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Knowledge@Detecon
DETECON
Consulting
Knowledge@Detecon
Strategies for
Successful Positioning in Competition
Consulting
DETECON
Future Telco Reloaded
Telecommunications companies are facing great demands
related to transformation. Eclipsing the s ignificant factors
of traffic growth and horizontal competition among
carriers, competition with OTT players will represent

the key challenge of the future for network operators.
Core business fields and primary sources of revenues
in the area of traditional communications services are
threatened, as are the presumably secure infrastructure
business and customer relationships. Carriers are at risk
of being reduced to the role of a bit pipe operator or to
being nothing more than connectivity providers without
any contact to the end customers. These threats give rise
to fields urgently requiring action.
Based on consideration of various market scenarios,
Detecon has developed a number of recommendations
for telecommunications companies that will help them
to position themselves successfully in this competitive
environment, including innovative network concepts,

agile IT infrastructures, ideas for their own innovation
activities, and aspects for a differentiated approach to
markets.
Consulting
DETECON
Knowledge@Detecon
Strategies for Successful
Positioning in Competition
Consulting
DETECON
Copyright by Detecon International GmbH
Cologne 2015
www.detecon.com
Knowledge@Detecon
Content
Foreword
7
Telecommunications Companies at a Crossroads
Between Bit Pipe and Pacemaker of Digitalization
Dr. Peter Krüssel
8
2018 and Beyond: Market Scenarios for the German Telecommunications Market
Dr. Peter Krüssel, Martin Lundborg, Jan Jochum, Julian Obeloer
20
The Rise of OTT Players – What Is the Appropriate Regulatory Response?
Dr. Markus A. Hessler, Dr. Markus Steingröver
32
OTTs versus Telcos: Network Neutrality and the Erosion of Business Models 42
Tim Dörflinger, Dr. Arnulf Heuermann
Network Resilience and Business Continuity Audits: Cost Efficient Measures Preventing Pricey Network Outages
Thomas Kessler, Dr. Werner Knoben, Thomas Wehr
56
How SDN and NFV Contribute to the Transformation of Telcos Beyond Technology
Vera Markova, Dr. Stefan Schnitter
64
Detecon International GmbH
3
Knowledge@Detecon
Industry Requirements: The Driver of 5G Development
Dr. Osvaldo Gonsa
76
How Small Cells Can Become a Success Story for Operators
Peter Krah, Dr.Tillmann Eckstein
86
Software-based Integrated Network Planning: Requirements and Benefits
Lutz Fritzsche, Dr. Mathias Schweigel
96
Network Economics – Is There a Win-Win Option?
Dr. Rong Zhao
106
Network Enabled Services – IMS-based Services Open Up New Business Opportunities Across All Sectors
Christoph Goertz, Raúl Kuhn
116
Variations for Device Virtualization –
Opportunities for Network Operators?
Claus Eßmann, Dr. Peter Krüssel
128
Agile IT Architectures for New Products – Challenges for CIOs
Johannes Ewers
138
4
The Value of Big Data for a Telco: Treasure Trove or Pandora‘s Box?
Dr. Frank Wisselink, Dr. Ralf Meinberg,
Tim Horn, Julian Obeloer, Daniela Ujhelyiová
150
Social Media Performance: The End of Business as Usual
Dr. Winfried Ebner, Sascha Krpanic, Alexander Luyken, Andreas Penkert
162
Management Innovation Spurs Carriers’ Competitiveness
Clemens Aumann, Sascha Krpanic
172
Digital Customer Excellence: An Imperative for Customer Satisfaction and Customer Loyalty
Jan Grineisen, Amal Haj-Najib, Jens Zimmermann
186
View: Telcos Will Live Forever – But Change Dramatically from Today
Stefan Wilhelm
196
The Authors
200
About Detecon International GmbH
208
5
Knowledge@Detecon
Foreword
It is a well-known fact that new paths are created by movement. The direction in
which telecommunications companies move today and the actions they take along
the way will have a decisive influence in determining what market scenario becomes
their home in the future. And they have no choice but to move. The increasing digitalization of business and personal lives is unstoppable, data traffic on the networks
continues to grow rapidly, and the interconnection of people and things on the Internet of Things is literally exploding. These factors are confronting network o perators
with a number of major challenges, all at the same time. They must implement
digitalization within their own organizations, adapting internal processes, structures
and systems for service performance, yet simultaneously serve as the platform and
vehicle for the digital transformation of all other economic sectors. Their networks
are becoming key production factors, and they themselves the guarantee for the
prosperity of the economies of entire countries.
The responsibility is great, and the industry is under pressure. While growth in traffic and horizontal price competition among the carriers are important editions, the
telcos’ business is threatened above all by the OTT players, the providers of overthe-top services. Network operators who make the wrong decisions today or who do
not move at all will in the middle term be degraded to nothing more than suppliers
of bits and bytes and can bid farewell to the end customer market. OTT ecosystem
providers such as Apple, Samsung, Google, and Facebook are maturing into vertically integrated providers who, in comparison with the telcos, offer a substantially
broader range of services.
Network operators have a number of opportunities for positioning themselves today
so that they can shape market structures of the future in their favor. The Detecon
telecommunications experts writing in this book show them what carriers can and
must do to exploit the advantages of their current assets as profitably as possible.
Accept the challenge and make an active contribution to the shape of the future. I
hope that you find inspiration in reading these articles describing new opportunities
and fields of action.
Best regards,
Daniel Eckmann, Managing Partner, Detecon International GmbH
7
Telecommunications Companies
at a Crossroads Between Bit Pipe
and Pacemaker of Digitalization
Dr. Peter Krüssel
> Telecommunications companies are still facing
enormous demands related to transformation.
> OTTs, integrated horizontally and vertically, are
positioning themselves globally and intensifying even
more the current pressure on carriers to change.
> Concerned that Europe as a location for business
and the telecommunications companies are about to
fall hopelessly behind in the digitalization process and
be overwhelmed by the OTTs, the industry as well as
politicians, media, and consumers are beginning to
resist the encroachment of these players.
> Detecon’s recommendation for telecommunications companies: secure a position within the market
scenario known as “Heterogeneous Power Play” –
large, consolidated carriers step up to do battle with
the well-known large ecosystem OTTs and many
smaller, specialized, so-called single-purpose OTTs.
8
OTTs intensify pressure for change on telecommunications companies
“Network Is King” – proclaimed by the foreword to the first edition of “Future
Telco – Profitability in Telecommunications: Seven Levers Securing the Future”.1
This foreword was based on the proposition that ideally integrated networks are
the backbone of all corporate decisions for telecommunications companies – not
only because these assets cannot be substituted by other players in the competitive environment, not only because they represent the original core competence
of the network operators who have never learned anything else, and not only
because the huge workforce would otherwise not have anything more to do.
Much more important is that we see how the networks and, with them, the
carriers are becoming key production factors and guarantors of prosperity for
entire national economies in view of the major developments predicted for the
market: digitalization of the economy and personal lives, rapid increase in data
traffic, and exploding interconnectivity of people and things.
All of this confronts carriers with enormous demands related to transformation.
On the one hand, they must implement digitalization within their own organizations and adapt internal processes, structures, and systems for service performance. On the other hand, they are the platform and vehicle for the digitalization of other industries. Their products and services are what make it possible for
customers to master digital transformation in their own business fields.
Just in recent years, many telecommunications companies have been forced to
complete a steep learning curve and adapt to dramatic changes. Deregulation has
caused a drastic decline in prices for end customers, and the once self-contained
performance of services and drafting of offerings closely tied to the network have
given way to an open world. Customers today – and even more in the future –
decide what service performance, what communications services, what music
and TV programs, and what applications they want to utilize from what p
rovider
at what place and at what time. Technologies such as the Internet protocol,
WebRTC, or eSIM will only reinforce this trend. Telecommunications companies, particularly the incumbents, have gradually decoupled or surrendered parts
of the value chain – as a rule, to the so-called OTT players or (with respect to
network-related services) also to alternative operators.
The pressure to change will not lessen. The key challenges and fields of action were
described in terms of seven levers in the first edition. They range from e fficiency
1
Cf. Future Telco: Profitability in Telecommunications: Seven Levers Securing the Future, Detecon Publication, 2014.
9
concepts in service performance (networks, IT, processes) to m
onetarization ideas
in the areas of innovation, partnering, and differentiation in retail and wholesale.
The necessary focal points for carriers have not changed in the meantime. However,
we believe that these subjects have become even more virulent. Eclipsing the
significant factors of traffic growth and horizontal competition among carriers,
OTT players will represent the key challenge of the future for network operators.
We have here some examples to illustrate this situation.
OTTs on the way to global horizontal and vertical integration
Facebook is providing Internet connections on emerging or developing m
arkets
within the scope of the project “Internet.org”2 which, according to official statements from the company, is motivated by altruistic concerns. However, the
initiative has recently come under fire in India because the Internet connection
at no charge provides access only to a limited number of Internet sites, primarily
Facebook sites or sites of the company’s cooperation partners. Moreover, Facebook has recently begun entering into cooperative ventures with media companies in an attempt to become a direct supplier of information and news. Negotiations are going on with a number of US media such as the New York Times
with the aim of placing their content right on Facebook.3 The ultimate goal is
to create a Facebook ecosystem which Internet users will never need to leave. If
companies, politicians, or institutions want to reach these users, they will also be
forced to establish a presence within this ecosystem.
In Europe, WhatsApp, a subsidiary of Facebook, concluded a cooperation
agreement with the network operator E-Plus – which in the meantime has been
acquired by O2/Telefónica – in 2014 which provided that data volume resulting
from the use of WhatsApp would not be charged to the data volume under users’
rate plans.
Another example of the determined expansion of functions is the possibility to
make VoIP phone calls directly from the Android and iOS versions of WhatsApp.
WhatsApp has already displaced conventional text messaging and is now, thanks
to the tremendous breadth of its distribution and intensive use, in a position
to utilize this new voice function to challenge carriers in their traditional core
2http://internet.org/.
3http://www.heise.de/newsticker/meldung/Facebook-will-Medieninhalte-direkt-veroeffentlichen-2583829.html,
24 March 2014.
10
b usiness related to voice telephony. In fact, WhatsApp has even now encroached
on this territory thanks to users’ substitution of messaging for voice communication. This trend toward the melting away of telephony volume and revenues
for carriers will certainly be accelerated by the inherent telephony function of
WhatsApp.
Google, whose search engine has a 90% market share in Europe, announced
at the Mobile World Congress in Barcelona in 2015 that it intended to play a
role as a so-called MVNO (mobile virtual network operator) in the USA. The
project with the name “Google Fi”4 is taking on concrete form and provides for
the leasing of network capacities from established operators such as T-Mobile or
Sprint, coupling these capacities with existing, publicly available WiFi networks,
then marketing them independently to end customers. The goal is to secure at
all times the best cross-provider and cross-technology connection and to realize
the seamless transfer of phone calls from one network to another. The cell phone
number will no longer be linked to a specific SIM card or device, but will be
stored in the Google cloud. The planned encryption of the communication will
ensure that Google alone can analyze the traffic. The business model and the
prices will differ significantly from those of established network operators.
The primary interest is undoubtedly the tight linking with one another of G
oogle
devices (Nexus), the most widespread mobile operating system Google Android,
the Google services universe (search engine, browsing, ticketing services, various
cloud services, smart home, TV, etc.), and the newly created Google C
onnectivity.
Google could then present itself to customers as a provider with complete vertical integration. Since expenditures could be refinanced from users’ data or from
advertising, Google could if necessary offer the transport service as well as many
of the services free of charge or at prices substantially lower than those of the
incumbent mobile network providers.
The report that Google is evidently conducting cooperation negotiations with
the international mobile network provider Hutchison Whampoa is a visible
manifestation of these plans. The goal is to offer phone calls at domestic terms
and conditions to Americans regardless of where they may be at the moment
anywhere in the world.5
4 Cf. http://googleblog.blogspot.de/2015/04/project-fi.html; Say Hi to Fi: A New Way to Say Hello — posted:
Wednesday, April 22, 2015; cf. also http://www.welt.de/wirtschaft/webwelt/article139952153/So-will-Google-den-
Mobilfunk-revolutionieren.html.
5http://www.telegraph.co.uk/finance/11516189/Google-in-talks-with-mobile-operators-for-cheap-overseas-calls.html.
11
Google has already become active in the USA fixed network through its initiative
Google Fiber. The Google Loon project works with balloons suspended in the
stratosphere and acting as mobile network cells to bring Internet access to the
farthest corners of the world.
So Google as well as Facebook are well on their way to securing complete coverage
of the value chain(s) once controlled in the old world by the telecommunications companies, but which today are fragmented and much more complex. In a
manner of speaking, the chain is being rolled from the front to the back, coming
from the customer relationship and moving in the direction of infrastructure and
connectivity. Both of these companies appear on the market as providers with
complete vertical integration. In comparison with the telcos, however, they offer
a substantially broader range on the services side as well and, in combination
with their original data-centric business models financed by advertising, have
greater freedom in the choice of their activities.
At the end of 2014, Apple announced that it would equip LTE-capable iPads in
the USA and Great Britain with eSIM cards when the devices are ordered directly
from Apple rather than from the mobile network operators. Customers using
devices equipped with eSIM can select data rate plans from various n
etwork
operators even for short terms. T-Mobile, AT&T, and Sprint in the USA and
the carrier EE in Great Britain are participating in the project. The plan allows a
change in mobile network operators without replacing the SIM card, simplifying
for instance travel from one country to another. However, the rates themselves are
set by the mobile network providers. The reaction of the network operators to this
initiative has been reserved because they fear the loss of customer relationships.
Amazon continues to expand steadily its portfolio of services. Launched back in
the day strictly as a mail order retailer concentrating on single transactions, the
company is seeking to generate strong, long-lasting customer loyalty by offering
an increasingly broad range of products and services embedded in a system of
links. At its core, the aim is to establish relationships of continuing obligation
with customers, similar to the business models of telecommunications companies
or energy utilities, to supplement the single transactions. Among the methods
employed by Amazon to realize this goal are cloud-based services (Amazon Web
Services), bundled products and a sophisticated loyalty program like Amazon
Prime, and a determined expansion of services from the trade transactions strictly
related to specific products for any imaginable product worlds to the offering of
products and services in the sectors TV (Amazon Fire TV, including production of own content), mobile devices (Fire Phone), ebooks and tablets (Kindle
12
Fire), and the provision of household-related services and household assistants
(Amazon Platform Home Services, Amazon Echo).
Concerns are growing, resistance is rising
The reactions generated by the activities of the OTTs are growing in number
and volume. The activities, successes, and ambitions of the OTTs are the subject
of observations and comments from consumers, consumer protection agencies,
media, industry representatives from many different sectors, and politicians,
combining admiration and fascination with incredulity and anxiety.
“Facebook wants to take over the Internet”6 was the headline on n-tv and referred
to the article “The Next Web”,7 which describes how Facebook is attempting to
take over control of the Internet through its numerous initiatives (free financial
transactions for Messenger users in the USA, online games, shopping platforms
such as TheFind.com, video services, free Internet access on emerging markets
through Internet.org), and existing business fields (Facebook the world’s largest
social network with about 1.4 billion users worldwide, WhatsApp the largest
messaging service with about 800 million active users worldwide in April 2015
and growth of about 100 million users every four months, Facebook Messenger
with about 600 million active users, and Instagram with about 300 million users
as the most popular photo platform)8.
The heated debates about data protection subsequent to the NSA affair do not
appear to have slowed down the growth of the Facebook family at all. Alternative
providers, in contrast, obviously have a very difficult time of it. The Swiss service
Threema, which offers E2E encryption, for instance, currently has 3.5 million
users.
“Spiegel” provocatively speaks of a new world government that has set up its
headquarters in Silicon Valley and of a new elite, driven less by money and more
by content or ideology, which not only wants to determine what we consume,
but how we consume and how we live. An elite which is not content with conquering one industry, but wants to take over all of them – and on a global scale.
The article is referring to the founders, corporate bosses, and leading minds of
companies such as Apple, Facebook, Google, Uber, or Airbnb.9
6 27 March 2015, Messenger wird Plattform für alles, Facebook will das Internet übernehmen , http://www.n-tv.de/
technik/Facebook-will-das-Internet-uebernehmen-article14785751.html .
7http://thenextweb.com/opinion/2015/03/25/facebook-has-officially-declared-it-wants-to-own-every-single-thing-you-
do-on-the-internet/ .
8 Cf. http://de.statista.com/statistik/daten/studie/37545/umfrage/anzahl-der-aktiven-nutzer-von-facebook/ and http://
de.statista.com/statistik/daten/studie/285230/umfrage/aktive-nutzer-von-whatsapp-weltweit/
9 Cf. Der Spiegel, 28 February 2015, Das Morgen-Land, pp. 20 et seqq.
13
“Manager Magazin” in cooperation with the consultancy McKinsey has presented a list of the world’s most aggressive companies and prophesied an attack on
German industry.10 The Top 50 on this list comprise almost exclusively American
and Asian companies, and the list is headed by the Chinese Internet giant A
libaba.
These activities have begun to acquire an increasingly industrial-political dimension, at the latest since it became clear that OTTs are expanding their reach to
industries, business models, and competence areas outside of the original core
fields like search engines, social networks, or trade. Their engagement in areas
such as autonomous driving, robotics, drones, health care, and biomedicine
strike at the heart of German and European industry. In a more recent study, the
Federation of German Industries (BDI) expressed fears that ironically the most
important economic sector for Germany could fail to keep up with the d
igital
revolution.11 Essentially, the demand is for a kind of concentrated European
campaign by politics and business for the establishment of a European Silicon
Valley and European champions.
The German government used the CeBIT 2015 to fire the starting shot for a
national platform for Industry 4.012 that would bundle the various federation
activities of German industry.
In France, the “Federation for the Industry of the Future” was founded by representatives from politics, unions, business, and academics.13
The European Commission, represented by Margrethe Verstager, the Commissioner for Competition, has initiated competition proceedings against Google,
investigating the possible abuse of market power. Among other allegations, there
are claims that Google takes advantage of the market dominance of its search
engine to place its own shopping sites prominently in the hit list of results to
product information queries, thereby discriminating against competitors. In addition, there will be an investigation of whether Google uses its operating system
Android (worldwide market share in smartphones just over 75% at the end of
201414) to give preference to the installation of its own apps on mobile devices.
The decision was preceded by political discussions in the European Parliament
or among representatives of the German government who even considered the
10 Manager Magazin, 4/2015, pp. 30 et seqq.
11 Cf. “Die digitale Transformation der Industrie, Was sie bedeutet. Wer gewinnt. Was jetzt zu tun ist.”
A European study by Roland Berger Strategy Consultants on behalf of the BDI, 2015.
12 Cf. http://www.bmwi.de/DE/Presse/pressemitteilungen,did=696160.html .
13 Cf. http://www.cea.fr/le-cea/actualites/association-pour-industrie-du-futur-158770.
14 Cf. http://de.statista.com/statistik/daten/studie/73662/umfrage/marktanteil-der-smartphone-betriebssystemenach-quartalen/.
14
possibility of ordering a break-up of the corporation in view of Google’s market
power.
In India, trials conducted by Facebook with Internet.org led to a flood of criticism
from the general public because the free Internet access was restricted to content
with a Facebook orientation (only about 40 Internet sites are accessible free of
charge), and pressure was put on the corporation and its cooperation partners to
put an end to this strategy and to open up the complete Internet in compliance
with the principle of network neutrality. The dilution of the network neutrality
principle had been approved by the Indian government on the grounds that it
must be possible for network operators to refinance the enormous investments in
fast network build-up on an emerging market with weak infrastructure.
The incident is especially titillating when viewed against the backdrop of the regulatory developments on the subject of network neutrality in the USA, Facebook’s
home country. The FCC, the regulatory authority, recently made a clear move
in the direction of network neutrality, much to the chagrin of the network operators.15 Commentators suspect that industrial-political motives play no small
part. There is an interest in protecting the dominance of the primarily American
Internet giants. This decision by the FCC is also intended to put pressure on the
regulatory authorities in other countries. This is all the more interesting because
Facebook in the USA benefits as an OTT player from network neutrality just as
Facebook and its cooperation partners wanted to profit from the limitation on
network neutrality in India in a role as OTT player and infrastructure provider
(vertical integration).
In Germany, an expert commission appointed by the Federal Ministry of
Economics has prepared proposals intended to drive broadband expansion. The
core points include the so-called temporary “regulatory holiday” for telecommunications companies that invest in the expansion of new optical fiber networks
as well as government subsidies for areas with poor access and limitation of network neutrality so that telecommunications companies have an opportunity to
exploit the potential of price and product differentiation. The goal is to secure the
availability of Internet connections with a guaranteed bandwidth of 50 Mbit/s
for all households in Germany by 2018.
EU Commissioner Günther Oettinger, who is responsible for the digital economy,
is working on the establishment of a new, powerful competition authority for
the digital platform business that will give due consideration to the systemic
15 Cf. http://www.fcc.gov/openinternet.
15
i mportance of Internet platform operators dominating the market.16 This project
would go significantly farther than the guidelines of the “Single Digital Market
Initiative” prepared by the EU.17
European telecommunications companies have long been calling for a regulatory
framework for the OTT players as well. They demand an opening of the OTTs’
ecosystems (devices, operating systems, cloud-based services in conjunction with
search engines, social networks), which as a rule are closed, and the regulation
of services comparable with those of the telcos such as telephony (VoIP like
Skype, FaceTime, WhatsApp Voice) and text messaging (messaging services such
a WhatsApp). Another demand is for equivalent rules of the game assuring compliance with data protection requirements.
These examples illustrate that there are growing concerns around the world that
access to the digital economy and digital life may be lost to the large Internetbased platform operators, most of them from the USA. Signs of resistance and
initiatives are appearing and prompting consideration of activities oriented to
innovation, competitive and regulatory measures, and actions related to data protection or even tax laws.
Urgent fields of action for telecommunications companies
The activities of the OTTs are giving rise to fields where the need for action
by telecommunications companies is pressing. Their core business fields and
primary sources of revenue in the area of traditional communications services
such as voice telephony and text messaging as well as the supposedly secure infrastructure business are threatened. As a consequence of the loss of customer
relationships and the interchangeability of their core resource, the infrastructure
(e.g., MVNO activities of Google and eSIM of Apple), they are running the risk
of being consigned to the lesser role of a so-called bit pipe operator or simple
connectivity provider without any contact to end customers.
This risk becomes all the greater the more intense the competition among the
carriers on a national market is. This competitive environment was described as
the second of three key challenges for telcos in the first edition of Future Telco.18
The carriers who see themselves on the losing side of the competition will grate16Cf.http://www.golem.de/news/guenther-oettinger-eu-und-telekom-wollen-regulierung-zu-whatsapp-und
google-1504-113720.html and cf. http://www.wsj.com/articles/eu-digital-chief-urges-regulation-to-nurture-europe
an-internet-platforms-1429009201?KEYWORDS=Oettinger.
17 Cf. http://europa.eu/rapid/press-release_IP-15-4653_en.htm.
18 Cf. Krüssel, Network is King!, pp. 8–25, in: Future Telco – Profitability in Telecommunications: Seven Levers Secure the Future, 2014.
16
fully accept possible offers of cooperation from the OTTs just so that they can
survive on their markets. In the long run, the infrastructure orientation of the
OTTs’ mode of operation requires no more than one cooperative carrier with
nationwide activities in each country.
The third major challenge sketched out in the previous edition arises from the
tremendous growth in traffic and the demand for ubiquitous connectivity. Carriers
are forced to make the required investments in the capacity and c overage of the
networks while simultaneously suffering the erosion of their revenue sources.
In view of the backdrop of developments and challenges as they have been
described, Detecon sees several scenarios or structures for markets in the future.
The scenario with the highest value of probability – combination of probability
and benefits – for telecommunications companies is the so-called “Heterogeneous Power Play” – large, consolidated carriers step up to do battle with the wellknown large ecosystem OTTs and many smaller, specialized, so-called singlepurpose OTTs.19 There are a number of measures, described in the following
articles, which telecommunications companies must initiate if they want to turn
this scenario into reality. These actions can also be classified according to the
seven levers identified in the previous edition and complement the recommendations found there.
We emphasize the significance of innovative network concepts such as NFV and
SDN and describe them in terms of a concrete showcase. The demand for sufficient network capacity and coverage by the telcos is examined in terms of small
cells and 5G as is the necessity of tool-supported integrated network planning.
One special aspect in this context is represented by the concept of “network
resilience”.
The telecommunications companies’ own innovation activities which must be
driven forward are the subject of the articles dealing with the topics “networkenabled services”, the value of big data or smart data for the telcos, and the proposal of a so-called virtualized device, the “cloudphone” or “dumbphone”.
Special attention is devoted to dealing with OTTs from the perspective of the
telcos and regulatory authorities. This discussion casts a spotlight on the range of
possible actions between competition and cooperation/partnering.
19 Cf. Krüssel/Lundborg/Jochum/Obeloer, Market Scenarios, pp. 20 et seqq. in this edition.
17
Special aspects of a differentiated market development can be found in the articles
on future organization and governance of the telcos’ market related departments,
on the features of “digital customer excellence”, and on the subject of “social
media performance”.
The demand for greater flexibility in IT-supported performance processes is
examined in the article on the requirements for agile IT infrastructures for new
product and partner worlds.
18
19
2018 and Beyond:
Market Scenarios
for the German
Telecommunications Market
Dr. Peter Krüssel, Martin Lundborg, Jan Jochum, Julian Obeloer
> A method for deriving strategic
market scenarios is applied to the German
telecommunications market.
> Strategic market scenarios are characterized
by a combination of drivers comprising
intensive price competition, immense traffic growth,
growing competition of services,
and strict SMP regulation.
> Recommendations for action are given for the
scenario “Heterogeneous Power Play”
because it is the most promising for
network operators.
20
2018 and beyond: Market Scenarios for the German Telecommunications Market
Objectives and description of the model and the method
What do market scenarios for telecommunications markets predict for the next
five years? Starting from our model, we map the range of possible market structure developments and apply the results to the German telecommunications market. This foundation enables us to derive scenario-specific recommendations for
action for individual players indicating the possible direction for their positioning
and further development.
The development of this model has been prompted by the following questions:
> What player types can be found on the provider side?
> How can the market structures on the provider side be described?
> What are the relevant influencing factors, and how do they affect
market structures?
> What market scenarios can be determined from the answers to these
questions?
> What are the scenario-specific effects on the individual player types?
> How should individual players prepare for future development?
In the course of the following article, we will present the model and m
ethodology,
apply them to the German telecommunications market, and briefly describe
various market scenarios. Building on this foundation, we will present our initial
recommendations for action for a specific market scenario for the player type
“network operator”.
The core elements of the market scenario model are the player typology, the
market structure matrix, and the market drivers.
The player typology used in the model distinguishes four player groups:
>
>
>
>
Network operators (fixed network operators, mobile network operators,
and integrated network operators)
Over-the-top (OTT) single-purpose providers such as Deezer, Napster,
Evernote, etc.
Over-the-top (OTT) ecosystem operators such as Apple, Samsung,
Google, Facebook
Resellers or MVNOs operating independently of network operators
The market structure matrix illustrates the position of the various player types
according to size (in terms of revenues) and their number in a matrix whose
21
dimensions reveal the value creation depth of the players on the fixed and
mobile network markets. We can use it to visualize the various market scenarios.
Consolidation trends, development in the occupation of specific sections along
the players’ value creation chain, fixed-mobile convergence, and shifts among the
player types can be described on this basis.
Along with player typology and market structure matrix, the four market drivers
are a fundamental element of the method. The drivers in their diametrically
opposed manifestations vary in their impact on the players and the latter’s
position in the market structure matrix. The four drivers are regulation, service
competition, price development, and traffic growth.
The driver “regulation” is significant for the market scenarios because r egulatory
initiatives affect the power relationships among the players by regulating
competition, access, price, and consumer protection. At this time, t here are multiple
initiatives under discussion in this field, including the “ single m
arket” initiative of
the EU Commission aimed at creating a European telecommunications market
with pan-European providers (including a limited but thorough access regulation combined with network neutrality regulation) and the EU Commission’s
thoughts about taking action against Google in the form of c ompetition regulation initiatives. In the market scenario model, development in the direction of
reduced regulation or, alternatively, of a sector-specific regulation of the telecommunications market – “significant market power (SMP) regulation” focusing on
access regulation at the network level – is analyzed according to country/market.
These two opposed directions stand for the manifestations of regulation as a
driver.
The driver “service competition” is fundamentally characterized by the shift of
service performance from the telecommunications networks to the Internet
(“OTT services”), e.g., by driving apps and clients which are independent of
networks and platforms. The possible diametrical aspects in the model are either
development toward more service competition (which sees network operators
functioning merely as bit pipe providers) or development during which the production of the services is more tightly integrated into the networks (as was once
the case for traditional telephone services).
The driver “price competition” is related above all to the development of end
customer prices. Here as well, two fundamentally different manifestations can
be assumed: one is the continuation of the intense price competition, while the
other is stagnation or even an increase in end customer prices for telecommunications services.
22
The fourth driver, “traffic growth”, describes either exponential growth in the
traffic volume on the networks or, as the counterpart, the leveling off of growth.
The manifestations of the drivers differ in their impact on the individual player
groups (size in terms of revenue and numbers) and their position in the market
structure matrix. We can assume, for instance, that exponential growth in traffic
will force the network operator group to invest more heavily in their networks.
If, at the same time, price competition remains intense, there will be pressure
squeezing revenues and especially profit margins for the network operators. This
in turn favors the consolidation process, i.e., the number of network operators
declines and there is a tendency for their size to increase. Similar hypotheses
about the effects of the driver manifestations on the other player groups can be
proposed.
The probable future effects on the various player types are synthesized from the
core elements market structure matrix and market drivers, and possible scenarios
are developed on this basis.
During the first step, various national markets can be clustered
according
to
observable and predictable manifestations of the drivers. European
telecommunications markets are certainly different in terms of general c onditions
and the related driver manifestations as well as of variations in market structure
from, say, African or Asian markets.
During the second step, the driver manifestations determined for each national
market can be analyzed with respect to their impact on the player groups. The
impact of the driver manifestation is related to the descriptive elements of the
market structure: size and number of players of one type and their position
in the market structure matrix. If there is strong traffic growth, intense price
competition, a stalemate in service competition, and a tendency to SMP regulation, for instance, there are only two alternatives for network operators: consolidation versus focus (or a niche existence). Worded in the terms of the market
structure matrix, the poles are fewer and larger (consolidation and occupation
of the reseller and OTT business fields) versus fewer and smaller (concentration
on a bit pipe business model). The strategic positioning of the players for an
existing d
river manifestation leads to the market scenarios which are theoretically
possible. Their hypothetical number must then be reduced to a realistic set by
applying plausibility considerations based on the meaningfulness of the combinations of player options.
23
During the third step, the realistic market scenarios can be described for
individually analyzed countries and appraised in terms of the probability of
occurrence and advantages for the one or the other player type. During the next
step, further ideas can be considered. They may aim, for instance, at turning
scenarios which are advantageous for a special player type into reality or at conducting and analyzing a simulation of the options and necessities for action for
certain player types in a specific scenario. An exercise of this nature is not limited
to “ivory tower” theory; it can also be carried out for a real company.
An overview of the key elements of the methodology and the relationships within
the models can be seen in Figure 1.
Market structures on the German telecommunications market –
a retrospective
Following the deregulation of the 1990s, which was based on pronounced SMP
access regulation, the German market since the start of the new millennium has
been marked by consolidation, falling prices, low levels of investment activities,
Figure 1: Model Structure
Elements of the Methodology
Overview of the Model Structure
Initial Elements
Player
typology
Market
structure
matrix
Player
typology
Market
structure
matrix
Clustering
TC markets
Effects on
player
types
Analysis Elements
Clustering
TC markets
Drivers with
impact
hypotheses
Market
scenarios
Market
scenarios
Market
structure
matrices
Source: Detecon
24
Drivers with
impact
hypotheses
and strong traffic growth.1 This was very much a result of the large number of
providers entering the market at the turn of the millennium, leading to intense
competition.
The effects on the market structure between 2006 and 2014 are illustrated in the
figure below. In 2006, there was a large number of smaller, independent telecommunications providers operating locally and regionally and based primarily
on fixed networks. There was also a large number of independent resellers. Fixed
network and wireless network services were strictly separated on the provider
side. There were significantly fewer OTTs, and the OTT SPA group was de facto
non-existent. The market structure in 2014 is far different. The convergence of
fixed and mobile networks can be clearly observed on the provider side, either on
the basis of integrated networks or from the addition of resale services. Consolidation has advanced quite far. The number of independent local or regional providers has declined drastically, resellers have consolidated, carriers’ second brands
have gained in importance. The OTT landscape has mushroomed, and its role
has grown substantially in significance.
1
See Digitalization Report from the EU Commission of 2014, the Annual Report of the Federal Network Agency of 2013, the Federal Statistical Office of 2014, and the editor’s volume “Future Telco – Profitability in Telecommuni-
cations: Seven Levers Secure the Future”, 2014.
Figure 2: Illustrative Historical Market Structures for the German Telecommunications Market
Mobile
February 2006
Mobile
Infrastructure
December 2008
Internet-based
Resale
Mobile
December 2014
Fixed
Internet-based
= Network operators
= Resellers
= OTT Ecosystem Providers
Fixed
Resale
Infrastructure Fixed
= OTT Single-purpose Players
Source: Detecon
25
Set against the backdrop of the described model for the derivation of strategic
market scenarios, these past developments can be traced back to intense price
competition, immense growth in traffic, greater service competition, and strict
SMP regulation.
Market scenarios for the German telecommunications market
The application of the model to the German market reveals the following manifestations of the market drivers. The trends toward lower prices2 and rising traffic
volumes3 will continue unabated. As far as regulation is concerned, we assume
(based on EU initiatives4 and announcements by the German government5) that
it will develop in the direction of less restrictive SMP regulation and of greater
network neutrality and competition regulation (ex-post control of large providers). Service competition will remain very keen. The driver combination has the
following effects on the various player types.
The rising traffic volumes in combination with falling prices are p
roblematic for
network operators. The situation is exacerbated by the intense service competition,
which leads to additional investments and added pressures squeezing profit
margins. These pressures could be relieved by legal regulations that meant less
SMP access regulation. A development in regulations of this type would simplify
further the consolidation process. In view of these circumstances, it is p
robable
that the network operators will attempt to improve their margin situation by
moving ahead with additional consolidation (option 1: consolidation) covering the full length of the value creation chain. If they are unsuccessful in these
attempts, the network operators will turn into fragmented bit pipe providers
(option 2: focus).
There are two alternatives for the OTT ecosystem providers as well. One is that
they can continue to focus on the Internet-based performance of services (option
1: focus). The other is that the OTT ecosystem providers can evolve into r esellers.
This is favored by the introduction of new technologies such as WebRTC or
eSIM (option 2: integration).
2
3
4
5
26
See Federal Statistical Office.
Cf. “Future Telco – Profitability in Telecommunications: Seven Levers Secure the Future”, 2014.
See Digitalization Report of the EU Commission, Annual Report of the Federal Network Agency 2013, statistics from the Federal Statistical Office 2014, and others.
See www.heise.de, “Network Neutrality: German Government Wants Special Services and Free Internet”
of 5 Dec. 2014, retrieved on 8 Jan. 2015, and others.
The OTT single-purpose providers have the choice of either consolidating with
the OTT ecosystem providers (option 1: exit) or maintaining their focus on their
core areas (option 2: focus). If they decide to take the second option, the next
practical step would be to enter into cooperation with network operators.
The outlook for resellers operating independently of the network operators over
the next few years is pessimistic. The growing importance of networks because of
traffic growth, the intense service competition of the OTTs (e.g., new opportunities from eSIM and WebRTC), declining prices, and the liberalization of SMP
access regulation will mean that sooner or later the resellers will have to leave the
market or will fall prey to consolidation (option 1: exit).
The market scenario model combines the various options of the players to derive
a total of eight theoretical market scenarios; however, only six of them are truly
realistic (Figure 3).
Scenario 1 (“Heterogeneous Power Play”) is characterized by consolidated and
integrated network operators, strong OTT ecosystem providers, and a large
number of specialized OTT single-purpose providers. In the long run, traditional
resellers will disappear from the market and be replaced either by the network
operators as they continue to expand their second brands or by OTTs exploiting
the opportunities provided by new technologies.
Figure 3: Relevant Scenarios
Network Operator
Focus
Network Operator
Consolidation
Reseller Exit
OTT
Ecosystem
Provider
Integration
OTT SPA
Focus
1
„Heterogeneous Powerplay“
2
„OTT Diversity Play“
OTT SPA
Exit
3
„Big Player Clash“
4
„OTT Big Player Dominance“
OTT
Ecosystem
Provider
Focus
OTT SPA
Focus
5
„Co-existence“
OTT SPA
Exit
6
„Telco Play“
Source: Detecon
27
Scenario 3 (“Big Player Clash”) is similar, but differs in that the OTT singlepurpose providers will exit the market or will be taken over by the ecosystem
providers or network operators. The result will be a market structure of large
OTTs and large network operators in confrontation with one another.
Scenarios 2 (“OTT Diversity Play”) and 4 (“OTT Big Player Dominance”)
are characterized by the failed consolidation of the network operators. In these
scenarios, the OTTs are dominant in both the OTT segment and the t raditional
resale segment. The difference between Scenarios 2 and 4 is the question of
whether the small OTTs (single-purpose providers) secure their relevance for the
market or disappear.
Scenarios 5 (“Co-existence”) and 6 (“Telco Play”) are the scenarios most f avorable
for the network operators. While the network operators consolidate and play a
role in all of the market segments, the OTTs focus on Internet-based services.
In terms of the relationship between OTTs and network operators, these two
scenarios represent the circumstances that already existed about ten years ago.
However, we believe that a “backward somersault” of this nature is among the
less probable scenarios.
Figure 4: Market Scenario “Heterogeneous Power Play”
Mobile
Mobile
Resale
Infrastructure
Beyond 2018
Internet-based
Internet-based
Resale
Infrastructure
2014
Internet-based
Resale
= Network operators
= Resellers
Source: Detecon
28
Internet-based
= OTT Ecosystem Providers
Resale
=OTT Single-purpose Players
In our opinion, the market scenario scoring the highest expected value (combi
nation of benefits and probability) for the network operators is the “Heterogeneous
Power Play”. The figure below is a schematic representation of this scenario based
on the market structure matrices for 2014/15 and > 2018.
Recommendations for network operators
The “Heterogeneous Power Play” scenario has the highest expected value for network operators; in our assessment, it is relatively probable and is advantageous
for this player type. The obstacles to its realization are not so high that they cannot be overcome, and the economic opportunities are better than those found in
most of the other scenarios. Network operators must and can act in a number of
ways so that this scenario becomes the reality of the future. We have prepared a
brief list of specific fields of action and recommendations below6:
> Major expansion of network capacities and network coverage capable of
handling the immense traffic volume7.
> Single-minded integrated planning, installation, and operation of the networks. The so-called “integrated heavy asset players,” the players who can exploit
the synergies between fixed and mobile networks to an ever greater degree, have
a clear competitive advantage in both points.8
> Introduction of modern network concepts and principles such as softwaredefined networks (SDN) and virtualization of network functionalities (NFV) for
the reduction of CAPEX and above all of OPEX9.
> Automation and standardization in production (network technology and IT)
in conjunction with flexibility, agility, and differentiation in the eyes of c ustomers,
e.g., through multiple-brand strategies and through products and services (own
and offered through partnerships) specific to a segment or region and differen
tiated according to time and quality10.
6
7
8
9
10
Cf. also the editor’s volume “Future Telco – Profitability in Telecommunications:
Seven Levers Secure the Future”, 2014.
Cf. Krah/Eckstein, Small Cells, pp. 90 et seqq., and Gonsa, 5G, pp. 80 et seq. in this edition; Petry, Future Broad-
band Communication Between Wishful Thinking and Reality in: Future Telco – Profitability in Telecommunications: Seven Levers Secure the Future”, 2014, pp. 78 et seqq.
Cf. Fritzsche/Schweigel, Integrated Network Planning, pp. 100 et seqq., and Zhao, Network Economics, pp. 110 et seqq. in this edition.
Cf. Schnitter/Markova, SDN and NFV, pp. 68 et seqq. in this edition.
Cf. Ewers, IT Architecture, pp. 142 et seqq., and Aumann/Krpanic, Management Innovation, pp. 178 et seqq.
in this edition.
29
> Systematic expansion of partnerships with the so-called OTT SPA and opportunistic collaboration with large OTT ecosystem providers11.
> Consolidation among network operators and cooperation with other network
operators using wholesale business models for realization of economies of scale
and increase in reach of secured quality and network coverage12.
> Realization of own open Internet- or cloud-based ecosystems, e.g., in cooperation with the OTT SPA or newly emerging players from the device sector and
from own innovation activities13.
> Push to provision and marketing of own data-hungry services such as quality
films and the virtualization of device functions (transfer of client-server logic
from IT to the telecommunications/CPE world)14.
> Intensifying lobbying activities to weaken SMP regulation, to create a dditional
monetarization opportunities from third-party traffic, and to limit the market
power of large OTT ecosystem providers15.
Initiating the actions listed above would enhance the chances for network operators to secure their future position and to exploit the advantages they enjoy from
their current assets and position.
11
12
13
14
15
30
Cf. Dörflinger/Heuermann, OTTs vs. Telcos, pp. 44 et seqq. in this edition.
Cf. Steingröver/Nielinger, Wholesale Under Pressure – and with New Chances, pp. 174 et seqq., and Schmitz,
Managed Services Are Entering the Stage of Maturity Results of a Survey, pp. 164 et seqq., in: “Future Telco –
Profitability in Telecommunications: Seven Levers Secure the Future”, 2014.
Cf. Goertz/Kuhn, Network Enabled Services, pp. 120 et seqq. in this edition.
Cf. Essmann/Krüssel, Cloudphone, pp. 132 et seqq. in this edition.
Cf. Hessler/Steingröver, The Rise of the OTT-Players, pp. 32 et seqq. in this edition.
31
The Rise of
OTT Players – What Is
the Appropriate
Regulatory Response?
Dr. Markus A. Hessler, Dr. Markus Steingröver
> OTT player’s business model is only possible using access
provided by regulated operators. Throes are having to invest
massively in higher capacity infrastructure – both access and
core – to meet this demand.
> To enable the network operators to function in a
competitive manner it may be necessary to change the
regulatory guidelines which they face.
> At a minimum, establish coordination
procedures beween several regulatory departments.
32
The Rise of OTT Players
Competition and OTT business models
One of the bigger challenges of the internet is that since it lowers barriers to entry
and leverages global economies of scale it is increasingly difficult for traditional
firms as well as localized entities to compete with the new market players. For
example – an OTT media player who has a global presence will benefit from
lower costs per MB for storage and hosting and be able to negotiate better content
deals with providers in comparison to small specialized local players. However,
the OTT media player’s business model is only possible using access provided
by regulated operators and thus this revenue loss must be part of any equation
concerning wholesale price levels. The primary and largest impact that OTT
media has had in the sizeable portion of internet traffic now solely concerned
with streaming media. Infrastructure providers are having to invest massively in
higher and higher capacity infrastructure – both access and core – to meet this
demand. The impact is aggravated by the fact that many Telcos’ business models
include flat rate data plans.
As illustrated in the table below summarizing the business models behind
the OTT use cases – the majority of providers presently concentrate more on
winning customers than on making money. By using infrastructure paid for by
the c onsumer within the framework of flat-rate data plans the costs are kept to a
minimum and the investors’ valuation of the business models ensures that c apital
is available. This model is the kiss of death for many more traditional Telco
services for which the consumer has to pay on a per-use basis, but which offer
no apparent advantages over their free alternative. This is particularly true in case
of VoIP services (competing with voice services – specifically with international
voice) and messaging services such as WhatsApp (competing with SMS).
The Telcos are losing revenues, but no one is gaining them. This is destructive
competition resulting from flat rate business models, and as time goes on, the internet application market will develop applications to attack ever-increasing parts
of the Telco market – first international telephony, then national telephony and
messaging, then local etc. Telcos should not assume that the attack is temporary
and should not have a false sense of security.
A further group in the internet market which is suffering from revenue loss as
a result of the OTT players is that of the content producers. OTT media services provide flat rate music or video streaming: content which was previously
supplied on a unit price basis. Following major legal battles concerning copyright
editions, new services now seem to be emerging where the media industry is working together with the OTT providers in a way which is less destructive for the
33
industry – offering streaming options and premium pricing for advertisementfree services. The share of illegally distributed music and video is going down.
In the short term the consumer is sure to be delighted with the effects that the
new players in the internet market are having. Prices are falling – in many cases to
zero over and above the flat rate paid for the internet connection – and the range
of applications on offer grows from day to day. But there is one major flaw in the
market as it is today: investments in future networks are at risk.
Traditionally carriage and content went together – network operators were
willing to invest in network because they knew that they could generate revenues
with the provision of content, it was under this premise, and with the expectation
Figure 1: Summary of the OTT Business Models
OTT Comms
OTT Media
Content
Commerce
Services
Social Media
Marketplaces.
Substitute/
add‘l sales
channel for
trad. Shops;
Facilitate int‘l
commerce
Facilitate int‘l
payment
Outsource
IT storage
and provide
alternative
bus models
for software/
platform/
infrastructure
provision.
Substitute
trad business
models
New services
enabled by
internet network effects.
Collect
and sell
knowledge
about individuals for
advertising
and market
research
Mainly Businesses B2B;
Private users
too
Mainly
private users
Volume-based
pricing; Timebased pricing;
Subscriptions
Advertising
(targeted due
to knowledge
of user);
Product
placement
Strategy
Substitute trad.
Telco services with
low/no pricing
strategy – once
market share
gained, pricing
models expected to
change
New services
enabled by
internet. Provide
videos and music
on demand.
Substitute for
MP3/CDs/radio/
video shops/pay
TV
New services
enabled by
internet network
effects.
Gaming
substitute for
„trad“ gaming
Private users;
Expanding into
business users with
VoIP now
Private users
Private and
corporate users
Services often
free of charge;
Connection to
PSTN against
payment; IM
annual
subscription fee
Basic services
often free of
charge; Advertising; Subscriptions; Pay per use
Advertising
(targeted due to
knowledge of
user); Pay per
click; Auctioned
key work
references
Target customers
Business and
private users
B2C
Revenue sources
Source: Detecon
34
Margins
Transaction
fees
that excess capacity would always be available, that flat rate tariff plans emerged.
This is no longer true. Telcos are paid flat rates for the use of their capacity and
their role is being reduced to that of a wholesaler. At the same time prices that
they are allowed to charge for their wholesale services are often regulated at a
cost-oriented and rather restrictive level. On top of this, due to net neutrality
rules it has until now not been possible for them to offer differentiated QoS with
related price differentiation. Profits and thus the incentive to invest used to come
from the ability to redeem payments from service providers using the network –
to a certain extent including income from peering/transit agreements – and from
income earned with the network operator’s own service and content provision.
This is no longer true.
In the specific case of cloud services this problem is particularly acute. Cloud
services need a highly resilient network and the synchronization of data to
numerous devices demands significant capacity. This in turn requires investments
which are generally only paid back after years. But the increasingly wholesale
nature of the Telco’s business, the international nature of many cloud service
providers (giving them access to numerous alternative network operators) and,
last but not least, the upcoming demand for data portability combine to ensure
that Telcos have no planning certainty concerning the income to be earned if
investments are made.
Regulatory imbalances and options
OTT services – particularly OTT media and content provision - are increasing
demand on capacity. In a competitive market – which the access market in many
countries is – this problem should be solved using the principles of supply and
demand. Access providers should rebalance their prices to reflect volume usage.
If the customer wants additional volumes, then they should be willing to pay
for it. If this is not the case regulators should carefully analyze why the market
mechanism fails. Unless the business models of the market players (mainly the
network operators) are adapted to suit the new market structures investments in
the network will ebb.
To enable the network operators to function in a competitive manner it may be
necessary to change the regulatory guidelines which they face. Existing r egulatory
requirements must be reassessed within the framework of the new market
situation to re-establish a level playing field and incentives to invest.
35
> Rebalancing of tariff structures – away from flat rates and strict network neutrality and towards traffic and/or quality of service-oriented schemes for data.
If competition would be working, Telcos would change their tariff plans in
line with market demand. As this is not happening, competition is apparently
dysfunctional. Research shows that this is a situation found throughout the
world and for which there is not yet a patent solution – although the root cause
apparently lies in the combination of flat rate tariffs based on business plan
assumptions that no longer hold true in combination with non-sustainable competition from OTT players and regulatory obligations which make it impossible
for the Telcos to react freely to the commercial changes demanded of them. It
must be a central regulatory task to analyze this dysfunctionality thoroughly and
to introduce measures to eradicate the problem. In many cases network operators
are subject to tariff regulation for their wholesale rates. The regulator will need
to take action to rebalance or even redefine these regulated rates to enable SMP
operators to behave conform to the demands of the market.
> The question of if and how to license new internet market players has occupied regulators for more than a decade. The term licensing includes in this case
the EU notification procedure that comes with some telco-specific obligations
attached. Definitions are the name of the game when determining who should
be regulated and how. Is, for example, an OTT voice provider a provider of
voice services? Skype has a very clear position here: “Skype does not have any
operations in Singapore [author’s note: or anywhere except Luxembourg]. Users
of Skype simply download the Skype software from our Luxembourg operated
website…”. Recently a slight withdrawal from the “light” regulation trend in
Europe can be seen, as the subject of security is becoming more prevalent. Some
EU member countries (e.g. France, Spain) have blocked OTT providers when
offering voice services that connect to the PSTN. Justification is that the OTT is
then behaving like a Telco and should fulfill the obligations of a Telco too (offer
emergency services, LI, pay USO etc.).
> The very nature of IP communications means that the VoIP connections are
often location-independent and reliance on a functional electricity supply makes
them inferior in some disaster scenarios. In an attempt to encourage OTT voice
providers to participate in legal intercept and emergency call access the UK offers
them for example geographic numbering if they agree to comply with Telco
obligations and provide such services. Otherwise they are assigned numbers from
a specific range which is clearly identifiable as not being “ordinary” telephone
numbers. It is questionable whether the OTT providers regard the different
numbering as a real problem, or reason enough to take on the costs of the obligations.
36
> A further use case benefitting from regulatory imbalance is OTT Media. Here
it is the traditional broadcasting companies which are subject to strict content
and copyright restrictions while the OTT media providers enjoy comparative
freedom. The situation here is further complicated by the convergence of ICT
and broadcasting editions – which is leading to the logical convergence of the
different regulatory instances, e.g. in the UK – where Ofcom has been established as the result of the convergence of the ICT regulator (Oftel), spectrum management (RA), the regulator for private television (ITC), the standards commission (BSC), the regulator of independent radio services (Radio Authority) and
the overseers of the BBC. In this way consistency in the treatment of different
cases can be guaranteed and competence discussions avoided from the outset.
> The strict net neutrality definition which requires equal treatment for all bits
acts in fact as an obstacle for Telcos to adopt new business models. When Skype first took off in the UK, several network operators blocked its use as they
saw their revenues in danger – but Ofcom and the EU intervened and used net
neutrality as the argument to make them provide access again. Only recently
Ofcom and other regulators have begun to distance themselves from absolute
net neutrality by publically acknowledging the need for capacity management
through both price differentiation and traffic differentiation in peak periods –
which indicates that they recognize the editions that the network operators are
facing. The potential for differentiated quality based business models is shown
by the rise of content delivery networks (CDNs). This promising business model potentially available to network operators has mainly been snapped up by
third parties.1 OTT providers pay for these services, so the traditional network
operators can monetize the relationship by providing this service – and the skills
required are already available as CDNs are a natural extension of the transport
business.
> Finally, data portability is a regulatory aspect which may aggravate present
imbalances if not correctly handled. This concept is akin to that of number
portability and is intended to protect consumers from lock-in effects, especially
in the case of cloud data services. Although a positive concept in terms of consumer protection, its implementation must be planned carefully to ensure that all
market players, whether network operators, ISPs or application service providers,
are subject to data portability requirements and thus to prevent a distortion of
competition. The EU is dealing with this by including data portability as a consumer right in revised data protection legislation – in this way all companies will
be equally subject to the legal requirements.
1
These providers offer local data storage to the OTT providers so that latency is reduced and the consumers’ joy of service increased.
37
Other regulatory options
Regulators and policy makers can also facilitate the roll-out of broadband
networks by several other options that determine network operators business
models instead of easing the establishment of new ones.
One option is the structural separation of the markets for network and service
provision. Australia and Singapore have both chosen this option and set up
broadband companies specifically to provide nationwide broadband infrastructure.2 Network operators are then required to sell capacity on a wholesale basis
at regulated prices. The rationale here is that the provision of the broadband
infrastructure is not a competitive market and will not develop to the benefit of
the economy if not supported by regulatory intervention. Such a major intervention into the market can therefore only be recommended if a detailed cost study
reveals that a natural monopoly situation exists, which is resistant as well, and
such intervention is thus justified.
If reduced to the role of wholesale provider, Telcos lose their customer contact. If
broadband capacity is seen as a commodity by the customers, brand loyalty will
with time fall to zero. Competition may be purely price-based and customers
will cherry pick from each service offering. Such behavior which will be further
facilitated by consumer protection activities such as data portability regulations
and market transparency provided by the internet.
On the other hand, regulatory developments away from network neutrality will
enable some differentiation again – particularly in combination with requirements from the regulators that the users are well-informed of the differences in
the quality of broadband connections (as in Singapore). As the role played by internet services continues to grow in society, the willingness to pay for high quality
will develop in a greater range of customer segments.
Network operators can accept its role as a commodity supplier and adjust its
business model accordingly to maximize production efficiency to provide broadband connections to the mass market at minimum price, or it can search for
options for differentiation in broadband provision and lobby for regulatory
2
38
The National Broadband Network in Australia is to provide 93% of homes, schools and businesses with a fiber-
to-the-premises broadband connection of up to 100 Mbit/s. The other 7% are to be served with wireless and satellite connections. The Next Generation NBN in Singapore has separate companies providing dark fiber network and ducts (“Opennet”) and active infrastructure (“Nucleus Connect”), while the services are provided to the users by retail service providers (RSPs).
freedom to act as a commercial entity. In addition network operators have the
alternative of e ntering into commercial agreements with internet application or
content providers to offer, for example, value added packages to the customers
with enhanced quality. Many operators have adopted a symbiotic approach
with partnerships with the OTT players (e.g. Mobily in Saudi Arabia). In this
case, the applications are natively installed on the device, and traffic from these
applications is zero-rated when specific bundles are purchased. Although this
does not fully compensate for lost SMS revenue, it offers the customers an attractive alternative which may increase loyalty.
Alternatively the operators can compete with copycat services such as the
European “Rich Communications Suite”, which p
rovides IM, live video footage
and files, and presence information across any mobile networks, or “Joyn”3,
which offers chat capabilities between partnering networks. Most operator responses with competing services have however had limited market success to
date. Further alternatives could be to enter into service agreements with OTT
providers to provide QoS at a price – a possibility now that the concept of net
neutrality has been negated – or to use Apps as a distribution channel for Telco
services. The regulator has a very limited role to play here – this is an example
of competitive pressure – as experienced by companies in nearly all industries
throughout the world on a daily basis.
A further option for regulators and policy makers to ensure roll-out and funding
of broadband networks would be the introduction or extension of existing
universal service obligations to cover broadband access – potentially including a
funding mechanism for the provision of broadband to be carried by all market
players.
Coordination and combination of regulation
With Internet applications facilitating convergence and digitalization of business
models progressing, establishing coordination procedures between different
regulatory authorities such as financial service regulation, data privacy and protection regulation, broadcasting/publishing regulation and communications
regulation might be necessary. Only such a process can ensure that measures
3
Supported by Ideos Claro operators in South America, KT, LG U+, Metro PCS, Movistar, Orange France and Spain, SK Telecom, T-Mobile Germany, and Vodafone Germany and Spain.
39
taken are consistent and coherent. The internet is already playing a central role
in both business and private life, and this can be expected to become even more
important in the future. In some countries (e.g. Germany), there are even calls
for an “Internet Ministry” to be established. This creation of new bureaucracy is
not recommended, but coordination of existing bodies is absolutely vital.
Convergence of the broadcasting, communications (and publishing) markets
turns the convergence of their regulation into a logical next step. As the barriers
between the markets are blurring this would help ensure consistent treatment
of market players. To verify this hypothesis the feasibility of such convergence
should be assessed in a first step and, if proved, a single regulatory body set up.
This includes:
> A quantified assessment of the benefits and synergies of combining the authorities and councils responsible for broadcasting, communications (and p
ublishing)
into one regulatory unit. Broadcasting and communications are already an integrated area in some jurisdictions.
> Assessment of the costs of such a convergence.
> Determination of the plan’s feasibility and securing of political approval.
> Implementation steps, if appropriate.
Figure 2: Unified Internet Governance
Broadcasting
Mail Services
Financial services
Communication
services
Personal data
storage
Media law
Content laws
Copyrights
Freedom of speech
Privacy laws
Crime prevention
Banking laws
Commercial laws
Data protection
Fin. Regulation
Legal intercept
Privacy
Data protection
Data protection
Privacy laws
Internet Applications
Unified internet governance
Source: Detecon
40
Take aways
Policymakers or Regulators should:
> Re-assess the broadband market to determine whether political rollout targets
are commercially viable, develop/adapt policy as appropriate.
> Implement a review of regulations faced by network operators to ensure that
these reflect the changed market situation and rebalance obligations as found to
be necessary.
> Determine whether the provision of specific (free) OTT services represents
unfair competition and is detrimental to the development of the market as well
as take action as required.
> Determine whether a lack of competitive pressure on the fixed broadband
providers is preventing the market from functioning. If so, take steps to open up
the market to more competition.
> Define a framework for net neutrality regulations to enable commercial service offers and cost-oriented market pricing while protecting the consumers’ interests.
> Update the license/operating conditions of existing operators and service providers to create a level playing field and modernize the net neutrality obligations.
> At a minimum, establish coordination procedures between financial service
regulation, data privacy and protection regulation, broadcasting/publishing
regulation and communications regulation to reflect the convergence resulting
from the internet and to ensure that all regulatory measures are consistent and
coherent. At a maximum, consider the integration of broadcasting, communi
cations (and publishing) regulation.
41
OTTs versus Telcos:
Network Neutrality and the
Erosion of Business Models
Tim Dörflinger, Dr. Arnulf Heuermann
> Revenue cannibalization through OTTs is
increasing the intensity of competition and leads to
erosion of established business models traditionally
found in telecommunications companies.
> Providers must soon decide in favor of one of the
three strategic response strategies – defense, attack,
or cooperation – if they want to survive in such a
competitive environment.
> The political debate around network neutrality
will have a major impact on these strategic response
strategies.
42
OTTs versus Telcos: Network Neutrality and the Erosion of Business Models
The traditional business model of telecommunications companies is eroding
The current business models pursued in telecommunications companies must
take a substantially more complicated market environment into account than it
was necessary in the past. Established business models are being pushed aside.
While telecommunications companies continue to offer network access to their
customers and, in addition to their traditional services, even offer Internet a ccess
in competition with other last-mile Internet service providers (ISP) without
their own access networks, Internet content is predominantly being produced by
global “over the top” players (OTTs) on proprietary platforms as exclusively webbased services. The customers pay the telecommunications companies and ISPs
for their Internet access, but a significant portion of the revenues goes straight to
the Internet content providers. Today, voice services only make up a small share
of total transmission traffic; costs for network dimensioning are determined by
Internet services, in particular video services. OTTs obtain access to the Internet
via hosting providers with content delivery networks (CDN); in addition, IP
transit providers and the providers of Internet exchange points (IXP) transport
the IP traffic (see Figure 1).
Figure 1: Transport Variants for Internet Traffic
Via IXP
Consumer
Consumer
IXP
Content
last-mile
ISP
last-mile
ISP
N. of hops: 3-4
Via IP transit
provider
Consumer
last-mile
Telco/ISP
IXP
OTTs
Content
transit
transit
N. of hops: 3
Via CDN
Content
IP transit
provider
IP transit
provider
CDN
N. of hops: 1-2
CDN
Via Third ISP
Content
N. of hops: 4+
Source: Detecon
43
However, the wholesale business in Internet traffic is based on a different set of
rules and principles. OTTs pay hosting providers and CDNs as well as IP t ransit
providers. Internet traffic exchanged between telecommunications companies
(last-mile ISPs), on the other hand, is handled free of charge on a “peering” basis.
But the initial idea that IP traffic is essentially symmetrical is no longer valid
because of the continuing transformation of the Internet into a video d
istribution
platform.
The relationship between telecommunications companies and OTTs is ambivalent. On the one hand, the strong global growth for the fixed and mobile broadband connections of the “telcos” would not be possible without the large amount
of attractive web applications offered by the OTTs.
On the other hand, the telecommunications companies are confronted with
an increasingly stiff competition from OTTs. The latter are moving in on the
“traditional” sovereign domains of telecommunications providers and are cannibalizing the achievable revenues in certain service categories.
One prominent example of this is the intensive use of messaging services such as
WhatsApp and Facebook Messenger or so-called broadcasting services like Twitter
that reach large numbers of “readers”. As a consequence, telecommunications
providers suffer a direct loss of revenues because the use of these services is either
free of charge or any subscription fees go straight to the pertinent OTTs. Yet the
infrastructure required for the provision of the OTT services still belongs (as of
today) to the telecommunications providers.
This freeriding is only exacerbating the situation. The traditional business model
– the paid provision of communications services to both direct consumers such
as contract partners or prepaid customers and to wholesale customers such as
ISPs and telecommunications companies via the infrastructure operated specifically for this purpose is eroding slowly, but definitely. An analysis of case studies
on the impact on “traditional revenue fields” previously developed by Detecon
further demonstrates the complexity of the problem:
> On a global scale, the revenues generated by the sending of text messages
(SMS) declined by €41.3 billion in 2014. Since the communications behavior
of users does not fundamentally change within a single year, it can be assumed
that a large part of this decline is a consequence of the use of alternative (mobile)
messaging services offered by OTTs.
44
> A decline of about €18.5 billion was recorded in the fixed voice segment in
2014, caused by users taking advantage of alternative telephony services such as
Skype.
> The share of data traffic attributable to “video-streaming” services such as
YouTube is expected to rise to over 70% by 2016.
Strategic options for action for telecommunications providers
The impact of OTTs on traditional telecommunications business is considerable.
Telecommunications providers can no longer ignore the additional competition
outside of the traditional playing field, i.e., competition through other licensed
providers.
As things stand today, providers have three fundamental strategic options (aside
from the “zero option” – the option just to do nothing) for countering the competition coming from the OTTs.
These options can be broken down into sub-categories based on specific “tactical”
approaches (see also Figure 2):
Figure 2: Strategic Options for Action for Telecommunications Providers
0
Do nothing
(zero option)
1
2
3
Defense
Strategy
Attach
Strategy
Cooperation
Strategy
Neutralize effects
of OTT
Block OTT
services
Emulate OTT
services
Product
partnerships
OTT player
acquisition
“Sponsored Data”
approach
Source: Detecon
45
The zero option: No specific “countermeasures” are initiated, based on the premise
that OTT services always contribute to rising data utilization. This is a disadvantage for flat-rate contracts, but is beneficial for “pay as you use” contract models.
The defense strategy: This approach emphasizes the implementation of attractive integrated rate plans (telephony, text messages, and data use) that make the
utilization of OTT services ineffective from the customer perspective. Alternatively, the introduction of data caps is an option for reducing the traffic generated
by OTTs to a certain level.
The attack strategy: The blocking of OTT services is certainly one option. But
this variant can p
rove to be relatively risky for an operator because customers
could take a highly negative view if some of their preferred services are blocked.
If other market players do not pursue the same strategy, customers might churn
to competitors.
Another option is for operators to strengthen their position by adding their own
services and platforms that are competitive with OTT services and can be integrated right into rate plans. However, this presumes that operators develop their
own proprietary services at significant costs of time and money, and success is
uncertain; the circumstances should be analyzed in detail before this step is taken.
The cooperation strategy: The first cooperation variant relies on strategic partnerships with one or more OTTs aimed at securing a useful supplement to the
provider’s own service portfolio or to directly determine the price structure for
the utilization of the various OTT services by implementing innovative rate
plans. An additional advantage for the telecommunications provider could be
beneficiary effects from the OTT’s brand name and positioning.
In contrast, the “sponsored data” approach seeks to offer preferred access to
selected OTT services to consumers. In this case, the costs are borne by the OTT
provider, i.e. the usage is “sponsored”. This approach is currently the subject of
heated debate in the USA driven the regulatory authority FCC which considers
“sponsored data” as critical within the context of network neutrality.
The complete or partial acquisition of OTTs is another option for cooperation
with the aim of increasing market shares, further differentiating the service
portfolio or integrating competitors into a company’s own corporate structure.
46
owever, this approach presumes considerable financial willingness to drive
H
mergers and acquisitions (M&A). The fragmented nature of the OTT landscape makes the success of specific acquisitions questionable, and any such actions
must be assessed with great care.
Figure 3: OTT Landscape and the Decision About Strategic Orientation
OTT player landscape — the best-known market players
Profitability over time
Decision about strategic direction
Voice and
messaging
OTT business model
Maturity level and evolution
Bandwidth-intensive
video services
= OTT perspective
= Operator perspectivee
Strategic
decision
Offered services over time
Source: Detecon
47
The management of the affected telecommunications providers must make a
decision about their strategic orientation based on one of the options for action
described above. Timing is the crucial factor as both the number of players as well
as the resulting competitive pressure are expected to increase over the coming
years before the OTTs will enter a phase of market consolidation.
> This is of great significance, above all with respect to the continuing developments in OTT business models. In contrast to traditional telecommunications
providers, OTTs primarily pursue certain monetization strategies. A substantial
source of revenue for Facebook, Google, and YouTube is targeted and customerspecific advertising, while Spotify or Netflix charge subscription fees for online
movies and music streaming. “Fremium” business models give users the opportunity to purchase content in addition to the free “basic” service for a fee. One example of this model is the Japanese chat platform “Line”; the service offers a free
messaging service, but a major part of its revenues comes from users’ purchases
of “stickers” that they use to enhance the appearance of their messages.
Several selected examples clearly illustrate the potential of these alternative
business models:
>
>
>
>
Spotify expanded its clientele to ten million paying customers in 2014.
Dropbox reached a new milestone of 300 million users and four million business customers in 2014.
Instagram advertising in 2014.1
Facebook was able to secure 59% of its total advertising revenues from
“mobile advertising” in 2013.2
The path which telecommunications providers should take – especially in
consideration of the principles of network neutrality – is highly dependent
on what part of their own business model they want to protect. This is related
to the fact that OTT services can basically be subdivided into two categories:
messaging and voice-based services such as Skype, Viber, WhatsApp, Line, or
Twitter are considered to be cannibalizing or substituting services. The sub-
category of complementary services includes online gaming, music, and video
services because they help to enhance the service portfolio of a telecommunications provider. However, care must be taken to ensure that the costs for data
transport are covered. Cloud services can also have a complementary nature,
but this highly depends on their positioning on the market. “Hosted storage”
1
2
48
Business Insider, 10/2013.
Techcrunch, 01/2014: “Facebook Officially a Mobile Ad Firm with 53% of Ad Revenue No Coming from
Its 945M Mobile Users”.
services, for instance, might be of interest for small and midsize businesses as well
as for large companies.
The case studies described here have been selected in view of the current discussion on the topic of network neutrality.
1. Deutsche Telekom and Spotify partnership
The partnership between Deutsche Telekom and Spotify is a good example of how
cooperation with OTTs can be achieved. Dedicated rate plans such as “Special
Complete Mobile Music” for €29.95 a month include the use of the Spotify
music streaming service, and the data traffic for this service is not deducted from
the available high-speed data volume of 200 MB a month. Users have access to
more than 30 million songs that are directly available. The “Spotify Premium”
account required for the service, priced at €9.99 a month, is included in the
monthly basic fee. Other streaming services, however, are excluded from this rate
plan. If other or alternative streaming services are used, additional fees apply;
moreover, the data traffic from their use is deducted from the monthly data volume. When the volume threshold of 200 MB is exceeded, Deutsche Telekom
throttles the speed to 64 Kbit/s (download) and 16 Kbit/s (upload).
The advantage of this partnership from DeutscheTelekom’s perspective is in the
enhancement of the service portfolio in conjunction with a rate plan designed
specifically for this purpose. For Spotify, the partnership represents an additional
distribution channel. Both companies profit from this partnership in terms of
brand awareness.
2. Telefónica Germany – “Netzclub” Sponsored Mobile
Telefónica Germany has introduced the “Netzclub” brand to position itself as
the provider of web-financed smartphone rate plans “free of charge”. Currently
available as a prepaid model, customers receive a free SIM card and u
nlimited
mobile use of data on the Telefónica network (100 MB/month high-speed
data volume, subsequent usage is throttled to a speed of 32 Kbit/s). Additional
costs are incurred from telephony (9 eurocents/minute) and the sending of text
messages (9 eurocents/text message) to any German mobile network. The costs
for the data transmission traffic are borne by sponsors. All Netzclub customers
receive a maximum of 30 location-based “no-obligation” special offers, vouchers,
49
rebates per month (one a day) in text message (SMS) or multimedia message
(MMS) form in return for the free data use. The monthly volume cap can be
raised from 100 MB to 500 MB through payment of a special upgrade fee.
Network neutrality and the future strategies of the
telecommunications companies
The strategic options for telecommunications companies will be determined to
a major extent by the outcome of the political debate on network n
eutrality.
Network neutrality is understood to mean the principle of service providers
and governments treating all data on the Internet equally, without any type of
price or technical discrimination among users, content, applications, platforms,
locations, type of equipment used, or type of communication (Professor Tim
Wu, Columbia University 2003).
This principle has enjoyed the support of many advocates worldwide for many
years. Legislation or statutory instruments which would obligate network

