Issue 3, 2011

▶ ERICSSON BUSINESS REVIEW
Ericsson
THEME: REINVENTING MONEY
THE END OF
REALITY
AS WE KNOW IT
MICHAEL LIEBHOLD ON THE TECHNOLOGY THAT
WILL CHANGE THE WORLD
Apps, apps, apps
CHANGING EVERYDAY LIFE
No power?
NO WORRIES FOR GRAMEEN
CHILE: A CASE STUDY IN
UNIVERSAL BROADBAND
Opinion
HOW TO FIGHT PIRACY
THE SMART WAY
ISSUE NO 3 ○ 2011
15
USD 25 • EUR 20 • JPY 2,300
Issue no. 3 2011
PAGES THEME – REINVENTING MONEY – MOBILE CHALLENGES THE FINANCIAL SERVICES INDUSTRY
When one person connects their life changes.
With everything connected our world changes.
Explore the Networked Society.
ericsson.com/networkedsociety
contents
Ericsson
ERICSSON BUSINESS REVIEW
is Ericsson’s global business
magazine, focusing on thought
leadership and providing a
long-term perspective on business
strategies in telecommunications.
The magazine is distributed to
readers in more than 130 countries.
[9] Editorial: Reinventing money
ADDRESS
[20] THEME: A new industry in the making
Telefonaktiebolaget LM Ericsson,
SE-164 83, Stockholm, Sweden
Phone: +46 8 719 00 00
Disruptive mobile technologies are changing the future of money globally.
ADDRESS CHANGES
Strömberg Distribution AB,
E-mail: [email protected]
PUBLISHER
Patrik Regårdh
EDITORIAL COUNCIL
Patrik Regårdh, Ulrika Bergström,
Dmitry Maselsky, Erik Kruse,
Dag Helmfrid
EDITOR-IN-CHIEF
Mats Thorén
[email protected]
DEPUTY EDITOR
Nathan Hegedus
ART DIRECTOR
Jan Sturestig
Another case of blurring traditional industry borders, with lots of upsides for operators.
[10] Cover story: Augmented reality check
The old, boring, unadorned reality will soon not be enough for us anymore. But is this super
cyberpunk or serious business?
[24] THEME: Tackling complexity – we need to create a global structure for
mobile money
Operators must comply with many different jurisdictional requirements − but there are even
more complexities to cope with.
[26] THEME: A game−changer for the poor
“If traditional banks do not change their systems or amend their strategies, they may be left
behind,” M−PESA founder Michael Joseph says.
[29] THEME: Mobile payments will rule
Globe Telecom’s Paolo Baltao talks about the perseverance and fine−tuning that went into
GCASH.
[32] THEME: Mind the stumbling blocks
Banks know that they need to embrace mobile money and are courting operators. It used to be
the other way around.
EDITORIAL OFFICE
[37] How governments can extend the reach of the market
JG Communication,
www.jgcommunication.se
Chile’s rollout of broadband to rural areas is setting a new trend.
COVER PHOTO
[41] Making money from over−the−top traffic
Chris Maluszynski
CHIEF SUBEDITOR
Birgitte van den Muyzenberg
CONTRIBUTORS
Operators are exploring the option of giving consumers the ability to choose between various
levels of service quality.
[48] Set spectrum free
Michael Costello, Teslin Seale,
Mark Tuite, Ian Nicholson
Two−sided auctions could free up muchneeded spectrum – this is what the US Federal
Communications Commission (FCC) has proposed.
GRAPHS
[50] How being ‘always connected’ changes everything in daily life
Claes Göran Andersson
PRINTER
VTT Grafiska, Vimmerby 2011
[54] What, no power? How Grameenphone cracked the energy challenge
VOLUME
16, Issue 3, 2011
ISSN
1653-9486
COPYRIGHT
Telefonaktiebolaget LM Ericsson
ERICSSON BUSINESS
REVIEW was awarded
Best Business-toBusiness publication
2010 by The Swedish
Association of Custom
Publishers (SACP)
4 • EBR #3 2011
ConsumerLab’s qualitative research confirms we have already reached a turning point in our
behavior.
A dedicated energy−supply company is created specifically to build and operate energy
systems at base−station sites.
[56] How to get paid twice for everything you do – Part 2
Business−model innovation can have a far more profound effect on profitability than any other
type of innovation.
[62] OPINION: Fighting piracy – the smart way
Mounting evidence shows that consumers are willing to pay for good, legal alternatives.
[64] EXECUTIVE SUMMARIES
Annika Sköld
ILLUSTRATION
[20–35] THEME Reinventing money
▶ YOUR PHONE COULD BECOME your electronic wallet and full−
service bank – just not in the traditional sense. Mobile bank−
ing covers typical bank functions such as balance checks,
transactions and transfers, peer−to−peer currency loans and
exchanges, as well as “touch and go” payment systems real−
ized via near−field communication, or NFC.
The smartphone is accelerating this reinvention of what
banks are, how we pay and think about money. It’s a radical
idea in more ways than one. Bank services can be extended
to billions of people that today are “unbanked”, out of reach
for geographical reasons or because services are too expen−
sive. This theme takes a closer look at the business side of
tomorrow’s financial services systems.
EBR #3 2011 • 5
The big picture
Science Photo Library
TELSTAR  A FUTURISTIC MARVEL
HI-TECH COMMUNICATION First launched in 1962, Telstar inspired a whole generation and
became synonymous with high tech, progress, and cool design.
Bell Telephone Laboratories designed and built the Telstar spacecraft, and job of the US federal
space agency – NASA – was to launch the satellites. All project costs were paid for by AT&T, which
reimbursed NASA a total of USD 6 million.
Although not the first communications satellite, Telstar is the best known of all. This was
a result of its tremendous impact on the public when it was used to transmit the first live
television feed across the Atlantic Ocean. Telstar 1 was launched on July 10, 1962, and on that
day a US news commentator proudly announced: “History is about to be made in the science of
communication among men. Technicians in Europe prepare to receive a signal from the orbiting
Telstar satellite that opens this new era. This is the first formal exchange of an official
transmission, a beaming of the presidential press conference to the continent, where most of
Europe can witness democracy at work. The president has these historic words.”
John F. Kennedy then went on to say: “I think this understanding, which will inevitably
come from the speedier communications, is bound to increase the well-being and security of
all people, here and those across the oceans. So, we’re glad to participate in this operation,
developed by private industry, launched by government, in admirable cooperation.” ●
6 • EBR #3 2011
EBR #3 2011 • 7
details
JUST ONE
QUESTION
“The music industry will soon reach that fabled tipping point at
which digital revenue exceeds lost physical sales.”
WARNER MUSIC GROUP CEO EDGAR BRONFMAN JR TO PAIDCONTENT.
▶ What should
telcos do to defend
their home-entertainment
business against OTT
entrants such as Netflix?
All distributors of
entertainment
should embrace the
opportunities of content
delivery across all platforms. OTT services provide
content to TV sets, PCs,
game consoles, mobile
phones and tablets, and
telcos need to deliver the
same services… and more.
Operators can provide
their own branded OTT service and get a jump on services such as Netflix, which
does not have the customer base and instant brand
recognition of an operator.
Talk to studios and
channels now to renegotiate your deals, as they are
rapidly working on “ground
to the cloud” rights issues
for their movies and TV
series. Differentiate your
content offerings as well
by acquiring niche content
and ethnic content. Provide and produce local
content, offer social networking and implement
recommendation engines.
It is crucial that operators make solutions simple
and seamless for the customer. You must give subscribers a reason to choose
your solution over competitors’. Early adopters have
already embraced OTT
delivery, so do not ignore
the older subscribers, the
loyalists, those with the
disposable income. They
are of paramount importance to your business.
Differentiation is the
key. Entertainment is
unique, diverse and serves
many. Make sure your service is as unique and
diverse as your audience.
?
!
8 • EBR #3 2011
Mobile payments growth
slower than expected
Market analyst Gartner
has lowered its forecast
for user and transaction
volumes due to slowerthan-expected market
growth.
▶ The good news is that
transaction value increased by  percent in
, compared with last
year’s forecast, thanks to
the increase in purchases
of merchandise.
While developing mar-
kets offer favorable conditions for mobile payments, such as high penetration of mobile devices and low banking penetration, this is no guarantee of success, and service providers must adapt
their strategies to local
markets.
Gartner believes that
mass-market adoption of
NFC payments is at least
four years away. The hype
about NFC should be tak-
iStock Photos
… to Bethany Gorfine,
President and CEO of content and entertainment
consulting firm Federal
Hill Communications
Could NFC be
the missing
piece of the
puzzle?
en with a grain of salt, and
service providers should
consider which use cases
can offer immediate ben-
efits to users and merchants, so they can persuade them to switch to
the new technology. ●
NOW READ THIS!
THE
T
DIGITAL DIVIDE: ARGUMENTS FOR AND AGAINST FACEBOOK, GOOGLE, TEXTING
A
AND THE AGE OF SOCIAL NETWORKING EDITED BY MARK BAUERLEIN, JEREMY P. TARCHER/PENGUIN,
This book of essays examines the drastic social changes – both good and bad –
brought about by the rise of the digital age, including everything from Facebook and
b
ee−publishing to blogs and distance learning.
.
▶ FRIEND OR FOE? Bauerlein, a professor of English at Emory University in the US, is a noted digittal critic, but here he brings together previously published work from high-profile writers such as
Todd Gitlin and Clay Shirky to examine all sides of the debate over the effect of social media on our
lives. In his introduction, Bauerlein briefly sketches out the development of the digital age in society – from
f
an initial
i i i l zeal to intense skepticism to a current state of thoughtful reflection on the pros and cons of ubiquitous connectivity.
AFRICA’S ICT INFRASTRUCTURE: BUILDING ON THE MOBILE REVOLUTION BY MARK D.J.
Since the late 1990s,
mobile−network coverage has boomed in Africa, taking the mobile phone from a
luxury
to a part of everyday African life. This book from the World Bank examines
l
the
t factors behind this explosive growth, and estimates the limits of commercially
viable
network expansion.
v
WILLIAMS, REBECCA MAYER AND MICHAEL MINGES, WORLD BANK PUBLICATIONS, .
▶ A CHANGING CONTINENT. Since the late 1990s, urban mobile-network coverage in Africa has
rrisen from 16 to 90 percent, and by 2009 half of the continent’s rural population lived within range of
a network.
t
k The
Th authors
th track the policy and regulatory changes that have driven this growth, including the liberalization of markets, the establishment of effective competition and the emergence of institutions to regulate the sector.
And then they look forward to answer the pressing question: how far can this process go in delivering universal access?
VOLUME #28 – THE INTERNET OF THINGS ARJEN OOSTERMAN, EDITORINCHIEF, STICHTING ARCHIS,
With the advent of the Internet of Things, humans and things will be
increasingly, if not equally, connected. The ramifications of this go far beyond the
ICT industry, and in its latest edition the design journal Volume examines the roles
played by design and the architect in this new world.
.
▶ CODE VERSUS DESIGN. Based in the Netherlands, Volume aims to “reach out for global views
on designing environments” and to “reclaim the cultural and political significance of architecture”. In
this edition, the quarterly journal asks: what are the consequences for design when appliances and
people are equal nodes in the network? It concludes that coders and architects speak different languages but must
learn to communicate in the same one, likely within a new framework that the editors call “correlation designing.”
editorial
Music piracy down
thanks to streaming
iStock Photos
▶ The Swedish polling company
Media Vision reports
that 23 percent of Swedes
are downloading music
illegally, down 2–3 percent
since 2010. Much of
this relatively rapid
decline can be
attributed to the
popularity of newer
legal services such as
Spotify. ●
EDITORINCHIEF
25
▶… PERCENT OF GOOGLE SEARCHES on Android
phones are triggered by a voice command, says Google
Executive Chairman Eric Schmidt.
South Koreans get
payments app
▶ SOUTH KOREAN OPERATOR KT plans to offer a payment platform for the iPhone based on NFC technology.
The new platform will enable a user to make credit-card
payments or pay subway fees by waving their iPhone
over an electronic reader. KT also has rolled out mobile
applications for prepaid subway charges and credit cards.
Facebook on a SIM card
aimed at mass market
▶ FACEBOOK HAS launched
a version of its platform
that can be embedded on a
SIM card. SIM-card manufacturer Gemalto has developed the offering, which
makes Facebook features
available on any feature
phone model and without
the need for a data plan.
The software application
is embedded inside the SIM
10
and allows users to access
core Facebook features
from the phone’s main
screen, through a cascade
of menus. ●
▶… PERCENT OF RUSSIAN OPERATOR revenue would
have been lost under a now-cancelled proposal to
abolish per-minute voice billing in favor of per-second
billing, reports Kommersant.
Watch out,
high street banks
▶ OBVIOUSLY, THE FUTURE OF MONEY IS MOBILE – but what’s holding it up? Already,
smart tech and new business ideas are disrupting traditional banks. Clearly,
money has always been mobile. But not banks. Not cash registers. Mobile
phones have the potential to extend the limited nature and reach of the traditional financial sector.
Besides helping to organize the fragmented market for domestic money transfers, mobile money can improve the national payments system by providing
innovative ways of meeting the transaction needs of ordinary people. By lowering transaction costs and empowering small business, mobile solutions may
have a profound impact on the way this stimulates the very nerve-ends and finest blood cells in the circulatory system of any country’s economy.
All of this is great, so what is the problem? Simply, there isn’t a single market
– there are so many, in fact, that this seems to be a case of serious fragmentation. Innovation is abundant. A row of hot banking startups with names like
TransferWise, Square, Boku, Monitise and iZettle increasingly attract venture
capitalists’ interest.
BUT ARE WE AS CONSUMERS REALLY INTERESTED? When will any phone be able to
handle a payment transaction with any merchant, using the credit or debit card
of our choice? Right now, nothing seems to be interoperable.
Much like the way the internet hit traditional media really hard, sometimes
forcing them to take defensive action that delayed the development of new and
constructive business models, the market for mobile money clearly shows that
different spheres of interest are colliding.
Traditional payment handlers, such as banks and credit-card issuers, hold
the credit and distribution channels in a very tight grip, including merchants
and point-of-sales. They have a revenue model that works very well for them
and has taken many years to build. Why let others in? It is an open question
how the value chain will be split and revenues divided in a mobile money future. For operators, the challenge is how to get a piece of this action. Cooperation across traditional business boundaries will inevitably be important.
WE ARE SEEING LOTS OF TECHNOLOGY ADDITIONS to existing handsets, preparing
them to handle payments. Even Google has joined in and, as usual, is reducing
operators’ role to a minimum. Consumers will come if it is simple and convenient enough, but offering piecemeal solutions simply will not
fly.
So, the key is to ensure interoperability that, in turn,
will help the business achieve a scale that makes it sustainable. And this sounds exactly like the old telecom
gospel. Telecom has done it in the past and can do it
again with mobile money.
In the cover story you will find even more radical
ideas. For a telecom community looking for new challenges, augmented reality surpasses anything we have
reported before. Is it super cyberpunk or really serious business? We think it is the latter, but it takes some
explaining. ●
MATS THORÉN, EDITORIN CHIEF
cover story Michael Liebhold
Basic facts
NAME
Michael Liebhold TITLE Senior Researcher, Distinguished Fellow
67 HEADQUARTERS Palo Alto, California, US
EMPLOYER Institute for the Future AGE
10 • EBR #3 2011
Augmented
reality
check
If you thought mobile broadband put a
strain on telecom networks, wait until you
get a look at augmented reality and its
need for millimeter−precision positioning
for each and every pixel, says visionary
technologist Michael Liebhold.
TEXT
Nathan Hegedus
Chris Maluszynski
PHOTOS
EBR #3 2011 • 11
Within five to 10 years, “the unadorned world
will be history,” and our reality will have become
a mix of the real and the digital.
REVOLUTION IN PERCEPTION is in the air,
a transformation decades in the making. It will require a radical shift in
viewpoint, as the way we experience data and
information revolves  degrees from our traditional bird’s-eye view of maps, paper and
screens to a more natural cinematic vision of
the real world, one overlaid with digital information virtually attached to specific places.
And while augmented reality may still be in
its infancy – with smartphone viewfinders displaying floating objects that are only vaguely
connected to real places – don’t let that fool you.
The changes could reach far beyond mobile
broadband and potentially be as profound as
the development of the World Wide Web, says
Michael Liebhold of the Institute for the Future.
Liebhold forecasts that within five to  years,
“the unadorned world will be history,” and our
reality will have become a mix of the real and
the digital. Telecom companies need to be
ready, he says, to meet the demands of networks
in which we are connected right before our eyes.
A
A YEAR TECH VETERAN with stints at iconic
companies such as Apple, Atari and Netscape
Communications, Liebhold already sees digital data interwoven with the physical world.
When he looks at the plain front of a coffee
shop, he envisions information floating everywhere – historical data on the building, health
inspections and customer reviews of the coffee shop, and the probability of him getting hit
by a car as he crosses the street to go in.
Of course, Liebhold can’t actually do this.
It’s a mental exercise, one based on his decades of research and thought on augmented
reality.
“We have to recognize that this is an inexorable trend,” he says. “We will soon be freed
from the constraint of the page and map.”
Today a few leading players such as Layar,
Wikitude, Metaio and Google (with its Google Goggles app) provide basic consumer-based
augmented reality through smartphone viewfinders. But Liebhold says there are two basic
challenges to bringing augmented reality fully to life.
THE FIRST IS THE NEED for better tools to experience augmented reality, namely augmented
reality-enabled glasses and contact lenses.
“The current wearables are atrocious right
now,” Liebhold says, adding that they induce
nausea “at best” and that the overlaid data is
only vaguely connected to the physical locations (see page  for a more detailed explanation of augmented reality).
Liebhold forecasts that high-quality massmarket glasses will be on the market within
the next decade, and he believes purpose-built
contact lenses could be out of the lab and onto
the market by the early s.
The second challenge is more crucial to telecom players: the need to vastly improve positioning accuracy. Mobile devices currently
best determine location by blending GPS with
Wi-Fi access points, but the margin of error
with this method can be up to several meters.
The solution lies in innovative positioning
networks that use both location beacons and,
more importantly, photo positioning, in which
what is seen through a viewfinder is compared
with a massive database of images and thereby located precisely to the millimeter.
Liebhold says that telecom could play a dominant role in this new augmented reality web
by building these positioning networks and by
developing the necessary photo-reference databases. He also sees especially strong synergies between augmented reality and the Internet of Things, in which connected devices will
provide much of the data that people will see
through those fancy tailor-made glasses.
“If operators build the new sensor and actuator networks, then they can capture the revenue from those networks,” Liebhold says. “So
the Internet of Things and augmented reality
are theirs to lose. But if they build platforms
without thinking about applications, then they
could get caught in the same commoditization
of data they are facing now.”
BUT LIEBHOLD SAYS THE MORE pressing, and lucrative, project for telecom companies in terms
of augmented reality is a basic one – ensuring
adequate mobile broadband access for everyone.
“We just don’t have enough bandwidth now,”
he says. “What we really need is network buildout so all the G access points will have adequate backhaul. If we had truly unfettered G
access, we wouldn’t need LTE radios.”
He uses Palo Alto, California (where the Institute for the Future is located) as an example of the bottlenecks that will occur ever more
frequently in the augmented reality web.
“The problem is that all the access points
here are already congested,” he says of this Silicon Valley hub filled with bandwidth-hogging
smartphones. “There is still adequate
“This is going to stir people up”
▶ A POTENT MIX of augmented reality and
facial-recognition software will drive
major controversies over privacy and
civil liberties in the near future, says Michael Liebhold of the Institute for the Future.
Imagine a world in which everyone can
identify everyone else simply by looking
at them through a pair of internet-connected glasses. Or where your public information, such as political affiliations
registered on Facebook, would be visible
to everyone you meet.
The key questions are how much personal information we will display in public, and what controls we will have over
that information, Liebhold says.
12 • EBR #3 2011
But in many ways, this problem is “already out of the bag,” with cameras of all
kinds already recognizing us on the street
“all the time. This is going to be very hard
for the authorities to control.”
GOOGLE IS ALREADY holding back advanced
facial-recognition technology for its augmented reality app Google Goggles owing to privacy concerns, though it does include facial recognition in programs such
as its Picasa photo-management system.
“We won’t add face recognition to Goggles unless we can figure out a strong privacy model for it,” Google said in a written statement in April. “We haven’t figured it out.”
Google isn’t the only major tech player
with sophisticated automatic facial-recognition capabilities. Facebook rolled out
similar features earlier this year, which
caused an outcry over privacy in some
quarters.
And in , Apple acquired Polar
Rose, a Swedish company with a range of
augmented reality products, including an
app that shows an augmented reality view
of a user’s social networks clustered
around their head.
“THIS IS GOING TO stir people up,” Liebhold
says. “And it is a debate and controversy
that, over the next decade, is going to get
bigger before it gets smaller.” ●
Michael Liebhold
cover story
“Google is set to dominate
everything,” Liebhold says,
noting the tech giant has the
largest-scale pattern-matching program in the world.
