.8%.
Why is that? Initially, efforts were aimed at exploiting existing transmission
media mostly copper and coaxial cable to the greatest possible extent. This
is necessary because the broadband resources are several orders of magnitude
lower than that of optical fiber. Coaxial cable turns in the best performance
among this group. In terms of propagation physics, this is a low-pass system with
a usable bandwidth of up to one GHz. Modern cable with double shielding
provides good protection from interference and secures good signal quality. The
latest technologies such as DOCSIS 3.0 utilize in addition modern high-order
modulation technologies such as 256 QAM; increases in efficiency of about one
order of magnitude (factor of 10) are possible. Despite the fact that all users in
a coaxial tree must share the capacity, user data rates of about 50 Mbit/s per 6
MHz channel are today possible for fixed Internet access. If needed, channel
bundling makes it possible to increase this to as much as 200 Mbit/s. However,
it is foreseeable that the potential for any substantial further increases will soon
be exhausted.
Copper cable infrastructures run into this wall even earlier. Owing to the classic
methods used for laying copper cable, the available bandwidth is lower and the
interference level is higher because the twisted copper pairs are not shielded and
are characterized by substantial attenuation proportional to distance as well as
by substantial crosstalk. Despite these disadvantages, sophisticated technologies
such as VDSL and vectoring raise the performance thresholds in real installation
situations to about 50 and 100 Mbit/s respectively. This increase comes at the
cost of a drastic reduction of the distance which can be bridged while m
aintaining
these data rates. As a rule, no more than a few hundred meters is possible, and
the possibility of additional unforeseen effects leads to insecurity in planning.
This is why the promised performance capability includes the qualifier up to,
especially in the DSL environment. The consequence is a
correspondingly
80
81
cast from the antenna, even if there is visual contact. This loss is proportional to
the square of distance and very quickly reaches very high values. In the m
obile
environment, obstacles and the reception circumstances inside of buildings
quickly lead to further substantial attenuation of the signal. To the same degree,
interference between the overlapping radio cells has a negative impact on signal
quality. All of these effects are well known today and are taken into account
during the planning of mobile communications systems.
But if no other steps are taken, this would mean that efficiency the channel
capacity in relation to the resources, measured in Bit/s/Hz would fall to values
well below 1; this was and is the rule for the mobile communications systems of
the first and second generations such as GSM. These systems are consequently
not suitable for true broadband applications.
Limits of efficiency improvement
As necessity is the mother of invention, technology of course began providing the
required improvements which can enhance efficiency years ago. The utilization
of higher-order modulation technologies permits the transmission of more
information by subdividing amplitudes and phases of the carrier signal into finer
and finer gradations up to 64 levels for mobile networks, 256 levels for coaxial
Figure 1: Distribution of the modulation efficiency in a real radio cell (LTE)
Cell efficiency (Bit/s/Hz)
1
m
Source: Comnets
82
Medium efficiency
Maximum efficiency
Example: LTE 20 MHz: Example: LTE 20 MHz:
Medium Rate: 40 Mbit/s
Peak Rate 100 Mbit/s
cable, and as many as 2048 levels for stationery radio relay systems. The capacity
can also be raised exploiting specific propagation phenomena (MIMO: m
ultiple
input, multiple output systems which virtually provide more channels) or the
improvement of the signal-to-noise ratio with intelligent antennas focusing
their beam to the mobile device. All of these tuning measures are adaptive in
todays technology, meaning that they can change dynamically during operation
without the user being aware of it. In the best cases, efficiency can theoretically
be increased by a factor of 20 and more.
But this is exactly the point where another problem comes up: if these tuning
measures change dynamically, it is only logical that the corresponding efficiency
and the possible transmission speed fluctuate and do not always reach the best
possible value. An example will illustrate this clearly.:
Unlike most graphs of this type, this illustration does not show the strength of the
signal distribution in a typical inner city cell; instead, it depicts the distribution of
the modulation rates, equivalent to the maximum speed existing at each s pecific
location. It can clearly be seen here that the maximum possible efficiency (in this
case: a factor of five) can be achieved only at a few positions within the cell. The
usable cell capacity can be calculated only via spatial averaging. This value is substantially lower (in this case: a factor of 2), so the total cell capacity which users
must share is equal to twice the bandwidth of the RF channel. This translates
into a real cell capacity of 40 Mbit/s for a 20 MHz LTE system. The 100 Mbit/s
usually claimed for LTE presume an efficiency factor of 5 and actually occur
only in exceptional cases. This example is certainly representative and proven by
the fact that planning engineers at mobile network operators actually work with
efficiency values of around 2 when planning their radio networks.
Anyone who uses a 3G or 4G smartphone can easily test this him-/herself. There
are numerous apps which enable users to measure download and upload speeds
directly and to assess the value of the claims for speeds of up to. In actual
practice, the value is often substantially lower than the value described above.
This is a result of other effects and influencing factors such as the cell utilization,
the power of the smartphone CPU, and, above all, the weakening of the signal in
the interior of buildings.
Besides the increase in the number of modulation levels, modern radio systems
make use of yet another tuning trick to improve transmission efficiency: the
exploitation of spatial resources referred to below by the use of the two key words
MIMO and AAS.
83
MIMO (multiple in, multiple out) makes use of multiple antennas and
radio units for transmit and receive. This makes it possible to combine
constructively signals which take different paths from the transmitter to the
receiver*. We get the effect of a larger number of channels, hence it is not
in contradiction to the Shannon Theorem. Unfortunately, the discrepancy
between theoretical maximum values and the improvements which can p
ractically
be achieved is enormous here as well. This is based on a variety of influencing
factors which are too complex to examine closely here. Let us just say this much:
one factor is that an adequate number of (decoupled) multiple channel paths
must be available, while another is that improvement only occurs if there is a
larger number of antennas on the radio base station and the end device.
Realization of this latter criterion in particular is highly restricted in modern and
compact m
obile end user devices. Nevertheless, MIMO has become established
in modern mobile communications standards; the improvements are measurable
and in the low percent range. The additional costs in the infrastructure alone, on
the other hand, are sizable.
When AAS (adaptive antenna systems) is used, the attempt is made to improve
signal quality and to have a positive impact on the second decisive parameter of
the Shannon equation. There is potential for improvement here because the standard base stations used in mobile communications systems work as a rule with
a rigid 1200 sectorization, meaning that broadcasting energy is radiated evenly
throughout the surrounding space. The antenna gain is constant and no more
than moderate. If a so-called array antenna can successfully concentrate the beam
on the mobile devices currently located in the cell at any given moment and
block out areas which are not needed, the antenna gain for each specific beam
grows and so do signal quality and capacity. Interference is weakened to the
same degree. While this sounds simple, it is quite a complicated affair in practice,
and significant hardware power is required. This has prevented the establishment
of such solutions over wide areas.
Is there a gap between demand and performance?
At this point, technical improvement measures seem to be exhausted. Figure 2
contrasts the technical potential for improvement with growth rates in the data
sector and illustrates how these factors fit together in a strategic context:
* Cf. Schultz/Petry, Speed Is (No) Magic The Performance Capability of Modern Mobile Network Standards
Between Hype and Reality, in DMR 01/2009.
84
1000
1000
500
(200)
150
Very aggressive
Aggressive
5 times
Conservative
10
33 times
17 times
100
Frequency
resources Modulations
MIMO/
efficiency
10
AAS
(5)
(4)
Growth
data rates
1,5
30
Theoretic
maximum factors
Capacity increase
via technical measurements
(
= realististic szenario)
Source: Detecon
85
A forecast of the growth in data rates is substantially more difficult because the
number of influencing factors is much greater, and they are all characterized by a
broad range of variance. But from the standpoint of what we know today, we can
be absolutely certain that the multimedia capability of modern end devices will
continue to expand enormously. Who would have thought that a tablet would
have a higher picture resolution than a stationery HD television set? The increase
in data traffic as a consequence of flat rate offers may be an unpopular fact, but
reversing the trend would be very difficult or, more likely, impossible. At the
same time, the number of modern smartphones and tablets continues to rise at
breakneck speed, and users behavior is changing accordingly. Today, in the year
2014, we are in the middle of this process. Analysts are largely in agreement that
these effects alone will lead to growth factors of between 200 and 300 times over
the period of one decade.
There is an additional question of how these rates would have developed if the
mobile communications systems had not consistently failed to deliver on their
initial promises.
As if this were not enough: even more revolutions are imminent. One new
buzzword, the cloud, has already become an established part of our vocabulary.
At the moment, we still use this to mean the centralized storage of data without
particularly great demands on transmission capacity because the flow of data
does not necessarily have to take place in real time. But in the future, (real-time)
functions such as the computing performance of an end device will be shifted to
the cloud. This makes a lot of sense indeed because it will significantly relieve the
burdens placed on local resources; one major benefit can be a hefty prolongation
of the battery life between charges. But: the required growth in transmission speed
is enormous. Another term which has found widespread acceptance is the Internet of Things. It encompasses a series of attractive applications such as communication between machines for the enhancement of production e fficiency or the
many planned applications in medical technology for improved patient monitoring and reductions in health care costs, and, finally, innovative ideas for traffic
control and communication among vehicles leading to the final objective of the
autonomous vehicle. All of these ideas are definitely sensible and could contribute to further and sustainable improvements in our lives and surroundings. But
none of them are viable without extremely high broadband c apacity in mobile
communications and cannot be realized unless the performance capability of
mobile networks is raised to meet this demand. Figure 2 shows that even if all
of the technical possibilities at our disposal were exploited, there would still be
a gap between what is required and what is available, and further innovations in
the future will only cause the gap to become much, much wider.
86
87
88
use much higher frequencies with their correspondingly greater resources because
the probability of an LOS (line of sight) is much greater. From this perspective,
initial thoughts and ideas for 5G systems are thoroughly sensible.
Sample calculation
We now want to take a concrete case study and investigate how small-cell concepts
elegantly resolve the dilemma between capacity and costs. We will take a specified
region for this example, the Rhine-Ruhr Valley in Germany: 17.500 sq, 12.5
Million population, one operator, 20 % market share. The following assumptions are made for the mobile network: Cell density: function of c apacity, four
cell types, rollout ten years, costs: investment, operation, and output: c apacity
and costs.
Planning for this region gives us the result (logical, really) that the cell density
must be oriented 1-to-1 to traffic density. We distinguish the various cell types
according to two types of macrocells and two types of microcells (small cells).
The two types of macrocells are the cell types classically used to date in the roll-out
of mobile networks: large and expensive systems requiring substantial a dditional
infrastructure at specially chosen locations and urban cells which require a little
less expenditure of effort, but still involve substantial costs. We will call these cell
types large cells for the purpose of simplification. But the idea of cell shrinkage
can be carried further: the next miniaturization stage is characterized by a f urther
reduction in expenditure of effort and consequently costs, but still requires
professional installation work. The final stage of miniaturization encompasses
solutions which remind us strongly of WLAN small stations, usually installed
in buildings, for which placement is no longer controlled by network operators.
In calculating how capacity and costs for the specific solutions develop over time,
we will distinguish only between large cells and small cells for the sake of
simplification. As a further simplification, we will assume that all of the systems
operate in the same frequency range, possible interference is incorporated into
the cell efficiency, and a certain allowance for frequency reuse is assumed for
small cells.
The results are unambiguous: while the capacity for a large-cell concept quickly
reaches a saturation level because of the low level and restriction of efficiency
and the costs especially for operation continue to rise steadily, a small-cell
concept is much more easily scalable and capacity rises faster than the costs. Two
89
parameters play a major role here: as noted above, cell efficiency is substantially
higher while the costs (CAPEX and OPEX) are significantly lower. Holding
fast to large-cell strategies can solve the problem regarding capacity for a certain
time, but the costs are over proportionately high and therefore unreasonable.
This c alculation does not even include the costs for additional frequency licenses.
Additional reserves are available.
Small cells, anything but self fulfilling major challenges
Simple though this solution sounds, its implementation is complex and
challenging. Almost all of the familiar approaches must be revised or even tossed
overboard completely! A network operator must tackle paradigm shifts of this
complexity at an early stage; sitting back and putting its hopes in a demanddriven adaptation strategy will not have the desired results. Let us concentrate
here on the principal challenges:
2000
Large cell
Small cell
1560
1500
962
1000
816
500
258
0
10
Parameters:
1*20 MHz
2 Bit/s/Hz
3
Market value 2012
Market value 2012
RF Broadband
Cell Efficiency
Number of Sectors
Capital costs
Operational costs
90
1*10 MHz
4 Bit/s/Hz
1
10% von Large Cell
10% von Large Cell
10
1. The sample calculation shows that we will have to deal with a major increase
in the number of cells and the related network complexity: a ballpark figure is at
least one order of magnitude. The application of conventional roll-out strategies
is no longer feasible. Planning and production processes must be reconsidered
in every single aspect, network management systems must cover a considerably
greater number of network elements, and data base (inventory) systems must be
able to provide substantially more data.
2. In particular, there must be a complete change in the way of thinking during
network and radio network planning. Detailed planning is out of the question
once a critical number of small cells has been reached. For one, this would be
much too expensive and time-consuming, and for another, the details of the
necessary planning parameters are not available or can be procured only at great
expense of time and effort. The solution here is self-organization. This is also a
major challenge for the IT environment. To start with, efficient algorithms are
required for the minimization of the mutual interference of the cell cluster
and coordination with the macrocells the desired enhancement of efficiency
otherwise remains an illusion; second, a monitoring of the individual cells is
absolutely essential so that undesirable effects can be averted in good time.
Possible solutions (self-organizing networks, SON) have already become available
on the market. The problem can be further reduced by intelligent frequency
allocations. Without going into the complex details, we can mention in passing
that a natural decoupling of macro- and microcells can be achieved through
the careful combination of FDD (frequency division duplex) and TDD (time
division duplex) allocations. Control by complex automatic equipment then
becomes obsolete. This requires a joint effort by operators, standardization
organizations, and regulators.
3. The large number of new radio cells requires to the same extent an increase
in the number of new connections to the aggregate network. This is p
resumably
the greatest challenge because the existing broadband connections do not,
by their nature, correlate with the possible installation sites of small cells.
Naturally, attempts will be made to make use of existing broadband connections
whenever possible. But favorable circumstances where this is possible will not be
found very often. This is especially true for small cells in outdoor areas in urban
environments. For indoor applications, network integration can be similar to
WLAN.
91
There is a vast selection of possible (backhaul) technologies. But that does not
make things any easier. We cannot go into detail here, either, so this is only a list
of alternatives:
> Optical fiber (FTTx)
> Copper lines (xDSL)
> Coaxial cable systems
> PTP (point-to-point) radio relay systems (with and without line of sight)
> PMP (point-to-multipoint) radio relay systems (with and without line of
sight)
> FSO (free space optics) systems
> Satellite connections
Each of the solutions has its own specific advantages and disadvantages which
must be carefully benchmarked in the particular case. Another possible solution
would be to link the small cells via the large cells (self-backhaul). This is definitely
an attractive variation which would no longer involve any dependency on the
fixed network in the access area. But this approach is possible only if adequate
radio bandwidth is available.
4. The capacity-cost ratios shown in the sample calculation are of course correct
only if the costs of small cells decline faster than their numbers rise, including the
costs for the network connection. For the moment, this does not appear realistic.
But the latest developments in devices and market launches are evidence that this
will be possible in the foreseeable future. Target values are created from the model
calculation which must be applied to the particular solutions in each situation.
Operating costs can be reduced dramatically especially by the introduction of
self-organizing technologies. Technical necessity and commercial feasibility are
moving in the same direction in this case.
Small cells permeate our living spaces and are much more likely to be noticed
than conventional installations on rooftops or mountain ridges. Special attention
must be devoted to their visual appearance in urban and private surroundings.
The examples for small cells given in Figure 4 point in the right direction.
Naturally, it is ideal if the backhaul component is integrated directly. The low
output level of small cells means there are no technical problems related to
electromagnetic environmental compatibility. We will have to wait and see if
there is an emotional discussion.
92
Another problem still remains for network operators, especially for small cells in
urban environments. The need for additional sites below the rooftop line (e.g., on
light masts or building walls) is enormous. Acquired rights and access, including
power supply, must be clarified in every single case and could present enormous
obstacles. In any case, initiatives for partnerships with the pertinent institutions
and private individuals in good time are highly recommended.
If adequate provisions for the projected traffic growth in future mobile networks
are to be made so that users can be assured a genuine broadband experience in
line with (or even exceeding) the promised performance capability, increasing
cell density is unavoidable. It will otherwise not be possible to maintain rates and
acquire new customers.
Small-cell solutions represent a technically and commercially feasible pathway.
But the pathway is new and not an easy one to take. The obstacles along the road
are many. Network operators must prepare to face these obstacles well in advance
and adapt their strategies and processes for the long term.
93
Interview
How Is SaskTel
Preparing for
the Future
94
Question: As a starting point, as most of our readers do not know SaskTel, could
you give us a short introduction in your company and the local environment you
are in.
D. Janz: SaskTel is a unique service provider, in that it is wholly owned by the
Provincial Government and has a strong social mandate in delivering world
class services to the people of Saskatchewan. SaskTel has embraced the many
new technologies such as FTTP (fiber to the premise), LTE (wireless long term
evolution), VoIP services (Voice over IP) and IP TV (internet protocol television services), and is recognized as achieving many industry firsts with adoption of technology. Saskatchewan has a population of 1,108,303 with a land
geographical size of 651,900. A quick calculation shows a population density
of 1.7 persons per square kilometre. However approximately half the population resides in the metropolitan areas of the two main cities, Regina, Capital city, 2011 census population of 210,556, and Saskatoon, largest city,
2011 census population of 260,600. Saskatchewan is located in the middle
of Canada with approximately one half of the province is covered by forest,
one-third by farmland and one-eighth by fresh water. Principal Industries are
mining, agriculture, manufacturing and tourism. SaskTel is recognized as achieving many industry firsts with adoption of technology and was recognized as
one of Canadas Top 100 Employers and one of Saskatchewan Top Companies by
MediaCorp Canada Inc.
Question: Everybody is talking about data rate growth today. What is
your view on that and what are the main drivers from your perspective?
D. Janz: We are experiencing significant demand and growth for data services
and concur with industry predictions of continued exponential growth ahead.
We are not sure when the growth will flatten or reach some point of saturation.
I guess that will occur when everyone can do everything they need to in a
digital world. Until then the demand will continue with the addition of
larger and new types of consumption. From my perspective this is being driven
by the shift to a digital world, processing power of devices, powerful software,
censors, more natural human interface and social changes. Our industry is
fueling the consumption of data by spreading the availability of connectivity and
by improving upon technologies that deliver higher bandwidth. So today, it is
becoming expected to hold our powerful devices, running brilliant software, with
easy interfaces and enjoy a rich experience. People are now connected to a global
community of collaboration, entertainment and growth. Machines will be next.
Although M2M is still emerging and the individual bandwidth is viewed as
relatively small, the extent of connected devices is expected to be very large.
Detecon International GmbH
95
Interview
K. Ottenbreit: Both data rate and data consumption have grown for SaskTel at
a high rate. We especially see this on our wireless networks. Since 2011, we have
seen mobile data consumption has grown approximately 9X. The wireless data
consumption is largely down link related with a down to up ratio of a pproximately
10X. Traffic for the two major urban centers are running just over twice the
rural traffic with a slightly higher uplink consumption (DL/UL approximately
8-9X). Much of the traffic can be attributed to video. Uplink consumption along
the major highways in Saskatchewan is minimal. Many people will download a
movie for vehicle passengers and stream the video on the often 2 to 3 hour drives
between major centers. The uplink traffic is largely attributed to social media.
Question: We all know that fiber is well prepared to cover nearly any demand but
what is the future for mobile communications: can wireless technology progress
gradually catch up with the demand or are we approaching limits that require
new approaches?
D. Janz: I see fiber fixed broadband into homes and business and mobile
attached to nomadic people or machines as complimentary ways to gain
coverage for connectivity and bandwidth needs. I would agree that we will
see some continued growth in mobile technologies but it will most likely be
expensive and will eventually reach a limit. This limit may satisfy demands of
consumption and if not, I suspect the crafty human ingenuity will discover new
methods. If new methods are found to overcome barriers, the consumption will
then grow at an even greater rate. Human history has shown this trend with
many constrained resources.
K. Ottenbreit: SaskTel utilizes much fiber throughout the province of
Saskatchewan. All our wireless sites are backhauled via fiber and as such have the
bandwidth to support both LTE and HSPA as well multiple roaming partners.
Our wireless sites are located in order to maximize the coverage for the urban
and rural customers. The wireless technologies are becoming more efficient and
as such are approaching the theoretical Shannon limit. The current technologies
are reaching the limits of physics. Once a new approach is found and physical
realization of a cost effective solution is implemented, we will see the next gain
in bandwidth capabilities.
96
97
Interview
98
99
100
101
However, the data rate available to a user in a cell declines as the distance from the
antenna increases and is further reduced by attenuation from building walls and
other physical obstacles. But it decreases especially precipitously with the number
of users communicating simultaneously in the cell and the bandwidth demand
of their applications. If the number of users and their data traffic increase in one
cell, the number of antennas and cell locations must increase as well.1 This is why
the cell radius in densely populated urban areas is significantly smaller only a
few hundred meters as a rule.
Increasing data transmission traffic consequently leads to a necessary adaptation
in capacities as soon as certain thresholds are exceeded during peak load
periods. CAPEX and OPEX for the network operators rise. Assuming that the
transmission traffic for Germany grows as forecast by a minimum of 115 to 150
times the present volume by the year 2025, the annual CAPEX for German
mobile network operators will rise by an annual average of 14% and OPEX by an
annual 4% unless there are changes in the network expansion strategy.
None of this would be a problem if only the growth in transmission volume
were accompanied by a similar rise in revenues. But that is currently not the
case for network operators revenues in mobile networks are stagnating or even
declining. Rising online revenues are being realized by the service and application
providers like Apple, Google, eBay, or Amazon. The network operators had
virtually no success in forcing these over-the-top (OTT) providers to pay a
share of the costs incurred by growing data volume. The prices for the network
operators end c ustomers, in contrast, are largely independent of the volume used
for the s ervices. It is extraordinarily difficult to eliminate flat rates, once they have
become established in the competitive environment. Even attempts to lower the
volume cap run into serious resistance on the market.
In addition, regulated prices in segments such as roaming and termination
charges tend to result in declining sales and profits and services such as text
messaging, which have been effective in generating sales and earnings, are being
eroded by growing use of OTT applications like WhatsApp.
This sharp decline in profits in mobile network business is a serious threat to network operators. A simulation calculation for Germany reveals the risk of carriers
not being able to earn enough to cover their depreciation from 2016 on (negative
EBIT) and that even the operating business EBITDA could be in the red from
2022.
1
102
Cloud,
M2M
Detecon Case Germany: MNOs revenues and cost
following a conventional network deployment approach
m Euro
30000
User
Behavior
More &
better
Devices
25000
More rich
Content
20000
Far mor
Traffic
15000
10000
Shrinking
margins
5000
EBIT
negative
EBITDA
negative
0
2010
Flat
Rates
2012
2014
= Revenues
2016
= OPEX
2018
2020
2022
2024
2026
= OPEX + Depreciation
Source: Detecon
103
Obviously the need for additional spectrum for mobile communications has
been recognized, and the work to make it available is being driven forward internationally by the ITU, regionally by the EU, and nationally by regulatory
authorities. The European Commission is planning to open or rededicate new
spectrum with a bandwidth of 1500 MHz for mobile communications applications by 2016; the GSMA is calling for expansion all the way to 1945 MHz. The
German Federal Network Agency wants to carry out a technologically neutral
reallocation of the existing mobile spectrum in 2016 and provide 140 MHz of
new spectrum in the 700 MHz and 1.5 GHz bands. Even beyond these steps,
another almost 1000 MHz could be made available by 2026.
However, many of the frequency ranges which could possibly be used are c urrently
blocked by the military, radio, and television or by other public and private
users. Clearing out these spectral ranges involves substantial technological
adaptations for these users at a high cost in terms of money and, above all, time.
There are legitimate doubts about the magnitude of the spectrum which can be
rededicated, and chronological progress is hampered further by the high level of
international cooperation required. One possible consequence of these factors
could be that the provision of additional spectrum will be unable to keep pace
with the demands of increasing transmission traffic, heightening even more
the importance of more efficient utilization of the current spectrum. New
technologies such as 4G and 5G can optimize frequency utilization. There is
a widespread opinion that more efficient technology can solve all problems
at the air interface. The most realistic opportunity appears to be the planned
technologically neutral allocation of the frequencies previously released solely
for GSM or UMTS. New standards are not tied to specific frequencies, and old
frequency bands can be used for significantly greater data volumes with the aid of
LTE and LTE-A technology.
