Ericsson
THE GREAT
SCARE
LUCY KÜNG ON SURVIVAL STRATEGIES
FOR TRADITIONAL MEDIA
Telenor’s
fundamental change
Opinion
“MAKE M2M WORK OUT OF THE BOX”
IS SHARING YOUR NETWORK
A GOOD IDEA?
How devices drive value
and what to expect
28
PAGES CONNECTING THINGS – A WILD WEST MARKET WITH INFINITE POTENTIAL
USD 25 • EUR 20 • JPY 2,300
Issue no. 3 2010
A country’s investment in broadband is
proven to boost entrepreneurialism and
innovation, making life richer in every way.
ericsson.com
contents
Ericsson
ERICSSON BUSINESS REVIEW
is Ericsson’s global business
magazine, focusing on thought
leadership and providing a longterm perspective on business
strategies in telecommunications.
The magazine is distributed to
readers in more than 130 countries.
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Phone: +46 8 719 00 00
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E-mail: business.review@strd.se
PUBLISHER
Patrik Regårdh
EDITORIAL COUNCIL
Patrik Regårdh, Ulrika Bergström,
Marcel Noordman, Miguel A
Rodríguez, David Wilson, Robert
Grönborg, Sanjay S Kaul
EDITOR-IN-CHIEF
Mats Thorén
mats.thoren@jgcommunication.se
DEPUTY EDITOR
Nathan Hegedus
ART DIRECTOR
Jan Sturestig
LAYOUT
Maria Andersson
EDITORIAL OFFICE
JG Communication,
www.jgcommunication.se
COVER PHOTO
Chris Maluszynski
[9] Editorial: We can connect everything − but why should we?
In this issue we give you some answers. It is hard to define or gauge the emerging market for
machine connectivity, because the only common denominator seems to be that it will be very,
very big. But acknowledging that fact is a good start.
[10] COVER STORY: The great scare – embracing the internet threat
Having lost the first internet battles, the media and telecom industries are left with declining
revenues. Now, after a history of failed collaborations, both industries have little choice but to
blaze a common trail towards future relevance, says media management expert Lucy Küng.
[20] THEME: Rise of the machines
The vision is clear: network−connected machines will improve our lives in numerous ways.
So what’s the problem then? Put simply, most network operators are not geared up for
handling this radically different line of business. But they could be, and there are very good
reasons for them to get into the race.
[28] THEME: The experience of an early starter
Norwegian incumbent Telenor is an M2M pioneer having installed close to 2 million M2M
SIM cards, with their numbers doubling each year since 2004. Here, they explain why
connecting machines is fundamentally different from what telecom operators traditionally do.
[32] THEME: The Internet of Things in the eyes of the users
The power of the Internet of Things is not in any of its single connections but in the totality of
interconnections. Unless this is made clear to consumers, it will be very hard to create the
mass−market platform the industry is hoping for.
[36] THEME: The Chinese take on connected machines
The mobile channel is a powerful medium, but it is also highly sensitive. In using profile data,
made anonymous, for targeted mobile advertising, operators have found a solution to stay
ahead of the game.
[40] THEME: What operators need to support 50 billion connections
The evolution of an M2M industry ecosystem is closely linked to the role of the network
operator. A closer look at the knowledge necessary to develop that ecosystem gives an
indication of what future M2M platforms might look like.
CHIEF SUBEDITING
Birgitte van den Muyzenberg
[45] How Telstra gained speed to market – without blowing the budget
CONTRIBUTORS
When Telstra set out to transform its transmission network, it was not simply to counter
exploding traffic volumes. Telstra restructured as part of a long−term plan to get ahead of
the competition. This is a lesson in how intimately network strategy is coupled with
business strategy.
Moira Quinn Mawhinney,
Paul Eade, Erin Delahunty,
Benny Ritzén, David Callahan
GRAPHS
Claes Göran Andersson
PRINTER
VTT Grafiska, Vimmerby 2010
VOLUME
12, Issue 3, 2010
Why have so few network sharing projects been successful? The technical issues between
partners can be resolved, so the real challenge is to make cooperation between competitors
work. A business−focused and structured approach will improve the chances of success.
[54] The value−driving role of devices – and what to expect
ISSN
1653-9486
COPYRIGHT
Telefonaktiebolaget LM Ericsson
ERICSSON BUSINESS
REVIEW was awarded
Best Business-toBusiness publication
2010 by The Swedish
Association of Custom
Publishers (SACP)
4 • EBR #3 2010
[49] The benefits and barriers of network sharing
Wireless devices have undergone dramatic changes but have still remained core to operators’
value creation. In the new era now taking shape, devices are connected in ever simpler ways.
Telecom players should watch out for what this simplification could do to their value chains.
[58] OPINION: Realize the promise of M2M – make it work out of the box
There is room in the cloud for operators, and it is not a given that integrators will dominate.
Amy DeCarlo thinks the answer comes down to putting productive partner alliances together.
[63] EXECUTIVE SUMMARIES
[18−33] THEME Connecting machines
▶ TECHNICALLY WE CAN connect virtually anything to a network
of some kind. That’s a very enticing thought, and it has
unleashed a flood of truly creative thinking all over the world.
Although these new ideas are interesting and fun to read
about, it is not the main purpose of this issue’s theme. The
focus is rather on how we turn them into a sound business,
large−scale – the telecom way. One very relevant question is
whether we are mentally prepared as consumers. Enterprises
obviously need to be aware of business potential, but raising
consumer awareness would add a very important driver as
people would actively start thinking in terms of connecting
their own environments.
EBR #3 2010 • 5
photo Jann Lipka
6 • EBR #3 2010
THE PHOTO
▶ SECURE HOSTING – NUCLEAR ATTACK GRADE Internet service providers sometimes tell clients that they offer
“bullet-proof hosting.”
Some of much-debated whistle-blower WikiLeaks’ servers have been moved to this data center, owned by Swedish
broadband provider Bahnhof. The data center is located 30m below ground level inside a Cold War era nuclear
bunker, carved out of solid bedrock beneath Vita Bergen park in Stockholm. The server farm has a single entrance,
half-meter-thick metal doors and backup generators of submarine design.
WikiLeaks challenged several powerful military forces by releasing thousands of classified Afghanistan war
documents, and has since looked for ways to avoid being shut down by legal means or sabotaged. Sweden’s Pirate
Party decided to provide bandwidth and hosting to WikiLeaks free of charge as part of its political mission. ●
EBR #3 2010 • 7
details
JUST ONE
QUESTION
“We will lift the roaming system so that people in Germany and Turkey
can speak to each other as relaxed as they would be at home.”
SUREYYA CILIV, CHIEF EXECUTIVE OF TURKCELL, ON TV STATION CNBCE, TALKING ABOUT A NEW DEAL FOR WHOLESALE VOICE TRAFFIC IN GERMANY.
...to Sam Rosen, Senior
Analyst, Digital Home, at
ABI Research.
▶ In paid home
entertainment, can
incumbents innovate
fast enough to stay
dominant?
?
Internet-speed
companies such as
Google’s YouTube, LoveFilm
and Netflix are targeting the
living room with
subscription services and
advertising-enabled content,
while consumer electronics
companies – notably Sony,
Samsung and LG (plus
Microsoft’s Xbox) – are the
“Trojan horses”, with entry
into customers’ living rooms
and TVs.
Many customers in North
America and Western Europe
already have access to
internet content on their TV,
including extensive movie
catalogs, last season’s TV
shows, new advertisersupported web TV stations
and user-generated content.
Video operators
worldwide have started to
see early signs that might
point to “cord cutting” by
consumers, although it is
hard to factor this out from
subscriber loss due to
economic conditions.
Luckily, mainstream
content owners worldwide –
broadcast TV, cable
networks, sports leagues and
Hollywood – rely on the
traditional pay-TV providers
for the bulk of their
revenues. Content providers
and operators often have
shared ownership. The
content owners will slow
down the pace of
technological innovation
through control of the most
desirable programming, to
allow the incumbent pay-TV
operators time to catch up
with their internet-speed
competitors. However, in
the future every operator
will face more competitors
than they do in today’s
geographically segmented
marketplace. ●
!
8 • EBR #3 2010
China – the engine
for broadband growth
The number of worldwide broadband subscribers recently hit 500
million, with China
accounting for 43 percent of all broadband
lines added during Q2.
Make mine
mobile
▶ Research firm Point
Topic says that half of the
world’s  billion fixedline customers now have
broadband access, with
 percent growth in the
past year.
Broadband subscriptions are still concentrated in developed parts of
Asia, Europe and North
America but China, now
with about  million
broadband subscribers,
continues as the engine
for growth, almost  million more subscribers
than the closest competitor, the US.
In-Stat forecasts that
the number of global
broadband subscribers
will surpass  billion by
. But the real growth
in broadband, says ispreview, is in “super fast”
next generation access,
as services such as iptv
demand ever greater
bandwidth. Global iptv
subscriptions rose to .
million in q, up . million in the quarter. ●
▶ The mobile web is
the clear consumer choice
over downloadable applications, with 66 percent
of consumers in the US
preferring mobile browser
experiences across four
categories – travel, financial services, consumer
products and shopping,
and media and entertainment – a new study from
Adobe Systems’ Omniture
Business Unit shows.
Applications were the
favored format for engaging with social media and
music though, as well as
for things such as games
and maps.
NOW READ THIS!
GLOBAL MOBILE MEDIA BY GERARD GOGGIN, ROUTLEDGE, . This is an overview of all
things
mobile – from the rise of smartphones to the political economy of mobile
t
media – that explains how mobile phones became central to our daily lives.
▶ Media mobility. Goggin focuses on the media dimensions of mobile media, placing it in the
historical, social and cultural context of other portable media technologies. A professor of digital
technology, Goggin evaluates how users, mobile phone producers, media interests and policy makers are shaping the new mobile media world.
BUILDING SOCIAL BUSINESS: THE NEW KIND OF CAPITALISM THAT SERVES
BY MUHAMMAD YUNUS, PUBLICAFFAIRS, . This book ar−
gues for a new facet of capitalism called “social business” on the premise that profit−
making businesses can fulfill basic humanitarian needs.
HUMANITY’S MOST PRESSING NEEDS
▶ A new capitalism? The author, a Nobel Peace Prize winner and a microcredit pioneer, has helped
d
develop a business model in which a non-loss, non-dividend company is dedicated to a social cause
– anything from healthcare for the poor to providing renewable energy – with all profits reinvested in
the company.
THE SOCIAL MEDIA BIBLE: TACTICS, TOOLS & STRATEGIES FOR BUSINESS SUCCESS,
Social media is exploding in popularity and
is
i not easy to keep up with. This book tries to comprehensively examine the latest
platforms, technologies and companies in social media marketing.
SECOND EDITION BY LON SAFKO, WILEY, .
▶ Get more social. Safko discusses social media tactics and examines things like podcasts, vlogs
and tweets, as well as listing more than 100 of the top social media companies. A strategy section
poses questions to the reader to help them develop a social media strategy.
editorial
NZ deregulates
▶ It is no longer necessary to regulate Telecom NZ’s prices,
terms and conditions for wholesale broadband, business data
and bundled services, says the New Zealand Commerce
Commission. The commission says that a low take-up rate and
the availability of other options were behind its decision,
which Telecom NZ said could affect up to 6000 items on its
resale price list.
The company’s resale services will continue to be regulated
where there is limited competition. ●
100,000
▶… APPS AVAILABLE as of late October in Google’s
Android Market app store. There were 70,000 apps
available as of late July, and the New York Times reports
that more than 270,000 developers are now building
Android apps. Google still lags behind Apple, which
features more than 300,000 apps in its App Store.
Microsoft chief says
goodbye to the PC
▶ MICROSOFT’S departing
chief software architect says
that the shift from the PC to
the cloud is inevitable and
warned Microsoft to adapt or
be left behind.
Ray Ozzie said in a memo
posted to his blog that the PC
market has become too com-
plex, and that always-on
broadband and connected
devices will provide the
simplicity the PC used to
deliver. Microsoft’s future is in
cloud computing services
delivered to these connected
devices, he wrote. ●
Tablets don’t replace
ce
notebooks‥
▶ THE APPLE IPAD is not yet cannibalizing the PC notebook market, says
research firm NPD Group, as only 13
percent of iPad buyers have chosen the
tablet over a notebook PC.
The research firm also noted that 48
percent of iPad buyers already own a
Mac computer and 38 percent have an
iPhone. Yet an NPD Group executive said
d
on v3.co.uk that as the early adopter rush
sh
fades, products like notebooks and
e-readers “will come under increased
pressure” from Apple’s tablet.