“They understand that cloudserved supercomputing is an
intrinsic element of
augmented reality.”
Mobile augmented reality forecast 2011 to 2016
Global application downloads by operating system
(millions)
iPhone
Android
Other OSes
Total
1 000
800
600
400
200
0
2011
2012
2013
2014
2015
2016
Source: ABI Research
EBR #3 2011 • 13
cover story Michael Liebhold
14 • EBR #3 2011
“Augmented reality will not exist separately
from the commercial tensions on the internet,” Liebhold says. “As data becomes rich,
we will need textual filters. Google is in a
great position. They already want to be able
to perform proactive searches for people.”
Law-enforcement agencies will see long-range
patterns in geocoded data and predict the
likelihood of crimes or accidents taking
place at a certain street corner.
time to provide the essential infrastructure we need, and some carriers do recognize this. But this is not a business venture that will give a return on investment
in three, six or  months. Some capital
investment is required, and now is the
time to start.”
Background check
▶ 2004–present Senior Researcher,
Distinguished Fellow, Institute for the
Future
▶ 1980–present Head of US consulting firm
Starhill Networks
▶ 2003–2004 Visiting Researcher, Intel Labs
▶ 2001–2003 CTO, VIP Tone (a Sun
Microsystems spinoff )
▶ 1997–2000 Senior Vice President,
Business Development, Tachyon
Networks
▶ 1995–1997 Senior Services Architect,
Netscape Communications
▶ 1994–1996 Vice President, CTO, Times
Mirror Company
▶ 1984–1994 Senior Scientist, Broadband
Development, Apple
▶ 1983 Director, Advanced Development,
ByVideo
▶ 1981–1983 Administrative Director,
Systems Research, Atari division, Warner
Communications
▶ 1979–1981 General Manager, HW
Computers
IN THE POPULAR PRESS, consumer applications get the most buzz, and Liebhold
forecasts that games and entertainment
will be the first augmented reality segments to break out. But he is adamant that
augmented reality is also a transformative
business technology, speaking excitedly
about its potential in everything from
public safety to the automotive and health
care sectors.
Law-enforcement agencies will see
long-range patterns in geocoded data and
predict the likelihood of crimes or accidents taking place at a certain street corner, he says. Journalists will be able to use
those same dense patterns to give a longterm context to their work, as well as explore the creative possibilities of augmented reality storytelling. And businesses of
all kinds will get real-time market and
demographic information from a commercial perspective.
“The range of enterprise applications is
vast,” he says. “Factory floors will become
annotated with real-time logistical and
production information. You could look
at a building and see the architectural
drawings beneath its ‘skin’ and conduits
under the asphalt.”
An early breakout could be in infrastructure management, Liebhold says,
pointing to Earthmine, a US company that
is collecting detailed and accurate D
street-level imagery from around the
world. Every pixel of every image in the
Earthmine database is located accurately
to the millimeter, Liebhold says.
“The Earthmine network provides nearterm revenue possibilities, such as in cataloging physical plant, like the exact location of utility poles, with precise views of
the equipment on the pole,” he says. “It
costs companies a lot of money to survey
for maintenance and to upgrade physical
plant, and it’s not just network operators
that have such infrastructure.”
IF LIEBHOLD SOUNDS EAGER to see the world
through those augmented reality contact
lenses, that’s because in some ways, he has
been waiting for them since . That’s
when he got his start in computer science,
working with researchers from Massachusetts Institute of Technology in the US. A
few years earlier, the same group of researchers had created the Aspen movie
map, a laser-disc-based maneuverable cinematic plan of that US city in Colorado.
“From that day on, I’ve been thinking in
a cinematic view,” Liebhold says.
Augmented reality through smartphone viewfinders
Current augmented
reality services take
geo-tagged digital information and attach it to a
physical location viewed
through a smartphone
viewer.
office
Doctor’s+012 3456789
Phone:
t
estauran
Italian R+012 3334445
Phone:
EBR #3 2011 • 15
”I don’t want to take out my phone and see
restaurant reviews. I want to see historical
richness. I want to see people playing games in
public spaces. I want to see serendipity in art.”
He took that inspiration with him to a
series of top jobs at high-profile tech companies, serving as a Director at the Systems Research Lab at Atari and as a Senior Scientist at Apple, where “we were
pushing cameras around in carts in ,
trying to figure out how we were going to
overlay digital information on the physical world.” He has also worked as a Senior
Services Architect at Netscape Communications and a Visiting Researcher at Intel
Labs.
BUT LIEBHOLD IS NOT YOUR average techie.
In the s, he did graduate-level work
in animation, as well as working as a Manager for Warner Elektra Atlantic Music and
then Vice President of Landes Design, a
firm producing “avant-garde architectural products.” In the mid-s, he developed an early internet presence for the major US newspaper chain the Times Mirror
Company and later led startups working
on large-scale international public IT services and IP networks for rural regions in
China, India, Europe and Latin America.
For the past six years, Liebhold has been
doing his forward thinking as a Senior Researcher and Principal Technologist at the
Institute for the Future, a non-profit organization that, as Liebhold puts it, helps
corporate and governmental clients “think
systematically” about the future, looking
five to  years out instead of the standard three to five.
Liebhold applies his wide-ranging expertise in computing, telecommunication, media, data and software at the institute, but
augmented reality clearly remains his passion. A long-standing member of the geospatial community, he led investigations
into location-based multimedia products
at Apple, launched strategic partnerships
with National Geographic and later did
high-level work with the navigation company Jeppesen. He has also continued his
highly technical personal research into
geospatial issues, is often quoted in arti-
16 • EBR #3 2011
cles exploring augmented reality, and is a
regular speaker at augmented reality conferences in Silicon Valley and beyond.
LIEBHOLD TELLS A STORY about waiting on
hold for two hours to order a PDF version
of a user manual for a broken dishwasher,
and how while waiting he imagined the
manual immediately floating before his
eyes, the appliance’s secrets immediately
revealed to him.
“Dynamic views are what I’m interested in,” he says. “I don’t want to take out my
phone and see restaurant reviews. I want
to see historical richness. I want to see
people playing games in public spaces. I
want to see serendipity in art.
“I would love to see the health properties of things. I would love to see happiness indices and crime stats. And, within
limits, I want to know about the people
around me.”
Yet every day after work, he retreats
from his futuristic focus to the mountains
into what he calls a “th-century lifestyle”
amid giant redwood trees between Silicon
Valley and the Pacific Ocean, caring for
his horses and llamas.
But even in the still-unconnected forest, his mind stretches forward, envisioning digital identification of leaves and animal tracks as he peers into the s and
the technological challenges of a world in
which almost every human on the planet
will likely have access to smartphone-style
computing capability.
He forecasts that, with the help of augmented reality, there will be powerful
computing on the massive amount of information that will be connected to physical places, including the development of
supercomputing apps that will combine
spatial information from multiple sources and then provide real-time analytics.
“Just like with the web, we have to remember that augmented reality is not the
end point,” he says. “It is simply a platform
for what comes next.” ●
Michael Liebhold
cover story
What do you think
will most surprise us
about life in 2025?
▶ The richness and pervasiveness of digital information and locative media layered
on the physical world.
So far in your career,
what development has
surprised you the most?
▶ In 2003 I met with Larry Page – past and
current Google CEO – and other senior
management, and presented a detailed
proposal for Google to build geospatial,
search, mapping, location services and
augmented reality capabilities. Page told
me this is “not even in the top 100 things
we want to do.”
Two years later, they did everything I
suggested – Google Earth, Google Maps,
Google Places, and more – after Larry’s
partner Sergey Brin discovered a company
called Keyhole, the startup that built
Google Earth, and sold the idea to him.
Liebhold says he is surprised that game
designers have not picked up augmented
reality “in a big way,” but he still expects
gaming and entertainment to be the “big
winners” in the first wave of augmented
reality development.
EBR #3 2011 • 17
technology report
AUGMENTED REALITY: A REVOLU
Augmented reality has become a viable
technology for businesses and consumers.
It has already made inroads into the mainstream through smartphone apps, but in
the coming decades, it could redefine the
way we access the internet and all the information on it.
▶ There are two primary types
University of Washington, US
of augmented reality: locationsensed and marker-based. In
marker-based augmented reality, a scanner at a kiosk, on a
computer or in a smartphone is
used to read a marker on an
object – anything from a soda
can to clothing to a printed advertisement – and then places
enhanced digital information
(in the form of text, photos,
video or D images) over that
object.
For instance, using the
Metaio platform, consumers
can now hold a box of LEGO
building blocks in front of a
store kiosk and see a potential
finished product on the kiosk
screen. Or shoppers can try on
clothes virtually at J.C. Penney
department stores in the US.
Besides Metaio, companies
such as Blippar and Zappar
offer marker-based augmented
reality apps that recognize
things such as posters, art work
and barcodes. This could allow
for a vast expansion of augmented reality marketing, or
even turn a printed newspaper
or magazine into a rich digital
playground.
While marker-based systems
have a significant upside, most
people think the true revolution
will take place in the field of location-sensed – or markerless –
augmented reality. This is augmented reality untethered, with
geo-coded digital information
overlaid on either a phone
viewfinder or, eventually, the
Within 20 years,
we might all
access the
internet through
a contact lens.
Through the lens … clearly
▶ Holding up a smartphone
to see the world is awkward.
Many people predict that in
the near future we will see
glasses, and even contact lenses, serve as platforms that are
as powerful and flexible as the
tablet or smartphone is today.
Liebhold predicts that a
18 • EBR #3 2011
consumer-apparel company –
maybe Oakley or Nike – or
even Apple will bring highquality augmented realityenabled glasses to market in
the next five to eight years.
But researchers at the University of Washington in the
US are taking it even further,
Augmented reality has its roots in
the imagination of science fiction.
view seen through special
glasses or contact lenses.
Mobile augmented reality is
on the verge of, well, reality
owing to three converging
trends: powerful mobile devices,
cloud computing and pervasive
mobile broadband. And it has
the backing of big players, with
Google, Microsoft, Nokia, Intel
and Qualcomm all seriously involved with augmented reality
developing augmented reality
contact lenses that could possibly come to market sometime in the s.
Developed by Babak Parviz,
an associate professor in bionanotechnology, self-assembly, nanofabrication and
microelectromechanical systems, each lens could feature
an antenna at its periphery
that would collect radio-frequency energy from a separate portable transmitter.
Here is how Parviz described the display function of
the lens in an article in IEEE
Spectrum:
“We [will] integrate control
circuits, communication cir-
development of one kind or another.
Photo positioning
Right now, mobile augmented
reality apps rely on a combination of GPS and Wi-Fi positioning, as well as accelerometers
and other smartphone sensors,
all linked to a fast-growing
amount of geographicallytagged digital data from con-
cuits, and miniature antennas
into the lens using custombuilt optoelectronic components. Those components will
eventually include hundreds
of light-emitting diodes
(LEDs), which will form images
in front of the eye, such as
words, charts and photographs. Much of the hardware
is semitransparent so wearers
can navigate their surroundings without crashing into
them or becoming disoriented. In all likelihood, a separate,
portable device will relay displayable information to the
lens control circuit, which will
operate the optoelectronics in
the lens.”
technology report
Just touch
the wall
Chris Maluszynski
UTION IN PERSPECTIVE
nected maps, sensors, machines,
web pages and social-media
networks.
At the moment, it works like
this: a user points their phone at,
say, a storefront. The augmented
reality app matches available digital information with the position
identified by the phone. This is
accurate to about five to  meters – enough to tell you that a
certain building houses, say, an
Italian restaurant or a dentist’s
office.
But to achieve true augmented
reality – where you can immediately identify a bird sitting in a
tree or get the specifications for a
tiny chip on a box on a utility
pole – GPS, Wi-Fi and smartphone accelerometers are simply
not accurate enough to provide a
seamless experience.
Future systems will most likely
depend on photo positioning –
using massive databases of images to pinpoint your precise location, including even the
viewfinder angle – and place the
digital information with millimeter precision.
Photo-positioning systems will
depend on a mix of geo-coded,
or tagged, images as well as “regular” photos mapped by compar-
ing them with others in massive
databases. For instance, a photo
of a woman in front of the Sydney Opera House in Australia
could be mapped precisely by
examining the angle from which
the curved roof in the background is seen, as compared with
other geo-tagged photos of the
same building.
The leading players in locationsensed augmented reality include Layar and Wikitude, but
Google seems set to dominate.
The company’s smartphone app
Google Goggles already performs
fairly accurate pattern and image
recognition, and it is moving fast
on developing a massive photo
database using some publicly
available images from sites such
as Flickr.
But what language will this
geo-coded web speak? Specifically, what kind of coding language should developers use?
Simplest possible code
Creating standards for augmented reality is not simply about
agreeing on common programming languages. The focus right
now is on an extensible framework that would allow many
computing domains to interoperate, just like on the World Wide
Web. The goal is to develop the
simplest possible code to attach
a digital annotation to an object
or place, something fundamentally like an HTTP URL (Hypertext
Transfer Protocol Uniform Resource Locator).
The only current standardsbased augmented reality web
browser, called Argon, was developed at Georgia Institute of Technology – commonly known as
Georgia Tech – in the US, and is
based on a hybrid of Keyhole
Markup Language and HTML
(the fifth revision of the Hypertext Markup Language or HTML
standard). ●
A short
history
of reality
▶ The term augmented real-
ity was coined in  by
Tom Caudell, a researcher at
the American aircraft manufacturer Boeing. But the
ideas behind augmented reality date back at least to the
s and the work of
American filmmaker Morton
Heilig, and then, later, to the
inventions of US computer
scientist Ivan Sutherland in
the s.
The development of augmented reality has traditionally been closely tied to research into both geospatial
data and virtual reality, a
close cousin in which an entire digital world is created,
rather than overlaying digital
information on a real scene.
The development of commercial augmented reality
apps became possible largely as a result of the 
launch of the Global Positioning System (GPS), a
group of satellites that allows for semi-accurate geographic positioning on the
ground through GPS receivers. In the past decade, the
development of the smartphone was a crucial step in
furthering augmented reality, both for its processing capability and built-in accelerometers, and its ability to
coordinate with GPS.
What’s next? Liebhold says
that advances in cloudserved supercomputing are
necessary to help augmented reality live up to the
dreams of fiction writers
and big-budget Hollywood
filmmakers.
▶ Researchers at Microsoft
Research and Carnegie
Mellon University in the
US are working on two
projects that demonstrate
novel approaches to touch
and gestures. OmniTouch
gives users the ability to
transform anything from a
wall to a body part into a
touch surface, while PocketTouch enables users to
interact with smartphones
inside a pocket or purse.
The wearable OmniTouch prototype uses a
laser-based pico projector
and a depth-sensing camera, an advanced, custom
prototype from the Israeli
firm PrimeSense.
More Facebook
friends, denser
brains
▶ Researchers
at the University College of
London have
found that
people with the greatest
number of friends on Facebook tend to have a higher
brain density – more gray
matter, so to speak, in
regions linked to social
skills. The finding suggests
that either social networking changes these brain
regions, or that people
born with these kinds of
brains behave differently
on sites like Facebook.
Giant satellite
blasts off for
broadband
▶ With the potential to
deliver broadband services
to most of North America,
one of the most powerful
satellites ever produced –
called Viasat-1 – launched
on a Russian Proton
rocket in October from the
Baikonur Cosmodrome in
Kazakhstan.
The satellite has a total
data throughput of about
140Gbps, more capacity
than all other commercial satellites over North
America put together and
double the throughput
of Eutelsat’s K-Sat, which
launched in May to provide
European broadband. Both
these giant satellites operate in the Ka-band, which
allows for particularly high
data rates.
EBR #3 2011 • 19
Theme in short
▶ The market potential for
mobile money. ▶ The players in
the market and the new value
chains. ▶ A look at what’s at
stake as traditional industry
boundaries blur. ▶ What needs
to be done to fight
fragmentization and complexity.
CONCLUSION ▶ Mobile
operators are not winners by
definition, few success stories to
date. ▶ We can expect a quick
and strong market
consolidation. ▶ We need to
agree upon, and create a global
structure for mobile money.
ILLUSTRATIONS
20 • EBR #3 2011
Annika Sköld
A financial revolution «« Reinventing money «« THEME
A new
industry in
the making
Mobile communication has entered a phase where it is triggering
a massive reinvention of what banks are, challenging traditional
industry structures by transforming how we pay and ultimately
redefining how we think about currency.
▶
EBR #3 2011 • 21
THEME »» Reinventing money »» A financial revolution
▶
Mobile banking:
The rich world
plays catch up
Disruptive mobile technologies are changing the future of money globally.
We face a huge challenge in building a new financial ecosystem that can
reduce the complexities of moving money across diverse banking systems and
geographies, levels of financial literacy and regulation.
VER THE PAST DECADE, the mobile phone
has completely changed the world
around us. Today we live in a networked
society in which advanced handsets, mobile
broadband and cloud services have enabled businesses, organizations and entrepreneurs to develop disruptive mobile technologies that have
facilitated positive change in societies around the
world. From mobile innovations that deliver education in emerging markets and apps that can
monitor the health of people around the world
to social networks that allow us to share and connect our lives wherever we happen to be, the mobile phone has transformed the world and given
O
people countless opportunities for a better, more
connected life.
Now “mobile money” is emerging as the next
evolutionary step of the mobile story. We are part
of history in the making as we stand at the cusp
of a financial transformation that will see connected money services rolled out to a connected
society worldwide.
Five major trends are emerging in this fledging
industry: banking the unbanked; mobile payments; the battle for the wallet; merchants seeking independence from established card schemes;
and globally interconnected mobile financial services.
The role of mobile operators
Telecoms
business
Banking
business
Co-marketing, co-branding
Role of
mobile
operator in
delivering
financial
services
Own marketing, branding
Retail distribution network (for cash transactions)
Secure
communications
Mobile wallet
(presentation) services
Account hosting and
transaction authorization
Account
issuance
Key mobile
operator
strengths
s Ubiquitous wireless
network
s SIM security
s Control of user
interface
s Handset provisioning
s Familiarity with realtime
prepaid platform
s Cash in/out points
s Large customer base
s Brand, customer trust
s Solid financials
Value to
mobile
operator
s Driving additional
data traffic (support
core business)
s Creating customer
stickiness (churn
reduction)
s Generating additional
service revenues
s Branding, innovation
s Business diversification
(entry into adjacent
sector)
Potential
risks for
operator
s Network security
breach
s Unsatisfactory
customer experience
s Handset security
breach
s Accounting error, fraud
s Breach of client data
confidentiality
s De-focusing
s Investment risk (loss of
value of accounts)
s Application of banking
regulations
Source: CGAP
22 • EBR #3 2011
A financial revolution «« Reinventing money «« THEME
complexities of moving money from person-to-machine and machine-to-machine across diverse banking systems and
geographies, levels of financial literacy
and regulation. This new ecosystem will
need to live up to the expectations of the
mobile generation too. Savvy mobile users will
expect mobile financial interactions that are convenient, cost-efficient, secure and instant.
ACCELERATING THE FINANCIAL REVOLUTION
A new industry is taking shape driven by the
motivation of banking the unbanked in emerging markets in Africa, Asia and Latin America,
financial regulatory change and the rapid evolution of mobile devices.
LEAPFROGGING
While millions of people in developed markets
have controlled their financial lives online for the
last  years, today there is increased access to
electronic money (e-money) and electronic wallets (e-wallets). While many of us are still using
internet banking from our desktops just like we
did a decade ago, many millions of people in
emerging markets are leapfrogging straight from
being unbanked to early adoption of mobile money, leaving the developed world to play catch-up.
According to World Bank estimates, only . billion people in the world have a bank account. Simultaneously, there will be more than . billion
people without a bank account who have access
to mobile phones in , according to estimates
by CGAP (Consultative Group to Assist the Poor).
There is a unique opportunity to connect with
the next generation of mobile-savvy consumers in
both emerging markets and the developed world.
Mobile payments and person-to-person money
transfers are forecast to become some of the mostused mobile applications around the world in the
next two or three years as businesses fight the battle for the wallet. Mobile money will become a
foundation for person-to-machine and machineto-machine connections by . Fast-tracking
this growth will be the opportunity for a new ecosystem to globally connect different mobile networks, banks and digital m-wallet services to allow them to work together across systems, currencies and borders. This will open up new revenue streams for mobile network operators, merchants and banking partners while increasing ease
of access to money payments for consumers.
We need to work toward building a new interoperable financial ecosystem that can reduce the
Over the next  months and moving forward,
banks, mobile operators, retailers and internet
companies along with regulators and governments will need to come together globally and locally in new ways to play their roles in accelerating this financial evolution. While banks will be
strong partners and deliver the regulatory environment through which money can be safely
moved, mobile operators have a new opportunity to take a content-provider role and act as a conduit for mobile money, allowing users to store
and spend money through their mobile phones
and services. Retailers are already investing heavily to allow mobile phone users to spend cash
through Near-Field Communication transactions.