operators to abide by this principle are being planned in the USA, the EU, and
many other countries. It is important to keep in mind that all modern networks
of today function on the basis of the IP protocol. Telecommunications services
in particular such as telephony are currently being migrated to IP all around the
globe. The technological difference between the “Internet” and other telecommunications services is disappearing at an increasing pace.
Network neutrality and service differentiation
If the principle of network neutrality and equal treatment of all IP packets were
applied to all applications, network operators would not be allowed to distinguish
between the transport of IPTV, telephony, and the downloads of texts or emails.
This would prevent any sensible network management with tools for m
onitoring,
load management, or spam protection. From a consumer perspective, this makes
little sense. “Streaming” services such as telephony or television require quality
parameters for latency or bandwidth different from what is needed for emails.
While a delay of a few seconds in the delivery of emails during peak times or
when capacities are in short supply in mobile and fixed access networks is insignificant for customers, interruptions in video transmission or phone calls present a
substantial impairment of utilization quality.
This is why services such as telephony or IPTV are typically offered as managed
services by telecommunications companies. Managed services are not g overned
50
by the “best effort” principle like other applications on the public Internet;
instead, they have guaranteed minimum quality parameters which transport the
data packets as virtual circuit-switched service. In this case, the IP packets are not
forwarded in the router according to the “first in, first out” principle; priorities
are assigned to certain traffic classes.
The principle of absolutely equal treatment of all data packets disappeared a long
time ago even on the public Internet, as Richard Sietmann described in an article
entitled “Irrtümer in Sachen Netzneutralität” [Mistaken Ideas About Network
Neutrality] which appeared in ct Magazin3: “The creators of the Internet themselves expressly provided for various traffic classes for the introduction of quality
of service. The headers of the IPv4 packets contain a TOS field of 8 bits defining
the ‘type of service’ which is used to define the prioritized treatment, the kind of
throughput, or the reservation of resources in routers.” The latest Internet version
IPv6 goes significantly beyond even this point.
The equal treatment of all bits such as called for by Professor Wu in his concept of
network neutrality is consequently an obsolete concept that is no longer observed
without exception on the Internet today and that probably could not be introduced at this point in any case. Telecommunications companies must have the
opportunity to offer managed services to consumers and OTTs who are prepared
to pay for better quality. The only edition is a clarification under fair competition
laws to ensure that the price systems do not become one-sided for the purpose of
excluding smaller OTTs, for instance. Wholesale prices based on revenues would
be one possible solution here. Moreover, it must be possible to realize sensible
routing priorities for service classes on the public Internet. However, network
neutrality here means that the differentiation must be made agnostically and not
arbitrarily, i.e., all web services of one class must be treated equally.
Network neutrality and traffic differentiation among OTTs
Managed services and other Internet services share available network resources.
At this time, 27% of the total IP traffic is managed IP, 67% fixed and 6% mobile
Internet, although the latter displays a sharply rising tendency. Despite the relatively low share of managed services, network bottlenecks may result in conflicts
and competition among them. In technologically highly developed countries,
this happens especially in mobile access networks and the old copper cable access
networks originally designed for PSTN, while in other regions such as Africa the
backbone networks or international connections can also be affected.
3
Richard Sietmann, , “Irrtümer in Sachen Netzneutralität”, CT Magazin, Edition 16/2013.
51
The extent to which OTTs require network capacities varies to a very high degree.
In 2007, YouTube was already transmitting more data volume in three months
than all television, radio, and cable television stations in the world in a year.
Google, on the other hand, despite its billions of users, utilizes only a relatively
low data volume for its search engine. For instance, the OTT provider Netflix
generates more than 30% of the peak load traffic in the USA while Amazon,
Facebook, and Hulu together make up only 5%. This is evidence that the network dimensioning by telecommunications companies (last-mile ISPs) must be
oriented essentially to these providers. In addition, while Netflix is responsible
for 32% of the downstream traffic, only 4% of the upstream traffic is attributable
to this service. Nevertheless, Netflix insisted on a peering agreement providing
for exchange of data at no charge between the two providers during its famous
dispute with the telecommunications provider Comcast. Ultimately, Comcast
was able to ward off this demand and secure co-financing of the infrastructure
expansion in the form of an IP transit agreement – not, however, until after
customers had protested about the sharp decline in service quality.
When telecommunications companies conclude appropriate wholesale rate plans
with certain OTTs to cover the substantial investment costs into their networks,
which are verifiably caused by these particular OTTs, this is simply the application of the principles of cost causation and free market. This is another case
in which network neutrality means an agnostic and not an arbitrary distinction
between OTTs.
Network neutrality and retail price differentiation for OTT consumers
One essential element of the discussion about network neutrality is the demand
that there not be “any price or technological differentiation among users.”
This certainly cannot be interpreted to mean that every customer pays the same
price. A tremendous diversity of products featuring bundling as well as fixed and/
or volume-dependent price components, optimized to meet the usage behavior of
specific market segments, has become established on the market. The announcement that volume capping (a reduction in bandwidth when a specified traffic
volume is exceeded commonly found in mobile networks) would be implemented for fixed networks as well sparked heated debates about network neutrality
in Germany.
Yet differences in rates for the management of behavior and traffic in the access
networks should be legitimate. As was argued with regard to the differentiation
among services, it must be possible for network operators to require users causing
52
network capacity costs to contribute to these costs. This can be achieved in the
form of rate plans dependent on volume, time, or quality.
Rate plans dependent on volume, for instance, may be less expensive than flat
rates for infrequent users, while extremely heavy users cannot simultaneously
expect that they do not have to pay for the capacity costs they have caused. This
might, for instance, take the form of throttling of speed or capping of services
above a maximum volume in the flat rate, but with the option to book additional
services for anyone who wants to continue using fast data traffic.
Capacity costs can also be minimized if users are given rate incentives to shift
their utilization of the Internet to time periods outside of peak hours. This can
be achieved by introducing rate plans based on the time of day, for instance, or
by deprioritizing “background traffic”. The latter refers basically to automatic
updates of software and data when the screen is turned off.
A third possibility is the differentiation of users according to a guaranteed minimum quality. Users with high bandwidth requirements who are prepared to pay
more could be prioritized in overloaded mobile networks or WiFi networks and
be assigned a minimum bandwidth at the expense of the “best effort” customers.
Price differentiation is common and sensible on all markets. There is no discernible reason why this should be any different for ICT markets. Normal monitoring
of abuse according to fair competition laws, not the principle of network neutrality, can prevent the arbitrary discrimination of OTTs or other competitors.
Network neutrality, freedom of information, and differentiation according to
content and OTT partners
One characteristic of network neutrality which is the cause for an especially
heated debate is the idea that every ISP must ensure that its customers, without
exception, have access to all of the content on the Internet. This concerns both
the obligation of the OTTs’ search engines to process information “neutrally”
and the ISPs’ obligation not to block or favor specific sites technologically.
Search engines are not neutral. Besides the frequency of users’ clicks, it is above
all the payments made by providers to search engine operators which decide
about the chance to appear at the top of the list for the information being sought.
In addition, the search engines “customize” the hit information for users by
prioritizing their individual areas of interest on the basis of their past user behavior.
53
To the best of our knowledge, an obligation of last-mile ISPs to provide un
restricted and complete access to Internet content does not exist anywhere in the
world. On the contrary, ISPs in almost every country are required to ensure that
“criminal” or “undesirable” content as defined by local media, press, or Internet
laws is not accessible. An exception to this is found in only a few of the poorest
countries in the world, where primarily the lack of authority and budgetary
resources for security authorities guarantees free access to all Internet content.
However, the restrictions imposed by governments because of cultural and
political differences are as varied as the world itself. The interpretation of