‥ but maybe they will
▶ DRIVEN BY NEW players such as Samsung and Cisco,
sales of tablet PCs will reach more than 200 million units
by 2014 and start to cannibalize the sales of single-use
connected devices, says research firm Gartner. Gartner
predicts tablet sales of 19 million by the end of 2010 and
208 million by 2015. A Gartner analyst told v3.co.uk that
business demand will help drive the increase owing to a
tablet’s ability to host applications as well as its “instanton” functionality. ●
EDITORINCHIEF
An incredibly large market
– no matter what you call it
▶ SOME CALL IT “the pervasive internet.” Others warn that the internet analogy
is misleading because this undefined market is bound to surpass everything we
understood about the internet and the web. Technically we can connect virtually anything to a network of some kind, and this is what we are talking about
– connected devices or machine-to-machine (mm) communication. To some,
mm is a subset of “the Internet of Things”, in which tablets and e-readers –
and maybe even some smartphones – are often included.
This makes it difficult to get a grip on the value and potential of it all, to say
the least. Heart monitors, cameras or shoes we can understand. But most of
the devices, gadgets or machines in the mm market, and the services tied to
them, are things that no one has ever seen before. It is no surprise then that
market projections vary greatly. Are we talking about millions or billions?
Confusing as it may seem, definition is not the real issue. This is a market
set to grow on the back of real innovation. But what this element of chaos signals very clearly is that the space is still up for grabs. This market, whatever
you call it, is in a Wild West state, and its bounty is not going to automatically
fall into the hands of established network operators.
THE FOCUS OF this issue’s theme is how to transform device connectivity into a
sound business for network operators (it is also a warning that this isn’t telecom anymore). We highlight a pioneer – Telenor – and take a closer look at
value chains and the interaction between players in this new market, as well as
the requirements for an ecosystem and platform that will be able to support
billions of future mm connections.
We also take a closer look at what will drive demand. Many of the companies that could take advantage of mm capability are not yet aware of its potential, and this also goes for consumers. Today’s mm solutions are often built
top-down and on a large scale. They are also quite complex and do not normally involve the users. So it is relevant to ask if we, as consumers, have the
awareness needed to spark popular demand.
It would add a very important driving force to the market if people would
actively start thinking in terms of connecting their own environments, and even
do it themselves. It needs to be simple enough, but the concept is by no means
far out; we have seen this kind of participation in the evolution of personal
computing, and today we see the power of the people in social and community networking.
IN THIS ISSUE , we also examine a shrinking business. Newspapers, magazines, radio and television have all experienced demoralizing declines in revenue; well-known
magazines are folding; and book sales have plunged by
double-digit percentages. Is traditional media becoming irrelevant? No, but these once dominant industries
have little choice but to find new ways to interact with
their customers. And their losses are also the fertile
soil from which digital and networked media will grow
new revenues in the future. ●
MATS THORÉN, EDITORIN CHIEF
cover story Lucy Küng
Basic facts
NAME Lucy Küng TITLE Professor of Media Economics and Management,
University of Jönköping, Sweden LIVES IN Zürich, Switzerland BORN IN London, England
10 • EBR #3 2010
The
great
scare
T
g
s
How telecom and
media can embrace
the internet threat
The first internet battles are lost, leaving both the media
and telecom industries with declining
g revenues and
fixed assets that have become liabilities, says media
management expert Lucy Küng. Now – after a history
of failed collaborations – these once dominant industries
have little choice but to g
get creative and blaze a common
trail towards future relevance.
TEXT
Nathan Hegedus
L
PHOTO
Chris Maluszynski
knows the media and their stark
challenges. A former publishing director at
at Random House in the uk and now a leading expert on media management, Küng focuses
much of her work on the upheaval caused when a
new generation of technology platforms – such as
the internet and the iPad – threaten to replace
tried and tested models such as broadcast tv and
the printed magazine.
Can you set the scene here? What is the urgency
for both media and telecom companies?
UCY KÜNG
The drama comes from the fact that both media and telecom companies are peering “through
a glass darkly” and facing the beginning of the end
of the mass media model we grew up with.
New technology has been the most significant
trigger, although deregulation and globalization
also play a role. This is part of the convergence
process predicted  years ago: the media, telecoms and it are moving inexorably closer, with
the internet at the heart of the process.
If we shift to the industry value chain, we see
EBR #3 2010 • 11
The media and telecom industries are not alone in
this. Very few established organizations ever
manage to extend leadership positions across
major technology transitions.
new stages developing, particularly in relation
to mobile devices. These represent an additional platform for media outlets and therefore a growth area, but they also mean dealing with new gatekeepers – Amazon, Apple
and Google – that don’t buy into traditional
industry assumptions.
The irony is that technological advances
could be a force for renewal and growth if incumbents – in both the media and in telecom
– get their organizational acts together. And
the big challenge is organizational. It’s not strategic, and it’s not really about resources. It’s
about a failure to beat the forces of inertia, the
forces that keep attention and investment focused on the present, not the future.
THE REAL PROBLEMS LIE DEEP within organizations, in the details of how they carry out their
everyday business, in the attitudes held by
their people and in how power is distributed
internally. The media and telecom industries
are not alone in this. Very few established organizations ever manage to extend leadership
positions across major technology transitions.
Think of Kodak and digital photography, ibm
with personal computers, or Microsoft with
the internet. They don’t often collapse entire-
ly, but they do slip down the rankings.
Media firms are desperately trying to adapt
to this new need to become multiplatform. A
horrible by-product of this struggle is that –
at a moment when they need to stand out and
demonstrate their continued relevance – they
lack the funds to create new killer content.
This puts a huge premium on exceptional creativity, at a time when many more industries
are searching for exactly that talent.
What is at the heart of the multiplatform
media and telecom future?
Content is absolutely core to the future.
Very few people buy technology per se; they
buy it because of what that technology can do
for them. And they buy technology they don’t
particularly like if it allows them to access certain content. Thus the most compelling content is becoming ever more strategic and expensive – whether Premier League football
matches or hit tv series such as Mad Men.
So an emerging critical competence, it
seems to me, is establishing what the new
technologies mean in terms of better serving
audiences’ needs. The organizations most successful at negotiating technology transitions
have used new technologies to make their core
content even better – better storytelling, more
immediate news, more engagement with a
television program.
Multiplatform strategies seem to be the way
forward here. Multiplatform means delivering
and monetizing content across multiple platforms, both established and emerging. In practice this means the pc, the tv and mobile devices, although it is still not clear what types
of content work best in these contexts.
So content is key. Does that mean that the
media companies are in a stronger position
than telecoms?
No, actually, the scary thing for a lot of people in the media is that the balance of power
is shifting away towards all kinds of players
further down the value chain. These players
have very deep pockets, certainly in comparison with many media players, and often control the new platforms. For example, it would
be a huge problem for the major networks if
telecoms started buying killer content for exclusive use.
TELECOM OPERATORS ALSO HAVE a toehold in the
“net generation.” This critical consumer group
of  to -year-olds is increasingly indifferent to traditional media products, but extremely interested in the connected, collaborative environment of the internet. While
many in traditional media organizations secretly hope that this age group can somehow
be converted to buying and reading daily newspapers or watching prime-time news, the truth
is that this group has an entirely different relationship with content, and the odds are that
this pattern will prevail.
These customers are also used to paying directly for services (unlike media customers
who traditionally pay indirectly for services).
This is really crucial, as media move to a direct payment basis. The telecom industry has
Flirting with content – will telecoms get burned?
▶ THE HISTORY OF major telecom-media
mergers is marked by high-profile failure.
Think Vivendi’s disastrous overexpansion
into both telecom and media in the late
s or Telefónica vastly overpaying (to
the tune of eur . billion) for Dutch production company Endemol in .
Yet the convergence of the telecom and
media worlds continues, driven by the
internet and rise of competitors like
Google and Amazon, as operators around
the world have moved into a range of
media areas, such as buying sports rights
or running tv networks.
SingTel is at the forefront of this. The
Singaporean operator recently bought
rights to broadcast English Premier
League matches across its platforms, as
well as exclusive broadcast rights to espn
12 • EBR #3 2010
star Sports for mio tv, a -hour paytv service.
Telecom Italia is perhaps the most integrated telecom-media player. The company owns a national Italian tv channel,
la, and runs the Italian version of mtv.
It has also launched an online e-book
store and – in a move that leaves traditional media companies completely in the
cold – signed a partnership deal with
Google-owned YouTube to broadcast la
programs online.
SO SHOULD MORE TELECOMS get into the
content business? Probably not, says Lucy
Küng. “If they’d wanted to be content
people, they would have joined television
networks,” she says of telecoms employees. “Telecoms clearly need huge amounts
of creativity and innovation – especially
in terms of developing new products and
business models – but content creation
is really a media industry competence.”
Instead, Küng says operators should
keep their focus on the model pioneered
by Rupert Murdoch at his British pay-tv
channels. Murdoch is known for first
building a technology and charging structure and then luring subscribers with killer content such as English Premier League
Football or, in a more recent deal, all of
hbo’s past, present and future shows for
the uk market.
The risk involved in this strategy? The
content has to be killer. If an operator
locks up the wrong sports or movie rights,
failure is almost certain. ●
Lucy Küng
cover story
Background check
▶ Aside from her position in Sweden, Küng is a
professor at the Institute for Media and
Entertainment in the US, a senior research
fellow at Ashridge Business School in the
UK, a supervisory board member of SRG, the
Swiss public service broadcaster, and an
adjunct faculty member at the University of
St. Gallen in Switzerland.
▶ She was president of the European Media
Management Academics Association from
2008 to 2010 and managed an international
research consortium between 1997 and
2001. She also served as publishing director
for Random House UK from 1988 to 1992.
▶ Küng is the author of three books: Strategic
Management in the Media: from Theory to
Practice, Sage, 2008, The Internet and the
Mass Media, Sage, 2008, and Inside the BBC
and CNN: Managing Media Organisations,
Routledge, 2000, as well as numerous
academic articles and book chapters.
▶ She holds a PhD and a habilitation from the
University of St. Gallen, as well as an
Executive MBA from Ashridge Business
School/City University in the UK.
EBR #3 2010 • 13
cover story Lucy Küng
One of the strengths of companies like Google, Amazon
and Apple is that they are not
constricted by past models,
Küng says. Why was it Apple
that managed to find a workable model for music downloads? Because they came
from outside the music
industry and could sidestep
all the legacy assumptions
that dogged the attempts of
the major music groups.
14 • EBR #3 2010
Murdoch was able to think around the dominant
free TV paradigm and came up with an incredibly
robust pay-TV model.
a mass of strategically critical competencies
relating to individual billing and charging.
The media is still in mourning for the demise
of the advertising-funded model, and hasn’t
quite realized what it really needs to be doing.
All that most media companies have right
now is their control of this ethereal realm of
creating content. That said, the media hold a
tremendous card in their ability to manage this
black art. It’s an expertise not so easily learned
or acquired, since so much content relies on
loose coalitions of freelancers that require
know-how and connections to manage.
What about the iPad as a bridge? Rupert
Murdoch seems to think it could save the
traditional print businesses.
Murdoch is trying through sheer force of
will to influence the emerging business model for newspapers, which are caught in a vice
between falling per copy sales, the migration
of classified advertising to the web, and an
oversupply of news on the web.
I believe Murdoch’s response to the iPad
is driven by two things: a huge emotional attachment to the newspaper industry; and the
fact that his broadcast networks have mastered pay-tv business models to a degree no
other organization has managed. Look at just
about any pay-tv platform in Europe, and
they are all clones of Murdoch’s Sky – in most
cases rather imperfect clones.
MURDOCH SIMPLY DOESN’T accept that News
International’s content should be available
free on the internet. I guess his hope is that
if the iPad becomes as popular as the iPhone
this will provide a mass-market platform for
selling newspaper content, as the iPad offers
two new revenue sources: subscription and
paying for the app.
However Enders Analysis in the uk has
estimated that even if newspapers migrate
every print reader to paying online, they will
still make large losses. Annual income per
paywall subscriber on thetimes.co.uk and
wsj.com is just a quarter of the income the
company gets from subscribers to the papers’ print editions. Switching off the presses, after a hypothetical future print-to-digital tipping point, might save newspapers 
percent of their total costs, but this is not
enough to make up the gap from the smaller online income. Even adding iPad income
to web paywall revenue would only total half
the income newspapers are currently making from print.
Murdoch was able to think around the
dominant free tv paradigm and come up
with an incredibly robust pay-tv model.
This has many interesting dimensions, such
as prioritizing technology over content,
understanding the power of killer content
to drive uptake, and giving away hardware
REVENUE LOSS – EVEN FASTER THAN EXPECTED
Projected 2009
Actual 2009
Internet access
TV subscriptions and license fees
Internet advertising
Filmed entertainment
Video games
Consumer and educational books
Recorded music
Radio
TV advertising
Business-to-business
Consumer magazine publishing
Newspaper publishing
Out-of-home
-15
-10
-5
0
5
10
% Growth
Most traditional media outlets lost revenue even faster than expected in 2009, according to PricewaterhouseCoopers, with radio, newspapers, consumer magazines and out-of-home advertising suffering
the most. Meanwhile, most digital media categories grew faster than predicted, highlighted by an
unexpected 4 percent rise in internet advertising.