A significant step in delivering this global ecosystem will be to connect and interconnect financial services and corridors around the world,
allowing one mobile phone user to send money
and another to receive it as quickly and as easily
as sending a text message, wherever they are on
the planet.
Right now nearly  domestic mobile-wallet
initiatives are being run by operators around the
world but these systems are not currently connected to a global ecosystem. Mobile operators need
an ecosystem that fast-tracks money movement,
allowing them access to multiple local m-wallets
to enable them to start to play on a global stage
through both developed and emerging markets.
Only through this disruptive take on mobile
technology and money will we see nations from
China to Peru financially connected through
handsets, making payments seamlessly and
instantly whether mobile-to-mobile, mobile-tocash, mobile-to-retail, cash-to-mobile or cashto-cash. ●
AUTHOR
▶ ADAM KERR is Acting
Head, Ericsson M-Commerce. He
has more than 20 years of experience in the internet, mobile and
payments industries, helping a
number of companies become
successful, global businesses. This includes WorldPay, an
internet payment company that was purchased by Royal
Bank of Scotland, where he was responsible for its Asia
Pacific operations. He also played a pivotal role in defining
and implementing the North American strategy for Bango,
a mobile payment and analytics provider.
([email protected])
▶
EBR #3 2011 • 23
THEME »» Reinventing money »» A brave new world
▶
Tackling complexity:
We need to create
a global structure
for mobile money
Collaborating with financial institutions and disrupting the status quo of the
financial market in equal measure are the keys to driving mobile money innovation. It’s a brave new world for mobile network operators.
OBILE MONEY REPRESENTS an enormous
opportunity for operators, banks and
retailers. But diversity among the relevant organizations and institutions around the
world is so great that only innovation, disruption
and collaboration can secure them all a place in
this fledgling market.
New players in the mobile-money market need
to tackle both local and global issues to deliver
truly global mobile financial services.
One of the major complexities in delivering
mobile money globally is fragmented regulatory
requirements, which mean that businesses have
to comply with multiple jurisdictional requirements. Matters are made more complicated still
as international and regional regulations sometimes conflict with national laws.
For the EU in particular, the overlap between
different regulatory requirements, such as the
Payment Services Directive and the second EMoney Directive, creates difficulties in product
and service positioning and offering.
Given the pace at which technological innovations and electronic- and mobile-money products are developing, at this point in time regulations seem to be catching up with the market
rather than leading it.
Just as a mobile-phone user expects to be able
to send and receive text messages to and from
other countries, the expectation is that mobile
money will be delivered on a global level. With
fragmented markets and the need to deliver interoperable services and compliance issues, an
international structure for mobile-money regulation must be driven and agreed upon.
Only through this approach can the market
deliver consistency, certainty, quality partnerships and innovative products and services
M
24 • EBR #3 2011
that offer consumers genuine value.
It may seem surprising to some, but mobilemoney innovation is actually being driven from
emerging markets where people are often more
likely to own a mobile phone than they are to have
a bank account. Innovation and interoperability
will come through linking closed-loop networks
such as for instance a mobile money system in
South Africa to open networks around the world.
Partnerships will be key to the progress of mobile money as no single player can drive the global market alone. With a global network in place,
innovation will also come through value-added
services provided over that network through mobile network operators.
Mobile money has the potential to offer merchants – both online and retail – the reduced dependency on global payment networks (such as
Visa, MasterCard, iTunes) that many seek. The
potential is there for merchants to create their
own mobile-payment options, which could be
linked to a stored-value prepaid account, bundled into vertical applications such as in-app billing for application providers, vending, point of
sale or ticketing – or even bundled with loyalty
programs, supply-chain systems, product information and coupons.
Merchants should aim to offer unbundled and
transparent pricing, and payment services that
consumers genuinely need, offering them ease of
use, convenience and improved checkout speeds.
TAKING ON THE BATTLE FOR THE WALLET
As with any consumer service, you cannot expect
people to buy in if you ask them to do too much.
For mobile money to be a global success story,
services must offer ease of use for the consumer,
and to achieve this, there must be collaboration
A brave new world «« Reinventing money «« THEME
and interoperability between mobile-money
players.
It’s simply not realistic to ask consumers to sign
up for multiple mobile wallets in order to allow
them to spend money through retailers or send
money to friends and family around the world using their mobile phones. So right now, the big opportunity is for a major brand to offer aggregated m-wallets, allowing consumers to spend, send
and receive money seamlessly through the brand
they sign up to and its partners anywhere in the
world.
We can expect to see consolidation in the marketplace, with just a handful of dominant players
taking the lion’s share of the market. However, we
also expect there to be room left for more niche
players to complement the major players including aggregators and technical enablers.
Mobile-network operators will enter the market by leveraging their installed base of airtime
accounts that will gradually be evolved to
m-wallets. Over time, prepaid m-wallets will shift
to a model of direct-debit integration with salary bank accounts in developed markets, and key
players will offer added value through their own
m-money applications.
It’s a complex, exciting and daring time for the
mobile-money market. While there is still much
progress to be made, new players must focus on
delivering the best possible user experience. Here
are the keys:
� make the service easy to use to offer convenience.
� make the corridors secure to build trust.
� make the price affordable to make the service
appealing. ●
Mobile money operator types
Traditional
remittance
providers
”Powered by”
vendors
Startups
Mobile
money
market
Financial
institutions
Retail chains
Mobile
network
operators
Source: Juniper Research
Mobile money eco-system
Financial players
Mobile players
Mobile network operators
Banks
AUTHOR
▶ LARS ARVIDSSON is Head of
Wholesale & Partnership at Ericsson Money Services. He has over
20 years of experience in the
technology and networks industries. Prior to his current role at Ericsson, he also worked for the company between 1994
and 1998, holding the position of Customer Unit Head for
Sweden at Ericsson Mobile Solutions.
([email protected])
Handset OEMs/OS
Payment processors
Payment acceptance networks
Chip and card manufacturers
Mobile
money
Payment terminal manufacturers
Internet and retail
Software companies
Payment startups
Retailers
Internet payment platforms
Source: Company Websites, CSMG Analysis
▶
EBR #3 2011 • 25
26 • EBR #3 2011
Scale is everything «« Reinventing money «« THEME
A gamechanger for
the poor
“My mission and personal goal is to prove that Safaricom’s M-PESA is not a
one-off,” says Michael Joseph, World Bank Group’s first fellow. He previously
headed Safaricom, the operator behind the world’s largest mobile money platform M-PESA, used by more than  million Kenyans.
TEXT
Mats Thorén
PESA HAS CHANGED the lives of Kenyans
– it created new jobs, new businesses
and new opportunities for millions of
people,” Joseph says. “Surely this can and must be
replicated in other, similar, countries, many of
“
M
Contribution of M-PESA
to Safaricom’s revenue and
revenue growth
%
40
To incremental revenue growth
To total revenue
35
30
25
20
15
10
5
0
2008
2009
Source:
Based
on analysis
CGAP/AfricaNext
Source:
Based
on by
analysis
by CGAP/AfricaNext
2010
which have better starting conditions
than we had in Kenya.
“We have an excellent opportunity
to promote mobile money services
now that the world is becoming more Michael
focused on financial inclusion. A Joseph
good example of this trend is the
adoption of the Principles for Innovative Financial
Inclusion at the  G Summit in Toronto,
Canada.”
Thinking beyond domestic money transfer, top
ups, transit passes and so on, what would be
the next step towards fully fledged banking
services?
“I believe that the natural progression of mobile money services will be to offer traditional financial services such as savings, credit, all kinds
of insurance, and financial advice.”
Are traditional banks right to be nervous about
this development?
“Yes and no. Traditional banks do not have the
cost structure that would allow them to provide
these services at the rates offered by mobile money service providers, so we are not really
▶
EBR #3 2011 • 27
THEME »» Reinventing money »» Scale is everything
▶
To achieve scale, both economically and operationally,
requires a vast, ubiquitous distribution network which
is expensive both to set up and to manage.
competing with them. However, they should understand that low-income people are demanding
financial services and deserve access to them. If
traditional banks do not change their systems or
amend their strategies, they may be left behind.”
Fragmentation seems to be one big hurdle towards the goal of achieving ubiquity and scale.
What can be done about this?
“To achieve scale, both economically and operationally, requires a vast, ubiquitous distribution network which would be expensive both to
set up and to manage. This is the largest stumbling block.”
In your view, what share of an operator’s total
annual revenue will mobile money services represent in about five to  years’ time?
“It depends on how operators view the service
– as a value-added service or as a contribution to
the bottom line. Mobile money could generate
up to  percent of the total revenue of a typical
mobile network operator if it is operated effectively.”
To what extent does M-PESA owe its success to
Safaricom’s large share of the voice market and
being the first mover? Is it a unique success case
Ad revenue opportunity compared with
other M-PESA benefits
or a blueprint for many more to follow?
“It was useful to have a large market share, but
not essential. A trusted, well-known brand is
more important. This service requires passion,
determination and specific focus by a dedicated
team. Those qualities are not unique to
Safaricom.”
Can the industrialized world learn anything
from emerging markets when it comes to mobile money and other mobile financial services?
“Absolutely. This service, if provided appropriately and on the right scale, can truly change the
economics of a country. Ensuring that many more
people have access to low-cost financial services
is bound to improve a country’s economic
situation.” ●
Revenue grew 6.6 times faster compared to
costs in the same period
to costs in the same period
Millions of USD
35
Revenue
Costs
Millions USD
100
158%
30
80
25
60
20
40
15
20
10
0
94.5
692%
36.6
4.6
16.2
-20
5
M-PESA direct
EBITDA
Airtime cost of
sales savings
Note: Assuming 65 million M-PESA transactions per month
each representing an opportunity for a mobile ad impression.
Source: CGAP
28 • EBR #3 2011
40.4
-40
0
Ad revenue
150%
63.2
-60
81%
-80
Year 1
Year 2
Year 3
Source: From M-PESA Profitability Analysis by CGAP based on publically available data
Hard-earned success «« Reinventing money «« THEME
Mobile
payments
will rule
Success did not come easily for Paolo Baltao. He is the president of GXchange, a subsidiary of Globe Telecom in the Philippines, which launched GCASH
in 2004. Although it is hailed as one of the very few success cases within mobile
money, Baltao explains why mobile money is not an automatic gold mine.
TEXT
Nicholas Smith
IGHT NOW, PEOPLE ALL OVER the world are still
getting used to the idea of mobile money.
Anybody who thinks that mobile money
means only person-to-person transfer of funds
is gravely mistaken. Mobile money has numerous applications including payroll, web payment,
government disbursement, airtime purchase and
gaming, to name just a few examples. And that is
before we even get into the business-to-business
potential: think how much easier it would be for
companies to make supplier payments through a
mobile-money platform. I sincerely believe that
mobile money can be retail, wholesale or a backend service as much as a transfer offering.”
“
R
How should operators play their hand?
“Mobile money is not a technology that can be
used by just one entity in isolation. That is possible, but it is certainly not the most straightforward path to choose. Instead, mobile money
should be something that creates bridges between
different players. Operators and banks can work
together in a way that the market has never seen
before. And even though these partnerships have
the potential to be highly profitable for both parties, they are also necessary from a purely pragmatic perspective.
“The fact is that both banks and operators need
each other right now. Operators today do not
have the money-management expertise that
banks possess, and banks lack the transport infrastructure and efficiencies of an operator. Let
us consider SMS as an example. One person sends
a message and another receives it – this is prac-
tically a transaction. At Globe, we process well over  million SMS messages every day. How many banks can
handle more than  million transactions a day? Banks can learn a great Paolo
deal from operators about efficiencies Baltao
and how to handle high transaction
volumes, and this is the cornerstone of our value
proposition to them. Things can change quickly,
but at the moment I do not see the landscape in
terms of operators versus banks but rather operators plus banks.”
Apart from GCASH in the Philippines and MPESA in Kenya, there have been few success stories so far. Why?
“The potential market for mobile money in
China and India is enormous, as they are the most
populated countries in the world, and that is
where some of the biggest success stories will ultimately emerge. Even today, though, there are
still no operators in China offering mobile money to any significant extent, and in India, the regulators continue to be cautious.
“However, the number of current success stories may be even smaller than people think. For
most people, M-PESA can be considered successful, but there are some questions that may emerge
if you take a closer look. How were the customers acquired? Were they given an incentive to
register with M-PESA? Do the agents continue
to see the spike in registrations or have they tapered off? If registrations have tapered off, why? It should be noted that there were no
Two forms of
liquidity
▶ M-PESA is a mobile pay-
ments system based on lowvalue accounts held by a mobile operator and accessible
from subscribers’ mobile
phones through a SIMcard-resident application. The
conversion of cash into electronic value (and vice versa) is
performed at a network of
retail stores which are paid for
by exchanging these two
forms of liquidity on behalf of
customers. All transactions
are authorized and recorded
in real time using secure text
messages. M-PESA was developed by Vodafone and first
deployed by its affiliate, Safaricom, in Kenya, where the
uptake has been very high
since the launch in April ,
surpassing  million customers by January .
▶
EBR #3 2011 • 29
THEME »» Reinventing money »» Hard-earned success
▶
Our experience demonstrates that, although the number
of success stories may be limited so far, the mobilemoney value proposition is real if you are ready to
work hard.
Mobile money
transfer service
launches
50
40
30
20
10
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
–
0
Source: Juniper Research
Proper banking
▶ M-KESHO is a set of three fi-
nancial services available to
customers of Safaricom’s MPESA in Kenya. The first is a
savings account that facilitates the transfer of money to
and from a customer ’s
M-PESA account and an account held at Equity Bank via
mobile handsets. As is the
case with M-PESA accounts,
there are no fees for opening
M-KESHO accounts, no minimum balances and no
monthly charges. But unlike
M-PESA accounts, M-KESHO
accounts pay interest and
there are no limits on account
balances. I n addition,
M-KESHO offers emergency
credit and insurance facilities.
30 • EBR #3 2011
regulations in place when the service was
launched. The fact that the subscriber growth
has slowed since the central bank in Kenya introduced a proper regulatory framework should give
some pause for thought. Moreover, the remittance infrastructure in Kenya was limited to
banks and bus drivers. I think it is legitimate to
ask how much of M-PESA’s success was due to
circumstance and how much was due to its business model.
“In this context, we have every reason to be
proud of what we have achieved with GCASH.
We are thriving in a market that is not only highly regulated, but already has a mature and entrenched remittance infrastructure. On the other hand, success did not come easily. In the early days, we made the mistake of assuming that,
because Globe Telecom is a major operator with
a large subscriber base, people would automatically gravitate toward our services. It took a great
deal of perseverance and fine-tuning before we
established a truly valuable proposition. This is
a process that every operator needs to go through.
For each market, they need to define exactly what
kind of value they will bring – it’s the same as creating any other product or service and it can take
time to get it right. But our experience demonstrates that, although the number of success stories may be limited so far, the mobile-money value proposition is real if you are ready to work
hard. So the skeptics who call mobile money a
bubble waiting to burst are wrong – but that
doesn’t make the cheerleaders who say the industry is an automatic gold mine right, either.”
What are the killer applications or functionalities that will drive uptake of mobile-money services?
“It is real-time mobile payment, without a
doubt. However, mobile-money service providers still need to address a number of concerns.
How do they acquire the customers? How do they
put a mobile wallet in their hands? How do you
then get the customers to put cash in these wallets – and actually use it? Until they can satisfactorily answer each of these questions, mobile payments will have to wait – and so will the true mass
market for mobile money services.”
How do you see the mobile-money market evolving in the coming years?
“I believe that mobile payment will come to
dominate the mobile-money market. I have eve-
ry confidence that the industry will find ways to
respond to the questions that I referred to. We
already know that just about everybody in developed markets – and an increasing number of users in developing markets, too – takes their mobile phones everywhere they go. Personally, I
might leave my wallet at home now and again,
but I never forget my phone. Our devices have
become part of our lives in a totally different way
than our cash and credit cards, and taking advantage of that will be the key to making mobile money happen on a global scale. Right now the vast
majority of mobile-money users are using the service with SMS, but applications will change this
for the better. A phone has so many advantages
over a traditional wallet. It is a more interactive
device, and can offer promotions, discounts and
so on to make using mobile money a much richer experience than it is for most of us today. Once
people start to actually enjoy themselves when
they use mobile-money services, then the sky really is the limit. How can credit cards compete
with that? Plastic, after all, is just plastic.” ●
▶
Xxxxxxx «« Creative Cities «« THEME
IF WE’RE NOT
GOING THERE,
IT’S PROBABLY
NOT IN
SCANDINAVIA
No one flies to more cities in Scandinavia
To Scandinavia with SAS
Many departures from all over the world
Most flights within Scandinavia
Only primary airports
Europe’s most punctual airline*
flysas.com
Source: Flightstats.com 2009 and 2010
▶
EBR #3 2011 • 31
32 • EBR #3 2011
Talk to an operator «« Reinventing money «« THEME
Mind the
stumbling
blocks
Operators are in an extremely strong position, according to Juniper Research analyst David Snow. But he also gives a word of warning: they shouldn’t get too
cocky. They can’t run financial services all by themselves. And they must mind
some very crucial stumbling blocks.
TEXT
Nicholas Smith
NYBODY WHO WANTS to get into the market
will need to talk to an operator sooner or
later,” says David Snow. “In the early days
of mobile money the impetus to launch services
usually came from operators themselves, and they
looked to partner with banks as part of this process. Now things are almost the other way around
– banks know that they need to embrace mobile
money and are courting the operators instead. It
is the same with traditional remittance providers, who also see the importance of the mobile
channel and are starting to form operator partnerships of their own. All of these models hinge
on the operator.
“Why is this? An operator can provide customer access that banks or retailers can only dream
about. There are half a million bank branches in
the world, one and a half million ATMs – and five
billion mobile subscribers. The ability to leverage this user base when launching mobile money services is a huge advantage for the operators.
Equally importantly, they alone have the practical experience required to run a mobile service.
“This position of strength should be reflected
in the kind of partnerships that operators choose
to strike up. On the other hand, operators need
to guard against over-confidence. They are not
yet in a position to run financial services them-
“
A
selves, and they have every use for
banks with both credibility and regulatory know-how. There are so many
regulatory items that have to be built
into the process, and aside from the David
business impact, the legal conse- Snow
quences of getting things wrong can
be dramatic. So there are some very good reasons
why the operator-bank partnership model is the
preferred approach in the mobile money market
today.”
Why are there so few success stories?
“Part of the explanation is that it takes time to
find the right value proposition. Although mobile money has been around for a few years now,
the big upswing in the number of service launches only began in . In that year there were
around  new offerings, followed by  in 
and then at least that number for . So the
successes will come. However, there are also some
specific challenges to making mobile money
work, and at Juniper we group these under four
headings: identification, access, usability and security. One or more of these hurdles have caused
numerous services that have been well thoughtout in terms of connectivity and regulations to
stumble, and this is another reason why the
▶
EBR #3 2011 • 33
THEME »» Reinventing money »» Talk to an operator
▶
Naturally, the stakes for mobile applications are higher
when money is involved, and it only takes one bad
experience for somebody to close their mobile money
account.
Pioneers
Airtel Money
▶ Airtel Money, formerly
known as Zap, has been deployed by Bharti Enterprises
across a number of its African
operating companies, including those in Kenya, Uganda,
Tanzania, Zambia, Malawi, Niger, Ghana and Sierra Leone.
Bharti Enterprises developed
its m-wallet technology platform in-house and works with
partner banks in each country.
Easypaisa
▶ Easypaisa was launched by
Telenor Pakistan and Tameer
M i c ro f i n a n c e B a n k i n
. The partners have created a network of more than
, agents at which bills
can be paid and transfers
made. Easypaisa is unique in
that customers do not need
to have a mobile account
with Telenor, or even a mobile
phone, to pay their bills at an
Easypaisa shop – they simply
present their cash and bill to
a representative who completes the payment on a mobile phone.
34 • EBR #3 2011
success stories have been slow to arrive.
“The first obstacle to success is identification.
Regulations require that mobile money service
providers sign users up in the proper manner. Potential customers often feel that this process requires information that they do not always want
to supply, and they get turned off the idea of mobile money before they even start. For international services that need to comply with multiple
sets of rules, this regulatory burden can be even
heavier. However, the fault here is not with the
operator. Banking is just that sort of business.
“After identification comes access. This remains a real barrier in developing markets in particular. A service provider can offer as many excellent mobile money services as they like, but
unless people can easily and efficiently access
cash sent to their mobile phones, these services
will never take off. Not everybody lives close to
a post office or cash outlet that can provide the
cash required. And even if they do, service providers still face a big task in managing their agency network and ensuring that there are sufficient
funds available to meet these needs. If not, people may as well continue transferring money to
each other by giving it to a bus driver.
“Thirdly we have usability. Using a mobile
phone – especially a small feature phone that relies on SMS – for financial services can still be
quite unsophisticated in terms of user experience.
People complain that it is just too difficult. The
use of smartphones is helping to address this
problem by providing richer, more intuitive
interfaces and bigger screens, but this does not
mean that the issue will automatically disappear.