However, even using the latest and best technology can increase data rates only
to a physically absolute limit defined by Shannons Law. In actual practice,
attenuation in buildings, the distance to the radio cell, and interference with
other cells restrict data rates and limit the value for LTE to about 2 bit/s for each
Hz (outdoor). So if the bandwidth in a cell is 10 MHz, download speeds of about
20 Mbps are achievable as an average. Even if absolutely cutting-edge 5G or 6G
technologies make it possible to double these data rates, the demand for data
rates will presumably rise even faster than the rate of utilization efficiency.
104
Higher speeds can also be realized if frequency re-farming makes greater range
allocations available, especially in rural areas. The usual practice during spectrum auctions is to limit various providers to range allocations of no more than
10 MHz in a certain band. But this makes it virtually impossible to achieve
the broadband targets of the EU 30 Mbps for everyone, everywhere. This has
prompted some countries to begin auctioning off the entire bandwidth in the
800 or 700 band, for example to a single bidder who then, as a monopolist, has
the obligation to make high-speed capacity accessible to all other providers on a
wholesale basis. In view of the inefficiencies typically associated with monopolies,
there is still substantial disagreement among politicians, economists, and regulators about this approach.
In summary, we can determine that more, and more efficiently utilized, spectrum
reduces the pressure on mobile network companies with regard to the need to
expand networks. But without a new infrastructure, this type of expansion can
neither completely master the rise in transmission traffic nor put an end to the
loss of profitability. Other means must be found to close this gap.
WiFi offloading, heterogeneous networks, and small cells
Theoretically, the additional capacity could be made available simply by building
more of todays macrocells. However, this would be inefficient for a number of
reasons: capacities increase under-proportionately because of interference, while
the costs continue to rise proportionately. If, on the other hand, the macrocells
are supplemented by a large number of small cells, the distance to the users can
be reduced, resulting in efficient utilization of the radio signal, possibly higher
data transmission rates, improved battery life, and lower radiation level exposure.
The macrocell networks of the mobile network providers would even today be
unable to handle the data traffic on mobile devices if users did not already divert
traffic directly into fixed networks via WiFi. About 75% of the mobile data traffic
in Germany is handled at home or in the office where both mobile services and
WiFi are often available. Many modern smartphones and tablets automatically
connect with available WiFi networks.
Physically, WiFi is virtually identical with a femto cell, a mobile network small
cell, which is usually connected to a private broadband Internet connection in
the building. However, WiFi utilizes an unlicensed spectrum which is free of
charge and is unable to transfer a mobile user from one cell to the next. This
feature is why WiFi and public WiFi hotspots are typically grouped with fixed
105
106
cells grows. Private and public WiFi is typically connected to the core network via
xDSL. Unfortunately, it will be virtually impossible to handle the extremely high
data transmission rates of the future using the copper networks (xDSL) which
were installed for telephony. Microwave connections can achieve the necessary
speeds with no trouble, but there must be a line of sight from one antenna to
the next, making their installation in cities difficult. Non-line-of-sight technologies could provide an alternative in the future. Another ideal transmission
medium would be optical fiber networks, which various providers are currently
rolling out in many densely populated areas. This can obviously open the door to
substantial synergies between fixed and mobile networks.
If the small cell network is connected to optical fiber, fewer small cells will be
required to handle the demand for data transmission than if the cells are all connected using xDSL. Network operators will be able to save OPEX and CAPEX
from the reduction in the number of additional microcells needed.
From the reverse perspective, the provision of some two million small cells in
multiple-residence complexes can contribute to the financing of the FTTH
expansion. Once an optical fiber cable has been laid in a street or a building
to transmit mobile data traffic, connecting new residences entails relatively low
additional expenditures.
However, exploiting these synergies requires integrated planning and coordinated
roll-out for future HetNets. Typically, only integrated network operators will
have the financial resources to offer services both in fixed and mobile networks.
The decline in profitability is less dramatic for them.
Higher revenues from small cell networks
Network operators can generate higher revenues by
> introducing price schedules charging higher rates for customers requiring
higher data volume;
> selling services and applications to customers so profitably that the additional
costs for the rising data traffic volume are compensated; or
> passing on the costs for network expansion to service and application providers who use the network operators to reach their customers.
107
Realistically speaking, all three of these methods will have to be used, but their
impact will vary.
Avoiding the flat rate trap is currently one of the greatest problems on the
market. Customers, who usually have no idea of the required data volumes
before launching an application, reject linear volume rates. The competition
among MNOs and MVNOs has prevented the complete elimination of flat
rates. However, t here are a number of ideas in both retail and wholesale business
which will make it possible for network operators to increase their revenues as
volume rises.
Retail price models: 2
> One option which is already becoming more widespread is the volume cap
with an additional purchase option: when users have exceeded the data volume
included in their flat rate, the speed is throttled until they pay an additional
charge to restore the original speed.
> Another possibility, already common in fixed networks, is to differentiate
rates according to speed for mobile connections: the flat rate varies depending on
the data transmission rate chosen by users.
> Another option is user differentiation. Prioritized VIP users paying a higher
rate can utilize a guaranteed minimum speed in every small cell while customers
with lower-price rates receive only the best effort speed.
> Excessive investments in radio cells can be reduced by media differentiation
based on the load on the radio cell at any given time. The quality of the services
is adjusted according to network status and user profile. For instance, an HD
video transmission can be downscaled to normal video standard if the cell is
overloaded.
> There can be a differentiation among various services in future small cell networks. Standard best effort services may be contained in flat rate packages, but
users must pay extra for premium services such as HD voice, video, mobile TV,
and other features.
108
109
6000
=
=
=
=
5000
4000
3000
= 11% margin
= 10% margin
= 8% margin
2000
1000
= -1% margin
0
-1000
Source: Detecon
110
2015
2020
2025
4
5
111
112
113
An Effective Approach to
Successful Integrated
Planning of the Future
Lutz Fritzsche, Dr. Mathias Schweigel, Dr. Rong Zhao
114
1 Global Cloud Index, Forecast and Methodology, 20122017, White Paper, Cisco, 2013.
2 http://www.nngroup.com/articles/law-of-bandwidth.
3 European Commission, A Digital Agenda for Europe, COM(2010) 245, Brussels, May 19, 2010.
4 Bundeskanzleramt sterreich, http://www.bka.gv.at/site/4295/default.aspx.
Detecon International GmbH
115
o bjective. The Federal Network Agency has declared in its broadband strategy
for Germany5 that the aforementioned goals will be achieved ... by a technology
mix and in competition. An important parallel requirement for the broadband
strategy was the exploitation of synergies among various infrastructure owners.
Market observers note that the revenues of network operators continue to
stagnate. This is in part a consequence of the level of market saturation. M
oreover,
the trend to flat rate models limits revenues. This situation can be resolved by the
development of new customers. M2M communication, for instance, might well
create new customer groups. But since these customers do not need sleep or
rest, there will be a permanent change in traffic flows and load relationships. It is
more than doubtful that it will be possible to secure an increase in the price per
bit as the measure of the utilized network resources.
There are several goals regarding the future network architectures which can be
observed: convergence of the various network levels, convergence of fixed and
mobile networks, convergence of IT and network technologies, and convergence
of static and dynamic architectural paradigms.
Many network operators currently regard the convergence of fixed and mobile
networks as their primary task, both in network planning and implementation. Simplified network architecture,6 networks with higher capacity,7 the secure
quality of the service, and the combination of products from fixed and mobile
network sectors create the most important preconditions for satisfying customers. One issue is the question of how operators should plan and expand future
networks so that they can satisfy these requirements. But there is another side to
this: competitive pressures on network operators will remain enormous in the
future as well, and they will have to find a way to complete these tasks despite the
caps on their budgets.
Challenges in planning
The planning of telecommunications networks is a means of managing and
expanding available network resources such as transmission capacities while
simultaneously complying with cost limits, performance indicators, and threshold
5
6
7
116
values for reliability. There will be little change in these fundamental objectives
in future telecommunications networks. The challenges in the planning of future
networks will arise to a far greater extent in the constraints related to realization.
As a rule, telecommunications networks consist of a number of partial networks
such as signaling and transit networks, whereby the latter can function either
circuit- or packet-switched. The distinction between fixed and mobile networks
is another example. This differentiation serves in part to reduce complexity because the partial networks are planned and operated separately from one another.
But this separation was and is a consequence of their history as well because certain technologies became available later than others and were simply added to an
existing infrastructure. The systems for operation of the partial networks naturally
differ from one another; they have been specifically adapted to the existing technology, and in general merging them into a single system requires substantial
effort. However, this separation presents an obstacle to finding a cross-layer
solution for the entire network at optimal cost. It is often the cause of multiple redundancies of security measures against network failure at various network
levels or can even result in a lack of precisely such redundancies. Path diversity in
a packet-switched transit network, for instance, can use the same underground
cable. If there is a cable break, the service quality may suffer, a situation which
could result in the payment of penalties or loss of income.
The merger of the various partial networks is a reasonable step and is being
driven forward, as shown by the integration of the transit network technologies
IP/MPLS and WDM. The convergence of the previously separate fixed and
mobile networks and consequently their joint usage of transit network capacities
and locations can be viewed in the same context. In the long run, this integration
will simplify planning of the telecommunications networks.
As far as technologies are concerned, the technical constraints are just as significant as local influences. For instance, the characteristics of the ground whether
rock or sand for laying underground cable or the possible installation of an above-ground cable connection and the related labor costs play an essential role in
the comparative analysis of the various transmission technologies. Conclusions
cannot be transferred directly from one geographic area and market to another.
Regulatory aspects, competitors, customers expectations, and special features of
geography have a major influence on planning results. Planning is always a local
decision.
117
One challenge for the planning, however, is and will remain the integration
of the network data from active and passive network technology. When the
appropriate protocols are used, it is possible to record automatically and p
rocess
configuration and capacity utilization information from the active network
technology, and this can be used to create highly accurate network models for
planning purposes. Passive network technology cannot be monitored by this kind
of automation, so the quality of these data and subsequently the planning results
will continue to be highly dependent on the commitment of the responsible
departments in the future.
The progress in the integration of inventory systems for network operation opens
up new prospects for the planning of telecommunications networks. Consistent
data storage of the current network is an important prerequisite for c ross-layer
network planning of various technologies which takes the specific properties
into account. This information must be combined with certain command
variables such as maximum load for network analysis; it also provides a valuable
foundation for strategic planning for the initiation of technological conversions
in combination with tactical considerations.
But even integrated planning in future networks will be confronted with challenges comparable to those facing network planners in the past. The constraints will
change, new interdependencies will arise. However, improved data storage, more
powerful computer performance, more precise network models, and improved
algorithms will help to master the greater complexity. The general problem of
recreating the subject of the examination as precisely as necessary inherent in
any modeling will still be around.
Approach for successful integrated planning
Constraints
The challenge in creating uniform planning for an entire network results from
the large number of different constraints which must be processed while giving
due consideration to the possibilities of the existing network or the planned technology. These constraints can be classified in the dimensions of time, space, and
degree of detail.
Each of these dimensions is subject to its own constraints and possible solutions
which steer the planning process. It must be noted that these dimensions can
in part be used independently of one another for the input parameters and the
planning results.
118
The time level determines how quickly the planning results can be realized.
Obviously the scope of action for short-term immediate measures differs from
that of long-term projects. As far as the input parameters of the planning are
concerned, time plays a role in the assessment of the current situation and the
history of the network (measurement data).
The spatial level defines the distribution of the resources over an area in the
results. In terms of the input parameters, this can refer to the availability of free
resources (movable, immovable), user distribution, or traffic volume in the area.
The definition of the planning area parts of the network or the complete network also falls in this category.
The degree of detail determines whether the planning is carried out at the user or
at a higher abstraction level, e.g., service level. The degree of detail in the input
data often varies, so they must be adjusted and matched on the basis of suitable
assumptions. The degree of detail in the results will naturally be determined by
the input value with the lowest degree of detail, so it is desirable for the planning
process to have information which is as detailed as possible. The abstraction and
compilation of this detailed information in the extent required for the planning
must be carried out by the planning tool which is used.
The following are examples of various combinations of the aforementioned
dimensions:
> Best possible exploitation of available free resources which are spatially
restricted. This includes free transmission capacities such as wavelengths and
fibers as well as free interfaces in installed devices.
> Optimal distribution of available resources which can be distributed spatially
without restrictions. Examples are interface cards in the warehouse or allowances
for leasable transmission capacities.
> Expansion of the network in alignment with demand at locations with the
highest projected market potential.
> Remedy of a spatially limited overload on a device or a transmission line.
119
120
spatially concrete network objects such as devices and lines. The implementation
steers and secures the realization of the planning results.
Table:
Degree of detail for network nodes, lines, and demand in the various phases of
integrated network planning
Strategic planning
Detailed Concept
Implementation
Network
nodes
Aggregated nodes
Lines
Demand
Aggregated demand
between aggregated nodes
routed over line bundles
Generally speaking, the degree of detail in the planning results rises parallel
to the progress of the depicted planning phases. The planning results will become more and more detailed and precise the closer the implementation phase
comes. Focus of strategic planning is on the preparation of concepts for possible
platforms and on the interdependencies within them. Strategic planning must
give c onsideration to influencing factors for which the determination of exact
values proves difficult. The consequence is that the degree of detail for strategic
planning is relatively low. The detailed network concept provides a reliable
network development concept in terms of network investment and life cycle
management for a period of one to three years.
Cross-layer planning
A cross-layer perspective is important during all of the phases. In the past,
established network operators set up many widely diverse technical platforms
which were often planned independently of one another in different departments.
Occasionally the utilization of other platforms was hidden, which led to subsequent costs which had not been budgeted. For instance, the existing optical
fiber infrastructure must be taken into account right from the strategic planning
phase of a new transit network platform so that any investment costs which
may be required for its expansion can be budgeted. Cross-layer planning is not
possible without comprehensive and correct documentation of the operated net-
121
work platforms and their interdependencies as well as of the offered services and
extending to the utilized infrastructure across all layers.
Tool support
Results cannot be produced within the desired time frame during any phase of
the planning process and the data volume, which is often daunting, cannot be
processed without effective tool support.
A standard tool concept is needed which permits concrete calculations using
specifically developed building blocks during every single phase and enables the
transfer of results without any interface problems. The network documentation
itself remains in the network operators systems.
Prerequisites for integrated planning
The prerequisites for integrated network planning include above all comprehensive
network documentation, the preparation of forecasts of the greatest possible
precision, and the support of the planning process by the processes established in
the operators business.
Comprehensive, contemporaneous, and cross-IT system network documentation is the
basis for every planning project.
An outstanding example is a standard ID concept for locations which represents
the basis for every kind of network documentation. A unique ID for locations,
whatever form it may take, must be applicable to all of the network operators
departments, to every IT system (regardless of whether OSS or a planning or
order system), or to every type of location (regardless of whether the technology
at the location is active or passive). Building on the standardized identification
of the locations, a unique ID must also be assigned to the network objects such
as active and passive devices, transit lines, cable, or routes. The creation of an ID
which includes an indication of the geographic location is helpful. Cross-layer
documentation is often a problem, but it is indispensable during the planning
phase. It should display the connections of point objects with one another such
as the allocation of devices to locations or of components to devices as well as
information about lead and configuration information for linear objects such
as the configuration of the fiber pairs with DWDM systems or the laying of
cables along routes. This cross-layer documentation is absolutely mandatory so
122
that statements about the load on specific network objects, network areas, or the
complete network can be made or so that nondisjoint routings can be identified.
Comprehensive network documentation must also include the customers on the
mass and individual market along with their input data relevant for planning
such as the bandwidth of DSL connections.
The number of documentation systems in use should be limited. A standard
inventory extending in coverage from access to aggregation to core networks and
encompassing all of the technologies is optimal.
The most precise forecasts possible throughout all of the diverse phases of planning
Beyond a doubt, the preparation of forecasts belongs to the essential input data
for every stage of the planning process. A distinction must be made here b etween
the forecasts for internal and external customers. Whereas internal forecasts
designate, for example, the need for a line to a platform which will be used by
another platform, external forecasts are characterized by predictions for customers on the mass and individual market and in wholesale business. The forecasts
must be provided in correlation to the time period for every planning phase.
By their nature, forecasts for a time ten years in the future will be less precise
than those for the coming year, so regular review is necessary. Forecasts based on
dependable data such as population, structural development, average income, or
penetration by competitors should be prepared for the early stage of the strategic
planning.
The living processes in the network operators business must encourage, not hinder
integrated network planning
Integrated network planning will prove to be a success only if the established
processes in the network operators business have a supportive effect. Above all,
the principle of To each his own Excel list must be tossed overboard so that
redundant plans can be avoided and a smooth transfer of the planning results
of the various phases can become possible. In addition, responsibilities in the
planning process must be clearly defined and the results must also be realized in
network operation!
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124
First, they should begin by analyzing the as-is network. The next step is the identification of the existing logical and technical platforms and the corresponding
data sources. A suitable planning tool is used to import and aggregate the as-is
network consisting of individual devices and lines. Aggregation is based on each
connection area with one aggregated location as the compilation of all of the existing locations and devices and as the terminus of the line bundle. This procedure
drastically reduces the volume of the data. The aggregate network created in this
fashion provides the foundation for strategic planning which can be carried out
in the form of scenario calculations.
Both concrete platform shutdowns and the setup of new platforms can be examined in the scenarios. In addition, the methodology for the scenario calculation
can be implemented by the development of modified building blocks for automated calculations.
Existing Network
Aggregated Network
Planning
Scenario
1
Planning
Planning
Scenario
Scenario
2
n
Source: Detecon
125
The building blocks should treat the aspects customers and services (e.g., with
respect to the distribution of nationwide forecasts to the connection areas), platforms (such as the automatic generation of network topologies), dimensions and
cost estimates, and the cable network.
It then becomes possible for the network operator to determine the development
of the network topology for a new aggregation platform over a period of ten
years (including the required investment costs), to describe the development of
the load on the cable network, and to identify required investments, for example.
D1
Mass market
Business
customers
D2
D3
C
Wholesale
D4
D6
Platforms
Traffic
modeling
Topology
E1
Dimension of
aggregation
points
Bundle
dimensions
E2
Cable network
Cable
dimensions
Source: Detecon
126
Costs/
Reporting
Costs/
Reporting
127
Focused Innovation
128
Why innovating?
Innovation has been on the agenda of many large corporations for a number of
years. The idea of a unique and superior customer proposition, followed by major
success and market domination sounds attractive, and a few, selected companies
that succeeded have shown, how rewarding this can be. So why has this topic
caught so much attentions amongst Telcos in the past years? Why have Telcos
started so many costly initiatives in this area, despite a history of providing communication services to customers, driven by an innovative supplier ecosystem?
The reasons for this innovation push can be found when looking into macro
economic developments of the past two decades: Declining revenues in historical
profit pools due to deregulation and new market entrants, in combination with
market saturation and missing major new growth waves after broadband and
mobile. Even in many emerging markets, growth is starting to slow down. But
maybe the most obvious reason for Telcos to get active in this space was the
competition of what Telcos call OTT (Over the Top) players, like Google, Apple,
Facebook, Amazon, Skype (now Microsoft) and most recently companies like
Whats App or Viber. These companies were starting to cut into long standing
profit pools of Telcos, like voice and SMS services, that have been untouched
for long time. Also, most of these companies have been successful in building a
direct relationship to customers, bypassing carrier sales and billing channels.
Given the increased competition in markets with blurring borders and a constantly changing competitive environment, Telcos decided to act. The question
was, what markets should they attack? And how, where, with whom should they
innovate in order to keep their market position?
What Telcos should focus on
Telcos have been active in a number of innovation fields in the past years. They
hired experts, started large innovation programs and built internal innovation
groups. While most of the new initiatives sounded promising, and helped
to improve the image towards shareholders, they did not even come close to
generating the levels of revenue and profit that Telcos are used to from their core
business. Why were most of these innovation initiatives not successful? In our
opinion, the predominant mistake that Telcos did was not focusing on their core
competences, and underestimating the competitive market environment in some
of these innovation areas.
129
Focused Innovation
customer base. Continuing that success story means staying within this area of
core competence. From an innovation perspective the new challenge is to define
where and how to find these best-in-class technologies and integrate them into
core distribution platforms better than anyone else. This means using not one,
but many different approaches:
> Changing things internally around the core business to supplement or compliment
technologies that will be brought to market. Most markets have intense competition
today, so there needs to be something that the telco does fundamentally different
than his competitors to succeed.
> Leverage outside innovation by new approaches to get closer to innovators,
these can be innovation networks, incubation approaches or the build-up of
innovation foresight tools and units.
> Smart partnering becomes the evolution of traditional vendor relationships. Telcos
are really good at managing complex innovations from vendors. As markets are
saturating, this competence is becoming more and more of an efficiency game,
leveraging economies of scale by centralizing procurement functions amongst
different entities, or building alliances to increase buying power.
> One of the most important weaknesses in Telco innovation approaches we have
observed in the last years is a lack of focus and commitment. Building new businesses
is really, really hard, and is often dramatically underestimated. The efforts that
go into building a substantial new business are tremendous, the investments are
fairly large and the time horizon towards profitability rather long (5-8 years). The
portfolio of initiatives at many carriers, aimed to generate new business, often
show a huge amount of small projects that neither have strong top management
support, nor funding to really make an impact.
So what can be done differently? Try to find markets where you are really able to
compete, make a small number of the big bets and execute on them brilliantly,
make a larger number of smaller bets, to stay close to relevant developments and
act quickly, ones one of these areas becomes a major market or business and kill
new businesses consequently and quickly, if they do not work out.
130
Success factors
high
Source: Detecon
131
Focused Innovation
Vodafone started Xone, a global innovation center with core activities in the San
Francisco Bay Area and other international markets. Verizon and Sprint opened
up or re-opened facilities in the Bay Area. AT&T started foundry innovation
centers to facilitate innovation through a diverse, collaborative community.
Where will these incubators end up? At this point in time, it is too early to say
which model, and how many of the initiatives will be successful. What is clear,
is that it is extremely difficult to leverage incubation as a trend, when there is no
clear strategy, proposition, mandate, and mid to long-term funding.
The Telco as best in class partner for innovators
The latest wave of Telco innovation activities is focused on partnering.1 The idea
is basically to become a best in class partner for innovative product and services
companies, to become a very attractive channel for startups and high growth
companies that pushes products through its core channels into the market.
Attractive revenue share agreements between Telcos and large and small
innovation partners should guarantee future revenue streams. On top of that,
Telcos are hoping to leverage the positive branding and image effects that some
of these players certainly bring to the table. While this again sounds like a very
appealing p
132
partnership therefore includes all of the important ingredients that are key for a
successful partnership:
> a clear value proposition that is based on certain network and provisioning assets,
> quality of service as a differentiator that can be monetized,
> positive marketing and branding effects,
> tangible benefits for the Telco partner in terms of marketing and sales
channel leverage.
Telco adjacent industries
Finally, Telcos have started to move into large adjacent verticals. The focus here
is mostly on areas, where connectivity assets can be leveraged. Large verticals
include healthcare, education, finance/payments, M2M, cloud, security and
entertainment/content. Most Telcos started internal groups with the aim to
build these areas into larger business segments in the near future. Large Telcos
acquired some businesses in these areas in order to get a first footprint in these new
markets. Some Telcos realigned their assets, and bundled certain competences
under one new leadership.
Also here, it is too early to say if this strategy will lead to success. What we
can mostly observe though, is that competition in these market adjacencies is
very strong, and that most players in these verticals have already started to move
into the same direction by acquiring network related or digital assets, or by
forming strategic new business segments with solid funding and top management
visibility and reporting. On the Telco side, however, these verticals are often
lacking the talent, funding and long-term perspective, that is needed in order to
be successful. The mentality of a carrier is thinking in month, maximum annual
cycles. In many of these future markets, it can take up to 10 years of massive
investments, in order to be successful. Looking at how long it took Google to
build the infrastructure around self-driving cars, next generation internet access
and wearables before being relevant in these new verticals, reveals how long it
can take: Investment phases of 5-8 years, with a breakeven of a new unit after 10
years are not the exception.
133
Focused Innovation
134
vehicles seem to work well. The second piece of the equation, synergies with the
core business, is even more difficult to quantify. Nearly all CVC groups have
to go through board approval processes, meaning that managing directors of
business groups and divisions need to approve each individual deal. Synergies
therefore exist through this integrated investment approach, they are just very
difficult to measure and quantify.
The question remains, should a Telco invest in this segment? Looking at
performance data of in-house R&D groups, one can clearly say that many of
these investment vehicles provider better returns. Synergies with the core business
and organizational setup to fully leverage these remain to be a field of o ngoing
improvement.