what exactly constitutes access-restricted content in the areas of pornography,
cybercrime, terrorism, anti-Islam content, gambling, file-sharing in violation of
copyright laws, child abuse, glorification of drugs, excessive violence, insults to
persons or institutions, undesirable religions, or political incitement differs completely in Saudi Arabia, Iran, China, North Korea, the USA, or Germany. That is
why the content is typically blocked for a specific country by the use of content
filter systems, or the governments conclude agreements with the ISPs for the
blocking of content. In Germany, for example, the BKA (Federal Police Office)
dispatches on a daily basis a non-public list of websites which must be blocked to
the five largest ISPs who have undertaken a commitment to block content that
is prohibited in Germany.
Aside from the general government conditions, should last-mile ISPs be free in
their strategic selection of OTT partners and their content, or should they be
bound by the principle of neutrality? In our view, the answer varies, depending
on whether content is blocked and partners are excluded or whether preferred
content is selected as a bundled package.
As a minimum, companies with a dominant position in the market should not be
allowed to block access to OTTs or specific content, and they should be subject
to monitoring by the competition and media authorities. This is especially true
for exclusive agreements or vertical integration with large OTT media corporations.
However, telecommunications companies should remain free to make a n
ormal
strategic decision for a product of preferred content and OTT partners in
competition with other ISPs so that they can design an attractive product line.
Customer segments have specific preferences that they want to use on the I nternet.
Providers who bundle and preselect such content and applications so that they
become specifically accessible to these segments without requiring major effort
54
perform the normal “retail function” found on the market for other products.
Provided that competition among a large number of ISPs is functioning properly
and that there is competitive, unbundled network access, a differentiation of
partner products according to rates or volumes is reasonable. Free access to all
content together with special bundles from the ISPs will beyond any doubt be
desired by customers, and providers in competition with one another will ignore
this at their peril.
So ultimately the market players themselves, whether OTTs or telecommuni
cations companies, will be free to decide what partnerships and agreements should
be concluded. The goal is always the same: to offer consumers an a ttractive service
portfolio against consideration. In view of the many service innovations offered
by the convergence of web and telecommunications markets and of the ongoing
further development in customer preferences, telecommunications companies
and OTTs should look for common ground as they seek to re-invent themselves
and their established business models.
55
Network Resilience and
Business Continuity Audits:
Cost Efficient Measures
Preventing Pricey
Network Outages
Thomas Kessler, Dr. Werner Knoben, Thomas Wehr
> Fixed and mobile network operators regularly
suffer substantial revenue losses as a consequence of
network outages.
> Network resilience audits are a cost efficient
measures for fixed and mobile operators
preventing high revenue losses, damage
compensations and regulatory fines due
to network outages.
> Integrated into effective business continuity management concepts companies capabilities to overcome and resist threats from network
outages are improved.
56
Network Resilience and Business Continuity Audits
Significant revenue losses, damage claims and regulatory fines
due to large scale network outages
Fixed and mobile operators worldwide losing significant revenues due to long
term network outages of parts of their network or in more drastic cases of their
entire network. Besides revenue losses operators might also face in such cases
damage claims of their customer.
A fire in a technical building of Vodafone Netherlands for instance caused in
April 2012 a large scale network outage of the Vodafone network. A quarter of the
Vodafone Netherlands’ mobile customer were not able for days to use Vodafone’s
mobile voice, SMS or internet services. Also parts of the Vodafone customer
staying abroad during the network outage were not able to use r oaming services.
A network outage in the NTT Docomo network in Japan in 2012 caused a five
hours service downtime for 2.5 million of its mobile users in the city center of
Tokyo. This was the sixth network outage of the NTT Docomo network within
sixth month according to company announcements. The stock exchange of India
had to close down its services for one day in July 2014 due to a network outage of
the HLC India network. A cable fire in the Bukit Panjang (Singapore) switching
center in October 2013 caused a large scale network outages of the CityNet,
OpenNet and SingTel fixed network. Also other Singaporean network provider
were affected by this network outage. 270,000 user were out of fixed network and
other telecommunication services for days. SingTel compensated its customer
with a one month free of charge service upgrade.
Additional risks for fixed and mobile operators beside revenue losses and damage
claims coming with long term large scale network outages arise from regulatory
actions. Regulatory authorities might intervene and heavily fine fixed or m
obile
operators in case of network outages. The European Parliament for instance
amended in 2009 with its Directive 2009/140/EG the European directive on
a common regulatory framework for electronic communications networks and
services 2002/21/EG with adding the Clause 13A requesting European member
states to ensure that undertakings providing public communications networks or
publicly available electronic communications services take appropriate technical
and organizational measures to appropriately manage the risks posed to security
of networks and services. These measures shall ensure a level of security appropriate to the risk presented and appropriate reflecting state of the art technology.
In particular, measures shall be taken to prevent and minimize the impact of
security incidents on users and interconnected networks. Undertakings have to
notify the national regulatory authority of a breach of security or loss of integrity
that has had a significant impact on the operation of networks or services.
57
Comparable regulatory frameworks were established in most countries worl
dwide. The Infocomm Development Authority Singapur (IDA) for example
passed its “Service Resilience Code” which formed the basis for fining CityNet,
OpenNet and SingTel in 2013 with a penalty of approximately 5 million US
Dollar for the Singaporean network outage mentioned above. IDA’s rational
for this fine were gaps found in the Business Continuity Management (BCM)
applied by the three companies and also a lack of network redundancy although
the networks reflect in general international best practice. The lack of network
redundancy contradicted the requirements of the “Service Resilience Code” of
the IDA. A single point of failure caused the large scale network outage.
Network resilience audit is a cost efficient solution for fixed and mobile network provider to prevent revenue losses, damage claims and regulatory fines
due to large scale network outages
Cause of large scale network outages are in many cases single points of failure.
The outage of only one cable or network element might cause in case of single
points of failure the outage of selected technical network functions. Dependent
on the relevance of these technical network functions for the service provisioning,
outage of one or several service might be the consequence.
Figure 1: Network Topology Example
Hub
Hub
Switch
Hub
Switch
Single point
of failure
Hub
Hub
Transmission
Backbone
Source: Detecon
58
Hub
Hub
Single point
of failure
Switch
Hub
Hub
Hub
Transmission
Backhaul
Network resilience audits are conducted with the objective to identify and
eliminate single points of failure to increase network resilience. Detecon d
eveloped
a standard concept for network resilience audits considering the following two
areas:
Equipment Resilience: Equipment Resilience considers the redundancy c oncepts
of individual network elements usually provided by equipment vendors. Network
elements of most vendors are usually equipped with internal redundancy functions as for example active standby configurations. Availability SLAs of 99.99%
or 99.999% are usually guaranteed for network elements as switches or DWDM
router. Availability SLAs offered by different equipment vendors are usually
similar.
Network Resilience: Network Resilience focusses on the connection of the network elements and their interaction to provide fully redundant services with high
availability standards.
Network operators are responsible for network resilience whereas equipment redundancy is designed by equipment vendors. Hence, network audits focus on
the area of network resilience reflecting the responsibility of network provider.
Network resilience again consists of the three areas Network Topology, Network
Capacity and Automated Resilience Functions.
Figure 2: Relationship Between Network Redundancy and Technology Areas
Topology
IT
BSS
OSS
Capacity
Automated
Resilience
Functions
Applications
Packet Switched Core
Circuit Switched Core
Transmission Network
Access Network/Radio
Devices and Clients
Source: Detecon
59
Network topology is hereby key to improve network resilience particularly of
backhaul and backbone networks. Each network component must be planned
with redundancy that large scale network or service outages caused by outage of
single network elements or sites are prevented. Redundancy of network elements,
geo redundancy of critical network components in several sites and connection
of the networks via redundant transmission networks to prevent single points
of failure are the most important used concepts to prevent large scale network
outages.
However, a redundant network topology alone is not sufficient to establish
resilient networks. Networks with redundant network topology must additionally provide sufficient spare capacities to transport the network load in case of an
outage of selected network elements. Two scenarios are usually considered in the
framework of capacity planning; sufficient spare capacities to transport the network load in case of outage of one network element and sufficient spare capacity
to transport the network load in case of outage of one site coming with an outage
of all network elements and functions located in this site (geo-redundancy).
Even redundant networks with sufficient spare capacities can be subject of large
scale network outages if no automated network resilience functions are d
eployed
in the network. Accordingly, automated network resilience functions are the third
considered component of network resilience audits. If for example a redundant
network element fails, then its clone should take over the function of the failed
network element seamlessly. The network load must be rerouted a utomatically
in case of outages of network element connections. Two standard scenarios are
usually considered in the audit framework of automated resilience functions
similar to the audit of sufficient spare capacities: automated network resilience
functions in case of failure of one network element and automated network
resilience functions in case of failure of all network elements and functions of
one site. Without automated network resilience functions in place the network
would have to be manually reconfigured to recover provided services. However,
manual reconfiguration require time and result in extended network outages.
Embedding preventive measures into a holistic Business Continuity Management concept is essential
BCM is a holistic concept analysing, identifying and addressing risks and t hreats
a company faces and the impact of these threats and risks on the service provisioning capability of a company. BCM provides a framework of remedies and
60
measures to mitigate the impact of the identified risks and threats to increase
the resilience of the company against these risks and threats. Effective BCM
improves proactively the capability of the company to react in case of incidents
and to maintain key business functions. BCM provides a catalogues of proven
remedies and measures to recover key functions of the company and functions
essential for the service provisioning with guaranteed standards with regards to
quality and recovery time.
BCM focuses on product and service provisioning essential for the company and
targets to prepare the company for worst case situations. BCM targets to protect
employees, sites, technologies, data, equipment vendors, stakeholders and the
reputation of the company in case of incidents. Incidents are hereby outages
of sites, data centre, essential network elements, long term outages of human
resources and other kinds of disruptions caused by natural disasters, energy
outages, fire, flooding, pandemic or force majeure. BCM successfully applied
improves the resilience of a company to react in case of incidents, to absorb
incidents and to recover quickly from incidents.
BCM and disaster recovery are strongly connected. BCM describes the planning
activities to prepare companies and organizations to quickly recover from
incidents and to improve its resilience in case of disruptions. Disaster recovery
management describes activities applied in case incidents happened.
Main focus of undertakings providing public communications networks is
the telecommunication and IT service provisioning with high availability as
customer of these undertakings rely on the provided services and infrastructure.
Accordingly, the main focus for network providers in the area of BCM is the
technical recovery capability and technical support processes.
The focus of network resilience is mainly prevention of large scale network
outages; focus of BCM are technical capabilities of network provider to restore
network elements and functions in case of network outages. Both network
provider and equipment vendors are responsible to gain and improve technical
recovery capabilities. Standard components of the technical recovery capabilities
contain availability of offline standby systems for emergency recovery, availability
of spare parts, backup systems and recovery systems and backup network operations center for emergency network monitoring. Technical support processes
contain backup and recovery processes and guidelines, spare part management
and support processes for equipment vendors.
61
Several standards were established in the area of BCM in previous years based
on practical experiences. Examples are the standards of the Industry Standardization Organization ISO provided with its ISO22300 standards. Also Detecon
developed a BCM business process framework reflecting special requirements of
network provider.
BCM consists of three elements – Business Impact Analysis (BIA), Risk Assessment (RA) and Business Continuity Strategy (BCS).
The Business Impact Analysis identifies resources essential for the service provisioning of a network provider and their dependencies. Business Impact Analysis
is the basis of an efficient BCM and provides essential information necessary for
the assessment of appropriateness of recovery measures. Target of the Business
Impact Analysis is to identify implications of disruptions on service provisioning
capabilities of a network provider to quantify potential revenue losses, damage
claims and regulatory fines in case of incidents. Business Impact Analysis creates
a companywide understanding of network resources and processes essential for
the service provisioning in case of incidents.
Figure 3: Business Impact Analysis
Incident
Prevention
Business Continuity Management
1. Network
Resilience Audits
2. Business Impact Analysis (BIA)
3. Risk
Assessment
4. Business Continutity
Strategy
•Geo-redundant
networks
• Doubling of critical network elements and placement in different sites with
- sufficient spare
capacity and
- automatic resilience functions
• Reduction of large scale outage probability by preventing single points of failure
• „Single Point of Failure“
solely in access network area with limited risk of large scale network outages
• Maximum Tolerable Period of Disrup-
tions (MTPD)
•
• Gap analysis between
required and actual
recovery parameters
Source: Detecon
62
• Recovery Time Objectives (RTO)
• Maximum Tolerable Data Loss (MTDL)
• Recovery Point Objectives (RPO)
• Identify dependen cies on other sevices, and assets
• Outcome: Ranking of most critical business functions
Identify threats that could violate defined recovery parameters from BIA
• Apply pre-defined scenarios when assessing risks
• Apply risk rating
• Outcome: overview of overall risk
exposure related to
BCM
• Solution design to
close gaps
• Cost analysis
and d
ecision to
implement specific
measure
• Outcome: List of
measures to be
implemented to
enhance resilience
capability
Business Impact Analysis studies implications of incidents on functions of
the company and defines requirements for recovery processes on the basis of
the product portfolio of the network provider and its process model applied
in terms of KPIs as Maximum Tolerable Period of Disruptions, Recovery Time
Objectives, Maximum Tolerable Data Loss or Recovery Point Objectives for each
of the provided services. Particularly the analysis of dependencies of network
elements, resources and supporting functions are essential. The KPI above have
to be applied in case of dependencies for all dependent elements.
Second step of the BCM is the Risk Assessment. Risk Assessment analyses the
contingency risk of services of the network provider in case of internal or external
incidents as natural disasters, outages of infrastructure, human error or acts of
sabotage. Risk Assessment targets to reduce impacts of potential disruption and
to provide preventive measures.
Business Continuity Strategy in form of preparation of disaster recovery plans
and strategies including necessary resources, spare parts, training of employees
and equipment vendors preparing their interaction in case of incidents, d
efinition
of reporting lines and the development of disaster recovery measures to absorb
incidents is the last element of the BCM. Target of the Business Continuity
Strategy is to optimize the KPIs above to minimize the impact of incidents on
the network provider’s service provisioning capabilities.
Prevention is better than cure
Experience from several network resilience audits conducted by Detecon show
that the majority of telecommunication networks worldwide contain weak spots
in form of single points of failure. High network outage risks are the consequence
coming with increasing risks of losing revenues, damage claims, regulatory
fines and damage of the company reputation. Identifying these weak spots and
developing counter measures are usually far more cost efficient than potential
revenue losses, expenses for damage claims, regulatory fines and damages from
compromised brand images caused by large scale network outage.
Detecon also conducted several projects worldwide in the area of BCM for fixed
and mobile operators and on behalf of regulatory authorities and found gaps in
many BCM frameworks. Detecon was able in these cases to reduce drastically
recovery times and so potential revenue losses with introduction of efficient
BCM concepts.
63
How SDN and NFV Contribute to
the Transformation of Telcos
Beyond Technology
Vera Markova, Dr. Stefan Schnitter
> Telcos have had positive experiences with
SDN and NFV. Not yet clarified are
strategic impacts on corporate and
functional strategies.
> A strategic impact analysis proves the
broad impact in general, but with long or
short-term impact in different areas.
> A case study shows that the benefits can
be leveraged already today – in particular
when combining aspects of
SDN and NFV.
64
First experiences with SDN and NFV
Much has been said and written on the effect of Software Defined Networking (SDN) and Network Function Virtualization (NFV) on telecommunication networks – within this article we address the strategic impact of SDN and
NFV on telecommunication operators. More specifically, factors influencing
various strategic questions that Telcos need to answer within their corporate
and functional strategies will be analyzed, such as: Centralized or decentralized
production model, the make or buy paradigm, OPEX savings and CAPEX
efficiency, Innovation- including time-to-market, the OTT game and cloud
products and IT and Network convergence.
As a wrap up, an example of a service based on SDN aned NFV will be described
and assessed as a case study.
There are three main characteristics of SDN, namely the separation of network forwarding and control, the existence of a logically centralized network
management, and the exposure of the network to an application layer via open
standardized APIs (Figure 1). The benefits which are expected from SDN stem
directly from its characteristics. By enabling centralized control of the network
from a single logical point, network design and operations are simplified. In
addition, automatic end-to-end service provisioning is made possible instead of
the c urrently predominant manual (or semi-automatic) configuration model due
Figure 1: Software Defined Networking
TRADITIONAL NETWORK
SOFTWARE DEFINED NETWORK
Application
Layer
Network Management
Applications
Per-device
Provisionning
Controller
Management
Control
Data Plane
•
•
•
Complex (sometimes also proprietary)
control protocols
Per-box provisioning
High human involvement
Management
Data Plane
•
•
•
Physically separate network forwarding and control
Abstracted network control and forwarding
Standardized APIs for applications to request
network state and resources
Source: Detecon
65
to the exposure of the network infrastructure to an application layer (by the so
called northbound interface). This allows Telcos to “program” their network and
service infrastructure. In addition, the northbound interfaces bring the promise
of new business models and innovative services. Behind this promise is the fact
that the interface enables a standardized way to control and receive feedback
from the network which could be used to delegate control over a part (a “slice”
of the network) to a third party, basically enabling the usage of the Infrastructure
as a service (IaaS). It also permits the development of new services by providing
a standardized way to “program” the network resources, abstracting from the
complexity of the network infrastructure thus allowing the network specialists to
focus on the main business goal – addressing customer demands flexibly.
Another technology which can contribute to optimizing operator networks is
Network Function Virtualization (NFV). With NFV, the IT virtualization technology is applied to network functions thus enabling industry-standard servers,
switches and storage to be used instead of closed vendor-dependent platforms.
It allows effortless scaling of network function capacity as well as mobility of
network functions.
The benefits of SDN and NFV sound too appealing for network operators
to ignore them, however the market has yet to grow and mature significantly.
A resent research (1) shows that the telecom spending on SDN and NFV is
about to increase steadily over the next 5-10 years, however more considerably
after 2018. Known are already multiple deployments, with operators including
AT&T, Telefonica and Deutsche Telekom. Certainly the question arises if SDN
and NFV can actually live up to the high expectations and what the lessons learnt
from the early adopters are. Most of the first impressions from companies with
early deployments include the following (2), (3):
1. SDN and NFV are proving to be transformational on multiple levels, including:
> Network paradigm change – principles coming from IT being applied to the
network domain.
> Operation model change – truly E2E network management can be enabled.
> Organization model change – the organizational model currently following
network domains split will have to be changed.
> Necessity to reflect the implications of SDN and NFV in multiple areas
crossing the boundaries of network & IT, such as e.g. product development.
66
2. SDN and NFV cost reduction cases require a long term perspective.
Complementary IT principles (such as open source) and approaches (e.g. rapid
prototyping or “fail fast fail cheap”) will be used to realize the full potential of
SDN and NFV.
SDN/NFV and related strategic fields
Centralized or Decentralized Production Model
As described previously, SDN relies on logically centralized network control, thus
enabling a more centralized production model. SDN controllers can be d
esigned,
planed and operated in a more central way. Network devices have a reduced
complexity which simplifies especially the – often decentralized – operations.
However even in the case of SDN, the control functionality is only logically centralized, not necessarily physically, thus failover mechanisms will still be required
in case of failures.
Another centralization driver in regards to SDN and NFV is orchestration.
Orchestration enables the automatic management of resources (storage, network
or processing) and mapping of business requests to the infrastructure. It p
rovides
a crucial piece to the SDN and NFV environment in terms of resource and
demand management.
Furthermore, NFV enables the deployment of network functions using commoditized hardware, thus allowing a variety of functions to run on the same hardware (of course when its capacity and performance requirements permit this).
Moreover, a combination of functions in aggregation locations (or possibly a
centralized site(s)) enables optimal hardware utilization and distribution of base
costs among more network elements (such as for example spare parts).
In case of network operators having subsidiaries in multiple countries or regional
branches that operate independently even higher economy of scale could be
possible by combining functions in common data centers as well as combining
operations of services across countries for those services where this is feasible
from a technical and legal/regulatory point of view. Another scenario in which an
advantage could be realized is when merging domains or even fixed and mobile
networks of the same provider.
67
From time perspective, aggregation/centralization of network functions and
cross-country production models will probably happen in two steps due to the
complexity of the deployment. Aggregation and centralization of network functions is much easier to implement, therefore it will be deployed faster; a crosscountry production model is a very complex task from multiple perspectives
(organizational, infrastructural, legal and regulatory), therefore (if implemented),
this could only be expected in the long term. Certainly not all network functions
could be aggregated or centralized. The arguments against this could be technical
(such as a requirement for low delay) or legislation requirements (especially for
data protection or data privacy in the cross country scenario).
Make or Buy Paradigm
Whether to produce services by themselves or to buy them for example as
managed services is still a key strategic question for Telcos: Can the managed
service provider leverage a higher efficiency that the Telco can participate in or is
the Telco able to differentiate from competitors though own service development
and operations? Especially for small and medium size Telcos the question “make
or buy” has been more and more answered with a decision to buy a turn-key
solution, to deploy a build-operate-transfer model or to buy a managed service.
If previously the pendulum went more to the buy side, we believe that the make/
build part might regain momentum for Telcos in the forthcoming years. Within
this section we look at the question mainly for core Telco service – product
innovations and time-to-market aspects are addressed within the next section. It
should be noted that “building” a solution or service for a Telco means mainly
“integration” of various components and not necessarily own software development. Implementing a software driven approach can be realized without own
software development – but we do expect that larger Telcos will build up software
development capabilities for the core network domains.
Several aspects of SDN and NFV have an impact on this make-or-buy question:
> Building services becomes easier with a software driven approach – more
resources are available for IT development.
> The advent of open interfaces and open source into the Telco industry lowers
the entry barrier to make own solutions.
68
> SDN and NFV imply rather a co-development approach between Telcos and
suppliers than classical solution procurement. The Telco will buy rather a platform from a partner with whom joint development is possible.
> SDN and NFV Introduce IT processes into the Telco domain that simply
building solutions: Rapid prototyping and agile development replaces the
classical waterfall model.
The impact of SDN and NFV on the make-or-buy question is already visible
today: The eco-system has already adopted and many de-facto standards like
OpenStack exist and are ready to use. It is obvious that standardization around
SDN and NFV is more agile, too, and follows lessons learned in the past: The
ETSI standardization of NFV focuses on practical use cases and the availability
of open interfaces based on NetConf and Yang is making progress fast. As the
case study at the end of this article proves, the programming of services can be
started today.
Are we not too optimistic here? Have Telcos not shown in numerous cases a
high degree of inflexibility in building services? A first observation is that this
was often based on inflexible and legacy development principles that are specifically addressed with SDN and NFV. The main risk comes from the existing
organization and processes in Telcos that typically feature a strict separation of
the IT and network domain – this might slow down the successful adoption of
SDN and NFV as described in the last section of this article. Another risk results
from the fact that the simplification of service development and open interfaces
can not only be utilized by the Telcos themselves but also by OTT players. With
more network functions being virtualized the probability increases that Google,
Amazon or Microsoft will deploy them in their own data centers to build Telco
services faster.
OPEX savings and CAPEX efficiency
Most Telcos are facing continuous and exponential traffic growth and a flat
revenue development at the same time. Therefore cost efficiency is a prevailing
topic already since a long time but not too much progress has been made so far:
The reduction of operational expenses and the alignment of capital expenditures
with capacity and quality requirements is still high on the agenda of Telcos.
Besides the reduction of costs the efficiency of the investment is key – Telcos aim
to couple spending closely with revenues and be able to execute a fine granular
69
control on investments. Some cost drivers that are still present widely today: The
complexity of current IT and network systems, the lack of automation and the
dominance of proprietary solutions without open interfaces.
Several aspects of SDN and NFV have an impact of cost efficiency:
> NFV accelerates the introduction of commercial off-the-shelf IT hardware at
reduced costs.
> SDN and NFV help to significantly improve the utilization of infrastructure.
> A software driven approach introduces flexible software license models – like
pay-as-you grow or pay-per-use.
> A core aspect of SDN is the increased automation of management and control.
But when do SDN and NFV have an impact on this field? It is clear that SDN and
NFV use cases related to cost reduction have a very different market readiness and
their introduction will depend on the Telco’s technology lifecycle – no operator
will introduce a virtual EPC quickly if he has just introduced a classical EPC in
its LTE rollout. Some SDN and NFV use cases are ready today (e.g. a virtual
IMS) whereas others have more a long-term perspective (e.g. the deployment of
SDN in the Telco’s wide area networks). As a consequence, a long-term view is
necessary to assess the CAPEX and OPEX impact of SDN and NFV: Business
cases should cover a period of up to ten years.
Despite the obvious potential of SDN and NFV to enable cost reduction there
are financial risks that need to be controlled: SDN and NFV introduce new cost
blocks – especially the controllers and orchestration solution. The introduction
of this new, central component could result in a proprietary solution and the
risk of vendor lock-in. Furthermore, many vendors of virtual network functions
push their own orchestration solution which would result again in separate silos
and not the – desired – common infrastructure cloud that is used and shared by
all virtual network functions. The existing operational support systems (OSS)
need to be closely analyzed as the introduction of SDN will require significant
changes, possibly write-offs, here. The transition towards SDN and NFV does
not come without transition costs – they can be reduced if the introduction
period is prolonged and an incremental introduction approach is chosen. Larger
operators with a group structure have the additional benefit that they can leverage synergies between the introduction of SDN and NFV as new technologies
70
with the introduction of a new, more centralized production model in parallel.
The key question, when defining a SDN and NFV strategy, is whether to take
a more incremental or revolutionary approach. Given the fundamental changes
that SDN and NFV introduce, an incremental implementation approach is
generally not sufficient.
Innovation, Time-to-Market and the OTT Game
Especially large Telcos have invested significantly into product innovation in the
past years that went beyond core Telco services. The competition with OTT
players was an ambition of many Telcos but they are now in a phase of realism and
disillusionment with respect to product innovation: OTT competition strategies
have been transformed into partnering strategies and own product development
capabilities beyond core Telco services are being reduced in Telcos today.
Do SDN and NFV have the potential for a significant impact on product innovation for Telcos? Several aspects of SDN and NFV are relevant here:
> Around SDN and NFV a large eco-systems of potential partners for Telcos is
growing. A large eco-system increases the potential for innovations.
> Open north-bound interfaces to the network enable Telcos to decouple
product innovation (with partners) from network- and vendor-specific implementation aspects.
> SDN and NFV enable product innovation in two different directions for
core Telco services: On one hand the software driven approach enables a better
customer experience through a significantly higher degree of service automation as
well as customer self service and self management. On the other hand virtualized
network functions allow to easily extend the functionality of services.
A limiting factor here is that the economy of scale for efficient data center operation is still in favor of large OTT players. The development of ICT and cloud
services for B2B and B2C customers is ongoing in many Telcos and can improve
the economy of scale of data centers for Telcos. But so far the success is still on
the side of the OTT cloud providers like Amazon or Microsoft. The efficient
integration of network and IT services and important boundary conditions – in
particular security considerations – can still enable a successful positioning of
Telcos in this market. In summary, the impact of SDN and NFV on product innovation and the positioning towards OTT players is more in the area of services
71
that are close to core Telco services: Innovation and the possibility to differentiate
from competitors results mainly through the increased automation, self-service,
comfort to use and time to develop or modify services.
IT and Network Convergence
Traditionally within telecommunication operators two separate “worlds” exist
in terms of infrastructure as well as organization – IT and network. Certainly in
some Telcos, also combined IT & network organizational units and functions
exists (such as CTIO), however the merger between the domains is typically only
partial, happening mostly at the top of the organizational structure. Moreover,
these domains are further split in sub-domains, such as (in the network case)
access, aggregation, backbone, etc effectively creating vertical pillars within the
organizations. The processes which are followed are also different in the two
“worlds” – in the network domain the focus has always been on achieving high
quality (e.g. 99,999% availability) even when time has to be sacrificed compared
to the IT approach which targets productivity to a higher extent with methods
such as “fail fast fail cheap”.
Operators have been struggling for years to address the editions the “vertical
pillar” organizational approach is causing (mainly related to synergies and efficiencies). SDN and NFV will allow resource management and orchestration
to span across domains and across IT and network resources. Thus the vertical
organizational structure will become obsolete and will be replaced by a more
horizontal structure.
A future proof organizational structure as well as better process model to be
followed (such as eTOM or ITIL) are still about to be clarified. However
whatever they are, they have leverage the opportunities which SDN and NFV
present such automation, logically centralized end-to-end operations and flexible
resource allocation.
As identifying future proof organizational structure and processes could take a
longer time, intermediate measures addressing the IT and network merger have
to be identified to support the operational activities (such as for example building
SDN and NFV enabled Data Centers).
72
A Case Study:
Using SDN and NFV to develop innovative products
So far we have discussed different aspects of SDN and NFV and their impact on
various strategic questions of Telcos today. For many aspects the impact will be
rather in the mid- to long-term and additional value will come from the combination of SDN and NFV in an efficient way. In order to show that the benefit of
SDN and NFV can be leveraged already today – in particular when combining
aspects of SDN and NFV – we look at a case study from Deutsche Telekom.
Deutsche Telekom has launched the Cloud VPN product in three markets
(Croatia, Hungary and Slovakia) that makes use of various aspects of SDN and
NFV. The Cloud VPN service for the business customer enables secure communication between branch offices (with customer premise equipment - CPEs) and
remote users (with software clients) and adds various security components on
top of the basic VPN service, like firewalls, web-security, anti-virus or intrusion
protection. All routing and security functionality is implemented using v irtual
network functions that run in Deutsche Telekom’s pan-European infrastructure cloud. Whenever a customer configures and orders the Cloud VPN service
online, the required virtual network functions are configured and dynamically
started in the best suited data center across Europe. Two key principles for the
Cloud VPN product are self-service and self-management: Through a customer
portal the enterprise user can create, modify and monitor the services in real time
– when CPEs have been shipped they can be used directly which eliminates the
need of call centers and field technicians in the ordering, provisioning and activation processes. But the technology innovation of implementing this product
with a software driven approach and virtualized network function is only half
of the achievement. Together with the technology a completely new operating
model has been implemented where the service and infrastructure lifecycles use
a centralized hub model – from planning, building to operations. The infrastructure cloud is developed and managed by a central hub that supports various
network applications. Network applications like CloudVPN are operated again
in a developed and operated by a central hub to serve customers in again different
countries (Slovakia, Croatia and Hungary at the start).
73
This case study shows two things in particular: The software driven approach drastically improves time-to-market as this cross-country service was developed and
implemented in only 9 months. And secondly, the implementation of SDN and
NFV enables a highly efficient – in this particular case centralized - production
model. A multi-national Telco like Deutsche Telekom with a group structure
benefits especially from this approach – although many questions resulting from
a cross-country development and operation have to be solved: Examples include
data privacy, data protection, lawful interception or internal service level agreements.
Summary
As described in this article we see a broad impact of Software Defined Networking and Network Function Virtualization on strategic questions that Telcos
need to answer today. In many dimensions SDN and NFV bring a paradigm
shift for Telcos with impact on their corporate and various functional strategies –
in particular on the technology, finance and organization and process strategies.
As summarized in Figure 2, in some areas we see a large impact and in other
Figure 2: SDN and NFV Strategic Impact Analysis
Impact
Time
4
2
Make or Buy
• Software driven approach introduces more agile IT development principles
• co-development instead of solution procurement
3
4
Cost Efficiency
• Improve infrastructure utilization
• Increased automation of processes
2
3
3
4
3
2
Production Model
• Facilitate centralized production in data centers
• Increase cross-regional and cross company operation models and
central service production
Products and OTT Game
• Open interfaces simplify partnering
• Flexible and automated products to improve positioning and enter
new market segments
IT and Network Convergence
• Integrate IT and network organization
• Aligned IT and network processes
= >4 Years
= 2-4 Years
= <2 Years
234
Source: Detecon
74
areas we see a short-term impact. Telcos should develop a corporate SDN and
NFV strategy that addresses all areas and analyzes the impact based on the Telcos
initial situation. It is essential that this SDN and NFV strategy is developed in a
cross-functional way, incorporating experts from the network, IT, organization,
process and finance domain. Since Telcos have already tried to implement several
of the presumed benefits of SDN and NFV in the past, it is essential to assess
previous failures and to clearly understand the new aspects that SDN and NFV
are introducing.
75
Industry Requirements: The
Driver of 5G Development
Dr. Osvaldo Gonsa
> The Internet of Things is generating new use cases
for wireless networks. Pioneers such as the automotive
industry are already moving ahead proactively defining
the requirements that are important for their industry
further improvement.
> The development of 5G will for the first time give rise
to a network that enables interaction of humans and
machines. As of this time, however, there are no signs
that the telecommunications industry is seeking to fully
integrate the requirements of different industries into
5G development.
> The future will be found in on-demand networks
which satisfy the differences in needs and requirements
from highly diverse branches of industry. The decisive
impulse pointing the way must be set up now.
76
The Internet of Things is generating new use cases for wireless
networks development
Manufacturers and telecommunications standards organizations, have an
nounced that 5G communication networks will support 1,000 times increase
in capacity, connections for at least 50 billion devices, and a 10 Gbps individual
user experience capable of extremely low latency and response times. The time
is ripe for the development of a new mobile network technology, and the high
expectations coupled with it are part of the life cycle of every new mobile network generation.
It is expected that the deployment of these networks will start between 2020 and
2030. There seems to be at least consensus in defining 5G.1 Most of the sources,
define 5G as built as a combination or integration of both new radio access technologies (RAT) and the further development of existing wireless technologies
such as LTE andWiFi. This concept goes in the direction of a real convergence
of fixed and mobile communications and that will continue to grow in relevance
in the future. New use cases make different demands which a single radio access
technology cannot handle.2
1,2 cf. 5G Feasibility, Detecon Study, February 2015.
Figure 1: 5G Concept as an Integration of Existing and New Technologies
Architecture
Ultradense
deployments
4G
“Mobile
broadband
data”
3G
“Voice,
video, and
data”
2G
Voice and
texts
Wi-Fi
Best-effort
access
PAN
Low energy
and limited
reach
New
Generation
Wide Area
Network
Concept of 5G as the complementing and integrating of state-of-the-art RATs with
advanced development and innovations in technologies
Source: Detecon
77
Currently, mobile access to the internet is essential for business in many industries. Not only for employees to access their information, but gradually more
and more machines are getting connected to the networks to perform their job
more efficiently. The so called Internet of Things is one of the biggest drivers
behind the need for a new generation of mobile communication technologies.
Future scenarios such as Industry 4.0 will therefore be making many demands of
greater diversity on the system, especially when the provision of connectivity to
machines and sensors is involved.3
Right now, many organizations are developing the requirements for 5G, but
despite their high level of knowledge of communication technologies, there is
one aspect that has to be considered and that has not been completely taken into
account before: that is, Industry Requirements.
Development of a new system based only on requirements driven from the Telco
world stakeholders will have negative consequences for the telecommunications
industry. Continuing like in the past runs the risk of not taking into account the
biggest user’s requirements. The Industry 4.0 requirements should be the first
priority to consider as their machines will constitute the majority of the connections in the years ahead, greatly outpacing the number of humans’ connections.
Integration of industry requirements in the 5G concept
Industry in general has always used mobile communications
capabilities
as they were provided. That is, the operators and vendors have
developed
networks with certain capabilities and the industry then have used
what is available to them to optimize their processes with connectivity.
Operators have constructed networks that were targeting mainly the individual
customers (persons) needs for voice and text communications first with 2G, later
mobile internet with 3G, mobile broadband with LTE, as Figure 2 shows.
For 5G, the customers are mainly not individuals (humans) but the industry and
its machines as everything becomes connected in the Internet of Things (IoT).4
A recent Detecon study has shown that there are some industries (like automotive)
that are more pro-active in defining their requirements based on their individual
needs and drivers. The automotive industry for example, has since a couple of
years started, with their connected car use case, the development of requirements
and technologies in the area of machine to machine communications.5
3
4
5
78
Cf. DMR “Internet of Things”, Edition 1/2015.
Cf. Strategy Analytics, 5G: The First Cellular System to Natively Support Machine Type Communications (MTC), The Path to IoT and M2M, September 2014.
Cf. EU FP7 Project Carmesh, http://www.carmesh.eu/.
Other industries, like manufacturing, agriculture, logistics, etc. also have a certain
set of requirements although they are in many ways different from those of the
automotive industry. The Internet of Things should drive the development of the
whole new concept of 5G with its e.g. 25 million containers, 110 million pets,
8000 cargo vessels, 345 million energy meters, 3.7 million vending machines and
255 million cars in Europe alone.6
These figures just represent what needs to be addressed and give some indications
as to what requirements from the industry have to be fulfilled by 5G. A nonexhaustive list of the most important industry requirements in general7 is shown
below:
Energy usage: The widespread utilization of 5G -based sensor networks in all
the industries, would only be possible if a significantly increase in battery life is
guaranteed. Furthermore, applications that require unattended operation could
require operation over a period of several years without battery replacement by
saving energy. This is also a requirement for network and protocols design, as
the operation of devices on low power condition is an essential requirement for
several industries like agriculture, mining and logistics.
Seamless Connectivity: Industries like agriculture or environmental monitoring from government agencies operate in remote areas; transport and logistics
operate across the world, manufacturing takes place indoor. The quality of the
coverage will vary depending on location and area. In order to fulfil these indus6
7
Cf. H. Schotten, Who Needs 5G, ETSI Future Mobile Summit, November 2013.
Cf. 4G Americas, 4G Americas’ Recommendations on 5G Requirements and Solution, October 2014.
Figure 2: Road to 5G
5G
4G
3G
2G
1990
2000
2010
2020
Everything Connected
Mobile Broadband
Mobile Internet
Voice and Texts
Source: Detecon
79
tries’ requirements, connections over 5G should be carried on with a combination or collection of technologies and frequency bands which should converge
seamlessly, especially when changing networks and / or frequencies. Services such
as remote machinery control or social machines on the factory floor cannot function with interruptions.
Robustness and Reliability: 5G networks will play a more prominent role than
its predecessors in the areas of emergency communications, public safety and
disaster management. In order to achieve this prominent role, is strictly n
ecessary
to develop a reliable and robust network, not only when talking about natural
disasters but also against physical or cyber -attacks on the infrastructure.
Seamless Mobility: 5G systems should be able to support services with little to
no mobility such as stationary sensors and cameras, as well as applications with
very high mobility like high-speed trains and planes. 5G technology should also
be able to provide session continuity over different access networks. This should
include also seamless roaming within national boundaries as well as international.
Latency and User data rate: It is expected that by 2020, there will be a new class
of services and applications that would require extremely high data rates and very
low latency requirements. For example, Utilities sector deploying smart grids
would need to have latency values compared to a fibre connection. 5G networks
should be designed to meet these latency demands.
Affordability: For certain verticals that would use massive number of sensors
like energy utilities, or freight tracking logistics, attractive machine-to-machine
(M2M) data tariffs and robust communication in case of power outages are
essential to make carrier communications channel a viable option.
Capacity: Capacity, per system and per cell, should be higher than what is offered
by current networks. As massive number of sensors and application run on the
networks, the system has to be able to manage efficiently all these connections.
Another factor that needs to be to improved is to develop new multiple access
mechanisms to reduce the overhead of signalling that is necessary today even
for simple devices and short duration sessions. Examples for increased capacity
are: homeland security border control or remote control agricultural or forestry
machinery will utilize HD video for remote monitoring. These use cases will
require a very high capacity but in the uplink. The use cases of augmented reality
retail and entertainment will require high capacity in the downlink.
80
Coverage: Extended geographical coverage and reliable indoor coverage is essential for many cases to achieve the desired connectivity. Especially for cases like
factories or warehouses, the edition of indoor coverage is critical for wireless
systems to operate. On the other hand, industries like farming or mining require
extended outdoor coverage for monitoring and analysis of their farming or mining operations in remote areas.
Operators and manufacturers urgently need information input from outside
their telco ecosystem
The industry drivers and types of requirements in the previous section are mainly
targeting devices and applications that have limited human interaction in the
chain of events. Therefore, the telecommunication world needs to take into account these and many other requirements that will come from the general industry.
It is important to have an open dialogue with the different industries in order to
obtain requirements that are derived from their specific use cases. However, we
can see from the on-going initiatives on 5G that this aspect is not being taken
into account.
Telecom operators do not have the required information coming from the
different industries on their hands in order to evaluate and specify the necessary
capabilities. A look at the EU initiative 5GPPP (5G Infrastructure Public Private
Partnership) shows that not a single member of the forum comes from outside
the telecommunications industry.8 The same situation can be seen at the 5G
Forum9 or the NGMN (Next Generation Mobile Networks) organization.
This situation can lead to the telecommunications world developing a brand
new 5G architecture and features that are not the right ones to address the needs
of their most important customers. Unless there is an accurate analysis of the
requirements of the industry for the development of 5G, it would not be possible
to find out what design principles are the most important for 5G.
A statement in a white paper from the company Huawei10 says: “The future may
seem far ahead but the phase for defining the requirements is now and what’s
more, any new technology or system that we design for 5G needs to be future
proof and last at least until 2030”. This statement only serves to highlight the
8 Cf. http://5g-ppp.eu/our-members/.
9 Cf. http://www.5gforum.org/eng/main/main.php?categoryid=12&menuid=01&groupid=00.
10 Cf. Huawei, 5G, A Technology Vision, 2014.
81
importance of taking the industry requirements in consideration now and not
wait until a later point in time, as this will be the key to future proof design a
new system that can be flexible and reliable enough to cater to all different types
of use cases that are foreseen outside of the Telco world.
In the course of our research, we have determined a number of aspects which are
not found in previous studies and white papers:
> Flexible Tariffs and Tariffs adaptation possible for machine type communications depending on e.g. application type or device type, etc. In addition, rate
plans that can be changed frequently or let dormant depending on the use
cycle.
> Data prioritization in the network for higher reliability in case of network
congestion or network partial outage.
> Accurate position information outside urban areas and also indoors (with
much more resolution than GPS).
> Need for multi-access technology smooth handover and operation.
> Asymmetrical data transmission in the opposite direction, i.e. more capacity
in the uplink desired than downlink.
> New multiple access mechanisms to reduce signalling overhead.
None of this means that we can ignore the most technical requirements that
are certain to be identified in the relevant forums. On the contrary, the main
message should be that a more inclusive development of the requirements and
the corresponding specifications has to take place with other stakeholders that
were not common part of the telecommunications eco-system before but whose
relevance has increased significantly on the way to 5G networks.
On Demand networks for different customers, business cases and use cases
Until now, networks were designed to cope with the most stringent requirements
on latency, capacity and throughput. These features were available for the rest of
the users and the task to develop new business models started with evaluating
what was possible with the available network capabilities.
A paradigm change on how network operators run their networks is necessary
and is driven forward – by changes in to how to address the new dimensions of
communication demands, focus on the unique assets of operators and the need
to support and create a healthy and business oriented eco-system. The requirements that can be extracted from new use cases originated in other industries will
give the necessary guidance on how the operators can address the new communications demands and hopefully lead to new business models as well.
82
The case for having a flexible network design that is not a one-size-fits-all carries
more weight when new requirements come into the discussions. One example,
in which highly customer-specific network design and the corresponding functions which do not come from the traditional telecommunications world is the
use case of Internet of Things Smart-Port case. From our research and interviews
with port authorities, some of the requirements that we have extracted are:
> Positioning systems via mobile technologies need to be precise up to a resolution of very few meters
> Network & Systems needs to be configured like a private network
> Confidentiality and privacy of people need to be guaranteed
> Multi network operation for redundancy is desired
> Enhanced Coverage
> Low Power sensors and devices are required for freight tracking in and out of
the port
In order to address these requirements the network has to be designed to enable
low power sensors operation, this will require e.g. new multiple access methods
with reduced overhead and much longer duty cycles that can allow the devices to reduce their energy consumption. We can observe how two technical
requirements can arise from a single requirement. The edition of confidentiality
of the data or methods to delete certain parts of the data flow (e.g. faces information or license plates numbers) will require other mechanisms to be implemented
at the application level. However, at the same time prioritising other parts of the
data flow like the images of cars and trucks traffic flow will require the network
to support data prioritization based on a specific application.
The network has to be designed to flexibly assign the necessary resources to
specific applications to do its work at specific times. This allocation of certain
resources or functions in 5G is called slicing and is one of the basic concepts for
optimising the networks based on the demands of the customers. Each customer
could contract its own slice of the network based on its individual application
requirements and will implement its own “private network”.
In the case of a customer that requires certain functions, e.g. VPN, intrusion
detection and other security related functions, a slice with these required functionalities can be instantiated on the network side where e.g. a common radio
controller will take care of the radio part (if any is needed) and virtualized functions can be chained to provide the requested service. The same can be done for
customers that require only telephony or for a customer that require extreme
short latency or for a customer that only needs PBX (IP Centrex) functions. The
83
different functions in a service chain can be instantiated only for this customer
needs and more functions added or deleted on request.
This slicing can only be possible if customers’ requirements are known and the
network is designed to implement the necessary technical capabilities on demand.
Slicing can lead also to different business models based on the offering of network capabilities adjusted to the customer requirements in which these capabilities are ordered from a service catalogue and the customers request, use and pay
only for what they require.
Setting the impulse for 5G development now
It is for sure that breakthroughs in wireless network innovation result in eco
nomic growth according to new business models that can benefit not only the
telecommunications eco-system but also the industry and society in general.
The introduction of 5G could enable more and more and close interaction between man and machines. However, the Telco industry cannot proceed to design
and develop 5G networks just based on the evolution of existing technologies to
increase their performance. There are many other aspects and requirements that
need to be considered especially when considering that the main users of future
networks are going to be the machines that propel the different industries.
Industry at large with its many different sectors, has different requirements that
in many cases will not require development of a complete new m
obile communi
cation network, but rather the improvement of current networks’ capabilities, such
as coverage and capacity. Nevertheless, industries like energy and automotive
do have new requirements for latency and reliability that require development of
new mechanisms. This information about new requirements can only come from
the customers that will use these new networks. Operators and vendors would be
in better position to prioritize and develop the features which are really required
by the industry by listening to sources outside of their own world instead of
creating again a one-size-fits-all network for 5G.
84
85
How Small Cells
Can Become a
Success Story for
Operators
Peter Krah, Dr.Tillmann Eckstein
> The rising numbers of smartphones
and tablets being sold worldwide as
the digitalization of society proceeds
apace represent a challenge to mobile
network operators as they scramble to
still the voracious hunger for
broadband services.
> One frequently mentioned
approach for raising the mobile
network capacity per area unit is the
use of small cells.
> A review of recent development
shows what opportunities network
operators have as they deal with the
accelerating traffic growth on the
network side and what efforts are
required to keep a tight rein on costs.
86
Expansion of networks as a consequence of digitalization
Worldwide sales of smartphones set new records in the last quarter of 2014. Apps
aligned to the specific needs of every single customer segment encourage data
utilization and stimulate the hunger for data services. The network operators
would also like to share in the sale of apps and offer their own services. Video
services, which consume huge amounts of data, are especially greedy for more
and more resources on the network side.
This intense use of mobile data services alongside voice services is putting
enormous pressure on mobile networks, especially mobile broadband services.
Only a few years ago, there was a so-called “busy hour” in the networks which
could be used as a yardstick for determining the required dimensions of any
particular network. Today, however, the widespread use of mobile networks across
all customer segments and age groups produces a number of busy hours – per
day, per customer segment, and per customer location. In addition, c ustomers
want and expect to be able to use their mobile voice and broadband data services
anywhere, anytime, and this demand must be satisfied.
In response, operators are constantly expanding radio availability and capacity
of mobile networks to incorporate locations which previously did not have wireless access or to provide increased bandwidths through greater capacitive density,
thus increasing the available traffic per area unit.
The diversity of technologies in use and the innovations available from manufacturers offer to network operators a range of possibilities they can use to weave an
ever tighter mesh in their networks.
Variant 1: Increasing network capacity through greater network
density at the macro level
An increase in network capacity from greater network density is achieved
when existing radio macrocells are successively supplemented by smaller cells,
increasing the number of macro radio locations per area unit. Since the costs of a
macro location are high, this is the most expensive variant that can be imagined
and practical only for network operators who do not yet have an adequately
dense network.
Operators whose networks are sufficiently dense in the areas where capacities
are in demand can increase the capacity per location – by setting up several network levels, for example. There are situations in Europe, for instance, where netDetecon International GmbH
87
work operators have several LTE frequency layers (800 MHz, 2600 MHz) at
their disposal. Depending on the available range on the network side, this is a
fundamental approach for enhancing the capacity of a radio cell.
The utilization of additional frequencies is regulated by the competent authorities in the various countries and is highly dependent on the network operator’s
situation. A large part of the range suitable for mobile networks – between 450
MHz and 3000 MHz – is already in use today. Commonly, frequency auctions –
so-called beauty contests – are conducted and available frequency blocks are sold
to the highest bidders. The possible purchase of additional frequency licenses
must be carefully weighed; as a rule, such purchases mean substantial costs for
the network operator.
Another problem comes from electromagnetic compatibility. The addition of
another frequency layer increases the overall EIRP (effective isotropic radiated
power) at the location, increasing the required safety zone around the location
to prevent harm from the radiation. The constraints from these requirements
vary in severity from one country to another, but they can produce a situation in
Figure 1: Variants for the Increase of Network Capacity
1.
Overall Radio
Network
Densification
2.
Increase Radio
Efficiency
Frequency
Resources
3.
Selected
Increase
of Radio
Capacity
Source: Detecon
88
Modulation
Efficiency
MiMo
AAS
?
?
network
evolution
which not every macro location can be operated using all of the available technologies and frequencies – especially if the locations are being used similarly by a
number of network operators.
Another way to increase the capacitive network density without having to i ncrease
the number of macro locations is to subdivide further the network structure
typically comprising three sectors into a network structure of six sectors.
These methods for enhancing network density lead either to more locations or to
conversions required at existing locations because more antennas, radio technology, and the required location infrastructure are needed.
Variant 2: Increasing network capacity through the implementation of
measures to increase efficiency – increase in spectral efficiency
Network operators who have adequate frequency ranges at their disposal can
make use of the so-called “carrier aggregation” technology – the interconnection
of a number of frequency blocks, even in different frequency ranges (e.g., LTE
800 + 2600) – to allocate a higher data rate per customer.
The modulation rate is a yardstick for how many bits are transmitted for each
symbol sent. The higher the number, the higher the maximum data rate which
can be achieved. The maximum possible modulation rate utilized for the network
technologies now in use in mobile networks with HSPA+ for UMTS and LTE is
64QAM for the downlink, i.e., from the base station to the end device. However,
this works only in areas where the signal-to-noise ratio is of adequate quality, i.e.,
close to the base station.
An increase in spectral efficiency achieved by changing over to a more efficient
modulation scheme like 256QAM is hampered because it requires a signal-tonoise ratio which is significantly higher, so the area in which 256QAM can be
used becomes smaller. These are the factors which prevent a noticeable increase
in capacity by this means except for solutions in buildings or in scenarios when
the mobile device is located in very close proximity to the base station antenna.
Another way to increase spectral efficiency is the use of so-called MIMO technology. MIMO stands for “Multiple Input – Multiple Output” and means
that signals are received and transmitted by a number of transmit and receive
antennas. The combination of multiple transmission and reception paths