After all, internet banking on PCs and laptops
with large screens and numerous functionalities
has been around for years and still has problems
with usability.
“The final obstacle to be considered is security. Naturally, the stakes for mobile applications
are higher when money is involved, and it only
takes one bad experience for somebody to close
their mobile money account. Establishing and
maintaining user confidence is key to the success
of any mobile money service, but this is easier
said than done. Questions such as ‘If I lose my
phone, have I lost my money?’ are common, and
service providers need to find effective ways to
protect, reassure and guide subscribers through
the use of their services.”
What applications or functionalities will drive
uptake?
“In developing markets there is plenty of room
for add-on services. So once a core mobile money service is in place, service providers can start
to think about building on things such as mobile
micro-credit, savings or insurance services. In developed markets, on the other hand, I see social
transfer as a huge opportunity that has the potential to take off in a really big way. Imagine going out for a meal with friends – rather than splitting the bill and trying to pay with a combination
of cash and various credit cards, you could easily exchange money with each other using your
phones. And if you combine this with near-field
communication, all people would need to do is
touch their phones together. Parents could give
their children mobile pocket money that would
be much harder to lose or drop than bills and
coins – there are so many potential applications.
Mobile money in this format is both convenient
and easy for people to understand, and as we have
seen with the impact of Facebook and Twitter on
the way people use the internet, the social aspect
of a market can be very powerful indeed.”
How do you see the market evolving in coming
years?
“Our latest research forecasts that the worldwide number of domestic money-transfer users
will grow from  million today to  million
by . In other words, we are looking at more
than threefold growth. The numbers involved for
international money transfer are smaller, but the
growth is expected to be even larger – from
 million users today to  million by ,
meaning more than sixfold growth. What’s interesting is that the expected distribution of users
isn’t what we might expect. We are used to seeing Western Europe and North America lead the
way when it comes to mobile technology usage,
but our analysis sees these regions accounting for
only  percent of the global mobile money user
base by , compared to  percent from Africa, the Middle East and Asia Pacific combined.
And considering that an operator can charge a
fee for every transaction, we see a market opportunity of USD  billion for . This is expected to rise to USD . billion by . So there are
some serious figures involved in mobile money.”
●
Reaching out «« Reinventing money «« THEME
Two billion unbanked
phone users represent
a mobile opportunity
In the developing world, more than 2.5 billion adults – or approximately  percent of the population – are unbanked, meaning they have no access to traditional financial services.
T THE SAME TIME, nearly . billion people
in these same emerging economies have
mobile phones. This means that, assuming there is some overlap, up to  billion mobile
phone users who are currently unbanked could
be served through mobile financial services, according to a study published in June by Telenor
and Boston Consulting Group.
The introduction of these services could have
A
Mobile money users with at
least one transaction, in millions
4x
479
222
120
2010
2013
120M+ users in emerging markets (3–4% adoption
of all mobile subscriptions)
Source: Ericsson analysis based on averaging data from Berg Insight,
ABI Research, Gartner, and Juniper Research
2015
wide-ranging implications for a number of countries, the study said. In Pakistan, mobile financial
services could reduce the number of unbanked
by  percent by . In India, meanwhile, the
number of people with formal savings accounts
could increase by  million. In Bangladesh, tax
revenues could increase by USD  million,
while in Serbia , new jobs could be created.
Overall, in the countries covered in the study,
mobile financial services have the potential to reduce financial exclusion by  to  percent
through  and to increase GDP by up to  percent.
Already, around  mobile money services
have been rolled out in emerging markets. Over
half of these have been launched by mobile operators ( deployments according to the
GSMA) or third-party service providers. The remaining services have been launched by financial institutions.
The number of mobile money users in these
markets amounted to  million in , and
. percent of mobile subscribers had completed a transaction using a mobile phone by the end
of last year. By  the number of mobile money users is forecast to grow to  million. ●
EBR #3 2011 • 35
details
xxxxxx xxxxxxx
JUST ONE
QUESTION
“You get to talk in a way that you feel comfortable with … There
is a true Star Trek effect.”
DAN MILLER, SENIOR ANALYST AT OPUS RESEARCH, ON APPLE’S NEW SIRI VOICERECOGNITION SERVICE.
... to Malte Cherdron,
Chief Operating Officer of
Moviepilot, a German
movie and TV recommendation community.
▶ What should
telcos do to defend
their home-entertainment
business against overthe-top (OTT) entrants
such as Netflix?
?
Until recently, telcos
and cable providers
were competing mostly
among themselves, investing heavily in infrastructure
to create triple-play products including premium TV
and video-on-demand
(VOD). Today, that infrastructure enables entrants
such as Netflix to provide
OTT video with more
choice, excellent product
design, and a very attractive cost structure. OTT will
present the biggest threat
to incumbents over the
next few years.
To stay relevant in home
entertainment, telcos now
need to reinvent their
products and user interfaces. They should provide
seamless, intelligent navigation across all forms of
content from free and pay
TV, to VOD and OTT, and
push innovative features
such as personalized, intelligent video recorders.
Incumbents are still
uniquely positioned to
allow mass-market users to
benefit from the everincreasing choice of sources and content. But they
will need to combine
product innovation with
excellent usability to create
a compelling proposition
and win against leaner,
web-based OTT offerings.
Effective personalized
recommendation will be a
key usability driver. That is
why at Moviepilot we
combine a deep, data-driven understanding of movie
content and user taste to
provide recommendations
for movies and TV series.
!
36 • EBR #3 2011
Google Wallet makes its debut
Google has announced the commercial launch of its NFC mobile
payment service. Google Wallet is
available as an over-the-air update
to Nexus S 4G phones on the
Sprint network in the US.
▶ THE APP ALLOWS users to make
purchases with their Citi MasterCard and the Google Prepaid Card,
which can be topped up with any
existing payment card. Google is
offering a bonus worth USD  for
the Google Prepaid Card if users
set it up in Google Wallet before
the end of the year. VISA, Discover and American Express are expected to be options for future versions of Google Wallet.
The service currently works at
points of sale that have the MasterCard payWave system. Users need
to tap their phone against the reader to pay or to receive special offers
from the merchant. ●
Users need to tap their phones against the reader to pay or receive offers from the merchant.
NFC vital for m−payments bonanza
▶ OPERATORS WITHOUT NEARFIELD communication (NFC) technology in their handsets could miss out on
their share of a USD 100 billion m-payments opportunity by 2016, reports ABI Research. By the end of 2013, operators are expected to flood markets with NFC-enabled smartphones. As Google Wallet and operator-led initiatives boost the momentum, the installed base of NFC mobile-payment users is expected to rise to more than 16
percent of mobile subscribers in the US and Western Europe by late 2014. ●
DO YOU REMEMBER?

The Hush−A−Phone, an early telephone attachment that allowed
ed
people to speak into a telephone without being overheard, hitss
the US market. The product finds real fame, however, in the 1950s in a
protracted, and ultimately losing, legal battle against AT&T.
▶ SCIENCE FICTION The Hush-A-Phone company motto was “Makes your phone private
as a booth,” and a modified Hush-A-Phone made an appearance in a 1940 story by noted
d
science-fiction writer Robert A. Heinlein. But regulated monopolist AT&T took no notice of
the small New-York-City-based company until an AT&T lawyer saw a Hush-A-Phone in a
shop window in the late 1940s. Soon after, AT&T petitioned the Federal Communications
Commission (FCC) to ban the mechanical attachment, citing a rule that only AT&T could
provide any attachment to its phones. Since almost every phone in the US was owned by AT&T,
T,
this would mean essentially putting Hush-A-Phone out of business.
Hush-A-Phone creator Harry Tuttle fought back and, even though he failed to get the 1956
FCC decision reversed, his case became an important precedent for later cases that broke the AT&T monopoly. Tuttle’s
anti-establishment spirit was honored by filmmaker Terry Gilliam in his 1985 cult film Brazil, in which a renegade character
played by Robert De Niro, who tries to work outside the central government system, is named Archibald “Harry” Tuttle.
Public-private cooperation strategy
How governments can
extend the reach of the market
Public-private partnerships are becoming increasingly common in telecom. The rationale is simple: it allows operators
to create a viable market in areas where demand is too low to drive open market competition.
OR YEARS, TELECOM has been evolving
from a highly regulated industry into
a more liberal, free-market environment. This has promoted increased competition and innovation. Now, there’s a growing trend toward public-private partnerships
that connect rural areas and enhance quality of life. In this way, governments are helping the private sector to reach out further
than it can on its own.
So where has this demand come from, and
why is it coming about now? Let’s explore
the idea behind today’s trend of public-private unions, look at where this is happening
and examine why this phenomenon represents a progression, rather than a regression,
for the industry.
The basis for public-private partnerships
is simple: they allow private-sector companies to operate in areas where demand is too
low to drive open-market competition.
In densely populated areas, competitive
environments naturally develop. Providing
service to large numbers of people in small
areas requires minimal expenditure and operating costs, meaning cash cost per user
(CCPU) – the average cost of serving subscribers – is low while average revenue per
user (ARPU) is high. This provides the potential for healthy operator margins. In these
environments, governments play a regulatory role: they seek both to control competition and to benefit from the high yields –
for example by auctioning off operating licenses to generate public revenues.
As population density declines, CCPU rises: operators need more equipment, more
sites and more energy – all to serve fewer
people. ARPU either stays the same or
declines, as the rural lifestyle isn’t particularly conducive to high levels of service consumption. With less potential for profit,
competition becomes less fierce. Operators
don’t invest heavily in their networks, and
the quality of service provision declines.
As population density decreases, we eventually pass a point where the cost of serving
subscribers outweighs the potential for revenue. At this point, network operations are
no longer commercially viable. As a result,
remote rural areas often lack any kind of connectivity.
F
This opens up a gap, or a “digital divide”:
as urban areas move forward into an ever
more connected world, rural areas can be
left behind. This gap is accentuated by the
fact that, in urban communities, our reliance
on connectivity is increasing. Our behavior
is influenced by the services we can access,
and as we adopt new ways of communicating we discard traditional methods. This
simply serves to disconnect rural communities from the urban way of life.
One effect of this is over-urbanization.
People, particularly from younger generations, move from rural areas to cities, so that
they have better access to services. Urban
centers become larger yet more crowded –
reducing quality of life – and rural regions
lose vital primary productivity in areas such
as agriculture. This is all bad news for governments.
THE SOLUTION
Although there is no way to create a competitive market in extremely remote rural areas, governments can create a viable
Average revenue per user vs cost per user
+
Cost per user
Average revenue per user
Unviable market
Viable market
–
–
Population density
+
EBR #3 2011 • 37
strategy Public-private cooperation
The reality is that in the main cities you have companies fighting and competing to produce good
services, but you have areas in which demand is so
small that you need an extra effort.
environment for individual operators to
reach out to these communities. By providing subsidies, governments can reduce the
CCPU. This provides an artificial margin between ARPU and CCPU, meaning that there
is a profit – however modest – to be made.
Governments start by setting out their requirements, stating which areas need to receive coverage and the standard of service
they should receive. They also declare how
much money they will make available, before inviting telecom operators to submit
their tenders.
The funding can work in two ways. Firstly, it can take the form of an initial capital investment. This can offset the costs of building a network – which in harsh, rural environments is often an expensive process. Secondly, ongoing funding can subsidize service
tariffs for rural users. This means that even
if operating costs outweigh ARPU once the
network is up and running, it’s still viable to
operate the network for a profit.
ALL CHILE COMMUNICATING
Though Chile’s coastline stretches for more
than ,km, the country’s average width
is just km. This means that, for a country of its size, its northern and southern extremities are a remarkable distance from the
capital, Santiago, which is fairly centrally located. Chile’s unique shape is complemented by a remarkable variety of geographical
challenges, ranging from desert to archipelago to mountain peaks of almost ,m in
height.
Chile is home to vast natural resources,
and for that reason it has rural communities
dotted along its length. But life in its extremities isn’t easy, and this isn’t helped by the
gap in the quality of essential service provision – not only in telecom but also in education and health. This has created a growing urban population. According to UN data
from ,  percent of Chile’s population
lives in urban areas, compared to an average
of  percent in the rest of the developed
world.
In , the government of Chile rolled
out a project called Todo Chile Comunicado (All Chile Communicating). It set ambitious targets to reach , designated rural
communities with broadband coverage. This
38 • EBR #3 2011
would combine with Chile’s existing networks to enable more than  percent of the
population to access the internet. Backed by
its longstanding Fondo de Desarrollo las Telecomunicaciones (Telecommunications Development Fund), the government of Chile
made funds available for this purpose. Entel,
a domestic operator and one of the market
leaders, put in a bid, together with Ericsson,
and they were awarded the contract. They
proposed that mobile broadband was the
best solution to provide cost-effective, reliable coverage across the country’s vast spaces and rugged terrain.
Aside from the great technical and human
effort, involving more than  people, the
project included a total investment of USD
 million, of which USD  million was
provided by the public system, and USD 
million by Entel.
The project is being driven by
Pedro Pablo Errázuriz, Chile’s
Minster for Transport and Telecommunications. He explains:
“The ambition is to reach three Pedro Pablo
million people that if we hadn’t Errázuriz
done a project like this it wouldn’t
have been possible to reach. The reality is
that in the main cities you have companies
fighting and competing to produce good services, but you have areas in which demand
is so small that you need an extra effort. The
idea of the government was to have a private-public relationship to go and serve
those areas.”
FARREACHING BENEFITS
The immediate aim of the project is to improve quality of life for Chile’s rural population – and the possibilities are far-reaching.
Broadband access will open up possibilities
for enhanced service provision in essential
areas. For example, as part of the initiative,
Entel has established educational programs
that provide rural schools more than ,
km from the capital with equipment and
connections, offering pupils improved possibilities and prospects. The increased connectivity also brings easier access to government bodies and local authorities.
Business is better, too. Fishermen in the
south can access instant, accurate and
up-to-date weather forecasts by radioing a
iStock Photos
Public-private cooperation strategy
The wider scope
Costa Rica: Following suit
▶ CHILE IS NOT ALONE in forging public-
private telecom partnerships. The government of Costa Rica recently introduced a National Broadband Strategy,
providing funds to help its private
partners deliver broadband services to
the most remote areas of the country.
The initiative is part of the country’s National Development Plan for
Telecommunications, established in
. As in Chile, the ultimate aim is
to boost the country’s GDP. Fulfillment targets are expected to be finalized during the fourth quarter of this
year.
Nicaragua: profitable
and sustainable
▶ THERE IS AN EVEN MORE extreme ex-
The government of Nicaragua made funds
of USD 3 million available for operator
Claro to provide services to its most isolated region, the Caribbean coast.
control center that is connected to the internet. Shop owners in the archipelago can use
online banking to pay their bills within minutes, instead of spending days – literally –
traveling to the mainland to visit the bank.
Farmers in the far north can contact the market before they travel there, establishing demand and increasing efficiency. The tourism industry also benefits as new areas get
connected.
With more possibilities at their fingertips,
everything becomes easier, quicker, safer and
better for people living in rural communities. And that, essentially, means they enjoy
a better quality of life.
The government believes this will have a
profound effect: the trend toward urbanization will decline, rural productivity will increase and, ultimately, GDP will, too. Errázuriz explains: “Our aim at the beginning is
to reach those that are further away, less connected. But I think, in the long run, everyone benefits. Our initial estimate when we
started the project was that for every 
ample in Latin America of how these
partnerships can be successful: Nicaragua. An economically less-developed nation, its government made
funds of USD  million available for
operator Claro to provide services to
its most isolated region, the Caribbean coast.
The operator expects to generate
positive earnings before interest, taxes and amortization in the first year of
the network’s operation. For now, it offers only basic G services, but remember that this is the most remote
area of one of the poorest countries in
the Americas. Compared to Chile, its
communities are smaller and its ARPU
is much lower.
However, the most significant aspect of the Nicaragua case is that the
government funds only cover an initial investment in the network rollout.
Claro’s rural users will be on exactly
the same tariffs as those in urban areas. Despite this, Claro is incredibly
positive about the commercial outlook
of the rural network, expecting some
areas to generate more revenue than
some of its urban networks. And again,
it has gained a vital strategic stronghold in areas where it is currently the
only operator.
In this instance, all the government
had to do was to establish connectivity for the rural areas. Claro has made
network operations profitable and financially sustainable – without further
government subsidy. ●
EBR #3 2011 • 39
strategy Public-private cooperation
percent increase in connectivity, we would
gain . percent in productivity.”
With a strong, quantifiable aim for the
project, the government’s motivation for
funding it is clear. But what about Entel, the
operator? Although the government funds
mean that the project is commercially viable, it’s never going to be as profitable as similar projects in urban markets. Why should
Entel invest in low-margin business instead
of focusing on retaining market leadership
in its core areas?
The answer is simple. The project reinforces what has been Entel’s mission since
its founding in : to better connect all
Chileans, from the far north to the far south.
Moreover, the project delivers unprecedented benefits to the brand, reaffirming Entel’s position and its commitment to the
country and all of its customers.
CSR MILESTONE
The initiative represents a major milestone
for corporate social responsibility. Entel
launched a TV campaign to communicate
this aspect to its customers. One ad shows
a series of local businesses that have potential but lack a customer base. They then promote their services and products online, using the internet as a catalyst to connect with
their market.
Another shows a bored city girl traveling
in the back of her parents’ car. She notices a
rural boy using his phone by the roadside
and she’s surprised – and delighted – to discover she has full signal on her device.
Entel has used the public-private initiative
to demonstrate its brand values to its entire
customer base – including both its established urban market and its emerging rural
ones – as well as its other audiences, such as
investors, press and employees.
The message also connects
with Entel’s other audiences: investors, media and employees.
Entel’s General Manager Antonio
Büchi explains: “Entel was creat- Antonio
ed to connect Chile and the Chil- Büchi
ean people. Throughout its life,
Entel has committed to Chile’s development
and that’s the reason we’re very proud to be
part of this kind of initiative.”
Some people in the commercial sector will
look at the surface of these public-private
partnerships and see them as a regression,
encouraging more public-sector involvement in an industry that is still trying to
break free of excessive regulation. In fact, the
opposite is true.
Rather than acting in a restrictive way,
governments involved in these partnerships
are pushing the private sector to go further
than it has done before. By cooperating, the
40 • EBR #3 2011
operators that follow suit are taking the opportunity to expand their businesses into unexplored markets.
The deciding factor, though, is how financially sustainable these networks are in the
long term. Public funding won’t last forever,
and both operators and governments that
invest in these initiatives need to ensure that
when the funding stops the networks continue to operate.
But we only have to look at Claro in Nicaragua to be reminded that this truly is a sustainable proposition, as long as governments
and operators are smart about the services
and tariffs they offer.
The message to governments and operators is clear: join forces to invest in connecting rural areas. Make sure that the investment is targeted at network rollout and offer subscribers tariffs that are profitable, sustainable and fit their needs. If that model is
followed, governments will contribute to increased quality of life and higher productivity, and operators will gain profitable business, brand equity and vital strategic positions. ●
AUTHOR
▶ NICOLAS BRANCOLI is
Commercial Vice President
for Chile, Peru and Ecuador
at Ericsson Latin America.
He joined Ericsson as Financial Controller in 2000, running the start-up of GSM technology in Chile. Before
joining Ericsson, Brancoli worked for Frito-Lay (PepsiCo) and Colgate-Palmolive, developing financial controlling and other retail-related projects.
([email protected])
New revenue streams
Internet
Making money from
over−the−top traffic
Although much real-time entertainment is delivered over-the-top and is thus unbillable for operators, there is no need
for them to throw in the towel. Building on the realization that poor quality simply won’t do, here’s how operators
can profit from the mobile-internet revolution by improving the user experience.
HE MOBILE INTERNET revolution took
more than  years to take off – but
when it did, it did so with a vengeance.
Tablets and smartphones achieved critical
mass a long time ago. In emerging economies, the mobile phone is – for many people – the only means of accessing the internet. Young people in more developed countries, meanwhile, see connectivity as their
birthright. Operators are now struggling to
catch up with the explosion in demand, with
customers expecting / connectivity anywhere, high data speeds, and the use of smart
mobile devices to consume internet content.
The only question for operators to address
is how to make money in this wonderful new
world of mobile internet.
The dream scenario for operators has become reality: data traffic in their networks
has increased dramatically. In the early days
T
of mobile-broadband services, operators
rightly understood that it was imperative to
encourage service uptake in order to achieve
critical mass. The formula was simple: introduce flat-rate tariffs that made the charges for such services predictable and easy to
understand for consumers. And it worked –
in fact, it worked so well that uptake exceeded even operators’ wildest dreams.
THE SUPPLY SQUEEZE
Service providers loved this approach too,
and a wide range of services, applications,
and content are driving increased mobile
data usage.
The natural effect of an unexpected surge
in demand for mobile services is easy enough
to understand: supply shortage. Suddenly,
network capacity has become a scarce
resource for operators, and basic
Mobile broadband subscriptions by type
Subscriptions
(million)
5 000
Mobile PC and tablets
Handheld devices
4 500
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Ericsson
Mobile Broadband includes: CDMA2000 EV-DO, HSPA, LTE, Mobile WiMAX & TDSCDMA.
