friday food 071109 redesign of mobile business

THE REDESIGN OF MOBILE BUSINESS

Business Model Research at IBBT-SMIT

Pieter Ballon

Simon Delaere

Olivier Braet

Theme Number: “The redesign of mobile business”, INFO, Vol. 9, Issue 5,

August 2007

Overview

� Introduction

� Business model research at SMIT

� The redesign of mobile business

� The redesign of spectrum management: the Cognitive Pilot Channel

� FSM and Cognitive Radio

� CPC concept

� CPC business model scenario analysis

� Revenue Models

� The redesign of mobile service provision: IMS versus E2E

� Two competing paradigms

� Strategic business issues

� Advice for IMS operators

Overview

� Introduction

� CPC concept

� Revenue Models

Business Model research (1/2)

� Innovation in ICT almost per definition a complex and multi-stakeholder process

� Technical architectures are designed (biased) towards specific role distribution and revenue streams

� Convergence and modularity require

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modularity require fundamental re-thinking of this design approach

� Business modelling makes design choices and interdependencies explicit from value network perspective

Business Model research (2/2)

� Business Model Matrix

� Crucial elements of any business model

� Control and Value parameters

� Viable business models present a strategic fit between control and value parameters

� Research

� Empirical: case based, stakeholder interviews

� Exploratory: scenario based, simulations and modelling

The redesign of mobile business (1/2)

� Mobile telecommunications industry has been a closed innovation system dominated by telecom vendors and mobile operators

� Current MO Business model

� Exploiting spectrum scarcity

� Bundling services with network access

� Both elements are put under severe pressure

� Flexible Spectrum Management: the end of spectrum scarcity?

� Mobile Internet: the end of bundling services with network access?

The redesign of mobile business (2/2)

� Role of the mobile operator not necessarily over

� Core assets in terms of quality of service, personalisation, billing relationship etc.

� Need for strategic rethinking of business model: from closed system to multi-sided market

� Towards strategy of platform leadership: owning central module instead of complete system

complete system

� Fostering ecosystem of complementary innovators

� Influencing architectural design through open interfaces combined with core IPR assets

� Balancing control and consensus strategies towards complementors

� Adopting a neutral and systemic mindset towards global industry

� Explorations of new platform positioning

� Cognitive Pilot Channel (E2RII project)

� New Mobile Service Platforms (SPICE project, MCDP project, Video Qsac project)

Overview

� Introduction

� CPC concept

� Revenue Models

FSM and Cognitive Radio (1/4)

Germany – Poland (extract)

Start of the match 21:00

Germany – Poland (extract)

Start of the match 21:00

900 MHz band - Dortmund900 MHz band - Dortmund

� Regulatory drivers� Introduction of secondary trading

� Step away from pre-defining ownership of frequencies

� Creates a market for spectrum

� Confronts the cost of retaining this spectrum

� Increases spectrum efficiency, reduces scarcity

� Introduction of flexible spectrum use

� Step away from pre-defining use of frequencies

� Promotes innovation & efficient use of spectrum

� Answer to convergence of technologies, services & industries

� Both concepts

� are being implemented in many countries

� lead to fluid, dynamic spectrum markets

� make the advantages of reconfigurability clearly visible

The Cognitive Pilot Channel (CPC) concept

� FSM may invoke a particular information deficit

� E2R proposes Cognitive Pilot Channel as a solution

Operator 1

Operator 2

2.5 Ghz

Operator 1

Operator 3

2.5 Ghz

Operator 1

1800 Mhz

Operator 1

1800 Mhz

Operator 1

1800 Mhz

Operator 1

1500 Mhz

CPC business model scenario analysis

Operator based model

�Value network and customer control high

� Large parts controlled by one party

� Intelligence centralised (spectrum availability, terminal usage profiles, billing history, location data etc.

� CPC ≠ spectrum broker, = integrated part of operator’s infrastructure aimed at lower CAPEX/OPEX, higher ARPU

� Value defined in terms of complementarity

� Easier data transfer, less conflicts, easier

User 1 Device User 2 Device

� Easier data transfer, less conflicts, easier maintenance

�Cost and revenue concentrated

� Spectrum usage rights & infrastructure needed

� Costs multiplied by number of operators

� Harmonization of multiple frequencies necessary

� Probably only for existing, large scale, multi-RAT operators

� But: revenues also concentrated

�User value aimed at intimacy

Operator 1 CPC Operator 2 CPC

RAT 1 RAT 2 RAT 3 RAT 4

Intermediary based model

User 1 Device User 2 Device

�Value network and customer control low

� CPC role resides outside operator’s domain

� No control over information distributed, no customer intelligence received + competition with others’ info

� Consequence: customer lock-in difficult

� CPC can act as neutral marketplace, BUT this requires additional (sensitive?) information to be transmitted, and enough granularity

� Potential information deficit in multi-broker situation

� More potential conflicts and technical complexity

Reg./Interm. CPC Intermediary 2 CPC

� More potential conflicts and technical complexity

�Cost and revenue concentrated

� Cost different in regulator/intermediary variant

� Intermediary variant needs revenue sharing agreement

� Clients might be subscribers and/or operators

� More interesting than decentralised scenario

�User value aimed at substitution

� Competition between many operators with duplicate technologies and services

� Cost- and quality-based strategies

Hybrid model

User 1 Device

Reg./Interm. CPC

User 2 Device

Intermediary 2 CPC

�Value network and customer control intermediate

� CPC partly within operator domain � flexibility and direct customer relationship

� BUT: upper hierarchical CPC level functioning as open marketplace

� Modularity and distribution of intelligence higher � more complexity

� BUT: more control for operators to manage their own channel

�Cost and revenue mixed

� CAPEX and OPEX needed on both CPC levels �

� CAPEX and OPEX needed on both CPC levels �advantage for larger operators

� BUT: spectrum flexibility of 2nd layer CPC makes it cheaper

� Revenue structure dependent on regulator (= revenues for operators) or intermediary (= revenues shared) variant