results in a corresponding system gain, especially in areas with strong multipath
89
ropagation, because it can be assumed that the received signals are statistically
p
independent of one another owing to the spatial decoupling of the respective
transmit and receive antennas.
MIMO is already in use today; for instance, 2x2 MIMO in the downlink is
currently used for LTE. The transition to the higher-quality 4x4 MIMO

requires four transmit and receive paths for each frequency layer – two more
than previously – at the base station. This can be achieved only by using larger
antennas or through the sophisticated wiring of multiband antennas which can
be used simultaneously for a number of frequencies. In any case, additional
equipment is required on the roof of the mobile network location or on the mast.
However, the advantages of 4x4 MIMO do not become effective unless there are
also four receive antennas built into the mobile devices – and that takes up space.
In uplink (from the end device to the base station) the receive signal is improved
in any case because of the four decoupled receive antennas at the base station.
MIMO technology proves to be especially efficient when it is used in combination
with intelligently controlled active antenna systems. The signal is processed to
focus the antenna pattern of the transmit antenna in the direction of the end
device (“beamforming”) to minimize interference and thus improve the quality
of the radio channel between transmit and receive antennas.
System requirements mandate that the radio components be integrated into the
antenna for active antenna systems, so such devices are substantially heavier. If
horizontal beamforming (spatial adaptation of the antenna’s radiation characteristics to the individual mobile devices) is to be implemented alongside vertical
beamforming, multiple columns must be provided in the antenna. The antenna
becomes large and heavy, especially when combined with high-order MIMO,
which negatively affects the statics of the location and the acceptance of the
device.
Variant 3: Increasing network capacity by the use of small cells
One possible way to increase the capacity per area unit is to miniaturize the
cellular network structures even further to the level of so-called small cells; they
transmit strictly to a very limited area and massively increase the available c apacity
per area unit. Every “small cell” integrated into the network relieves the burden
on the macrocell above it.
Small cells have been the subject of discussion in the mobile network industry for a number of years and are already in use around the globe within the
framework of WLAN-based infrastructures. Solutions based on UMTS and LTE
90
with the corresponding network-wide roll-outs, on the other hand, have yet to
be implemented and are regularly postponed by both suppliers and operators to
“next year”. Since small cells can transmit radio signals only within a very limited
range, it is sensible to install them only where they will truly be needed. There
must also be the assurance that a broadband connection is available at the site.
Need for action on the part of network operators has been identified
At this time, roll-outs using the commercially available products from system
technology suppliers are taking place here and there, although at quite a low
level. Why is that?
Each of the possible measures has its advantages and disadvantages in terms of
the achievable increase in efficiency in comparison with the requirements and
costs. Network operators want to weigh very carefully the pros and cons of the
measures for each scenario to determine which one is most suitable, both technically and commercially. The diversity of possibilities and the complexity of the
interdependencies do not at this time allow any patent remedies or established
strategies.
Many of the methods require technical modifications at mobile network locations,
and this work must be taken into account. Several network operators will have
to share central mobile network locations, especially in densely populated urban
centers. Owing to the simultaneous diversity of mobile services (GSM, UMTS,
LTE), the proposed measures quickly give rise to restrictions based on the statics
of a building, the willingness of a building owner to lease even more roof space,
or the compliance with safety zones related to electromagnetic radiation; under
certain circumstances, mobile network locations may not be usable for expanded
equipment.
However, the investments and roll-outs of the recent years (which continue in the
present day), especially in UMTS and LTE technology, have installed c apacities
which surely at this time are higher than what is required by present traffic and
presumably reach their load limits only at certain points or for short periods
(during special events, for instance).
As a consequence, the level of suffering among network operators does not
appear to be especially high at this time. Even though the network capacities
normally exceed the current levels of traffic today, the necessity (from the network o perator perspective) of setting a course which will ensure future evolution
stages for increasing capacity in good time should not be underestimated.
91
Owing to the restricted transmission range of a small cell, it must not cost more
than a fraction of the expense for one of today’s macrocells. This demands cost
reductions of as much as ten times in comparison with a macrocell deployment
on the part of the network and infrastructure. If this goal is to be achieved,
massive increases in efficiency are unavoidable and the rejection of previously
established approaches is required. Many of the demands made on macrocells,
procedures, and processes must be rigorously questioned during the introduction
of small cells because they cannot simply be taken over one-to-one.
Since experience shows that the implementation of these kinds of changes,
especially in established companies, cannot be achieved overnight, network operators would be well advised to begin looking at the introduction and deployment of small cells far in advance.
Small cells must be realized with a “small budget”
The purposeful roll-out of small cells cannot be successful unless it is possible
to keep expenditures low across the full length of the value creation chain, from
planning to installation to operation. During the implementation of small cells,
there will be a series of challenges which must be addressed. To start with, the
areas in which the deployment of small cells makes sense must be identified. Besides increasing the capacity available to the network, small cells can also result in
improvement in wireless coverage. During the system design, an answer must be
found to a key question: How can the mutual disruption (interference) between
macrocells and small cells as well as the mutual interference of small cells with
one another be minimized?
One task decisive for success concerns the acquisition of the locations where
small cells are supposed to be installed. When many different locations for small
cells are required in central urban areas, the acquisition of individual locations
as is usual for macrocells is much too time-consuming and expensive. One alternative would be the conclusion of framework agreements with companies which
own a large number of locations in the areas of interest. This could be the city
itself (street lights), transportation companies (shelters at transport stops), or the
owners and operators of illuminated advertising signs (“street furniture”).
Along with the availability of locations, the broadband connection of the
locations, the so-called backhaul, is of essential importance. If an optical fiber
connection can be realized at reasonable cost, this is of course the medium of
choice. One possible alternative would be a connection via directional radio.
92
Specialists are even discussing the possibility of a radio connection without direct
visual contact. Naturally, this would simplify deployment, but it presumes the
availability of frequencies in the lower gigahertz range – frequencies which are
suitable for the mobile radio systems themselves.
Planning and engineering processes, which have been designed above all with
macrocells in mind, must be radically simplified for the introduction of small
cells. Otherwise, the cost target for a small cell cannot be reached. Possible
approaches might be the definition of only a very few standard construction
types of small cells or the question of limits on what can or should be expended
for planning so that the best location of a small cell in terms of radio technology
and in view of network capacity can be determined.
Presumably the greatest cost savings during the installation of small cells will be
achieved if it is possible to carry out the installation of the small cell, including
backhaul, in one fell swoop without having to travel to the location more than
once. The prerequisite for this would be a construction design for small cells
which is standardized to the greatest possible extent and allows for only very few
variants.
Figure 2: Small Cell Deployment on a Street Light
Small Cell Antenne
Source: Detecon
93
Ultimately, a small cell must be integrated and operated as a network element
in an existing network, so the first consideration is securing full interoperability
with existing network elements. Moreover, it certainly makes sense to reconsider
the high standards expected of a macrocell when it comes to the availability and
performance of a small cell in network operation.
A small cell must absolutely be realizable with a “small budget” because of its
specific, but low degree of coverage. If this type of “smart planning” and “smart
budgeting” is a success, if the realization of a small cell is less expensive than the
expansion of the macrocell above it using the technologies for increasing e fficiency
and capacity described above, the deployment of small cells can b ecome a story of
sustained success for network operators.
94
95
Software-based Integrated
Network Planning:
Requirements and Benefits
Lutz Fritzsche, Dr. Mathias Schweigel
> Integrated network planning is the prerequisite
for low-cost network operation and efficient
network expansion. It must combine the various
aspects in such a way that it can deliver the desired
results in the required quality and in the available
time so that decisions can be made.
> The success achieved by the use of specialized
tools for integrated network planning finds
measurable expression in the amount of time saved
and financial benefits and can be documented by
examples.
> Detecon offers NetWorks, its own network
planning and optimization software,
as a solution.
96
The “optimal network” and the necessity of tool-supported network planning
Telecommunications networks are the foundation for our modern society, based
as it is on information. Operation and expansion of the fixed and mobile networks required to secure this base tie up financial resources, in some cases in
substantial amounts. This inevitably leads to the need to optimize the use of resources. The starting point for the optimization is an end-to-end assessment of all
of the relevant resources, taking into account the various technologies being used
within a telecommunications network and their interdependencies. The possibility of using such disparate access technologies as DSL and optic fiber as well
as the various mobile network systems only adds to the complexity. Market data
containing information about purchasing power and revenues are non-technical
input variables that in some cases have substantial impact on the planning results.
Ultimately, there is no such thing as a universally applicable definition of what
constitutes an “optimal network”. There are always editions regarding the
current infrastructure, the corporate goals, the present market situation, and the
availability of resources. Integrated network planning must combine the various
aspects in such a way that it can deliver the desired results in the required quality
and in the available time so that decisions can be made.
Systems incorporating extensive information about configuration and utilization
of capacity are available for the operation of telecommunications networks. They
include network management systems (NMS) for monitoring and regulating
network operations. Inventory systems make it possible to store this type of
information at a temporal level so that the history of specific network elements
can be tracked. Systems of this type specialize in the description of the current,
actual condition of the network.
During the planning phase, however, it is important to know what the future
network (which may not even exist at this point) will look like – or rather, what
it should look like. Furthermore, it must be possible to substitute technologies
for one another hypothetically so that strategic decisions can be made. Investigations of this type must map both the existing infrastructure and the planned
technologies as precisely as possible.
The need for specialized tools during integrated network planning is often difficult to justify because success supposedly cannot be expressed in tangible monetary units. If the following points are considered, however, the opposite becomes
clear:
97
> The transition between planning of different time horizons – drafting the
strategic network design, detailed planning, implementation – must be as fast as
possible and not require any intermediate processing of data. “Frictional losses”
at interfaces must be avoided, ensuring greater precision in the obtained results.
> The processing of enormous quantities of data for thousands of network
elements, especially during detailed planning and implementation, is for all practical purposes virtually impossible without tool support.
> The uniform modeling of different network layers in fixed and mobile networks on the basis of the same perspectives and methods is driven by the use of a
family of tools, producing results that are comparable with one another.
> The requirement to deliver planning results for certain tasks within a very
short time cannot be met without the support of tools. Manual data processing
is vulnerable to errors and time-consuming.
> The cost pressure felt by network operators is enormous. The determination of
optimal solutions and the comparison of a large number of scenarios for selection
of the best (least expensive) variant are practically impossible to carry out without
software support.
> It must be possible to read, process, and visualize the data and the relationships among them in a reasonable form. Depending on the particular question,
graphic views (“How is the overload distributed nationwide?”) or lists (“How
many and what transport network sections are utilized to more than 90%?”) are
required. This is also true when examining the relationships among the layers.
> The many different planning tasks involving specific editions demand flexible
modeling that cannot be guaranteed without suitable software-based solutions.
> The automation of the planning activities through the use of the right software-based solution offers support for the optimization and acceleration of
processes.
98
Integrated network planning in practice
NetWorks is Detecon’s own tool family for realization of integrated network planning. For almost 25 years, we have been developing and distributing this software,
a program that supports network operators, manufacturers, and consulting companies in the planning and optimization of telecommunications networks. This
story would never have been able to look back on such a long history of success
without the consistent assessment and inclusion of the framework conditions
required for integrated planning. With this as our setting, we want to illustrate
below examples of some of the aspects that enable the analysis of relationships
across layers and technologies.
Planning data must be presented in different ways according to their intended
purpose. A tabular view makes it possible to sort and count objects and is the basis
for calculations. The geographical view is generally used whenever a large number
of objects distributed over a large space is examined as it facilitates recognition of
patterns over an area. The schematic drawing is in turn meaningful when a large
number of network nodes such as routers are located at one site.
Figure 1: Variants in the Visualization of Planning Data
Tables
Synchronized!
Schematic Drawings
Geographical Views
Source: Detecon
99
These functions are frequently realized in discrete tools independent of one
another. One typical example is the calculation in Excel, documentation in Visio,
and preparation of the geographical view with the aid of ArcGIS. The disadvantage comes from the lack of synchronization among the various tools with the
consequence that modifications of the data must in part be entered a number of
times. An integrated planning solution should have no problems in creating all
three forms of presentation.
Integrated network planning must not limit itself to the isolated c onsideration
of individual network levels or technical platforms, but must always take into
account the impacts on other network layers, for example. A simple example
makes this clear. Whenever additional customers are connected to an access
node, there are of course effects on the downstream network elements in the
aggregation or core network. Making sure that there are free ports in the access
nodes when connecting additional customers obviously does not finish the job.
That is why it is absolutely essential that software-supported integrated network
planning enable both an end-to-end view of the network levels and a cross-layer
consideration across the various technologies.
A comprehensive visualization along with the straightforward computational
function plays an important role in understanding the planning results. The
relationships between the various network elements such as devices and transmission systems, some of which are quite complex, must be made visible with the
aid of the appropriate tools. Trust in the results of the software-based planning
cannot be assured without reproducible calculations.
Figure 2: Levels of a Telecommunications Network
Last Mile
Second Mile
Source: Detecon
100
Aggregation
Core
Control &
Enabling
Functions
Services
The various layers are linked to one another through routing and allocation, and
this information can be displayed by using the right tools.
If there is a cable failure, for instance, it is a simple matter to display all of the
affected services or DWDM systems. Similarly, a single click displays the wavelengths, DWDM systems and optic cables used in the routing of an Ethernet
connection from an IP backbone network. Before a cross-layer end-to-end view
can be created, however, the data must first be imported. The Detecon tool family is equipped with a broad range of functions enabling the loading of the
information, which is frequently dispersed among a number of data sources. This
import process itself reveals the advantages of an integrated approach right away:
data inconsistencies and errors which do not become apparent until information
from various systems is merged can be summed up in a report, leading in turn
to an improvement in data quality and a more efficient utilization of resources.
Integrated network planning must be capable of answering a multitude of
different questions. These editions may arise only once (during strategic analyses, for instance) or occur repeatedly. The consequent demands on the flexibility
aspect of the planning software which will be used are high.
The configurability of the planning tool is another important feature. It allows
the use of various tools for the solution depending on the problem and the
realization.
The highest degree of flexibility comes from algorithms that can be configured
independently by users and integrated into the calculation processes. NetWorks
Figure 3: Cross-layer View of Relationships
Service C
Service B
Service A
Demand for
Resources
Provision
of Services
Infrastructure
(Network Resources)
downwards
Routing over ...
Allocation by ...
upwards
Routing/Allocation Viewer
Source: Detecon
101
features an extensive algorithm library in which functions such as these can be
found:
>
>
>
>
>
The generation of optimal network structures
The determination of optimal paths for connections
The calculation of loads, capacities, availabilities, and costs
Mathematical, traffic theory, and economic calculations
The import of data from external systems and the generation of reports
Every algorithm offers options (sometimes more, sometimes fewer) that can be
selected to manage the calculations. A set of algorithm options can be saved as
a setting. A series of settings can subsequently be recorded as a macro and used
as the solution to a specific planning task. Quick access to macros for repeating
calculations is realized in the form of a special “Quick Access Bar”, enabling
efficient adaptation of the tool to the tasks currently required.
Figure 4: Examples of Varying Degrees of Automation in Network Planning
Automated
FLEXIBILITY
• Data collected and stored
• Network analysis manually initiated and automated executed
• Result as Excel file
> Fully automated
> No interaction
Wizards
• Designed for special planning tasks
Quick Access Bar
• Guide through
complete planning step from start to result
• Commands consist of several algorithm steps stored in “macros”
• Complex data changes
> Wizard define available calculation options
• Manually triggered execution of commands
• Full access to
calculation functions
> High user guidance
• User selects commands
> High flexibility
• A pool of about 1000 algorithms is available
> Limited user guidance
> Very high flexibility
Algorithms
> No user guidance
Wizard
?
Source: Detecon
102
Makro
Algorithmus
Wizards are a means of guiding users through all of the required steps of planning
tasks that have been clearly defined. Essentially, these are a kind of “automated
machines” requiring specific input data and planning rules. They are used by the
planner to calculate the desired planning results.
If it makes sense in the specific case, tasks can be fully automated and executed
without any interaction with users at all. This is especially useful for reading in
data from external data sources at regular intervals so that the information about
the network is always up to date.
Financial benefits of tool-supported integrated network planning
The positive financial effects of tool-supported integrated network planning have
been described and can be verified by examples with concrete figures.
Example 1: A network operator was able to realize additional revenues and postpone investments.
By using NetWorks in its planning, a network operator was able to accelerate
substantially the planning process across its full length, from the access to the
aggregation to the backbone components. As a consequence, it was able to
provide access to 50,000 triple play customers three months earlier than originally
scheduled; assuming “€50 per customer and month”, the additional revenues
amounted to about €7.5 million. Simultaneously, a more effective planning of
optical fiber enabled the postponement of investments in the cable network to a
later point in time.
Example 2: A network operator was able to stabilize the customer base and revenues by minimizing the number of lost and blocked connections.
Cross-layer and cross-technology modeling using NetWorks enabled the identification of capacity bottlenecks and their elimination within a short period of
time. These incidents were the root cause for the poor quality of the service. The
resulting benefits can be clearly shown by simple calculation examples. If 0.1%
of the customers change to competitors because of the consistently poor quality
of the service, revenues decline by €3.6 million a year. The assumption here was
an average revenue of €30 per month and user and ten million customers. In
addition, revenues were stabilized by reducing the number of lost and blocked
103
connections. Assuming 120 million voice minutes during the peak traffic hour
and a rate of €0.12 per minute, a quota of 0.1% of blocked connections leads to
revenue losses of €14,440 a day. These losses total more than five million euros
a year.
NetWorks is a solution for integrated network planning
Integrated network planning is the prerequisite for low-cost network operation
and efficient network expansion. Owing to the diversity of the components
required for the operation of a telecommunications network, the data that must
be taken into consideration, and the many different tasks that must be performed, this is a job that can be handled only by using the appropriate tools.
Detecon offers a solution with NetWorks, its network planning and optimization
software.
104
105
Network Economics – Is
There a Win-Win Option?
Dr. Rong Zhao
> Network Investments cannot be limited to
considerations of technology, but must also
take the economy into account to maximize
network profitability.
> Network Economics supports financial decisions
realizing a win-win result from the marketing and
technology perspective.
> Possible use cases are a regionalized CAPEX-OPEX
allocation optimization or roll-out strategy
steared by demand.
106
What is “network economics”?
“Now I have enough budget to invest in anything anywhere!” Some network
operators have fond recollections of such statements, characterizing as they do
the Golden Age when high product margins could be realized with only a few
technologies and services, when competition was minimal and customer churn
low. Like it or not, these conditions belong to the history books.
Network operators must upgrade their networks if they want to maintain their
leadership in technology or marketing and improve the user experience. As
financial pressure grows, budget planning becomes more limited and restrictive
for network operators. The management board has to make decisions to ensure
that the right technologies and services are in place in the right areas at the right
time. Their deliberations concerning network investments cannot be limited to
considerations of technology, but must also take the economy into account. Then
network profitability can be maximized and a return on investment (ROI) at an
early stage of the business plan can be assured. The network economics approach
supports financial decisions aimed at achieving a win-win situation with regard
to technology and marketing.
Figure 1 depicts key factors and focal points of network economics in telecommunications networks based on Detecon’s experience in the industry. The critical
Figure 1: Overview of Key Factors and Focal Point of Network Economics
Key Factors
• Multi-layers (access/transport/core
networks) planning
• Cost efficiency transparency
•Revenue
Forecasting
•Regional
Analysis
High Level
Planning
(Top-down)
• NPV Analysis
• Budget allocation
Network-Economics
Approaches
Network
Economics
Marketing
Low
Planning‘s Complexity
and Accuracy
Technology
Main Focus
Finance
Methodologies, Tool Set, Processes
Low Level
Planning
(Bottom-Up) Technology Marketing
Finance
Source: Detecon
107
High
success factors of technology and marketing strategic planning are cost efficiency
and transparency across all layers of the network – access, aggregation, transport,
core network – and regionalized market analyses and revenue forecasts. From a
financial perspective, minimum costs and investments do not produce maximum
yield on investment in many cases. Financial performance indicators such as the
net present value (NPV) or the budget allocation should be considered without
fail.
Most network operators distinguish between so-called low-level and high-level
planning of the networks and have assigned discrete teams or departments to
handle these two planning tasks. In general, low-level planning uses a bottomup approach requiring greater precision. For a technically detailed design, for
instance, the concrete geography-based physical infrastructure –mobile radio
planning, optical fiber/copper cable connected with access or distribution nodes,
customer access – is taken into account. Low-level marketing planning is related
to customer-based services (tending to the short-term or current perspective),
pricing, and the resulting earnings for which planning is highly granular and
distributed spatially as well. The use of a low-level plan makes it possible to
obtain an accurate estimate of investments and costs as well as the revenue. This
plan, however, is not flexible enough to support middle- and long-term planning.
In contrast, high-level planning is based on a top-down approach and focuses its
attention on middle- or even long-term strategic planning. Examples of this type
are the technology road map, the future marketing strategy, margins, and return
on investment. It is an efficient way to contribute to strategic management while
saving time. The down side is that it is less detailed, not as cost-transparent, and
is limited in what it can do to increase cost efficiency in the short run.
The focus of network economics is a modeling approach located between highlevel and low-level planning and aimed at enhancing cost efficiency and maximizing network profitability for the strategic planning. The accuracy of the
planning and the focus of the modeling are dependent on the assessment criteria
of the business cases or financial plans in a pre-defined period of time. Network
economics generally considers the following points:
>Technology: middle- or long-term technology strategy and network
infrastructure across all layers of the network, e.g. alternative mobile and fixed
network technologies, active network elements, connections, locations (cable
splitters, main distributors, exchanges, base station), technical ports, level of cell
utilization.
108
> Marketing: middle- or long-term marketing strategy and regionalized a nalyses,
e.g. regarding demand for services, pricing, market segments (fixed, mobile,
convergent), market share, ARPA/ARPU, population (density), households,
intensity of competition, demand forecasts (traffic or conversion rate), estimated
revenues.
> Finances: middle- or long-term budget planning and CAPEX/OPEX allocation, financial performance indicators such as net present value (NPV), payback,
cash flow, return on investment (ROI).
Challenges of network economics
Network economics methods are a way to support network operators in making
a cost-efficient decision at the right time, while simultaneously improving the
user experience or maintaining their technology leadership. Figure 2 depicts the
major challenges for the technology and marketing sides which must be solved
on the road to maximum network profitability.
In general, the problems for greenfield network operators are less critical. Using
an explicit network architecture and new technologies, they can enter the
market straightaway with an efficient business plan. Many operators, however,
Figure 2: Challenges for Network Economics
TECHNOLOGY
Complexity of multi-layer networks
• access, transport, core
• Normally >20 technologies for fixed &
mobile networks coexist
• Legacy and new
• Various vendor solutions
Untransparent End-to-End view of
network costs
• Individual (sectoring) network planning
• Incomparability on the cost calculation
and forecasting
Additional costs during network migration/
upgrade
• CAPEX increase due to integration to other network layers or IT-processes
• Overall (OPEX) increment due to parallel network operations
MARKETING
Finance
View
High
pressure
on
profitability
and
cash
flow
of
operators
limit the
investment
possibilities
Market saturation and fierce competition
• High penetration has been already achieved
• Falling ARPUs and ARPAs due to competitive
pressure
Inexplicit mapping from products/services to
technologies
• Difficult measure for „services-technologies“
• Hard assessment for cannibalization between
new and old services
Disconnecting with Technology
• Different middle/long-term planning (e.g.
demand forecasting different from technology
roadmap)
• Regional differences for products and network
infrastructure
Source: Detecon
109
have previously implemented a number of network platforms at different time.
Many network platforms are planned individually in different departments,
independent cost models or methods. Preparing a transparent and comparable
cost a nalysis across all layers of a network is quite a challenge. Moreover, the
costs for shutting down legacy platforms, migration, or unforeseen circumstances
(CAPEX and OPEX) must be taken into account during the implementation of
new technologies.
Planning the marketing-related variables is equally challenging owing to the
saturation of the market, the volatility of customer needs, the substitution risks
of products through new technologies or market players, and hard-fought battles
with the competition. Diversified services are attractive and can be realized by
using various technologies in fixed or mobile networks. Having a broad range of
possibilities to choose from is an advantage on the one hand, but it also makes
the selection of the right option more complex. Matching services to technologies often proves to be difficult or inadequate. In addition, the middle- and
long-term planning of the use of technologies (selection decision, technical rollout) and of marketing (demand forecasts) are in some cases decoupled from each
other, especially at the spatial level.
Generalized network economics approach
Future network investments will require an efficient analysis process integrating
technological capabilities, marketing input, and financial performance indicators.
We propose a generalized network economics approach which, as can be seen in
Figure 3, is based on three phases: setup and definition in Phase 1; modeling, fine
tuning, and adjustment in Phase 2; and analysis of the results and recommen
dations in Phase 3.
Phase 1 focuses on the analysis of technology and marketing input for the various
network layers and products or services. Inclusion of the current situation and
future strategy should be regionalized with respect to the marketing-related input
parameters and network technology. Moreover, the first feasibility check should
be conducted in close cooperation between the people in charge of the technology and marketing before the modeling of the network economics analyses.
During Phase 2, the technical planning scenarios, the calculation of the network
costs (CAPEX/OPEX), and the revenue forecast are prepared. The model should
have the required flexibility so that it can be aligned with the pre-defined scope.
110
The modeling results must then be aligned during an iterative process between
technology and marketing. Various scenarios and sensitivities can subsequently
be analyzed for the purpose of optimizing the cost efficiency of the future networks for all network layers.
Finally, during Phase 3, the future network costs and revenues serve as the fundamental input for the calculation of the financial performance indicators such
as NPV. The financial performance indicators are the basis for determining what
regions or areas present a positive business case.
A network economics approach should be effectively supported by a tool set.
This tool set makes it possible to incorporate technological and marketing
information in equal measure, thus resolving such disparate editions as CAPEX
optimization, technical cost modeling, integrated solutions for fixed and mobile
networks, or cross-layer planning. An even greater advantage arises when one or
a small number of technological planning tools compatible with one another are
applied. Then an end-to-end view of technologies and costs across all network
layers becomes available.
Figure 3: Generalized Network Economics Approach
Setup und Define
Current Snapshot&
Future Outlook
• As-Is status
• Technology and
marketing strategy
• Regional (area)
specifics
Technology
• Networks (Fixed/
Mobile)
•Access
•Transport/aggregation
•Core
Marketing
•Product/services
• Market share, segment
• Demand forecast
•Competition
•ARPU-/ARPA
Model, Fine-tune and Align
• Scenario and topology analysis
(network extension, new technology)
• Sensitivity analysis
Create and
define
model
Network
Economics
Modeling
Align
and
fine-tune
Calculate,
Analyze &
Validate
Analyze Results and Recommend
Future Network Costs/Revenue
• Costs for selected network layers
(Access, Transport, Core)
• Total CAPEX/OPEX and cost
development
• (Regionalized) revenue
forecasting
Optimized Business Cases
• Revenue and NPV per
network or area
• Regionalized rollout strategy
• Regionalized Budget Allocation
Category
CAPEX
• Combined view of Technology and
Marketing at the regional level
OPEX
S ub-Category
Core
Transport
Access
Devices
Links
Source: R. Zhao, F. Schröder, “How much does my future networks cost?”, Opinion Paper, Detecon, 2013
Items
111
Possible use case – regionalized CAPEX-OPEX allocation optimization or rollout strategy steered by demand
Numerous network operators see themselves confronted with CAPEX a llocation
problems during the decision-making process related to investments for
differing broadband access networks in different regions, cities or areas. They
must c onsider the market and competition situation, which also varies from one
region to another, as well as the existing network infrastructure. The objective
is the o ptimization of the CAPEX allocation to regions/areas and technologies.
Revenue and CAPEX estimate should be taken into consideration for the NPV
calculation in this case. The two key questions:
> What regions or areas have positive network profitability?
> What technologies could be recommended for an investment in
these regions or areas?
The net present value (NPV) serves as the fundamental financial performance
indicator for the assessment of the business case. The regions or areas with a
positive NPV rating are prioritized for inclusion in the finance plan. From the
technology and marketing perspective, the focus of this approach is on a rollout strategy steered by demand. A technology and marketing analysis tailored to
specific regions is indispensable. The current and future local marketing data and
the existing network infrastructure must be taken into account.
Figure 4 depicts a modeling process for analysis of all of the business cases and
optimization of the CAPEX and OPEX allocation. A number of area clusters
should be defined as a means of enhancing the precision of planning and
assessment. The number of clusters and areas is not subject to any fundamental
restrictions in this model. However, the collection of data from technology and
marketing proves to be a great challenge in actual practice when there is a high
degree of detail.
The appraisal of detailed 5-year scenarios is based on a technical cost model
and a commercial model. The technical cost model is an aid for the realization
of network planning for various access technologies and roll-out scenarios and
calculation of CAPEX and OPEX figures. The commercial model makes p
ossible
a product-related mapping of the technical network planning depicting the
relationship between the marketing planning and the technical roll-out planning.
The commercial model analyzes the revenues based on products, market segments, regions, or even ARPA/ARPU values.
112
Moreover, the figures for the next 15 years (for instance) can be extrapolated from
the commercial model for preparation of long-term financial planning for each
technology and for generation of the related financial KPIs such as NPV, payback,
cash flow, and residual value (in terms of the investment). Once the financial
analysis has been completed, the clusters and areas with a positive b usiness case
are identified and classified. The CAPEX total based on these positive business
cases can be used as the underlying reference value for budget planning. In special
cases, certain areas with a negative business case can be r etained in the business
plan because of the high revenues, competitive and strategic considerations, or a
large number of customers.
Benefits of the network economics approach
An effective network economics approach featuring a consistent multi-technology
tool set supports network operators in developing transparency across network
divisions, maintaining their efficiency in terms of network investments, maxi
mizing economic benefits, and realizing a win-win result from the marketing and
Figure 4: Modeling and Analysis Process for Optimization of the CAPEX Allocation
Detailed Modeling (5 years)
Commercial Model
Area Type
Fixed
Country
Municipality
cluster
Area Type
Cost
Modeling
Revenue & Cost
Extrapolation
Financial
Evaluation
Wireless
Wireless
Technology
NPV
HSPA+
CAPEX
Country
Payback
LTE
OPEX
Municipality
cluster
Wireless
Technology
Mapping
Cash
Contribution
Area Type
CAPEX
Wireline
Wireline
Technology
NPV
xDSL
CAPEX
Country
Payback
GPON
OPEX
Municipality
cluster
Wireline
Municipality
cluster
Commercial Model
Wireless
Mobil
Country
Technical Model
Wireline
Product
Groups
Extrapolation (up to 20 years)
Cash
Contribution
CAPEX
Area Type
Source: Hermann/Zhao/Schweigel, “Broadband Everywhere ‒ Assessment of Broadband Access Strategy Based on
Market and Cost Modeling”, Opinion Paper, Detecon, 2013
113
technology perspective. Described from the various viewpoints, the following
benefits can be determined:
Technology: A detailed overview of future network costs is indispensable for
network operators if they are to optimize cost transparency and efficiency. A
reasonable network investment enables operators to maintain their leadership in
technology and to keep pace with rising customer demands. A planning tool set
– or a tool set for cost optimization – for fixed and mobile network layers should
enable a consistent assessment of network costs in terms of the current and future
network infrastructure.
Marketing: This approach supports the mutual alignment of middle- and longterm marketing and technology strategies at the regional level. The results of the
regionalized marketing analysis, technology and product mapping, and prioritization can in turn be incorporated into the marketing strategy.
Finances: The network economics approach is a good compromise between highlevel and low-level analysis. When used with the appropriate tool set, it delivers
an accurate financial assessment of the network investments, and flexibility of
application at reasonable expense and within a short period of time.
114
115
Network Enabled Services –
IMS-based Services
Open Up New Business
Opportunities Across
All Sectors
Christoph Goertz, Raúl Kuhn
> 2015: Worldwide implementations of IMS in
mobile networks thanks to the enormous savings
from Voice over LTE (VoLTE).
> IMS as an enabling platform generates additional
revenue potential owing to lower additional costs.
> The availability of attractive network assets enables
partner companies to enhance their business models
through digitalization.
116
Network Enabled Services
VoLTE is the means to cutting costs and generating revenue
Declining revenues, market saturation, and increasing competition from OTT
providers are the causes of enormous challenges for telecommunications companies today. One highly promising approach for overcoming these challenges
is to focus on innovations developed in partnerships with other companies. A
carrier becomes an attractive partner when it is in a position to offer a convincing
service-enabling portfolio. The most important features for such a portfolio include the network assets available for new services and their differentiation from
OTT services. Providing these assets enables partners to enhance their business
models through digitalization, even creating new business models they would
not have been able to realize on their own.
From an operators’ perspective, the implementation of Voice over LTE (VoLTE),
currently the sole standardized voice solution for LTE, plays a major role. Its
assosiated All-IP transformation into an IP Multimedia Subsystem (IMS) will
allow operators to expand steadily their own network assets in a flexible framework through Rich Communication Services (RCS) and furthermore to provide
these assets to partners via an open interface (open API). What is more, for an
integrated operator with both fixed and mobile networks the utilization of a
joint, convergent IMS is the prerequisite for convergent services.
The large numbers of VoLTE market implementations around the globe in
2015 will attract plenty of attention. VoLTE implementation will give operators
the opportunity to realize enormous savings in their costs.1 For one, frequency
resources can be used more efficiently, and for another, it will be possible to turn
off the legacy circuit-switched infrastructure and introduce 2G/3G spectrum
refarming because of the “voice shift” from 2G/3G to VoLTE IMS. Besides the
large Tier 1 operators who are right now in the process of implementing VoLTE,
many other operators with about 330 LTE networks in more than 112 countries
are in the midst of preparations for exactly this step. Once a decision in favor
of an IMS/VoLTE implementation has been made, the next logical step is its
expansion by the addition of RCS components. These can be connected to IMS
with relatively little effort and have the potential to generate additional revenues.
Some of the smaller operators will also consider the possibility of starting initially
with an RCS solution from the cloud. Network operators who decide to take this
approach will be able, even without their own IMS infrastructure, to offer RCS
services to their customers, although in a limited scope.
1
Cf. “The Costs and Benefits of Voice Over Mobile Broadband (VoMBB)”, Senza-Fili Consulting, 2012.
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High compatibility secures broad reach for RCS services
In simple terms, a mobile network can be subdivided into two parts: the a ccess
network and the core network. There has been an evolution in the access n
etwork
from GSM (second generation, 2G) to UMTS (third generation, 3G) to LTE
(4G). The most distinctive feature of this development is the steady increase in
data transmission rates which can be offered to end customers. The original GSM
core network infrastructure was designed for voice service and was c onsequently
based on a circuit-switched concept. Although the GSM and UMTS core n
etwork
was extended by the packet-oriented domain of GPRS for data communication,
this separation is subject to some inherent limitations. While this step did realize
the “mobile Internet”, it was not possible for any noteworthy services (apart from
text messaging and voice) to be created. The current evolutionary step in the core
network toward IMS represents an IP transformation, but it goes beyond that in
its goal of providing a framework with standardized capabilities which e nables the
highly flexible introduction of new services. An IMS “basic framework” handles
the fundamental functions of authentication, identity m
anagement, quality of
service (QoS), charging, and session handling or routing. The so-called service
layer which is built on this foundation consists of application servers in charge
Figure: IP Transformation in Mobile Communications
2G / 3G
LTE / 2G / 3G / WiFi
ACCESS NETWORK
CORE NETWORK
mobile data
Rich Communication Services
IP
File
Video
Messaging
Transfer
Share
Voice & SMS
IP Transformation
Voice & Video Calls
IP Multimedia Subsystem
Source: Detecon
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of aspects specific to the service. In other words, offering a new service requires
nothing more than installing an additional application server. So the VoLTE and
the RCS basic services “IP messaging”, “file transfer”, and “video share” are ultimately only the first services to appear and will be followed by even more IMSbased services such as (in the near future) VoWiFi (Voice over WiFi) and ViLTE
(Video over LTE).
Numerous OTT providers offer communication services based on the mobile
Internet. However, their use is without exception limited to the specific service
because they are not compatible with one another. Inevitably, these island
solutions lead to the formation of closed user groups. In contrast to these OTT
closed user groups, GSM creates a global, universal standard with over three
billion subscribers. Owing to the large number of IMS implementations expected
around the world, it will not be long before a significant part of this reach can
be made available as a central “network asset” for all RCS-based services. What
is more, RCS services can be offered in access agnostic form, i.e., independently
of whether the access network is a 2G/3G/LTE mobile network, WiFi, or fixed
network.
Attractive ecosystem from the integration of partner companies via open API
There are two aspects which make an attractive RCS ecosystem possible. First,
a considerable number of device manufacturers integrate native RCS clients,
rendering the installation of an RCS application is unnecessary. Second, a