It includes handsets, USB dongles, embedded modules etc. The vast majority is handsets. M2M traffic not included.
Please note that mobile broadband access could be used for fixed applications
EBR #3 2011 • 41
Internet New revenue streams
Over the top (OTT)
▶ Over the top (OTT) refers to content,
applications, video, and other services
delivered over the internet instead of
via a service provider’s dedicated network or installed on the customer’s device.
OTT content is delivered directly from
the provider to the customer using an
open internet/broadband connection,
independently of the internet service
provider (ISP) or operator, without any
infrastructure investment on the part of
the content provider.
It is normally a “best effort”, unmanaged method of delivering content via
the internet that suits providers of content without the network assets of operators or an ISP.
What is quality of
experience (QoE) and
why is it important?
▶ QoE, also known as quality of user ex-
perience, is a subjective measure of a
customer’s experiences with a service
– for example, web browsing. Definition
from ISO -: “[…] a person’s perceptions and responses that result from
the use or anticipated use of a product,
system or service.”
QoE systems try to measure metrics
that customers directly perceive as a
quality parameter – for example, the
time it takes for a website to load. It is a
product of multiple factors, including:
utility – the right content and features
usability – easy to navigate, user control and feedback, efficient use
aesthetics – look and feel
availability – device capability, network capability
offline issues – price, branding, trustworthiness.
42 • EBR #3 2011
Examples provided by Google show that an extra
.-second delay in generating search results would
worsen the user experience and, in effect, reduce
traffic to its website by  percent.
economics teaches us that a scarce
resource can be monetized.
Imagine a consumer – let’s call her Saada
– who is using a video-on-demand service
on her tablet, which is connected to the internet via a mobile-broadband subscription.
She had been looking forward to watching
her favorite movie with her boyfriend, but
discovers that the service quality is extremely poor. It’s so bad, in fact, that they reluctantly abandon their cozy sofa and freshly
made popcorn, and decide to catch a movie downtown instead. In this case, if the quality of the experience isn’t good enough, the
service isn’t worth anything. On the other
hand, Saada would most likely be willing to
pay a marginal additional fee to receive a
higher quality of service. The added benefit
for Saada is huge, and the added cost is low.
Quality of experience (QoE) means everything.
For operators, the solution is price differentiation. Most of their mobile-broadband
offerings have achieved critical mass, and it
is time to evolve their pricing schemes in order to monetize their scarce resources.
MONETIZING YOUR NETWORK ASSET
The natural way for operators to differenti-
ate their service offerings is to give consumers the ability to choose between various levels of service quality. Operators are starting
to explore this option. Remember Saada and
her disappointing video-on-demand service?
The video-on-demand service provider faces the same dilemma as Saada, as the service
is worthless if the quality is poor. Like Saada,
the service provider would be willing to pay
a marginal additional fee to secure a better
quality of service.
Imagine an online retailer the night before
Christmas. Now imagine that millions of
consumers are trying to access the retailer’s
website to purchase its products, but abandon their efforts because the purchasing process is sluggish and the QoE is poor. Think
about how much the online retailer would
benefit from being able to improve the QoE
for people accessing its site or app using a
mobile device. In the content industry,
examples provided by Google show that an
extra .-second delay in generating search
results would worsen the user experience
and, in effect, reduce traffic to its website by
 percent. And, for Amazon, every  milliseconds of latency reportedly reduces sales
by approximately  percent. Clearly, there is
untapped potential for operators to offer to
Subscriber traffic in mobile access networks
Monthy petabytes (1015)
5 000
Mobile PC and tablets
Handheld devices
Voice
4 000
3 000
2 000
1 000
0
2008
2009
2010
Source: Ericsson
DVB-H, Mobile WiMax, M2M and WiFi traffic not included
2011
2012
2013
2014
2015
2016
Internet
Chris Maluszynski
New revenue streams
improve the quality of end-user experience
on behalf of content providers.
The key thing to understand is that service providers don’t need to guarantee a certain average level of performance. Rather,
they need to reduce the “tail” of bad performance. They can do this by resolving any issues that lead directly to consumers not
completing online purchases, or abandoning video-on-demand services.
CAPITALIZING ON THE QoE OPPORTUNITY
QoE is important for end users, valuable for
content providers and an opportunity for
mobile operators. But how can mobile operators capitalize on it?
QoE depends on many factors, such as the
type of device used, the user-friendliness of
the application, price and branding, content
quality, as well as look and feel. The good
news for operators, however, is that network
performance and availability of the service
also play a critical role. Operators can therefore improve QoE by boosting network performance and reducing latency as well as
load times for the end user. A smart solution
to improve network performance for a specific end user is to use network functionality to prioritize traffic in the radio access network.
The difference between fixed and mobile
broadband naturally lies in the “last mile”.
For fixed broadband the “last mile” typically has no bandwidth limitations, meaning
that it does not play a decisive role in determining overall network performance and
QoE. In the world of mobile broadband,
however, the “last mile” is the radio access
network and this plays a critical role in determining access speeds and QoE.
The key to improving QoE in the mobile
internet is to increase the speed of the radio
access network. And that’s where priority
functionality comes into the picture, as operators can use it to prioritize users and content providers who will then benefit from,
and be willing to pay for, improved QoE.
THE OPPORTUNITY TO DIFFERENTIATE
Mobile operators potentially have many
Every millisecond counts. Latency reduces sales,
offering an opportunity for operators to offer
improved quality to content providers.
Selling priority or increased
speed as a premium service
▶ Indonesia’s Indosat has a mobile-broad-
band service called Broom Unlimited which
offers regular speeds of kbps, and the option of paying for an increased speed of
.mbps for a limited time of no less than
one hour
A European tier  operator launched a
“gold plan” for enterprise mobile-broadband
users in . Business customers could buy
a premium plan that guaranteed prioritized
access during periods of heavy network load,
although there was no guaranteed minimum
access speed.
[Source: Operator websites]
EBR #3 2011 • 43
Internet New revenue streams
A two-sided business
Content providers
Priority needs to be offered to a limited group of
subscribers or services – perhaps – percent – to
limit the impact on the network.
Pay for QoE/northbound
Mobile operators
Pay for connectivity/southbound
Subscribers
Time until user sees page
Not boosted
Average
Boosted
Priority (boost) of a user or content improve average load times but more
importantly reduce the "tail" of bad performance, such as the worst cases
of load times.
Source: Ericsson
The key to revenue
generation:
. Opportunity to tap into OTT content revenues
. OTT content can be monetized through leveraging the needs of content providers and
creating value for them, using quality of experience (QoE)
. Use your network assets to improve QoE and
create value for content providers
. Use prioritization to increase both southbound and northbound revenues
ways of tapping into revenues from
OTT content, but not all of these lie within
their core capabilities. The further you stray
from your strategic capabilities, the less likely you are to succeed with the venture. But
using traffic prioritization to improve QoE
truly builds on the core capabilities and expertise of mobile operators, delivering a
quality network service.
How should operators use traffic prioritization? Should they prioritize subscribers
who are willing to pay a premium for improved performance or should they prioritize content providers that are willing to pay
for improved QoE?
Operators can and should do both.
Our analysis shows that few operators today are prioritizing “southbound traffic”
(traffic from the operator to the subscribers)
for premium subscribers. And among those
that are, few of them market this option as
a value-added feature of the subscriber package. As networks become increasingly congested, the value of traffic prioritization will
increase.
As the mobile internet matures there is a
need to be smarter about packaging and
pricing to match the differentiated needs of
a range of subscribers. Priority should be
part of premium subscriber packages, and it
will be an attractive feature.
Priority needs to be offered to a limited
group of subscribers or services – perhaps
– percent – to limit the impact on the
network. These will be the subscribers who
are willing to pay a premium for improved
service. Studies from Ericsson ConsumerLab indicate that the top  percent of consumers are willing to pay up to  percent
more for their internet access speeds to double. This indicates that the top five to  percent of subscribers are willing to pay a
healthy premium for priority. This premium
will be on top of their basic subscriber packages, and will be calculated based on factors
such as market conditions and network congestion. The key is to hit the right price point
that returns a healthy premium with only a
minor impact on the network.
THE NORTHBOUND OPPORTUNITY
The good news is that content providers are
also willing to pay for priority and improved
QoE. In simple terms, the operator will receive a share of the OTT content revenues
as compensation for the improved QoE that
44 • EBR #3 2011
will, in turn, give the content provider increased business. Whenever a subscriber accesses content from a content provider that
is paying for improved QoE, that content will
be prioritized and the subscriber will enjoy
an improved experience. That improved experience will boost the business of the content provider – through increased advert
views, increased sales and so on – and the
operator will receive additional revenues.
For every megabyte of prioritized data delivered, the operator will receive revenues
from both the subscriber and the content
provider. The operator will thus increase not
only the content provider’s revenues but also
its own.
Managed correctly, this new revenue
stream will not affect the southbound opportunity: selling data and priority to subscribers. At the right price point, the northbound opportunity will generate the same
revenue per priority gigabyte as the subscriber opportunity. Why sell priority to subscribers alone when there are content providers that value this asset just as highly?
SUCCEEDING WITH NORTHBOUND
There are several options open to the operator that wants to explore the northbound
opportunity, and these range from trying to
reduce costs to trying to increase revenues.
Most operators will likely attempt to do both;
they will seek to reduce costs by adopting a
content-delivery strategy and use improved
QoE to gain access to OTT revenues.
The key to realizing the northbound opportunity is to convince content providers
to pay for improved QoE. The strategy followed to achieve this goal depends on
whether the operator in question is a large
tier  operator or a smaller operator. Of
course, depending on its local situation, the
operator may also choose to prioritize either
reducing costs or increasing revenue.
� There are three scenarios for an operator:
stand-alone aggregator – this involves
effort to convince content providers to cooperate. This would likely be a challenge
for smaller operators, which have a less
significant market share and are therefore
unable to offer a substantial base for the
content providers. This option could be
ideal for cooperation with local content
providers.
� partner with other operators – this can
be a way to create a more attractive offer-
ing for content providers. This option is particularly viable for larger operators that have
existing relationships with other big operators in various markets.
� partner with a broker – outsource the
northbound opportunity to a third party to
combine the operator’s strengths in networks with the partner’s relationships with
content providers.
The successful creation of a northbound
revenue stream for operators will likely lead
to the emergence of many more opportunities
to create value with content providers. The
key to success in this area is cooperation between the content provider and the operator
in such a way that they play to their respective
strengths. By combining the operator network
and subscriber assets with the business models of content providers and the need for QoE,
performance and reach, the mobile revolution
can lead to value creation for all. ●
I can’t wait to use my phone
as a wallet. Mobile money
will make my life so
much easier!
… And safer! Even if you lose
your phone, your money
is still secure.
AUTHOR
▶ ERIK HEDSTRÖM is Associate Principal, Strategic
Programs Practice, at Ericsson
Consulting. His work at Ericsson has ranged from strategic
business development and
operational efficiency improvements to driving
change-management initiatives. Prior to joining
Ericsson, he worked in strategic business development
with the utility company E.ON. Hedström holds an
MSc in Industrial Engineering and Management from
the Institute of Technology at Linköping University,
Sweden.
([email protected])
AUTHOR
▶ NIKLAS ORELAND is
Principal, Strategic Programs
Practice, at Ericsson Consulting. He joined Ericsson in
2006, and focuses on corporate strategy and strategic
business development. Before joining Ericsson, he
worked as a Strategy and Management Consultant at
Accenture. Oreland holds an MSc in Engineering
Physics from KTH Royal Institute of Technology in
Stockholm, Sweden.
([email protected])
here today. everywhere tomorrow
the networked
society
blog
The Networked Society is here, and it
is changing your life. But this is only the
beginning. Be part of the discussion and
help shape the future, on the Networked
Society Blog.
www.ericsson.com/networkedsocietyblog
EBR #3 2011 • 45
details
xxxxxx xxxxxxx
Users ready for
mobile banking
▶ MOBILE TRANSACTIONS
will continue to grow exponentially and are expected to exceed USD
1 trillion by 2015, according to a study by Yankee
Group. The study expects
growth to be higher for
mobile banking than for mcommerce, mobile coupons
and mobile payments.
According to the Yankee
Group study, 27 percent
of participants use mobile
banking, making it the
most frequently used form
of transaction among
those studied.
In comparison,
13 percent of consumers
surveyed used m-commerce, 11 percent used mobile
coupons and 9 percent
used mobile payments.
When asked whether
they were interested in
mobile payments, the
20- to 24-year-old and
35- to 44-year-old demographics were most likely
to say yes, at 24 percent
each. Only 1 percent of
consumers aged 65 or
older were interested in
mobile payments. ●
“Regulation can get in the way of innovation. Regulations
tied to physical infrastructure sometimes defer the investment
altogether.”
KEVIN LO, GENERAL MANAGER OF GOOGLE ACCESS, SPEAKING ABOUT ROLLING OUT THE COMPANY’S FIBERTOTHEHOME NETWORK IN KANSAS CITY IN THE US.
Tablets just as good as paper
Are the iPad and other tablets the
answer to the paperless workplace? They’re already replacing
reams of paper in aircraft cockpits
and in the Dutch Senate.
▶ IN SEPTEMBER, members of the
upper house of the Dutch Parliament were handed iPads and told
not to print anything anymore – instead, they were asked to use a specially designed app to access the
reams of documents they use in
their work, says Reuters. After two
weeks, Geert Jan Hamilton, Secretary General of the Senate, said the
 senators were “delighted” with
the move.
In the US, the Federal Aviation
Administration has approved the
iPad for use as the sole source of
flight information, including aeronautical navigational charts and
flight-log information, for pilots on
commercial flights. United Airlines
recently ordered an iPad for each
of its , pilots and will distribute them by the end of the year. The
airline said it would save  million
sheets of paper and, due to reduced
weight, more than . million liters
of jet fuel a year because of the
move.
Delta Airlines and Alaska Airlines have also adopted the iPad for
use by their pilots. ●
Facebook ad revenues, billions of USD
Facebook ad revenues, billion USDs
Facebook ad revenues
Revenue growth %
152.0%
98
7.00
5.78
104.3%
▶… BILLION MOBILE
apps will be downloaded worldwide in 2015,
according to a forecast
by Berg Insight.
3.80
52.1%
1.86
TOP 8
INDIAN HANDSET
MANUFACTURERS
BY REVENUE
2010–2011
. Nokia
. Samsung
. Micromax
. Research In
Motion
. LG
. G’Five
. Karbonn
. Spice
Source: Rediff.com
46 • EBR #3 2011
21.1%
0.74
2009
2010
2011
2012
2013
Note: paid advertising only; excludes spending by marketers that
goes toward developing or maintaining a Facebook presence
Source: eMarketer, Sep 2011
Facebook revenues expected to double
▶ Facebook’s global revenues will reach USD 4.27 billion in 2011, up from USD 2 billion in 2010, reports the forecaster
eMarketer. Facebook’s revenue streams are expected to continue to diversify, with ads representing a decreasing proportion of total revenue while Facebook Credits and other sources make up an increasing share. Facebook is expected
to earn USD 2.01 billion in US ad revenues in 2011, meaning that its share of the US display-ad market, worth a total of
USD 12.33 billion, is forecast to reach 16.3 percent in 2011. ●
Xxxxxxx «« Creative Cities «« THEME
xxxxxxxx xxxxxx
Built for bad weather
A more durable smartphone
NEW XPERIA™ ACTIVE – WEATHERPROOFED WITH SCRATCH-RESISTANT MINERAL GLASS AND WET FINGER TRACKING
▶
SONYERICSSON.COM/XPERIA-ACTIVE
EBR #3 2011 • 47
Regulation Frequency allocation
Set spectrum free
A proposed new type of auction promises to help alleviate the problem of finding enough spectrum to satisfy
demand for mobile broadband.
▶ The first spectrum auction in the US was
held in , and auctions are now accepted in a wide range of regions worldwide as
a tool to distribute spectrum efficiently. Today’s auctions are typically one-sided: bidders place bids on spectrum that is either
available or promised to be available; the regulator tallies the bids and awards spectrum
to the highest bidders (after accounting for
any bidding credits); and, finally, the spectrum is made available to the winners. The
money raised from the winning bidders usually flows to the state.
Nearly  years have passed since the US
Congress authorized spectrum auctions. As
a purely practical matter, nearly all the lowhanging fruit has already been picked – it is
becoming increasingly difficult to find more
spectrum to satisfy the insatiable demand.
So what if an auction could be designed to
create an incentive for incumbent users to
vacate their spectrum by being compensated for doing so? What about a two-sided auction in which incumbent users of spectrum
first named their price to vacate spectrum
and an auctioneer chose the lowest bids, then
turned around and auctioned that spectrum
to the highest bidders? The difference between the two bids would be the “profit” that
flows to the state. This is exactly the proposal that the US Federal Communications
Commission (FCC) floated in its National
Broadband Plan in .
For this type of auction to function, there
must be a substantial gap between the existing use of the spectrum and the proposed
new use. It is this very gap – essentially the
difference in economic value between two
uses of the same resource – that makes conducting an incentive auction worthwhile.
LACKING AUTHORITY
The gap in value between television broadcast spectrum and mobile broadband spectrum is seen as wide indeed. A recent study
by CTIA – The Wireless Association and the
Consumer Electronics Association (CEA)
estimated the potential net proceeds from
auctioning MHz of broadcast spectrum
voluntarily surrendered by certain broadcasters at USD . billion. This figure also
includes USD  million in repacking costs,
48 • EBR #3 2011
discussed below. The Congressional Budget Office, the impartial body that estimates
the economic costs and benefits of proposed
legislation, has estimated that one proposed
US Senate bill authorizing incentive auctions
would bring in USD . billion after compensating broadcasters.
Unfortunately, the FCC lacks the authority to use spectrum proceeds to buy out incumbent users. While the FCC does have a
number of tools available to it – it can auction spectrum and it can repack incumbent
users – it does not have the authority to directly compensate incumbent spectrum users for vacating spectrum.
BROAD SUPPORT
In , Ericsson and a group of other ICT
companies formed the High Tech Spectrum
Coalition to advocate for Congress to grant
the FCC the authority to conduct two-sided, or “incentive” auctions. The principle focus for these auctions is on MHz of digital TV (DTV) broadcasting frequencies below MHz. This is a logical choice of spectrum, given its proximity to the MHz
band, which AT&T, Verizon, and others are
now using to deploy LTE across the US. The
propagation characteristics of this spectrum
also make it ideal for use as commercial, mobile broadband spectrum.
Under the FCC proposal, the options for
broadcasters who elect to vacate spectrum
include leaving broadcasting entirely, moving from a high UHF channel to a lower
channel, or entering an agreement with another broadcaster to use a separate DTV data
stream for their current programming. Because DTV allows for multiple program
streams over a single MHz channel, broadcasters could team up and use one of these
streams to continue broadcasting.
Another necessary element for a successful auction is the need for a clear and contiguous block of spectrum for mobile broadband. This may create a need for the repacking of broadcast spectrum in certain markets. Repacking refers to the FCC’s existing
authority to move a broadcaster from one
MHz DTV channel to another one. Repacking in the context of incentive auctions may
be necessary to move stations occupying
Frequency allocation Regulation
higher UHF TV channels to lower channels
to ensure an efficient allocation for mobile
broadband.
Although almost any legislation is difficult
to get through Congress, incentive auctions
have broad support among both Republicans
and Democrats. In fact, incentive auction
legislation could already be approved and
signed into law, or at least be well on the way
to becoming law, by the time this article is
published.
CONCERNED WITH REPACKING
As with every major piece of legislation, the
devil is in the details. One potential roadblock to getting incentive auctions passed is,
not surprisingly, overcoming the opposition
of the TV broadcasting industry. While
broadcasters generally do not object to wholly voluntary incentive auctions, they are concerned with the repacking aspect. Specifically, broadcasters worry that they will not
be “made whole” after repacking – they fear
they will not be adequately compensated for
the technical challenges involved in retuning their transmitters and that the radio-frequency coverage characteristics of a new
MHz channel may not be the same as those
of their old channel. While Ericsson understands these concerns, an incentive auction
law that unreasonably ties the hands of the
FCC – for example, by requiring that no
broadcaster lose even one household from
its coverage area – could doom the promise
of incentive auctions.
Another potential difficulty is that publicsafety agencies in the US have been seeking
an allocation of MHz of spectrum, known
as the D-block, and funding to build their
own, nationwide, interoperable public-safety network. At first glance, this may appear
to have nothing to do with incentive auctions, but because the auctions are expected to raise so much money, they are viewed
by some lawmakers as a potential vehicle to
pay for the expansion of the public-safety
broadband network in addition to helping
pay down the nation’s public debt. Other
lawmakers would prefer to auction the Dblock and maximize the funds available to
help pay down the national debt. Ericsson
remains hopeful that legislators will find a
compromise to this difficult issue.