Source: PriceWaterhouseCoopers
EBR #3 2010 • 15
Essentially, nobody paid attention to what they
were doing. It was low key and off the horizon,
which gave them the space to succeed.
to lock customers in (then systematically
ratcheting up consumer subscriptions
afterwards).
However newspapers are different.
Murdoch’s strategies will only work if all his
competitors do the same, which would
amount to a cartel and create problems with
the competition authorities. And even if all
his competitors do sign up, there is still an
abundance of free content. While publishers may feel their content is unique, internet
browsing habits suggest that many readers
find news stories interchangeable. The risk
is that paywalls will reduce audiences and
advertising revenues, while creating a competitive advantage for free outlets.
So what is the way forward for media and
telecom companies?
First, we must recognize that clever collaboration is in the best interests of both media and telecom firms. I think a touch of the
Google approach to innovation would make
sense: small collaborative teams working on
exploratory projects. Try to work fast, follow through on good ideas fast, launch them
in beta fast, and then see what the response
is. Use this to refine, improve – or reject. In
this emergent world, it’s important to let audiences define what works for them.
On the teams, you want either mid-level
people or people on the peripheries because
– as technology advances, platforms multiply, and new players enter the value chain –
you need people working at the cutting edge.
Often these employees know exactly what
audiences really want but either they are never asked for their opinion, or they spend so
much time managing present processes they
lack time to reflect on the future.
LARGER ORGANIZATIONS are often very skilled
at exploiting their existing products but that
process seems to squeeze out exploration,
which is what the current environment calls
for. To get past this, top managers must
be explicit that creativity is central to the
organization’s future.
For instance, why has Pixar been so successful at animation? Because it is immersed
in storytelling and the history of movies but
also grounded in the latest digital animation.
Or take hbo. The people there had great
knowledge of plot, dialog and Broadway but
they also knew how the emerging cable business worked. They were able to exploit the
#3 2010
16 • EBR #2
regulatory freedom of cable to nudge their
concepts in edgier directions than the more
conservative networks. This paid off, and edginess became part of their content formula.
Change is possible. Within the bbc in the
uk, the staff was steeped in tradition and
burdened with onerous public service
accountability requirements. Yet with bbc
News Online, they created a really rare example of an old, a very old, media organization with a leading product on the internet.
I can’t actually think of any other examples
of that.
And how did they do that? They set up a
small division under the radar staffed by
journalists who were completely fascinated
by the task of trying to make the old concept
of public service news work on the new
vehicle of the internet. Then, essentially,
nobody paid attention to what they were
doing. It was low key and off the horizon,
which gave them the space to succeed.
Clearly, they had a great brand to work
with, but so did a lot of the media majors
at that time.
These teams must also be insulated from
market forces. This is particularly necessary
for media products, because the truly innovative ideas are by definition different and
therefore need time to find an audience and
for audiences to become accustomed to their
differentness. If you analyze many of the creative winners in the media over the past 
years, most have a business model that protects them from the raw end of market forces, such as the bbc with its license fees. This
“guaranteed” income allows very new types
of products to reach wider audiences, and
for word of mouth to spread. ●
What will you be doing in
one year? And in five years?
▶ I hope very much that in both the immediate future and long term I will be working
with organizations in the media and communications fields, helping them master the strategic challenges that are coming down the
line. I believe the trick is freeing up their capacity to innovate. I don’t believe start-ups
and young firms are inherently more innovative – they simply place fewer hurdles in the
way of innovation. I’d also like to free up my
own capacity to innovate.
In television, Küng says that telecom and
media companies come together at three
points: in content creation and acquisition,
at the mobile and home-user interfaces,
and in content distribution over both television and telecom networks.
Lucy Küng
cover story
Google rakes it in
Billion of US dollars
18
14
Ads on Google sites
Ads on other sites
(minus traffic acquisition costs)
Everything else
(search appliance,
Google Apps, etc)
10
6
2
2001
2003
2005
2007
2009
Year
Source: Company reports, Business Insider analysis
EBR #2
#3 2010 • 17
details
Femtocells overtake macrocells
in the US
By March, 2011, there
could be twice as many
femtocells as macrocells in
the US, says Informa Telecoms & Media.
Femtocells already outnumber conventional outdoor cell sites in the US,
and several operators
worldwide now offer femtocell services either at discounted rates or for free in
a bid to retain customers.
“This will have a massive
impact on mobile broadband capacity at a time
when networks are under
increasing strain,” says
Dimitris Mavrakis, senior
analyst at Informa, who
predicts there will be almost 49 million femtocell
access points on the market by 2014.
Turning on YouTube in Turkey
The Turkish government is
no longer blocking access
to YouTube. The videosharing website was
blocked in May, 2008, with
the government citing uploaded videos that it considered insulting to Turkey’s founder, Mustafa
Kemal Ataturk.
The offending videos
have now been removed.
In a statement, YouTube
said that a third-party had
removed the videos using
an automated copyright
complaint process and that
the company is looking
into whether this was in accordance with its policy.
Telefónica on
track with
e-bookstore
Telefónica still plans to
launch its e-bookstore by
the end of 2010, says
Spanish news agency Efe.
The Spanish operator announced the project in
February, with plans to sell
e-books for tablets, ereaders, mobile phones
and computers. Telefónica
has said it has a deal in
place with Publidisa, the
largest distributor of digital content in Spanish and
that it also plans to digitize
the contents of the Spanish national library.
18 • EBR #3 2010
“It was my wife’s idea – she was six months pregnant and
she couldn’t find a restroom.”
SAM FEUER, CHIEF EXECUTIVE OF MINDSMACK, A NEW YORK COMPANY BEHIND FASTMALL, AN INDOOR MAPPING SERVICE, IN THE NEW YORK TIMES.
Television contenders get serious
After years of failed expectations,
will TV over the internet finally
break through thanks to Google?
There are others in the “over the
top” gang that want to take control of the market.
▶ GOOGLE MADE ITS big splash into
Netflix) and applications (cnbc) –
as well as hardware from Sony and
Logitech.
The “over the top” marketplace
has no dominant player, after years
of unfulfilled hype, but there are a
host of competitors for Google,
including Apple tv, which just
the digital home with the US launch
of Google tv, including content
deals in several areas – websites optimized for tv (cnn, Cartoon Network), video-on-demand (hbo,
Processor
market shows
strength
▶ THE MOBILE processor
market is set to grow to
4 billion units by 2014,
says InStat, with tablets
growing at the highest
rates. But mobile phones,
both smart and feature
remains the largest market
opportunity for the present and the near future.
In terms of innovation,
smartphones will still
drive advances in mobile
processor technology,
with the integration of
multiple cores, graphics
processing units and
baseband modems. ●
launched its second generation,
YuiXX, Sezmi, Roku, and the Boxee from D-Link, with boxes from
Amino and Samsung, among others, due to launch in the near future.
Several tv networks in the US
have initially blocked their content
from showing on Google tv, illustrating a deepening rift between
Google and many content providers, which do not trust that Google
services will offer them a sustainable business model. ●
Cloud sensitive to distance
▶ SERIOUS QUESTIONS remain about cloud computing in
terms of security and end-user experience, says Forrester
Research in a new report. Forrester warned that the often
significant distances between data and applications will
result in latency and that “ignoring geographic issues may be
‘perilous’ for corporate customers.” The report also said many
companies don’t have enough cloud experience to know if
they have adequate security in place. The report used data
from cloud vendors in the United States, Canada, Mexico,
Asia, Western Europe and the Middle East. ●
Germans to get super−fast access
▶ THE GERMAN government
wants super-fast broadband network access for at
least  percent of German households by ,
according to a new strate-
gy document seen by the
newspaper Handelsblatt.
The government projects the creation of
, new jobs in the
German ict sector in the
next five years, as well as
 million new jobs across
Europe by  thanks to
the roll out of super-fast
broadband. ●
DO YOU REMEMBER?

The first radio−based pager−like device was pioneered by the Detroit Police
Department in the US. Prolific inventor Al Gross patented the first
telephone−based pager in 1949.
▶ FOUND THEIR NICHE The pager boom was halted a decade ago by the advent of mobile phones,
but those trusty beepers – with their high-frequency radio signals – still have their uses with restaurant
customers waiting for a table, mountain rescue teams working in remote areas and doctors working
around sensitive equipment that might be affected by a mobile signal.
The first Gross telephone-pager users were doctors at the Jewish Hospital in New York in 1950. The term “pager”
was coined in 1959, when Motorola came out with its first radio-based device. However, pagers as we now know
them did not appear until 1974, with the introduction of Motorola’s Pageboy.
Motorola has dominated the pager industry from the beginning, introducing the first numeric pager – the Bravo
– in 1986 and the first two-way pager – the Tango – in 1995. ●
details
TOP 5
SOCIAL MEDIA
SITES IN INDIA
. Facebook.com
. Orkut
. Bharatstudent.com
. Yahoo! Pulse
. Twitter.com
Facebook has overtaken
Orkut as the top site,
while Twitter grew the
fastest between July,
2009 and July, 2010.
Source: comScore
Rapid growth markets
most digitally social
Blogging and social networking
are gaining traction faster in high
internet growth markets like China
and Egypt than in developed
Western markets.
▶ A STUDY BY RESEARCH firm TNS
found that  percent of online users in China and  percent in Brazil have written a blog or forum entry, compared with only  percent
of users in the US.And, overall,
Egypt and China have significantly
higher levels of digital engagement
than places like Japan, Denmark or
Finland, despite less-developed
internet infrastructures.
James Fergusson, of TNS, told
the AFP that in Asia the internet
was “far more transformational
when compared with developed
Western markets, which are far
more functional … This is because
the internet reduces cultural, social
and political barriers to self-expression.”
Malaysians are the world’s most
enthusiastic social media users with
an average of  “friends,” followed
by Brazilians at  friends. The
Japanese had the least number of
social media friends, averaging
just . ●
Chinese on quest for open apps
▶ CHINA UNICOM , the second-largest operator in China, has launched an apps store
named The Wostore. It is already up and running in beta format, with about 2 000 apps.
Top Chinese carrier China Mobile launched its own apps store last year, while Apple has
just opened a simplified Chinese version of its App Store. Currently, China’s apps market
has virtually no Android or Apple presence. China Unicom is a member of the Wholesale
Applications Community, an alliance trying to build an open apps platform for all mobile
phone users.
Americans seek
winning hand
▶ AMERICANS FLOCKED to online poker
tournaments in September, driving a
20 percent increase in gambling traffic
compared with August, says comScore.
Almost 15 million people in the US visited a
gambling site in September, with FullTiltPoker capturing the top spot with
4.2 million visitors, up 46 percent on the previous month.
BetUS.com grew 274 percent
in September to 1.3 million
visitors while Winner.com grew
to more than 1 million visitors from
just 31,000 in August. ●
12
▶… GB OF DATA
consumption per month
per household over fixed
lines in Asia, compared
with 4GB per household
per month in North
America.
Nigerians get
social texting
▶ ZAIN NIGERIA’S mobile
customers can now keep
in touch with social networking sites via SMS,
bypassing their lack of
internet data access.
With the service, users
simply send a text message to specified numbers to post updates on
several popular social
networking sites such as
Facebook and Twitter.
Zain was recently
acquired by Indian
telco Bharti Airtel.
South Korea
gets app happy
▶ SOUTH KOREAN telco SK
Telecom wants to take
on the big boys in selling
mobile apps, and is
putting almost USD
900 million behind a
new mobile apps store.
The company wants to
turn a planned “service
platform” into a core business that could challenge
the dominant apps stores
from Google, Apple and
Nokia, with a focus on the
US, China and Southeast
Asia. Its operating system
will be based on Linux and
be built in a similar way
to Google’s open-source
Android.
Facebookers get
free voice calls
▶ TELEFÓNICAOWNED IP
telephony company Jajah
has released what it calls
the first true calling solution for Facebook. The
application, called Jajah
Social Call, allows Facebook users to call one
another for free with one
click and is now only
available on BlackBerry
devices.
Jajah Chief
Executive
Trevor Healy
called FaceTrevor Healy book calling
“the holy grail for telecommunications companies.”
Jajah also announced
that it will power IP voice
calls for Yahoo’s new
Messenger iPhone app.
Speed means
more video
▶ HIGHER throughput
translates to drastically
higher video traffic, says
mobile web solutions
provider Bytemobile in
its worldwide 3Q 2010
Mobile Minute Metrics
report. The company
found that video makes
up 60 percent of traffic on
mobile networks with
higher available throughput, compared with just
39 percent on networks
with slower speeds.
Peak data traffic hours are
now in the evening, not
during the work day,
showing a clear shift in
mobile data from business
to personal use.
EBR #3 2010 • 19
20 • EBR #3 2010
what operators should do «« connecting machines «« THEME
The vision is clear. Soon, network-connected machines will improve
our lives in numerous ways: from speeding up traffic, reducing fuel
consumption, saving lives, improving access to healthcare, down to
making everyday life more convenient.