customer provisioning of the service takes place automatically in an RCS/IMS
operator’s network. From the customers’ perspective, all RCS services and their
extensions are available in a device agnostic form familiar to consumers from text
messaging or the telephony of a carrier.
Another asset is the end-to-end QoS solution integrated into the network. This
goes beyond any individual QoS solution for OTTs, particularly since the biggest
part of the OTT communications services can hardly be monetized (if at all),
making it very difficult for OTTs to reconcile a QoS solution with their business
models.
Ultimately, the most promising strategic approach is to make the network assets
mentioned above, plus additional attractive assets, available to partner companies
via an open interface (open API).
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From the operators’ perspective, there is potential for additional revenues b ecause,
to start with, the IMS platform is in place in any case (e.g., for VoLTE) and, in
addition, is already connected to the IT systems (billing/charging, provisioning),
so further costs and expenditures can be kept to a minimum.
Four concrete B2B use cases illustrate what can be realized with today’s RCS/IMS
assets and what potential they have to generate more revenue.
Use Case 1:
Enhanced shopping experience from real-time video sharing
Finding the right outfit for a vacation, a new job, or even just for the next party
with your friends can be a challenge. Does your wife like the suit? What does
your partner have to say about the dress? Will one of your friends possibly be
wearing the same combination? These and similar questions cannot be answered
during a spontaneous trip to a shop or in an online shop unless someone else is
with you. The risk: disappointment in every respect because your social group
has all kinds of objections – and the newly acquired items have to be returned or
exchanged.
The smart dressing room is a solution which saves everyone – from retailers to
customers – time, effort, and, above all, money. Specifically, the point here is to
enhance the shopping experience in stores and online shops by adding an (intensified) social-digital component. The reason is obvious.
The fashion industry has been trying to come to grips with a far-reaching
transformation of its business for quite a while. The pressure from increasing
competition caused by the entry of new players in online trade and from declining profit margins, which are being eaten away by complex logistics chains and
return rates as high as 30%, is putting a strain on established and new businesses
alike. Moreover, successive influencing factors of the social web – recommendations from friends on social networks, for instance – on the customer side
determine whether a shopping experience is perceived as positive or negative.
The proportion of consumers who obtain recommendations from their social
environment online before or after making purchases has already reached 35%*.
Retailers, whether in the shops around the corner or online, have been almost
helpless in countering these developments.
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Current studies2 show that exceptional (customer/shopping) experiences represent a major unique selling proposition of the same importance as price and that
customers are prepared to change from their established brands to have experiences like this.
The smart dressing room can promote such an experience. A combination of
social commerce and augmented reality shopping, the smart dressing room
realizes a video-sharing option in real time for customers so that they can receive,
give, or ask for direct feedback from their social environment. Retailers can integrate this function into their sales channels, both online and offline.
In the strictly virtual online variation, customers can try on clothes from the
retailer’s online shop at home and ask for feedback from their personal sphere
irrespective of any specific social media channel. The requested outfit is projected
onto the real-time image of the customers on the screens of their own devices
(laptop, television, or tablet). Customers can immediately get a good idea of
whether the selected outfit suits them; a sharing option allows them to show an
image or video stream to their contacts and ask other people for their opinions.
In the offline variation of the smart dressing room, retailers add a supplementary
infrastructure to dedicated rooms in their branch stores in the form of a telepresence system of virtual mirrors in the fitting rooms. Customers can, if they wish,
activate the system and talk to their friends in real time about possible purchases
before they leave the dressing room.
Besides the unique shopping experience for customers – and the strengthening of
loyalty to the retailers – the smart dressing room and related services can realize
additional profit for the retailers. New advertising options, up- and cross-selling,
and lower return rates promise a fast amortization of these infrastructure investments.
The realization of the smart dressing room using IMS/RCS can lead to
unparalleled benefits when based on a partnership with a network operator.
The c ollaboration encompasses all device types and their operating systems, is
independent of social media platforms, and relies on a global, universal, service
with mass market c apability which can provide its share of the solution without
incurring any further costs.
2 Cf. Detecon Research, 2Statista, 3E-Commerce Magazine, 4Bitkom picture reference:
http://weareorganizedchaos.com.
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Use Case 2:
Getting the best out of every event – and keeping it!
Christoph Goertz, Bartosch Awakowicz, Raúl Kuhn
Going to the stadium to watch your favorite team play can be an intoxicating
experience: the full-throated songs and chants of thousands of fans cheering
on their team, the sudden surge in excitement when the ball reaches the
striker standing all alone in front of the goalkeeper and he knocks it into
the back of the net, the deafening roar of the tens of thousands of people.
The only drawback: You can’t share the experience with friends or family who
were unable to go to the stadium with you. High-quality smartphones with impressive camera functions are seen everywhere today, including – and especially
– at sports and music events. The people in the crowds at matches and concerts
make extensive use of the devices to take pictures and videos. However, such
images only rarely succeed in capturing the atmosphere of the moment effectively.
This is where the use case Event Sharing 2.0 comes in with a new type of service
based on IMS/RCS. Football stadiums, multifunction facilities, and concert halls
in Germany provide a comprehensive multimedia infrastructure. Innumerable
camera positions cover every angle in a stadium. Whether from the bird’s-eye
view, from the touch line, the penalty spot, the manager’s bench, the section
where the Ultra fans can be found, or the goal line – everything that happens
in the stadium is recorded simultaneously by multiple cameras from different
angles.
But this infrastructure is currently used largely for live broadcasts and match
reports. Although the spectators in the stadium are a physical part of the live
event, they are in the end limited to a single perspective – the one from their
seats. They miss out on so many different images and views.
The opportunity for spectators to access these images (or at least some of them)
during the match promises enormous added value for every visitor in the stands.
An easy-to-use interface on their devices would enable users to access a selection from the available stream while in the stadium and collect the choices in a
play list for every highlight. The application interface includes a simple means of
choosing as many as four different camera perspectives which can subsequently
be presented and played back parallel to one another in a picture-in-picture video
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collage or other form. Every person using the service can create his or her own
short film with the most recent highlights from a number of different camera
perspectives. Moreover, every user can supplement the video files he or she has
created with a personal commentary or even – if desired – with a video shot by
the user. Users will become the directors or their own video clips!
An option for sharing videos with friends in real time which does not require
an app or community registration cannot be offered without the comprehensive
functions provided by an RCS platform. End-to-end quality of service based on
IMS makes it possible to send broadband video content to a number of viewers
at the same time without losing top quality. End-to-end in this case means that
every one of these parallel media streams is customized according to the specific
viewer’s capabilities. For instance, images in full HD resolution can be sent to
viewers sitting in front of their TV screens at home while the resolution is scaled
down adaptively for the mobile viewer with a small display and possibly poor
reception so that the images that come across are nevertheless flawless. Moreover,
a video return channel from the observer to the person attending the event could
be established. Another possibility would be to export all of the event images to
a cloud so that the recordings of the event experience would be available to the
visitors at a later time.
One could imagine a similar use case for situations besides sport events like
football matches. Users at live concerts could also enjoy added value in many
different ways from a service of this type. A short video clip from different camera
angles in combination with the live audio input from the favorite band becomes
a personal live music video and the best possible souvenir of a fantastic concert.
Access to images from sports and music events might be limited to the area within
the venue, for instance, or require various verification steps. This is another field
where RCS offers flexible options and tools to maintain the exclusivity of the user
group and prevent any misuse of the service. Nevertheless, legitimate interests
such as regulation and broadcast rights would have to be clarified in a dialog with
the event organizers and owners of the rights. But as an innovative service, RCS/
IMS offers both added value and profits for everyone involved – not only for the
audiences.
The service gives event organizers and stadium operators an option which will
impressively differentiate them from competitors. The event is upgraded into an
experience. Concerns about licensing of the content can be laid to rest thanks
to IMS/RCS because network operators can limit the number of viewers to the
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people in attendance. Artists will also profit from event sharing services because
they are looking for new business potential to compensate for the loss in revenues
suffered from the decline in sales of CDs and music streaming services.
Use Case 3:
Setting sights on the future –
data glasses a new business option for carriers?
Lucas Hack
The announcement from the search engine operator and software producer
Google that it would be developing the data glasses Google Glass is a market event
similar in its radical impact to the market launch of the iPhone and iPad. Almost
as soon as the news hit the headlines, “wearables” such as glasses and wristwatches
became concrete additions to the future product lines of well-known hardware
manufacturers. But what is the real potential of data glasses?
Detecon has identified numerous use cases for smart glasses ranging from
navigation systems and infotainment in tourism to safety and

emergency
applications in the public sector to telemedicine and logistics. Data glasses can
provide many forms of added value anywhere and everywhere people need additional information about their immediate surroundings, whether in their
personal or professional lives. The manufacturers of these new devices can realize
the corresponding revenue potential in the B2C and B2B segments.3
However, even smart glasses are useless without a functional and high-performance network structure. This is precisely where the added value of the IMS/
RCS platform is to be found. Thanks to the end-to-end quality of service integrated into the network, it can meet the special real-time requirements for smart
glasses applications. Broadband multimedia communication can be combined
with location-based services to exploit highly promising potential. Carriers that
have developed a well-thought-out wearables strategy can take the lead on a new
market and (in cooperation with manufacturers) offer exclusive devices in combination with attractive data packages to their customers.
As has been seen in the cooperation with hardware manufacturers for the market
launch of new devices, telecommunications companies can seize a “first mover
3 Cf. Wearable Technology: Trends, Ecosystems, and Strategic Options for Carriers, Theobaldt/Jansche, in DMR “Internet of Things”, edition 1/2015, http://www.detecon.com/de/Publikationen/trends-ökosystem-undstrategische-optionen-für-carrier.
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advantage” here and position themselves as attractive partners for collaboration
in the provision of services. In addition, previously established cooperative
ventures with other OTT service providers can be extended to the new device
and enhanced with relevant services for customers, a step completely in line with
the principle of open and future-oriented business models.
However, potential for cooperation awaits in another branch of industry, one
which would be completely new for operators. Unlike any of the other devices
which have appeared in recent years, data glasses and watches could be turned
into fashion accessories. In this role, they generate a demand among users for the
most attractive model possible. The consequence is that the data glasses of the future will not just be simple frames – they will, in cooperation with major fashion
brands, be integrated into sunglasses and genuine optical aids.
Carriers that integrate attractive products, services, and rates from the w
earables
segment into their portfolio will appear as preferred partners to the fashion
industry in Germany.
Moreover, IMS/RCS will serve as an enabler so that a carrier’s network assets can
be made available for services related to smart glasses.
Use Case 4:
Safety services of the next generation
Andreas Obst, Dr. Andreas Schieder
Everybody is all too familiar with the following situation. You are driving on
the highway, and traffic is flowing smoothly. The latest traffic warnings gave no
reason to be concerned. All the bigger then – and all the more unpleasant – is
the surprise when suddenly the emergency flashers and brake lights of the cars
in front of you light up, the cars start slowing down and ultimately come to a
complete stop. There is no end to the stalled traffic as far ahead as you can see,
and before you can think twice, traffic has come to a standstill as far behind you
as you can see.
While this is at worst a serious annoyance and a waste of time for drivers, it can
be a genuine problem for emergency services. They are dependent on statements
from eye witnesses onsite for determining the severity of the situation so that
they can make an initial appraisal of what is required. Nowadays, information
which can be helpful in getting a grasp of the situation circulates in social media
such as Twitter and Facebook, but at this point in time this information cannot
be used by the first-aiders.
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RCS/IMS-based applications can simplify the situation analysis, making the
work of emergency services more secure and efficient. Essentially, the aim here
would be to supplement the flow of information during emergency and security
incidents (which has basically remained unchanged for decades) with new knowledge. Just as in the past, government authorities such as firefighters, police, and
other emergency services rely first and foremost on a system which is limited
to voice and data transmission over narrow bandwidths. However, it is often
necessary to provide more extensive information automatically to the emergency
personnel in advance – from real-time images captured by nearby cameras to
information from social media.
The integration of a comprehensive infrastructure based on RCS/IMS into the
everyday operation of security authorities can provide this extension and improve
the work and ultimately the efficiency of emergency services permanently. For
instance, services based on IMS/RCS make it possible to aggregate p
arallel
multimedia content from a broad range of sources. Besides the end-to-end
quality of service, IMS offers specific priority for police and firefighters which has
already been integrated into the network as part of the regulatory requirements
for VoLTE. No less important is the goal-oriented utilization of these new media
as an information medium so that the population can be notified, practically in
real time, about potentially dangerous situations and the appropriate rules of
conduct. In such a case, RCS, being a global, universal network, combined with
native clients in devices provides an optimal asset which cannot be offered by any
OTT service.
The implementation of such a system with full-area coverage would enable authorities to ensure that all of the data relevant for a security incident or emergency
could be made available virtually in real time according to regulated priorities.
What is more, since IMS/RCS is an international standard, cooperation across
national borders would also be greatly simplified.
By actively selling such systems and the corresponding services, t elecommunications
companies can secure highly profitable customer segments (national g overnment
authorities for safety and security) or develop new ones such as the field of private
security services. Simultaneously, they can enter into cooperation agreements
with service providers who must install and maintain the infrastructure.
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Initiatives of this nature must of course be driven in observation of data protection standards and the needs of the population. A company like Deutsche Telekom, which is experienced in dealing with sensitive data and must maintain the
trust of its customers (by working unceasingly to earn this trust), can function as
an experienced partner in this respect as well.
Realization of future revenues
The concrete product ideas presented here have illustrated the potential inherent
in services based on IMS/RCS. IMS/RCS has attractive network assets for
telecommunications companies and can make these assets available to partners
via an open interface. In turn, these partners can expand the scope of their
business models and develop new fields of business which would be unthinkable
if they were acting on their own. The bottom line is that additional revenues can
be realized for both sides. In the future, it will even be possible to supplement the
IMS/RCS API with a Javascript API using WebRTC, which will open the door
to the exploitation of significantly greater potential.
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Variations for
Device Virtualization –
Opportunities for
Network Operators?
Claus Eßmann, Dr. Peter Krüssel
> Viewed against the setting of the ongoing
iscussions about security extending even to the
d
devices themselves, the ideas under consideration
for virtualization of device functions for network
operators represent a scenario which may well gain in
significance in the future.
> The concept of the “cloudphone” is based
on the key asset held by operators: the secure
telecommunications network.
> The challenges which must be mastered arise from
the editions of network quality, cloud solution,
infrastructure on the device side, price models, and
the market power of the OTTs.
> They are countered by the chances offered by new
business opportunities which simultaneously secure
greater leverage in the competition with OTTs.
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Variations for Device Virtualization – Opportunities for Network Operators?
Virtualization of device functions accelerating
As more and more network functions are virtualized (network function
virtualization, NFV) and IT principles find increasingly greater application in
traditional network technology (software defined networks, SDN), the idea
of the virtualization of device functions is gaining in importance for network
operators as an element of the cloud discussions. A distinction can be made
among various forms and definitions.
Virtualization on the PC: When we talk about virtualization in IT, we normally
think about PCs with virtual machines that enable the simultaneous operation
of two working environments on the same computer. One example of such a
machine is a Linux PC which has been set up to allow the launch of a v irtual
Microsoft Windows environment enabling the use of Microsoft Office in a
window on this Linux PC. This virtualization method requires greater resources
than a non-virtualized PC (memory, processor) because two completely s eparate
environments must share the same resources. The environments themselves can be
operated completely independently so that an exchange of data among different
environments becomes significantly more difficult. A much older method from
the 1990s is desktop virtualization using so-called “thin clients”. In this case, the
working environment consisting of operating system, Office programs, and other
tools is loaded from a central server and temporarily operated on the computer
when the thin client is started; since the computer itself does not have a hard
drive, however, everything has to be reloaded from the server again when the
system is booted the next time. While this has major advantages with regard to
the maintenance and security of the working environment, it requires a fast and
secure Internet connection for downloading the working environment if the user
experience is not to suffer from negative effects.
Virtualization on the smartphone: There has been talk about virtualization on
smartphones, especially with the aid of virtual environments, since 2008. As
the popularity of “Bring Your Own Device” (BYOD) has grown in the business
world, virtualization techniques have appeared as one way of “shielding” business
data and applications on private cell phones so that unauthorized access is not
possible.
Virtualization using a container solution means creating a separate e nvironment
on the smartphone where the business applications and business data are
located and which can be administrated remotely by the corporate IT staff. The
container, in technical terms an app with its own environment on the smart-
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phone, is encrypted. The applications in this container should be able to communicate with the company’s IT solely via an encrypted connection so that security
is enhanced even further.
Various security guidelines such as the length of a password or the term of v alidity
of a password can be administrated remotely on the device, even without direct
access, by using a suitable mobile device management solution.
The advantages of this solution are found in the capability of maintaining and
administrating the device remotely, in the complete separation of private and
business “hemispheres”, and in increased security – provided that the user
complies with the security regulations.
Disadvantages arise because the measures securing the business environment
also prevent the integration of the business telephone book into the telephony
application (just one example). Names are not displayed when a business call
comes through. The possibility to override the restrictions on use by ignoring
the s ecurity regulations (e.g., by storing business contacts in the personal address
book) is another disadvantage.
Virtualization using virtual machines: This form of virtualization functions the
same way it works on a PC and is offered by VMWare and others. The v irtualization
is not limited to a special (memory) area of the smartphone; a complete second
operating system is installed on a virtual hardware platform (processor, memory,
interfaces to the outside). The required applications are installed on this virtual
smartphone, which is nothing other than mirrored memory. Hardware support
for virtualization has now been implemented on the newer ARM1 system-on
chips, the SoCs – the integrated processor of a smartphone (the ARM architecture has a market share of over 90% and is the undisputed market leader). This
hardware support is valuable because the security of a virtualization is all the
greater the closer to the hardware it takes place.
The advantages of this type of virtualization are, on the one hand, the ability
to implement the separation of the two environments with a very high level
of security and, on the other, a substantially improved “user experience” over a
container solution because each environment is complete “in itself ” and has, for
instance, its own telephony app.
1
The ARM architecture has a market share of over 90% and is undisputed market leader.
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These positive factors are countered by the demand for greater resources b ecause
essentially two smartphones are being “operated” on one hardware platform.
Moreover, absolute security remains an illusion here as well: back in 2008, a
Russian security expert demonstrated during a security conference (“Black Hat”)
how a virtual machine on a PC can be “hacked”. As virtual machines spread to
smartphones, hackers can be expected to focus to an equal extent on disrupting
them.
Back to the roots – or virtualization taken to the next level
When we look at the disadvantages of the various virtualization technologies
described above, the question arises as to whether security can be improved by
applying the concept of virtualization in a different way, taking into account
the assets held by a mobile network operator: the secure telecommunications
network, which in these times of 4G/LTE and 5G of the future has become, and
will become even more so, a transmission network strictly for the transfer of data
on IP basis.
The idea here is to reverse the trend and turn a “smart” phone back into a “dumb”
phone analogously to the thin clients for PCs. This device works completely
in the cloud, meaning that the cell phone provides the essentials: visualization
and presentation of information. The technical specifications of the phone are
limited to what is absolutely necessary: a processor, main memory, flash memory,
graphics processor.
But now, instead of installing “only” the complete operating environment
consisting of operating system and the required applications onto the phone and
running the applications on the device (as is the case for a thin client), it is
possible to go one step further. Now the operating environment for the phone
does not run on the phone itself, but on a central server which transmits solely
the visual presentation of the apps, a data stream, to the device itself. The device
merely accepts the user’s input and sends it on to the server for processing. This
type of virtualization or visualization shifts the intelligence from the device to
the network or the servers connected via the network. In other words: the intelligence is shifted to the cloud. The traditional smartphone becomes the aforementioned “dumbphone” or, more precisely, a “cloudphone”. Similar concepts
for the virtualization of the traditional set-top box (vSTB) for television sets are
already making the rounds. The ideas for these devices are on the development
road maps for various carriers. As a rule, they utilize the traditional fixed network
or the home WiFi network. The application of these principles to the mobile
network and mobile device will be the next stage of evolution. Another trend
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in the d
irection of “cloudification” is cloud gaming, the playing of games on
a virtual STB without needing an expensive game console; however, the final
breakthrough has been denied as of this point because of technological limitations such as the long latency periods that prevent a satisfactory game-playing
experience.
But where are the business opportunities for telecommunications companies,
and how can they be turned into a “win-win” situation for operators and their
customers?
To start with, operators are regarded as “trustworthy” and their infrastructure is
accepted as secure. If operators now begin to offer this kind of virtualization or
visualization as a “managed service” featuring various interfaces to the corporate
IT departments of business customers, it will be the first step toward breaking
out of the vicious circle of the growing dependency of operators and customers
on device manufacturers and large OTT ecosystem providers such as Google or
Apple or, in the business customer segment, on companies such as BlackBerry,
Samsung, or MobileIron because nothing more than a “minimal hardware
solution” will be required from manufacturers. The device manufacturers will no
longer be the one and only source for the entire operating system for the device,
and no longer will users be forced to accept the device manufacturers’ control
of the environment. This operating system can be hosted in “the” cloud by the
operator, for instance, or even administrated in a company’s private cloud.
Risks and obstacles from the carrier perspective ...
Before carriers can successfully realize this line of attack, they will have to create
a number of different prerequisites and clear various obstacles out of the way.
On the network side, conditions must be in place to ensure that the customer
experience during the use of these “cloudphones” is comparable with the quality
of use for modern smartphones from various manufacturers or OTT providers
that has become familiar and is cherished among users, and this means being able
to handle the massive increase in data traffic that will be involved. The network
capacities and network coverage must satisfy the rising demands, which may
turn into a driver for the development of 5G networks. We refer here as well
to the possible ways to increase network capacity in mobile networks described
in this and the previous edition.2 Innovative solutions such as edge caches or
2
Cf. Krah/Eckstein in this edition, Small Cells – Taking Stock; cf. also Petry, Future Broadband
Communications. Between Wishful Thinking and Reality, in Future Telco, Profitability in Telecommunications: Seven Levers Secure the Future, 2014.
132
WiFi offloading will be required here, above all in those areas such as tunnels or
deep indoor which cannot be reached by conventional mobile network coverage.
Serious quality deficiencies would spell the immediate doom of these projects. It
would be important – perhaps even indispensable for success – to give network
priority to the users of this solution. This in turn, however, leads to the edition of
network neutrality and regulatory feasibility.3
Securing the acceptance of this type of solution by providing the required network
quality is of course not all; a convincing cloud solution offering functional performance in combination with improved user experience similar to that coming
from established OTT providers must also be created. Unlike the systems of the
OTTs such as Apple which are more or less closed because of the meshing of
devices, operating systems, and the world of apps on the network, over-the-top
products from carriers would have to be open in their character and offer a comparable range of services, applications, functions, and user experience. This could
be accomplished by using HTML5 apps to realize solutions building on existing
structures such as ChromeOS and FirefoxOS while refining these concepts even
further. An approach of this type would have a great advantage in two respects:
one, operators would not have to “reinvent the wheel”, and second, they would
not have to start “from scratch” with their apps.
Carriers would also have to produce the required infrastructure on the device
side. Neither the hardware nor the required software is available at this time. One
imaginable approach, however, would be the conversion of devices from the lower price brackets or the awarding of production to contract producers. Obviously
no support for this approach can be expected from device manufactures – the
large ones, anyway. The design of the devices should in the long run be based
on standardized hardware and software interfaces, e.g., in accordance with the
provisions of the MIPI specifications.4
Moreover, the increased traffic volume induced by the “cloudphone” customers
must not have a negative impact on the customers’ invoices. Price models which
do not charge this specific traffic to the volume-related rate plans in common use
will be necessary.
Another challenge for carriers will undoubtedly arise from the widespread dissemination, brand appeal, and acceptance (generating an almost religious fervor in
many cases) of well-known device manufacturers like Apple or Samsung as well
3
4
Cf. Dörflinger/Heuermann, OTTS Versus Telcos, pp. 42 et seqq., Steingröver/Hessler,
The Rise of OTT Players pp. 32 et seqq. in this edition.
MIPI stands for mobile industry processor interface.
133
as the extensive and established functions of the smartphones. Many users would
find it difficult to part from their beloved smartphones and to cap their close ties
to an Internet-based ecosystem without weighty and compelling reasons to do so.
In this respect, the marketing departments of the carriers must respond; starting
from a professional market segmentation, they must clearly describe the specific
benefits and advantages over previous usage habits. Possible arguments are the
increased security and the simplification of the effort required to manage the
devices and their environments comprising the mobile OS and the apps.
Another obstacle is found in the imposing market power of the established device
manufacturers/OTT providers. Few carriers can afford to ruffle these players’
feathers because of the strength of the latter’s products in customers’ preference
structures and the strong demand generated by this position. For instance, the
temporary exclusivity enjoyed by carriers in marketing new devices guarantees
their marketing success in that particular year.
... but tremendous opportunities for carriers’ positioning in competition
Despite the complexity of the fundamental conditions required and the inherent
risks, the “cloudphone” concept comes with tremendous opportunities for
carriers.
The entry into a device business which is independent of specific brands and
the meshing of device, network, and cloud-based services open up new business
opportunities for operators, possibly for system integrators as well. Suitable
“cloudphones” can be produced at low cost by contract manufacturers because
of the reduced complexity of the hardware requirements, operating systems are
available or adaptable on the market at low cost or in some cases can even be used
free of charge (Android, for example).
Operators could rigorously exploit their core asset – their control over the telecommunications network – to the advantage of their customers, provided that
customers relying on these virtualized devices and solutions enjoy prioritized
treatment in the network. For example, the carriers would have the chance to
couple this approach with the QoS and enabling functionalities of the IMS/
RCS technology currently being implemented at many carriers as part of the
all-IP transformation.5 Theoretically, its use will realize a worldwide reach of 3.4
billion mobile network users (4.6 billion in 2020) as soon as all carriers have
converted to all-IP/IMS. This figure is substantially higher than the worldwide
5
Cf. Goertz/Kuhn, Network Enabled Services, pp. 116 et seqq. in this edition.
134
user figures at this time of the closed user groups of Apple or Facebook. Furthermore, a WebRTC connection would open access for traditional web developers
who could then evade the regulations, some of which are restrictive, of the large
OTTs like Apple.
The approach could serve as a strategic weapon against OTTs and essentially
makes it possible to penetrate the OTTs’ business models with their closed user
groups and completely integrated ecosystems comprising devices, operating
systems, and closed cloud-based applications. Telecommunications companies
could offer an attractive alternative by combining virtualized devices at low
prices, open cloud-based solutions, and the outstanding network performance
made available specifically to these users. This does not necessarily require the
telcos to operate completely new app stores; there are a number of possibilities
for utilizing existing resources. For one, the carriers could fall back on HTML5
apps from the FirefoxOS and ChromeOS app stores; for another, it would be
possible to virtualize complete apps (such as Android apps) to include existing
apps in a new, virtual app store. This would have the further advantage that an
operator could control closely the apps being operated on the devices.
Carriers could strengthen customer loyalty by offering attractive and bundled
or aggregated applications in the cloud. Customer loyalty to the OTTs would
decline to the same degree. Carriers, system integrators, and customers would
acquire almost complete control over the operating environment, depending on
who supplied, hosted, and managed the environment.
... customers profit as well
Customers can also enjoy benefits from the “cloudphone” concept. A distinction
can be made for some aspects between the customer benefits for private users and
business customers.
Enhanced security features can be realized for business customers. Even if there
has been an attack on the device, a restart is all that is needed to restore its original condition. Moreover, the (business) data are not stored permanently on
the device; they are either found only in the device’s main memory or are not
stored there at all because they are merely visualized in the form of a data stream.
While these security aspects might be of major interest to only a small segment
of private users, this feature is one of the most compelling arguments for business
customers.
135
Furthermore, the prices for the devices will almost certainly be significantly lower;
the life cycles of these devices may exceed the usual depreciation periods. They
would be significantly more energy efficient and/or have substantially longer
battery life. While the price discussion could certainly be a good argument for
CIOs, the battery life is more a “welcome side effect”. There are also possible
OPEX savings owing to the simpler management of the cloudphones (uniform
hardware and software, reduced hotline interaction, centralized management of
updates, features, and patches). Ultimately, the solution provides flexible output
in assured quality of the contents from the cloud in formats appropriate to all of
the possible devices (tablet, PC, cloudphones, TV, etc.). In addition, the reach
of a transmission of assured quality owing to the imminent implementation of
RCS/IMS platforms among many of the world’s mobile network operators would
be immense. The utilization of an IMS platform like this would simultaneously
open the door to QoS control and various other features such as the seamless
switch of an application view from one device to another. The business customer
market must first be “prepared” for these features as well; however, the seamless
switch of business applications from one device to the next would certainly be an
interesting performance feature.
Figure: The Cloudphone
The Idea: Cloudphone Offerings from Telcos
Mobile OS
Apps
Customer and
Company Data
+
+
Public Service
Cloud
Enterprise
Private Cloud
Integrated Network (Ubiquitous
QoS-based Connectivity)
Cloudphones manufactured
and marketed by telcos
Source: Detecon
136
Prerequisites and Opportunities
Hardware –
“minimal solution”
Telco
managed
Telco
managed
Prerequisites
• Network capacity and coverage
• Guarantee QoS for cloudphone customers
• Functioning cloud solution (OS and
apps)
• Price models in consideration of the rising
data traffic for cloudphone customers
Opportunities for telcos
• New business models oriented to devices
and the cloud
• Monetarization of networks
• Strategic options against OTTs and their
closed ecosystems
• Strengthening of customer loyalty
Benefits for customers:
• Enhanced security
• Central mgmt. of updates, features,
patches
• Low device prices
• Longer battery life
• Dynamic adaptation of various CPE
output formats
For private customers, a lower price and the increased battery life are presumably
the most important characteristics that will, first, keep entry barriers low and, second, provide additional convenience. Other attributes such as enhanced security features, centralized data storage on the server (not local on the device), the adaptation of the output formats to the specific device, and the seamless, dynamic
changeover from one device to another when the location changes while using
services (cloudphone -> tablet -> STB/TV) will offer private users greater ease of
use, and that can definitely be perceived as a decisive performance differentiation.
Good chances for new business opportunities
In conclusion: the virtualization of devices and the concept of the “cloudphone”
offer network operators new business opportunities – and simultaneously greater
leverage with respect to OTTs.
137
Agile IT Architectures
for New Products –
Challenges for CIOs
Johannes Ewers
> The supreme virtue for CIOs in the future will be agility.
> The strategic utilization of an innovative technology
and process portfolio will give CIOs the chance to
enhance their contribution to value creation.
> Service partners, manufacturers, and system
integrators must be integrated into the
agile production platforms.
138
Customer orientation and agility of IT
The costs for information technology (IT) in a telecommunications company
represent only a small fraction of the costs of the network. Yet IT has a d
ecisive
impact on customer satisfaction and a company’s commercial success. It is
responsible for all of the central applications that automate business processes
like customer management, sales management, billing, and service management.
Fulfilling every aspect of these responsibilities demands of CIOs that they constantly maintain state-of-the-art IT architecture and IT service processes, respond
flexibly to new demands, and ensure a high level of security, all the while keeping
costs within reasonable bounds.
Customer orientation is one of the most important objectives for a modern communications service provider. This objective also exerts a powerful influence on
IT.
From the perspective of a telecommunications service provider, the aim is to
thrill customers with innovative products (“wow effect”) and to offer comprehensive customer service (“attention to detail”) – and all of that at competitive prices.
From the IT perspective, it means providing optimal support for all of the
planning and operating processes of the company:
>
>
>
>
Reliable and comprehensive provision of data for marketing and
product management
Error-free automation of all fulfillment and billing processes
Flexible and fast introduction of new products and innovative services
Intelligent control over all IT costs and resources
The pressures of competition in the telecommunications industry are not going
to ease up and will continue to force telecommunications companies to neverending innovation and simultaneous cutbacks in costs. The dilemma gives rise
to the overriding priority for CIOs in the coming years: agility, the adaptation of
business models and processes to rapidly changing demands. The effects will be
felt in a number of areas:
> New products: Business and operation support systems (BSS/OSS) must be
adapted to new products. Product managers will require consistent support
throughout complete product life cycles.
139
> Channels to customers: A broad range of direct and indirect channels to
customers and partner companies must be provided for all product classes.
> Big data: All of the information acquired in OSS/BSS applications will be analytically evaluated as a means of generating strategic advantages for the c ompany.
> Flexible production: DIT will shift its production to the virtual resources of
cloud architectures and the outsourcing of services as a means of achieving maximum efficiency from the invested financial resources.
> Security: The growing network of customer, partner, and supplier relationships will make more and more areas vulnerable to attack, especially from the
Internet (cyber attacks), which must be recognized and repelled.
New products and obsolete OSS/BSS
One of the trademarks of the telecommunications industry is a continuous flood
of new products. Yet they only rarely involve a technological change of generations such as from G4 to G5; they are more likely to be a matter of new rates,
product bundles, user devices, or campaigns. IP-based products such as Internet
access, VoIP, IP TV, email, or cloud storage have established a new product world
with entry opportunities for new partners.
The recipe for dealing with product innovations and for flexibilization of IT has
long been known: divide the IT architecture into one group of areas with a close
relationship to products and another group representing the generic crossover
functions. When new products are introduced, changes are required only in the
smallest number of software modules possible (local adaptation). One example
of such a blueprint comes from the TM Forum: “Frameworx”.1
The majority of modern OSS/BSS solutions are designed in alignment with this
architectural principle and provide for a clear separation between generic functions and product-related functions.
Unfortunately, many telecommunications companies are still using obsolete
applications which are often separated according to product groups (fixed