Towards the future
Despite the many challenges there is little cause for some of the pessimism that
currently manifests itself amongst top executives within the industry. For sure,
there are significant obstacles. However, considering the assets and resources at
the telecoms disposal, there is still a clear opportunity to successfully redefine the
future.
Innovation is the key to this redefinition. By driving internal innovation initiatives
that bring together and enrich the best of external 3rd party innovation, telecoms
can continue to offer the unique value proposition that has kept them at the forefront of technology delivery for decades.
The lessons learned from current innovation approaches clearly show that there
is no longer one single approach for how to innovate within the telco. In the end,
success relies on a mix of multiple solutions blending internal innovation, open
innovation and external cooperation. Innovation in the future needs to encompass multiple stakeholders, different approaches and integrated functions, but
somehow run as a well-orchestrated, cohesive solution.
There are lessons learned that make it clear that there are innovation areas where
telcos should definitely not be active. Firstly, you cannot innovate up the
value chain, i.e. into the area of software and services. In this space, strong global
competitors such as Google, Facebook and myriad start-ups have showed time
and again that they can move faster and more effectively into new areas. Dropbox
and Box can create global storage solutions in the cloud faster than any tele-
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Focused Innovation
com player. Similarly, telecoms focus on providing local solutions, dealing with
complex country-specific industry regulation can be of great value, but in the
area of simple applications and services with little or no regulatory barriers, the
telecoms lack of ability to compete on a global scale limits their opportunity.
Similarly, you cannot innovate down the value chain, i.e. into the area of hardware solutions. Here again, OEMs such as Apple and Samsung, and network
equipment vendors, lead by Chinese manufacturers such as Huawei, have the
ability to build solutions catering to a global market, providing them with economies of scale that cannot be matched by any telecom. OEMs have the research
capabilities and the necessary historical expertise to bring device and network
innovation rapidly and effectively to market via their product roadmaps
aggregating feedback from customers globally and incorporating this into their
upcoming release cycles. Any attempts to try to out-smart or out-pace their established core competencies in this area would be challenging at best.
So where should telcos innovation efforts be focused? Firstly, the most critical area is to continue to innovate internally, but to do so in a way that is
completely aligned with core competences. Secondly, telcos still need to harness outside-in technology innovation from 3rd party vendors and suppliers in
order to fulfill the entire technology stack toward customers. In the past,
telcos simply followed the roadmaps of external 3rd party vendors, brought in
their technologies, tested, improved and scaled them before deploying them for
the mass market. Today, multiple integration methods must be used to source
innovation. On the one hand, telcos can consider how to foster disruptive ideas
in a low risk way through venturing and incubation. Additionally, they can
look to leverage existing assets to spur innovation within the market, through
enabling. And finally, given the number of digital solutions required in the
future, telcos need to look to cooperate with best in class suppliers of services and
software, through smart partnering.
The different pieces from internal competence-focused innovation, through
external open innovation, to 3rd party partnering create an overarching
innovation approach of the future that has the potential to best harness new
opportunities in the most cost and risk-optimized way. However, one last puzzle
piece remains: the idea to still continuously search for the next big thing.
These are the one or two potential opportunities that come about through
digital transformation that could become the next wave of enormous growth, like
internet connectivity or mobile before. To do this requires a mindset to continuously search for these opportunities and then place big bets on those potential
136
areas where potential growth could come. These areas of opportunity will be
quickly claimed by someone in the digital ecosystem, and for the telco to be the
one to win they must clearly position themselves to be better at executing than
the competition at an early stage.
The Telecoms Innovation Artillery
From our experience working in telecoms innovation over many years, we b elieve
that a large number of approaches to innovation are essential. Interestingly, m
ajor
telecoms operators have already at least partially established initiatives in almost
all of these areas. In the next section we outline our views, based on historical and
current efforts, of where and how the telecom can use its existing innovation
artillery to build out a successful innovation approach for the future. And most
critically, beyond highlighting the relevant assets, we present our perspectives on
where and how this needs to be slightly refocused to create a more significant
impact into the future.
Strengthen but focus internal innovation efforts
There is unfortuantely much innovation effort and investment undertaken by
telcos in recent years that has resulted in zero return. The internet boom and
the growth of web-services was held up as some sort of hidden promised land of
opportunity for creating copycat services which would easily outperform the
web-service players and lead the telecom towards clear value-add revenues. Much
investment went into internal innovation in these areas, and most of it was
wasted.
In our opinion, one of the key learnings from the past is that internal innovation
efforts into the future must become much better aligned with core competences.
So what are the telcos core competencies?
On the one hand, telcos are e xceptional at bringing together complex technologies from various suppliers, enriching t hese and bringing them to mass markets.
This capability is of great relevance for innovation in the future. End users both
consumers and enterprises do require smart yet simple solutions in complex
fields such as M2M and sensor networks, cloud, and network security. These
areas require a specialist with deep technology expertise relevant for local markets
and local regulations, that can to bring together best-in-class vendor technologies, package them in a way that is suitable for the mass market and provide them
as a simplified service offering.
137
Focused Innovation
Clear positioning
and value proposition
Strategy &
Positioning
Organizational design
is the backbone
of successful incubators
Incubation
processes
Organizational
structure
Incubator
services
People management
Source: Detecon
138
139
Focused Innovation
140
Funding
Team
Governance
Top talent
Competitive incentives
Cross-functional expertise
Independant units
P&L responsibility
Single accountability
Case Study
2002
Acqui-Hired
talent and
players initially
2006
Setup as
independent
business unit
2008
Invested
$480 Mn in
technology
for new
services
2010
Partners
with players
like SUN,
Linux
2012
More than
$2 Bn
annual
investment
Source: Detecon
141
Focused Innovation
which areas are the right ones to focus on, and secondly, once the focus is in
place how to maximize impact within this area to ensure sustainable competitive
advantage in the future.
The real opportunity for telcos in many of these fields should be assessed up
front through more rigorous and realistic calculation of their true revenue and
margin potential. By assessing the challenges and complexities of the competitive
landscape and the real value that the telco has to offer, it would be p
ossible to
eliminate many of the current areas of action. Alternatively, areas where some
telcos have been slow to react would have come more sharply into focus. C
hoosing
the right 3-5 areas of action that have potential given the assets and capabilities
of the telco within a specific market is critical.
Once the fields of action are chosen, it is imperative for telcos to realize the need
to put in place outstanding teams, support ventures with significant funding,
and build sub-units with a governance structure that encourages them to thrive.
Consider the case of when Amazon moved into Web Services. The case study
clearly outlines the core requirements for successful execution of any new business approach.
New fields of action are a major component for the future telco innovation strategy. Execution within these fields must be reassessed to become bestpractice, learning from other players and industries. Only then will it be possible
to compete with the many other players who are also vying for a position in these
emerging opportunities.
A mix of alternative innovations approaches is key
Although the landscape today is very different from the past, there are still very
clear imperatives for innovation within the telco. Not all innovation has to be
internal, much (as in the past) will need to be open and 3rd party driven. The
key is to blend together a mix of alternative innovation approaches, each with a
specific goal, to create a holistic approach towards finding short and longer term
ways to drive sustainable value.
Internal innovation will play a role in the future. The key requirement is to
sharpen historical efforts to focus clearly on core competences. These are both
within the network technology domain as well as more broadly in areas such as
vendor management and customer relationship management. Leading innovation in these areas, leveraging and enriching supplier offerings will provide an
important springboard for longer term cost savings and efficiencies.
142
143
Interview
The Importance of
Innovation Can Not Be
Overestimated
144
Question: Dennis, you work with a lot of clients to develop processes for driving
and managing innovation. Can you tell us a little more about SRIs approach?
Tsu: SRI International has developed his own methodology, which we call
the 5 Disciplines Of Innovation, or 5DOI, that we have applied ourselves
across multiple technologies and markets. We have shared this with thousands
of clients, including governments, universities, enterprises, and entrepreneurs in
over 20 countries around the globe. Our CEO, Curt Carlson, described these
disciplines in a book, Innovation, the Five Disciplines For Creating What
Customers Want. At SRI, we define innovation as the creation and delivery of
new customer value in the marketplace with a sustainable business model for the
enterprise producing it. This definition takes us far beyond ideas and creativity to
an organization-wide, managed process. We really believe that these 5 Disciplines
are fundamental and basic and can and should be applied in almost all i ndustries.
The first point is our focus on meeting important customer needs, instead of
focusing simply on interesting research topics, helps assure that the results of
our work will have positive impact for our clients, partners, end users, and the
marketplace. The second point concerns the value creation: For every initiative,
we work closely with clients to articulate their important needs; define the most
compelling and unique approach to address their needs; analyze the benefits per
costs of that approach; and quantify why the chosen approach is better than the
competition and alternatives. This NABC method Needs, Approach, Benefits
(per costs), and Competition helps us quickly define, create, and communicate
the highest customer value. Third, we are working with Innovation Champions.
Each project is driven by a passionate advocate to advance the value creation
process. We believe having a champion for each initiative is critical to success.
At SRI, if theres no champion, theres no project. Fourth, we have Innovation
Teams. Champions build productive teams. Our multidisciplinary, team-based
approach taps into the collective genius of SRI, our clients, and our partners. SRI
has pioneered open innovation for decades by bringing the best collaborators
and ideas together to meet our clients needs. And last but not least our fifth
discipline is the Organizational Alignment. Our innovation teams align with
client and partner needs to ensure we are focused on delivering the highest value.
SRI is committed to leadership in innovation best practices and in the continuous
improvement of our business.
145
Interview
Question: So would you see any specific challenges within innovation for the
Telecommunications industry?
Tsu: Yes, there are three specific challenges in innovating in Telecom that I
could highlight. The first is how do you define your charter? what will your
organization allow you to consider as a viable product or service offering? We
see that many organizations in the telecommunications industry box themselves
in and dont allow innovation outside the box. The second is what will your
regulators and shareholders allow? In most countries Telecom Operators are regulated entities, and this creates a challenge for innovation. And lastly, the challenges
of innovating within any big company culture where there are entrenched
interests and organizations that want to preserve the status quo. Since most Telecom Operators are large organizations, this is a challenge that must be overcome
to successfully innovate.
Question: Are there differences in the approach toward innovation for R&D
centric organizations vs. companies that operate a mostly regionally focused
business like Telcos with much less R&D spending?
Tsu: On the question of whether Telcos should be innovating differently because
they are regionally focused and spend less on R&D this needs to be parsed into
at least three different questions.
First, spending on R&D does not equal innovation. Some of the most innovative companies in the world spend less than 3% of their revenues on R&D. So,
we do believe Telcos can innovate even if they do not spend a lot on R&D.
Second, a regional focus can be a both a blessing and a curse. It allows for a better
and deeper understanding of your customer base, and their specific needs and
wants. And it means that you really need to be conscious of your competition in
your territory and decide how you want to be perceived in innovation relative
to the other service providers in your geography. And then you need management processes that allow you to execute on that strategy.
Third, as operators with large staffs delivering services to large numbers of customers both consumers and enterprises you face particular challenges to
the rollout and implementation of any innovation. This innovation execution
challenge needs to be well understood as part of your process of managing innovation.
146
Question: Are there any recent trends and changes that you have incorporated
into your innovation frameworks? In general, are these innovation frameworks
very static, or do they change over time?
Tsu: The 5DOI Principles or Disciplines have stood SRI in good stead for more
than the last 20 years, so we think the basic disciplines remain fundamental and
sound. However, everything evolves over time. For example the Internet, mobile devices, app stores, and so on, have dramatically changed the cost and time
involved in rolling out a new application business. Also, the financing of startups is evolving, with angel investors playing a larger role and the venture capital
industry adapting to this. On a more technical front, 3D printing is at the cusp
of altering the manufacturing process, while the world is more and more interconnected and therefore your competition is now global from day 1 for almost
all products and services. And of course, the average lifespan of a large (F500)
company is getting shorter. The importance of innovation even for large telecom operators cannot be overstated.
As a result of these changes and many others going on in the world, we think
its increasingly important to stay focused on the fundamentals. That includes
understanding your market and customers what do they really need, understanding the competition and why or how you are better or different, and being
able to articulate the benefits youre delivering to your customer compared to
their costs in a way they can understand.
147
Enforcement Partnering
Successful Partnering
Generates New Growth
Dr. Christian Krmer
> Growth on the saturated telecommunications markets is an elusive target; its achievement requires companies to diversify onto new
markets with new products or to increase the
depth of their value creation.
> Partnerships represent a low-risk alternative
for telecommunications companies which
enables them to realize new business models
and develop new markets quickly.
> But successful partnering also demands the
build-up of new skills by the participating
companies at both the organizational and
cultural levels.
148
149
Enforcement Partnering
the right partners, operators strengthen their competitive position, share investment risks and expenses, and increase their customer reach, ideally to full-area
coverage. The possibilities offered by partnering are many and varied, and the
motivation to move in this direction comes from similar reasons across all industries. In todays age of an increasingly digitalized, globalized economy,
virtually every business model has come under pressure. Customer requirements
change from one moment to the next, technological innovations cast doubt on
established products and services, and new competitors are able to defy even large
international corporations. The value chains are undergoing major transformation
and demand flexibility and speed in previously unknown dimensions.
Companies are cooperating with one another so that they can keep pace with
these dynamic changes and, by working together, achieve common goals.
Sales, marketing, and innovation partnerships, for instance, serve to increase
revenues. Setting up new cross-industry business models is a means of increasing
the
average revenue per user (ARPU). Outsourcing, the establishment of
shared service
centers, and near- and offshoring serve primarily to reduce
costs. Partnering surrenders the holistic structure of an in-house value chain in
favor of the strengths of a network. This trend will continue. Future competition
will no longer take place between individual companies, but between crosscompany corporate alliances and virtual corporate networks. These networks, the
so-called smart business networks, are evolving into a key organizational form
in todays business world.3 They are characterized by closely meshed business
models among their players and make it possible to enter into business relationships quickly and fl
exibly; in the event the relationship proves to be of little value,
it can be dissolved just as simply.
One good example of successful partnering is the cooperation between Telekom
and the music streaming service provider Spotify. The corporations fixed and
mobile network subscribers can simply add the streaming service to their rate plan
and pay for it as part of their monthly telephone bill. This is more convenient
for customers than booking the service separately. They enjoy yet another advantage the usage is not charged to their data allocation. When customers of other
mobile network providers listen to music on Spotify while on the go, every transmitted byte is deducted from the data volume of their contract. The competitors
of Spotify and Telekom have entered into similar cooperative agreements or are
in the process of negotiating such contracts. E-Plus is partner with Napster in
Germany, Vodafone cooperates with the service Ampya of ProSiebenSat.1 Media
3 Cf. Krmer/Schuhbauer/Zenner (2011): Intelligent Crossovers Next Generation Collaboration in Business
Networks; Detecon Management Report 2011.
150
151
Enforcement Partnering
The value potential of business with OTT services is high. While advertising
revenues in classic TV distribution are rising at no more than moderate rates (even
stagnating or declining on some markets), experts predict a tripling of a dvertising
revenues via OTT services in the time from 2013 to 2018. Net advertising
revenues via OTT services in Western Europe exceeded one billion euros in
2013. This figure will grow to about three billion euros by 2018.
Partnership potential on the media market
OTT services kindle competition among companies at various stages of the
digital media value chain. Simultaneously, they open up space for partnerships
because every provider requires services from its competitors for the realization
of new business models, whether providers of hardware and IT services or
telecommunications companies in the content sector. Web providers require
access to customers via radio, cable, or optical fiber, while classic content
distributors such as television broadcasters are dependent on both access to
customers and the transport of their content.
Identifying and acquiring partners
If carriers are to take full advantage of growth opportunities, they must identify
and acquire the right partners. Only the top 3 providers of each vertical sector are
Figure 1: Partnership potential on the media market
Content Distribution
Application
Web
Browser and Search Engine
ACCESS
Hardware
Source: Detecon
152
TELCOS
153
Enforcement Partnering
They analyze and break down into segments the various links of an existing value
chain and appraise them to determine which ones are served well and which ones
are not served so well. Based on the strengths and goals of a telecommunications
company, these experts identify the position in the chain where the firm should
ideally be placed.
Carriers in particular have the opportunity to play the role of the network
operator or a provider for managed and application services (MSP/ASP). The
operators job is to take charge of network operation, logistics, and billing. When
they play the role of an MSP or an ASP, carriers act as service providers who
take over the management of networks and services or who become platform
operators offering and hosting application-oriented services. Another option
for c arriers is to concentrate on building a media and content company which
utilizes their digital channels to convey multimedia content and mobile solutions
to their customers. The fourth possibility is to concentrate on branding, concept,
and sales and service oriented to consumers. Carriers in this role have the tasks of
interacting with the market, doing research, and collaborating with teams from
production to draw up long-term strategies for market development.
Carriers can even bracket various value creation stages and encompass stages in
which partners boast absolute strengths. If they simultaneously take over both
the infrastructure and the branding, sales, and service, they will cover device
manufacturers and content producers. The suitable position in a cooperation
model for any carrier is dependent on its own strengths and on the gap in the
needs of the target market which must be covered. If competence is oriented
strictly to telecommunications, the role of network operator would initially be
the most logical one.
The role of channel leader can also be considered if brand and network competence is strong. The channel leader holds a key position in the value network
and develops a general strategy for all of the partners. A company wanting to
fulfill this role must be competent in the fields of partnership design and system
leadership.
154
CUSTOMERS
Roles close to Telco
Internet
Plattform
Provider
Infrastructure
Managed Services
and
Plattform Vendor
Network
Operator
Access
Device
Provider
Media and
Content
Company
App Store
Broadcasters
Devices
Content
aggregation
Applications
Playout/
Distribution
Resellers
Customer
Service
Provider
Branding/
Sales
Service
Market Development
Source: Detecon
Detecon International GmbH
155
Enforcement Partnering
5
6
Cf. Helbig, From Telecommunications Company to Process Factory, p. 298 pp. in this volume.
Cf. Hauk, Customer Experience, p. 250 pp.; Penkert/Eberwein, Customer Self-Services, p. 270 pp. in this volume.
156
157
Enforcement Partnering
the collaboration can enjoy the best possible support from the very beginning.
Depending on the collaboration model, such means can include Web-centric
supplier portals for the support of the purchasing department, social work spaces
where project members from various companies can work together across all
media, and cloud computing applications for the distribution of data to a large
number of devices and users. Video conferences, Web meetings, data exchange
using EDI 2.0, and the utilization of social media round out the collaboration.
Cooperative procedures are accelerated by process-steered workflows at the team
level.
A holistic management approach followed by companies to develop and organize
their partnerships on the basis of the value creation analysis is important. The
cooperation managers must initiate the required adaptations and transformations
so that the actors in the network can interact smoothly. Taut management with
the appropriate governance, guidance, and collaboration technologies secures the
performance of the network.
Partner selection
Strategy/M-O-P-S
Decide on Value Chain Strategy
Options: Make, Outsource/
Shared Service Center, Partner/JV
Performance Measurement
Define KPIs
Set-up steering logic and system
Collaborative Action Plan
Adjustment actions
Optimization actions
Source: Detecon
158
Plan
Build
Process of
remodeling the
value chain
Monitor
Run
159
Interview
Partnering as Strategic
Growth Weapon
160
161
Interview
Question: What role does partnering play in the roll-out of M2M solutions?
Prof. Bcker: Technological solution competence is undoubtedly the top business card for the competitiveness of such networks. Partnering is the most important hygiene factor. Both partner selection and management of partners during ongoing operations are decisive for success just as much, by the way, as
the ability to disconnect from weak partners and to replace them quickly with
more powerful cooperation partners. This capability is especially decisive on the
outsourcing market, which is becoming increasingly characterized by secondgeneration outsourcing or multi-vendor solutions.
Question: How has the quality of partnering changed over the last ten years?
Prof. Bcker: During the last decade, partnering has developed from an
operational vicarious agent to bridge bottlenecks in resources into a strategic
factor. On the revenue side, it plays an important role as innovation and sales
partnering. The quality and speed of these types of cooperation are continuing to accelerate. In view of the growing maturity of the telecommunications
industry, partnering helps telecommunications companies to concentrate on
their core capabilities. Outsourcing deals and the shifting of cross-over tasks
even R&D to supplying partners mine potential for cost reductions which
simply cannot be mobilized in the form of conventional cost-cutting projects.
Question: What developments can we expect to see in the future?
Prof. Bcker: Carriers will continue to enhance their partnering capabilities
within the framework of their growth objectives. The creation of strategically
motivated partner management can be found at or near the top of the agendas
of many providers. The skills which will be really high up on the job d
escription
for partner managers: the capability of developing networks strategically and
acquiring leading companies as partners; proven expertise in the field of partner
selection and the management of partner portfolios; and talent for i mplementation
which keeps cooperative ventures agile and leads to mutual success.
162
163
Empowerment Wholesale
164
165
Empowerment Wholesale
166
33%
30%
30%
=
=
=
=
=
30%
25%
22% 22%
17%
20%
18%
15%
11%
OPEX Reduction
Middle East
Africa
Asia
Europe
America
Cost Predictability
20%20%19%
12%
Service quality
15%
14%
13%
13%
11%
10%
Focus on
Business
14%
13%
10%
9%
8%
Organisation &
Process framework
9%
8%
6%
Professional
Expertise
Source: Detecon
167
Empowerment Wholesale
168
after transition (12 months). 38% of our respondents were unhappy about the
slow start of services, which often caused milestones for SLA/KPI achievement
to be missed.
Although the top objective of cost control was fully achieved, service quality,
which ranked as the third top objective of managed services in our survey,
was not always fully delivered. One-third of the respondents said that service
quality delivery was below expectations. Other areas of dissatisfaction included
access to best processes and expertise, which were, however, relatively low on the
operators agenda. The level of dissatisfaction in that area was closely linked to
the quality and time of preparation allocated during the first phases of managed
services implementation. As operators are generally performing these tasks for
the first time, there is frequently a lack of experience which can be bridged by
using external help.
Extending to other functional processes
The network lifecycle consists of the phases Plan, Build and Run. Managed
services are utilized mostly in the Run phase, i.e., operations, although
occasionally in the Build phase as well. Consolidation of managed services
for the Run phase proves that it is a successful model. The past few years have
seen strong growth in the use of managed services. The fastest growth can be
observed in the Build phase when the MSPs, usually the equipment vendors,
are contracted to roll out the network. This trend will continue in the coming
years. As to the Plan processes, they represent a key strategic area, and many
operators would like to keep planning activities within the company. However,
third parties have been successful in taking over some of these activities. Our
survey indicates there will be strong growth in outsourcing activities related to
these functional processes in the next two years.
MSPs will continue to take over more of the duties in implementation-oriented
design as well as network deployment and operations. Operators who have
typically treated activities related to strategy and design as a core competency are
now more open to the idea of outsourcing such tasks. Operators display a clear
preference (61%) for delegating such activities to telco equipment vendors over
assigning the activities to in-house departments (25%) or to business management consultants (7%). However, professional services in the strategic area may
differ from the operational area in their approach.
169
Empowerment Wholesale
MC*
Mapping
Telecom
Vendors
Capabilities
PLAN
Build
RUN
MC
Strat.
Plan.
NW
Design
Detail.
Plan.
NW
Deploy
NW
Expansion
NW
Surveil
1st
Line
2nd
Line
SPM
Perf.
Mgmt.
Optimization
170
MC*
PLAN
Build
RUN
Mechanical
Telco
Fast paced
Expansion
Services
IT- &
Support
Systems
Slow Paced
Expansion
* Managed Capacity
Source: Detecon
171
Empowerment Wholesale
areas in their current MS setup they would like to adjust. The results:
>
>
>
>
>
Customer experience and service quality will play a major role as operators seek
greater differentiation from their competitors. Operators expect adaptation
and improvement of the related SLAs/KPIs, which, to a certain extent, can be
achieved by better support systems. Such expectations actually open a door to
this IT business segment for telco vendors. However, if they hope to seize the
opportunity, telco vendors will first have to demonstrate their abilities and knowhow, something that is currently lacking in their service and product portfolios.
Besides, extending managed services into the IT segment means pushing the
partnership up to a new level. More trust between the partners is critical. There
will be challenges to overcome and compromises to be reached in various issues
such as those discussed above: flexibility during contract negotiations, operators
expectations regarding service start and project milestone achievement, desire to
transfer some CAPEX responsibilities to the vendors, and even a revenue sharing
model for managed services.
Evolve and move forward!
Our survey shows that telco operators have reached the 2nd phase of managed
services development; they have started consolidating service partners, reducing
operational complexities, and extending the scope to more functional processes
related to strategy. A good level of trust has been built up between the partners. With technologies advancing further towards data and broadband services,
value-added services, convergence of wired and wireless networks, and crossover
of IT into the telco world, managed services are well on their way into the 3rd
phase of development. During this 3rd phase, operators will push their KPI
expectations more deeply into the customer experience category, extending their
scope to cover other processes like planning and technical areas like IT, with the
aim of securing added improvement in service quality, customer experience, and
cost efficiency. The transformed managed services will be characterized by an unprecedented level of trust and partnership between telco vendors and operators,
which will allow operators to focus more on their core business in the face of the
increasing competition.