So what is the problem? Put simply, most network operators are
not geared to handle this radically different line of business. Let’s take a
look at what must be done.
Rise of
the
machines
ILLUSTRATIONS
Rikke Jørgensen
The potential benefits of connecting machines are well proven and the market is
heating up. Operators can be bystanders in this game, pure bit-pipe providers or
become enablers that provide both the technology and the relationships that will
drive the next generation of convenience to their consumers. Some have already
started to move in that direction.
ODAY, WE CAN SEE a clear trend of operators
increasingly moving into vertical markets.
The number of machine-to-machine
(mm) connections is accelerating, and cars,
smart meters, medical appliances, traffic lights –
even shoes – are getting connected. However, the
average revenue per user (arpu) of a typical mm
user today is only about  percent of that of a
mobile subscriber.
T
To be profitable, operators need to rethink
their businesses. This will have a significant impact on business models, business processes and
the underlying infrastructure. To succeed, therefore, business innovations are needed. And we
are not only talking about applications; whole
operations must be reorganized in order to fulfill efficiency requirements and enable sustainable growth.
Theme in short
▶ Defining the market of connected machines and identifying the key players. ▶ Market growth and
expectations. ▶ What traditional telecom operators need to consider if they want to play a leading role in
this new market. Conclusion ▶ The M2M market seems to be taking off, and strategic decisions should be
taken now. ▶ As today’s solutions are often large scale, complex and expensive, simplification is a key word
for the future.
▶
EBR #3 2010 • 21
THEME »» connecting machines »» what operators should do
▶
For network operators MM is an attractive
segment due to the low churn level and reasonable
network traffic load. Comparing revenue per
megabyte to other mobile services, it is also
potentially a high-margin business.
MM has been on operators’ agenda for
years but has only now become one of the hottest topics in the industry, with a new wave of
connected devices – for which mm has been a
key market driver – hitting the market.
GAINING MOMENTUM
Having reached a critical mass, mm services have
started to generate significant revenues, and
awareness of wireless solutions is increasing
among enterprises, which have started to explore
new opportunities for leveraging the technologies.
For network operators mm is an attractive segment due to the low churn level and reasonable
network traffic load. Comparing revenue per
megabyte to other mobile services, it is also
potentially a high-margin business, There are
already around  million wireless mm
connections, and the market is expected to reach
 million connections by .
Several major operators have established specific business units to take advantage of the mm
opportunity. Over the past year, this trend was
reinforced by the establishment of Telefónica’s
international MM unit, Verizon’s center for nontraditional lte devices, Sprint-Nextel’s new mm
center, the Verizon-Vodafone global mm alliance, and, finally, the international mm center
launched by Deutsche Telekom.
In addition, new regulations are expected to
fuel the growth of the mm market. For example,
the security and safety aspects of the European
Commission’s eCall, a system designed to help
motorists involved in collisions, rely heavily on
telematics. And the Dutch government is developing a nationwide electronic road charging
system using these technologies. In , roadusage charging starts for trucks and extends to
passenger cars in . A nationwide system is
expected to be running by .
The EU and USA are currently the largest mm
markets, accounting for around  percent of the
total. In , the number of wireless mm connections was estimated at . million in Europe,
. million in the Americas,  million in AsiaPacific and . million in the Middle East and
Africa combined.
European operators have years of experience
in providing wireless mm solutions and rolling
out mm projects. The earliest wireless mm
solutions were deployed for paging services,
followed in the mid-s by those for sms. The
Connections still in the millions, not billions
Millions of units
450
Others
Asia/Pacific
Europe
North America
400
350
300
250
200
150
100
50
0
2009
2010
2011
2012
2013
(The figure above depicts M2M connections for all WWAN technologies, including proprietary cellular networks.)
Source: Harbor Research Inc.
22 • EBR #3 2010
2014
what operators should do «« connecting machines «« THEME
first verticals were introduced in Finland in the
s with mobile voice based on the Auto
Radio Protocol (arp) technology.
NORTHERN EUROPE IN THE LEAD
In Europe, the UK has a large wireless mm market with more than  million connections followed by Italy with . million. mm penetration is highest in northern Europe, making up
more than  percent of all mobile connections
in Sweden, Norway and Finland. The average
penetration range in the rest of Europe is roughly half of that, with the US trailing Europe as a
whole. Other large and fast growing markets are
China with  million mm connections and Brazil with  million mm connections.
Vertical needs, demands and “pain points”
vary depending on the industry and the target
market – for example, whether the mm solution is targeted at businesses or consumers. The
automotive sector has to date been the largest
consumer of mm applications, with more than
 million connections. The market has been
driven by professional solutions such as positioning and tracking, fleet management and logistics, and automotive telematics addressing
productivity and cost-efficiency needs.
As population and vehicle densities increase,
traffic managers will face new challenges. As a
result, we can expect increasing numbers of intelligent transport solutions targeted at all road
users, including both intelligent traffic lights and
traffic re-routing to minimize congestion and optimize fuel consumption, among a range of other safety applications.
The second-largest mm market is the electricity sector, which had  million connections in
 for metering and grids, with the wireless
network providing intelligence through two-way
communication. In addition, we can see interesting opportunities arising in the e-health market,
which is still in its early stages.
In developed markets, such as in large Western European countries, healthcare expenditure
accounts for  to  percent of gdp. These costs
are expected to increase as a result of the aging
population and the increasing number of chronic diseases. According to research by McKinsey,
the healthcare industry could save usd -
billion annually by managing chronic diseases
through remote monitoring.
The global M2M market
Middle East
and Africa
9%
Asia-Pacific
26%
Europe
34%
Americas
31%
Source: Berg Insights M2M Research Series 2009
EMISSION SAVINGS
The benefits of e-Health have already been proven. In Germany, projects such as HealthService
save up to eur . billion per year in costs for
hospitals through mobile monitoring services.
Examples of wireless devices in the healthcare
sector include wireless blood glucose monitoring
and Bluetooth-enabled products that simplify the
use of home monitoring devices attached to a
patient’s clothes or body, such as the fingertip pulse
oximeter, which measures oxygen in the blood.
mm has also become a way of addressing sustainability concerns. A  Vodafone report,
Carbon Connections: Quantifying mobile’s role
in tackling climate change, estimates that mobile
services will contribute to co emission savings
of  million tonnes across  eu countries in
. In financial terms, this would mean eur
The four dimensions of a connected world
Four dimensions of connected world
Devices
Applications
Industry specific
devices
Smart phones
Connected
CE devices
Mobile
broadband
routers
Differentiated
best effort
Ultra high
reliability
Industry specific
Smart phone
cloud apps
centric data
apps
Enterprise
cloud
Notebooks
netbooks
dongles
Internet
Best effort
Internet
Flat-rate
Prioritized
Internet
Guaranteed
connectivity
All
inclusive
Video
Location/time/
peak/bucket/
restricted
Premium Internet
(paid apps)
Non traffic based
Zero provisioning cost
Connectivity
types
Business
models
Source: Ericsson 2010
▶
EBR #3 2010 • 23
THEME »» connecting machines »» what operators should do
▶
 billion savings in energy costs alone, and
would require one billion mobile connections,
 percent of which would be mm.
mm solutions will be also used for improving
the quality of life of the poorest of the poor, a
point emphasized in a  International Telecommunication Union (itu) report called The
Internet of Things. One example of this would be
enabling remote diagnostics of hiv or aids.
An unfair comparision
US Dollars
60
50
40
30
WHAT OPERATORS NEED TO CONSIDER
20
10
0
M2M
ARPU
Mobile
ARPU
Mobile
opex/subs
Source: Ericsson consulting estimate based on
ARPU figures from ABI Research
Let’s say that an operator’s M2M
ARPU is USD 5 per month and its
mobile ARPU USD 50 per month.
With an EBITDA margin of 39
percent, operating expenditure
(opex) accounts for USD 31 per
subscription per month. Roughly
speaking, opex per subscriber in
current mobile operations is six
times M2M ARPU in this case.
Even though a direct
comparison between mobile
services and M2M-services is
not fair, we believe that today’s
operations are not fully
optimized for serving M2M
businesses. For example, when
providing M2M services for the
consumer market, costs such as
customer care per connection
have to be scaled down.
The market potential for mm seems almost endless, but to secure profitable growth operators
need to rethink their businesses. Vertical solutions are often diverse and consist of a wide variety of technologies and applications. To secure
quick time to market and reduce the need for
managing complex integration projects, operators deploying mm have most commonly used
a wholesale business model.
Running a wholesale business is a volume game
and has tough cost efficiency requirements. Typical mm arpu is usd - per month and can
be just a few usd per year or lower. On average,
mm accounts for  percent of mobile arpu,
while mobile operators have developed their networks for serving customers with monthly
arpus of usd -. Therefore, increasing scale
yet maintaining profitability is the key challenge
operators are facing today.
BUSINESS MODELS IN NEED OF SIMPLIFICATION
To maintain profitable growth, operators’ business
models, processes and underlying infrastructure
have to be streamlined. This requires rethinking
all operations, from strategies and business
requirements to technical implementation. All
levels of the infrastructure will be affected, including the mobile network, business support systems,
devices and applications and the integration of
company-specific solutions.
The technical capabilities are there, but there
are a number of business issues that need to be
solved. The connected device ecosystem is often
complex and fragmented. Service providers and
enterprise customers are expected to interact with
multiple parties to get the “things” connected.
For many enterprises, this interaction requires
special competence, resources and telecom understanding, something they may not have. Endto-end integration time and complexity is easy to
underestimate. Typically, it takes six to  months
to implement a wireless mm solution for enterprises. For example, implementing a hospitalwide, fully integrated solution takes typically 
to  months, but could take up to  months.
But complexity can be countered by bringing
in people with the right expertise. Operators can
help streamline “communications near” parts in
cases where applications cannot be built in
identical ways for mobile and fixed networks.
Operators can also help in testing and integration, which is paramount, as most devices are not
standardized.
A DIFFERENT SUPPORT STRUCTURE
mm business challenges are very different from
traditional mobile offerings, as the following
examples show:
Customer Management: mm solutions are customized and include products and services from
third parties. Extra effort is required to clarify the
roles and responsibilities of the different parties,
for example when errors occur. New business requirements such as company self-care and bulk
provisioning/activation of thousands of devices
will increase the complexity of operations. All
these factors together create new challenges when
automating processes and reducing customer
care costs.
Support: Security and reliability requirements
are high as most of the vertical applications are
Automotive and metering dominates
Other
19%
Original Equipment Manufacturer
(OEM) automotive
14%
Security alarms
10%
After market (AM)
automotive
25%
Point-of-sales (POS)
10%
Metering and grid
22%
Distribution of wireless MM connections per application area (Source: Berg Insights MM Research Series )
24 • EBR #3 2010
what operators should do «« connecting machines «« THEME
New business requirements such as company
self-care and bulk provisioning/activation of
thousands of devices will increase the complexity of operations.
business critical. Service Level Agreements (slas)
and Operator Level Agreements (olas) have to
be managed end-to-end including those with
partners and suppliers as well as roaming agreements with other operators. These agreements
must also be enforced in the network.
Revenue Management: Billing is a classical bottleneck, even for verticals. Customized solutions
often require customized tariff plans, for example in relation to roaming. The diversity of
solutions is increasing, which means new
requirements for billing systems.
Network Management: Enhanced network capabilities are required to be able to differentiate
business critical mm traffic from other traffic.
This includes prioritization of business critical
solutions, solution-specific quality of service
(QoS) requirements and differentiation in charging. Massive deployment of mm may lead to a
shortage in the msisdn and imsi series (numbers
uniquely identifying a subscription in a gsm or a
umts mobile network); even public ipv internet addresses may be an issue in the short term.
Operators and system vendors face a common
challenge in overcoming potential address problems as the number of devices grow.
Device Management: There will be new
requirements for end-user devices and sim cards
to withstand environmental pressures such as
vibration, humidity and high temperatures. An
alternative is to provide embedded connectivity
with devices.
Simplicity equals cost efficiency – the less functionality you have, the cheaper it gets. However,
making it simple is not that simple. When entering new business areas, operators need both process and system flexibility. They may not be aware
of all the business requirements and verticals that
differ from traditional telecom models. But the
more flexibility you have, the more complex and
expensive operations get.
▶ In Europe alone there are
several billion devices that could
potentially be networked by
wireless technologies such as
GSM/UMTS.
–Telenor Connexion 
▶ Demand for wireless con-
sumer electronics devices is
escalating. With the advent of the
fourth-generation (G) Long
Term Evolution (LTE) network
in , the field will expand
farther still.
–Verizon Wireless 
BALANCING FLEXIBILITY AND COST
Challenges in finding the right balance between
flexibility and cost efficiency can be illustrated
with the following customer case. A Western
European operator together with a supplier had
designed a billing system that was world-class in
terms of flexibility. It enabled around ,
different tariff plan combinations and offered the
required flexibility in the market entry phase.