network, mobile, IP) and customer groups (private, business customers) and
1
TM Forum Frameworx is a suite of best practices and standards that provides the blueprint for effective,
efficient business operations. www.tmforum.org
140
eveloped in isolation. Since the life cycles of OSS/BSS are quite frequently
d
longer than ten years, IT architectures in the real world frequently lag far behind
the ideal structure of the blueprints.
Whoever faces this challenge has to struggle with two fundamental problems:
one is the constant change in the existing application landscape resulting from
the short-term grafting on of functions without architectural clean-up (technical
debt), the other is the poor documentation and the lack of knowledge about one’s
own system world (knowledge drain).
These two factors combine to pose significant risks during the migration to a
new platform. This is the challenge which must be faced by many CIOs – and
which they evade all too frequently. In many cases, reducing risk means first of
all improving transparency surrounding the IT landscape.
Figure 1: Modern Telco IT Architecture
Marketing & Product Management
Service Production
Customers & Partners
Service
Management
Core Capabilities
Big data analysis using
internal and external
data sources
Product life cycle
management: design,
transition, operation,
improvement
Fulfillment
Order handling, configuration,
activation
Customer interaction
across all channels
Assurance
Error recognition and
elimination, quality monitoring
Billing
Usage recording, invoicing,
payment management
Virtual
resources
Partner interactionacross
all channels
Security management
Source: Detecon
141
Multichannel sales
While in the past billing processes (revenue assurance) played a key role in IT
application management, the focus is now shifting to the parallel support of a
number of different sales channels. They include:
> Traditional brick-and-mortar stores with cash register systems, stock maintenance, logistics, and integration into marketing campaigns.
> An online shop offering to customers the entire product line, special campaigns, and comprehensive information.
> A call center handling customer queries as well as conducting call actions for
the marketing department.
These basic functions are becoming increasingly complex because they must
support partners as well as the enterprise’s own distribution channels with the
complete range of products, functions, and information:
> Independent resellers sell the products in their own stores or on their own
online platforms on a revenue-sharing or commission basis.
> VNOs or MVNOs (mobile virtual network operator) sell products under
their own brand name, at their own prices, and in bundled packages. As they
do so, they take over to a greater or lesser extent the customer processes (sales,
billing) as well as marketing.
> Outsourcing partners take over parts of the value creation chain such as the
call center, operating at high efficiency and lower cost.
> Cooperation partners offer their own services or content via the sales platform
and to the carrier’s clientele.
This means IT must operate a growing number of interfaces to partners while
providing for a strict delineation of information flows and data. Two MVNOs
competing on the market will want to be sure that their confidential data regarding products, revenues, and customers do not leak to the competition.
142
Big Data
Telecommunications companies have always been pioneers when it comes to the
subject of big data. They have been analyzing hundreds of millions of so-called
call detail records collected daily during the setup of connections in the network
for many years. The results allow important conclusions to be drawn for the
planning of network expansion, the design of future products, or the improvement of customer satisfaction.
IT is confronted with the demand for systematic expansion of the collection of
assessable data. Data from all of the functional systems like CRM, billing, or the
monitoring of malfunctions are made available and enriched by, and linked to,
external data from social networks.
Once the data have become available, the question as to how these data can be
monetarized quickly arises. The focus here is on real-time location data from
mobile network subscribers, for example. Location data of this type can be
used for product advertising, urban planning, or traffic control (location-based
services). Even though product managers may still be discussing the business
models, the CIOs must start thinking now about how the interfaces for the controlled forwarding of data and the automation of the related processes will be
designed and how they will fit into the BSS/OSS architecture. IT must be in
strict compliance with regulatory requirements and laws for data protection even
if this restricts the analysis and utilization opportunities for marketing and sales
managers.
Much has been done in recent years to broaden the scope of available solution
platforms for big data. IT architects can choose whether to collaborate with
established manufacturers like Oracle, IBM, or Teradata, join the camp of the
open source platforms, or combine the two. Starting from the basis of preliminary work from the large social media platforms and search engines, a number
of solutions such as Hadoop, Spark, and Storm have now reached a high enough
maturity level that they can be used commercially. “Hadoop” in particular, a
platform for the distributed storage and processing of extremely large data quantities on groups of low-cost computers, has established a broad base and is also
supported professionally by consulting and integration services from a number
of companies.
143
CIOs can choose from a highly diversified selection of low-cost, yet powerful big
data solutions. Their “homework” assignments here:
> Realizing the demands of marketing, sales, and other user groups on the technological platforms quickly and flexibly.
> Transferring the data from the OSS/BSS source systems and external sources
to the big data platform.
> Complying with data protection regulations and laws.
> Rapidly acquiring the know-how for efficient operation and utilization.
Product-driven IT automation
The many and varied demands ranging from flexibilization to new products, universal distribution channels, MVNO support, and product partnerships to big
data must be reflected in a modern IT architecture. The architecture principles
commonly in use give only partial consideration to these requirements.
One of the most commonly applied principles is reuse in the context of SOA (service-oriented architecture). The IT landscape is broken down into c omponents
or services which have a clearly defined task and which are as independent of one
another as possible. More complex services can be developed by combining or
orchestrating the components. One component is reused for various tasks analogously to a Lego building block. This works quite satisfactorily for some tasks,
but is inadequate for others.
In actual practice, software manufacturers provide components which require
extensive configuration as well as orchestration. The rating engine of a billing
system requires a catalog of rules defining every rate precisely and supplying the
rating algorithm. The online shop needs a product catalog which describes the
product and the relevant terms and conditions of the contract for customers
while order management requires a catalog defining the rules for provision of the
product such as device logistics, phone number assignment, or installation. The
product cannot be sold and delivered automatically until all three sets of rules
have been defined and configured. Depending on the BSS landscape and product
type, substantially more changes and configurations must be carried out.
144
The development of the sets of rules for new products, the configuration of the
function modules, and the testing of the configuration require specialists for every single module and a lot of time.
Heightening the flexibility of IT necessitates the automation of the configuration
development. A centralized product life cycle management system (PLM) is the
key:
> The PLM has a catalog for all of the significant product features, including the
marketing information.
> The PLM supports by its nature the entire life cycle, from the product idea to
the market launch to discontinuation management.
> A team of product managers oriented to marketing, sales, and technology
collaborates to draw up the product features and to document them in the PLM.
Figure 2: PLM-Driven Architecture and BSS Virtualization
Virtual BSS: Secondary Brand and MVNOs
Virtual BSS: Primary Brand
Product Management
Customer-centric Product
Definition
Product catalog, price list,
terms of delivery, SLAs
Technical Product
Definition
Production components,
configuration elements
Market-centric Product
Definition
Target customers, revenue expectations, success indicators
Big Data
Business intelligence
Operations
Support
Systems
Distribution Channels
Self-service, shops
Technical
Monitoring
Quality of
service, remedy
of malfunctions
and incidents
CRM
Customer data, contracts
Order Management
Fulfillment processes
Billing
Pre- and post-paid
Technical
Fulfillment
Activation,
provisioning,
logistics
Physical Infrastructure and Data Center
Servers, storage, networks, IT management
Source: Detecon
145
> Program generators for the various functional components generate scripts for
automatic configuration from the central product description.
> Test programs are generated for the complete automation cycle – purchase,
order management, billing.
Such a PLM also meets the demand for more transparency and documentation
of the details of the IT architecture. PLM manufacturers such as Sigma Systems/
Tribold already offer solutions for this approach, but development must move
further in the direction of end-to-end automation.
PLM becomes even more important in the MVNO context. In addition to
the maintenance of a product catalog and automation of a fulfillment chain,
the g eneration of variants for every brand and every MVNO is required. One
solution is the virtualization of the complete BSS platform. Every brand and every MVNO receives its own encapsulated environment which, while structured
according to a common template, can be configured individually. This offers an
ideal balance between speed, flexibility, and stability of the solution. A virtualization of the OSS components is not directly possible because these components
are closely tied to the physical production components – network and content
servers. But that may change over the course of the implementation of SDN/
NFV (software-defined network/network function virtualization).
Virtualization and software-defined data center
The decisive technology for meeting the growing demands on IT, especially
flexibilization in combination with simultaneous cost cutbacks, is “virtualization”
– or to use a more modern term, “cloud computing”. “Software-defined data
center” is the Number One technology subject for CIOs just as “software-defined
network” is the top subject for the CTOs.
Virtualization means that a physical component such as a server or a storage
module is assigned to a number of applications in such a way that each application has the impression of holding full control of the resource. The application
sees a “virtual representation” of the physical resource. A virtualization manager,
much like an operating system, administrates the physical resources and generates virtual resources for applications.
The application is no longer able to pinpoint the location of the resource, which
is said to be hidden in a cloud. When physical resources are located in an open
146
data center on the Internet, they are in a “public cloud”; resources in a company’s
own closed data center are in a “private cloud”. A combination of the two is a
“hybrid cloud”.
What is the point of this veiling or strict separation of physical resources from the
user’s perspective? There are a number of advantages:
> Virtualization makes it possible to change the allocation of resources to applications dynamically. If an application temporarily requires more storage or computing power, the necessary resources can be transferred from another application
which is not currently using them. The capacity of the physical components can
be utilized to the maximum.
> Applications for a number of user groups (such as MVNOs) can be distributed
among virtual environments and efficiently encapsulated.
> If a server is suddenly needed for test or development purposes, a virtual
server can be provided within seconds.
> If the user’s own data center does not have any more free capacities, a v irtual
server can be leased from a cloud provider and will also be available within
seconds.
> Applications, along with all of the related temporary data, can be frozen,
stored on a storage medium or transferred to another server, and reactivated in
their previous state.
Summing up: virtualization enhances speed and flexibility in the provision of IT
resources while helping to utilize capacities more effectively, thereby reducing
costs. Naturally, virtualization also gives rise to new challenges: IT must not only
provide virtual servers, but also disable and recycle unused servers because the
savings from the capacities which are no longer needed will otherwise be lost very
quickly. Moreover, the manufacturers of operating systems, databases, and applications of course charge license fees for software running in virtual environments,
including test systems. There are highly complex, manufacturer-specific license
models for virtualization which have been known to take more than one CIO by
surprise. A precise monitoring of the licenses which are in temporary use must be
maintained parallel to the management of the virtual environment to avoid any
inadvertent license fraud.
147
Fundamentally, a virtual server platform requires powerful management systems
for the enabling, configuring, disabling, leasing, monitoring, and backing up of
virtual resources.
As is the case for big data solutions, the manufacturers of virtualization platforms
like VMware, Microsoft, Citrix, or Oracle offer their own specific management
software for their cloud products. But these well-known producers are not alone;
new providers, open source solutions, and open standards are on the verge of
becoming established.
The software “OpenStack”,2 which is being developed by the OpenStack Foundation, an open source organization, is playing an outstanding role. OpenStack,
sponsored by more than 400 IT manufacturers and users, is a cloud operating
system that is capable of administrating a large pool of IT resources (servers,
storage units, networks); users can request and themselves administrate resources
via a web interface as well as operate a dashboard and other analysis tools to give
administrators precise control over the virtual environment.
Agile IT development and management processes
Obviously a flexible response to new demands from business models and the
opportunities of new technology requires flexible IT management models and
processes as well. Two models serving this purpose are developing into the new
standard:
> Agile development – the analysis of conventional development processes and
failed IT projects reveals that the linear model (waterfall model) of development
has reached the end of its tether in terms of what it can achieve. Iterative, agile
processes which pave the way to constant adaptation and adjustment within
process frameworks are the future.
> DevOps – the transfer of solutions from development to operation has proved
to be a hazardous obstacle on which many an IT project has foundered. DevOps
is a collection of proven procedures (best practices) used to navigate around the
dangerous reefs. The core of the processes is the close communication between
development and operation, automatic testing, continuous integration of the
solution building blocks, and iterative fulfillment. DevOps reflects many attributes of agile development.
2
OpenStack is a cloud operating system that controls large pools of computer, storage, and networking
resources throughout a data center. www.openstack.org
148
The procedures put powerful tools into the hands of the CIOs so that flexibility
and agility of IT services can be further improved. Their usefulness is not limited
to internal resources, but covers as well the collaboration with manufacturers and
system integrators who are involved in the agile process models.
Increasing the contribution to value creation is the goal
The challenges for CIOs in telecommunications companies are not going to
disappear. Essentially, these executives must enhance the agility of IT, adapt
resources flexibly to changing demands, and, at the same time, utilize all c apacities
to the full as a means of cutting costs.
New technologies such as virtualization, cloud computing, and big data provide
the technical platform needed to master the challenges. Agile process models
provide the signposts for realization. End-to-end automation, steered by product
life cycle management, is the architectural principle for the modernization of the
OSS/BSS platform. Open source solutions for cloud computing and big data
management represent capable alternatives to established products.
The strategic utilization of this innovative technology and process portfolio opens
up outstanding opportunities for CIOs to secure and even enhance their contribution to value creation in their telecommunications companies.
149
The Value of Big Data
for a Telco: Treasure Trove
or Pandora‘s Box?
Dr. Frank Wisselink, Dr. Ralf Meinberg,
Tim Horn, Julian Obeloer, Daniela Ujhelyiová
> Telcos need guidelines to discover and exploit
the potential “Treasure Trove” of Big Data,
while managing the risk effectively,
preventing turning it into a future investment
“Pandora’s Box”.
> We advise to take it step by step and
apply a methodology which we call “Agile
Economics”. This novel way to manage
risky Big Data projects is based on
statistical economics and uses real data
instead of speculative forecast models.
> Use cases that have actually been
implemented by Telcos over the last two years
provide some insights into success stories,
future opportunities, as well as challenges that
operators still need to overcome.
150
In the foreseable future, the “Treasure Trove” of Big Data can
easily turn into “Pandora´s Box”
Currently “Big Data” is beyond its “peak of inflated expectations” (Figure 1).
In the foreseeable future Big Data will be going through its “Trough of
Disillusionment”.1
Besides the disillusionment about many of first Big Data applications and
experiments, “the trough” also means that producers of the technology shake out.
How can a Telco proceed in such a risky project environment?
More than ever, questions arise how Big Data can be monetized and what the
real value of Big Data for a future Telco is. Is it really the “Treasure Trove” which
many allege? This paper provides guidelines for Telcos to discover and exploit
this potential “Treasure Trove” of Big Data, while managing the risk effectively,
preventing it from turning into a future “Pandora’s Box”.
First of all we need to define what Big Data is. Since there are many competing
technologies in Big Data combined with an upcoming technology and supplier
shakeout, a technology agnostic definition is preferable. We therefore define Big
Figure 1: Big Data Through of Disillusionment
PEAK OF INFLATED EXPECTATIONS
Internet of Things
Time until „Plateau of
Productivity“ will be reached
= 5 Years
= 2 – 5 Years
Wearable User Interfaces
Consumer 3D Printing
Big Data
Virtual
Personal
Assistants
Content Analytics
Smart
Robots
Consumer Telematics
M2M
MOVES
FROM
THE LAB
GRADUAL
ADOPTION
Enterprise 3D Printing
Mobile Health Monitoring
Cloud Computing
THROUGH OF DISILLUSIONMENT
Source: Detecon based on Gartner‘s Hype Cycle
1
Cf. Gartner’s Hype Cycle for Emerging Technologies, Gartner 2014.
151
Data as “generating additional Value by analyzing data with Volume, Variety and
Velocity” (“the 4 V’s”):
Volume: Big Data technology should be able to deal with large volumes of data.
The promise of Big Data is that multiple tens of terabytes (the size of a current
storage solution) can be processed in minutes and a total volume in the range of
petabytes (= 1015 Bytes: equivalent to the size of a thousand of current hard disk
drives) can be managed. And with the advancement of technology these numbers
will go up even further.
Variety; Big Data technology should be able to handle several types of data. It
should not only be able to find answers in data which is highly structured like
transactional data (e.g. billing data), but also be able to create information out
of sources with very little structure or none at all, like emails, customer calls or
images.
Velocity: Big Data technology should be able to analyze the large volume of data
quickly. The performance promised by Big Data systems is the support of righttime data processing. With right-time we mean that the result of data processing must be available when operationally needed, which is not necessarily realtime. For instance, Big Data must be able to interpret the threads on social media
quickly enough to detect changes in „mood”, so that steering customer perception
proactively will be possible.
Due to the fact that the topic arrived in its “Trough of Disillutionment” phase,
decisions on Big Data implementations will be primarily based on its potential
economic contribution. That why we focus in this paper on the value contribution of Big Data.
This contribution lies in the value of information a Big Data analysis provides or
in other words: “what economic benefit is obtained if I would know something
more qualified (volume, variety) and sooner (velocity)”
Figure 2 describes this relationship. It is important to understand that better
quality of information only becomes valuable if this information is applied. We
describe this as “Decision Agility”. For Telcos this means acting on the information in making better and faster decisions within the company or for example
providing a consumer better and up-to-date targeted offers in a call centre so that
the customer makes more informed decision hopefully in favour of the Telco.
2
Wisselink et al., Intelligent Business by Big Data, Detecon Opinion Paper, 2013.
152
Figure 3 describes the statistical economics part. The value of information
obtained in combining different sources and types of data will always have a margin of error due to the quality of the data used. Big Data cannot improve the
quality of data as such, but the statistical effect resulting from ability to process
larger volumes of data and combing different data sources and types of data can
increase the quality of information. Yet this quality increase can only be achieved
if these sources are governed wisely.3 Yet there will nearly always be a remainder
of uncertainty left. This is called Veracity which is defined as the “uncertainty due
to data inconsistency and incompleteness, ambiguities, latency, deception and
model approximations”.4 This means that the economic benefit of Big Data has
a degree of uncertainty as well; a proper determination of the value of Big Data
should therefore be based on statistical economics and the c orrect application of
statistical methods. Chapter 5 describes this in more detail.
If the information obtained from a properly functioning Big Data system is used in
decision agile manner, applying Big Data supported processes or business models
will have an added value compared to the existing situation. This agility can only
be reached if the appropriated processes and culture are present in a Telco.5
Figure 2: The Value of Information Using Big Data
Better
Information
Variety
Decision
Agility
Value
of Big
Data
Daten schneller
verarbeiten
Handling various types
and sources of data
Velocity
Processing large
volumes of data
Big Data Functionality
Volume
Large volumes
of Structured and
Unstructured Data
Source: Detecon
3,4 Cf. Corrigan, Integrating and governing big data, IBM 2013.
5
Cf. Quon-Lee/Peters, Big Data Implementation: Why Processes and Culture are Important Considerations,
DMR issue 1/2015, pp. 48-51.
153
The verdict on sucessful Telco information based business models is still out
The value of information obtained by Big Data analysis arises from essentially two
business models:
The first model is improving the Telco’s own business operations. Examples are
for instance enhancing the Telco’s architecture efficiency using Big Data to r educe
capex or opex spend or improvements on the revenue side due to improved
customer retention based on Big Data generated information.
The second business model concerns using Big Data generated insights to i mprove
the business of the Telco´s B2B customers. There are two main varieties:
Processing data on behalf of business customers. Here the information from the
Telco´s network of a specific B2B customer or Big Data processing of B2B Customers own data can for example be used to increase the customer’s fuel efficiency
in logistics.
The second variety debated is anonymously analyzing data derived from mostly
consumers´ data and selling it to B2B customers. This model tries to copy OTT
business models of Google and alike. We consider this model very risky since it
carries regulatory risk and concerns a mature market with already well established
players like Google and Facebook. Moreover it also comes with a serious risk of
harming the consumers’ trust towards the Telco.
Using Big Data to improve the Telco´s own operational performance (the first
business model) therefore is a sensible first step for a Telco.6 Improving network
planning & optimization, fraud detection or churn reduction seem to be the internal “sweet spots” well worth considering for a Telco.
If a Telco has extensive datacenter capacity and already processes data on behalf
of its B2B customers, upgrading these Datacenters with Big Data technology can result in valuable use cases (the second business model). Besides the
aforementioned award winning use case improving fuel efficiency of logistic fleets7
many other use cases like smarter campaign management or intelligent news discovery already exist.8
6
7
8
9
10
Cf. Narielvala, Big Data for Telcos: Hitting Internal Sweet Spots, DMR „Internet of Things“, issue 1/2015,
pp. 52-55.
Cf. „Die besten Big-Data-Projekte – T-Systems und DB Schenker senken Emissionen und Spritverbrauch“,
Computerwoche, issue 09/2014.
Cf. Big Data von T-Systems Kompendium, T-Systems 2014.
Cf. Deutsche Telekom Guiding Principles on Big Data, 2015.
Cf. Wisselink, Agile Economics A robust method for economic evaluation & controlling of game changing innovations
like Big Data, October 2014.
154
All the business models require that a Telco has to have a strong data security
and privacy governance. These must be based on clear and transparent Guiding
Principles.9 Without strong goverance Big Data can easily turn into a “Pandora’s
Box”. Breaches often result public relation desasters, losing trust of its customers
and legal consequences. All of these causing negative effects on the Telco’s core
business model, being a trustful partner to transport data. Harming this core
business by improper use of Big Data carries a high risk of destroying more value
than it could offer a Telco.
Agile Economics will minimise the risks
How can a Telco proceed in such a risky project environment where many of the
first Big Data applications and experiments fail and suppliers shake out?
Agile Economics10 is a novel innovation controlling method which allows game
changing innovation business principles, like Big Data, to be tested in practice, so
that the business cases are based on hands-on factual evidence. Since this approach
is based on statistical economics, the risks of innovations are better quantifiable
and can be systematically evaluated and managed. The nature of Agile Economics
makes it especially suitable for Big Data: Its statistical nature closely aligns with
the idiosyncrasies of Big Data.
Figure 3: The Agile Economics Learning Cycle
1. Define/Update the value of information for
the key business drivers and business case model
6.
Validate
the business
case and
continue
decision
5.
Evaluate Pilot
2.
Define
provisional
pilot scope to
Investigate
Business
Drivers
3.
Select the final pilot scope based on expected
ROI
4.
Conduct Pilot
Source: Wisselink, Smart Cities: Streetwise methods to explore mobile business opportunities,
lecture Frankfurt Goethe University, July 2014
155
Since it is based on the concept of the Value of Information, it directly addresses
the core parameter to validate within Big Data applications.
Principle I: Acknowledge risk and uncertainty
The first principle of Agile Economics is to explicitly account for risk and uncertainty in the methodology. The required statical methods have a long history in
the Oil and Gas industry. Agile Economics is based on statistical distributions
for its variables. Using statistical distributions instead of discrete variables not
only capturing the assumptions more easily, since “experts” are allowed to give a
realistic assessment based a span of values, but also captures the accuracy of those
assumptions at the same time.
Another benefit is that Agile Economics produces not only the standard economic
project evaluation criteria, but also provides numerical values of the risks involved
in those criteria. The required Monte Carlo simulations are supported by proven
standard software. Oracle Crystal Ball is the quasi industry standard.
Principle II: Learn to understand the big data iteratively
Since Big Data comes out of its “hyped” phase, it is very hard for organizations
to make sound economical assessments. Classical waterfall based innovation methods often used in Telco’s introduce risk in the evaluation of Big Data:
1. Waterfall Innovation methods usually do not allow for enough budget to experiment with market models and technology in test markets extensively in the
early phases of development. Thereby they force working with assumptions
which are not based on actual market realities.
2. Because of the previous “hype phase”, forecasts cannot be relied upon since
they are not based on historic proof.
3. Marketing research techniques do not work reliably, since consumers in panels
or questionnaires cannot unfailingly envisage the impact the innovation could
have.
4. Since the idea is in its infant stage, it is very hard to incorporate the learning
and side effects in the waterfall. In order to incorporate the learning and utilize
benefitial sides effects found it often requires a new project or a major scope
change introducing a large administrative cost burden.
156
Some Telco´s think that providing a small pot of money for exploring new
technologies would offer a universal solution to this problem. The answer is
that it does not, since it only considers (one particular) technology or is highly
product-focused. Usually, some “sexy” use cases are considered in flashy PowerPoint presentations, yet any real testing of especially the revenue side of the business models gets too little consideration.
This is where Agile Economics can offer improvements:
First of all it requires that a business model is set-up first. Based on the business
model a technology fot these pilots is chosen. In the subsequent real live pilots
this model is tried and tested in praxis. The pilots are not only used to test the
technology and estimate potential cost, but also seek for validation on the benefit
side of the business model as well.
By using real world business driven pilots, agile economics increases the likelyhood of success through the systematic and iterative gathering of information
(Schipper 2002). It breaks the vicious circle of game changing innovations being
“paralysis by analysis” using false assumptions lacking actual data: The relatively
small size of the pilots limits the initial investment and thereby risk. The learning
cyle, Figure 4, consists of the following steps.
Figure 4: The Expected Net Present Value of Information for Big Data
Expected
Net Present Value
Expected
Net Present Value
Expected Value of
Information for
Big Data
Probability
Net Present Value of
Information
without Big Data
Probability
Probability
Net Present Value of
Information
with Big Data
Erwarteter
Kapitalwert
Source: Detecon
157
1. Define/Update the business (case) model by focusing on the economic value of
information to be defined and validated in the pilot: Define economic criteria.
2. Set-up of the provisional pilot scopes based on the ability to validate economic
criteria (technology options, potential test populations etc.).
3. Final ranking and selection of pilot scope elements based on expected ROI or
other suitable criteria for the pilot.
4. Conduct the pilot using a measurement framework to validate the business
drivers.
5. Evaluate the pilot, focusing on the business drivers but also capturing unexpected side effects.
6. Validate the business case and decide how to proceed further.
A Telco should introduce Big Data step by step only
We advise Telcos to introduce Big Data step by step only. We recommend applying
a methodology which we call “Agile Economics”. Agile economics is a novel way
to manage risky Big Data projects. Since Agile Economics is based on statistical
economics, the risk of innovations is better quantifiable and can be systematically
evaluated and managed. By adopting Agile Economics, time to market reduces;
“Paralysis by Analysis” is prevented and risk is minimized, since it is based on
real data instead of speculative forecast models and explicitly quantifies risk. It is
cost-efficient, because resources are only allocated step by step and conditionally.
We recommend starting with applying Big Data for improving the operational
effectiveness of the Telco itself first. If sufficient experience has been gained, processing B2B customers’ own data as a service can be considered as a next step.
This inside out approach combined with agile economics investment control can
introduce Big Data in a Telco in a controlled and effective manner.
158
SMART DATA Use Cases
Armin Fischer
The following use cases have actually been implemented by Telcos over the last
two years and provide some insights into success stories, future opportunities, as
well as challenges that operators still need to overcome. Since Big Data is a heavily
loaded topic we prefer to talk about Smart Data rather the Big Data.
IMPROVE OPERATIONAL PERFORMANCE
Increasing customer loyalty
T-Mobile in Germany supports market research and customer experience
management through a “social media center”. The platform tracks specific keywords to identify trending topics in real time, giving the operator more response
time to counter-act successful campaigns by competitors or to identify customer
service or network editions.
Improving network performance and security
Operators can improve network performance through big data analytics both in
terms of network planning, i.e. extending coverage where the impact is greatest as
well as to monitor ongoing operations and to improve response times.
Telenor Norway uses Splunk Enterprise for troubleshooting, monitoring and
security investigations in their network. Telenor claims significant improvements
in incident investigations including fraud, in network security, as well as in overall
network availability.11
Leading Turkish MNO Turkcell is employing a smart data platform by Oracle
to monitor data such as call data records and value added service logs to detect
fraud and money laundering via prepaid cards with a yearly damage potential of
millions of dollars.12
11 Cf. http://www.splunk.com/view/splunk-at-telenor/SP-CAAAE98.
12 Cf. https://blogs.oracle.com/datamining/entry/turkcell_combats_pre_paid_calling1.
159
GENERATING ADDITIONAL REVENUES
Dynamic Analytics
Dynamic analytics builds on a Telco’s capability to create movement patterns
based on statistically extrapolated subscriber location as well as CRM data. This
can be useful information for municipal transport operators (e.g. what is the best
route for a new bus line?) but also for retail channel planning (e.g. what is the best
place to open a new sales outlet?; in which spot would my billboard-advertising
be seen by the highest number of potential customers?)
A mature example is Deutsche Telekom’s ‘Motionlogic’: based on anonymised and
aggregated statistics of Telekom customers, Motionlogic offers near real-time reactions enabling e.g. public transport offering needed alternative transport capacities. In the run-up to the market start Deutsche Telekom has successfully involved
regulatory authorities in the development of a method of the anonymization of
personal data. To proactively meet possible consumer concerns, Motionlogic even
offers an opt-out option beyond legal requirements.
Opportunity: The advantage of Telco operators over many OTT players such as
Foursquare is the sheer size of their user base as well as ability to offer statistics that
resembles a true cross section of society more closely, i.e., including all age groups
and income levels instead of being limited to heavy social media users.
Challenge: Privacy concerns and regulatory constraints are the main inhibitors to
overcome. Telefónica for instance withdrew ‘Dynamic Insights’ from the G
erman
market after considerable push back from the German press, public interest groups
and industry watchdogs. In many countries the restrictions on which subscriber
statistics may be used for analytics beyond internal purposes is severely limited.
Telcos must therefore either convince regulators that statistics can be anonymised
sufficiently to protect consumer privacy and offer appealing benefits to customers
to “opt-in”.
This example clearly shows that a Telco has to adhere to strong Big Data Privacy
Principles in order to prevent such editions.
160
Location-based mobile advertising
Location-based mobile advertising channels advertising and promotional offers
to service subscribers based on a profile of the subscribers interests to consumers
opting-in for the service. Using geofencing, subscribers receive promotional adds
on their phones directly in the vicinity of the point of sale.
T-Systems International recently launched a location based advertising service in
Hungary after a promising trial together with Magyar Telekom and 25 multinational retail brands addressing around 25.000 opt-in subscribers. Offers and
notifications are sent via SMS rather than email or in-app messaging systems,
improving the response rate.13
Opportunity: Telcos are currently only playing a minor role in location based
advertising compared to the likes of Google or Foursquare, but the ability to
ascertain location directly over the mobile network holds some benefits over OTT
players’ efforts. Foursquare customers have to check-in via ‘Swarm’ to receive local
offers, while ambient location-based services such as Highlight are continuously
running in the background and are notorious battery drainers.
Challenge: While established Telcos can address a huge user base of subscribers,
they lack the social networking capabilities of their Internet competitors. Establishing a relevant online social community has proven the best way to garner
consumer consent for personalized advertising.
13 Cf. http://www.bbj.hu/business/t-systems-international-launches-location-based-mobile-advertising_85293.
161
Social Media Performance:
The End of
Business as Usual
Dr. Winfried Ebner, Sascha Krpanic, Alexander Luyken, Andreas Penkert
> Social media are today growing more rapidly
than any other communications channel.
> ICT companies use the social web for brand
profiling and the establishment of
customer relationships. Yet tangible success
often falls far short of the envisioned goals.
> Ongoing analysis and assessment of
social media performance indicate
where success can be leveraged and what
“rules” should be taken to heart.
162
Social Media Performance Between Vision and Reality
Radio took 40 years and television required more than a decade to generate an
audience of 50 million people; Facebook and Twitter had attracted this number of
users within only a few months. Every day, users around the world spend more than
ten trillion minutes on Facebook, watch four trillion videos on YouTube, and send
340 million tweets.1 More than 500 million people worldwide are today active on
Facebook alone, making the network the world’s largest virtual network community.2
Seventy-four percent of the Internet users in Germany are registered with at least
one social network. While younger users under the age of 30 lead the statistics
at 92%, 75% of the 30- to 40-year olds are also represented on social networks – and even one out of every two people over the age of 50 uses the sites.3
Clearly social platforms have long since developed into mass media, and our daily
lives have become unimaginable without them.
Viewed against the backdrop of such enormous bundling of attention, it only
seems logical that almost 90% of managers consider social media to be the key
challenge of the next five years. They see manifold opportunities for success in
terms of effectiveness and efficiency – especially in CRM, marketing, sales, and
service.4 Selective use of social media activities and strategies enables carriers to
be more active in many different ways when fashioning the relationships to their
customers. Social media provide the customer insights needed to understand
customer requirements in greater detail. Creating a tangible experience of products, services, and brands is supposed to exercise a positive influence on decisions
to buy and to mine new revenue potential. There are some industries for which
social media represent the chance to develop direct customer contact on a major
scale for the first time. Moreover, social networks enable industries with intense
customer contact (such as telecommunications) to improve channel efficiency and
customer experience across the board through online and offline cooperation.5
There can be no dispute about the strategic relevance. Almost all of the carriers on the
market are present on at least one social network. Telekom Germany, for instance,
counts about one million fans and followers on its profiles, Vodafone Germany
1
2
3
4
5
Cf. Mattern/Huhn et al., Turning Buzz into Gold – How Pioneers Create Value from Social Media, 2012.
Cf. Absatzwirtschaft: Social Media & Me – Der Einsatz und Erfolg sozialer Netzwerke für Unternehmen,
[The Utilization and Success of Social Networks for Companies], 2011.
Cf. BITKOM: Soziale Netzwerke – Eine repräsentative Untersuchung zur Nutzung sozialer Netzwerke im
Internet [Social Networks – A Representative Study on the Use of Social Networks on the Internet], 2012.
Cf. Meffert/Sepehr, Anforderungen an den Marketing Manager der Zukunft [Demands on the Marketing Manager of the Future], Marketing Review St. Gallen, Vol. 29 [6], 2012.
Cf. Hauk Social CRM. From Digital Communication to Social Customer Excellence, in:
DMR Blue, Detecon 2013.
163
has about 780,000, and the American carrier AT&T has well over six million.6
As a rule, social media are in the meantime being pushed by top management
or the company’s own marketing department – and it is not at all unusual to
find employees or departments whose sole responsibility revolves around
activities on social networks. The primary focus of these activities is on the
customers, but personnel recruiting is important as well. For a majority of ICT
companies, the key motivation factors are the enhancement of brand awareness,
interaction with customers, and the establishment of customer relationships.7
Telecommunications companies have recognized the importance of social
networks and begun to establish structures for social media activities.