�Mixed user value strategies

� Operator’s may lock-in to own CPC and pursue complementarity strategies

� Users may buy unlocked devices and pursue substitution strategies based on cost or quality requirements

� Intermediaries may become active brokers for users

� Operators could strike deals with intermediaries

Model comparison

User 1 Device

User 2 Device

I. Operator-based system

II. Intermediary-based system

User 1 Device

Reg./Interm. CPC

User 2 Device

III. Hierarchical system

Intermediary 2 CPC

User 1 Device

Reg./Interm. CPC

User 2 Device

Intermediary 2 CPC

RAT 1 RAT 2 RAT 3 RAT 4Table 1: Overview of CPC domains of analysis

domain of analysis domain aspects operator intermediary hierarchical

1. control value network control high low medium

customer control high low medium

2. cost and revenue structure cost distribution centralised centralised both

revenue distribution concentrated both both

3. user value product positioning complement substitute both

intended value type intimacy mix mix

Revenue Models (1/2)

Revenue Models (2/2)

Overview

� Introduction

� CPC concept

� Revenue Models

Introduction: Two competing paradigms

� IMS = IP Multimedia Subsystem

� Client-server architecture

� To aid the transition to IP-based services in mobile and

fixed telecommunication networks

� SIP: Session Initiation Protocol

� For the following services:

� Voice-over-IP (VOIP)

� Rich content delivery

� Presence

Introduction: Two competing paradigms

� E2E = End-to-End

� The Internet is (intended to be) a network without central intelligence, a stupid network (David Isenberg)

� Kempf & Austein: The Rise of the Middle and the Future of End-to-End, http://tools.ietf.org/html/rfc3724

� Internet is based on the end-to-end principle

� Every user may reach any other user via the IP address

� All “services” may be offered anywhere and may be accessed from everywhere

� This is also valid for voice and other communication “services”

The Internet

Two theses:

1. IMS & E2E are close substitutes...

Most of the components of an IMS could be

replaced by E2E applications that

exclusively reside at the end-nodes of the

network. These applications could perform

almost all functionalities that can be

enabled within the IMS framework.

2. ... but will exist alongside one another the coming years.

How should IMS operators adapt?

IMS—

Strategic Business Issues

IMS Strategic Business Issues: Overview

Functional Architecture design

Better load balancing

View on resources available in the

network

Open API’s are possible

Accelerated time-to-market of new

products and services

Optimization of applications for the

chosen devices

Presence as innovation

Better load balancing?

“IMS is not the Internet”

Barriers for app. developers

Relative slower time-to-market of new products and services

Presence as non-innovation

Value Network design Value network dependencies can be controlled

Walled gardens hamper open market entry

Service design Quality control of delivered services

Richer services

More customer empowerment over

service selection and consistency of

the end-user experience

Complex and slow new service deployment

Access restriction to application layer

functionalities

Financial design Lower capex and opex

New revenue streams

Unclear business case versus free

offerings

Less innovative: innovation not at

end-nodes

IMS: Functional Architecture Issues

� Better load balancing

� View on resources available in the network

� But... IMS is not the Internet

Note this

Source: Richard Stastny (voipandenum.blogspot.com)

IMS: Value network design issues

� Value network dependencies can be controlled

� Walled gardens hamper open market entry

� IMS: Service design issues� Quality control of delivered

services� Complex and slow new service

deployment

E2E—

Strategic Business Issues

E2E Strategic Business Issues: Overview

Functional Architecture design

Rapid and simple application deployment

Scaling via bandwidth sharing between end-nodes

Quality of Service workarounds (DiffServ: IETF rfc 2474 and 2475)

Application development dependent on software platform requirements

End-to-end does not scale

Lower Quality of Service

Value Network design Deverticalized industry

structure is more efficient

Application level bottlenecks emerge

structure is more efficient emerge

Service design Best effort trumps 100% quality of service if it’s free

Stronger network effects

Best effort only aims for price leadership

Financial design Cost is decentralized Cost & management effort is pushed to the edges

E2E: Functional architecture issues

� Rapid and simple application deployment

� Development effort distributed

� Scaling via bandwidth sharing between end-nodes

� Lower Quality of Service

� E2E: Value network issues

� New bottlenecks emerge� Deverticalized industry structure is more efficient

E2E: Service design issues

� Best effort trumps 100% quality of service if it’s free

� Stronger network effects

� Best effort only aims for price leadership

� E2E: Financial design issues

� Cost is decentralized � Cost & management is pushed to the edges

� E2E: Financial design issues

CONLUDING—

Advice for IMS operators

Six points of advice for IMS telecom operators

1. Negotiate new revenue sharing models with content industry

� Beware the Joost scenario

2. Loosen requirements on application developers and device makers

� Beware bypassing scenarios (SIP-calling in pdf!)

� Features blocked in the past: Call timers on telephones, WiFi

� Features blocked in the past: Call timers on telephones, WiFi technology, Bluetooth, GPS services, internet browsers, easy photo file transfer capabilities, easy sound file transfer capabilities, e-mail clients, ...

3. Share user data with application developers

� Development time for mobile applications can be drastically lowered

Six points of advice for IMS telecom operators

4. Apply interoperability strategies

� Winner-takes-all of Internet: Users of P2P-apps are also stuck in walled gardens

� Enum: tElephone Number Mapping

5. Offer smart identity management

� Towards pseudonymity

� OpenID

6. Support user and service mobility

� TCP/IP protocol still does not lend itself to maintain communication with ‘things that move’

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friday food 071109 redesign of mobile business

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