However, later on, the new development proved
to be a real headache. To build new functionalities on top of the complex design was time consuming and expensive. Developers had a hard time
understanding what was going on, new code did
not fit, and the number of test cases increased,
along with the number of errors in production. A
new project had to be carried out to remove what
turned out to be unnecessary flexibility.
Connecting multiple parties
Network
operators and
providers
Enterprise
Device
manufacturers
System
integrators
Application
providers
Communication
module
manufacturers
Source: Northstream 2009
▶
EBR #3 2010 • 25
THEME »» connecting machines »» what operators should do
▶
Why not connect
every “thing”?
▶ The wireless MM industry has
been leading the development of
the Internet of Things, but it’s not
only machines we are talking
about. Theoretically every single
thing could be connected via a
wireless network. According to
Wikipedia, every human being is
surrounded by  to 
things. This means a potential
connection of trillions of things.
SEVERAL VISIONARY applications
have already been introduced on
the market:
GTX GPS Xplorer Smart Shoes:
Worried parents can monitor
where their children are. When
the GPS signal goes outside the
safe area, an SMS notification is
sent. One charge is enough for
several days wear.
(source: gizmono.com)
Pix-Star picture frames:
Stay connected
with friends
and family with instant picture
sharing. View, receive and share
pictures without a PC with a wireless connection via GSM, WiFi and
Bluetooth.
(source: www.pix-star.com)
The MIT Media Lab Musical
Jacket: The electronics and computer industries have been working for some time on developing
wearable devices. The next phase
will be to integrate computers and
other devices into our clothing.
(source: gizmono.com )
To reduce opex per connection on a required
scale requires radical action. All traditional
business processes, ways of working and supporting infrastructure must be questioned.
Operators entering new verticals may
need to go through similar processes, adding
and removing flexibility. There are alternative
ways to do this:
Improvements in existing infrastructure: Adding new features, products and services to the existing infrastructure enables
quick time to market and reduces the investment risk. However, incremental improvements in infrastructure may not lead to the
desired result in the long term. There are also
organizational challenges in terms of the
prioritization of different businesses. Whose
requirements should be prioritized for the next
release? Usually, big business wins and small
business has to wait. The new internet reality
may offer solutions to this; “software-as-aservice” has already proven a viable model in
putting mm into operation and maintaining
good service. The challenge is to have a software package that includes all the functionality necessary to provide the services that customers ask for. Quality-of-service enforcement,
for example, requires traffic functionality. It’s
not only a matter of device provisioning.
Redevelopment of the infrastructure:
Business processes and underlying infrastructure can be redeveloped to meet cost-efficiency and mm specific business requirements.
However, running such an ambitious development project requires detailed vertical understanding and technical and financial resources,
all of which today’s typical mm organizations
(employing – people) may lack. The
investment risks and costs can be reduced by
establishing joint-development projects with
operators and suppliers from different markets
or verticals.
Outsourcing the infrastructure: Operators can benefit from business partnerships
with telecom vendors, in which the vendor
builds and operates the infrastructure based
on the vertical-specific business requirements.
Different verticals can be served through different infrastructure. Cost efficiency is achieved
through scale, with several operators using similar infrastructure as a service.
MAKING IT HAPPEN
Meeting vertical-specific requirements and providing customized solutions while still maintaining profitability is a challenge. To reduce opex per
connection on a required scale requires radical
26 • EBR #3 2010
action. All traditional business processes, ways
of working and supporting infrastructure must
be questioned.
Successful mm businesses can be built in many
ways depending on the operator’s vertical strategy and local market conditions. To make that happen requires new partnerships and different ways
of working with suppliers. This includes managing business and technology integration end-toend, and both providing professional services and
developing new outsourcing models in which the
infrastructure is provided as a service. ●
•
•
•
•
•
References
Intelligent Transport, ABI Research 
Fleet News, February 
Frost & Sullivan: “Healthcare in Western Europe,” Oct 
Northstream: “How to realize a world with  billion connections?”
Harbor Research 
AUTHOR
▶ MARIETTE LEHTO is Associate Principal, Strategic Program
Practice, at Ericsson Consulting.
She started her career as an SMS
product manager at Sonera
Finland, launching the first
messaging service in the world in 1994. Before joining
Ericsson, she worked with 3 Sweden and Edgecom
London, helping operators in Europe, the Middle East and
the Americas to establish new operations and businesses.
(mariette.lehto@ericsson.com)
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EBR #3 2010 • 27
28 • EBR #3 2010
the transformation «« connecting machines «« THEME
The experience
early starter
of an
Connecting machines is a fundamentally different business than
traditional telecom. As a consequence, Telenor must fundamentally change
to adapt to it. This is not a technical issue at all, but that does’nt make it any
easier. You need a complete a value chain, all the way from production to sales.
TEXT Benny Ritzén
ORWEGIAN INCUMBENT Telenor is a pioneer
in taking machine-to-machine (mm) services to the global market on a global
scale. Telenor started to work in this area ten
years ago, and now offer a wide range of managed
mm services, from tracking vehicles and shipments in transit to reading electricity meters. To
date, Telenor has installed close to two million
mm sim cards, with the number doubling each
year since .
Per Simonsen, ceo Telenor Connexion, and
Hans Christian Haugli, ceo Telenor Objects,
explain why building a business in machine
connectivity is so different from what operators
are used to doing.
N
mm has been talked about for quite some time.
What have been the main obstacles to this business taking off?
SIMONSEN: I don’t think it is primarily technical
problems. It is more about moving from selling
products to selling services. This has a huge impact on business processes and business models,
and requires quite a substantial shift on the customer side. It is more about the time it takes to
change business models and processes than the
time it takes to implement new technology. When
we talk about customers, we mean our enterprise
customers, not the end consumers. And with
business models, we refer to our customers’ business models.
What are the prerequisites for turning mm into
good business for operators?
SIMONSEN: mm is fundamentally different from
the traditional telecom offering and as a consequence, operators must fundamentally change to
adapt to it. First of all, it is a global opportunity,
because connectivity is implemented in units for
global deployments. And secondly, it is applied
in life-saving applications, like e-calls and alarms,
so it is part of critical products. This means that
mm systems must be top quality. For instance,
monitoring the heart condition of a person is
completely different from providing communication between two people. And you need to have
a business process that is designed to deliver on
that need.
It is not about just adding an mm product to
your existing product portfolio. You need a complete a value chain, all the way from production
to sales, designed to meet the needs of the end
customer. And you shouldn’t underestimate that
challenge.
▶
EBR #3 2010 • 29
THEME «« connecting machines «« the transformation
▶
“Telenor is involved in a project where we are tracking
, sheep in the wild. There is no limit to what
MM can be used for.”
So, it’s not a change just in terms of product offering, but also processes and technical infrastructure. The overall mindset needs to change
too, because you are switching from being local
to global. Operators tend to be local by nature,
while mm customers are mostly global.
Additionally, you really need to understand the
verticals of the industry you are talking to.
If mm means growing data traffic and a much
lower arpu, is there a risk of a “revenue gap”
emerging – that network costs will outstrip revenues?
SIMONSEN: Generally, most mm applications
generate small amounts of data, so that is not
really a problem. In the longer term, they might
drive more traffic; so then it’s about being able
to scale. But it’s not at all comparable to the voice
business. Most mm is about large volumes of
connections, but relatively small data volumes
per connection. However, there is also an opportunity to generate new types of revenue tied
to services supporting pure connectivity – some
examples include monitoring and surveillance,
lab and field testing, and service-level agreements.
HAUGLI: Perhaps the main challenge is this:
When the average revenue per object (apro) is
significantly lower than for voice, you can’t afford
to spend a lot of time on phone support per object. That might be an issue for the consumer
market unless everything is automated, but for
the enterprise market, it is not an issue, because
you generally don’t handle individual objects.
How is it possible to handle the large number of
ip addresses required?
SIMONSEN: First of all, ipv will take care of the
increased demand for ip addresses. When you
talk about  billion devices, you are not talking
about  billion ip addresses. There are already
ways of utilizing the addresses that limit the requirements. We therefore support both existing
ipv and ipv, so the problem will be solved when
it arises.
HAUGLI: We are making a middleware layer on
top of all the devices, in addition to what Telenor
Connexion is offering, in some cases. The objects
have names that can be a very long string that we
look up and translate to a physical address. So we
don’t have to do a translation to an ip address locally. And mm devices are starting to get  digit numbers, corresponding to , devices per
person, which should last for a long while.
Telenor has created separate entities for mm.
Does that mean that this business is very differ30 • EBR #3 2010
ent from traditional operator organization?
SIMONSEN: Yes, we believe it is different and that
mm customers require something fundamentally different from what traditional telecom customers require. You need to take those needs seriously in the marketplace and that is why Telenor has taken the decision to separate the mm
business. But we also have a close relationship
with the other parts of Telenor and cooperate
with them on customer cases.
mm is different in almost all aspects. Customer service for instance, has to be very different
than for mobile phones. When you sell telecom
services, you sell it to the it people, but when you
sell mm, you need to speak to a range of people,
from top management to business development
to product development and operations – all depending on what the customer wants to achieve.
mm sim cards are inserted in the factory, and
not by the consumer, as with mobile devices. The
customer wants them to be activated when the
electricity is switched on. Also, mm needs
around-the-clock availability.
Every part of the chain is different, meaning operators that simply add mm to their portfolio and
believe they will succeed will have a hard time.
There are different roles to play in the mm market. Connectivity is only one. Who could challenge the operator’s role as system integrator?
HAUGLI: There are at least three positions an
operator can take in the mm market. One is the
connectivity position. The second is to be a vertical solution provider, making the whole solution. And the third is providing a sort of “Internet of Things” switch. Telenor has taken all three
positions. In reality, the situation varies depending on your wanted position in the value chain
and the market you want to enter. I think it is very
difficult for a single organization to make an endto-end vertical solution for most markets and situations. And I don’t think telcos are set up to do
that anyway.
Historically, telcos are good at doing the same
thing over and over again and doing it with high
quality. But in mm, you really have to understand
the requirements and functionality to do this in
a proper way, at all levels including installations
and maintenance of devices. Not a single entity
could do this well and that’s why we have developed a partner network.
SIMONSEN: You can also see competition from
other technologies, outside the mobile sphere,
such as short-haul types of technologies. Let’s
look at connecting meters for instance. There are
alternative technologies for deployments, such
as Wi-Fi networks at home, fixed networks and
the transformation «« connecting machines «« THEME
power-line communications. So, if the mobile industry really wants to take its share of the pie, it
is important to stimulate and not to hinder the
development.
HAUGLI: Telenor has taken all three positions.
Telenor Connexion is strong in the gsm connectivity space. Telenor Objects is building strength
for any connectivity, be it gsm, lte, or fixed
broadband. We don’t really care about the communication part; we make that invisible to the
application.
What kind of alliances do you think are needed
in the mm market?
SIMONSEN: This is an important one. Operators need to build new structures, for roaming
cooperation and secure price structures that
enable mm-type traffic. And you also need
cooperation to get service-level agreements and
operator-level agreements in place. Best effort
is not good enough and there are competing
technologies.
HAUG LI: If you move beyond mm to the
“Internet of Things” market, you need standard
interfaces to get access to the information without having to know a lot about the connectivity and the devices themselves. You need an
abstraction layer in between so getting access to
device data becomes as easy as making an internet application. This will require standardization that is not in place yet. There is movement
in this area, but it is not going very fast and does
not cover all aspects. There are activities in etsi,
telecom industry associations in the US and the
gsma. We are building alliances with both
device and application providers to provide a
complete value chain.
What projects are important for Telenor’s ambitions to be a leader in the global market?
SIMONSEN: We have Daimler as a customer and
that firm needs a global service that works in all
their markets, which is putting high demands on
us. Another example is Securitas Direct, which
wants one standardized solution for alarms
that needs to be implemented for international
rollout.
HAUGLI: We are part of a value chain in Denmark
that will be tracking some . million flower racks
with rfid (radio-frequency identification).
We will soon deliver similar service for tracking
, million plastic pallets in Norway. These are
examples of “design wins” in a segment, which
needs to be replicated across many segments.
What kind of things do you predict will be
connected by  and controllable by mobile
devices?
HAUGLI: In terms of devices, I think most things
we care about that will be targets for mm, in particular things related to health, lifestyle, your car,
cat or dog – all things around you that you care
about.
As for the enterprise segment, companies want
all their assets to be visible, to know where they
are and their status. And there will be a lot of
sharing of information between players and companies, such as in the transportation industry, to
facilitate tracking of objects.
As an example Telenor is involved in a project
where we are tracking , sheep in the wild.
There is no limit to what mm can be used for.
SIMONSEN: Many devices will be connected, but
the question for operators is: what will the business model be and how can they supply mm in
the best way? And the operators must start collaborating more to make this business successful, such as signing mm roaming agreements.