This is reflected in the financial expenditures for Web 2.0 technologies as
well; these investments have increased to the point where they account for
one-third of the total marketing budget. In addition, almost two-thirds

of the
telcos have set themselves the goal of raising their expenditures for
marketing on social networks and Web 2.0 applications even higher in 2015.8
Figure: Target Achievement of SoM Activities Based on the Example of Facebook
=Goal (“Very important”, “Important”)
= Success (“Achieved completely”, “More or less”
80
78
75
68
40
42
42
29
Company
Image
Source:
Brand
Maintenance
Establishment of
Customer
Relationships
41
27
24
Offering
of Special
Customer
Services
44
Address
Special
Marketing/
Sales
Campaigns
32
24
Special
Product
Offers
Author‘s illustration based on Absatzwirtschaft, Social Media & Me – Der Einsatz und Erfolg
sozialer Netzwerke für Unternehmen, 2011.
6 Detecon Research, 2015.
7 Cf. Absatzwirtschaft, Social Media & Me – Der Einsatz und Erfolg sozialer Netzwerke für Unternehmen, 2011.
8 Cf. BITKOM, Unternehmen investieren stark in Online-Marketing, 2014;
http://www.bitkom.org/de/presse/81149_80063.aspx.
164
At present, however, there is a huge gap between vision and reality in the implementation. Facebook is one example which clearly illustrates that success and
benefits continue to fall well short of ambitions (see chart).
But how do companies determine this? Essentially, it is apparent that a distinction
has always been made between qualitative and quantitative KPIs for measurement
of success. While on the side of the qualitative factors information about the
needs and opinions of customers is especially valued as a yardstick for success, the
quantitative factors are the “engagement” (number of comments, postings, and
responses), the “buzz” (attention of the target group/share of voice of responses),
and the number of friends, followers, or contacts. Carriers emphasize as especially
important success actions the fast response on the part of the company to current
events, the knowledge about the usage behavior of the target group, the linking
with the overall brand strategy, and the maintenance of the offered services.9
In view of the fact that companies frequently fail to achieve the targets they have
set for themselves even today, the rise of the key question about the right levers for
success, parameters, and “rules” for social media performance becomes inevitable.
What effect is actually achieved on users from certain activities and content categories, and what is important for measurement and analysis?
These and other editions were the object of an investigation conducted by Deutsche Telekom within the framework of an internal case study using data from social media reporting and a survey of about 5,000 users. The study reveals answers
about editions which are critical for success.
1. #Fanbase and #Activity tell us nothing about real reach!
Ever since the very beginning of the use of social media as a channel for companies
there has been an ongoing discussion about the relevance of the numbers of fans
and followers. The question of how frequency and intensity of user interaction
(“engagement”) are to be correctly interpreted has also been a subject of debate;
no less controversial is the matter of what conclusions about the impact of social
media activities can be drawn from the interpretation.
Many publications define the user base10 as a pre-KPI11 for statements regarding
achievable reach. The underlying assumption here is frequently that of a direct
causal relationship between rising user numbers and an increase in reach for
9
10
11
Cf. Absatzwirtschaft: Social Media & Me – Der Einsatz und Erfolg sozialer Netzwerke für Unternehmen, 2011.
For simplicity’s sake, the term “users” will serve as a synonym encompassing the full range of fans, followers, or users on social media in the following discussion.
Pre-KPI refers to a performance indicator which probably triggers a specific effect (“driver”).
165
communications measures. Nothing could be farther from the truth. Fact: no
valid conclusions about actual reach can be drawn from user volume. Not every
registered user reads a posted message. In the same way, not everyone who sees
a message – in the news feeds, for instance – actually takes notice of its content.
As a rule, experienced social media users are selective in what they read. P
rofiles
or contents are sometimes marked (“liked”) strictly for tactical reasons to ensure
that they are displayed in the latest news feed. Moreover, Facebook, for instance,
specifically limits the distribution of content (“Facebook Zero”) so that additional
media reach can be marketed for a fee. Providers must pay if they want to exploit
potential reach completely. When these and other deviation factors are considered,
it becomes clear that the assumption of a direct correlation between user numbers
and reach is untenable. Statistical tests and empirical facts in the aforementioned
case study confirm this.
The degree of activity of users in social media profiles is usually calculated as the
sum of all interactions (likes, shares, comments) in ratio to the number of all
users, the so-called “engagement rate”. As a rule, this is subject to a number of
weaknesses and blurring.12 It does not take important actions such as the playing
of videos or the viewing of photos into account, even though on some profiles
these activities make up the greatest part of the engagement. It gives consideration
solely to users, but not to their expanded network, although this network is also
significant for viral marketing. The fact that only a part of the users actually
become aware of a posting also plays a role here. Owing to these and other factors
lacking in precision, the engagement rate is not suitable for use as a post-KPI13
in determining the reach that has been achieved. There is also no proof of any
significant correlation between the number of users and their engagement.
Reach analyses in the social media field using the parameters user base and
engagement suffer as a whole from too much blurring. “Clicks” and “views” are
relatively easy to quantify with the aid of commonly used monitoring tools, but
ultimately they reveal too little about the users’ actual perception. Qualitative
indicators such as tonality (“sentiment”) and recommendations take us a little
closer to the truth, but when all is said and done, the room for interpretation
which remains is anything but negligible.
12 Why the Current Facebook Engagement Rate Calculation Is Inaccurate; Wise – Facebook Analytics.
13 Post-KPI refers to the readable consequence of a cause.
166
2. #Share of voice makes the brand visible on the social web!
One of the key goals of social media campaigns is the enhancement of and
positive impact on awareness of a brand on the Internet. The so-called share of
voice has become established as an indicator for determining this effect in the
world of social media. In simple terms, this refers to the measurement of the
frequency with which a brand or terms associated directly with it are mentioned
on the social web (“buzz”). This parameter is especially interesting for telecommunications companies in comparisons with their direct competition because it
involves implications about what brand is currently “under discussion” in the
network. Indeed, there is a significant statistical relationship here as confirmed by
the underlying case study: the higher the user-generated share of voice, the higher
the visibility of a brand in social media. This correlation is consistent in both a
positive and a negative sense; in other words, the more positive the development
of the “buzz”, the more positive the brand will most likely appear to users, and
vice-versa. Both the brand name itself as well as the many terms associated with
it are identified as “buzz”. One prominent example is “Drosselkom” [Throttlecom] – a moniker acquired by Deutsche Telekom as the consequence of a court
ruling against the limitation of data volume for flat rates and which spread on the
Internet with breathtaking speed. The Telekom share of voice during this period
showed a striking upward spike.
The share of voice marks a valid driver for brand promotion and awareness on
the social media channel. Every sender of a brand-related posting, whether from
a company or from users, can potentially affect the brand image in the one or the
other direction, depending on its content. It must be noted that there are other
relevant influencing factors such as traditional advertising media or offline word
of mouth. In the social media context, the explanatory content of this context
becomes more precise when a distinction is made between negative and p ositive
tonality (sentiment) during the measurement. Companies today deliberately
utilize the phenomenon of the user-generated share of voice as a viral marketing
instrument and cooperate with identified “influencers”. The latter are heavy users
who, for one, have a highly positive opinion of the brand and the company and,
for another, have a large network of friends themselves. They serve as viral disseminators on the user side.
3. #Content is King – but it has to be the right content
Generating a viral echo of long-lasting positive impact on the social web r equires
content that catches the attention of users regarding a specific goal. This is a
complex edition because the use of social platforms does not follow any fixed,
167
recurrent laws of nature. Companies which are serious about their activities on
the social media channel will discover that placing content in such a way that
it successfully forces the desired effect is a Herculean task indeed. Every single
company must determine precisely the preferences of its own user group, and
these preferences vary widely from one industry to the next and from one p rovider
to the next. In the telecommunications industry, for instance, price editions and
price comparisons are of great interest to users. In contrast, price contents tend
to be taboo on social platforms for car-makers in the luxury segment. Instead,
exclusive photo albums emphasizing aesthetics and the uniqueness of an automotive make will bring about the desired perception.14 A completely different
set of content factors plays a role on the sites of companies in the food and consumables sector – recipe ideas, product tests, and contests, for instance. Finding
out what content will hit closest to home for specific users demands an ongoing
and intensive analysis using social media analytics tools. Investing in empirical
analysis and conducting user surveys to go into greater depth in the effect analysis
will also be rewarding during the exploration of concrete implications for the
optimization of own content strategy obtained right at the source. In this digital
age, which is characterized by a surplus of supply meeting limited demand on
saturated markets, customers’ interests are attracted much more strongly to the
experience dimension than to the product features.15 This is especially true for
social media because their user groups, which continue to be comprised primarily
of young people, are strongly oriented to experience components. Marketing and
communication via social media always have much to do with “story telling”,
meaning that contents are embedded within a story framework and overarching
context.16 This is probably one of the few statements which can confidently claim
to be generally valid within the context of social media.
4. Don’t be afraid of the #firestorm!
One aspect which is a root cause of the tremendous uncertainty in dealing with
social media concerns the general lack of control over the Internet as a medium.
If a social media action triggers a negative reaction in its audience, it is impossible
to steer its massive spread through the Net, much less stop it, and puts the brand
image in a highly precarious position. That is how a common cliché describes it.
The good news: on the social web, positive postings and responses are more likely
to be read and noticed than negative ones. The majority of users on social platforms
14
15
16
Cf. Eilers, Wirkung von Social Media auf Marken. Eine ganzheitliche Abbildung von Markenführung in Social Media [Effect of Social Media on Brands. A Holistic Representation of Brand Management in Social Media], 2014.
Cf. Penkert, He Who Serves, Wins. Digital Transformation Calls for a New Culture of Service, in:
DMR Blue, Detecon 2015.
One example of this is the recent “MagentaEins” campaign of Deutsche Telekom, which tells a continuing story about the everyday life of the Heins family in all media.
168
are interested in positive content which creates benefits for them and are less
keen to hear negative information and reaction chains. The even better news: user
postings with negative sentiment do not immediately launch a firestorm and do
not necessarily have a harmful impact on the corporate or brand image. The huge
amounts of available information make social media users p
articularly sensitive
when it comes to distinguishing between objectively c ritical reactions and raging
polemics aimed at nothing more than spreading a negative attitude toward a company. Outpourings of rage are generally regarded as h
aving little c redibility and
only rarely have the feared consequences – even if a so-called firestorm (a storm
of outrage, often involving insults, in a communication m
edium of the Internet)
is ignited. This can happen in blog articles or c omments, Twitter messages, or
Facebook postings. Typical of a firestorm is a style of language marked by the
disparaging of people and circumstances, often involving drastic and personal
vilification of others. The objective is to awaken deliberately negative associations
in the general public.
Even if in the extreme case the negative reactions get out of hand and turn into a
firestorm, this still does not mean irreparable damage to the image. In such a case,
it is important for the affected company to keep a clear head while at the same time
taking decisive action. There are plenty of examples showing how a d
evastating
wave of outrage was brought to a happy close or even turned into a positive gain.
The computer manufacturer Dell once turned a firestorm into the so-called “Dell
Ideastorm” and became a pioneer for feedback and product communities. The
retailer Otto also turned its “Mac price disaster” into a positive experience by
means of precise communication, statements by the management board in blogs
and forums, and a contest with prizes.17 Whether a turnaround succeeds is a
matter of the right action at the moment of truth. It is the nature of social media
that any kind of “dressed up” communication or attempts at m
anipulation will
be unmasked very quickly. The elements of essential importance for the successful
management of negative reaction chains and firestorms include above all transparency, authenticity, and proactive, constructive responses to critical voices.18 Then
this frequently heard exhortation is correct: Every criticism is an opportunity!
17 Cf. Neuen, Lieschen Müllers Megafon [Lieschen Müller’s Megaphone], in: PR Magazin, 2009.
18 Cf. Penkert/Schlereth, It’s Getting Personal, in DMR, Detecon 2010.
169
Measure, assess, scrutinize – and do it regularly!
Being successful in the social media sphere is one of the challenges of the hour,
especially for telecommunications companies facing stiff competition for the
target group of young people. The criteria and requirements for reaching specific
users are diverse and subject to constant change. Strategies designed for the long
term are no longer a valid prescription in this environment because they will be
obsolete within only a short time. Anyone who wants to “play” the channel sustainably and with the desired effects must measure, assess, scrutinize, and optimize
activities constantly and closely – and at increasingly short intervals. Random
experimentation is doomed to failure. Consistent measuring of success is a major
pillar of social media value creation, but at the same time a great challenge. That
is why it should ideally not be limited to monitoring with tools commonly found
on the market. Penetrating more deeply into users’ need structures demands
constant, intense examination of the users themselves and their preferences. This
can, for instance, take the form of regular, empirical surveys to secure the greatest
possible gains in knowledge: knowledge that can offer orientation and navigation
for the right communication and content strategy in the rapidly changing world
of social media.
170
171
Management Innovation
Spurs Carriers’
Competitiveness
> The traditional hierarchy model is a drag on the
flexibility and agility of the carriers on the market.
Digitalized business models and cross-channel
interactions turn management itself into a critical
bottleneck.
> The organizational change must be oriented to
the structural principles of subsidiarity and self-
responsibility, transparency, and consultation. The
change brings with it a new understanding of their
roles for all of the company’s employees.
> Starting from a pilot project in a part of the
c orporate group, the pacemaker model can make the
carrier organization “fit4future”. The elements of such
a model are teams with responsibility for performance
and results related to one customer group, breakdown of the other corporate organizational units into
service units, and an internal market principle.
172
A dead end: management from yesterday
While the digitalization of products is well on its way thanks to IP t ransformation
and business processes are also moving step by step into the next generation,
the traditional organizational model oriented to hierarchies continues to be
ignored and remains untouched. Yet this organizational model is the cause of
egregious bottlenecks in both the decision-making process and the development
of innovation capability, slamming the brakes on the capabilities for fast, flexible,
and diversified activities on the market which have been gained with so much
effort in production and processes. Today’s hierarchy model may perhaps still be
suitable for the business model of a “dumb pipe” – but it is inadequate for the
ambitions of a leading carrier. We are convinced that a primary key for securing
the competitiveness of carriers can be found right at this point: in the profound
transformation of management organization.
This challenge must be recognized and addressed. Unless this happens, the new,
digital instruments for collaboration and work will not develop their full benefits
and the many experienced specialists in an organization will be unable to exploit
their knowledge and skills to the full, and these are the factors required for the
marketing of competitive products and services in the necessary scope and speed.
Figure 1: New Management Organizations Are Needed
Pressure Points and Opportunities
Innovation Level of Competitiveness
High
• Erosion of revenues in standard business owing to
price pressure and substitution through OTTs
• New business fields through OTT @risk
• Customers want omnichannel instead of sales silos
Management(Organization)
Innovation
Marketing, Sales,
and Carrier Service
Opportunities
• Digital technologies make better collaboration possible
• More transparency about cause-effect relationships
through big data, etc.
• New working mindset from Generation Y and general
democratization of information
= Opportunity to realize new management structures
Strategic
Innovation
Product/Service
innovation
Low
Pressure
Points
Innovation Output
= No answers to key market demands
White Spot
=Approach
Point
Higher
Focus
Innovation of
corporate processes
Source: on the right – based on Hamel – The End of Management
173
Strategic units create new business models and drive strategic innovations
forward. The heads of the technology, marketing, and development units set
innovation targets for the company at the level of products and services, and substantial expenditures of time, effort, and money are invested in the improvement
and renewal of corporate processes.
But are the efforts expended at these three levels sufficient to meet the demands,
and do they result in an adequate output of innovation? Obviously not! R
evenues
are stagnating, and the substitution of current and future business models through
new competitors is on the rise.
Why is it that these many and far-ranging expenditures do not produce the
desired success? In our view, the fault lies with the management system: the
leadership, structure, and organization that do not undergo the necessary r enewal
in adequate scope and therefore “put the brakes” on the innovation levels under
them.
Although headcount reductions and reorganization programs are essential means
for countering the dominating pressure to improve efficiency when revenues
are stagnating, the programs for the enhancement of innovation and competitive strengths of companies carried out at regular intervals do not lead to major
breakthroughs. This observation is not all that surprising because the programs
are aimed almost exclusively at efficiency targets. The aspect of greater innovative
strength appears only as the welcome side effect of a leaner organization, but is
not the primary objective.
If we go further and look at these changes in terms of content, we see that they
tend in the direction of architectural shifts, e.g., in the form of new unit structures and responsibilities or quantity-related “lawnmower” methods. Reflection
and a change in the way of thinking which would lead to changes in management
behavior alongside these architectural modifications are nowhere to be found in
organizational transformation projects as they are commonly carried out.
The side effects of these “traditional” methods of organizational changes
are indeed grave, in our opinion; they give rise to varying manifestations of
frustration among employees regarding the depth of commitment to so-called
corporate values and the meaningfulness of the work they do. When discussions
turn to excessively long periods for making decisions and the waste of resources,
there is one remark that is regularly heard all the way up to the top management
level – “That’s just the way things work in a large corporation.” Everyone involved accepts (usually in silence, occasionally lamenting) a sub-optimal system in
which everyone also participates.
174
This background prompted us to ask: If neither managers nor employees
are
satisfied with the current organization and the results of conventional
organizational change, is it acceptable for them to continue to follow the same
course? If we succeed in improving the financial performance indicators in the
short term, but the innovation capability declines, what success will we be able
to report in the future?
It is high time for the organizational change itself to generate innovative
approaches – that is what we mean with management innovation.
Convergence again: digital threat meets digital opportunity
The mastering of the challenges on the revenue side and the threat of substitution
from so-called OTT players such as Google, Amazon, Skype, WhatsApp, or
Facebook are key aspects that are both elementary and well known.1
Special attention must be devoted, however, to the substantial changes in
the information and buying behavior of customers. Customers today expect
companies to be ready to meet them on all channels. ((FN: Cf. Roos, S./Friedrich, O., “Customers Like It Simple!”, DMR Impulse, February 2015.)) This
uniform experience realization is a key challenge for an organization which
separates channels and business transactions (information, purchase, support)
from one another, especially owing to the imponderables of the “new” channels
such as social media or the many and varied forms of self-service.
Moreover, we see the problems arising from the advancing fragmentation
of interaction. More products, more partners, and more options render the
management of products and services more difficult. Linear campaigns fall far
short of exploiting all of the available potential. The anticipated, accelerating
growth in the product range, the greater variations among products, and the variance in demands (including the situational differences) of even a single customer
made on service and the channels used to carry out the service ultimately end up
as a de facto “segment of 1”.
The result is the exponentiation of the options requiring decisions and of the
activities requiring management. A management organization based on a

hierarchical structure and multiple instances of tapering “toward the top” is
simply not set up to deal with this new “tidal wave” of demands. In the “old
1
2
Cf. Future Telco – Profitability in Telecommunications: 7 Levers Secure the Future; Krüssel, Telecommunications Companies at a Crossroads, pp. 8 in this edition.
Cf. Roos, S./Friedrich, O: Customers Like It Simple! A Well-Thought-Out Omnichannel Architecture Lays the Foundation for Successful Customer Journeys, DMR Impulse, 2015.
175
school management” of the present, the managers themselves have become the
critical bottleneck because only a fraction of the required decisions can be made
in the necessary quality and within an acceptable time.
What are the factors promoting and demanding a paradigm change in
management? Technological drivers are the almost completely digitalized business processes which have an impact at a number of levels. Faster and more comprehensive knowledge acquisition has become realizable for specialists thanks
to the methods of prototyping and data mining and will continue with “big
data”. The distribution of information, regardless of whether financial or market
research results, customer feedback, forum discussions, or tender offers, to groups
of addressees of any constellation and any size can be achieved quickly, easily, and
in real time. Nor can one ignore how virtual spaces for learning and working in
so-called enterprise social networks permit collaboration and co-determination
without regard for spatial and organizational boundaries.
Employees also – especially, in fact – experience in their private lives, apart from
the vocational environments, the changes resulting from being networked in
social media, from anytime access to information, and from simplified sharing of
information with friends and families. This impacts the understanding of work
and hierarchies of Generation Y: they want to see discernible meaning in their
work and an appreciation of what they have actually contributed “in real time”
– not a “mileage performance” in the form of number of years worked. The ideas
of Generation Y are the primary social drivers for the change in the management
paradigm in companies.
In summary, we believe that the confluence of three present trends will bring
about the management innovation that is inevitable:
1. The dominant management paradigm of the hierarchical organization is turning into a braking force hindering business success.
2. IT-based tools enable new forms of work and collaboration, especially in relation to information and communications.
3. The capabilities and ideas of employees have changed, and they demand a sense of purpose and participation.
176
Objectives and structural principles of an innovative management system
The management innovation we are calling for here must create two primary
capabilities.
“Customer proximity” refers to the ability to secure permanently a customer
experience which maintains sustained superiority in decisive points over the competition. We include under “customer experience” the entire range of p
ossible
experiences, whether obtaining advice in a shop, installing a router, or calling up
to renew a contract. Products, processes, design, and the conduct of employees
fall under this comprehensive standard as well, so it also includes the concepts
and decisions about individual cases of goodwill when advising customers and
extending to in-depth product and process innovations.
“Profitability” means the ability to secure permanently the company’s economic
existence. We believe that, in addition to the necessary enhancement of transparency concerning the costs relevant for decisions, an innovation incentive
for cost optimization must be created. Methods for reducing overhead costs
can frequently be found in daily practice. Their success requires the tailoring of
organizational units that results in a clear picture of the provided services in the
sense of a catalog of priced products and performances – and the costs must be
unambiguously allocated to these performances. This profit center idea must be
designed to be as granular as possible, i.e. broken down all the way to the team
level. Without this structure, transparency and incentives for all employees to
look for possible optimizations every day will not be created.
Every single employee should personally and happily do his or her part to create
and maintain the described capabilities, and the contribution should be as
ongoing and intensive as possible. The following design principles can be developed for the concrete structuring of the management organization oriented to
these capabilities.
Subsidiarity and self-responsibility: Activities and decisions should take place and
be made at the place they are needed whenever possible. Speaking concretely, this
means that both individual employees as well as the teams they are working on
are themselves responsible for their actions and the results. The subsidiarity principle is an elementary contribution to ensuring that work is meaningful because
it creates maturity through freedom of action and the results of one’s own work
become tangible. Another effect which is sought is improvement of the customer
experience because the people who are directly affected or experts are best able to
identify and carry out the required activities.
177
Transparency and market mechanisms: Moreover, assuring that productive, profitoriented decisions are made in real time in the small, localized, and temporary
(project) units being supported is impossible unless the relevant information
about costs and results is made available to these teams in comprehensive form
and in good time. These results, however should also be available to all other
teams because they serve as benchmarks and a challenge in the internal competition for optimization.
Transparency building block “service catalogs”: Comparing and negotiating the
services of every team is not possible without the existence of pertinent service
catalogs. They must contain precise information about the characteristics and
quality of the services and assign a price to them. Internal customers are then able
to incorporate the desired type of services in their own profitability calculations
and to compare them with potentially competing services freely available on the
market. Every team is confronted with the necessity of determining in detail its
own added value and examining its service contribution as well as the benefits
and costs of the contribution. This is the foundation for every type of optimization and innovation. Transparency is also an indispensable factor within teams
because it creates space for joint discussion and optimization. Ultimately, it is
the basis for the new kind of control which now takes place within the team and
through feedback from internal customers – no longer through superiors and
Controlling.
Transparency building block “size of operation”: The growth in the size of an
operation reduces transparency (among other elements) in various areas such as
the manageability of actors and activities. “W. L. Gore”, the pioneering company
in the field of management organization, splits up its operations whenever they
reach a defined size of about 200 employees. Companies like Apple and G
oogle
seek (among other efforts) to promote personal random encounters through
their use of the building architecture2 and by this and other means to encourage
in-house transparency and creativity.
Continuous improvement: The transparency about services and costs mentioned
above also makes it possible to compare similar organization teams and provide
both incentive to act and the initial indications of where the starting points for
improvements might be found. Moreover, digitalization and networking enable
the capture and analysis of data over steadily decreasing time spans, yet with more
detail of content. Prototypes can be used to test ideas more simply and quickly,
3
Cf. Wagner, New Working Worldfs: Work where you want to..., in:
DMR Special Transformation = Peoplemanagement, Detecon 2015, pp. 4-7.
178
parallel to one another, and with greater confidence in the results. The aggregation and analysis of data from “big data” allow every team access to relevant data
and to a comprehensive foundation for planning, decision-making, and action.4
Consultation: Subsidiarity with the resulting small-format cell structure and
the extensive methodological demands made on employees carry the risk of
sub-optimal decisions. Relevant experience or activities from other units are
possibly ignored or there are risks from incomplete method skills, e.g., during
the commercial assessment of an activity. When concrete decisions are being
made, experts, consultants, and superiors must be consulted so that these risks
can be reduced.
Market orientation instead of production orientation: Fundamentally, every
organization should be designed from the perspective of the market. The units
close to the market procure the required internal services against transfer prices
from a catalog defined by the service providers serving them. Orientation to
household segments will be a good opportunity for integrated carriers in the
coming years. This simplifies thinking in (technology-)convergent supply forms
and the “conquering of the households” as a targeted field of growth; it will be
supported in social development by the continuing trend to homogamy.
Diversity of people and experience: Mixed teams promote the identification of new
and effective approaches. We expressly mean here diversity of age and p
rofessional
5
experience as well and not only the MBTI color coding.
Tools and (IT) platforms for new, interconnected working and decision-making:
Although tools and platforms are not design principles, they support the
mapping of these principles and, in addition, are an indispensable aid from a
purely functional perspective to networking and transparency. Platforms such
as “Holacracy” or “LiquidO” go one step further and claim they can support
modern corporate structures by serving as their operating system. We recommend these or other websites for two reasons: they illustrate concrete use cases,
and they offer a view of their key principles. For LiquidO, for instance, the principles include a “credits accounting system” which allows employees to designate to each other their profit contributions affecting compensation or “reputation tracing” in which an employee can verify that other employees have certain
competences which make their voices weightier when related decisions are being
made. The question regarding the extent to which the software can expand the
4
5
Cf. Quon-Lee/Peters/Implementation of Big Data: Why Processes and Culture Are of Key Importance,
DMR “Internet of Things”, Edition 1/2015, pp. 48–51.
Cf. Myers Briggs Type Indicator – a classification of people according to various personality types.
179
limits to the size of the operation is open. The highest discernible operation sizes
for Holacracy are about 1,500 employees (company: Zappos).
New roles for employees, for managers, for CEOs ... for everyone!
The roles of the employees are redefined in a company oriented to these principles.
The following conclusions can be drawn from theory and the generally available
experience reports:
Employees: from instructed parties to participants. Having a boss who says what has
to be done certainly has its practical aspects. No one else has to go looking for
solutions – and if something goes wrong, it’s the boss’s fault. In the f uture, however,
employees must decide on their actions themselves. Collaboration in teams
requires working with statistics and major financial performance indicators, not
just having professional expertise. Methods for assessments and making d
ecisions
must be found, learned, and applied within the team. More uncertainty, learning,
reduced plannability of work (working hours) are an inherent part of the model.
On the positive side, there is the tangible experience of one’s own decisions – and
simply a sense of meaningfulness to one’s daily efforts.
Managers: from controlling decision-makers to counseling development helpers.
Managers of the future will no longer have dominion, whether great or small, over
people and budgets. Instead, emphasis will be on the ability to think s trategically
in terms of networks, methodological competence, and company-wide networks:
stimulating, advising, training, connecting, recruiting the company’s staff – and
occasionally serving as the final court of appeal for the resolution of conflicts
which arise.
CEOs: from chief executive officers to chief enablement officers. The role of the executive body will now fall to the entire company – with the exception of the CEOs.
Their primary task will be the creation of the best framework conditions for the
employees. They will be involved in operating decisions only in exceptional cases.
Can that turn out well? At first glance, these role changes appear highly problematic
because they entail massive changes in everyday work – and above all they will
collide with the dominant patterns in how people see each other and themselves.
We can assume that there will be both employees and managers who cannot
warm up to these changes in their work contents, the scope of their authority,
and their status. In case studies, the share of this group comes to between 10%
and 20% of management personnel who ultimately leave the organization. On
180
the other hand, in the case of the French company “Poult”, a manufacturing
company with a staff of craftsmen that has grown over time, virtually no employees left the company, which had to deal with substantial changes in the demands
made on it.6 This case also illustrates that “Generation Y” is not necessarily the
driver behind the transformation.
“The Pacemaker Model” as a basis for thought
Admittedly: we do not have a perfect formula for the complete transformation of
a telecommunications company into a future-proof corporate form, either. The
inescapable necessity of a transformation and the key guidelines for a vision of
the final results can be determined on the basis of practical experience, t heoretical
considerations, case studies, and discussions with experts, but the discussion
about a concrete model rapidly takes us into a wide-open field; the differences in
terminology alone require that we start by painstakingly define what we mean,
and the work is made even more difficult because of the differences in our understanding of what it means to be human and the fears – often unexpressed – of
change.
Once a corporation has decided to open up to the new opportunities and to set
up a pilot project for them, a sensible approach appears to be the selection of
a part of the company which has the right prerequisites, but “without a risk of
infection”; an institution with up to 250 employees and management ready to
implement innovations would seem to be suitable for this purpose. The pacemaker model can be tested in isolated sections with the option of changing the
orientation of an entire national carrier in the direction of customer orientation
and innovation in the middle term by means of organizational changes. The model illustrates to a large degree the principles described above, although it does
not fully implement them in every aspect.
Just a few, but elementary interventions in the organization heighten long-term
competitiveness within a short period of time. Three design elements interact to
achieve this effect:
> A group of teams of manageable size, each of them responsible for the full
range of the provider’s services and results mapping the customer experience on
behalf of a specific customer group (= pacemakers)
> Subdivision of the other corporate organizational units into service units
(= institutions)
6
Cf. Arte documentary “Mein wunderbarer Arbeitsplatz”, 2015.
181
> An internal market principle ensuring transparency of services and compensation among all of the involved parties. This must be assured by a regulatory or
clearing office.
I. Pacemaker “Customer Experience Teams”
A segment team oriented to the target group (as an example) “students in their
own apartments and shared residences” is responsible for strategy, drafting of
concepts, requirements, planning, measurement, and optimization of the customer experience. The elements required for the development and realization of
the actions are selected and ordered from the internal service providers or, as
necessary, from external providers – and all of the providers are compensated on
the basis of transparent catalogs and agreements. The actions are financed primarily7 from the revenues realized with the target group and allocated in full to the
relevant pacemaker team in each case.
If the team comes to the business conclusion to launch a temporary sub-brand,
the internal service providers “Market Research/BI” and “Branding” would have
to be paid for the market research and branding concept provided in advance.
There could also be agreements providing penalties for a possible dilution of the
core brand; however, the terms and conditions of measurement and pricing for
such steps would have to be clearly determined beforehand, e.g., on the basis
of a prior pilot project and the subsequent measurement of the actual impacts.
For the launch itself, the team selects all of the building blocks needed for the
customer experience it has defined against the backdrop of the market conditions
from the catalogs offered by the internal service providers. The team also compiles a list of additional services, from social media to service agent availability,
from billing models to devices, all clearly priced, which are necessary elements of
the customer experience. The commercial assessment and the decision regarding
every action stay within the team.
The organization of the pacemakers epitomizes the core of the “new management”. Accordingly, the aforementioned design elements subsidiarity and
responsibility, the concept of a team, and the diversity among its members are
of crucial importance. The “pacemaker organization” takes over the greater share
of the “old” management tasks and eliminates the bottlenecks inherent in that
system through its market-related planning and decision-making capabilities,
now significantly expanded quantitatively and qualitatively.
7
Another possibility would be the creation of additional internal budgets/loans as a means of emphasizing
cross-company goals of strategic significance.
182
II. Institutions – Service Units
The application to the service units is initially only indirect. They are subject to
pressures from several different directions owing to the mandated transparency
in combination with binding performance and transfer price commitments. To
begin with, they are called upon to specify and appraise their own value contribution. This is an indispensable contribution to creating meaningfulness and orientation. Moreover, they are subject to the rules of the internal market. If their own
offered services meet with little response, the need for optimization b ecomes obvious – reason enough to rethink their own performance contribution, to find inspiration from the competition, and to seek orientation from internal customers.
When all is said and done, these organizational units may even decide to apply
the principles of the “new” management to themselves as well.8 This is certainly also dependent on the dynamics and complexity of developments in market
conditions. A traditional organizational method may well prove to be a better
recommendation for a corporate unit such as “Facility Management” than for
the colleagues in the IT unit who are supposed to develop interfaces for partners.
In the end, we are of the opinion that an entire corporation can be examined
and roughly pre-structured on the basis of our criteria catalog. Since not all
organizational models and the related management principles are a good match
for everyone, one could take an approach that would enable the employees to
find a place for themselves within suitable forms of organization.
Excursus: The Special Case of Sales and Service Channels
The service and sales units of the company alongside brand awareness and
experience using the products have a definitive impact on customer experience.
Driven by the customer “omnichannel” expectation, these units are generally in
need of an overhaul in view of the current dominance of the silo organization.
At the same time, digitalization opens the door to new forms of interaction with
customers: elements which simplify access for customers to product information
in the shops or video chats related to sales or service. The latter confront the customer contact organization with the challenge to assess innovations in terms of
its purposes and to implement them in concrete form. There are also demands
to present offered products or services more selectively and quickly with respect
to regions, forms of the offering, and the integrated partners. The new forms
of contact that are possible and the changes in demand behavior call for the
8
According to the web tutorial from Holacracy, many companies that have initially organized only a sub-division on the basis of the new principles decide to roll them out throughout the entire company soon afterwards. This indicates that the impact is “infectious”. Cf. www.holacracy.org.
183
re-evaluation of objectives as well as the content of specific forms of contact at
the strategic level. We also believe that the intermeshing of service and sales will
continue to become tighter. Most of the business will still be generated from
existing customers – short product life cycles and the growing numbers of niche
products pave the way to tying service cases to up- or cross-selling opportunities.
In the day-to-day activities, it will now be the employees on the “sales and service
front” themselves who determine the customer experience. In summary, there
is substantial need for innovation in the customer contact channels – across all
conceptional levels.
The major element of differentiation is the form of the customer contact
(= channel), not the business transaction. The telephone contact channels,
for instance, are merged in organizational terms. All of the employees with
direct contact to customers are organized into teams with a high level of
self-responsibility. Unless they consider their task to be meaningful and identify closely with their activities, they will not have the personal motivation to
generate the desired superior customer experience.
Figure 2: The “Pacemaker Model”
Procurement
Strategy
HR,
Finance
Business
Intelligence
IR
Branding
Legal &
Regulations
Controlling
Finance
Communication
Channels
Products and
Services
Set rules of
the game
Perform
key
services
Request
and
compenate
Provide
customer service
Customer Experience
Strategy
Conception
Profit Center
Requirement
Market Segment
Planning
“Student”
Measurement
Optimization
Interaction
CLIENT
Source: Detecon
184
Benefit
• Goal: Breaking up the logjam in
product innovation
• Mechanics: focus on customer
experience
• Channels are merged, focus
on efficiency
• Above-mentioned design
principles apply to segment
teams
- Profit market center is
interdisciplinary
- Structured similarly to
“Holacracy” rules of the game
- Segment contribution attributed in full
- Procures from internal and
external service units
- Forms internal coalitions for product innovation
III. Regulation and Clearing
We also see a necessity for overlapping corporate units. They are especially
important for anchoring and assuming responsibility for sustainability in