A third sticking point concerns whether
any of the TV broadcast spectrum should be
allocated to unlicensed usage. Various bodies, including the CEA, argue that it should.
While Ericsson appreciates that unlicensed
spectrum has a role to play in a networked
society, we are nonetheless concerned that
a specific set-aside of unlicensed spectrum
in the TV bands could potentially make passage of the legislation particularly challeng-
ing. Because unlicensed spectrum, by definition, brings in no money from bidders, a
set-aside of unlicensed spectrum can only
diminish the overall economic value to be
gained from an incentive auction.
LAWMAKERS OVERCOMING DIFFERENCES
The widespread benefits of incentive auctions will, we hope, lead lawmakers to overcome their differences. Incentive auctions
represent a win-win-win scenario: a win for
the public, whose insatiable demand for mobile broadband has led to an explosion in
new services and new investments in everfaster wireless networks (one analysis suggests that the allocation of MHz of spectrum would have the net effect of creating
more than , new jobs and contribute
an additional USD  billion to the US GDP
over a five-year period); a win for the US
Government, whose coffers would benefit
from the transfer of tens of billions of dollars to the Treasury; and, yes, a win for
broadcasters who would have more options
for their businesses on the table than ever
before.
Legislation authorizing incentive auctions
is just the beginning of the process. After that,
the focus will shift to the FCC, which faces
the daunting tasks of determining a suitable
band plan for the new spectrum and designing a first-of-its-kind spectrum auction. Finally, after the spectrum is auctioned, operators will have to design and build new networks and augment existing networks using
the newly acquired spectrum. In the end, the
long journey will have been well worth it. ●
References
• Spectrum Auctions, Peter Cramton, Handbook of Telecommunications Economics ().
• Omnibus Budget Reconciliation Act of , US Public Law , rd Cong., st sess. (August , ).
• Connecting America: The National Broadband Plan, Federal Communications Commission ().
• Spectrum Auctions: Unlocking the Innovative Potential of Wireless Broadband, Broadcast Spectrum Incentive Auctions White
Paper, Prepared by CTIA and CEA (February , ).
• Congressional Budget Office Cost Estimate, S. Public Safety
Spectrum and Wireless Innovation Act (July , ).
• Private Sector Investment and Employment Impacts of Reassigning Spectrum to Mobile Broadband in the United States, David
W. Sosa and Marc Van Audenrode, Analysis Group (August ).
AUTHOR
▶ JARED CARLSON is
Director of Regulatory
and Government Relations at Ericsson. He
joined the company in
2007 after three years
at Sprint Nextel and nearly seven years at the
Federal Communications Commission (FCC).
Carlson’s brief includes advocating for Ericsson’s
interests in the areas of net neutrality, incentive
auctions and other topics affecting Ericsson and
its customers in the US and worldwide. He graduated from the University of Virginia in Charlottesville, the US, with a BEc, and earned his law
degree in 1996 from the College of William and
Mary, in Williamsburg, Virginia.
([email protected])
Two-sided auction process
A two-sided auction process could make it easier for regulators to make room
for mobile broadband
FCC identifies initial spectrum “targets”
for incentive auction:
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s"ANDPLAN
s'EOGRAPHICCOVERAGE
s0ERMITTEDSERVICES
"ROADCASTERSINIDENTIFIEDBANDSELECTTO
s6ACATEBROADCASTINGENTIRELY
s-OVEVOLUNTARILYTONEWCHANNEL
s3HARESPECTRUMWITHANOTHERBROADCASTER
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&##SETSRESERVEPRICENECESSARYTO¬COVER
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&##CONDUCTSAUCTIONOFSPECTRUM¬IDENTIFIED
BYABOVEPROCESSFORMOBILE¬BROADBANDUSE
If legislation
ALLOWSTHISCOULDBE¬ANITERATIVE
process
FCC: The US Federal Communications Commission
EBR #3 2011 • 49
Strategy Smartphone behavior
How being ‘always connected’
changes everything in daily life
Being more or less constantly connected to internet services through mobile apps and the cloud is becoming an
increasingly significant part of people’s everyday routines. Here is a closer look at consumer research showing that we
have already reached a turning point in our behavior.
▶ What’s the first thing you touch when you
wake up in the morning? This is the question I’ve been asking audiences from the
ICT world in the US, Europe and Asia over
the past few months. And for some reason,
it always leads to sniggering among the
crowd.
Why this is so is beyond my imagination…
There’s really nothing funny about an alarm
clock – especially not at am.
Although Ericsson ConsumerLab’s qualitative research has confirmed the ordinariness of waking up to an alarm clock, we now
also see how the alarm – for many people –
has migrated from the clock to the phone,
and from the phone to the smartphone.
Nowadays, if you tend to wake up and
fumble around for your smartphone to silence that irritating buzzer, the temptation
to then check something on the internet often becomes too great to resist. Today, onefifth of smartphone users in the US log on
to Facebook before they even get out of bed.
In Hong Kong, on the other hand, smartphone use before rising is more varied, with
Smartphone use during morning in bed
Smartphone non-voice usage
%
North America
North and west Europe
South Europe
Developed Asia
Australasia
25
20
15
10
5
0
Music
Internet
Base: Android/iPhone smartphone users
50 • EBR #3 2011
Games
SMS
E-mail
Instant msg
SNS
GPS
 percent browsing the internet,  percent
reading e-mail,  percent chatting and
 percent logging on to social-networking
services. Meanwhile, Europeans combine internet browsing with use of a broad range of
communications channels. But for them
SMS is a strong component in the mix, with
 percent of northern Europeans and
 percent of southern Europeans texting in
bed in the morning.
But among all the figures, it is the smallest of all that always triggers the same question from someone in the audience. Around
 percent of smartphone owners say they use
GPS when they wake up in the morning. The
question is, why? It’s certainly not to find out
which bed they’ve woken up in; these are the
people who are due to visit a new customer
office or construction site later in the day.
They start thinking about how to get there
while still in bed, perhaps to work out whether they can put off getting up for a few minutes…
STARTING OFF THE DAY WITH THE PHONE
If anything proves how the ease-of-use of
smartphones (combined with ubiquitous
mobile broadband) has made them part of
daily life, surely it’s the way people pick them
up first thing in the morning. Even for the
sleepiest of minds, your thoughts immediately turn to action, and before your head
has left the pillow, you’re out on the internet. More than  percent of smartphone
owners worldwide log on to the internet before getting out of bed. Then they prepare
that cup of coffee so that their conscious
minds finally start functioning with something approaching normalcy.
Starting off the day with the phone gets
you into the habit of keeping it conveniently close to hand at all times. This habit-forming process should not be underestimated.
Well above  percent of smartphone owners around the world use their devices soon
after getting up in the morning, and usage
levels rise from then on, with peaks at lunch
time and during rush hour. The only point
in the day at which usage levels dip is at dinner time – apparently still considered to be
family time.
iStock Photos
Smartphone behavior Strategy
Facebook and online games dominate
usage during public transport commuting.
Although global smartphone use peaks
when people are commuting and taking their
lunch breaks, there are clear local variations.
Obviously, smartphone use among commuters varies according to people’s chosen mode
of transport. GPS and maps are used intensively in the US, where many commute by
car. Meanwhile, Facebook and online games
are far more popular in Sweden, for example: the place with the highest proportion of
public-transport commuters among all the
Western countries included in the study.
Owing to the great proportion of commuters traveling by car in North America, overall smartphone use during rush hour is lower here than in other regions.
IMPORTANT VARIATIONS
Lunchtime use is focused on communication globally, but we see local variations in
the apps that are favored. In the US, Facebook is very big at lunchtime, Southern Europeans rely heavily on text messaging and
Northern Europeans enjoy a combination of
the two. East Asians have a greater appetite
for chat and instant messaging.
Smartphone use during the day
Smartphone non-voice usage
North America
North and west Europe
South Europe
Developed Asia
Australasia
%
80
70
60
50
40
30
20
10
0
In bed
Morning Commuting Before
lunch
Lunch
Afternoon
Late
Early
afternoon evening
Dinner
Late
evening
In bed
Base: Android/iPhone smartphone users
Source: Ericsson
EBR #3 2011 • 51
Strategy Smartphone behavior
We are entering an era in which it makes no sense
whatsoever to talk about online versus offline for
the simple reason that we are constantly switching between the two. And we scarcely even think about it.
These variations will become increasingly important as smartphones
become ever more entrenched in everyday
life. However, we should also be aware that
the behavior of millions of smartphone users throughout the world is changing at the
same time and in the same way on a global
scale: while people used to spend a chunk of
their time using the internet in places (mainly the home, at work, at school or in internet cafés) where they could sit down and focus on the things that needed to be done,
their access is now spread throughout the
day. Although we used to be relatively focused on carrying out specific tasks on the
internet (and in the case of dial-up, we’d get
out of there as quickly as possible), access is
becoming increasingly spontaneous. We are
entering an era in which it makes no sense
whatsoever to talk about online versus offline for the simple reason that we are constantly switching between the two. And we
scarcely even think about it.
NEW CHALLENGES FOR NETWORK PLANNERS
When we compare the results of our consumer surveys – showing how usage remains
high throughout the day – with data from
Ericsson Traffic Lab, we can also see that this
global behavioral shift will have a massive
impact on networks everywhere. Today, data
Average packet traffic profile examples
Hourly traffic volume/daily traffic volume
%
Smartphone heavy network
PC heavy network
7
6
networks are built for computer use, with
clear peaks and dips over the day, and with
capacity concentrated on residential and
business areas. However, with smartphones
and tablets, the dips and peaks are smoothed
out as use is much more evenly spread
throughout the day, creating new challenges for network planners and possibly new capacity bottlenecks.
These big usage variations are not only
caused by size and weight differences. Even
laptop users with G/G dongles largely stick
to their old “chunking” behavior. From a consumer perspective, apps make life simple.
They are considered easy to use because they
involve little or no navigation through file
structures, no inputting of addresses and no
searching or clicking on links. In other
words, apps give users direct access to the
content or online service of their choice.
Adding app stores to PCs may be relatively
easy, but providing the simplicity and flatness of the smartphone app experience is
something else altogether.
Owing to the simplicity of apps, consumers are developing the habit of finding new
apps to address the challenges and chores
that everyday life brings; they do this spontaneously as new situations arise, and think
little of it. So although apps are used for personalization purposes and communication,
the behavioral change we are witnessing
comes from the way in which apps seamlessly integrate with everyday activities and
tasks. They encompass public transport systems, schools, hospitals, recreational facilities, shops and restaurants, and cultural facilities such as libraries, concert halls and
museums. Consumers are demanding apps
for almost everything.
5
UNEXPECTED “KILLER” APPS
4
3
2
1
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hours of the day
Source: Ericsson
52 • EBR #3 2011
ConsumerLab studies show that smartphone
users are spending a considerable amount of
time on using these “everyday” apps and, in
the process, integrating internet use into a
more mundane level of their lives than ever
before. It seems only natural that there
should be an app for local-weather reports,
another for accessing information about a
particular product while in the store, and
further apps for getting medical advice or
for paying bills. Shopping lists, bar-code
scanners, bank apps and bus schedules may,
Smartphone behavior Strategy
Figure 4: The state of the continuously changing ecosystem for context-aware mobile services
Personalization
Communication
Everyday
activities
Sports/fitness
Entertainment/games
Calories/weight watching
Specific interests
Social networking
Micro-blogging
E-mail
Public transport/route search
Maps and places
News and weather
Shopping
Base: Android/iPhone smartphone users
Source: Ericsson
in fact, become the “killer” apps the industry is looking for – even if, at first, they seem
so boring that they are ignored.
Although smartphones currently drive
this behavior, ironically, ConsumerLab’s research in the US and Japan seems to indicate
that consumers ultimately associate the new
online experience with the app or service
rather than the device itself. People develop
the habit of “checking my Facebook account
in bed” rather than “using my smartphone
in bed.” Similarly, opening the USA Today
app replaces the habit of reading the morning paper at breakfast, and using Google
Maps on whatever device is at hand becomes
routine when going places.
Interviews with tablet users clearly show
how app usage migrates between devices
while the underlying app-related behavior
remains unchanged. As an example, some
tablet users reported having transferred their
morning USA Today readership, as well as
their evening YouTube or Netflix viewership,
from the iPhone to the iPad while continuing to use the related apps in the same way.
And so, without even noticing it, consumers
have internalized the cloud in their most basic behavioral patterns. Their daily routine
of communicating, commuting, working and
exercising now depends on intermittent ac-
cess to their favorite apps from various locations and through a range of devices.
And, together with our favorite apps, our
reliance on cloud access follows us silently
as we get back into bed after a long day of
constant internet use. We snuggle up, turn
on the phone alarm, and sneak a last peek at
Facebook or the latest news report…
Our analysis shows that around  percent of smartphone owners worldwide access the internet in bed at night. And they
go on surfing until their eyelids get so heavy
that it’s time to say good night. Good night
for them, that is, but good morning to a new
era of human life, in which the internet is an
intrinsic part of everything we do.
Now, if I could only figure out why about
 percent of smartphone owners globally also
use GPS in bed at night… ●
AUTHOR
▶ MICHAEL BJÖRN is head
of research at Ericsson
ConsumerLab. Between
2000 and 2002, he was
responsible for mobile internet applications at Ericsson
in Japan. Michael joined Ericsson in 1997 as an analyst, after he completed his PhD in data modeling at
the Institute for Social Engineering at University of
Tsukuba in Japan. He is also a novelist with two published works of fiction. Michael’s current research interests include studying the propagation of influence between groups of consumers as well as
between consumer markets. Another keen research
interest is the process of assimilation of ICT into
everyday consumer life.
([email protected])
EBR #3 2010 • 53
Strategy Green business
What, no power?
How Grameenphone cracked
the energy challenge
It’s the nightmare scenario for modern operators: What do you do when you have no power? This was the situation
faced by Grameenphone when the national electricity distributor announced that no new base stations would be
connected to the grid. The operator’s response was a fascinating exercise in business and risk management.
▶ Founded in , Grameenphone (the
name means “rural phone”) is a joint venture
between multinational telecoms company
Telenor and local operator Grameen Telecom, a non-profit sister organization of microcredit pioneer Grameen Bank. Over the
past  years, Grameenphone has grown to
be the largest provider of mobile services in
Bangladesh, with more than  million subscribers – around  percent market share
– across the country. Clearly the introduction of mobile telephony has been massively popular in Bangladesh.
For many years, rolling load-shedding
(scheduled electricity blackouts) has been
used throughout Bangladesh to allocate
scarce energy resources to the homes and
businesses of this populous country. Even
today outages of two to  hours a day are
common. Naturally this is very disruptive to
people’s lives, and represents an ongoing
challenge to companies.
Over the years, the government has tried
to improve the power supply. However, in
 the energy problems came to a head for
Grameenphone, with the national supplier
unable to provide grid power to new mobile
base stations.
TAKING POWER INTO YOUR OWN HANDS
iStock Photos
To deal with the rolling blackouts, Grameenphone had been installing battery backup
equipment as a standard part of its basestation site equipment. Operators around
the world commonly make such arrangements, backed up with generators and regular supplies of diesel to run them. However, the increasing price of diesel and the additional cost of regular fuel deliveries are disincentives for such a solution. Noise and toxic fumes also mean the use of diesel generators is unpopular in urban areas.
Grameenphone had trialed renewable energy sources for several years, and had sites
in more isolated parts of the country without access to the grid. Through these trials,
it had gained an understanding of the realities of using photovoltaic (PV) modules –
solar panels – and wind generators as mainstream sources of energy.
Furthermore, new thinking has developed
concerning the need for air-conditioning for
telecoms equipment, with such equipment
today generally being run at higher temperatures than before. The use of carefully designed shelters with improved ventilation,
coupled with more modern equipment inside designed to operate at higher temperatures, can greatly reduce the need for powerhungry air-conditioners to cool the equipment while still maintaining reliability.
Given the improved efficiency of this new
equipment, it became possible to contemplate running a base station entirely on re-
54 • EBR #3 2011
Green business Strategy
newable energy, primarily solar. And so the
stage was set for Grameenphone to adopt a
new approach to running its rural radio
network.
vestors. In urban areas with larger base stations and major switching nodes, it continues to use the electricity grid, in conjunction
with high-capacity battery backup.
BALANCING RISK ACROSS THE BUSINESS
CHALLENGING TARGETS
Those familiar with the changes in renewableenergy technology, batteries, PVs and windpower generation know how daunting it can
be to select and invest in these technologies.
Even specialists will debate the service lives
of batteries with different temperature and
usage profiles, or the output of different
types of PVs under real-world solar and
cloud conditions.
Consequently, Grameenphone management identified technology risk – the potential for technology change to make renewable power systems obsolete quickly – as a
major challenge to their business if they were
to make significant capital investments into
new, renewables-based systems for their
base stations.
Risk is inevitable in all business ventures.
Mobile operators in every country face market risk (the uncertainty of attracting and sustaining the customer base in the face of competition) and technology risk (the uncertainty of key technological assets achieving their
planned service life). However, the technology risk of investing in and maintaining an
alternative energy supply is not one faced by
most operators in developed countries.
For Grameenphone, the introduction of the
PPA model has meant the ability to expand
its business, and to continue to offer a highly valued service to its subscribers.
Like all modern telcos, Grameenphone has
challenging targets to meet regarding
energy-usage costs and the reduction of carbon emissions. Specifically, its ambition is
to reduce carbon emissions by  percent by
 from a  baseline, and to do so while
broadening the customer base.
Grameenphone has already made great
strides toward these targets, with major savings through new ways of working among
staff, and the impressive design of the new
company headquarters. So the new approach
to powering base stations through PPAs is
welcomed as part of the company’s strategy.
Each base station powered under a PPA
brings a -ton reduction in carbon emissions by avoiding the use of , liters of
diesel each year.
At its core, however, the introduction of
the new PPA business model is a carefully
planned business strategy designed to ensure the survival, profitability and growth of
the organization, which also contributes to
realizing the company’s “green” targets. ●
NEW APPROACHES TO ENERGY SUPPLY
Clearly, Grameenphone had to adopt new
approaches to energy supply to allow both
the company and subscriber numbers to
grow. But management wanted this to be
achieved without excessive further technical risk.
The breakthrough came following discussions between Grameenphone and its partner Ericsson over a novel business solution.
The concept was that a dedicated energysupply company would be created specifically to build and operate the energy systems
at base-station sites. This new company
would secure the capital to invest in the energy systems, and provide the expertise to
deploy and maintain them. Grameenphone
would commit to a -year supply contract
or power-purchase agreement (PPA), paying for electricity at an agreed kilowatt price,
with the opportunity to buy the assets on
conclusion of the contract or in the event of
failure by the power supplier.
The first such PPA was established in September . Since then, more PPAs have
been made with other providers, using a similar commercial model, so that Grameenphone now has a diversified set of energy
providers with wide-ranging associated in-
AUTHOR
▶ COLIN GOODWIN is the
Broadband Strategy Manager for Ericsson Australia and
New Zealand. He has over
20 years’ experience in telecommunications, ranging
from technical development and support and
consulting on technical and financial aspects of telecommunications strategies to product development
and management. Before joining Ericsson in 2001,
Goodwin worked as a Senior Product Manager for
Telstra. He has also worked for UB Networks, Data
General and BHP. Goodwin holds an MEngSc from
Monash University in Melbourne, Australia.
([email protected])
Community power
projects in the pipeline
▶ It’s obvious that life in rural Bang-
ladesh is very different from urban life
in Madrid or Chicago. Amenities most
of us take for granted are simply not
available, making the introduction of
new technologies very difficult.
For many isolated villagers in Bangladesh, even the sporadic grid-power
supply in towns and cities seems luxurious. These people have little hope
of getting a grid connection in the
immediate future. So how do you
charge a mobile phone if you have
no connection to the grid?
However, the establishment of independently powered base stations
in isolated areas also creates the possibility of providing a limited energy
supply to nearby villages.
With an electricity micro-grid, limited power can be provided for domestic lighting, running a health clinic, for example, or even a small internet café at the community center.
And of course, the charging of mobile devices.
Grameenphone is investigating
the potential of such community
power projects in an attempt to identify socially sustainable models that
will lead to long-term business success – and perhaps one day to connect rural Bangladesh to Madrid or
Chicago.
Bangladesh
▶ Population:  million
▶ Area: , sq km
Grameenphone
▶ Founded: March , .
▶ Annual revenue (2010): BDT
AUTHOR
▶ ROBERT HONYBUN leads
the Energy Solutions program for Ericsson South East
Asia and Oceania. His team
of business and technical
experts works across the region in such diverse markets as Indonesia, Bangladesh, the Philippines, Papua New Guinea and Australia. Honybun is a Senior Consultant in Ericsson’s
Strategy Consulting group, and has more than
22 years’ experience of consulting in the ICT industry,
working with operators, and government and industry bodies, around the world.
([email protected])
.bn (USD .bn).
▶ Market share: Approximately
 percent (largest in the country).
▶ National coverage:  percent
of the population.
▶ Number of mobile subscribers:
More than  million.