The arpo will be much lower than the arpu
they are used to today, so they must look at totally different processes and business models. ●
Connections
by vertical industry
Global M2M connections by vertical industry, 2010–2015
Million connections
300,0
Other
Healthcare
Utilities
Transport
250,0
200,0
150,0
100,0
50,0
0,0
2010
2011
2012
2013
2014
2015
Source: ABI Research, 2009
▶
EBR #3 2010 • 31
32 • EBR #3 2010
the consumer angle «« connecting machines «« THEME
The Internet
of Things
in the eyes of the users
The Internet of Things needs innovative ways of interfacing with its users to
make it clear that its power is not in any of its single connections, but in the
totality of interconnections. Otherwise it is going to be very hard to create the
mass-market platform the industry is hoping for.
S WE STEER toward a future in which all
our objects and environments are
connected, we will eventually find ourselves living a technologist’s dream, with everything part of the network. But how will people
experience and interact with it? Will users see it
as a logical step in the evolution of the World
Wide Web, or is it going to be understood as
something radically different from anything we
have seen before?
In a modest way the Internet of Things is already here. During the second quarter of ,
more than twice as many connected devices as
people were added by carriers in the US.
Different kinds of gadgets and gizmos are
gradually turning into hybrid devices that are
services as much as they are physical objects.
These days, the pads and pods – in all their different shapes and forms – are also expected to
be the portals to an integrated ecosystem of services and applications. And the trend is spreading to devices such as television sets, hi-fi equipment, and even cars. Is this the beginning of a
new era of innovative, intertwined, combined
A
products/systems/services that utilize the power of the networks?
Perhaps. But let’s not kid ourselves. The technology industry, after all, is in the business of optimism. There is a solid belief that as it constantly demonstrates to customers how technologically and functionally state-of-the-art its products
are, the value of their applications will be self-explanatory. When groundbreaking technology is
developed, it’s simply a question of creating
enough hype and ensuring the packaging is right.
That’s bound to create mass demand, isn’t it?
Sometimes the industry is utterly perplexed by
the absence of consumer desire for seemingly
“perfect” technology, even when everything has
been done “right”. There are many valuable and
often quite amusing insights to be gained from
the history of technological fiascos, but one of
the main reasons that products flop is the industry’s inability to imagine how they might fit into
real life. There is a lesson to learn here: the
industry needs to understand what it’s like to be
an end user, and the key to that understanding
is empathy.
▶
EBR #3 2010 • 33
THEME »» connecting machines »» the consumer angle
▶
TECHNOLOGY ONLY PART OF THE EQUATION
The technology has to be shaped into something
people understand, like, want and enjoy. This is
why the industry must be able to foresee how its
products are going to be understood, perceived
and experienced.
And this is where many technology-heavy
companies fail, because it is the point at which it
is necessary to leave the rational technological
logic behind. People already know quite a lot
about the technologies they use, but our perceptions and behavior are very much decided by our
emotions – which, in turn, are affected by many
different things: for example, comprehension,
physical and social context, trust or control.
These are the kinds of issues being addressed
in the User Experience Lab at Ericsson Research.
The cross-competence team conducts ethnographic studies, develops design concepts, facilitates ideation, makes prototypes and performs
user tests.
Designing innovative service concepts and
novel ways of interacting with technology is very
much about understanding how users apply mental models to make sense of something. One important field related to the design of an Internet
of Things is the study of how users make sense
of, and experience environments of numerous
networked devices.
In a study conducted by User Experience Lab
focusing on usability issues in handling and managing several wireless networked devices, the participants were asked if they could explain what a
wireless network was. This particular study was
conducted in Sweden where, as in many other
parts of the world, having a Wi-Fi network at home
has become common. As expected, most of the
participants confirmed that they knew what a
wireless network was, in reality meaning that they
knew what it was used for, or how to use it.
However, none of the participants actually explained their Wi-Fi networks by describing any
of the characteristics of a network. Since people
tend to describe something by referring to how
they think it works in combination with how it
is used, it was not surprising that in general, the
participants’ definition of a wireless network was
that it is something (typically a laptop) that connects to the internet, for example. In other words,
people casually define a wireless network as a replacement for a cable. This means that the word
“network” has gained the somewhat simplified
connotation of a series of a-to-b connections,
rather than a web of numerous, simultaneous
many-to-many interconnections, which is
the actual nature of a network.
MAKING USERS AWARE
Their definition was not something that
affected the participants’ ability to use their
Wi-Fi networks. But when they were presented
with new concepts, where layers of device-independent multimedia services were introduced
in the network, the mental model of a-to-b con34 • EBR #3 2010
nections became an obstacle that effectively
meant the participants were unable to understand. The layer of services required the participants to be naturally aware of the interconnections in the network, an awareness they did not
have because their conceptualization did not accommodate interconnections.
The participants were not by any means unintelligent, and many were extremely technology savvy. This simplified understanding of a network is
reached through common sense, and is the way
people normally figure things out. People understand a new thing by looking for a previously existing thing that is close enough in terms of usage,
form and function to be seen as its predecessor.
For example, most people categorize today’s
advanced mobile device as a phone, and regard
making voice calls as its obvious main function
– even people who tend to use it almost exclusively for text messaging, playing games, accessing a variety of applications or browsing the web.
That is how strong the mental connection is to
its analog ancestor.
The same logic applies to people who view their
wireless networks as a series of invisible cables.
Before we had wires to connect things; now we
use a Wi-Fi network. Language also reveals a lot
about how people make sense of things, not to
mention how the words reinforce the concepts
they are used as descriptions for. Hence “wireless
network” relies on the concept of “wire” to give
an idea of what it is.
Looking ahead, if we keep in mind how analog
ancestors and mental models affect people’s
understanding, then the term “Internet of Things”
is clearly problematic. The words themselves
force us to mentally connect it to what we know
of the internet. We automatically interpret it to
mean something like: “things with internet” and/
or “internet with things in it.” Since most people
commonly use the terms World Wide Web and
the internet interchangeably, the derived understanding of the “Internet of Things” will be something like “things with web pages, links, e-mail
and Twitter accounts.”
This description may fit many of the connected gadgets that we see today, but it gives no
effective intuitive understanding of the implications of, and opportunities afforded by, a web of
billions of connected physical/intangible, visible/
invisible, always online and real-time interrelated
devices, sensors, services, environments, places,
objects and users.
WHY PERCEPTION MATTERS
What’s the big deal, you may ask? Is it not so that
simplicity is in fact a good thing when we talk
about usability and user interaction? Well, yes
and no. It depends. For the Wi-Fi networks in our
homes today, the metaphor of invisible wires is
perfectly adequate. But for a future scenario
where we have billions of networked things, this
simplified understanding becomes a limitation
that has to be considered by anyone who wants
the consumer angle «« connecting machines «« THEME
to design useful and usable systems and services
for an Internet of Things.
Why? Because its true power is to be found in
the core characteristics of the network as such,
and the opportunities that these core characteristics enable are currently hidden in a blind spot
created by the mental model and the analog ancestors. Users may think they understand what
the Internet of Things is, but in fact, they will not
be able to see its real potential.
And this is not only true for the individuals who
are the so-called “users.” Businesses are people
too in the end, and even professionals with expertise in infrastructure business models and network technologies apply the simplified mental
model when they switch from thinking as professionals to thinking as users. It is not a contradiction to have one understanding when thinking
about something as an abstract concept, and then
to use the metaphors inherited from its analog
ancestors when experiencing the concept as a
user. People are perfectly capable of holding several different understandings of the same concept at the same time.
The point is that while the abstract understanding of a network helps engineers and software developers to create systems and technology, as
soon as the same people start to think about real-world usage scenarios they fall back on the simplified mental model of a network. This makes it
harder to communicate what the technology is
capable of and limits people’s imagination; and
as a result it may prevent innovation.
NEW MENTAL MODELS
This is why it is important to introduce new mental models. The Internet of Things needs a new
interaction paradigm that removes the blind spot
and makes it obvious and intuitive to anyone that
its power is not in any of the single connections,
but in the totality of interconnections. If these
new models are not created, it is going to be very
hard to make the billions of connected things into
the mass-market platform that the industry hopes
it will become.
One approach, of course, is to do nothing – to
wait and see how people eventually make sense
of things. Since users have clearly become familiar with concepts that were radically novel in their
time – like the car, electricity and the internet –
surely they are capable of coming up with a perfectly good common understanding of the Internet of Things, too.
Perhaps today’s mental limitations may not be
a problem in the future, and the Internet of
Things is probably not going to be ubiquitous for
many years. A technological concept’s connection to the past will eventually wear out as new
evolutionary branches are introduced and usage
patterns move further away from the original
functionality. In the case of the mobile phone, we
may actually be seeing signs that the link to its
analog ancestor is weakening, as new evolutionary offshoots of mobile devices are introduced.
But this is a slow process; one that often goes
on for decades, sometimes centuries. Doing nothing may be the right approach only for those who
are really patient.
Those of us who are not should do something
to change people’s conceptualization. But what?
The history of technology can supply a couple of
other concepts that have gone through transformational stages in their evolution similar to what
is being described here regarding the Internet of
Things. The pc is a case in point. The pc concept evolved into a technological as well as a social revolution, not to mention a new global market. What really enabled the success of the pc
concept was the insight that the key was a better user experience; the pc was initially too technical and needed to become more “human” if it
was ever going to become a market success.
Apple introduced the graphical user interface
and the mouse, which transformed the personal
computer into something usable, understandable and eventually extremely popular. Its impact
on society has indeed been profound.
Imagine therefore what it could mean if our
physical world became a part of the internet. And
think for a moment of today’s concept of an Internet of Things as at a stage equivalent to the
first text-based interfaces for computers. Then
imagine if we could do something to the Internet
of Things similar to what the graphical user interface did to the pc.
And so, the cable is currently the mental model for a network and the World Wide Web is about
to become the analog ancestor of the Internet of
Things. But these metaphors are insufficient to
explain the nature and opportunities of this technology evolution. This is bad, because if we think
this way, as people are prone to do, the possibility
of having more than  billion connected devices
will be obscured by an insufficient mental model.
A new innovative and intuitive way of understanding the interconnections must be introduced. It would result in us taking giant steps
toward an era of innovative, intertwined, combined mash-up products/systems/services that
utilize the power of the networks – and then the
Internet of Things may really become the global
market predicted by the industry of optimism. ●
AUTHOR
▶ JOAKIM FORMO is Senior
Researcher at the User
Experience Lab at Ericsson
Research, where he develops
and explores design concepts
for user interaction and user experiences. He has a Master
of Industrial Design from the Oslo School of Architecture
and Design, Norway. (joakim.formo@ericsson.com)
EBR #3 2010 • 35
36 • EBR #3 2010
china set to lead «« connecting machines «« THEME
The Internet of Things has officially been dubbed one of
China’s strategic emerging industries. Talking to analyst
Flora Wu and engineer Yu Xiaohui, it’s clear that
China sees an open field of opportunity in the machineto-machine market and will not be content to follow
international trends. China will do it its own way.
The Chinese take on
connected
machines
TEXT
David Callahan
FLORA WU:
“Operators see a deep ocean of opportunities”
N AUGUST  Chinese Premier Wen Jiabao
visited the city of Wuxi near Shanghai and suggested creating a center for the development
of Chinese sensor technology there. Since then,
the Internet of Things has been singled out as
one of China’s seven strategic emerging industries, along with what the government calls
“energy-saving and environmental protection,
biology, high-end equipment, new energy, new
material and alternative energy vehicles.”
Flora Wu, principal analyst with bda, an independent, Beijing-based consulting firm that advises private equity firms on China’s telecommunications, media and technology sectors, suggests
that one underlying motive for this specific toplevel push is China’s desire to take the lead in
standardization in general.
I
“There are several technologies competing.
However, there is no standard yet,” Wu says.
That is one reason the Chinese government is
ambitious about the Internet of Things.” She
adds that development around the Internet
of Things gives China the chance to
develop a global standard. China has
rolled out its own g technology and
now the government and operators
are starting to invest in lte, g and the
post-g technologies.
“The Internet of Things is a new
arena where it’s possible for China to
lead innovation,” she says.
In general China backs home-grown
standards, such as td-scdma (the Chinese
g standard), to prevent foreign-based
EBR #3 2010 • 37
▶
THEME »» connecting machines »» china set to lead
▶
vendors from playing a dominant role in
China, Wu says, adding that the government will
probably back Chinese standards with regard to
the Internet of Things as well.
“So vendors should be proactively involved
in the development of these Chinese standards
from the beginning, in order to ensure their longterm success in the era of the Internet of Things,”
she says.
An indigenous Chinese approach to this market could strengthen China’s position in technology, particularly in contributing to international
standardization bodies.
In addition to the sensor technology center
in Wuxi, the Ministry of Industry and Information recently collaborated with the local Wuxi
government and Jiangsu Province to create a
national r&d center devoted to the Internet of
Things.
Meanwhile, China Mobile, China Telecom and
China Unicom have plunged into – and taken the
lead in – the Internet of Things market. Wu says
these companies are well-positioned to stay at
the top of the value chain. “The operators regard
the Internet of Things as a deep ocean of new
growth opportunities,” she says.