172
173
Empowerment Wholesale
174
Field of action
Comment
Strategic thrust
Growth
Voice services/Interconnection
Securing revenues
Defense
Complementary strategy
Growth
Partnership strategy
Complementary strategy
175
Empowerment Wholesale
footprint. A data center strategy, partnerships, and mobile backhaul services, all
aimed at creating more value, are right at the top of the list of priorities. When
these future-oriented strategic tasks are combined with those from legacy b usiness,
six specific fields of action can be identified.
Wholesale strategies in the acces network
Broadband is the primary business driver in the access sector. However, the
markets have developed to a point where nothing less than triple play or even
more comprehensive bundled services are truly competitive. Without a portfolio
of bundled services, there is not a chance of binding customers long-term to a
specific provider on todays highly competitive wholesale market (lock-in effect).
Network operators in almost all countries have begun to offer commercial
IPTV services (mostly as multi-play bundles of various services), to their retail
market customers. A standard IPTV offer includes a basic package of 50100
TV channels, additional channels on a subscription basis, plus video-on-demand
services and top sports events as pay-per-view (PPV) offers. The wholesale
customers in turn require wholesale IPTV solutions which enable a fully convergent portfolio of fixed network, wireless services, broadband Internet, and
TV. The objective is to position an offer which can successfully compete with the
aggressive marketing activities of cable TV operators and others.
The provision of multi-play services is dependent on the availability of broadband with a transmission rate of about 20 Mb/s per household. Network
operators cannot provide broadband at this speed level without either upgrading
their copper-based access networks using digital subscriber line (xDSL) technologies or rolling out optical fiber-to-the-home (FTTH) access networks. For all
practical purposes, optical fiber can provide unlimited bandwidth, but this is not
true of xDSL technologies, even enhanced by vectoring. In the medium to long
term, xDSL providers will have to modernize their networks and lay optical fiber
closer and closer to the end customers.
While incumbents already own their own copper and FTTx access networks,
alternative network operators can select from a number of options which
enable them to offer IPTV services: utilization or creation of their own FTTx
infrastructure, utilization of unbundled local loop or line sharing, access to
176
broadband input services in the access network (bitstream access) suitable for the
provision of IPTV (multi-cast functionality is required), or the utilization of a
bundle of wholesale IPTV input products as part of a specific wholesale solution.
From the wholesalers perspective, a sustainable, long-term wholesale strategy for
broadband access networks needs to secure customer loyalty and achieve lock-in
effects. Such a strategy comprises a number of elements:
1. Business model: Business targets, services, and the related bundling
strategy and pricing must be fine-tuned to match the segmentation of the
wholesale customer market.
2. Platform and processes: The specifications for the underlying platforms and
processes must be carefully defined to ensure that all planned wholesale services
can indeed be marketed.
3. EInfluence on the retail market: Wholesale-retail interdependencies must be
analyzed in detail to uncover conflicting goals and to ensure that the appropriate
management decisions are made.
4. Regulation management: Besides implementing current regulatory decisions
(multi-casting, for instance), wholesalers should anticipate possible regulatory
requirements. Just one example: the bundling of mobile and fixed network
services could lead to regulatory consequences.
Mobile Backhaul
Viewed from the wholesale providers perspective, the explosion in mobile broadband traffic has two important effects. One concerns the enormous pressure on
mobile network providers to expand their networks and the concomitant cost
pressure on them. The right wholesale products could provide significant relief
here. The second is that mobile data traffic is virtually the only telecommunications market which is growing. Wholesale products can enable fixed network
providers and fixed network divisions to participate in this growth as well.
Mobile backhaul solutions for mobile network providers initially represent pointto-point solutions connecting all parts of the mobile network from the BTS to
the backbone network. As the LTE infrastructures continue to expand, these
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ring this changeover. The application of this yardstick means that interconnection rates are determined solely on the basis of the variable costs without taking
any overhead costs whatsoever into account, and the consequences are dramatic:
interconnection rates can decline by as much as 90%. The driver behind this
development is the EU Commission, which is calling for further harmonization of interconnection rates within the European Union. In the opinion of the
Commission, the variations in national cost standards and the different levels
of termination rates have a negative impact on the common market. The
standardization of fixed and mobile network interconnection rates is also planned
in the medium term; roaming charges will also decline to the level of on-net calls.
So wholesalers need a defense strategy incorporating tight regulation management. The minimum objective is to coordinate this development with the
revenue development of other services. Appropriate cost modeling of the various
interconnection services, one of the most crucial elements of a defense strategy,
is the focus of attention. However, this regulation management will not, in the
long run, prevent regulators from doing away completely with termination rates
by changing over to a so-called bill-and-keep regime. Wholesalers will have no
choice but to identify alternative high-growth revenue drivers.
IP monetarization
Meeting the demands for network expansion is an enormous undertaking. Huge
sums are required to fund the investments, exceeding the capability of any s ingle
operator. This is behind the trend to partnerships and cooperative ventures for
expansion as a way to limit investment risks. Yet at the same time, the good
economic sense of investments in the network infrastructure is being questioned
more and more often. Pressure on prices and margins in wholesale business will
remain high even in the future, and the business model which compensates for
declining prices by raising volume has also come to the end of the line. The
present logic for network expansion is part of the problem, based as it is on overprovisioning: as soon as available network capacity is fully utilized, new capacity
is created. As costs rise and income declines, the loss of profitability for transmission business is foreseeable. Flat rates and all you can eat packages which
increase traffic without improving the revenue side reinforce the trend. There is
no incentive to make efficient use of bandwidth.
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It is essential for carriers to make optimal use of networks and to offer efficient
added-value transmission service in addition to the dumb pipe basic transport.
The issue at stake here is how to earn money from the transport of data traffic in
the future as well. The most important drivers are quality-based (QoS) business
models which allocate types of data traffic to a number of quality classes with
varied pricing. Traffic management prioritizes traffic in higher-value quality classes
required for bandwidth-sensitive applications such as online games or HD video
streaming and permits a breakdown into various QoS classes. Other models for
traffic differentiation are the introduction of a charge for traffic termination, the
prioritization of traffic coming from own (content) offers or selected partners, or
the introduction of an 0800 model2 in which the traffic from partner networks
is not charged against the data cap of the purchased Internet packages (Spotify
model). However, the prioritization or discrimination of Internet traffic always
has a regulatory implication. Discrimination is at the heart of the debate on network neutrality under what circumstances and to what extent can regulatory
authorities accept the prioritization of or discrimination against data traffic. Even
though many regulators essentially recognize and acknowledge that permitting
differentiation according to quality is an economic necessity, authorities have still
not succeeded in providing a clear definition of best effort, the definition of the
minimum requirements which must be included in a basic package for open and
unrestricted access to the Internet.
Regional expansion
Other means of wholesale diversification can be found in internationalization. International wholesale business is determined by the regional situation.
Conditions are dictated first and foremost by the density of the data network,
which varies greatly from one region to another. Moreover, business conditions
for international wholesale business in the USA or Europe differ fundamentally
from those in South America or Asia. But all of the continents see one common
trend: the regionalization of international wholesale business. Carriers with a
strategically favorable location Egypt, Turkey, Singapore, Hong Kong, or the
United Arab Emirates, for instance are playing an increasingly important role.
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SaaS). The possible portfolio range is broad: content, storage, hosting, white label
service, and business outsourcing, to name just a few areas of application. There
is significant business potential here.
If this potential is to be developed, the approach to wholesale customers and the
segment strategy must be completely overhauled. The focus will shift to sales
and sales operations. An extended data center proposition aims at new customer segments such as cloud and Web 2.0 service providers, intermediate dealers,
content providers, system integrators, and resellers. The customers have little in
common with traditional wholesale customers. The new segments require more
complex solutions, provided in toolkit-type modules and, in part, in partnerships. So new wholesale approaches always require new segment strategies as well
so that they can satisfy the range of customer requirements. Web 2.0 providers
look for simple self-service provision; flexible and dynamic adjustment of traffic
capacity is the decisive sales argument for content providers; cloud providers
demand resource elasticity or consumption-based pay-as-you-go solutions. The
order of the day: away from technology-driven wholesale business and toward a
customer-oriented market approach!
The second argument for putting more emphasis on the customer side is in the
nature of wholesale business in the sense of large account business with long-term
loyalty. Proximity and familiarity with customers are not only required to serve
specific demands; they are essential for defining jointly with customers w
in-win
partnerships and long-term customer loyalty in the sense of stickiness. This works
only if the customers needs and pain points are known and appropriate solutions are offered. This approach goes beyond normal key account management
because it implies the quantification of business options. A sustainable common
foundation for business can be laid only if both sides achieve higher profitability
when working together than when each operates in isolation. The more exact the
knowledge about the customers, the simpler the modeling of a business model
based on partnership.3
This is also true because success in wholesale is dependent on large projects
and customer relationships of long-term stability. Wholesale megatrends are of
outstanding significance. One current example is mobile backhaul, the return
direction of mobile traffic from the base station/Node B to the backbone. Owing
to the expected data volumes, traffic can be managed effectively only if the return
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flow is based on broadband optical fiber connections. Since the connection to the
base stations is very expensive, some mobile network providers are starting to concentrate on simple access and leaving network connection, in some cases network
operation as well, in the hands of specialized partners. A flexible mobile backhaul
proposition and the exact knowledge of network performance capability and
readiness of the mobile network operator is indispensable for w
holesale business
so that long-term and far-reaching partnerships can be established. Broadband
connection of base stations also helps incumbents broadband retail business and
is another argument in favor of an integrated fixed and mobile network strategy encompassing retail and wholesale. Further expansion of network capacities
through small cells and HetNets opens up more opportunities to wholesalers
with a strong network infrastructure all the way to complete outsourcing of
network services and network management services.
Partnerships as prerequisite for business success
Partnerships are rapidly rising in importance parallel to the increase in demand
for investments in high broadband infrastructures and in the complexity of the
end-to-end value creation. Partnerships share the business risk among a number
of shoulders, support a faster market entry, and enable the compilation of an
attractive product portfolio which can satisfy all of the customers demands
end to end. Obviously partnerships are an important building block enabling
the fast and flexible action on the market which in turn leads to long-term and
sustainable success.
There is nothing new about this paradigm! Partnerships have always been a
determining force in business relationships. From the traditional wholesale
and telecommunications perspective, a partnership is viewed as successful if
each of the partners can achieve healthy development of its core business field.
For typical incumbents, the traditional wholesale partnership must maintain a
balance b etween reduction of the investment risk, high platform utilization in
the sense of generation of scaling effects, and strong price stability at the retail
level. Partnerships make good sense only in a well-balanced triad. This is living
practice and describes wholesale bread and butter business.
It is supplemented by new variants in wholesale business in which the typical
incumbent wholesaler does not perform solely as a seller, but also buys whole-
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sale services, i.e., at the wholebuy level. Typical examples can be found in highbroadband access business in which the networks are expanded in coordinated
activities because of the high investment requirements. One operator expands in a
region, provides non-discriminatory access to its own network to a competitor,
and receives in return non-discriminatory access in regions in which the competitor has expanded the network. Competitors here can be other telecommunications
operators, utilities, or alternative competitors who have the appropriate infrastructure.
Reciprocal models of this type have long been implemented but they are not
without their pitfalls. Creating truly fair partnerships is not such a simple matter.
Processes and technical interfaces must be reconciled, and ultimately the e ntire
corporate culture must be adapted if omnipresent incumbents must exercise
restraint and purchase access to end customers via wholesale access products.
But the new pressure point of the partnership challenge is a different one: speed,
especially the implementation speed of core business partnerships such as those
in the access sector. An increase in speed presumes test methods and s tandardized
implementation modules which help the partners to quantify quickly the
benefits of a partnership, to identify suitable partner models, and, in particular,
to initiate technical and operational implementation steps rapidly. This is true
not only for traditional partnerships between telecommunications operators, but
explicitly encompasses new partnerships with utilities or housing associations.
The second core challenge is related to the depth of the partnership. Cloud and
Web 2.0 make new demands on the traditional, line-driven telecommunications
business. New partnerships are aimed at innovation and the development of new
business fields. Platform business models such as billing, payment, or verification
are product features which are served by wholesale platforms today, but can be
purchased in part from third-party providers. There is a significant opportunity
here to offer this service to small Web 2.0 or e-commerce providers quickly and
flexibly. New and more extensive partnerships are necessary in the same way that
cloud services such as software as a service, platform as a service, and infrastructure as a service represent requirements which can be satisfied only by third-party
providers. New product demands, pressures of innovation and competition, and
customers demands for end-to-end marketing are the drivers here.
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high, which is why especially flexible and mobile M2M solutions will continue
to be in demand in the future.
The challenge to wholesale business is the utilization of the strengths from platform-based connectivity business: SIM card management, number planning and
number management with regulated number blocks as a scarce resource, management of roaming costs for cross-border solutions such as in the transportation sector in connected car solutions, and the provision of pre-configured devices.
This is where the telecommunications sector, especially wholesale business, has a
comparative advantage thanks to its wealth of experience, and it must transform
this advantage into future business potential while determinedly developing further its business models.
Strong wholesale business as success factor for integrated network operators
In summary, we see that wholesale markets are undergoing major changes and
that complexity is increasing. The range of demands on wholesalers is t remendous.
The need for increasingly complex system solutions for managed services in lieu
of standardized mass business is growing. Wholesalers must learn how to o perate
in smaller units and professionally along the entire value chain. Partnerships
provide support in this area. The identification and management of suitable partnerships is a success factor in wholesale business.
Moreover, wholesale business will play an important role as part of the integrated
fixed and mobile network strategies of network operators in the future. This is
the only way to realize successfully economies of scale, in turn the prerequisite
for low-cost services for development of retail markets. Once this point has been
reached, strong wholesale business will become a success factor for integrated
network operators.
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Trend to regionalization
The deregulation of the telecommunications markets in Europe in the 1990s laid
the foundation for the development of markets which were no longer delineated
strictly by national borders. On the one hand, the EU Commissions mission is
to promote a single market in Europe, and many national operators initiated
international expansion. On the other hand, competitors entered the market
without achieving a too costly nationwide full coverage. Incumbents were
unable to immediately fund the investments required to create a state-of-the-art
nework (e.g. FTTx) and, at the same time, full-coverage infrastructure. The
result: r egionalization of the markets.
Regionalization is an issue with many different aspects. Due to the investments
in FTTx networks and the introduction of DOCSIS 3.0 (3.1 in the future),
carried out in selected areas, Europe now possesses a patchwork of technologies.
By its nature, this patchwork causes substantial differences in terms of bandwidth
among the regions, especially between urban and rural areas.
A second aspect of regionalization concerns market entry of local or regional
providers which have no ambitions/abilities to offer their services on a nationwide basis. Stokab in Sweden, ATB-Nett in Norway, or NetCologne in Germany
are only a few examples of local and regional market newcomers in the FTTx
sector. This development is also due to the introduction of infrastructure-based,
intramodal competition, in particular when the unbundling of the local loop was
initiated. Competitors who procure local loops as a wholesale service have not
contributed to any expansion of national networks.
Cost differences between rural and urban areas are driving the regionalization
process as well. This is especially true for fixed access networks, but mobile networks are affected as well. This will presumably lead to even greater regional
differentiation of the services and products in the future. Faced with these
conditions in their field of operation, national providers must decide whether
they should offer regionalized prices.
These aspects leads us to the following questions:
> Is there a trend to regionalized markets, and what are its recognizable features?
> What effects does regionalization have on the broadband markets, especially
on prices and wholesale services?
> How must the nationally active network operators react to regionalization so
that they can optimally exploit its business potential?
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5
6
192
7 TKK, Decision M 1/07-534 of 04/07/2008. Higher Administrative Court, File No. 2008/03/0116,
17/12/2008, and TKK, Decision M 1/10 of 15/11/2010.
8 Ida/Kuroda, Discrete Choice Model Analysis of Demand for Broadband in Japan.
9 Ida/Sato, Conjoint Analysis of Consumer Preferences for Broadband Services in Japan,
The Kyoto Economic Review 75(2), p. 115-127, December 2006.
10 Cardona/Schwartz/Yurtoglu/Zulehner,
Demand estimation and market definition for broadband internet services, July 2007.
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Dutz/Willig, The Substantial Consumer Benefit of Broadband Connectivity for US House-holds, Mimeo; in:
Rosston/Savage/Waldman, Household Demand for Broadband Internet Service,
Final Report to the Broadband.gov Task Force, Federal Communication Commission, 29 January 2010, pp. 9-10.
Rosston/Savage/Waldman, Household Demand for Broadband Internet Service, Final Report to the
Broadband.gov Task Force, Federal Communication Commission, 29 January 2010. pp. 9-10.
Varian, The Demand for Bandwidth: Evidence from the INDEX Project, Mimeo, University of
California Berkeley, in: Rosston/Savage/Waldman, Household Demand for Broadband Internet Service,
Final Report to the Broadband.gov Task Force, Federal Communication Commission, 29 January 2010, pp. 10-11
Savage/Waldman, Broadband Internet Access, Awareness and Use: Analysis of United States household
Data, Telecommunications Policy 29, p. 615-633, Cadman/Dineen, Price and Income Elasticity of
Demand for Broadband Subscriptions: A cross-sectional Model of OECD countries, SPC Network, February 2008.
Lundborg/Ruhle/Bahr, Discounts and Price Discrimination in the Telecommunications Regulation of
NGA Networks, ITS Conference, Kopenhagen, September 2010, www.econstor.eu/dspace/handle/10419/44349.
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In other words, higher prices can be charged by introducing product and price
options without causing turnover to decline.
The following scenarios are possible:
1. Regional markets without competition: High prices and high turnover can be
realized on these types of markets.
2. Regional markets with a number of NGA and DOCSIS 3 providers: Price competition is intense because of substitution effects and the number of competitors.
High bandwidths make it possible to offer additional services (such as IPTV) as
product differentiation.
3. Regional markets with only one provider of NGA or DOCSIS 3 connections, but
a number of providers offering ADSL connections: Price competition exists, but the
provider of the NGA or DOCSIS 3 connections will be able to bill customers a
small surcharge for higher bandwidths.
4. Regional markets with a number of ADSL providers, but no NGA or DOCSIS 3
providers: Comparable with Scenario 2 the price competition is intense. Since
bandwidths are limited, differentiation opportunities by offering additional
services such as IPTV are also limited.
The investments of NGA networks are CAPEX-intense and cannot be realized
without a price premium. Any network operator which is the only provider o ffering
NGA or DOCSIS 3 in an area will be able to charge a premium without any
great difficulties.
Figure 2: Prices per Bandwidth in the EU
Mbps 60
50
40
= 4-8 Mbps
= 12-30 Mbps
= 30+ Mbps
56,3
49,0
39,4
30
47,0
39,0
38,0
33,4
28,5
33,0
33,1
20
28,2
23,9
32,5
28,1
24,7
10
0
2007
2008
2009
2010
2011
2012
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In other regions, however, the operators will have to offer additional products such
as IPTV, music streaming, cloud services, email services and security packages,
implementing innovative price strategies, marketing strategies and other measures
if they want to realize sufficient margins.
In terms of price strategies, it must be assumed that the price lists will become
less transparent and more complex. The number of price variations will rise and
the price spread will become greater as competition increases.15
Since there are such great regional differences and the network operators must
improve and optimize their margins, a long-term strategy based on p
rice
and product differentiation with regional differences is required. Sacrificing
higher margins in those regions where competition is limited for the sake of
implementing national price and product strategies is not a rewarding approach.
Regionalization measures for nationally active network operators
National operators have a number of options for realizing regionalization. The
simplest method is to introduce products and prices which vary from one region
to the next. But many national providers are reluctant of taking such a direct step,
and they have good reason for this. The disadvantaged customers can b ecome
frustrated because they live in the wrong area and must pay more for the same
service. Moreover, advertising becomes more complicated when multiple prices
must be communicated. However, there are alternative paths for the realization of
regionalization for national operators who are reluctant to i ntroduce regionalized
products in the market.
Technology mix
The technology mix (which technology in which area) is an important strategic
decision during the network roll-out. While it is true that the long-term goal
of every nation-wide network operator must be to expand its FTTH coverage
to the entire country, there are a number of different paths to take, above all
to decide on where to implement VDSL with/without vectoring, FTTB, and
radio-based solutions.The utilization of different technologies from one region
to the next means that network operators can no longer launch standard products on a nationwide basis. A technology mix, on the other hand, enables the
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operators have focused on the densely populated areas, also referred to as cherrypicking, which has driven the regionalization.
16
17
See (among others) the products offered by Telekom Deutschland, URL: http://www.telekom.de/ and Telia Sonera in
Sweden, URL: http://www.telia.se/privat/bredband/abonnemang-kontantkort/produkt/telia-bredband-via-telejacket.
TKK, Decision M 1/07-534 of 04/07/2008. Higher Administrative Court, File No. 2008/03/0116,
17/12/2008. and TKK, Decision M 1/10 of 15/11/2010.
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18
19
Commission Decision of 21 May 2003 relating to a proceeding under Article 82 of the Treaty
(Case COMP/C-1/37.451, 37.578, 37.579 Deutsche Telekom AG), OJ L 263, 14.10.2003 (Deutsche Telekom),
Commission Decision of 4 July 2007 relating to a proceeding under Article 82 of the EC Treaty
(Case COMP/38.784 Wanadoo Espaa V. Telefnica), OJ C 83, 2.4.2008 (Telefnica).
Cf. Aumann, Marketing and Sales, p. 230 pp. in this volume.
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Multi-brand strategy
Nationwide operators who do not want to give up their national m
arketing
approach and nationally uniform prices have the opportunity to adapt to
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What Will Be Required from Future ICT Providers from the Swisscom Perspective
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business processes, and the changes which have generally been triggered by the
Internet have driven the transformation of classic telecommunications providers
into modern ICT service providers in recent years. This process continues apace.
What changes will ICT companies have to realize over the next three to five years
in order to continue profitable operations on the market?
Focus above all on customer needs
Sales structures in the telco B2B segment were once clear and simple. There
was one central contact point for customers which was used to sell relatively
standardized, technology-focused products. The outsourcing discussion revolved
around the operational takeover of clearly defined areas of IT operations.
This situation has undergone a radical transformation. In the meantime, 50%
of the available IT budget in a company is allocated by the business departments. This trend will continue, and the role of the central IT departments will
continue to change. The consequences also affect Swisscom in its role as ICT
solution provider: understanding the needs of customers has become a complex
undertaking! The marketing department of a chocolate producer, the production
department of a midsize watchmaker, or the IT department of a large international
bank all have different needs which in part diverge significantly, and they express what they want in no uncertain terms. ICT companies which want to
be able to develop the right mix of horizontal, scalable standard products and
industry-specific solutions must make greater efforts to learn the language of the
customers and to understand the special circumstances and business processes of
each industry. Customer segmentation based on size of the company alone is no
longer adequate.
In addition to the unceasing acquisition of industry-specific knowledge, Swisscom is committed to a human-centric design approach. Design focusing on
people is more than just a method; it is primarily a question of the attitude
of all employees and management. Taking into account the complete customer
experience chain from Day 1 of development, including marketing, service, and
support; constant interaction among all of the departments; joint development
of longer-term product and service visions; and learning by doing require a
cultural transformation throughout the entire organization.
Naturally we cannot ignore the cloud in this context especially as a flexible
solution for the realization of widely divergent customer needs and not only
as a technological concept. The strict separation between Internet (e.g., Web
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What Will Be Required from Future ICT Providers from the Swisscom Perspective
information, social media, external storage and file sharing) and intranet (file
server, CRM systems, SAP) is breaking down faster and faster because of the
implementation of CRM based on social media (such as Facebook), cloud services
(such as Evernote and Dropbox), and new technologies (such as WebRTC-based
call centers). State-of-the-art cloud services enable us to offer to our customers a
consistent customer experience without giving up security.5
Create sustainable revenues
The fact that volume-based revenues (voice, data, text messages) are in decline and
experiencing constantly growing pressure from flat rate plans and OTT services
is old hat. While it has been possible in recent years to keep revenues dependent
on usage relatively stable in the B2B segment, especially among large customers,6
the flat rate effect already familiar in the private customer segment will dominate
the B2B segment as well within a few years. Moreover, other business fields such
as the classic PBX business (sales, leasing, operation) will face disruptive pressures
as will of course in the middle term roaming revenues.