▶ Employees: Approx ,.
▶ Ownership: Telenor . percent,
Grameen Telecom . percent,
public  percent.
EBR #3 2011 • 55
Management Understanding innovation
How to get paid twice for everything
you do, part 2: Value−appropriating
innovations
Business-model innovation can have a far more profound effect on profitability than any other type of innovation.
One way that could provide the greatest opportunities is by broadening the coverage of a business model so
as to access multiple profit pools.
▶ In the first of our three-part series “How
to get paid twice for everything you do” (EBR
 ), we looked at the different types of
innovation that can contribute to adding value to offerings, focusing on integrated innovation management. Here, in part , we look
at how we can appropriate the value created through this innovation.
In , IBM carried out a global study
based on interviews conducted with
 CEOs from the corporate and public sectors. The study found that  percent of the
leaders anticipated a fundamental change in
their industries within two years’ time. Many
CEOs reported that they were undertaking
innovations in operations and/or products
and services to meet these challenges. The
most significant result of the study was that
financial overachievers placed twice as much
emphasis on business-model innovation as
their less successful counterparts.
Another IBM study shows that businessmodel innovation can have a much more extensive impact on profitability than almost
Figure 1: Observable platform architectures in the mobile-service provision market
Aggregate-centric
Device-centric
Mobile
customer
Mobile
customer
Indirect
revenue
provider
Coca-Cola
Service
aggregation
platform
Mobile
network
operator
Facebook
FMBL
T-Mobile
Fixed
network
operator
Comcast
T-Mobile
iTunes (store)
OSX, SDK
Apple
Mobile
network
operator
Mobile
service
provider
Comcast
Fixed
network
operator
Device
manufacturer
Mobile
service
provider
FunWall
iLike
iMovies
App store developers,
Sega, Twitter, Facebook...
Service-centric
Telco-centric
Indirect
revenue
provider
Mobile
customer
Mobile
network
operator
Proximus
Vodafone
Mobile
customer
Coca-Cola
Mobile
service
provider
WeatherNews
NMBS
De Standaard
Advertising
aggregator
Google
Mobile
service
provider
Service providers:
Slide, Flickr, PayPal
Mobile
network
operator
T-Mobile
Fixed
network
operator
Comcast
Meta
platform
operator
Google open social
(Source: Ballon, 2009)
56 • EBR #3 2011
Understanding innovation Management
any other type of innovation. This is due to
the fact that business-model innovation can
act as both an improvement in the appropriation of any value created (its primary application), and as an additional increase in the
value created (its secondary application).
The effect is apparent in several highly successful new business models, including the
following examples: Apple, with the iPhone
business model generating the largest share
of the industry’s profit pool in a very short
time; Ryanair, with the low-cost airline model giving rise to Europe’s most profitable airline in a very short time; Cirque du Soleil,
with the highbrow circus model generating
the industry’s most profitable circus business model in a very short time; Ericsson using the telecom solutions provider model to
become the industry’s most profitable telecom equipment supplier in a very short time.
Business models are, of course, intrinsically linked with the other strategic choices that
companies make in relation to technology
and other value-adding innovations. In terms
of mobile service, for example, they are also
linked with the platform architectures chosen. Four observable platform architecture
choices – telco-centric, device-centric, aggregator-centric and service-centric – are illustrated in figure  (Ballon, ).
It is clear that these choices have implications for value-appropriation potential and
thus for profitability. This is demonstrated
by Apple’s App Store, built around the device-centric model (ed. Stanoevska-Slabeva,
).
To understand business-model innovation, we need to improve our understanding
of two things: first, the constituent parts of
a business model and second, the businessecosystem view of the world.
CREATING VALUE FOR THE CUSTOMER
A business model is made up of several dimensions, and business-model innovation
involves an innovation in at least one of
these. An analysis based on Osterwalder,
, and Roos et al., , defines the following nine business-model dimensions:
The value proposition dimension, which
articulates the value that the offering delivers to the stakeholder (the customer). This
value proposition must clearly articulate all
three of the following value dimensions (see
Pike et al., ):
instrumental – the value derived from the
� deployment of the offering
intrinsic – the value derived from the pos� session of the offering
extrinsic – the value derived from the ap� preciation of the offering.
The key stakeholder dimension (see
Fletcher et al., , and Pike et al., ),
which identifies the key stakeholder segments (including customer segments) to
which the company wants to offer value.
The distribution channel dimension,
which identifies the routes to the key stakeholder segments throughout the life of the
relationships established with these segments.
The relationship dimension, which identifies the depth and character of the relationships that are established with the key stakeholder segments.
The value configuration dimension (see
Roos et al., ), which describes the economic logic and arrangement of the activities that are necessary to create value for the
customer (see Fernström et al., , and
Peppard et al., ). These are normally expressed using the value logics articulated by
Stabell et al., .
VALUE SHOP LOGIC
The three corresponding value creating logics are called the value chain, the value shop
and the value network.
In a value chain logic, activities are sequential and linear, in other words, the overall process has a clear beginning and a clear
end. Classically, manufacturing plants tend
to fall in this category. When these organizations fail, they do so not because they become inefficient, but because they become
ineffective (in other words, they very cheaply produce something that nobody wants).
In a value shop logic, the main focus is on
solving a problem for the client. In contrast
to the value chain, the value in a value shop
logic resides not only in the solution itself –
the output – but also in the individuals who
came up with the solution and the way they
reached it. Activities in this logic do not necessarily have a clear beginning and end. It relies on the ability to continuously reconfigure a given resource portfolio to address
completely new problems – economies of
scope. This means that the resources that
form the basis for competitive advantage in
these types of organizations must at some
stage show increasing marginal returns. As
a consequence, monetary or physical resources can never be the basis for a competitive advantage in shop organizations.
CONNECTING PEOPLE AND ORGANIZATIONS
In a value network, the basis for value creation lies in connecting people or organizations who wish to be temporarily interdependent whilst remaining independent. The
actual enabling of this connection constitutes the basis for value creation.
The activities executed in a network organization are parallel and non-linear, in other words, the overall process does not
EBR #3 2011 • 57
Management Understanding innovation
have a clear beginning or end and the
connections between the different activities
are almost random. This type of value creation relies on balancing network economic
resources at the point of maximum marginal return. This means that the resources that
form the basis for competitive advantage in
these types of organizations must show network economic behavior and as a consequence only relational and organizational resources can form the basis for competitive
advantage. The inherent drive for this logic
is neither towards efficiency nor towards effectiveness. This means that network organizations have a higher propensity than the
other two logics of doing the wrong thing
badly (being efficient but ineffective could
mean for example very efficiently producing
widgets of high quality that nobody wants).
Most internet-based organisations tend to
exhibit the value network logic.
The resources dimension identifies the resources deployed by the firm to create value
and the effectiveness of their deployment
structure. These resources can be divided
into five categories based on Roos et al.,
:
� monetary, including cash and cash equivalents owned by the firm and taking into
account its borrowing capacity
� physical, encompassing all physical resources owned by the firm, such as buildings, and all resources associated with
these, including intangible resources such
Table 1: Innovations achieved by modifying one dimension
Dimension
Innovation
Value proposition
Selling the iPod as a data-storage device instead of as a music
player.
Key stakeholder
Identifying an airline’s key customer group as airports rather
than passengers.
Distribution channel
Distributing software online instead of on a CD sent through
the postal system.
Relationship
Moving from a contractual relationship with a supplier to
crowdsourcing of the same service.
Value configuration
Moving from craft-based provision of an offering (value shop)
to standardized mass-production of the same offering (value
chain).
Resources
Moving from the physical product as the core of the offering
to the brand as the core of the offering.
Resource-deployment
structure
Outsourcing final assembly to the customer (self-service).
Partnership
Chocolate producers partnering with producers of branded
spirits.
Cost structure
Moving from normal stock to consignment stock.
Revenue model
Moving from charging airplane passengers to charging the
airports where the passengers land.
58 • EBR #3 2011
as location.
� relational,
which includes all relationships maintained by the organization with
parties such as customers, consumers, intermediaries, representatives, suppliers,
partners, owners, lenders, and the like.
� organizational, meaning the results of intellectual work owned by the firm, such as
brands, intellectual property, processes,
systems, organizational structures, information (in print or electronic form), and
the like.
� embodied competence, meaning all attributes that relate to individuals as resources for the company. It includes resources such as competence, attitude, skill,
tacit knowledge, personal networks, and
the like.
INTELLECTUAL CAPITAL NAVIGATOR
The resources dimension identifies which of
the resources in these five categories can
form a basis for competitive advantage. To
form such a basis, a resource must fulfill the
following five requirements: durable; strategically valuable; rare among competing firms;
difficult to imitate and/or resulting in a cost
disadvantage if imitated; and difficult to substitute and/or resulting in a cost disadvantage if substituted. The resources dimension
also identifies the resource-deployment
structure of a firm. This is normally expressed
in the form of an intellectual-capital navigator [ICN] (Roos et al., ) giving a numeric and visual representation of how management belives resources are deployed or transformed from one resource into another to
create value in the organization.
The partnership dimension identifies voluntarily initiated cooperative agreements entered into by two or more companies to create value for one or more key stakeholder
segments.
The cost structure dimension identifies all
of the cost drivers impacting the business
model. It is quite common for these drivers
to be identified using economic value-added models.
The revenue model dimension identifies
the various revenue strategies used by the
firm. These may include various forms of
fixed pricing, differentiated pricing, market
pricing, negative working capital, loss-leaders, bundled pricing and so on.
Table  shows examples of business-model innovations that have been achieved by
modifying only one dimension, leaving the
others unchanged.
THE BUSINESS ECOSYSTEM VIEW OF THE WORLD
Firms form ties with other firms and organizations for a variety of reasons: to reduce
transaction costs, access resources, gain new
Understanding innovation Management
A keystone firm tends to assume the role of a hub in
the network and, as such, often faces the temptation
to exploit its position for short-term gain.
knowledge or comply with institutional pressures or regulatory requirements.
By forming relationships, a firm can also
reduce the risk relating to uncertainty, thus
achieving higher levels of strategic and operational stability. This is particularly evident
in dynamic and technology-driven industries
such as the mobile industry, where high levels of competitiveness and short innovation
cycles often place firms in vulnerable positions (Eisenhardt and Schoonhoven, ).
Although many inter-company relationships are based on direct ties, those based
on weaker, less direct ties tend to provide
companies with greater access to new information and opportunities. Weak ties provide
incentives for exchange partners to remain
on the cutting edge in terms of cost and innovation and provide the flexibility to easily sever ties when opportunities emerge. Indirect relationships can serve as bridges to
information and resources unavailable in a
player’s immediate circle.
In business ecosystems, firms compete
and cooperate at the same time as they have
a mutual interest in defending, developing,
and growing the ecosystem. An example of
this is the cooperation between Nokia Siemens Networks and Ericsson on the standardization aspect of the business while they
simultaneously compete in the product sale
part of the business.
Three types of roles have been identified
among members of business ecosystems:
keystones, dominators, and niche players.
Keystones are active leaders in the ecosystem and tend to actively improve its overall
health. They maintain a low physical presence and are generally more effective at both
creating and sharing value across the system
through platforms.
A keystone firm tends to assume the role
of a hub in the network and, as such, often
faces the temptation to exploit its position
for short-term gain. An example of a keystone would be Microsoft within the PC software ecosystem.
Dominators are firms that have strong
physical presence and control a large part of
their networks. They take most of the value
for themselves, leaving little for other companies in the ecosystem. This behaviour can
be highly destructive in emerging industries,
as it limits innovation. A physical dominator aims to own and manage a large proportion of a network directly. Once the domi-
nator becomes solely responsible for most
of the value creation and capture there is little opportunity for a meaningful ecosystem
to emerge. An example of this strategy was
IBM during the height of the mainframe success (Iansiti et al., ). Value dominators
on the other hand have little control over
their ecosystem. They create little, if any, value for the ecosystem but extract as much as
they can for themselves.
NICHE PLAYERS
Niche players constitute the largest group in
any ecosystem. They are non-dominant
companies, both large and small, that specialize in specific capabilities to differentiate themselves from others in the ecosystem.
Niche players collectively create much of the
value in a niche and generally capture the
value they create. Their growth depends on
their ability to leverage keystones’ platforms
and to maintain a level of differentiation
(Iansiti et al., ).
It is critical for firms to select and maintain their optimal position in the ecosystem
and to develop a suitable strategy and business model enabling them to appropriate
maximum value while maintaining their individual positions as valued participants in
the ecosystem. An example of a revenue
model in an ecosystem is illustrated in figure , where Skyhook Wireless is chosen as
a prominent representative for third-party
providers of location information.
The difficulty of this critical task can be
illustrated by showing the present state of
the continuously changing ecosystem for
context-aware mobile services. In figure ,
the key players and their relationships are
identified. The challenge is then to determine how to innovate in terms of both the
business model and the position in the ecosystem in a way that ensures the appropriation of the maximum share of the value created for all other participants in the ecosystem.
PART OF AS MANY PROFIT POOLS AS POSSIBLE
So what should our objectives be? In summary, a firm should aim to be part of as many
profit pools as possible, not just the single
profit pool in which it is currently active –
better  percent of  profit pools than 
percent of the firm’s original profit pool. To
achieve this objective, a firm needs to identify and map three flows – physical,
EBR #3 2011 • 59
Management Understanding innovation
In many cases, the flows can be improved or new flows added when new technologies are adopted. An example is the addition of sensors for context-aware
mobile services.
monetary and informational – in detail.
Each of these flows should be analyzed, individually and in combination with the others,
for opportunities to create new or improved
business models that provide access to new
profit pools.
In many cases, the flows can be improved
or new flows added when new technologies
are adopted. An example is the addition of
sensors for context-aware mobile services.
This enables, for example, the provision of
location-triggered prompts for services
(such as, “there is a bar just around the corner selling your favorite beer at a discounted price”), which in turn enables a revenue
stream from either the provision of the
prompt or from the sale of the product (with
a discount code transmitted to the handset).
When this process is successful, a firm can
execute a given set of activities that enables
it to receive revenues from multiple sources
for completing the same activity – hence the
title of this article series.
INNOVATIONS THAT IMPROVE EFFECTIVENESS
These innovations fall into one of the following three categories depending on the focus
of the approach:
� innovations that ensure a better fit between the organization’s offering and an
Figure 2: Ecosystem and revenue model for Skyhook Wireless
iPhone SDK, incl core location
(Skyhook for Wi-Fi positioning)
Apple
Wi-Fi positioning for
iPhone and iPod Touch
Skyhook
wireless
End-user
(iPhone/iPod touch)
Service provider
(to iPhone/iPod
touch)
Commission for
each device sold
One-off fee for iPhone dev. program
30% of apps and in-app revenues
End-user
(Android)
SDK (reverse) geocoding
Licensing per
terminal or ad
revenue split
End-user
(Windows Phone)
Service provider
(to any terminal)
End-user
(and terminal supported
by SDK)
Wi-Fi positioning for any LBS apps
on Nokia devices through MapsBooster
app for USD2.99 via Nokia Ovi app store
Geolocation (when GPS used) or detectable
cell towers and Wi-Fi –> nodes connect automatically
via client or Wi-Fi nodes manually via website
End-user
(Nokia)
Service (and information) flow
Financial flow
(Source: Stanoevska – Slabeva ed, 2010)
60 • EBR #3 2011
explicit or tacit demand from key stakeholders. An example could be making the
offering more environmentally sustainable.
� innovations that increase the effectiveness
of the resource-deployment structure. Examples could include switching from a
physical resource to a relational resource
through outsourcing, or the ability to lock
in key stakeholders through platform
strategies. These often include, or are even
predicated upon, “locking in” more than
one layer of the stack through switching
costs or other market barriers. For example, in the US, with its subscription-based
plans, customer-switching costs are high
due to, typically, one to two-year contracts
with early termination fees and incompatible network technologies (for example,
CDMA and GSM).
� innovations aimed at reducing coordination cost. Coordination cost includes cost
due to imperfect information and the opportunistic behavior of organizational actors contributing to uncertainty in the organization. The impact of coordinationcost-based decisions on business models
is either an increase in the precision or a
broadening of the coverage in the business
model, or a termination of the existing
business model.
One of the key strategies that a firm can
use to achieve a high level of value appropriation is to widen the coverage of its business
model. This approach means that, by taking
very minor actions, a firm is able to participate in new value chains. An example of this
effect is illustrated by a waste management
firm collecting and sorting the waste to create input for metal and plastic production,
paper, energy and so on, thus accessing multiple profit pools on top of its original one.
RAPID CHANGES
In summary, a reasonable amount of knowledge exists on how to innovate when the
goal is to improve an existing business model to create more value. Somewhat less
knowledge exists about how to innovate to
improve an existing business model to appropriate more value. The area in which we
have the least knowledge is the area that
could provide the greatest opportunities:
how to innovate by broadening the coverage
of a business model with the aim of accessing multiple profit pools. Very little knowl-
Understanding innovation Management
Figure 3: The state of the continuously changing ecosystem for context-aware mobile services
Ad agency
Content
provisioning
cluster
Content
providers
Advertiser
Ad
cluster
App distributor
Mobile ad
network
70%
100%
Content
aggregator
Location
content
providers
Service
provider
End-user
Network operators
Context
broker
Wireless sensor
networks
Wireline
Wi-Fi
Cellular
Social
networks
Further context
providers
Terminal
manufacturer
Businessto-consumer
relationships
Content provisioning cluster
Business-to-business
relationships
Service (and information) flow
Financial flow
(Source: Stanoevska – Slabeva ed, 2010)
edge of this topic exists within the context
of a dynamically changing ecosystem where
the profit pool depth changes very rapidly
and where new profit pools emerge continously. Thus, this area of research provides
fertile grounds for thinking outside the box
– because there is no box.
In the third and final article in this series
(to be published in EBR  ), we will look
at the issues surrounding the management
of integrated innovation. ●
AUTHOR
▶ GÖRAN ROOS is Chairman of VTT Technical Research Centre of Finland,
Honorary Professor at Warwick Business School in
Coventry, UK, Visiting Professor of Intangible Asset Management and Performance Measurement at the Centre for Business Performance at Cranfield University, UK, part-time
Professor in Strategic Design in the Faculty of Design
at Swinburne University of Technology in Melbourne,
Australia, and Senior Advisor, Asia Pacific, at Aalto Executive Education Academy. Presently the Managing
Director for Intellectual Capital Services Ltd in London, he has founded or co-founded several companies, worked as a consultant in 50 countries and held
management positions in several corporations. He
presently sits on several corporate advisory boards.
([email protected])
EBR #3 2011 • 61
Send your contribution to the editor-in-chief at [email protected]
KOSTAS ROSSOGLOU & SVENN RICHARD ANDERSEN
OPINION
Fighting piracy – the smart way
For many years, European consumer organizations have argued the case for good, legal offerings of digital
content. Their point has always been that consumers are willing to pay, but only if the services function
well and are widely available at a reasonable price.
MUSIC, MOVIES, BOOKS AND VIDEO GAMES … all such cultural
products are increasingly available through digital distribution. But unfortunately, as the new technology emerged, it was utilized first by “pirates”
rather than the rights-holders.
Throughout the past century, the pirates have been battling the rightsholders (or rather their organizations), with accusations thrown back and
forth. Consumers, caught in the middle, have often been forced to choose
between the accessible and illegal, and the inaccessible and legal.
Fortunately this is changing.
Norwaco, the Norwegian copyright organization, conducts annual
surveys to establish how license fees should be redistributed to artists
and rights-holders. Over the past few years, the findings have been quite
remarkable.
From 2008 to 2009, the number of illegal copies of digital music made
fell dramatically. Norwaco calculated that in 2008, 22,339 pieces of music
were copied illegally every week. A year later, that number was slashed
to 13,538. In 2010, the number fell once again.
Three interesting facts need pointing out. One, the number of legal
copies purchased did not rise at the same speed. Two, no such trend
could be identified among the other industries in the report (film, radio
and TV). Three, no new enforcement rules were introduced during this
period.
So what happened in the Norwegian music market from one year to
the next? Legal music streaming was made more accessible.
Swedish music-streaming service Spotify was launched in October
2008. By offering both a subscription-based and a “free” service (the latter
being paid for through advertising), it provided an alternative to the legal
and illegal downloading of single tracks or whole albums.
In the beginning, most customers preferred the “free” subscriptions,
yet slowly but surely the number of paying subscribers has risen.
It might just be a coincidence that illegal downloading decreased in
2009, but a continuous decline was confirmed by Norwaco’s survey in
62 • EBR #3 2011
2010. Furthermore, the Norwegian branch of the IFPI (the International
Federation of the Phonographic Industry) is at long last painting a positive picture of the state of digital music.
IFPI’s sales statistics show that by the first quarter of 2011, the total
value of the digital market had surpassed that of the physical market.
And where do we see most of the growth? In the market for subscription-based music services. From June 2010 to June 2011, the total value
of digital-music service subscriptions grew by 584 percent. There was
also significant growth in the value of purchased streams and legal downloads.