China’s largest operator, China Mobile, already
counts  million machine-to-machine (mm)
terminals in its network – about  percent more
than , Wu says. The operator’s mm offering
is largely devoted to electric metering and automobile telematics.
Che Wu Tong, a car telematics and locationbased application for vehicles, is China Mobile’s
most widely used mm service, enabling vehicle
management and dispatch, location queries, route
optimization and telephone ordering for an esti-
mated . million customers, including bus
companies, taxi operators and express delivery
companies.
Chongqing Mobile is the base for parent
company China Mobile’s mm business and its
capabilities will be upgraded to operate the
platform for the entire network. To date, five provincial subsidiaries have set up their own mm
platforms, Wu says.
Agriculture is another promising area for mm
communications, however small the scale may
be at present, she says. China Mobile has piloted
livestock tracking, which enables end-to-end
traceability of meat to ensure food safety; as well
as remote greenhouse monitoring, to ensure the
right temperature, co concentration and humidity. By October , as many as , terminals were involved in these trials.
China Telecom has trialed mm applications
in dozens of industries, including transportation,
energy and environmental sustainability. Some
notable examples are the Toyota G-Book service
and the General Motors OnStar service over
the operator’s cmda network. The operator also
has , mm terminals involved in trials of
a video surveillance system for oil storage and
measurement, Wu says.
In the financial sector, China Unicom has
launched a service enabling customers to use
handsets to make payments from their Bank of
Communications account.
“Operators have early-mover advantages,” Wu
says. “Also, telecom operators are much more integrated – there are only three players – and
therefore more influential than players in other
sectors in China.” ●
YU XIAOHUI:
“M2M is only one part of a big picture”
ELECOM OPERATORS ARE leading
the way toward an Internet of
Things in China, and the Chinese government is considering speeding up the development.
Yu Xiaohui, deputy chief engineer of China Academy of
Telecommunication Research (catr) of the Ministry of Industry and Information Technology
(miit) and the head of
catr’s Economy and
T
38 • EBR #3 2010
Policy Research Institute, says the Chinese government is exploring how the Internet of Things
can raise living standards and improve industrial productivity in a “smart and green” way.
What does the Internet of Things mean for
China?
In the past year the Chinese leadership has mentioned the Internet of Things on many occasions.
Prime Minister Wen Jiabao has talked about it
many times and President Hu Jintao has also
talked about it. When we talk about the meaning
of the Internet of Things, we have to put it in a
china set to lead «« connecting machines «« THEME
broader context of economic and social development, both internally and worldwide.
We view the Internet of Things three ways.
The first is that it is a very important part of the
new generation of ict, which is one of seven
emerging industries the government has decided to promote.
The second aspect is closely related. The new
generation of ict will be used to transform
traditional industries, for example, to increase
production efficiency and output with lower energy consumption.
Thirdly, the Internet of Things will play an important role in raising the living standards of the
Chinese people. It can be applied in medical care,
education, safety and security management, as
well as in environmental protection and urban
development management.
What about smart grid technology?
I think the smart grid, via the Internet of Things,
is important. Apart from smart grids we want to
apply the Internet of Things in other industries
as well. That’s what we call smart industry.
Industry is where you see the most energy consumption and pollution. With Internet of Things,
industries can be transformed to realize green
development. Energy consumption and emissions
can be greatly reduced.
Will the Chinese government offer incentives to
convert to intelligent technologies?
It is hard to say what the policy will be, but I think,
in general, the government will encourage our industries to carry out smart upgrades. This is also
our main task for the future. The merging of information technologies and traditional industries
is implied in the name of our ministry, the Ministry of Industry and Information Technology. We
will complete this task.
cation between machines, there should be a
human factor in this. Via the Internet of Things
people should be able to identify and control the
nature of the machines so that we can improve
productivity and living standards.
You mentioned agriculture – can you give us
some examples of how the Internet of Things
will benefit people’s lives in that sector?
One example is food safety and security. Using
rfid (radio-frequency identification) we could
track the whole process of food distribution, from
production to transportation to sales. We could
guarantee the food quality this way.
It can also be applied to the production process. A mobile network with sensors can be installed inside a greenhouse to enable monitoring
and better control of temperature, humidity and
other conditions.
The development of the Internet of Things is going to put a huge load on the network infrastructure. What are your thoughts on that?
I can offer some personal ideas about this. The
development of the Internet of Things involves
two parts: the infrastructure of telecommunications and the infrastructure of the internet. There
should be both the sensory technology and the
back-end platform for processing – for example,
the infrastructure for cloud computing.
With that in consideration, there should be a
move to upgrade the network in order to meet
mm communication needs.
We also need to utilize the Internet of Things
to upgrade other infrastructure – for example,
China’s transport network, the power grid and
the water systems. ●
Is there a time plan for that?
The application of the Internet of Things has
started in China. But it has a complicated architecture, and it’s still in the explorative stage; that
is, it has been applied in some industries – transport, medical care, energy grids and urban management. I think we still need an action plan and
a strategic roadmap for the Internet of Things.
The Internet of Things to some means mm. You
are talking about the internet being used to
boost services. What are the differences between
how you’re describing the Internet of Things and
the mm Internet of Things?
For us the Internet of Things consists of three
very important key factors: one is sensing and
identification; the second is transmitting information via the interconnected networks; and the
third is intelligent processing of information.
I think mm is a core part of the Internet of
Things, but it doesn’t represent the whole
concept. The difference between our view and
others’ is that apart from realizing a communi-
▶
EBR #3 2010 • 39
THEME »» why we need them now »» creativity
▶
40 • EBR #3 2010
platform requirements «« connecting machines «« THEME
Operators need an ecosystem to support
50 billion
connections
The evolution of a machine-to-machine (M2M) ecosystem is closely linked to
the role of the network operator. A closer look at the knowledge needed to
optimize operators’ business potential for operators gives an indication
of what future M2M platforms will look like.
EW MOBILE APPLICATIONS and usage models are fast emerging in a connected
world, with mm communications leading the evolution. Unlike human-to-human communication, the essence of mm lies within the
business processes of the industries that are
leveraging the technology within their value
chains.
Industries at the forefront of adopting and offering mm include utilities, government, transportation, healthcare and finance, among others.
The characteristic common to all these industries
is their reliance on large, ubiquitous networks to
transmit information and distribute products and
services to end users.
N
As with other connectivity-based evolutions,
network operators are very well positioned to
benefit from the mm wave, given their ability
to stimulate ecosystem developments, influence
consumer behavior and, potentially, provide
services to customers.
However, to capitalize on this emerging trend,
operators need to shift their business away from
supplying voice and data services toward becoming an integral part of a wide variety of industrial vertical solutions.
Mobile operators should ensure their networks
are able to support exponential device growth
and to meet the needs of specific market verticals. Real-time capabilities and quality-of-service
▶
EBR #3 2010 • 41
THEME »» connecting machines »» platform requirements
▶
With every mobile being a potential payment
terminal for transactions of various kinds, and with
the MM ecosystem moving from SMS-based
payments towards other internet-based models, the
volume of payments and the need for brokering will
increase dramatically.
(QoS) guarantees will be critical. Operators
should also ensure their mm platforms are open
and standards-based to provide interoperability
between ecosystem players and vertical industries. But this is not the only issue – an efficiently functioning mm ecosystem is an essential safeguard against market fragmentation.
There is widespread agreement on the possibilities and challenges in building the mm ecosystem of the future. But it is important to take a
closer look at what kind of competence or knowledge is key to building such an ecosystem. As applications grow in terms of numbers and sophistication, the demands on the network and the
platforms that handle the devices and their connectivity will grow.
As the range and variety of mm services widens, there will also be an increasing need to make
mobile network internet applications similar to
fixed internet applications, from a development
point of view. It should be attractive and cost-efficient to build applications for mm over mobile
systems or to adapt existing applications to work
in a mobile environment.
If solutions are not based on both network
and communications knowledge, operators risk
losing some of the new mm opportunities, such
as monetization of data. Devices are, by nature,
less sensitive than phones to integrity issues, and
monetization of data in the network is a new
business opportunity for operators. With network
and communications knowledge, extracting data
and making analyses can be a means to providing a service to applications and application
developers.
Device connectivity opens up new areas for
operators to move into. Typical examples are
roaming agreements, providing initial connectivity for consumer electronics equipped with new
sim solutions, and brokering among other things.
With every mobile being a potential payment
terminal for transactions of various kinds, and
with the mm ecosystem moving from sms-based
payments towards other internet-based models,
the volume of payments and the need for brokering will increase dramatically.
At Ericsson, we support a development where
mm will progress from sms-based to internet-
Towards 50 billion connections
THINGS
50 B
PEOPLE
5.0 B
PLACES
~0.5 B
Digital society,
sustainable world
Personal mobile
Inflection points
Global connectivity
1875
1900
Source: Ericsson 2010
42 • EBR #3 2010
1925
1950
1975
2000
2025
platform requirements «« connecting machines «« THEME
based applications. We want mobile and fixed
devices to seamlessly integrate into enterprise applications side by side.
All operators running networks today, fixed as
well as mobile, work with QoS. The combination
of a scarce resource like spectrum – and the need
to cater for a large number of low-arpu devices
in mobile systems means there is a strong argument for the differentiation of service levels and
hence service level agreements (slas).
Taking these factors into account, we can make
two key conclusions about the demands on an
mm platform:
The mobile network needs to be isolated
from the application to the extent that as
many as possible of the mobile specifics –
such as direct ip addressing and having devices “always on” – are hidden and taken care
of by the platform.
The platform needs to cater for differentiation and enforcement of different slas to
provide cost-optimized solutions for a variety
of applications.
As a result, an operator aiming to seize a major share of future internet traffic and revenues
needs a platform that is efficient in both provisioning and managing devices, as well as controlling traffic in real time in order to implement the
sla chosen.
In order to support this, the platforms of the
future will therefore need to be increasingly based
both on network and applications knowledge. ●
AUTHOR
▶ MATS ALENDAL is Director of
Strategic Marketing at Ericsson
and is driving the marketing
program for the 50 billion
connected devices vision.
He has worked for Ericsson for most of his professional
career and has taken part in the build-out of both the 2G
and 3G systems. He has a Master of Science in Aeronautical Engineering from the Royal Institute of Technology
in Stockholm, Sweden.
(mats.alendal@ericsson.com)
▶ A platform is the “operating
system” for M2M systems that
provides backend translation of
sensor/device data into systems
and interfaces that make the
data meaningful.
As developers and application providers seek to make
M2M applications more functional and feature-rich, platform providers need to match
them in the scope and capabilities of their software.
Hence, platform development is moving from simple device management and connectivity to also supporting
service-delivery features such
as monitoring, diagnostics, remote control, security management, application delivery, and
performance-optimizing analytics. Some take it one step further by offering features such
as managed services, workflow
modeling, systems integration,
data orchestration and location-based services.
Ten times ten
M2M and vertical industries
Connected devices worldwide(Billion)
50
M2M
Consumer electronics
PCs
Fixed phones/IP phones
Mobile phones
45
40
35
Traffic systems
Automotive
Transport and logistics
Smart meters and grid
Connected buildings
Home appliances
Medical automation
Remote healthcare
ATM, point of sale, vending
Critical infrastructures
Monitoring and control
30
25
20
15
▶ Ericsson predicted the tenfold growth in the number of
connected devices to 5 billion
worldwide in the 10 years leading up to 2010, and now predicts a further tenfold increase
to 50 billion worldwide in the
10 years up to 2020.
The increase in the decade
leading up to 2010 was driven
by personal mobile devices
such as smartphones. Growth
in the next decade will be driven by devices used in traffic systems, remote healthcare and
medical automation, connected
buildings, smart grids and meters, and critical infrastructure.
Addressing industries
More devices per person
10
e-bookreaders, music and
DVD players, gaming devices,
cameras, home appliances,
in-vehicle navigation and
entertainment, etc.
5
0
Why the platform
is important
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Ericsson 2010
▶
EBR #3 2010 • 43
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broadband strategy
How Telstra gained speed to market
– without blowing the budget
When Telstra set out to transform its transmission network, it was not simply to
counter exploding traffic volumes.
Telstra used the restructuring as part of a long-term plan to get ahead of
the competition. How the Australian operator pulled it off is a lesson in how
intimately network strategy is coupled with business strategy.
▶ TRAFFIC VOLUME ACROSS Telstra’s fixed and
mobile network has doubled over the past
few years. Yet the company’s annual capital
spending on the national transmission infrastructure actually declined over this period.
This is no small feat in itself, but the most
important gain in terms of competitiveness
has been that the revamped network allows
Telstra to move much more quickly and costefficiently when launching new services.
Telstra started to transform the structure
of its national transmission network in .
The original telephony-oriented architecture
was replaced with a much more powerful
and flexible Ethernet-enabled architecture.
Telstra can now bring both fixed and mobile
ip-based services to market more quickly
than ever before, reducing the time it takes
to realize revenues and ultimately, profits.