What is called for here is the artful conversion of the revenues which, as described
above, can no longer be deemed sustainable into sustainable revenues. In the
mobile network segment, Swisscom has succeeded in initiating a change by introducing innovative Infinity rate plans for private and business customers. The
proactive, consistent elimination of usage-dependent components and the introduction of rates oriented to customer needs and based on speeds without a
volume cap have been embraced by the market. Swisscom has not only stabilized
revenues, but gained additional market share as well. The introduction of upper
limits to volume in fixed and mobile networks now under discussion by other
telecommunications companies is not regarded at Swisscom as conducive to
achieving corporate goals. Transparent costs which can be confidently budgeted
along with consistently high service quality are features on which customers can
depend.
Swisscom has made a greater commitment to managed service approaches as
a means of securing revenues in the PBX segment. Simplicity, flexibility, and
security as well as low costs are important requirements of our customers.
5 http://www.swisscom.ch/its/de/it-services/news/Magazin/insights0113_die_cloudifizierung.html.
6 Swisscom Facts & Figures, December 31, 2012, P&L Breakdown, Corporate Business Revenues.
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Complete solutions and their operation from a single source, connectivity which
goes hand in hand with communications and collaboration solutions from the
Internet, an attractive best-in-class security portfolio, and guaranteed data s torage
in Switzerland are our response to these requirements. Swisscom will continue to
develop its portfolio in this area.
Strengthen innovation capability
The term innovation is used colloquially in the sense of new ideas and i nventions
and their commercial realization. In a narrower sense, innovations do not result
until ideas are realized in the form of new products, services, or procedures which
are actually applied successfully and penetrate the market.7
Based on this definition, it is fair to say that in the past the majority of the telecommunications companies positioned themselves more as participating innovation followers than as innovation leaders. Exceptions from the rule are found
mainly in the network sector, in part in the IP-TV segment, or in a few, select
services such as M-PESA, a highly successful African mobile payment service
based on text messages. The innovations on the smartphone market driven by
Apple, HTC, Samsung, and others and the explosive growth in mobile data
business which has resulted are classic examples of the participatory role.
Considering the core competencies of a classic telecommunications company,
this is not surprising and it was also acceptable as long as growth could be
generated by adding more subscribers or increasing ARPU. But now that this is
no longer the case, the importance of innovations is rising sharply. How should
this challenge which is ultimately a cultural transformation as well be met?
Partnering is the frequently encountered answer, often little more than a kneejerk response in this context. Partnering certainly plays an important role, whether
for the generation of new services (e.g., through OTT and access bundling), in
the provision of content, or in service development and delivery. The attempt to
develop a better Office 365 than Microsoft is undoubtedly doomed to failure.
But if you are the third Office 365 reseller on the market, you must be prepared
to answer critical questions about the differentiation and sustainability of this
strategy. Which of the partners involved in this interaction enjoys the greater
advantages and what dependencies are generated must be carefully considered.
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What Will Be Required from Future ICT Providers from the Swisscom Perspective
Swisscom is firmly convinced that its own innovations are more than just possible;
they are absolutely mandatory if we are to be successful market players in the
future. The intelligent exploitation of our own strengths and assets, p
ossibly in
combination with partner products or services for the generation of added value
for customers, is for Swisscom an essential key to differentiation and success.
It will often be necessary for Swisscom to enter uncharted territory and to step
beyond the threshold of its own standard competencies; this is completely
intentional and will be further developed by our staff. Here are some examples:
> Using the FTTS technology (fiber-to-the-street or, in ITU terminology, fiberto-the-distribution-point, FTTdp) developed jointly with an OEM, Swisscom
installs optical fiber to within about 200 meters of the building, reducing the
length of the copper connection. The additional implementation of vectoring
in 2014, followed in the middle term by G.fast, in combination with a new,
innovative GB-capable home router, is the basis for new IP- and cloud-based
services even in areas where the installation of FTTH is not yet planned. The dual
processor platform in the router has sufficient computing power to handle
future applications as well. Software defined networking (SDN) is a technological
enabler which will open the door to many further opportunities in the future.
> In the IP-TV sector, Swisscom has expanded the platform provided by the
manufacturer by adding innovative features such as replay8 or the complete
integration of mobile end devices. These extensions are based on excellent network quality in both the fixed and mobile networks, access to the home network,
and the right software development capabilities for the mobile applications.
> The capability to develop own software is also important in the area of communication and collaboration. The communications app iO9 made available by
Swisscom to customers of other mobile network providers as well as our own or
the video conference solution for SMBs, Vidia, now in the beta test phase, are
examples of our own developments.
Non-technical assets should also be mentioned: a strong local shop network,
experienced and competent customer service, or pronounced process experience
(e.g., in billing) can make decisive contributions to the innovation process. R
ecent
events have heightened awareness for data protection and local data storage; these
aspects cannot be neglected.
8
9
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But technological developments in the coming years will provide further starting
points for the development of own innovations. The potential for the use of software defined networking or big data analytics as the basis for new end customer
products has not yet been mined.
Increase efficiency
Despite all of the excitement about new and innovative products lean production of services, optimized in respect of costs, is also an area which must
remain in the spotlight. Standardized platforms and efficient processes are concepts which have been the subject of discussion in the industry for many years.
The ways the cloud can be used to address customer needs were described above.
It is an enabler with great potential to improve our customers efficiency. Swisscom will pursue this approach internally as well and migrate a major part of its
own IT applications to the Swisscom cloud by 2016. It is Swisscoms philosophy
to use its own products itself. This practice is supportive of a continuous improvement process and helps new products to achieve maturity faster.
Swisscom was able to gain valuable experience with this concept during the
implementation of the Managed Unified Communications and Collaboration
(Managed UCC) products which were consistently rolled out at all of the
locations in the company. In addition to the aforementioned product m
aturity,
this led to a significant enhancement of efficiency and reduction of travel
expenses. Eating your own dog food really does work, and Swisscom will
steadfastly continue to follow this principle.
However, one aspect should not be forgotten in the midst of all of these efficiency
measures: the flexibility and agility required to try out ideas especially when
they are seemingly over the top as a basis for innovations must be maintained.
A highly standardized VW platform may be eminently suitable for low-cost production of a number of different Polo or Golf models but you cant build a Tesla
on it. Flexible innovation departments which have been provided with adequate
resources and skills are the crystallization seeds for new developments.
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What Will Be Required from Future ICT Providers from the Swisscom Perspective
207
Transformation to
Value Orientation in Marketing
Performance Management
Ulrike Eberhard
> An empirical benchmark study among
marketing and sales managers in
telecommunications companies identifies
the critical success factors for marketing
performance management.
> Owing to the market saturation on their
core markets and the tectonic shifts in market
structures, many telecommunications operators
are faced with the challenge of transforming
their marketing performance management
from customer, revenue, or EBITDA growth
into a value orientation.
> The results of this study and of other analyses
can be used to determine valuable recommendations and innovative starting points for
the implementation of this type of marketing
performance management.
208
uncovers the key factors for success. The results offer support to marketing and
sales staffs seeking to focus on relevant objectives and their efficient realization.
The study was based on a framework concept for marketing performance
management (MPM) developed specifically for fixed and mobile network
operators. It incorporates goal-oriented, integrated planning and implementation of steering and KPI systems, analysis and prediction methods, programs (products and services, customer experience, regional roll-out), and o rganizational
structures and processes for all of a telecommunications operators activities
which are in close proximity to customers and related to products, prices, sales,
and communications.
The foundation of the study is a broad interpretation of the concept of performance, enabling due consideration of the various market and corporate circumstances. Performance is consequently defined very generally as the degree of
achievement of goals and can be applied to a number of specific goal categories such as customer, revenue, and margin growth, improved growth rates, and
increased value.
Interviews with the top managers from 35 telecommunications companies were
conducted personally and in line with a standardized questionnaire. Moreover,
KPI analyses of the participating companies and their regional competitors based
on business reports and studies from international telecommunications analysts
Detecon International GmbH
209
210
211
monthly, some even weekly. Market share analyses, conducted by 60% of the
operators with the same frequency, are a distant second. The former u ndoubtedly
serve as early indicators for market share shifts and must consequently be checked
more regularly.
There are a few differences here and there among the various groups. Companies
with a sharper focus on margin targets make less use as a whole of analyses and predictions in comparison with value-oriented companies. The logical assumption
is that these companies as a rule look for short-term potential for cost reductions
and include marketing performance analytics as well. They make comparatively
greater use only of profitability analyses for regions and advertising efficiency
analyses than other operations. In contrast, the chief commercial o fficers (CCO)
of the value-oriented telecommunications companies prioritize the intensity
and standardization of the analytics related to brand value, customer lifetime
value (CLV), net present value (NPV) of the products and regions, return on
marketing invest (ROMI), and customer satisfaction and loyalty slightly higher
than others. Nevertheless, they still make intensive use of their earlier analysis
methods. This could be one of the reasons for their relative lack of success with
regard to value targets.
Classic procedures still dominate predictive modeling; in other words, predictions
of the risk of bad debt for new customers, projections of terminations, and early
detection of fraud and customer value (CLV) of current clientele belong to the
routine operations of almost all telecommunications companies. The s ituation is
different for models used to predict usage behavior, i.e., the utilization of voice,
data, content, and applications. While prediction of the voice minutes is part
of the daily routine for all, these models intend to standardize and include in
the regular reports the predictions regarding the usage of data services or specific
content and applications which have found only sporadic use in projects. This is
the case regardless of the group in which the companies are classified.
Generally speaking, it can be determined that telecommunications companies
display a very high commitment to marketing analytics, but there is frequently
a lack of the necessary focus. Especially companies which have redefined their
goals frequently fail to adapt their analyses to align with the new situation.
Moreover, although telecommunications companies have become aware of
certain innovative analysis methods such as prediction methods to determine the
customer lifetime values (CLV) of current clientele and new customers, the operators have not yet seen any justification for their intensive use. This is the case,
for instance, if a carriers top priority is achieving strong customer growth and a
greater market share.
212
213
profit. This is why a central MPM department should ideally be able to depend
on strong support from top management, an especially critical factor for companies operating on mature markets. The study shows that in fact 40% of the MPM
departments of the companies oriented to growth in margins and/or value report
directly to top management. This is the case for only 27% of the companies
focusing on customers or revenues.
Each of the central MPM departments is responsible for reporting and
controlling as a minimum. But only half of them develop strategic directives or
coordinate strategic marketing programs themselves; a minority of 10% conduct isolated marketing programs. The scope of responsibilities for central MPM
departments at successful operators goes well beyond analysis, monitoring,
and controlling. They are much more deeply involved in strategy development
and, in part, in the realization of larger-scale marketing programs. Evidently,
many telecommunications companies must still expand the responsibility of
MPM for KPI reporting and controlling to include analyses and forecasts of the
impact of marketing initiatives or programs and to mesh such activities with
partial r esponsibility for implementation.
It is striking that a greater share of the successful companies in particular, besides
having central MPM departments holding adequate authority, utilize multiple
instruments for the coordination of all marketing functions or departments,
including above all else annual target agreements (100%), strategic planning
(60%), standardized processes (50%), program management office (40%), and
weekly meetings (90%). MPM must not stop at the borders of the marketing
departments. Close coordination with the network and IT departments is
required if the marketing departments at telecommunications companies are to
be able to implement measures successfully. Ideally, the intermeshing of these
departments will extend to all management tasks: KPI systems, strategic planning,
analytics, programs, and organization. The respondents confirm that there is a lot
of room for optimization here. Only 28% and/or 26% of all respondents report
good or excellent coordination between marketing and networks and b etween
marketing and IT, respectively. It will come as no surprise that the results from
the successful companies in the best fit corridor are significantly better in this
respect.
Margin and value targets gaining in importance telcos are not ambitious enough!
Many of the operators participating in the study are not pursuing the marketing
goals which they should on the basis of their market and corporate position. It
214
is especially striking that many have not yet taken the required step to margin
or value orientation and have not yet recognized the necessity of transformation
into a profitable MPM:
> A recommendation has been given to 37% to concentrate primarily on
growth in margins, but only 46% of this group have actually followed this
recommendation.
> Owing to the market and corporate position, 20% need to prioritize sustained
profitability over short-term profit goals; in other words, their recommended
targets are related to value. But only 14% of this group have taken this advice.
During the course of the interviews, it became clear that some of the operators
had already shifted their focus to margin targets, but they subsequently suffered
unexpected and substantial loss of market share. Since the latter is an important
driver for short- and long-term profitability, especially in network economies and
on oligopolistic markets, these operators returned to customer growth.
Figure 1: Main factor for success: recommendations for prioritization of objectives congruent with market and
corporate position
Market Leader
Market Follower
Telco Positioning
Value
Margin*
Margin*
Revenue
Revenue
Margin
Customers
Revenue
Margin
Revenue
Growth
Stagnation/Decline
Market Life Cycle Phase
= Recommendation for setting goals according to situation; in the event of double goals, the underlined goals must be prioritized
*) Margin refers to EBITDA margin; value refers to concepts such as ROCE, ROMI, shareholder value, etc.
Source: Detecon
Detecon International GmbH
215
216
217
Ui,t
i==
11
l
GesMA
(1 + r )t
t =1
IndMA t
(1 + r )
t =1
Discount Rate
218
VoIP and IP-based chat, and instant messaging services grows, these methods,
which are still strongly aligned to classic telephony, must be adapted and refined.
Properties such as quality of the data connections (e.g., connection times,
dropped connections, data throughput in Mbps, latency, duration of the data
connections, device replacements, and use of providers own or partner OTT
services) are becoming more important.
Suitable marketing programs start with these parameters. They steer d
irect
marketing investments for device upgrades or loyalty bonuses to current
customers who generate high revenues and may, under certain circumstances, be
considering a change or into temporary price reductions for new customers who
simultaneously conclude a number of contracts with the company. Actions of
this type are familiar from other sectors such as insurance and banking.
However, management of the CLV falls short if and when it measures the
value of a customer solely on the basis of the related revenues and expenditures.
Customers increase customer equity both directly and indirectly through their
recommendations and their influence because they either recruit new customers
for the telecommunications operators or hinder others from making a change.
Their loyalty is especially important in view of technological developments such
as eSIM or even soft SIM and the intervention of regulatory authorities in product policies such as the reduction of minimum contract terms.
As OTT services increase, even more aspects of customer assessment which
are not of immediately financial nature will enter the picture. Customers who
display a high degree and high quality of interaction with the provider and its
services initially independently of their CLV will be assessed as more valuable
than those who do not make any kind of impression. This customer value can be
interpreted as social customer value. It is typically measured by means of scoring
methods which take into account the four following types of interaction, either
individually or in combination:
1. Active, direct customer recommendations: customers recommend or recruit
new customers directly for the provider. The net promoter scoring method is
widely used for this purpose.
2. Active utilization of network sharing services such as utilization of the WLAN
TO GO service developed in cooperation between Deutsche Telekom and the
Spanish startup Fon in 2013, which customers worldwide use to share their WiFi
connections with other customers.
219
Mindless
Money Blowers
High-carat
followers
Worthless
Grasshoppers
Demanding
Supporters
Customer Advocacy Score
Source: Detecon
220
221
222
data from the various network components from the radio network to the core,
connected third-party IT systems, customer satisfaction data, CLV data, and
advocacy score data. This lays the groundwork for an increase in ROMI relevant
for the CCO and of the long-term ROCE, a KPI which is used above all by CEO
and CFO for value-oriented management of the company.
Mastering transformation
The benchmarking study of international telecommunications providers has
shown that many providers should consider a change to value-oriented MPM in
the immediate future. Their markets are characterized by stagnation in customers
and revenues, usually accompanied by pressure on EBITDA margins. Moreover,
we were able to demonstrate that only focused structure and orchestration of KPI
systems, marketing analytics, marketing programs, and the underlying organization will lead to success.
The ROMI as the starting point, expansion of CLV on the basis of customer
advocacy score segmentation, and the integration of the approach with the
expansion planning for network infrastructures represent the primary features of
expanded, value-oriented MPM. The new technical opportunities discussed in
the context of big data must be rigorously exploited.
During the changeover to this approach, many telecommunications companies
will run up against challenges which can be mastered only by professional
transformation management which involves all of the companys stakeholders,
establishes a clear value-oriented strategy and related KPI system, and creates the
organizational prerequisites structure and processes for closer coordination
within marketing and between marketing and technology. IT will be challenged
as well by the demand to provide the necessary systems, data, and analytics. Last,
but not least, change management, accompanied by training and coaching of all
of the involved employees, will be needed.
223
Interview
Successful Long-term
Positioning on the
Competitive Telecommunications
Services Market
224
Question: What does Colt consider to be the primary challenges which will have
to be mastered on the market in the future? What actions and ideas do you have
for meeting these challenges?
Krause: Our market positioning in the B2B sector is based on being the Information Delivery Platform for European Business for our customers. This means
that Colt and its ICT services aim to be at the center of acquiring, processing,
and distributing information on behalf of its customers and will play a pioneering
role in finding solutions to all of the business challenges confronting European
corporations in this technological field. If we are to fulfill this vision, we require
a powerful technical ICT infrastructure which is continuously being expanded
and in which we constantly invest.
At this time, we have one of the leading networks in Europe as well as more than
20 computer centers. The Colt optical fiber network has a total length of 43,000
kilometers, connects 22 countries, and encompasses municipal networks in 39
European metropolises, featuring direct optical fiber connections into 18,000
buildings and to the European data centers. This system is the foundation which
gives our employees all over Europe the unique opportunity to provide to our
customers high-quality, reliable, and scalable products along with solutions in
compliance with a uniform European standard. This means that the services
we perform everywhere on our continent have the identical service description
and quality. This portfolio of powerful services a combination of network and
IT infrastructure with expertise in the areas of IT managed services, network
and communications solutions must of course be perfectly transported in its
breadth and depth to the market by our employees. There will be three key challenges in the coming years. First, the expansion of the network infrastructure
must be continued so that the new, network-centric, ICT-convergent services
(cloud) can be rolled out for customers on a broadband infrastructure. Second,
there is the further expansion of the cloud platforms and IT services from the
Colt computer centers so that the industrialization of IT via cloud services can
offer our customers additional opportunities to heighten the efficiency of their
operations. The third challenge is in the transformation of our organization from
an infrastructure-centric to an ICT solution-oriented organization which concentrates its work entirely on producing benefits for our customers.
Question: How does Colt, an internationally operating carrier, secure the connectivity for its customers across all of the countries? Do you construct your own
networks, or do you rely on cooperation agreements or advance services?
225
Interview
226
227
Interview
protection against attacks from within and from the outside every single day,
24/7/365. Moreover, there is the factor of keeping our customers data within the
jurisdiction of European laws, which we can always promise. We can even guarantee that the data of our customers in Germany remain in our local computer
centers in Hamburg, Berlin, and Frankfurt if this is desired.
However, the diversity of the competition has risen significantly as a consequence of the trend toward cloud services because various IT cloud companies
have joined the ranks of the telecommunications companies. We take this very
seriously. Still, the requirement profiles of the customers vary to such a degree
that most companies are able to provide only a part of the required services. Yet
customers still expect one-stop shopping. Providers who have learned how to
combine their assets with the assets of others are best equipped to deal with this
conundrum. Colt has had excellent experience with cooperation agreements in
the necessary fields. This approach has brought us success on the international
stage so that we can intensify our efforts on the optimization of our own work
rather than spending our time worrying about our competitors.
Question: Does this mean that Colt depends on cooperation with partners when
it comes to the subject of innovation in the frequently mentioned areas such as
cloud, XaaS, M2M, and convergence? How are these innovative products marketed and distributed in the direction of customers?
Krause: Since we view ourselves in this environment primarily as technology
providers operating out of our computer centers, we take a position on the reseller market as an enabler to carriers and resellers; we make our cloud platforms
available to them and do not offer our own retail products to end customers. The
focus of our product line is on the sector of infrastructure as a service (IaaS).
Our current software as a service (SaaS) line covers the communications and collaboration segment in companies, includes Microsoft Exchange, SharePoint, and
Lync, and is also marketed as a reseller product so that our European partners can
sell their own ICT service to their customers.
Colt takes advantage in this case of the classic distribution channels existing on
the ICT market while also pointing the way to a new approach in the B2B field, a
kind of franchise system. It includes international and national carriers, classic IT
distributors across Europe like Avnet and Arrow, new cloud distributors, national
and local resellers and IT system companies, and national franchise companies.
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230
231
Both of these solution strategies are applicable, albeit in varying forms, to all
three of the marketing building blocks described briefly below: sales, products,
and brand.
These are the key changes in the marketing building blocks sales, products, and
brand:
Sales: Cross-channel management based on m-commerce platforms satisfies
future convenience requirements of customers and is the sine qua non for comprehensive optimization of marketing.
Products: Quality differentiation and partnering secure future revenues.
Simplification and modularization are the structural requirements.
Brand: Multiple-brand policies will maximize market penetration. The establishment of a profit center organization assures effectiveness and efficiency through
competition.
Sales: cross-channel management
Cross-channel is regarded as standard by many of todays consumers. The combination of offline and online during a purchase process is everyday routine and
on a path of steady growth thanks to smartphones. A few clicks on a smartphone
are all that is needed to obtain information about a providers price, product,
performance, and service and to make purchases. Moreover, the point in time
and place of the handover of the goods can be flexibly selected and optimized by
customers for their needs depending on whether they prefer short distances or
short time periods. Carriers who provide their customers with freedom of choice
in the form of optimized channel hopping can differentiate themselves from the
competition by the added value for customers and innovative character created
in this way; moreover, they can justify charging premium prices.
Reality in sales departments is lagging behind the real-life behavior of customers.
Incentive and information systems which are limited to specific channels make
it more difficult to distribute the steps in a single concrete buying process across
a number of channels. Disruptions when changing channels are consequently
the norm and the result of the silo organization oriented to a single channel
in each case usually found today. These disruptions during a change of channels
are the source of expense and risk. Costs are incurred by the conduct of multiple processes for determining needs and advising sessions. There is also a risk
that c ustomers will cancel an unfinished buying process and turn to a different
232
rovider. Todays sales structures are often relicts from the channel landscape
p
of the 1990s, supplemented by the new channel e-commerce. Historically
speaking, direct and indirect sales are deliberately brought into conflict with each
other, and multiple, overlapping customer contacts are accepted as the price.
First step: channel coordination brands as basis for differentiation. Today, the
parallel marketing actions of the various channels lead to offer constellations
which repeatedly overlap and are not plausible for customers. If, for instance, an
offer is made only on a certain channel, the price on a different channel is also
different. Inconsistencies of this nature demand explanation, weaken the brand,
and ultimately mean that every price is negotiable. True, it is possible to c oordinate
campaigns among the channels and reduce the incidence of especially great
differences in the offers. But this measure essentially aims at achieving nothing
more than the avoidance of collateral damage instead the creation of added
value and is therefore suitable solely for a transition phase. When all is said and
done, the transparency available to customers from the use of smartphone and
Internet turns extensive price and offer differentiation into a problem. That is
why there must be a guarantee of the same pricing across all channels. At the
same time, differentiation in the future can be oriented to segments. A p
ossible
solution here involves (sub-)brands. Price and service differentiation between
various brandings can be achieved in a clear form which is understandable both
to customers and the companys own organization. Examples include carrier
basic brand, carrier premium brand, carrier business brand.
The orientation to m-commerce changes the entire marketing mix. Another factor
driving the revision of the product portfolio is the ongoing rise in the use of
smartphones by customers during the acquisition process. Low search costs for
users represent a key success criterion for the design by providers. The required
adaptations for the special conditions of mobile use1 prove to be far-reaching:
both in the visualization and, in no small measure, in the structure of the offered
service itself in the form of a simply structured and presented portfolio for the
rate plans, service, and end devices, for instance. But as the mobile form of access
will be dominant in the future, it is the guiding light for the presentation and
structuring of all service content aimed at the mass market across all channels.
The (cost) benefits demand radical integration. The goal is to secure coherent planning, integrated control, a consistent line of products and services, and cross-over
monitoring and incentive systems. Integration of such comprehensive nature
does more than simply enhance proximity to the customer. It reduces costs
1
An example for this can be seen at www.sfr.fr mobile access (per Nov. 2012).
Detecon International GmbH
233
s ignificantly and can even finance itself. These are only a few of the cost-reducing
effects: lead management becomes clearer and faster, customer queries can be
answered with fewer follow-up questions and errors, and the administrative costs
for individual channels are eliminated as are the expenditures for maintenance
and administration of various control and management platforms incurred today
for every single channel.
Tangibility: unique differentiation over OTT providers by our man on the spot. At
this time, the potential inherent in the workforce employed in the carriers sales
and service organizations and working in the geographical field is not being fully
exploited. Unfortunately, these organizations are viewed in practice primarily
from the viewpoint of costs. The fact that these employees, thanks to their
opportunities for direct interaction and their personal competence as advisors,
represent a differentiation feature is ignored. OTTs may be able to upload
exciting video clips onto YouTube but they will hardly be able to create opportunities for sincere personal encounters in the short term. But the significance of
personal interaction will play an elementary role in sales and service especially in
the future.