corporate development from an overall perspective. In other words, they serve
as an institute for the review and adaptation of the rules of the game among the
institutions established as centers – a kind of internal market supervisory and
regulatory authority (e.g., for transfer prices). Moreover, they can and should be
in a position to support long-term investment goals and to ensure that these goals
are also a part of the centers’ calculations and goals on their own responsibility.
Call for reflection and new ways of thinking
Digitalization is radically changing the forms of interaction with customers
and allowing new providers to move in and shake up existing markets. The
constant improvement and renewal of performance aspects which ultimately
find expression in superior customer experience are essential to maintain profit margins and markets. The organizational forms currently in place do not
even come close to providing the capacities needed for the number, quality, and
speed of the d
ecisions required to achieve this. This bottleneck can be overcome
by transferring management responsibility to employees. The prerequisites in
the form of better-trained employees and information technology supporting
processes are there. Moreover, a transparent enterprise based on self-responsibility communicates more meaningfulness and satisfaction in their work to many
employees – and will have better chances for success in the “war for talents” in
view of the changes taking place in the attitudes toward their work of coming
generations.
We can see the strength of the bonds of management theories and understanding
of what it means to be human so dominant today by considering that almost all
companies are organized along these lines. That is precisely why we are convinced
that this approach is the right one for staying a step ahead of the competition –
even if it means entering uncharted organizational territory and taking risks! For
us, it is the way to make carrier organizations “fit4future”.
185
Digital Customer Excellence:
An Imperative for Customer
Satisfaction and Customer Loyalty
Jan Grineisen, Amal Haj-Najib, Jens Zimmermann
> Designing digital experiences that thrill and
delight customers is today the key factor for
differentiation in competition and securing the
loyalty of customers.
> An understanding of customer needs, customized
services and products, and personal support in the
digital world are the design elements along the road
to digital customer excellence.
> A clear, digital mission connects the online
and offline worlds and is oriented to
digital customer needs.
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Digitalization of contact points means stepping into the customers’ shoes!
“Everything that can be digitalized will be digitalized.”1
Digitalization creates new competitive advantages for companies today. Within
the company, processes can be made more efficient, while new business models
can be developed for contact with the outside world (digital transformation). In
the opinion of Timotheus Höttges, Deutsche Telekom CEO, companies must
also digitalize all of their points of customer contact. Time is pressing because
customers are already digitally active. They have transformed from traditional
consumers into a blend of consumers and producers, the prosumers.2 There is no
stopping this development. “Meta prosumers” are permanently interconnected
with one another and produce digital information in quantities that can significantly exceed the commercial content on the Internet. The decisive drivers of
this development are the omnipresence of connectivity, the diversity of functions
now available on mobile devices, and the networking of “smart” objects.
A lot of companies have the digitalization of the points of customer contact
on their agendas, and some of them have already achieved success in the
implementation of digital contact points in some areas. However, the realization of the digital agenda3 frequently involves a large number of transformation
projects on a smaller scale, and the holistic view of the big picture is somehow
lacking. Attention often focuses on the back office organization, large sums of
money are spent on software programs, and massive demands are made on the IT
department.4 If the coordination of the activities in various corporate units within the framework of a clear digital strategy is neglected, a landscape of disparate
processes, platforms, self-services, and apps will arise. The overall vision communicated to customers lacks definition, is not in alignment with their expectations,
and frequently leaves them in the dark. Moreover, companies working on the
establishment of digital contact points today focus above all on cutting costs.
The integration of self-services in customer service, for instance, aims primarily
at relocating the contacts and reducing expenses.5 A customer-centric perspective
is left behind. This is not a good starting point when you consider that today’s
1http://www.zew.de/de/aktuell/2847/wirtschaftspolitik-aus-erster-hand-am-zew--telekom-vorstandsvorsitzender
timotheus-hoettges-sieht-wachstumschancen-fuer-industrie-40-in-europa.
2 The concept of the prosumer was first coined by the futurist Alvin Toffler who as early as 1980 described how the boundaries between consumers and producers were becoming increasingly blurred. Cf. Toffler:
The Third Wave, 1980.
3 A digital agenda describes a company’s transformation projects as it moves in the direction of a (partially) digital business model.
4 Cf. Roos/Friedrich, Customers Like It Simple! A Well-Thought-Out Omnichannel Architecture Lays the Foundation for Successful Customer Journeys, DMR Impulse, 2015.
5 Cf. Penkert/Eberwein/Salma/Krpanic, Customer Self-Services – Efficiency and Customer Loyalty in the Age of Digital Transformation, Detecon Study 2014, p. 20.
187
customers expect support and consistent handling of their concerns across all
points of contact and channels.
Assuming that comprehensive knowledge about customer needs and wishes
is available, the systematic design of digital customer relationships (including
digital customer experiences and the seamless integration of digital corporate
capabilities into the offline world of stores, showrooms, or service points) is the
key factor for differentiation over the competition and the assurance of high
customer satisfaction and loyalty. When companies can consistently fulfill (or
even exceed) digital customer expectations over the long term, they achieve
digital customer excellence.
Stepping into the customers’ shoes lays the foundation for a profound understanding of customers. The concept of the digital customer journey is a useful strategic
frame of reference for the analysis, structuring, and optimization of c ustomer experiences. It can be broken down into three main phases: information gathering,
decision and use.
Customers find companies – on the Internet
Consumers have always used any number of different channels to obtain information about providers and products with the aim of finding the products which
match their needs and expectations. Traditionally, marketing has exploited the
opportunities offered by advertising (e.g., television commercials), sponsoring
GATHERING INFORMATION
“Consumers gather 75% of their information
on digital channels before making a decision to buy.”6
“90% of all telecommunications customers
trust online recommendations.”7
6
7
Cf. Ovum: Social Media Trends in Telecoms, 2014, p. 17.
Cf. Analysys Mason: Social Media Is Entering the Mainstream of CSP Customer Care Operations, 2014, p. 5.
188
activities, or newspaper ads to communicate with customers and to anchor
information in consumers’ minds. Every interest in buying something begins
with a consumer’s need. So ideally companies disseminated information which
was a match with the clearly formulated needs of consumers. If, for instance,
someone articulated the need to reach her relatives in America, her need could be
satisfied by providing a telephone connection.
Digitalization is today creating a world in which consumers who are searching
for and receiving information are also developing into information producers.
Companies are no longer the sole providers of information to consumers looking
for products; instead, there is as well an intensified interchange of consumers
among one another, a sharing of information being driven by digital networking. But whereas traditional advertising confined itself to strictly positive messages about the company, its products, and its services, negative information
is now freely available as well. So the process of searching for information has
experienced a power shift favoring consumers because today’s consumers find
significantly better opportunities to obtain information and assessments. That
is why companies must be present at the place where information is created
and opinions are formed: on the internet. Moreover, they must ensure that their
own products have been placed in an optimal position on digital channels and
that potential customers find what they are looking for. A strong recommendation is for the use of a broad range of marketing activities such as search engine
optimization (SEO), social media sites,8 or the use of video platforms. The use of
innovative digital methods such as the integration of links into TV commercials
(using the music identification app Shazam,9 for instance) can highlight the communication of information. Companies can use these and other methods to take
customers from their smartphones straight to the corporate home page where
(ideally) additional information and inspiring content will be found.
Using the information they have gathered, consumers form an opinion about products and begin to put together their own short lists. In the digital world, it has
become simultaneously simpler and more important for consumers to v alidate
their initial choices before they make a final decision for a product. Ratings and
comments on Amazon, opinions in blogs such as WordPress, or product tests
on YouTube play an important role today, even if the producers are completely
unknown to the readers and viewers. Companies are confronted with a wide
8 Cf. Penkert/Krpanic/Ebner/Luyken, Social Media Performance, p. 164 in this edition.
9 Shazam is a music identification service (app) for smartphones which is used to identify performers and song titles by gathering a brief sample of the audio being played and can automatically direct consumers to content on the Internet.
189
range of opinions about their products, which is why it is essential for them to
intervene actively and to try to influence public opinion.
If the results are positive, it is necessary to share this experience actively on digital
media as well. Incentives such as free samples or vouchers are some of the means
that companies can employ to motivate satisfied customers to act as advocates
(brand ambassadors10) and to disseminate their positive opinions in digital media
and on various platforms. It is important to ensure that the shared experiences
appear precise and credible. Enterprises can give active support in the form of
ranking aids and instructions. Negative opinions in digital media should be mitigated whenever possible so that potential customers are not frightened away. In
any case, companies must actively approach dissatisfied customers and understand what has actually created their experience. This approach must be made
publicly in the digital media so that solutions for the causes of negative experience are revealed to other consumers as well and as a way to display an interest
in conciliation.
Individuality and transparency in the digital world reinforce
the company offer
The diversity of channels, communication media, and information platforms
such as price comparisons and ranking portals mean that it is absolutely essential
for the information which can be influenced by the companies to focus on a
clear message, e.g., “best in class service”, price leadership, best quality. Unless
they have consistent information communication on all channels – including
the offline channels – companies will not be able to generate a clear image in
consumers’ minds.
DECISION
“Sales of products and services
on digital channels have grown by
82% in the last 5 years.”11
“In 2013, there were 9.39 million people in the German-speaking
population who purchased telecommunications products
(e.g., cell phones, smartphones) on digital channels.”12
10
11
12
A brand ambassador is an advocate for products or brands, especially one who shares positive content in digital media.
Non-food sector. Cf. Handelsverband Deutschland (HDE) and Gesellschaft für Konsumforschung (GfK): Online Monitor, 2014, p. 8.
Allensbacher Computer and Technology Analysis.
190
Once consumers have gathered and assessed the relevant information in the
previous information phase, the decision-making phase begins. The expectations
for this phase, in both the offline and online worlds, include clear offers, simplicity, transparency, and efficiency in the conduct of decision-making, purchase,
and delivery processes.
Fulfilling the hygienic factors regarding simple sales processes (e.g., doing no
more than warding off frustration during the purchasing process in online shops)
is not an adequate response to these expectations for companies. On the contrary,
it is necessary to coordinate all of the digital processes related to this important
phase and to analyze, assess, and optimize them with respect to their user friendliness.
Additional consumer needs which arise during the search for the best offers can
be satisfied as part of the decision-making and purchase processes. P
ersonalized,
individually tailored additional products and services create added value for
consumers during the decision-making process and give them an additional
incentive to buy. Incentives relevant for telecommunications companies include
bundled products such as additional storage space in the cloud, virus protection
packages, supplementary apps, or installation services. For the customers, it is
important that the proposed products and services be in line with their individual
circumstances such as usage history, currently used products, and present context
(e.g., location, activities of the moment). One way to ensure that these proposals are sent at the right moment is to use real-time decision-making systems
that take individual criteria into account. However, the proposing of additional
products and services must not stop here – feedback from customers is valuable
for learning more about customers. The new knowledge must be incorporated
into the a nalysis and given consideration in the optimization of future proposals.
Companies can use the right proposals to generate seamless customer experiences.
The realization of customer experiences has a positive impact on improved customer satisfaction in addition to enabling exploitation of new cross- and upselling
potential with a positive effect on the average revenue per user (ARPU). More
over, concepts such as “buy online, collect (and/or pay)13 offline in the shop” can
also link online and offline worlds with each other and satisfy individual customer needs in the decision-making and purchasing process.
13 See the example of www.barzahlen.de.
191
One process which is extremely critical in customer evaluation for telecommunications companies is the provision of products and services – the delivery process.
Digital solutions aimed especially at serving customers’ demands for transparency
and efficiency can be integrated into connections which require a technician’s
services. So-called “track and trace” functions can integrate c ustomers into the
fulfillment process and provide regularly updated information about the status
of orders. Customers should be able to view their own order data for all sub
missions, including the ordered product and service address, on any of their
devices. Real-time notification of the technician’s expected arrival time is possible. Additional self-services such as changes in the service appointment time
and/or date at the customers’ request or information about the preferred contact
channel (email, text message, telephone) before the technician’s arrival contribute
to heightening the quality of the customer experience during this phase. A profile
of the technician who will be performing the service generates additional trust
with customers.
Personal support, simplicity, and accessibility in
digital channels strengthen customer loyalty
The decision phase – the purchase of a product – is followed by the use phase.
Customers contact companies during this phase as a rule when they need service,
have encountered problems, or have further questions.
Today’s customers are no longer willing to hold the line while waiting for
someone in the call centers to help them. They go to the digital media instead.
And they expect their service requests to be taken care of there. These digital
channels include public forums, blogs, and other social networks such as Facebook and Twitter where consumers and telecommunications companies provide
information and answer questions. The spectrum ranges from self-services such
as help videos to emails sent by customers directly to companies, who use the
USE
“80% of the mobile network customers predict that they will prefer
customer service via digital channels by 2016.”14
14 Cf. Google/IPSOS, Customer Service Study, 2011.
192
same medium to reply. The channels and media vary in terms of the degree to
which they can be controlled by companies.
Customers use digital channels because these media have been integrated into
people’s daily lives, are available at all times, and can be accessed quickly. Telecommunications companies today are also expected to offer this constant availability
in conjunction with virtually real-time responses and personal, individual care.
Moreover, customers place a high value on being able to manage their own data
and having direct access across all devices and applications to their contract and
billing data, customer loyalty program, or status information. The simplicity of
managing these data, obtaining a precise, up-to-date information report about
their own status or the elimination of malfunctions, and proactively receiving
information about malfunctions is decisive for positive customer ratings.
Telecommunications companies have been especially active in setting up contact
channels to customers in social media such as Facebook and Twitter, and these
channels have continued to evolve into a key pillar of customer care.15 In a ddition,
various applications for management of customers’ own data, installation
instructions, or help videos in app form have been made available. The primary
effect of these initiatives has been to shift contact away from telephone support
and IVR16 solutions.
Simultaneously, the shift to digital channels can go hand in hand with the loss
of personal customer contact; personal dialog becomes less frequent and the
relationships to customers lose stability. This is counterproductive to customer
demands for personal care. So the challenge for telecommunications companies
today is to complete a transformation away from digital services oriented solely
to cutting costs and toward digital customer experiences. Companies must meet
customer demands for personal care, simplicity in viewing and managing data,
and availability where customers expect it. Ultimately, companies achieve greater
differentiation and higher customer satisfaction only if they can provide exciting
digital customer experiences.
Focus on personal care: Simple initiation of contact and interactive dialogs using
one-click applications available on various devices (e.g., integrated live video
chats – “Click to chat”) can establish the contact to a customer service agent
within just moments. Service agents interact with customers in real time and can
use digital animations to guide them through service or booking processes and to
15 Facebook and Twitter continue to hold a significant lead over YouTube and Google+ in terms of the social media channels most frequently used for customer service. Cf. Ovum: Social Media Trends in Telecoms, 2014, pp. 15–16.
16 IVR = Interactive Voice Response.
193
present complex material in simplified form. Such digital face-to-face interaction
can mitigate the disadvantages of strictly voice or text service channels.
Focus on simplicity in data viewing and management: 50% of all questions coming
from customers are related to confusing invoices.17 The complexity of these
documents will only increase in the future due especially to the growing number
of bundled products and the addition of even more options, leading to customer
frustration. One way that digital media can contribute to an improvement in the
customer experience in this phase of consumption is by using personalized video
invoices that can be made available to customers on user accounts accessible to all
applications. Specific invoice items and consumption data can be explained step
by step and presented in understandable form.
Focus on availability where customers expect it: Telecommunications companies
are called upon to operate their customer service where their customers are to
be found. Customer services on Facebook and Twitter are no longer sufficient.
Newer OTT (over the top) providers such as the messaging services WhatsApp
or WeChat today reach 700 million and 469 million users, respectively, and their
numbers continue to rise. Messaging services of this type have become integrated
into the everyday lives of telecommunications customers, realize revenues with
their services, and create exciting experiences for their users. That is why telecommunications providers should not neglect messaging services when they take
steps to expand their customer service in the future. Some telecommunications
providers have already established successful partnerships with OTT players as
can be seen in the examples of Digi Telecommunications (Malaysia) with WeChat
or Globe Telecom (Philippines) with WhatsApp.18
Positive experiences during usage cause a purchased product to be placed in the
group of accepted products (“evoked set”) for repurchase or contract renewal.
Customers expect to be treated accordingly. So it is all the more important
for companies to win over customers as their advocates by ensuring they have
positive experiences in customer service and initiating specific loyalty measures.
Moreover, the jump from the selected group of known and trusted products
(“relevant set”) into the accepted and preferred product group must be achieved
during the use phase. The situation is similar for loyalty programs. Customers
expect to find solutions usable on all devices for the collection of bonus points or
obtaining context-related rewards such as special product offers or added value
services.
17 Analysys Mason: Customer Experience Management: Value-Based Delivery and Service Support, 2014.
18 Analysys Mason: Social Media Is Entering the Mainstream of CSP Customer Care Operations, 2014.
194
Companies must provide surprising, innovative customer experiences to ensure
that their own products find their way during the consumption phase into the
evoked set for repeated purchases and to strengthen customer loyalty effects. The
first step here requires finding out as much as possible about the company’s own
customers. Digital applications for the analysis of customer behavior lay the foundation for the identification of special customer needs or loyalty levers as well as
for customer segmentation and report evaluations. Active customer m
anagement
of the program participants enables the addressing of specific rewards, tailored
services, and actions which promote customer engagement and reduce churn.
At the same time, the use of location-based services is a good method for the
seamless integration of digital loyalty measures into the offline world. These
services identify the current location of customers and can suggest shops in their
proximity in real time. Bonus points can serve as an incentive for “check-ins” in
the shop and to deanonymize users.
Digital mission secures a successful customer journey
Changes in customer expectations generate opportunities which companies
can use to their benefit. Digital customer excellence will consequently become
established as the imperative for customer satisfaction and loyalty. If companies want to make use of a thrilling customer experience to set themselves apart
substantially from the competition in the digital world, it will be necessary for
them to use digital channels for more than just cutting costs. Instead, they must
include the customer perspective in all of their decisions and activities and never
lose sight of the added value for customers. The result must be a clear, digital
mission addressing digital customer needs across all phases and integrating digital
capabilities into the offline channels.
The efficient implementation of the measures to be taken on the road to digital
customer excellence requires that the time be taken to coordinate decisions and
secure agreement with them across all departments despite the need for speed in
setting up the channels and media. This will ensure the cross-channel c onsistency
of the measures, simplify the networking of relevant data (e.g., provision of
customer information), and prevent the “wild growth” of apps or digital platforms. Companies must not view the path to digital customer excellence as
nothing more than one of many projects on their digital agenda. New corporate
capabilities must be developed on the digital channels, and the digital operation
of the company must have a customer-centric orientation.
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View:
Telcos Will Live
Forever – But Change
Dramatically from Today
Stefan Wilhelm
196
Telecommunications companies are standing at a crossroad. They must establish
new positions for themselves and actively shape the future. In our opinion, there
are nine propositions pointing the way to this future.
The capability of telcos to perform as a platform for digitalization determines the
competitiveness of the economy. Web services available to a broad public, cloudbased IT, and high-performance network infrastructures form the b ackbone of the
digital world. Access to networks, bandwidths available everywhere, and secure
cloud IT are essential components of the digitalization architecture provided by
telecommunications companies. Telcos are becoming integrated n
etwork and IT
providers and exploiting the advantage of the complete end-to-end control over
cloud services from the standpoint of quality and security.
The customer experience of virtually all products and services is dependent
on the quality of the IT and the broadband networks adapted to it. We are
moving from a world of products into a world with products combined with
digital services. There are virtually no products which are not connected to the
Internet. The dependence on a network connection is fundamental on the Internet of Things. Digitalization impacts every economic sector and every company
and defines the market for network-based IT and cloud services of the future.
The industrial policy dimension of this development is enormous. Yet political
and regulatory movement tends to be linear while technologies and markets are
developing exponentially.
The capabilities of the telcos are undergoing comprehensive transformation.
Telcos not only build efficient IT and utilize software competence in network
planning and operation themselves (SDN/NFV), but build as well the IT
platforms for corporate customers who design and offer their digitalized products
and services on these platforms. For telcos, highly developed capabilities in IT
and standardized programming interfaces (APIs) for developers are the fundamental prerequisites for being able to integrate and connect business IT, digital
processes, and communications services of partners and corporate customers.
Telcos are aggressively driving their own e-transformation. Their motivation is the
creation of substantially greater internal flexibility of their IT for new s ervices of
their own and external competitiveness in the direction of partners and business
customers. Companies are becoming the most important customers for telcos.
The margin profile of the telcos is changing owing to the provision of networkbased IT services and the focus on corporate customers who need these services
for their own digital transformation. While revenues are expected to remain at a
similar level, the changes in the product and customer mix will lead to declining
margins in the coming years. There will be no relief in the pressure to heighten
efficiency during this time.
197
Large telcos can realize scaling effects for the network and IT far better and
offer connectivity and network-based IT services to the market for business
customers operating nationally and internationally more competitively. The
many national telecommunications providers will merge into large network and
IT providers so that they can finally counter the market power of the d
evice
manufacturers, network vendors, and web players operating completely on a
global scale. Consolidation as a means of survival in the face of global m
arket
dynamics is on the rise everywhere in the world. Radical M&A actions are
supported by government policies because the performance capability of the
telcos affects the economy.
The telcos’ products focus on services such as individually procurable bandwidths and data volumes for a broad range of highly diversified customer groups
as well as on high-security, network-based IT services for B2C and B2B. The trend
toward consumerization – the use of devices and software from the consumer
environment in the companies – puts telcos in a good position to expand their
market shares. Traditional products such as telephony and m
essaging, on the
other hand, are being relegated to a role as features in apps and are substantially
less relevant as sources of revenues. The interoperability of these services is becoming irrelevant because the service integration takes place in the operating
systems of the devices. In the private customer sector, the household is playing
an increasingly significant role. Telcos serve this market with special services and
products for households and their many digital devices and increasingly complex
home networks.
Telcos are relying on focused innovations in direct competition with the
globally scaling services of the web players. The logic of the “winner takes all”
situation on the Internet demands a global market. The Big 4 – Apple, G
oogle,
Amazon, and Facebook – have used their web infrastructure and generally
available tools for web programming to lay a foundation from which they can
challenge traditional business models. Even the core products of the telcos are
being converted into software and no longer have any intrinsic value. Innovative
ideas on the basis of IMS/RCS, network-enabled services, CPE virtualization,
and QoS serve as differentiation criteria in customer perception. Partnerships
with innovative companies, their integration into the telco platform, and own
innovations encompassing the seamless integration of access technologies and in
combination with vertical IT platforms lay the groundwork for success.
198
In many sectors of the telco business model, sustainable digital assets can
be created and expanded along the lines of Internet logic. They include the
utilization of customer and network data – real-time data which in future can
be used comprehensively for network service and product offers as well as by
partners. In their position as aggregators of various web services, telcos play a
role in the authentication and management of digital IDs, an area in which web
players by nature compete with one another. Moreover, network-centric product
partnerships with web players are successful whenever network parameters and
rate plan integration generate customer benefits. This is the case for many streaming, real-time, and security services.
The network remains at the core of the telco business model. Differing access
technologies such as WiFi and cellular networks become seamlessly usable for
customers. Additional coverage (indoor) and capacity will largely be achieved
by WiFi in urban areas because a large part of mobile data traffic is essentially
stationary and takes place within the range of only three radio cells. Successful
telcos use integrated fixed and mobile networks and have created their own WiFi
networks in addition.
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The Authors
Clemens Aumann has been working as a manager and consultant to drive the
development and marketing of telecommunications services for 20 years. His
latest studies investigate the future consequences of IT-telco convergence for
market-oriented processes and the organizational forms of telecommunications
providers.
Bartosch Awakowicz is investigating the opportunities and risks facing multi
national telecommunications network operators as they deal with the IP transformation now in progress. His focus is on the new types of business models
resulting from the changes and on the merger of the varying objectives and
approaches of technology and business.
Tim Dörflinger is Managing Consultant for strategy, marketing, innovation, and
sales and has been active primarily in international project business for five years.
His main interests are in the areas of strategy development and business p
lanning,
restructuring, and product development and market entry. Before coming to
Detecon, he worked for four years in the field of qualitative and q uantitative
customer and market analysis at Telekom Innovation Laboratories, the research
and development division at Deutsche Telekom.
Winfried Ebner heads the program Social Media Business at Telekom Deutschland GmbH. He previously held various positions as assistant to the Executive
Board at Deutsche Telekom and at the chair for business informatics of the TU
Munich.
Dr. Tillmann Eckstein is Senior Consultant in the field of radio technology.
He has had more than 20 years of experience in system design and product
management for directional radio and mobile communications technology.
His work has focused in this time on the definition and specifications of New
Generation directional radio systems with adaptive modulation and package-
based data transmission and mobile communications systems, especially GSMR. Moreover, he has been in charge of the development of planning tools for
these New G
eneration directional radio systems.
200
The Authors
Claus Eßmann is Managing Consultant in the business unit International
Telecommunications and has been working in the international operating and
strategic telecommunications and IT environment for more than 17 years. He
specializes in consulting and the realization of devices and M2M/IoT strategies.
Moreover, he is a member of the “Connected Car Solutions Center” of Detecon
where he focuses the experience from his consulting work on the automotive
sector.
Johannes Ewers is an IT architect who has been advising companies from telecommunications and other industries during the development of IT strategies
and the creation of concepts for IT application landscapes for more than 30
years. The optimization of automated digital processes is his field of specialization. He profits from his experience with clients in many different countries of
Europe, Africa, and the Middle East.
Armin Fischer is Managing Consultant in the business unit International Telecommunications. He advises clients around the world on editions of strategy and
marketing.
Lutz Fritzsche is Managing Consultant in the business unit International
Telecommunications. The focus of his consulting activities is on the planning
and optimization of telecommunications networks, especially the transmission
networks. Moreover, he actively participates in the advanced development and
sale of Detecon’s own planning tool NetWorks and is the contact consultant for
numerous clients using the program.
Christoph Goertz is Senior Consultant whose specialist expertise is in communications technology. The focus of his consulting work is on the development of
strategies related to IP migration in mobile and fixed networks, development in
solution design, IP-based services, and concepts for technical and commercial
realization of new digital services based on partnerships between telecommunications operators and partner companies.
Dr. Osvaldo Gonsa, Senior Consultant, is active in the M2M and 5G Knowledge
Community. His work as an author is based on his many years of experience in
standardization activities and in managing strategic projects in the areas 5G and
industry. His primary interests are in the subjects of architecture and services for
telecommunications networks and strategies for the implementation of services
via the current and future telecommunications networks.
201
Jan Grineisen is Consultant in the consulting unit Deutsche Telekom. His
consulting focus is on the development of commercial strategies in the end
customer segment, especially on customer experience. Moreover, he has p
rofound
consulting experience in the development of omnichannel business models and
sales strategies.
Lukas Hack studied economics with a special emphasis on industrial economics and network industries in Bonn and Valencia. Even before completing
his studies, he worked in sales management and the wholesale management at
Deutsche Telekom. He has been a management consultant for two and a half
years, specializing in international rollouts and shared services.
Amal Haj-Najib is Senior Consultant in the consulting unit Deutsche Telekom.
Her key competencies are in customer relationship management, sales, i nnovation
management, and process management in the telecommunications and automotive industries. She has been working as a corporate consultant for more than
seven years and comprehensively guided projects from strategy development to
operational implementation and the rollout.
Dr. Markus A. Hessler has had more than ten years of experience in competition
economics and regulation and has been working in network industries, especially
telecommunications and energy, for more than seven years. His primary focus
goes beyond regulatory and wholesale editions to include the subjects of strategy,
marketing, and finance. He advises clients from Latin America, Europe, North
Africa, the Middle East, and Asia.
Dr. Arnulf Heuermann, Managing Partner, has held various positions as a group
leader for regulatory consulting, department head of strategy and marketing, and
director of international sales over the course of his career. He has had project
manager experience in management consulting projects in the telecommunications sector in more than 40 countries of Europe, Asia, and Africa. His core
competencies are found in the fields of strategy consulting, telecommunications
regulation, privatization, and M&A business.
Tim Horn is Junior Business Development Manager for big data at T-Systems
International GmbH and advises clients on the innovative use of these data.
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The Authors
Jan Jochum is Senior Consultant. Over the last 18 months, his consulting work
has focused on the German mobile network market and the subject of f requency
auctions. He has project experience in the telecommunications, retail trade, and
industrial sectors, focusing on strategic reorientation and cost efficiency. He
previously held an executive position in the Controlling department at Telekom
Deutschland GmbH and was in charge of customer service and technical service.
Thomas Kessler is Partner and Head of Business Development, Detecon Asia-
Pacific Ltd. He has had more than 15 years of experience in the telecommunications industry in Europe, Russia, the Middle East, and Asia and has concentrated
on the areas business and technology strategy, planning, establishment and operation of telecommunications operators, and service and product design. Moreover,
he is in charge of the build-up of strategic consulting clients in Southeast Asia.
Dr. Werner Knoben is Partner and Head of Delivery, Detecon Asia Pacific
Ltd. He is an expert for strategy, wholesale regulation, and competition economics who has had more than 15 years of experience in the telecommunications
industry; he is especially well-versed in the subject of spectrum allocation. He
advises ISPs, MVNOs, tower providers, fixed and mobile network operators, and
regulatory authorities and government ministries around the world; in addition,
he advises and guides strategic clients in the Southeast Asian region.
Peter Krah is Managing Consultant and works in the unit International
Telecommunications. He has had many years of experience in the telecommunications industry, especially in international consulting services for mobile
network operators, system suppliers, and investors. His specialist areas include
strategic and technical topics, especially in the fields of planning, rollout and
optimization, cost modeling, and commercial assessment of mobile network operators and their networks on the basis of current and future technologies.
Sascha Krpanic has been working as a consultant since the beginning of 2013. His
focus is on the areas of digital services, omnichannel management, competition
and market analyses, and corporate strategies.
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Dr. Peter Krüssel, Managing Partner, is the Detecon account manager for
T-Deutschland. He advises telecommunications companies on strategic editions
in the retail and wholesale sectors. His focus is on the interrelationships between network infrastructure and marketing, differentiation of strategies for the
development of markets, competition and market analyses and scenarios, and
regulatory editions.
Raúl Kuhn has been working in various branches of the telecommunications
industry for seven years. His consulting focus is on strategic analysis and marketing of existing and new business models as well as the realization of network
infrastructures.
Martin Lundborg (M.Sc.) has been a corporate consultant in the telecommunications industry for 15 years, where he has focused on strategy projects, broadband investments, wholesale markets, network costs, and regulation.
Alexander Luyken is a manager in the social media program at Telekom
Deutschland GmbH and has had long years of consulting experience in the telecommunications sector.
Vera Markova has had more than seven years of consulting experience in the
telecommunications sector and specializes in technology strategy, network architecture, planning, and implementation worldwide.
Dr. Ralf Meinberg is Senior Expert for regulatory strategy at Deutsche Telecom
AG. Among his other activities for the corporation, he is concerned with the
strategic development of innovation and Internet topics.
Julian Obeloer is a consultant in the telecommunications sector with a focus on
marketing, strategy, and business analytics. The current focus of his work is on
larger national and international transformation projects. He previously worked
for Vodafone and Miele, where he gained extensive experience.
Andreas Obst is Senior Consultant with 17 years of experience in the i nternational
ICT industry. His focus is on the areas of commercial and product management
in the business customers market segment.
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The Authors
Andreas Penkert is Managing Consultant and advises clients from various
industries on the topics of CRM, sales, and service. He is the author of numerous
publications and studies on the digital transformation of customer service and
the new communication channels. Before coming to Detecon, he worked as a
project manager in retail and e-commerce.
Dr. Andreas Schieder works as an expert for IP-based networks in the
international section of Deutsche Telecom AG (Europe and Technology). His
focus is on I P-based core networks, especially IMS. In this field, he is in charge of
the preparation of architectural requirements for standardization of the n
etworks
in the national DTAG companies. Before coming to DTAG, he worked as a
Detecon consultant in the field of mobile networks for more than seven years.
Dr. Stefan Schnitter, Partner, is in the unit International Telecommunications.
He has had years of international experience in the field of IP-based networks and
services as a consequence of his activities as consultant and of the management
positions he has held for network operators. He currently focuses his consulting
activities on strategies for broadband expansion for fixed and mobile network
operators and on architecture, planning, and implementation of networks for
telecommunications companies worldwide.
Dr. Mathias Schweigel is Managing Consultant and specializes in method-based
network planning. He trains users of NetWorks, Detecon’s own software for network planning and optimization. Moreover, he supports the use of planning
software for operating and strategic editions in projects.
Dr. Markus Steingröver, Managing Partner, is in the unit International Telecommunications and is the team leader for “Global Wholesale and Regulatory
Knowledge”. He advises mobile and fixed network operators as well as regulatory
authorities around the world on the subjects of business models, wholesale and
regulatory strategies, and cost planning. His primary fields of work encompass
business development strategies for broadband and wholesale.
Daniela Ujhelyiová is Consultant and a member of the Finance and Controlling
team at Detecon in Zurich.
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Thomas Wehr is Managing Partner and Managing Director of Detecon Asia-
Pacific Ltd. He concentrates on the thematic areas of corporate strategy, marketing,
and controlling. He has been advising international fixed network clients, mobile
network operators, Internet service providers, virtual network operators, regulatory authorities, and investors in these fields for more than ten years.
Stefan Wilhelm is a member of the Executive Board and heads the Operating
Office at Detecon. Before coming to Detecon in 2011, he held various international
management positions – including Vice President Strategic Planning – in the
Deutsche Telekom Group for seven years.
Dr. Frank Wisselink is interim manager and Managing Consultant. He is
consultant to and head of large innovation and strategic projects within and
outside of the Deutsche Telekom Group.
Dr. Rong Zhao, Managing Consultant, has been studying the topics of planning,
optimization, migration, and implementation of access and transmission
networks for 14 years. He is a member of the VDE/ITG specialist group “Access
and Home Networks” (FG 5.2.5) and an author and speaker with numerous
publications and talks to his credit.
Jens Zimmermann is Consultant with a number of years of project experience
in CRM, sales, and communications. The focal points of his consulting a ctivities
are found in the thematic areas customer service, sales management, loyalty
management, and digital customer experience.
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Who we are!
About Detecon International GmbH
Detecon is one of the world’s leading consulting companies for ICT management
consulting. Our services focus on consulting and implementation solutions
which are derived from the use of information and communications t echnology
(ICT). They encompass classic strategy and organization consulting as well
as the planning and implementation of complex, technological ICT architectures and applications. Detecon’s expertise bundles the knowledge from the
successful conclusion of management and ICT consulting projects in more than
160 countries. Detecon is a subsidiary of T-Systems International, the business
customer brand of Deutsche Telekom.
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Knowledge@Detecon
DETECON
Consulting
Knowledge@Detecon
Strategies for
Successful Positioning in Competition
Consulting
DETECON
Telecommunications companies are facing great demands
related to transformation. Eclipsing the s ignificant factors
of traffic growth and horizontal competition among
carriers, competition with OTT players will represent

the key challenge of the future for network operators.
Core business fields and primary sources of revenues
in the area of traditional communications services are
threatened, as are the presumably secure infrastructure
business and customer relationships. Carriers are at risk
of being reduced to the role of a bit pipe operator or to
being nothing more than connectivity providers without
any contact to the end customers. These threats give rise
to fields urgently requiring action.
Based on consideration of various market scenarios,
Detecon has developed a number of recommendations
for telecommunications companies that will help them
to position themselves successfully in this competitive
environment, including innovative network concepts,

agile IT infrastructures, ideas for their own innovation
activities, and aspects for a differentiated approach to
markets.
Consulting
DETECON