According to IFPI Norway, there is now for the first time reason to feel
optimistic about the digital market. The industry is still losing revenue to
the illegal downloaders, but the streaming services seem to be curbing
the piracy.
WHAT ABOUT ALL THE OTHER INDUSTRIES?
The only way paid-for services can compete with “free” ones is by being
better. For many users, immediate access to a (seemingly) limitless catalog
of music via a quick search seems better than having to look up an illegal
torrent file or locate a peer-to-peer copy of a track or album.
The movie and TV businesses will most likely experience many of the
same problems the music industry has suffered since the introduction
of the first file-sharing site for music, Napster, in 1999. Increasing bandwidth and growing computer literacy will make more consumers willing
and able to search for film and TV content online.
Basing predictions of future revenue on developments in the retailbased DVD market will probably be futile, judging by experiences from
the music business. The case of Spotify, as well as similar services such
as Deezer (France), Wimp (Norway) or Last.fm (UK), show that the way
culture is consumed has changed. Business models should be based on
customer demand and an understanding of what is technically feasible
– not on a desire to maintain existing models or cash flows. In other
iStock Photos
words, you need to adapt the map to the
terrain; you cannot change the terrain to suit
the map.
As for the book industry, a severe restructuring of the business is underway. Amazon
digital-book sales surpassed sales of physical
books in the spring of 2011. The secondlargest bookstore chain in the US, Borders,
went bankrupt in July, largely owing to digital
copies threatening its physical market.
Coming up with attractive, legal offerings
allowed Amazon and number-one US book
retailer Barnes & Noble to become dominant
when the market moved online.
From time to time, consumers have
opposed new measures that they find intrusive. For instance, gamers have protested
loudly against continuous connected verification for games that could be played offline.
This suggests that consumers are willing to
accept measures to limit piracy – as long as
the measures are reasonable.
SO WHAT DO WE WANT?
Very few oppose rights-holders’ interest in
getting a return on their invested time, money
DERSEN works with digital
or talent. But at the same time, no one likes to
services for the Consumer
draw the short straw every single time.
Council of Norway’s policy
department. He has several
Digitalization creates a great distribution
years’ experience of digital
VIDEO GAMERS PLAY BALL
channel for most artistic or cultural products,
issues and, together with the council’s digital serOne market often forgotten when talking
but merely having an opportunity does not
vices
team, has worked with privacy, copyright, interabout the digital business is the video-game
guarantee success. Content providers, rightsoperability and access to good, legal offerings for
industry. Digital distribution accounts for
holders and creators need to listen to the
digital content. Andersen is currently on leave from
32 percent of video-game revenues (accorcustomer’s desires.
the council to lead the secretariat for a government
ding to the 2011 IFPI Digital Report, the figure
And in the end, it’s a matter of the
working group on barriers to growth in the Norweis 39 percent.) The video-game industry has
consumer respecting the intellectual property
gian ICT sector.
battled piracy since the late 1980s. In many
of the rights-holder, but at the same time the
([email protected])
respects, it was hit harder and earlier than the
rights-holder has to respect the expectations
▶ KOSTAS ROSSOGLOU is
other industries . Still, the video-game industry
and demands of a new generation of consuSenior Legal Officer at the
has continued to grow ever since.
mers.
European Consumers’ OrWe believe its success has been largely due
The transition from a physical, retail-based
ganisation (BEUC) and leads
to its willingness to provide reasonable busimarket
to one that is fully digital and truly
its Digital Team. He is a qualiness models and accompanying digital-rightsglobal might hurt conventional business
fied IPR lawyer and his work
management solutions with a fair trade-off
models. But repeating the same, invalid arguat BEUC focuses on copyright-related issues, including content licensing, copyright exceptions and limibetween limitations for use, access to extra
ments (such as “no legal solution can compete
tations, and copyright enforcement. Rossoglou also
material for legitimate gamers and attractive
with a free one,” or “digital will never replace
works with privacy and data-protection issues.
legal offerings.
the physical market”) over and over does not
([email protected])
The success of the online-game service
necessarily strengthen them.
Steam proves that people are willing to pay
We believe that all digital markets will grow.
for content online. Yes, gamers could probably download a free, pirated
We believe that end users are willing to pay for good, legal alternatives.
version of a game from a file-sharing site, but many choose to pay. On
But the offerings have to be attractive enough for those who are paying.
some figures, Steam has a 70 percent share of a USD 4 billion market.
And they have to be effective. ●
▶ SVENN RICHARD AN-
EBR #3 2011
2010 • 63
executive summaries
Augmented reality check
by Nathan Hegedus page 10
▶ Michael Liebhold, a -year
tech veteran with stints at
iconic companies such as
Apple, Atari and Netscape
Communications, thinks we
will soon be freed from the
constraint of the page and map.
Today a few leading players
provide basic consumer-based
augmented reality through
smartphone viewfinders. Liebhold says there are two basic
challenges to bringing augmented reality fully to life; better tools to experience augmented reality, namely augmented reality-enabled glasses
and contact lenses, and vastly
improved positioning accuracy.
Positioning networks will use
both location beacons and,
more importantly, photo positioning, in which what is seen
through a viewfinder is compared with a massive database
of images and thereby located
precisely to the millimeter.
Telecom could play a dominant role in this new augmented reality web by building these
networks and by developing
the necessary photo-reference
databases.
The range of enterprise applications is vast, he says. Factory floors will become annotated with real-time logistical
and production information.
You could look at a building
and see the architectural drawings beneath its “skin” and conduits under the asphalt. An
early breakout could be in infrastructure management.
“Dynamic views are what I’m
interested in,” he says. “I don’t
want to take out my phone and
see restaurant reviews. I want
to see historical richness. I
want to see people playing
games in public spaces. I want
to see serendipity in art.”
A new industry in the making
by Adam Kerr page 20
▶ Five major trends are emerging in the fledging industry of
mobile money: banking the
unbanked; mobile payments;
64 • EBR #3 2011
the battle for the wallet; merchants seeking independence
from established card schemes;
and globally interconnected
mobile financial services.
Many millions of people in
emerging markets are leapfrogging straight from being unbanked to early adoption of
mobile money, leaving the developed world to play catch-up.
We need to work toward
building a new interoperable
financial ecosystem that can
reduce the complexities of
moving money from personto-machine and machine-tomachine across diverse banking systems and geographies,
levels of financial literacy and
regulation. While banks will be
strong partners and deliver
the regulatory environment
through which money can be
safely moved, mobile operators
have a new opportunity to take
a content-provider role and act
as a conduit for mobile money.
Nearly  domestic mobilewallet initiatives are being run
by operators around the world
but these systems are not currently connected to a global
ecosystem. Operators need an
ecosystem that fast-tracks
money movement, allowing
them access to multiple local
m-wallets to enable them to
start to play on a global stage
through both developed and
emerging markets.
Tackling complexity: we need
to create a global structure for
mobile money
by Lars Arvidsson page 24
▶ New players in the mobilemoney market need to tackle
both local and global issues to
deliver truly global mobile financial services. One of the
major complexities in delivering mobile money globally is
fragmented regulatory requirements, which mean that businesses have to comply with
multiple jurisdictional requirements.
With fragmented markets
and the need to deliver interoperable services and compliance issues, an international
structure for mobile-money
regulation must be driven and
agreed upon.
Mobile-money innovation is
being driven from emerging
markets, where people are
often more likely to own a mobile phone than they are to have
a bank account. Partnerships
will be key to the progress of
mobile money.
Mobile money has the potential to offer merchants – both
online and retail – the reduced
dependency on global payment
networks (such as Visa, MasterCard, iTunes) that many
seek. The potential is there for
merchants to create their own
mobile-payment options.
Mobile-network operators
will enter the market by leveraging their installed base of airtime accounts that will gradually be evolved to m-wallets.
Over time, prepaid m-wallets
will shift to a model of directdebit integration with salary
bank accounts in developed
markets, and key players will
offer added value through their
own m-money applications.
A game-changer for the poor
by Mats Thorén page 26
▶ Michael Joseph, the World
Bank Group’s first fellow, previously headed Safaricom, the
operator behind the world’s
largest mobile-money platform, M-PESA, used by more
than  million Kenyans.
His goal now is to prove that
the success of M-PESA is not a
one-off and that it can be replicated by mobile-money services in other, similar countries.
“This service can truly change
the economics of a country,” he
says. “We have an excellent opportunity to promote mobilemoney services now that the
world is becoming more focused on financial inclusion. A
good example of this trend is
the adoption of the Principles
for Innovative Financial Inclusion at the  G Summit
in Toronto, Canada.”
Joseph says that the World
Bank is not in competition with
traditional banks, which do not
have the cost structure that
would allow them to provide
these services at the rates offered by mobile-money service
providers.
“However, they should understand that low-income people
are demanding financial services and deserve access to
them,” he says. “If traditional
banks do not change their systems or amend their strategies,
they may be left behind.”
The largest stumbling block
to achieving scale, says Joseph,
is the requirement of a vast,
ubiquitous distribution network, which would be expensive to set up and to manage.
However, he adds that, if operated effectively, mobile money
could generate up to  percent
of a typical mobile-network
operator’s total annual revenue
in five to  years.
Mobile payments will rule
by Nicholas Smith Page 29
▶ Paolo Baltao, President of
G-Xchange, a subsidiary of
Globe Telecom in the Philippines, which launched GCASH
in , says that anybody who
thinks that mobile money
means only person-to-person
transfer of funds is gravely mistaken.
“Mobile money has numerous applications including payroll, web payment, government
disbursement, airtime purchase and gaming, to name just
a few examples,” he says. “And
that is before we even get into
the business-to-business potential: think how much easier
it would be for companies to
make supplier payments
through a mobile-money platform.”
Baltao says the success of
GCASH did not come easily.
“It took a great deal of perseverance and fine-tuning before
we established a truly valuable
proposition,” he says. “This is a
process that every operator
needs to go through. For each
market, they need to define exactly what kind of value they will
bring – it’s the same as creating
any other product or service and
executive summaries
it can take time to get it right.
But our experience demonstrates that, although the number of success stories may be
limited so far, the mobile-money
value proposition is real if you
are ready to work hard. So the
skeptics who call mobile money
a bubble waiting to burst are
wrong – but that doesn’t make
the cheerleaders who say the
industry is an automatic gold
mine right, either.
“Mobile payment will come
to dominate the mobile-money
market.”
Mind the stumbling blocks
by Nicholas Smith page 32
▶ Operators are in an extremely strong position, according to
Juniper Research analyst David
Snow. “Anybody who wants to
get into the market will need to
talk to an operator sooner or
later,” he says. “Banks know that
they need to embrace mobile
money and are courting the
operators instead. It is the same
with traditional remittance
providers, who also see the
importance of the mobile channel and are starting to form
operator partnerships of their
own.”
Snow says that there few success stories to date because it
takes time to find the right
value proposition. “Although
mobile money has been around
for a few years now, the big
upswing in the number of service launches only began in
,” he says.
“The first obstacle to success
is identification. Regulations
require that mobile-money
service providers sign users up
in the proper manner. Customers often feel that this process
requires information that they
do not always want to supply,
and they get turned off. For
international services the regulatory burden can be even
heavier. After identification
comes access. This remains a
real barrier in developing markets in particular.
“Thirdly we have usability.
Using a mobile phone, especially one that relies on SMS,
for financial services can still be
quite unsophisticated in terms
of user experience. People
complain that it is just too difficult. The use of smartphones
are helping to address this
problem.”
How governments can extend
the reach of the market
by Nicolás Brancoli page 37
▶ In , the government of
Chile rolled out a project called
Todo Chile Comunicado. It set
ambitious targets to reach
, designated rural communities with broadband coverage. This would combine
with Chile’s existing networks
to enable more than  percent
of the population to access the
internet. Backed by its longstanding Telecom Development Fund, the government of
Chile made funds available for
this purpose.
The immediate aim of the
project is to improve quality of
life for Chile’s rural population
– and the possibilities are farreaching. Broadband access
will open up possibilities for
enhanced service provision in
essential areas. For example, as
part of the initiative, Entel has
established educational programs that provide rural
schools over ,km from the
capital, Santiago, with equipment and connections, offering
pupils improved possibilities
and prospects.
Business is better, too. Farmers in the far north can contact
the market before they travel
there, establishing demand and
increasing efficiency.
The government believes
this will have a profound effect:
the trend toward urbanization
will decline, rural productivity
will increase and, ultimately,
GDP will, too.
The deciding factor, though,
is how financially sustainable
these networks are in the long
term. Public funding won’t last
forever, and both operators and
governments that invest in
these initiatives need to ensure
that when the funding stops the
networks continue to operate.
Making money from
over-the-top traffic
by Erik Hedström and Niklas Oreland page 41
▶ The natural way for operators to differentiate their service offerings is to give consumers the ability to choose
between various levels of service quality. Operators are
starting to explore this option.
The key thing to understand
is that service providers don’t
need to guarantee a certain
average level of performance.
Rather, they need to reduce the
“tail” of bad performance. They
can do this by resolving any issues that lead directly to consumers not completing online
purchases, or abandoning
video-on-demand services.
Quality of experience, QoE,
depends on many factors, such
as the type of device used, the
user-friendliness of the application, price and branding, content quality, as well as look and
feel. The good news for operators is that network performance and availability of the
service also play a critical role.
Operators can therefore improve QoE by boosting network performance and reducing latency as well as load times
for the end user.
Should they prioritize subscribers who are willing to pay
a premium for improved performance or should they prioritize content providers that are
willing to pay for improved
QoE? Operators can and
should do both. Content providers are willing to pay for
priority and improved QoE. In
simple terms, the operator will
receive a share of the over-thetop content revenues as compensation for the improved
QoE that will, in turn, give the
content provider increased
business.
Managed correctly, this new
revenue stream will not affect
the opportunity of selling data
and priority to subscribers.
tion, incumbent users of spectrum first named their price to
vacate spectrum and an auctioneer chose the lowest bids,
then turned around and auctioned that spectrum to the
highest bidders? The difference
between the two bids would be
the “profit” that flows to the
state. This is what the US Federal Communications Commission (FCC) has proposed.
For this type of auction to
function, there must be a substantial gap between the existing use of the spectrum and the
proposed new use. It is this
very gap – essentially the difference in economic value between two uses of the same
resource – that makes conducting an incentive auction worthwhile.
Under the FCC proposal, the
options for broadcasters who
elect to vacate spectrum include leaving broadcasting
entirely, moving from a high
UHF channel to a lower channel, or entering an agreement
with another broadcaster to use
a separate digital TV (DTV)
data stream for their current
programming. Because DTV
allows for multiple program
streams over a single MHz
channel, broadcasters could
team up and use one of these
streams to continue broadcasting.
A necessary element for a
successful auction is the need
for a clear and contiguous
block of spectrum for mobile
broadband. This may create a
need for the repacking of
broadcast spectrum in certain
markets.
Another sticking point concerns whether any of the TV
broadcast spectrum should be
allocated to unlicensed uses.
However, the widespread benefits of incentive auctions will,
it is hoped, lead lawmakers to
overcome their differences.
How being ‘always connected’
changes everything in daily life
Set spectrum free
by Michael Björn page 50
by Jared Carlson page 48
▶ Being more or less constantly connected to internet ser-
▶ What if, in a two-sided auc-
»»»
EBR #3 2011 • 65
executive summaries
»»»
vices through mobile apps and
the cloud is becoming an increasingly significant part of
people’s everyday routines.
Ericsson ConsumerLab’s qualitative research has confirmed
that we have already reached a
turning point in our behavior.
Well above  percent of
smartphone owners around the
world use their devices soon
after getting up in the morning,
and usage levels rise from then
on, with peaks at lunch time
and during rush hour.
Smartphone users are spending a considerable amount of
time on using everyday apps
and, in the process, integrating
internet use into a more mundane level of their lives than
ever before.
Although smartphones currently drive this behavior,
ironically, ConsumerLab’s research in the US and Japan
seems to indicate that consumers ultimately associate the new
online experience with the app
or service rather than the device itself. People develop the
habit of “checking my Facebook
account in bed” rather than
“using my smartphone in bed”.
Interviews with tablet users
clearly show how app usage
migrates between devices while
the underlying app-related behavior remains unchanged.
Without even noticing it,
consumers have internalized
the cloud in their most basic
behavioral patterns. Their daily
routine of communicating,
commuting, working and exercising now depends on intermittent access to their favorite
apps from various locations
and through a range of devices.
What, no power? How
Grameenphone cracked the
energy challenge
by Colin Goodwin and Robert Honybun page 54
▶ For many years, rolling
scheduled electricity blackouts
have been used throughout
Bangladesh to allocate scarce
energy resources. Even today,
outages of two to  hours a
day are common.
In , the energy problems
66 • EBR #3 2011
came to a head for Grameenphone, with the national supplier unable to provide grid
power to new mobile base stations. To deal with the rolling
blackouts, Grameenphone had
been installing battery backup
equipment as a standard part
of its base-station site equipment. Operators around the
world commonly make such
arrangements, backed up with
generators and regular supplies
of diesel to run them.
Grameenphone had trialed
renewable energy sources for
several years and gained an
understanding of the realities
of using photovoltaic (PV)
modules – solar panels – and
wind generators as mainstream
sources of energy.
The solution was a dedicated
energy-supply company created specifically to build and
operate the energy systems at
base-station sites. This new
company would secure the
capital to invest in the energy
systems, and provide the expertise to deploy and maintain
them. Grameenphone would
commit to a -year supply
contract or power-purchase
agreement (PPA), paying for
electricity at an agreed kilowatt
price, with the opportunity to
buy the assets on conclusion of
the contract or in the event of
failure by the power supplier.
How to get paid twice for
everything you do – Part 2:
Value-appropriating
innovations
by Göran Roos page 56
▶ Business-model innovation
can have a far more profound
effect on profitability than any
other type of innovation. One
way that could provide the
greatest opportunities is by
broadening the coverage of a
business model so as to access
multiple profit pools.
A business model is made up
of several dimensions, and
business-model innovation involves an innovation in at least
one of these dimensions, such
as the value proposition, the key
stakeholder, the distribution
channel, the relationship and
the value configuration.
The three corresponding
value-creating logics are called
the value chain, the value shop
and the value network. In value-chain logic, activities are
sequential and linear; in valueshop logic, the main focus is on
solving a problem for the client.
In a value network, the basis for
value creation lies in connecting people or organizations
who wish to be temporarily
interdependent while remaining independent. Most internet-based organizations tend to
exhibit the value-network
logic.
The resources dimension
identifies which resources can
form a basis for competitive
advantage. To form such a
basis, a resource must fulfill five
requirements: durable; strategically valuable; rare among competing firms; difficult to imitate
and/or resulting in a cost disadvantage if imitated; and difficult to substitute and/or resulting in a cost disadvantage if
substituted.
By forming relationships, a
firm can reduce the risk relating to uncertainty, thus achieving higher levels of strategic
and operational stability. This
is particularly evident in dynamic and technology-driven
industries such as the mobile
industry.
A reasonable amount of
knowledge exists on how to innovate when the goal is to improve an existing business
model to create more value.
Somewhat less knowledge exists about how to innovate to
improve an existing business
model to appropriate more
value. The area in which we
have the least knowledge is the
area that could provide the
greatest opportunities: how to
innovate by broadening the
coverage of a business model
with the aim of accessing multiple profit pools. Very little
knowledge of this topic exists
within the context of a dynamically changing ecosystem,
where the profit-pool depth
changes very rapidly and where
new profit pools emerge
continously.
Fighting piracy
– the smart way
by Kostas Rossoglou and Svenn Richard
Andersen page 62
▶ Throughout the past century,
the pirates have been battling
the rights-holders (or rather
their organizations), with accusations thrown back and
forth. Consumers, caught in
the middle, have often been
forced to choose between the
accessible and illegal, and the
inaccessible and legal.
From  to , the number of illegal copies of digital
music made fell dramatically.
Three interesting facts need
pointing out. One, the number
of legal copies purchased did
not rise at the same speed. Two,
no such trend could be identified among the other industries
in the report (film, radio and
TV). Three, no new enforcement rules were introduced
during this period.
So what happened in the
Norwegian music market from
one year to the next? Legal
music streaming was made
more accessible.
The video-game industry has
successfully battled piracy since
the late s. We believe its
success has been largely due to
its willingness to provide reasonable business models and
accompanying digital-rightsmanagement solutions with a
fair trade-off between limitations for use, access to extra
material for legitimate gamers
and attractive legal offerings.
We believe that end users are
willing to pay for good, legal
alternatives. But the offerings
have to be attractive enough for
those who are paying. And they
have to be effective.
Olav A.Saltbones/Norwegian Red Cross
Ì 350,000 women die in
pregnancy or childbirth
Ì 7,6 million children
die before reaching
their 5th birthday
Ì 40% die in the first
month of life
Ì about 6 million deaths
could be prevented
Figures from WHO, 2011
Together
we can reduce
health inequities
Ensuring universal
access is our public
health best-buy
www.ifrc.org
Saving lives, changing minds.