I am the product! The necessary change in the way of thinking is not limited
to the management perspective; it must spread to the role image and self-understanding of all employees.2 Although the share of the service and information
sector continues to rise, there is still at this time a tremendous heterogeneity in
the mindset of employees when it comes to viewing themselves as a part of the
offered service; indeed, in general the tendency is more in the direction away
from such an attitude. Turning this around and convincing the great majority of
employees to engage passionately in their work is a key challenge for management. Significant improvement in this area also contributes to alleviating the
weakness of the carriers in terms of their proximity to the customer criticized
at the b eginning of this article. Suitable measures to bring this about include
transparently applied idea and suggestion programs and a frank handling of
grievances.
Partners are an elementary part of the cross-channel concept. The relationship of
the companies to their (trading) partners must be revised in a similar fashion.
External partners will continue to be of essential importance in the sense of
providing geographically far-reaching sales opportunities and service which, as a
whole, address all segments while nevertheless operating as efficiently as p
ossible.
2
Cf. Hauk, Customer Experience, p. 250 pp., Gouthier, Employee Pride, p. 264 pp. in this volume.
234
Cf. Penkert/Eberwein, Customer Self-Service, p. 270 pp., Roos, CSS: IT Architecture, p. 286 pp. in this volume.
235
New channels for complex advising. Video chats are expensive, in part because the
1-to-1 form of communication means that the agent can serve only one c ustomer
at a time, limiting this form of interaction to high-revenue customers and s ervices.
Nevertheless, communication using image and voice offers substantial benefits in
communications whether for presentation of products or for solving problems
in installation or use. Smartphones with their cameras are a catalyst in this area
as well. As this development continues, the current form of a call center appears
increasingly antiquated. The anonymity and non-committal nature of todays
form of customer care are especially striking here a factor which, alone because
of experience with social media such as Facebook, no longer appears modern
to most customers. The recipe used by many providers, in the meantime with
proven effect, of meeting the resultant demand by maintaining their own social
network sites, is the first step toward fulfilling these requirements, but logically
leads as well to a review of the current implementation practice of contact center
activities in the form of calls and chats.
E-/m-commerce platforms are predestined to act as the basis for the modeling of
cross-channel management. The platforms for e-/m-commerce come with the
best prerequisites to serve as the foundation for orchestration of cross-channel
management. They can reproduce the full length of the acquisition chain and
already offer now a broad variety of interfaces to the sales systems of the classic
channels. Moreover, they are specialized in the two key communication channels
Internet and mobile and include opportunities for integrating partners.4
Effective marketing: measure success, optimize measures. The orchestration using
e-/m-commerce platforms generates additional opportunities. Since these platforms are designed in alignment with real time and control capability, they
ensure significantly improved transparency of marketing activities. Tests and
pilot programs can be carried out here faster, more precisely, and, above all, more
comprehensively because they extend across all channels. The gain in knowledge
of sales and marketing activities is the primary benefit which can be realized
from the direct internal improvements in efficiency. Whether the knowledge is
of tactical nature, provides the key to optimal marketing of new products, gives
rise to new campaign structures, or is a revelation regarding the repositioning of
entire sales forms the internal added value of the integration will be at least as
high as the external added value in the form of substantially heightened customer
friendliness. This cannot be accomplished without the organizational integration
of the channels as well as the appropriate comprehensive overhaul of the IT
infrastructure.
4
236
Channel silos are torn down. The target image of segment-oriented, cross-channel
customer interaction is subject to the prerequisite of a coherent organization
under single leadership. There is a lot to be done in this direction and it begins
with the fact that in practice the responsibility for online is quite often (still)
in the marketing department. Nor are all of the channels required to report to a
chief sales officer. The concrete design of cross-channel, optimal sales operations
ultimately requires the classification and subordination of specific channels
within an overall construction including their integration.
Products: innovations and renovations in the portfolio
Additional revenues from quality differentiation of the core products and from new
markets. One point is that telecommunications has a key role to play in many
market fields which, unless it actively contributes, will develop only slowly, if at
all. Direct examples are intelligent transport infrastructures and the networked
home. Another point is that there is still earning potential in classic telecommunications core services themselves.
Turn quality into money. There are many voices in the telecommunications
industry which are quick to deny fundamentally that quality differentiation
offers opportunities for revenues: price is the one and only competition factor.
However, a glance at the market of any given country quickly reveals that the
more expensive network is as a rule the one that is also perceived to be better. It is
surprising that this subject has been so thoroughly neglected in the past while the
experiments of the pricing specialists fill volumes in the histories of the mobile
networks. We can also put it this way: The telecommunications industry has n
ever
made an effort to differentiate according to quality; the price-centric situation of
today describes merely the results of providers actions which have never moved
in any other direction. This is precisely the reason why we consider this to be a
major lever which can be used, even (and especially) in the telecommunications
core services to generate new revenues and defend existing ones.
Challenge: dimensions of quality. One of the reasons for the neglect of differentiation based on quality is the fact that it is many times more difficult to
implement in practical terms than price, which at least appears to be clear and
simple and in the dimensions in which it is expressed, that is also the case
(euros, dollars, yuan). But anyone who has ever tried to calculate the right
price of a provider for one minute of mobile network service concludes that this
237
simplicity and truth are mere phantoms. The modeling of quality is found, if
at all, in a single figure currently shown exclusively in the form of published test
results and customer surveys. A ranking of network quality can be read from this
figure. However, it is precisely the rather more diffuse characteristic of the quality
concept which is equally an ideal and an urgent field of work for marketing.
What is needed is an identification of which characteristics and dimensions are
relevant for which target groups, and how these characteristics and features can
be served, documented, sold, and billed.
Quality I: the classic quality of customer service. Various carriers have recently been striking out on new paths in the consumer segment. In the past the
customer service quality offered by providers to their customers was tied either
tacitly to a premium rate plan, the amount of the invoice or their (VIP) status.
Now some are taking the approach of openly offering customer service packages
as enhanced services in their price argumentation or even decoupling these
packages completely from the selected telecommunications service and offering
them for sale separately. In the business customer segments, service level agreements featuring various terms and conditions are requested, accepted, and priced
according to what is offered. When supplemented by self-service, products of
differing quality levels which can be integrated relatively quickly into a marketing
process optimized for costs and revenues are created in customer service.
Quality II: network quality. THE epic battlefield in national advertising c ampaigns!
Powerful images emotionalize the benefits of the network for i ndividual c ustomers
or for the community. Numbers and acronyms document the technical superiority of the specific network, which is additionally confirmed by the test results
from impartial institutions. This approach is necessary and meaningful because
network quality is subject to criteria varying among individuals and, moreover,
its actual performance is dependent to an enormous degree on time, place, and
application. In this respect, the influencing of perception by means of classic
advertising is indispensable.
For carriers to achieve a sustained quality positioning, they must also operationalize the crossover quality criteria as well as those identified for specific s egments as
especially relevant. This means, on the one hand, an unambiguous, communicated
promise of service for each quality criterion and, on the other hand, the tangibility of the quality experience, supplemented by proactive m
anagement of expectations. The derived communications measures can be conducted generically,
specific to segments, and individually. Customers requiring high bandwidth
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239
c onvenience. There is a gap in the offered services here. Carriers can create significant added value by coming up with solutions which combine data security and
the selective disclosure of data with convenience (single sign-on).5 Since carriers
unlike OTTs are bound by tangible and national laws and are in any case
in immediate proximity to the critical processes because they are infrastructure
providers for data transmission, any services they offer in this direction appear
credible to many customers and necessary.
Partnering additional revenue from sales performance and differentiation. Since
the innovation capabilities of the carriers are not anywhere near being adequate
to cover the demand, partnering is an important approach. Internally, technical
and procedural interfaces still prove to be inadequate. Another obstacle is related
to the lack of size of national carriers: from the viewpoint of globally operating partners, they are often second choice. Cooperating with other carriers can
generate the critical mass. Various forms of cooperation with other carriers or
with a leader in the particular industry are also necessary for the development of
new market fields such as smart home and Industry 4.0.6
Brand: More brands. Agile brands. Each one a profit center.
The carrier brand becomes an umbrella brand. Brands managed as monoliths
will be confronted with two challenges in the future. On the one side, they will
be promoted by the expansion of the product portfolio, which will grow from
variations in the product line differentiated according to quality and the assumption of additional functional elements addressing above all niche segments. On
the other side, the smartphone as a communications channel the decisive one
in the future demands a self-explanatory and clearly structured presentation
of the products and services. Structured sub-brands can provide a solution for
this balancing act between expansion and simplification. Its modeling can be
based on the addressed niches, the technologies, quality levels, and/or the types of needs which are covered. The planning of an adequate architecture is the
responsibility of the brand management.
Branding determines the rules of the game for market-oriented activities. The brand
architecture thus developed provides the elementary orientation framework
5
6
The application CheckAp from Swisscom, which helps iOS and Android users to determine when apps attempt to
access critical functions and data, and the initiative for a national email network by Telekom Deutschland are steps
in this direction.
Cf. Krmer, Successful Partnering, p. 148 pp.; Kellmereit/Narielvala, Innovation, p. 128 pp. in this volume.
240
for the concrete design of all market-oriented activities. It defines the essential
rules of the game which create the differentiation in all of the individual p
artial
brands. This includes the clarification of what technical innovations should
be made available to what (sub-)brands at what point in time. We regard the
development, evolution, and, in particular, the sustained realization of this
structure within the sales and market organization to be the greatest challenges
and success factors for future market development. Moreover, brand management is confronted by the challenge of questioning critically the performance of
its own brand portfolio.
Maximum market coverage requires more than one brand. At some point, every
(umbrella) brand reaches its limits. Determining these limits and coming up
with solutions for the development of successor groups outside of the own brand
is another task of brand management. Rules for the positioning space of the
third brands must be defined in advance and measuring instruments must be
established so that the contribution of specific branding becomes measurable.
As the objective is maximum market coverage, generous space for taking action
should be allowed. With respect to the typical knock-out criterion of cannibalization, the onus of proof can be reversed the core brand must demonstrate
that it will be permanently disadvantaged by the activities of another brand. The
following arguments also speak in favor of such a reversal.
Pressure from third brands on the core brand is necessary. The majority of observers
expect an increase in oligopolistic structures on the telecommunications market.
In theory, such market conditions encourage passive behavior on the part of
providers and innovation and customer orientation are more likely the last concern than the first choice.7 Competition not only vitalizes business; it also keeps
companies fit and ensures faster (re)action. The deliberate and broad opening
of wholesale is consequently a highly appropriate approach to promoting both
the performance capability and the efficiency of carriers own market-oriented
organization. Moreover, it leads to space for innovations in which ideas such as
a social media brand, temporary brands, and other concepts can be tried out.
In a comparison of industries, the customer service offered by telecommunications providers ranks well below average
(107th place out of 126 industries; flanked in the rankings by budget hotels and garden centers/flower markets),
www.servicevalue.de .
241
described briefly enable the measurement and control of marketing success. The
principle of (modular) service procurement can be expanded all the way to the
brand: the market departments pay license fees to the brand management for the
utilization of the brand, contributing to the latters refinancing.
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243
Interview
244
Question: The telecommunications industry is a market characterized by consolidation tendencies. What would you advise companies to do when brands which
were originally in competition with one another suddenly find themselves under
the same roof?
Gebhardt: In the same way that markets and products are merging today, brands
have become part of consolidation processes. As a result, brand strategy in the
telecommunications sector is of considerably greater importance than simply
image and brand awareness. Consolidation tendencies are forcing telecommunications companies to weigh a wide range of diversified brand strategy options. If
promised performance, products, and target group can be logically aligned with
one another, the greatest potential is undoubtedly in brand migration. It not
only offers an opportunity to strengthen the perception of brand competence,
but reduces as well the complexity of the brand management. However, if the
new brand line is associated with target groups and the promise of benefits which
are by and large contrary to the positioning of the established master brand, I
advise making a clear distinction between the brands. This is the only strategy
with any prospect of satisfying heterogeneous customer needs through focused
and credible brand propositions.
Question: OTT providers such as Google, Amazon, and Apple are a source
of increasingly stiff competition for network operators. What role does brand
management play in this conflict, and how should the network operators
branding be positioned so that it can become a success?
Gebhardt: Rarely have the competition parameters in an industry changed as
radically as we see in the telecommunications industry. Observers have noted for
some time that the boundaries between the Internet, media, and entertainment
markets are blurring. But the battle for market shares has intensified beyond
anything in the past. I have the impression that the traditional telecommunications companies reacted far too late to this drastic change and resigned themselves to a place on the back bench a long time ago. Whereas a customer like me
used to decide consciously in favor of D1 or D2, today I want the new Samsung
Galaxy S5 or the new iPhone 5S. The same goes for content another area in
which telecommunications providers have not been able to establish a convincing position as competent authorities. The term network operator essentially
says it all. For the future, I see two positioning options for telecommunications
companies if they want to remain competitive on this hard-fought market: Either
they concentrate strictly on their core business network operation and invest
245
Interview
246
and exploit the potential of these mobile brand contact points so that they can
manage their customer relationships. It is not enough, although also necessary, to
optimize the home page for the commonly used smartphone operating systems
such as iOS and Android; customer-oriented apps must be used to increase user
friendliness and to create a contact point consistent with the brand.
Question: What role will multi-branding approaches play in the future? What
advantages and challenges do you see in their realization?
Gebhardt: One consequence of convergence is that the telecommunications
industry is characterized more than ever before by heterogeneous target groups.
Multi-branding approaches are an appropriate means of addressing these target groups precisely and credibly. Since the specific brands are relatively autonomous in their actions, they also promise benefits of speed and flexibility of not
insubstantial proportions and this can be a decisive competitive advantage, especially in view of the short life cycles of products and innovations which have now
become the norm. In an industry which sells its products and services primarily
as a function of price, multi-branding approaches can be used to exploit the
potential of heterogeneous willingness to buy, for instance although there
is always an inherent risk of potential cannibalization effects and heightened
demands on the brand portfolio management.
Question: What impact do the developments in Web-based communications,
i.e., online shops and online advertising as well as social networks, have on
established brands? Will it become simpler for companies to establish completely
new brands through the use of such channels?
Gebhardt: The most important communication channels between brand and
consumer today are Web-based. So it is not surprising that marketers in the
telecommunications sector also take these channels seriously and are shifting their
budgets even further in the online direction. Telecommunications companies
invest almost 20% of their entire marketing budget in the optimization of their
infrastructure with a special focus on online activities in the areas social media,
mobile marketing, and online advertising. There is no question whatsoever that
Web-based communications offer opportunities to communicate more directly
and interactively than ever before with the specific target groups. Nonetheless,
it must be absolutely clear to everyone that the time and effort required for the
establishment of new brands are substantially higher today because of the diversity of new channels and the increasingly selective behavior of customers. More-
247
Interview
248
Another, no less significant success factor for brand controlling involves its implementation within the corporate organization. If there is to be genuine longterm profit for a brand from success measurement, internal expertise must be
built up so that data will not only be continuously recorded, but so that they can
also be analyzed against the background of concrete actions.
GMK Markenberatung is a strategic partner for brand analysis, positioning, and implementation in all points of contact. The focus is to create an efficient brand value. A successful
brand is not a question of budget, but of consequence. GMK Markenberatung has offices in
Munich and Cologne, and was founded in 2006 by Ingo Gebhardt and Hans Meier-Kortwig.
249
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Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
Customer Experience Index, which has been surveyed for North America since
2007. It reveals that there has been a moderate general improvement in average
values over the course of the years, but the CEX outperformers continue to achieve a
clear differentiation, and the gap between outperformers (CEX leaders) and underperformers (CEX laggards) is in some cases growing even larger.2 The development in stock prices for CEX champions outdistances the market average by
a factor of three. The evidence is clear: undeviating orientation to customer
experience pays for itself economically as well.
At the heart of CEM is the focus on the customer perspective at the moment when
customers come into contact with a providers products, services, and p
rocesses.
In contrast to programs with focus on a specific function, e.g., improvement
of service excellence, it is possible to achieve a high level of consistency at all
customer touch points. Special attention is devoted to the moments of truth
(MoT) critical situations in which companies have the chance to strengthen
a customer relationship or run the risk of leaving a lasting negative impression
on their customers. MoT describe critical customer processes such as provisioning, a service problem, or a complaint. The error-free provisioning of a product
in compliance with all deadlines and featuring plug-and-play which functions
properly in conjunction with friendly instructions for complex products enhances
readiness to buy and reinforces loyalty while a combination of postponements,
unsuccessful provisioning attempts and a lack of transparency in the processes
can, in extreme cases, lead directly to the cancellation of an order; at the very
least, it will have a long-lasting impact on future purchasing behavior. MoTs are
not, however, tied exclusively to critical processes. If a customer urgently requires
a duplicate invoice and an inordinate amount of time passes before it is received,
a supposedly secondary routine process can become highly relevant and critical
in the customers perception.
1
2
251
252
Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
Ideally, orientation and prioritization are designed based on a target picture of the
customer experience. This is a major precondition for the necesaary consistent
control of products and processes.
In this kind of target picture, rational target attributes such as user friendliness
or availability join with emotional target attitudes such as reliability or individual
communication to describe the (desired!) customer experience with the provider.
Only then can the customer experiences generated at a number of touch points
in the various corporate units by means of different processes be encompassed in
a consistent overall picture. Moreover, the target image provides a guideline for
design of the relevant instruments for measuring customer experience.
The target picture provides indispensable orientation especially for employees
in direct contact with customers and their respective actions in customer
situations. Moreover the cultural transformation important for successful
customer experience management can also be guided through the use of the
target picture. Our experience with CEM transformation programs highlights
the fact that companies are not yet adequately prioritizing and steering the
element of culture in comparison with the concrete optimization measures.
Figure 1: Fields of action for telecommunications companies for the realization of CEX
Brand
promise
Network
quality
CEX
etablished in
claim strategy
and field
targets
Network
quality
accessibilty
and reliability
Branding
guidelines for
CE-strategies
Derivation
of CE components to
be focused
Usability
of product
and service
offering
Service
culture
Service
culture
Steering still
strongly
efficiency
oriented
CE oriented
interactionsstrategies
and MoT
management
Channel
offer
Channel
Offer and
contact
surface
Cross Channel capability
Weighted
steering
channel
management
logics
Product
experience
User
Experience
integrated in
product development
Etablishment
of design
thinking
methods
Process
experience
Customer
oriented improvement
methods
Main enablers
and process
stability
Reduction of
non-valuable
contacts
Source: Detecon
Detecon International GmbH
253
254
Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
Cf. Acklin (2011), Studienergebnisse zu Design Thinking und Customer Experience Management bei
Unternehmen des CX-Forums, p. 8.
255
Cf. TM Forum Insight Research: Quick insight customer experience: Leveraging the wealth of network data, 2013, p.14.
256
Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
activities plays an important role. The basis for this comes from a standardized
CRM system, including detailed customer contact history, encompassing all
channels. The phenomenon of treating symptoms instead of the root cause turns
out to be critical; in the event of recurring malfunctions, the elimination of the
malfunction is more crucial and helpful than any compensatory credit.
Success or failure in these critical, negative customer situations is determined by
having the option of specialized customer care teams for complex problems such
as recurring malfunctions. Repeated attempts to find a solution in a standard
service layout are frustrating for customers and economically harmful to the
company. The ability to recognize and control these types of critical business
incidents at an early stage is above all a product of experience and control
settings. With a professional approach a fast learning curve can be achieved.
The loyalization of customers by means of emotional measures, so-called
delight elements, characterizes an important component of customer retention
in a ddition to the legal bond variations such as contract terms and the related
barriers to churn.
Due to low customer involvement a differentiation by product is more difficult in the telecommunications industry. Telecommunications providers can
mitigate this commodity perception by entering into carefully chosen partnerships, either in the area of content (music, videos, or games) or with the manufacturers of exclusive devices. In such a scenario securing consistency of the customer
experience to prevent predetermined breaking points between the partners.
Campaigns focused on transporting delight elements and goodwill are most
effective, when used with the right dosage. If executed too intensively, the positive
loyalization effect loses its punch, and there is a risk that customers will interpret
them as an indication of downpricing potential and rather demand rebates.
Delight elements are almost completely worthless if basic requirements are not
satisfied and, depending on the exact situation, can even result in undesirable
customer reactions. Attempts by companies to generate excitement seem
superfluous rather than sincere if the reason for the dissatisfaction is not corrected.
The result is even greater dissatisfaction and a negative attitude toward any
further loyalization efforts.
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Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
259
instance within the organization supports implementation. The underlying feedback loop consists of the phases collect, analyze, and optimize.
Companies can actively involve customers through transparency of processes and
coherency of interactions. With this in mind, we recommend providing multiple
channel offerings for interaction to customers, including the companys own
communications about itself and its products on social media channels such as
social networks, administrated forums, and exclusive communities. Companies
which make a strong appearance here are viewed as transparent and trustworthy. Proactive communication in case of service problems or delays
demonstrates fairness and commitment in the same way as the proactive provision
of status information. This form of communication supports the process of
laying an emotional foundation and building loyalty between customers and
companies.
Participating customers and acquired fans have a far-reaching, augmenting
impact on others. They reward a company and its efforts with acceptance, loyalty,
and by spreading the word.
Figure: 2: Professional management of customer feedback
Feedback categories
Suggestions
Complaints
Opinions
Ideas
Source: Detecon
260
E-Mail
Shops
Letter
Contact Center
E-Channel
Fax
Service Technicians
Retail-Partner
Corporate Sales Agents
News
Web
Blogs
Product Reviews
Communities
Focus Groups
Customer Interviews
Forum
Procedure
Incoming
feedback
Use of special
programs or the
usual channels
and media
Store
and
utilize
Usage of feedback
management
Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
261
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Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
263
Interview
264
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Interview
In another study, we were able to verify that the creativity of employees when it
comes to finding better solutions for the customers can be furthered by employee
pride.
Question: What factors are generally decisive for the generation of employee
pride, and how can companies encourage its development?
Prof. Gouthier: Obviously, every company starts from a different position and
must consequently focus on differing priorities when building and expanding
employee pride. Nevertheless, there are some drivers behind employee pride which
should generally be valued more highly. Recognition of employee a chievements
is an especially important one. Recognition can intensify the feeling of pride
because employees whose performance has been recognized receive reinforcement from feedback about their success. As the Gallup studies document, our
studies also show that the achievements of employees, even the employees themselves, generally do not receive adequate recognition in companies. It includes
the appropriate celebration of successes. Today we rush from one task to the next
without ever taking a moment to pause and allow the sense of success to sink in
or to enjoy the moment.
Challenges are another important prerequisite for being able to experience
employee pride and employee delight. We can hardly expect employees to take
pride in carrying out the same repetitive tasks over and over again. Employees
must repeatedly be confronted with the need to master new and challenging
tasks. The assignment of project responsibilities is one means of accomplishing
this. When the tasks have been successfully completed, employees experience a
sense of pride that can develop into delight.
After all, employees can feel pride only if they turn in successful performances,
whether as individuals, as members of a team, or as part of the company. Their
feeling comes from their demonstration of the relevant skills and the e xperience of
support from the company, direct supervisors, and colleagues. Regular meetings
providing feedback on employees work are another important element. How
are employees supposed to take pride in their work and improve their performance if they dont even know just how good the present level is? Support from
supervisors and colleagues plays an essential role because these people are the
sources of stimulus, feedback, support, and recognition.
266
Question: You have been investigating the concept of employee pride for quite
a while. Have there been any changes over the course of time with regard to its
importance from the corporate perspective and from the perspective of the
employees themselves?
Prof. Gouthier: There are always surging and retreating waves of attention paid
to specific subjects. For instance, a worsening of the economic position causes
the focus of interest in many companies to shift to the need to save money and
cut costs. When the economy begins to grow again, innovations play a weightier
role. But if radical innovations fail to materialize and if the market is characterized by relatively homogeneous products and services, companies attempt to set
themselves apart from the competition by enhancing their customer and service
orientation. We see especially today a greater corporate interest in concepts such
as empathy, delight, and pride.
In view of demographic transformation and the challenge of securing adequate
numbers of motivated and qualified specialists now and in the future, aspects
such as employee pride and delightare gaining significantly in relevance. Potential employees from Generation Y will increasingly look for employers with whom
they can identify. They want jobs that do more than just satisfy them; they want
work which will enable them to develop as individuals, workplaces where they
are enthusiastic about their activities and, ultimately, where they can feel pride in
their performance and their employers.
Question: Studies document that employees in Germany are less likely to feel
proud of their companies. Does the culture here have an impact on employee
pride? Do you have any comparable data from other countries?
Prof. Gouthier: Emotions like employee pride are always shaped by culture
as well. We Germans especially a consequence of our history feel a certain
reserve when there is a question of pride. Based on my personal perception,
this attitude was much more pronounced ten years ago than it is today. This is
especially true of the matter of employee pride. Still, people in other countries,
such as the United States, are much more relaxed and above all assertive in dealing
with this subject. Organizational pride is virtually a part of the DNA in American
companies. However, it is important that a subject of such emotional power and
intensity as employee pride must be in alignment with the national culture and
the specific corporate culture. It does no good, and may even do harm, if attempts
are made to transfer concepts such as the Wal-Mart cheer, used by Wal-Mart in
the USA to generate company loyalty among the companys employees, without
267
Interview
any adaptations. The attempt to introduce the Wal-Mart cheer in German WalMart stores several years ago was a dismal failure.
While on this subject, I would like to point out explicitly a special issue here.
Standard procedures in international studies on employee satisfaction, employee
commitment, and employee pride compare directly and interpret accordingly
the (mean) values from all of the countries. As a rule, however, this undoubtedly
results in substantial misinterpretations because there are differences in the way
people reply to questions among different cultures. Asians tend to give more
neutral answers and have a tendency to check values more toward the middle of
the scale. They avoid extremes in their answers. The consequence is that the mean
values from Asians are on average lower than the answers from Americans,
who have practically zero problems with superlatives. International studies on
employee as well as customer satisfaction indicate that Latin Americans and
Americans have comparatively high values, Europeans range in midfield, and
Asians tend to have below-average values. But this does not automatically mean
that the quality of products and services or objective working conditions are
actually worse. Moreover, evaluators must be aware that the content associated
with a question varies according to the cultural background. These effects must
consequently be given appropriate consideration during the interpretation of
international comparative studies so that misinterpretations and faulty management recommendations can be avoided.
Question: What is required to ensure that customer experience on the outside
and employee pride on the inside become established cultural values rather than
merely temporarily fluctuating, unstable phenomena?
Prof. Gouthier: The fundamental prerequisite is that top management is
convinced of the relevance of this subject. Ideally, this will permanently fix the
aspect of employee pride in the companys fundamental principles. Assuring the
sustained anchoring of employee pride in the corporate culture is impossible
unless this pride is continuously measured. It should be comparatively simple
to realize this because it does not require a special survey; typically, the aspect of
employee pride can be integrated into the regular employee survey. The analysis
should strive to determine the most important drivers and barriers for the
establishment of employee pride in the company. Based on the results, instruments for the enhancement of employee pride can be developed. For e xample,
factors which are a source of employee pride can be the subject of constant
reference. However, the implementation of employee pride as a consistent
cultural value cannot be realized from one day to the next; it requires a longerterm transformation and change process in the company.
268
Question: Can employee pride have any negative effects as well? What are the
limits to the utilization of employee pride as a management instrument.
Prof. Gouthier: Negative effects can occur when pride turns into haughtiness.
This is also known as hubris, arrogance, or negative pride, and it can d
efinitely
have a negative impact on customer perception and the corporate image.
From their perspective, companies must make sure that employees do not
become arrogant and condescending towards customers over the course of time.
One example of a countermeasure would be an advanced training program for
dealing with emotions during which these topics can be addressed and handling
emotions can be trained.
The example of the Shangri-La Hotel Group shows that this is certainly a relevant
subject addressed in real practice. The Group currently operates 80 luxury hotels
around the world and has set itself the mission of generating delightamong its
guests during every stay in one of the hotels. As the corporation says itself, the
achievement of this goal requires highly motivated and innovative employees.
To ensure this achievement, Shangri-La relies on the establishment of Pride
Without Arrogance in its corporate culture. Accordingly, it is important for
Shangri-La that employees conduct themselves modestly with respect to guests
so that any negative effects on customer perception are avoided.
Ultimately, employee pride is not a panacea. Since people normally feel a sense
of pride for extraordinary performance, the generation of employee pride is only
of interest when it is a question of reaching outstanding goals. Logically, pride in
the performance of everyday tasks does not play a special role.
269
Customer Self-Services:
Efficiency and Customer Loyalty
in the Age of Digital Transformation
Andreas Penkert, Patrick Eberwein
270
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
271
272
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
273
demands during realization. If this is successful, self-services can build the strategic bridge which will enable more successful fulfillment of increased customer
expectations while achieving ambitious targets for efficiency.
Self-services meet with a positive response
Self-services meet with a highly positive response in the telecommunications
industry. While it is true that customers recognize corporate goals such as the
reduction of costs, standardization of customer contacts, or self-interests of the
companies to be the primary and decisive drivers behind the carriers decision to
implement the features, about 75% of the customers of all ages in the telecommunications industry respond positively to self-services.
Self-services represent an important element of customers decisions. More than
half (53%) of those surveyed based their decision in favor of a telecommunications provider on the availability of self-services as well as on price and product
features. Customers obviously grasp the advantages of automated sales and care
processes such as availability independently of location and time and are happy
to make use of them.
In view of the basically high approval rating for self-service, there arises the
question concerning the extent to which the significance of personal customer
service in the telecommunications industry (with its highneed for advisory) is
affected by the growing number of automated processes.
Despite the demands from customers for intelligent self-service solutions,
personal customer service will continue to play a role, even in the future, within
the scope of the carriers holistic multi-channel management. Just under 76%
see personal customer service as important in the telecommunications industry, especially when there are more complex issues at the 2nd or 3rd level. So
companies must integrate the interfaces of digital and personal contact channels
within the framework of consistent multi-channel management.6 Best practices
for seamlessly transferring the transaction out of the self-service to personal
contact in the service department by means of click to call back or co-browsing can already be found in many industries.
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Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
7
8
9
10
11
275
Speed &
Convenience
46%
Stability of the
application
26%
Source: Detecon
276
2,74
3,64
3,19
3,02
Interactive
participation
46%
2,74
3,58
Attractiveness/
Design
Transparency
& Control
2,73
Data protection
69%
Simplicity
& Clarity
Data Protection
3,17
Customization
of Services
3,47
Multiple
functions
Stability of the
Application
85%
= Functional
= Emotional
= Security
Speed &
Convenience
Simplicity
& Clarity
Transparency
& Control
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
The benchmarks of the MVNOs giffgaff and Solavei mentioned earlier indicate
that digital transformation has latent opportunities going far beyond mere selfadministration and independent performance of purchase and service transactions. Customers are fundamentally prepared to take care of almost all of
their concerns along the customer buying cycles by utilizing self-services. This
willingness extends even to involvement in more complex processes such as
claims (57%) or complaints (46%) as part of the feedback management which
go well beyond the simpler tasks of availability checks (84%), ordering and
activation (72%), or payment (72%). An important factor (in addition to simple
and more secure processes) for the exploitation of this potential is related to the
end devices customers can use for self-services.
While desktops or notebooks are highly favored (96%), smartphones (88%)
and tablets (50%) are preferred devices as well. The significance of mobile
devices has a positive correlation to frequency of use: the more often customers
utilize carriers automated sales or care features, the greater their willingness
or the greater their desire to utilize self-services on smartphones and tablets.
One sensitive aspect during mobile utilization is the issue of data security.
Customers see substantial need for improvement in the security of mobile
applications. According to the market research company Juniper Research12,
only 15% of the surveyed customers have complete trust in their mobile devices
and enter their personal data in apps.
Corporate perspective: customer satisfaction and cost reduction
Telecommunications companies have essentially recognized the critical significance of self-services for success. So it will come as no surprise to learn that
carriers are almost unanimous in their positive acceptance of self-services and
clearly confirm (61%) customers opinions that these services are an important
factor when deciding for or against a provider (53%). But unlike their customers, telecommunications companies believe the motivation for their self-service
activities comes more from the customer side. Enhancing customer satisfaction
(100% agreement) is mentioned ahead of cost reductions (95% agreement) as
the most common goal of self-service investments. In other words, customer
orientation represents a major driver from the corporate perspective.
277
The question remains open whether carriers have the right ideas when it comes to
a customer-centric design of self-services. Both sides companies and customers
agree on the priorities: functional aspects such as simplicity, clarity, and speed
are emphasized. Although at first glance there appears to be fundamental agreement, a comparison of customer and company perspectives reveals differences
which can prove to be critical. Whereas customers complain first and foremost
about the lack of data protection and rank this concern as the second-most important basic requirement, less than half of the surveyed carriers (40%) attach so
much significance to this issue.
Even though security-related features may be factors which play out in the background, their role is all the more important in these times of data protection scandals. This indicates that it would be important for carriers to pay more attention
to security aspects and emphasize the fact of their implementation rather than to
concentrate solely on simple and logically structured self-service processes. The
divergence of opinion is also reflected in the different ways customer experiences
are appraised. While in customers opinion (42% agreement) self-services do not
(yet) provide the expected support, telecommunications companies believe the
customer experience to be substantially more positive (82% agreement).
Self-services help to strengthen customer loyalty and enhance efficiency
Provided that they are focused strictly on the customers and meet essential
requirements such as simplicity and clarity, security, and speed, self-services can
generate positive customer experiences and effectively promote customer loyalty.
But what effects can carriers incorporate into their economic calculations?
The chance to relieve the burden on traditional touch points which tie up
resources through the use of digitalized services has an important e conomic
impact for carriers. Calculations in the telecommunications industry for
the next one to two years are based on cost reductions of up to 15% in
sales and care and the potential transfer of existing customer c ontacts of
up to 20%. On the other hand, carriers expect additional revenue stimulus
of up to 10% from the self-service channels. In view of the expected
cannibalization effects among the various channels, logic would seem to
mandate caution in the forecasts.
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Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
One strategic overall objective in self-services for carriers along this line of
thought could be the achievement of constant revenues accompanied by a rise in
customer satisfaction and the simultaneous reduction of costs through automation of customer processes.
Convincing customers digitally
In the meantime, one target group of more than passing relevance has sprung
up: customers who prefer digital to personal contact. The consequence is that the
quantitative and qualitative modeling of self-services plays a significant role in
customers decision-making process for or against a carrier. In terms of the What?
of self-service, companies in the telecommunications industry already cover the
multi-channel requirements common on the market, so the foundation has been
laid.
But if a configuration focusing sharply on the customer is to result in noticeably positive customer loyalty effects, it is important to go beyond this and
optimize the How? to a greater extent as well. The first priority for self-services
is to function without any glitches and to provide for simple and secure use.
This is e xpected of the user interface as well as the underlying IT processes. The
empirical results of the study reveal that these demands are not being consistently
satisfied. Customers still rate the companies realization of simplicity of operation,
speed, and data protection as less than fully satisfactory. If telecommunications
providers want to counter actively this perception and present a long-lasting,
convincing line of self-services to customers, they will have to close completely
the gap between the expectations of how self-services should be realized and the
reality of what is now on offer service components, the perception of customer
experience, or a combination of self-services and personal customer services.
Recommendations for action:
analyze, eliminate, automate, expand
Detecon has drawn up a set of recommendations for action based on empirical
findings. The necessary focus on a customer-centric, effective self-service portfolio is not a detached building block which companies can view as an isolated
strategic or technical measure. Customers are happiest when communicating
simply and quickly, but they want a variable entry as well a multi-channel view
is indispensable. Customer contacts of varying types occur at the most widely
divergent touch points.
279
Phase 1:
Analysis
Phase 2:
Reduction
Phase 3:
Automation
Analysis and
classification of all
customer contacts
Elimination
of valueless
contacts
Redirection of
customer contacts
to the self-service
channels
Source: Detecon
280
Phase 4:
Expansion
Expansion of
customer traffic in
the e-channel
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
281
has the intention, either direct or indirect, to purchase a product or service. The
company has an opportunity to realize revenue as well as to enhance customer
value. The customer benefits from especially close attentiveness and personal
attention which the company devotes to the situation. The company profits from
concrete sales opportunities and the chance to generate customer experiences in
an exclusive contact which is highly personal. The primary values obtained in this
contact category from the customer perspective are the rewards for the customers
loyalty, personal appreciation, and money saved thanks to special offers.
We recommend acting according to the motto preserve, cultivate, and expand in
personal communication when dealing with contacts in this category. Contact
Category 3 is strongly leveraged by means of business process re-engineering
and business incident optimization. As the focus of this article is on automation
and digital transformation, the following remarks will concentrate on Contact
Categories 1 and 2 owing to their relevance in this context.
Phase 2: Identification and elimination of valueless contacts
The goal of this phase is the implementation of an analysis procedure which can
identify the valueless contacts of Category 1 and either eliminate them c ompletely
or substantially reduce the frequency of occurrence. Once the major types of
Corporate perspective
Valuable
(learning, reduce costs,
increase revenues)
Valueless
(undesirable interaction)
Simplify,
Improve
basic
procedures
Utilize,
Exploit
and invest
more time
Eliminate
by analyzing
and eliminating
causes
Automate
eChannel,
IVR, etc.
Valueless
(undesirable
interaction)
Valuable
(saves money, obtains
help and advice)
Customer perspective
Source: Detecon
282
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
v alueless contacts have been identified, the elimination process immediately starts
with the initial solution competence and quota in customer service: What are
the reasons and causes preventing the resolution of certain concerns d
uring the
initial contact, leading to follow-up contacts? During the second step, the causes
at the level of the underlying core service processes and functions are e liminated.
Achieving long-term success in the reduction of valueless customer contacts
often requires process re-engineering of a fundamental scope, but sometimes
minor modifications such as the change in a misleading name of invoice items
suffice.
Phase 3: Automation and redirection of contacts into self-service channels
The second phase is directed at the form taken by the customer contact
redirection into self-service channels. Processing queries in a self-service c hannel
is an especially useful solution approach for Contact Category 2. Customers
resolve the issue themselves with a minimum expenditure of time while the
companies do not have to tie up any service resources and save money. However,
this must be followed up by the stabilization of the redirection through trust and
feedback management activities:
1. Definition of procedure scenarios for potential redirection of customer
contacts (use case, e.g., text message or IVR referring to self-services).
2. Development of a migration plan: What campaigns do we launch? How can
we create an incentive for customers to transfer? What solutions do we offer?
3. Compensation for possible losses of inbound revenues, e.g., by focusing
more sharply on outbound campaigns during the redirection phase.
4. Utilization of certificates for data security and transparency in data collection.
5. Development of intelligent and linked customer data management.
6. Integration of customers into the business processes and active utilization of
feedback for the improvement and development of products and services.
283
The Detecon study reveals that customers expect regarding self-services simple
and clearly structured operations, strict compliance with data protection and
security requirements, and high speed. In addition, a number of channels must
be available simultaneously for various customer segments. An all-encompassing
view cannot be assured without maintenance of standardized information and
transparent processes in the background. It must also take into account the
possibility that customers may begin to channel hop, as it is known, during
the digital interaction. Applications can support such actions across multiple
channels by employing crossover session handling and user management. All of
the a pplications must, without exception, meet the basic requirement of being
extraordinarily impervious to error and robust.13
Phase 4: Increase in traffic in the e-Channel
During the third phase, carriers focus on increasing customer traffic in the
e-channel by developing and enhancing positive customer experiences:
1. Identification and analysis of needs and wishes of the target group.
2. Customization of products, services, and information.
3. Application support using filter or comparison functions.
4. Improvement in usability through intuitive and self-explanatory navigation.
5. Involvement of peer-to-peer communities and matching incentive plans to
promote customer integration.
The path of the transformation into a self-service company is one for the middle
to long term. The process of heightening customers awareness for the use of
the services must be especially well thought out and systematically carried out.
Whether the target is a 100% e-company or a multi-channel concept oriented
to self-service depends on more than just the industry; target group, competitive
environment, and the companys own philosophy must be given consideration.
The telecommunications industry with its rate structures and product and service
diversity, which can at times become very complex, is likely to tend toward the
13 Cf. Roos, CSS IT Architecture, p. 286 pp. in this volume.
284
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
285
Customer Self-Services:
IT Architecture as Enabler for
Digital Self-Service
Steffen Roos
286
Although the requirements vary with respect to the nature of their application, they must essentially be satisfied by
the provision of the same self-service infrastructure.
Penkert/Eberwein/Salma, Customer Self-Services, Detecon Study 2014.
287
288
Flat Client
Customer management
Master Data,
Subscriptions,
Loyalty Programs
Social Media
Blogs, Customer Ratings,
Customer Forum, Community
DATA
Sales Data
Calculation System,
Distribution System
Analysis data
Analytical CRM
Product Data
Product Inventory
System
Workflows
Definitionen, Roles,
Tracking, Persistence
...
Search
Indices, Key Words,
Best Bets
...
Services
Catalog integrated
Systems (Services)
Metadata
unambigiguos IDs
Customer Services
Self Services, Exchange,
Returns, Configuration
Users/Profiles
Identity Management
Inventory
Allocation,
Returns Management,
Pre-Orders
Payment
Processing
Umstructured Data
Web Content, Graphics,
Documents, Videos
Orders
Verification,
Tracking,
Tracing
Shopping
Shopping Cart,
Checkout
Master Data
Customer Relationship
Management System,
Contract Maintenance
System
Catalog
Product details, Prices,
Promotions, Bundles
-> Excerpt(s) from
full catalog
Content Management
Content Lifecycle
Management, Search/
Cataloguing, Integration
External Content Sources
Smart Appliances
Configurators
TV
Management Apps
Customer Service platform
Mobile Browser
Interactive TV
Browser
Native Mobile App
Smart Home
Service Community
Service Apps
Subjects/Microsites
Sales Information
Prosumers
User Interface
Unified Experience
Partner Sites
Source: Detecon
289
The resolution of the tension between the extreme agility of the business
requirements and the reputed sluggishness of the IT department is the major
challenge to the development of a self-services architecture for carriers.
Recommendations and design parameters for a self-services architecture
As a fundamental principle, self-services must be conceived and developed as one
infrastructure component within the overall application landscape. The specific
architecture components must be maintained in the central application architecture. An additional requirement is a high level of flexibility in the development
of new applications and customer touch points.
If a self-services architecture is to be future-proof, it must be designed as a
service-based, multi-layer architecture in which every single layer is characterized
by specific capabilities.
User Interface
Business user interfaces (internal/external) must be modeled for various technical prosumers and have their roots in a standard infrastructure. A successful self-services architecture must provide a presentation layer of high flexibility
built on a relatively stable and static core. This presentation layer must have the
capability of realizing current user interfaces (joy of use). It must serve various
mobile channels as well as the Web channel while also extending coverage to
other multi-channel scenarios such as print-to-PDF, RSS/atom feeds, and data
transport formats like XML. User interfaces must be viewed as prosumers which,
besides consuming content, send back content and information for further
processing.
Guidelines and specifications for a consistent user experience are important for
the design of the user interfaces. Ideally, customers will immediately feel at home
in the interface because the important and relevant functions are displayed in a
standard look and feel of designations and color schemes across all channels.
One requirement for self-services which is unfortunately often neglected is the
accessibility in the sense of a presentation of electronic contents and information
in a form easily usable by people with handicaps. Government services have been
required to comply with the provisions of the German Barrier-free Information
290
Technology Code (BITV) since 2005; compliance by private businesses is voluntary. Although barrier-free implementation is often requested, it is frequently not
realized in full. Yet there are definitely strategies which assure implementation
which is at least partially barrier-free, e.g., by using special versions of simplified
design.
Provision and distribution
The answer to the question as to how flexibly and quickly new customer selfservices can be rolled out across various channels without necessitating in-depth
modifications of the fundamental infrastructure is important for the investment
security of the self-services architecture.
The provision and distribution of the self-services among the channels must be
abstracted via a separate layer which allows both Web formats and the native
development of mobile apps (native platforms or on a mobile enterprise application platform (MEAP)). This layer must be very specific in its distribution
of the back-end technical services supplying non-channel-specific content to
ensure that the special technical requirements such as format specifications of the
various recipient channels are satisfied.
In terms of the dynamics briefly described above, a self-services architecture
is confronted with the challenge of providing performance and avoidance of
overload at the right place by utilizing caches as buffer storage. There must be
clear definitions, right from the creation of the concept, of the points at which
information can be stored in the cache and where dynamic or static content is to
be supplied.
Administration and management
Self-services should be created, configured, and organized within a management
layer which fills the self-services architecture with life, with content and s ervices.
Cockpits are needed to support various user groups such as special authors from
the editorial staff for products and shop. One fundamental challenge for these
cockpits is to compile contents and applications from a broad range of delivery
systems and allocate them to the appropriate channels.
291
292
293
One important parameter for cross-channel utilization and re-use of content and
data is the uniform use of metadata which make an unequivocal identification
of the document possible (identifier). Supplementary technical information such
as format, type, and language, a summarized description imparting structure to
the content (title, subject, description), information about the author and rights
as well as the life cycle (time stamp, period of validity) must be defined and used
as standard. Metadata offer opportunities, previously never imagined, for giving
unstructured content a quasi-structural character, making it re-usable and locatable. Source, relation, and audience have a special function and role as meta-information for networking. These components can be used to organize the allocation
of the services to channels and to link separate services. A general metadata
management structure is the key prerequisite for a crossover self-services architecture which makes use of various repositories and differing back-end systems and
which can also make a crossover search function available to users. Moreover, metadata offer tremendous flexibility in the creation of taxonomies and alternative
navigation trees for use as administrative mechanisms in a classic hierarchy. But
metadata management cannot develop its potential to the full unless the metadata model is developed in correlation and coordination with the general master
data management initiatives described above and remains expandable.
Another important aspect for self-services architecture is the secure and dependable support of transactions. Use cases with a major focus on commerce, for
example, do not define complex products on the basis of a master product data
process; such products are viewed rather as a sequence of process steps, each
contingent on the preceding one, featuring specific offers and calculators for
customers. Examples include general agreements for specific products, availability checks such as product in stock or product available regionally, complex
product dependencies for orders of replacement parts and service upgrades, and
the linking to the back-end systems in production, logistics, and billing where the
orders are processed. Transactions of this nature should never be reconstructed
in their complexity and degree of specialization in the self-services infrastructure,
but should always be consumed and delivered via interfaces. This is undoubtedly
one of the fundamental challenges for a self-services architecture: the seamless
guarantee of the required transaction security.
294
Core Services
Specific crossover functions such as the orchestration of the processes, the handling of security, or personalization must be externalized. These are the core s ervices
which bring together all of the centrally utilized services and requirements for
the self-services infrastructure. These fundamental services represent and make
available a set of basic technical functions. After initial implementation, the core
services must be viewed as relatively stable. Special diligence is necessary during
the definition and development of the core services because minor modifications
of the core can always have tremendous impact on the peripheral services and
functions.
Personalized contents are a given within the context of self-services. But what
are the technical and functional paradigms underlying personalization? How
flexibly can content and applications be controlled with respect to user behavior?
Are self-service rights transferred to linked content from third-party systems, or
do these systems themselves remain responsible for the management of rights?
During the development of a self-services architecture, there is a need to clarify
whether personalization is to be realized with the rules engines such as a portal
software or a third-party personalization framework. As it is a leading system, the
linking of the CRM system is absolutely essential so that the necessary master
customer data can be personalized.
Self-services in a multi-channel architecture provide many different ways to
access personalized information, services, and processes. At the same time, these entry gateways are potential positions of risk for data security. Data security
and protection are among the most customer demands when it comes to selfservices.3 The publicity about the NSA affair has pushed this subject right to the
forefront of public awareness in Germany as well as in other countries. The most
important objective is the integrity of the self-services. Once customer trust has
been lost because of inadequate security precautions, restoring it requires enormous effort.
A self-services architecture must make use of comprehensive mechanisms for
entry security and access control such as secure SSO, encrypt the connection
between end-device and servers, and manage and store data in compliance
with the principles of data protection. Security requirements must be defined
and evaluated with regard to processes as well as to software and hardware.
3
295
It goes without saying that penetration and security audits must be conducted
regularly and by impartial authorities. Fundamental rules about connectivity and
interoperability must be managed by a central position so that the overall system
comprising separate services maintains its coherency. Rules about file formats,
protocols, and interfaces must be cataloged.
One important component of a service-based architecture is process orchestration describing the flexible combining of a number of services into a services
composition, an executable business process. This orchestration must contain
a description of the services, the conditions under which they may be called
up, and their interdependencies. General transaction security cannot be guaranteed without overall process orchestration. Session handling has an important
function in this situation; it serves to pinpoint users and their activities in the
system. Session handling must satisfy the requirement of being able to start sessions on one channel and continue them on another. In other words, session
handling must function abstractly from its actual channel and is an indispensable
prerequisite for transaction security. Orchestration requires a central repository
where the services are registered and which can be used to manage the services.
One might say that the services repository is a kind of central telephone directory
for the self-services architecture and that it is used for orchestration of the various
services and the related presentation channels. All of the channels must be linked
via reference points such as metadata to a standard information repository and
to the processes.
Clear responsibilities and roles clear the way to re-use and investment
protection
A holistic approach to the development of application architecture for a selfservices infrastructure requires a clear definition of the tasks expected of the
actual front-end applications and the delimitation of specialized support and
back-end systems.
Defined rules for its evolvement at various levels must be documented in
advance during this process. Standardized, stable, and documented APIs and
interfaces are an important prerequisite for investment security of the selfservices architecture. Customizing and further development must build on these
APIs. Ideally, the self-services architecture can build on an integration frame-
296
work of standardized APIs which has already been established. Support for developers and development through software development accelerates the learning
curve and reduces the level of risk during implementation. Besides encapsulating
development on the basis of APIs, a modern infrastructure must be able to provide
light-weight and abstract development of applications at the p
resentation level
using templates and scripting. Requirements, especially those related to the user
interface, can be satisfied only if modifications at the presentation layer such as
the development of new channels can be made both easily and quickly and can
be implemented without any downtime of the systems.
The modules underlying a self-services architecture must be modeled as reusable
services and designed with a distinct emphasis on technology. The services act as
a central and expandable library of functions within the IT landscape and can be
used as toolkits for implementation projects such as the shortening of time-tomarket cycles, the exploitation of synergies from the recycling of previously used
applications, and the securing of previous investments.
297
From
Telecommunications
Company to
Process Factory
Dr. Ralf Helbig
298
299
remoteness from process changes that this causes, on the other hand, entails
many different disadvantages which prevent the fast adaptation of processes. A
protracted procedure requiring complex steering logic significantly restricts the
required agility and individuality. But the dynamic environment is causing these
latter elements to advance to the status of critical factors for success. So the people
involved in the process must think and work in terms of processes and determine the processes themselves. Moreover, the traditionally complete coverage of
the value chain in the telecommunications industry blocks the agility required
in the digital world. Close collaboration with a large, dynamic, and frequently
cross-company partner environment in so-called smart business networks is
the road to follow into the future, and telecommunications companies wishing
to operate successfully will have no choice but to take it. New digital business
models such as the provision of platforms for the operation of two-sided m
arket
models or service broker models for the build-up of cloud-based, industryspecific ecosystems require innovative cooperation concepts enabling the flexible
coupling and decoupling of partners.
Ant colonies as the model of perfect organization
Every organization regardless of whether companies, religious communities, or
sports clubs is founded on the assumption that its members can achieve more
by working together than each individual can accomplish when acting alone.
The primary function of organizations is to evolve on the basis of the resources
available to them by joining forces to master challenges and solve problems. The
ability to do so can generally be defined as the intelligence of the organization
and its components. But the intelligence of the components is frequently not
exploited to the benefit of the organization because exclusively the intelligence of
the leadership levels, and not that of the collective, is utilized.
Proof of the tremendous accomplishments possible in a social organization
which utilizes its collective intelligence to the full is found in the structures of
ant colonies, which have been steadily optimized over the course of evolution.
Their social organization can be used as a benchmark to identify the weaknesses
of business process management (BPM) as currently practiced.
Just like companies in the modern working world today, ant colonies are constantly confronted with changing events requiring an individual response. If
additional food sources suddenly appear, more collectors are required; if the nest
is damaged, immediate and fast repair is necessary. These external challenges demand internal coordination of the workers with respect to assignments, types,
300
and places of performance of the tasks; as a rule, all of this takes place autonomously and without centralized or hierarchical control.
The individuals, acting as part of a complete organism, can achieve cognitive
levels which exceed the capabilities of every single insect many times over. The
intelligence of the ant colony is disseminated as decentralized collective intelligence among its members.
Since the ant queen is responsible solely for propagation and does not exercise
authority of any kind, the organization manages itself and optimizes its functions
during a continuous process of adaptation to the environment. The collaboration
of the workers in the performance of their tasks is carried out in constantly changing formations and is much the same as a modern smart business network in
which in-house employees and external partners with the skills required by the
specific need and task come together and cooperate ad hoc to complete the work.
Every member of the ant colony acts for a single purpose and toward a specific
goal: the development and maintenance of the community. It is essential for the
paradigm of autonomous responsibility and networking presented here that the
meaning and purpose of the company as well as its strategic objectives have been
unambiguously defined and that all of the employees accept these elements as
definitive for their actions and identify with them.
The networking of employees and partners creates an important factor influencing the companys success in highly developed organizations. Recognizing this,
many companies utilize various approaches to promote communication within
the organization and, as a consequence, to enhance their performance.
Organization is communication
The first step taken to improve the communication culture in a company locally
and to promote exchange among colleagues in business affairs has frequently
been the creation of open working conditions. The (re-)introduction of openplan offices with flexible workplaces and the provision of team areas offering a
broad choice of exercise and leisure-time activities as practiced at Google and
other companies are among the initial course headings in this direction. But
the actual added value for the company is very difficult to measure. While the
measures undoubtedly lead to an increase in exchanges among employees, their
interaction does not take place at a specific process level in most cases and is limited to a narrow scope. The exchange is rarely followed by direct implementation
301
of the achieved results. The knowledge generated among the colleagues is not
utilized to enhance value, nor does it find its way to the management levels with
decision-making authority owing to the hierarchical barriers which continue to
exist.
Innovation systems which provide employees with opportunities to submit their
own suggestions for innovations and process improvements are only partially
successful in remedying such failures. They do no more than enable a unilateral
bottom-up monolog, isolated from other knowledge carriers, which management can either accept or reject.
Many companies regard in-house social networks as viable alternatives to counter
these disadvantages. In addition to breaking down local constraints, they provide
a virtualization of employee exchanges which serves as documentation, enabling
the involved parties to trace the line of events and ideas at a later time. Results
are saved as they are achieved and can be retrieved by the pertinent group of
people at any time. However, such networks are still far from realization because
of the systemic separation of concept planning and implementation. Moreover,
organizational concepts, generally being hierarchical in nature, are contrary to
the functional operation of social networks. Telecommunications corporations,
which by their nature are providers of communications solutions, have of course
introduced social media platforms for sharing information, finding and getting in touch with the right contacts, and forming interest groups. They have
even linked such platforms with the archiving of documents and messages. But
utilization and acceptance almost always fall short of expectations owing to the
reasons mentioned above.
However, companies have recognized that the growing complexity and volatility
of global relationships demand a focus on dynamic knowledge transfer within
the organization. Moreover, there is a growing understanding that the agility and
innovation strength required of telecommunications companies on the market
cannot be adequately achieved within the dominant corporate structures and
organizational forms tied to a central hierarchy. If business process management
is to function properly, it must take additional requirements into consideration.
302
303
In other words, the simple availability of process knowledge is not enough; there
must be a generally understandable language for its description. In view of these
two premises, it is obvious that process modeling languages which have been
used previously cannot contribute to this type of self-organization because they
are not understandable to anyone but experts and are generally not available to
everyone.
Subject-oriented business process management utilizes collective intelligence
Subject-oriented business process management (S-BPM) offers a radical further
development of the approaches described above from a process-specific perspective. S-BPM turns the modeling of processes into an activity of networks comprising knowledge workers. Process re-engineering, harmonization, and expansion
are transformed into the results of collaborative knowledge. In a virtualized
system of this type, every employee is reachable without regard for hierarchies
and locations and can participate in process development thanks to the simple
modeling technology and the natural language understood equally by humans
and computers. Despite these opportunities, personal meetings of the participating people are expressly intended.
Success factors: accessible process knowledge and simple language
Companies can make use of S-BPM to democratize process management. The
IT systems no longer limit the nature of the collaboration and processes. Instead,
the local intelligence is exploited by continuous collaboration on processes, and
the process knowledge acquired by this means and made available in the private
cloud can be systematically utilized for crossover process re-engineering by means
of intelligent central analyses.
A decentralized-centralized S-BPM approach replaces the centralized management approach taken in the past. Even low up-front investments are enough to
assure viral network-based dissemination and to achieve availability of process
knowledge which is always up to date. In view of the benefits which are g enerated
immediately, S-BPM promises to find broad acceptance in the organization
quickly. The combination of top-down and bottom-up approaches enables management to draw on the knowledge pool of its staff and to recognize potential
for harmonization and synergy while nevertheless maintaining centralized control wherever necessary and expedient. At the same time, the employees can take
advantage of the high process transparency and availability to realize effective
improvements themselves in cooperation with facilitating process experts.
304
The future premise will no longer state that everything is uniformly standardized
and controlled by a single process, but that individual subjects can unambiguously
communicate by understandable messages. This is where currently existing
systems and standard software prove to be much too inflexible and hamper the
necessary agility at important points.
The available process knowledge leads to greater intelligence of the organizations
components in the long term. A collective, multilayered swarm intelligence
arises which goes even one step beyond the swarm intelligence of the ant colony
because its members actively strive to develop processes further. The result for
the organization as a whole is significantly greater agility. Simultaneously, overall
efficiency and the capability of adapting new business models and of realizing
rapid improvements in quality through the initiatives of individual knowledge
workers rise. This can immediately lead to enhancements in process efficiency in
all positions in telecommunications companies and even to process innovations
because the central bottleneck, which must otherwise be concerned with the
complex, time-consuming, and expensive path of modeling, system specifications, and system implementation and its uncertain end results, is eliminated. It
is not at all unusual to discover that requirements have already changed when,
after such a long time, the previously required functions can be made available.
This change induced by S-BPM shifts process responsibility to the business
side and relieves the burden on the IT department, which can concentrate on
its facilitating role, the management of data and their redundancy-free organization, and the seamless provision of the data. The IT infrastructure is made
available in the cloud as needed, offering maximum efficiency and standardization. There is no longer a need for a shadow IT department which technologyminded employees in telecommunications companies are so quick to create. It is
no longer needed by the business departments themselves, a situation which not
only leads to substantial savings, but also eliminates risks.
S-BPM utilizes a structure derived from the syntax of natural language for
modeling processes, a sequence of subject, predicate, and object. The subject
corresponds to the role of the actor, the predicate determines the action, and the
object stands for the element which is to be processed. Subject-oriented business
process modeling was created on the basis of this logic.
The subjects can be people as well as IT systems or machines. In contrast to
traditional BPM approaches, the S-BPM approach focuses on the subjects.
305
Subject
Verb
Object
Question
Who acts?
Essential
details
Examples
Employees, Superiors,
Travel Management
Source: Detecon
306
communication
receive and send
news
subject
(= role) > customer
letter of
resignation
subject
(= role) > callcenter employees
news
players
letter of
resignation
players
Source: Detecon
307
concomitant with improved efficiency. S-BPM could in this way become the
next stage of evolution for the previous way business process management was
understood.
Four roles for steering and optimizing the process factory
The approach of subject-oriented process management defines four roles which
largely incorporate the range of tasks of todays BPM players. The role of governor has responsibility for stipulation of the strategic goals which determine the
orientation of action and of the processes. Governors can be members of top
management who, at the normative management level, define the corporate and
business field strategy from which functional and IT strategies are later d
eveloped
by middle management and IT directors. The organization department supports
the aforementioned units by stipulating methods, tools, and conventions. The
process owners, also assigned to the governors, bear responsibility for communication of the strategic goals to the staff members involved in the process (actors),
the optimal orientation of the processes, and their performance efficiency as
verified by the tracking of appropriate process performance indicators and target
values.
The process developers of the past in traditional BPM appear in the S-BPM
model as so-called experts and are recruited primarily from among in-house
and outside process consultants and IT architects. In contrast to today, they do
not develop processes on the drawing board, but instead make use of their process intelligence for the analysis of the processes documented and carried out in
the central knowledge base by the actors. They are consequently in a position
to recognize top-down synergies as well as process efficiencies and to carry out
company-wide process re-engineering in accordance with the framework conditions and target values set down by the governors.
Their counterparts are the actors, the real agents, who are responsible for the
actual execution of the work processes. They represent both the point of reference
and the agents, above all within the framework of the local analysis, modeling,
re-engineering, and implementation of business process models in accordance
with the objectives of the S-BPM. They are themselves responsible for the design
of their processes. They define their process in the S-BPM process model and,
in doing so, contribute to the build-up and continuous updating of the process
knowledge base.
308
309
knowledge about the physical data structure (data as a service) would be considered yet another step to reduce the heterogeneity and complexity of the IT
system landscape and the diversity of the required connectors in companies. The
enterprise service bus (ESB), presently admired as so advanced and which at least
has led to the avoidance of innumerable point-to-point connections between IT
systems, would be obsolete. With the help of so-called behavioral interfaces,
subjects would be in a position to identify the receiving subjects independently
and to send the messages to the identified subject for further action. This opens
the door for telecommunications companies to realize completely new concepts
for partner identification and integration, ad hoc and in an automated process.
Behavioral interfaces and data as a service entail a fundamental change in the
architectures of todays IT landscape and in entire telecommunications
companies. Agility and autonomy in conjunction with intelligent interoperability are developing into inherent characteristics of the entire IT and process
architecture of companies.
The complete implementation of an S-BPM approach augmented by this idea
causes substantial upheaval in organizations. However, the static organizational
structures, responsibilities of employees and systems, their ways of working, and
the sequence of business procedures such as budgeting do not yet appear mature
enough in many companies to permit them to strike out on the road to an agile
organization in short order. The transformation required to turn the vision of
agile telecommunications into reality must be carried out with specific goals and
one step at a time. S-BPM in its basic framework is already contributing to the
initiation of this transformation process in companies. It creates the prerequisites
for doing away with the compulsion toward central control of the full complexity because it regards subjects such as employees, cloud services, or external
partners as autonomous with regard to internal behavior and unambiguously
defines its interaction with the subjects of the environment. Networks, including
smart business networks, could at any time be reconfigured as well as coupled
and decoupled on short notice with the aid of such a mechanism. The difference
between internal and external subject, employee and partner, is of rather subordinate importance in the configuration of the performance networks because both
align with the same principles of the subject.
The laying of the path to this new process world can be viral. Certain critical
processes are modeled optimally in accordance with strategically stipulated goals
and implemented. The neighboring subjects are then modeled in their environment with their internal behavior until this methodology has spread throughout
the company. The models can be developed in a cloud as process as a service
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and made available to every part of the organization. The result is an essential
knowledge base for the identification of synergies and further development of
central guidelines. The prerequisite is that employees understand the meaning
and purpose of the company along with its major strategic objectives and can
draw conclusions about the consequences for their process. This viral approach
must be induced properly and carefully observed, however, so that understanding
and awareness of benefits are created among the staff and the correct conclusions
regarding communication and dissemination of the methods are drawn. Moreover, top management must support this type of approach because a majority of
todays functions such as the IT or the process modeling departments will discern
a threat to their activities. These fears must be alleviated by the anchoring of the
aforementioned new roles in the organization at an appropriate point in time.
An approach of this kind will cause the parties involved in the processes to change
their ways of thinking and begin to consider their own role in the process which
they can design autonomously or by and large independently of the IT department. The boundaries between internal and external, between automated service
and manual labor dissolve because the interaction among the subjects is defined
using S-BPM. Ad hoc partners such as startups or smaller OTT players which
assume a part of the value creation in a new telecommunications product can
be integrated and then decoupled again easily. The result is agile smart business
networks which can rapidly link internal and external capabilities as subjects
with one another and generate added value from dynamically changing customer
requirements.
The parties involved in the processes design their processes themselves, and
they can directly realize their ideas for process improvement and immediately incorporate customer feedback into their process. Such a capability ensures
iterative, goal-oriented process re-engineering and speedy adaptation to new situations. Best practices and stable standards which crystallize over the course of
time can implement the behavior of individual subjects automatically as service.
Telecommunications companies gain new opportunities to develop agilely to
meet market demands, quickly and successfully.
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Outlook
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Outlook
c apability will strongly determine the attractiveness of the offered services from
the perspective of partners and customers.
The circumstances described above will in the near future drive forward the
consolidation process among carriers, whether through M&A or cooperation
among carriers.
But this trend towards size does not by any means automatically translate into a
trend to uniform services, uniform prices, or uniform networks. On the contrary:
Regionalization will in the future be an even more important field for carriers
activities, both with respect to retail or wholesale services offered regionally and
capacity extensions driven regionally by customer demand.. The carriers who
standardize services and technologies as far as possible and implement them as
regionalized as necessary will be the ones who are successful.
Besides the reduction of costs per bit, the increase, or at least stabilization, of the
revenues per bit is a key task for operators.
Both of these requirements can be met by the carriers wholesale business,
although this demands rigorous wholesale empowerment. The classic conflicts
between wholesale and retail which arise must be strictly balanced according to
the economic contribution to profit in each case.
The retail sector is under no less pressure to contribute to the monetization of
the networks. Buzzwords such as quality differentiation, a balanced mix of own
innovations and offerings organized within partnerships, as well as customer
experience which generates enthusiasm describe the fields of action most urgently
calling for attention.
The differences in network quality are noticeable already today, especially in the
mobile networks sector, and will be increasingly perceptible to customers in the
future. Matching differing levels of quality to corresponding price models, either
temporarily or permanently, is the goal for certain services or applications,
for private, business, or wholesale customers, for segments, regions, partners, or
different brands. The same is true for the accessibility to different distribution
channels and differentiation with regard to access to technical services.
Even beyond this, the technological, infrastructural, and procedural innovations such as SDN, virtualization, and S-BPM open up new and promising
opportunities to marketing departments to create product innovations both
as their own developments and in partnership with third-party providers to
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place them on the market, and, as appropriate, withdraw them again significantly
faster and more flexibly than in the past. Carriers marketing departments must
recognize and exploit these opportunities.
In the future, carriers will be forced to devote substantially greater attention to
the subject of partnering, an area which has until now been rather neglected as
a kind of stepchild. In this case, the key points are the definition of a companys
own role in so-called smart business networks and the competition for attractive
partnerships. Lucrative opportunities for differentiation can be found here as
well.
When operating in mature markets where price competition is severe and customer growth limited, carriers will prioritize careful management of existing
customer relationships, cross- and upselling activities, and loyalty aspects. While
objective product features are of importance for customer loyalty, emotional attributes of the products, the brands, or the company ultimately tend to make the
difference. Carriers would do well to obtain clarity about the major rational and
emotional elements of outstanding customer experience and to use them to transform mere customer satisfaction into genuine customer enthusiasm. Enthusiastic
employees are an absolute prerequisite for this accomplishment.
The challenges and recommendations for action described here are as a whole of
far-reaching transformational significance for carriers. They have structural and
procedural implications, e.g., in the form of closer integration of technology
and IT, of business units such as marketing and sales, and beyond this cultural
consequences. The latter arise from opening up to partnerships, flexibility and
agility in innovations, and from the value of employee pride as an indispensable
prerequisite for customer experience which generates enthusiasm.
One key pillar for the success of this transformation and the securing of longterm profitability for carriers rests on a balanced regulatory framework, perhaps
even comprehensive industrial policies, which must offer telecommunications
providers incentives for network expansion and innovations at the service level
while allowing them sufficient freedom to set prices. Under such conditions,
carriers would be in a position to convince capital markets that investments will
yield valuable returns.
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The Authors
Clemens Aumann has been working as a Managing Consultant to drive the
development and marketing of telecommunications services for 20 years. His
latest studies investigate the future consequences of IT-telco convergence for
market-oriented processes and the organizational forms of telecommunications
providers.
Dr. Uli Alexander Bornhauser is a Senior Consultant at Detecon International.
He focuses on strategic, technical, and financial advisory services for the telecommunications industry. In the last years, Uli was involved in the development of
new, cost-efficient network and service production architectures. He has worked
primarily for service providers and regulators in Germany and across Asia.
Dr. Arne Chrestin is a Managing Consultant with 15 years of experience as
expert, executive advisor, and team leader in international telecommunication
projects. He has developed network modernization strategies for fixed and
mobile operators and acquired extensive experience regarding migration to
all-IP networks. In his most recent project, he supports the development and
implementation of the SDN and virtualization strategy of a major operator.
Ulrike Eberhard is a Managing Partner with a focus on business process modeling,
marketing strategies in different market phases, marketing performance programs,
portfolio planning and pricing. She has developed and successfully implemented
all these strategies as an interim manager or project manager for telco carriers and
Internet service providers in Europe, Middle East, Asia, and Africa.
Patrick Eberwein is active as a Senior Consultant in the Knowledge C
ommunity
CRM Sales and Service. His work as an author has included the presentation
of studies on customer experience management and customer self-services. His
activities focus on the fields of channel and customer contact management,
cross- and upselling strategies for long-term value, and digital services.
Lutz Fritzsche is Managing Consultant in the International Telco Cluster.
The focus of his consulting activities is on the planning and optimization of
telecommunications networks, especially the transmission networks. Moreover,
he actively participates in the advanced development and sale of Detecons own
planning tool NETWORKS and is the contact consultant for numerous clients
using the program.
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Future Telco
Dr. Osvaldo Gonsa, Senior Consultant, is active in the LTE Core Network and
the NFV&SDN Knowledge Community. His experience in the field of virtualization has been gained in the course of his project activities, and it serves him
well as the foundation for his work as an author. His primary interests are in the
subjects of architecture and services for telecommunications networks and strategies for the implementation of virtual services via the current LTE networks.
Joachim Hauk is Managing Consultant and knowledge leader for CRM, sales,
and service. He advises in particular companies in the service industry with
regard to these subjects. His special focus is on issues of channel management,
customer experience management, and customer loyalty.
Dr. Ralf Helbig, Managing Partner, is in charge of the units IT Strategy and
Architecture, Travel, Transport and Logistics and has been working as a consultant for more than ten years. He is a researcher and lecturer at the University of
Bonn and is involved in various startups.
Dr. Arnulf Heuermann, Managing Partner, has held various positions as a group
leader for regulatory consulting, practice leader for strategy and marketing, and
director for international sales over the course of his career. He has had project
manager experience in management consulting projects in the telecommunications sector in more than 40 countries of Europe, Asia, and Africa. His core
competencies are found in the fields of strategy consulting, telecommunications
regulation, privatization, and M&A business.
Daniel Kellmereit has a wealth of experience in the areas of innovation management, marketing, corporate development and growth strategies. He has spent
more than a decade enabling large global companies to develop business strategies, innovate and shape markets, adopt emerging technologies, design strategic
alliances, and launch new products and services. He also guides early-stage companies. In his current position as CEO of Detecon, Inc., he is responsible for the
North America and Latin America region and leads the Strategy and Innovation
group. He works with clients in the telecom, Internet, hardware, software and
services industries as well as investors.
Dr. Christian Krmer, Managing Consultant, has been the manager for a broad
range of cooperation projects. He does research in the field of business collaboration and serves as an EFQM assessor for the improvement of companies from
the perspective of top performers.
Detecon International GmbH
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The Authors
Dr. Peter Krssel, Managing Partner, is the account manager for T-Deutschland.
He advises telecommunications companies on strategic issues in the retail and
wholesale sectors. His focus is on the interrelationships between network infrastructure and marketing, product policy, need-oriented grid expansion strategies,
differentiation of strategies for the development of markets, social media, competition and market analyses and scenarios, and regulatory issues.
Martin Lundborg (M.Sc.) has been a corporate consultant in the telecommunications industry for almost 15 years, where he has focused on strategy projects,
broadband investments, wholesale markets, network costs, and regulation.
Yasmin Narielvala is a future telecoms enthusiast and Director of Detecons Strategy and Innovation Practice in San Francisco.With nearly 20 years of industry
experience, Yasmin leads strategic technology assessments for clients, assessing
emerging technologies, products and services and developing measures to apply
innovation to drive growth and counter disruption.
Dr. Olaf Nielinger, Managing Consultant, works in the wholesale and regulation
sector. He has had more than 14 years of profound experience on international
telecommunications and ICT markets. His focus is on the areas of national and
international wholesale, business strategy development, and business planning,
while on the regulatory side he concentrates on commercial and social regulation
and on ICT guidelines and strategy development.
Andreas Penkert is Managing Consultant and advises clients in organization
und processes, service management, customer experience, and innovative sales
management in the digital age. He is author of the Customer Self-Services
study.
Dr. Hans-Peter Petry followed his industrial career at leading manufacturers in
the telecommunications industry by working as a Managing Partner at Detecon.
Until his retirement, he was the head of the unit Telecommunications Technologies. He currently serves as Senior Advisor for D
etecon and does volunteer
work for the DLR (German Aerospace Center) and DeSK (German Center for
Satellite Communications).
Lothar Reith, Senior Consultant, devotes his special attention to communications technology. He has had 30 years of experience in packet-switching technology and network-related IT and works on client projects for SDN on behalf of
carrier networks and data centers. He is a member of standardization committees
such as IETF, ONF, MEF, and TMF where he contributes his expertise on the
subjects of network virtualization and overlay techniques.
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Future Telco
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Who we are!
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