Examples include faster and faster broadband speeds and a range of innovative new
services such as Telstra’s iptv offering,
called T-Box.
Australia’s natural environment is a challenge for any type of national infrastructure.
Australia is a vast country, with an area comparable to mainland Europe or the continental US, but with a population one-tenth of
the size. Most of the country’s population is
located in major cities along the east coast.
In essence, Australia has a highly urbanized
population occupying a small part of a large
and mostly inhospitable land.
Outside of the cities and fertile coastal
areas, Australia is a tough environment for
telecommunications, with monsoon floods
in the north and droughts and bushfires
in the south. Telecoms equipment has to survive temperatures over c and the remoteness of many sites means it can take a maintenance team days to reach and repair a faulty
node.
Despite these geographical challenges,
Telstra has built a highly resilient national
transmission network that connects all cities and towns. Today, this network carries
EBR #3 2010 • 45
strategy broadband
Australia
Population: 22.48 million
Land area: 7.6 million sq km
the majority of Australia’s traffic, currently approximately  petabytes per
month. This figure is doubling every two to
three years.
TELSTRA ANNUAL REPORT 
ADAPTING TO BROADBAND
▶ Annual revenues USD 21 billion
▶ Number of subscribers (in millions)
Basic access 8.66, fixed broadband 3.99,
mobile broadband 10.56
▶ Employees 31,157 (full-time staff in
Australia)
▶ PayTV Owns (50 percent) and operates
HFC network for Foxtel
▶ International operations New Zealand,
China (mainland and Hong Kong)
Historically, Telstra was the incumbent ptt,
with its focus squarely on telephony. The
introduction of mobile phones and business
data services in the s and cable tv and
g mobile phones in the s greatly
expanded its business range. Throughout this period, and well into the s,
Telstra’s transmission network followed a
traditional model mirroring the telephony
hierarchy of local, tandem/transit and main
telephony switches.
The introduction and success of first generation broadband on adsl and data services on mobile networks in the early s
showed Telstra that fixed and mobile data/
ip traffic would soon overtake telephony traffic. Also, the traditional model of adding capacity link-by-link, as needed was shown to
be insufficiently flexible when planning and
budgeting for transmission services. The
deployment of new services was also frequently constrained and delayed by the need
to expand the capacity and routes beforehand.
In  a new hierarchical transmission
architecture was established and then progressively put in place. This program of
“Ethernet enablement” matched the transition to the use of Ethernet interfaces on new
ip-dslams and new g mobile base stations.
Transmission planning was simplified
through adding gigabyte capacity, rather than
e links on specific routes.
The establishment of the new architecture
was followed by a two-year period of accelerated investment to realize the new model.
For  to , capital expenditure on
long-haul transmission equipment decreased
somewhat – yet the capacity of the network
has continued to grow to support a doubling
of traffic volumes – an effective growth rate
of about  percent a year to the end of .
Today, Telstra’s total traffic volume is more
than  petabytes per month.
DECOUPLING CAPACITY AND COST
How has Telstra effectively decoupled capacity and capital expenditure?
Between  and , Telstra installed
sufficient fiber capacity, meaning expensive
construction work for new fiber cables was
rarely required. Deploying scalable capacity
based on the new architecture, Telstra has
been able to leverage the original investment
in transmission equipment to continually increase the capacity on its existing cable plant.
Added to this, the cost of capacity provided
by transmission equipment has been driven
down, so over the past  years, the cost per
gigabyte has dropped considerably.
Other carriers around the world lease
transmission capacity from third parties. For
them, the growth in broadband traffic leads
to increasing operational expenditure, but
Decoupling capacity growth and capital expenditure
Capex
PB per month
50
45
40
35
30
25
20
15
10
5
0
2004
2005
2006
2007
2008
2009
2010
The curve shows total volume of traffic, predominantly IP/data, carried over Telstra's network. The bars show long haul capital expenditure
(Australian dollars) including all fiber design installation costs and SDH and DWDH equipment costs. Source: Telstra.
46 • EBR #3 2010
broadband strategy
little – if any – growth in revenues. Telstra,
on the other hand, has invested in the cables
and routes and can now leverage off these
assets and enhance transmission capacity relatively cheaply and flexibly.
New technology breakthroughs are also
providing further cost savings for Telstra.
The vast distances involved in many routes
across Australia mean that a chain of
optical repeaters must be used to create
the transmission path, and historically
Telstra had spaced these repeater sites at
km intervals.
New transmission equipment can span
much longer distances. Consequently, a
program to eliminate intermediate repeater
sites has begun, leaving optical spans of
km. A recently built section in the
remote Arnhem Land area in northern Australia has a span of km. The benefits of
fewer repeater sites include enhanced reliability, saving on building maintenance and
site rent and reduced energy consumption
and emissions.
So, despite the somewhat higher power
lasers and optical amplifiers required to span
these longer distances, the net result is a reduction in capital and operational expenditure, emissions and an overall improvement
in link performance.
SUPPORTING NEW BUSINESS
The business benefits for Telstra go beyond
simple cost savings. Telstra has now built a
national transmission network that covers
every town and city in Australia; a network
that has ample capacity, and on which scalability for growth is largely decoupled from
equipment investment spending. New network services can be rolled out rapidly, and
at low incremental cost.
For example, from  to , the network has been leveraged to support annual
speed increases on g mobile broadband from
.Mbps to .Mbps to Mbps to Mbps.
The scalability of the national transmission network and the fact that the majority
of mobile base stations now have gigabit Ethernet interfaces, means Telstra has been able
to repeatedly increase the speeds of the g
hspa access network without a specific transmission upgrade program. Instead, capacity
has been increased incrementally as part of
the ongoing updating of transmission speeds
from .Gbps to Gbps to Gbps.
As an early adopter of the next generation
of mobile telephony msc-s nodes, which are
used to establish telephone calls through the
mobile network, Telstra is transforming the
mobile network core from  msc-s nodes
deployed all over the country, to four nodes
deployed in two diverse locations, to create
a national pool. This means considerable sav-
ings. Such a highly centralized network is
only possible because the underlying transmission network is reliable and has more
than enough capacity to support the traffic,
even under “fail over” conditions.
The new transmission network is also the
foundation for Telstra’s new iptv service. To
support the delivery of content for its new TBox service, Telstra is building a content distribution network (cdn) that caches video
content at key transmission points around
Australia. Telstra has introduced the cdn
quickly, because the transmission architecture is well suited to hosting the cdn server
farms at the access edge and because the scalability of the transmission network means
that no special transmission upgrade program is required. Rather, the video capacity
requirements are simply rolled into the overall capacity growth program.
The network strategy adopted by Telstra
is not limited to exploiting cost efficiencies.
It is firmly grounded in the operator’s future
business requirements. Telstra’s success with
its network transformation is a lesson about
the close connection between network strategy and business benefits, as well as between
technology solution provider and carrier. ●
AUTHOR
▶ COLIN GOODWIN is
Broadband Strategy Manager for Ericsson Australia-NZ,
responsible for the Fixed and
Transmission product lines.
He has more than 25 years of experience in telecommunications, first in technical development and support, then in consulting on technical and financial aspects of telecommunications strategy, and then in
product development and management. Before joining Ericsson in 2001, he worked as a Senior Product
Manager for Telstra. Colin has a Master of Engineering
Science from Monash University, Australia.
(colin.goodwin@ericsson.com)
AUTHOR
▶ MARK CHASELING is a
Network Strategy Consultant
specializing in fixed network
transformation in Southeast
Asia. He has more than 14
years of experience in telecommunications, beginning in network operations, planning and technical
development before moving into management and
consulting. Before joining Ericsson in 2008, he
worked as a Senior Engineer for T-Mobile International, responsible for defining its pan-European IP/
MPLS commercial and technical strategy. Mark has
an Honours degree in Telecommunications Engineering from the University of Technology in Sydney,
Australia and a Master of International Business from
Melbourne University, also in Australia.
(mark.chaseling@ericsson.com)
The brand sensitive issue
of resilience
▶ FROM TIME TO TIME, the telecoms
industry sees reports of carriers that have
experienced highly disruptive extended
transmission outages. While the media tend
to focus on the inconvenience to end users
and the loss of service revenues to the operator, the main damage to the operator is a
long-term loss of brand value and customer
dissatisfaction.
Telstra is acutely aware that the national
transmission network is essential to the
valuable revenues derived from the services
that run over it. Telstra positions itself as
providing premium services and its brand is
synonymous with high quality and reliability.
A decision was made in 2009 to enhance
the resilience of the transmission network
by adding further diverse routes between
major cities. These “third routes” complement the existing coastal and inland routes
between capital cities.
This did not necessitate a major cablelaying program. Rather, the third routes are
logical paths that make use of previously
unused wavelengths and fibers in existing
cables. Consequently, deploying physically
diverse routes between major cities only
required small stretches of new cable to be
laid and only a modest investment in new
active transmission equipment.
The existence of a well-structured hierarchical network and a consistent set of
equipment with a common management
system means a third route can be added
quickly and economically. The project is due
for completion in 2011.
By comparison, many carriers have procurement processes that drive them to treat
transmission purchases on a link-by-link
basis, meaning they have a patchwork of
transmission solutions and technologies
and element management systems that
defy integration. Such an approach makes
innovative programs such as Telstra’s third
routes impossible.
Transmission network
cost distribution
Cables buildings
power
Transmission
equipment
Civil works
Source: Ericsson
Typical cost breakdown from Ericsson global
accounts.
EBR #3 2010 • 47
details
Eastern Europe
drives boom
Attention grabber
Facing competition from “anything that demands people’s
attention,” Japanese gaming-giant
Nintendo is banking on a new
mobile game machine to regain
momentum.
▶ THE NEW DS game machine fea-
tures wireless Web access, multiple
cameras, and accelerometers to
sense motion, not to mention the
ability to watch d movies without
glasses. But its ability to link players on the move may be the key to
its success.
The company’s President, Satoru Iwata has highlighted Nintendo’s
broad competition from far beyond
the traditional gaming world.
Games on Facebook like Farmville
and Mafia Wars, as well games
downloaded from iTunes, allow
people to easily play against both
friends and strangers on mobile
devices like smartphones.
The new ds will have the ability, using a Wi-Fi connection, to find
and link to any nearby ds machine
even if the user is not playing at the
time. The machine will launch in
February in Japan and in March in
Europe and the US. It comes as
Nintendo is reporting steep drops
in sales and revenue. ●
French government
gets into the music biz
▶THE FRENCH GOVERNMENT has started selling a youth
music card. The cards sell for EUR 25 but carry EUR 50 worth
of credit to spend on a variety of legal downloading or
streaming platforms, including iTunes, Starzik, Deezer, Fnac
and Qobuz. The government plans to sell up to 1 million of
the cards for two years. Eligibility is limited to people aged
between 12 and 25, and there is a one card per year limit.
The ministry of culture is funding the project.
A different kind of digital divide
▶ A BOOMING broadband
market in Eastern Europe
drove European fiber to the
home (FTTH) subscriptions
up  percent over the past
six months, says the FTTH
Council Europe.
Including Russia, almost
4.5 million European
subscribers now have FTTH
or equivalent services.
Lithuania is still the leader
in penetration, just ahead
of Sweden and Norway,
with Slovenia and Slovakia
also near the top. Growth
was also strong in Romania
and Bulgaria.
41
▶… PERCENT OF ALL
North American mobile
data consumption comes
from real-time entertainment such as streaming
video. The number is 43
percent over fixed lines,
with one company,
Netflix, accounting for
more than 20 percent
of all downstream traffic
during peak hours,
despite having only
16.9 million customers.
Russians most
social networkers
NOT ALL INTERNETS are made alike, with different cultures and contexts creating wildly different usage patterns.
In places like Uganda, with low internet penetration, most users desperately want to create their own personal
space online and explore the internet’s offerings. In a more established market like France, the market is split but
with more emphasis on things like function and knowledge-sharing and with less enthusiasm for self-expression.
48 • EBR #3 2010
▶ OF ALL THE PEOPLE in the
world, Russians spend the
most time on social networking sites. Vkontake.ru
is the leading portal with
. million visitors, says
comScore.
In August Russian
internet users spent an
average of 9.8 hours per
visitor on social networking
sites: more than double
the worldwide average of
4.5 hours per visitor. Israel
came second
with 9.2 hourss
per visitor,
followed by
Turkey, the
UK and the
Philippines.
Facebook ranked just
fifth in the Russian market
but its audience has grown
376 percent in the past
year, faster than any of the
other top sites.
how to share with a competitor management
The benefits and barriers
of network sharing
Network sharing has obvious benefits. Why then have so few projects been successful?
The technical issues, although complex, can be resolved. The real challenge is to make
cooperation between competitors work. A business-focused and structured approach will
improve the chances of success.
▶ THE ARGUMENTS for network sharing are
well known. It can substantially reduce capex
and opex. It can also speed up network rollouts, improve coverage and help meet the
capacity demands of increased data traffic.
Smaller players can “leap frog” larger, more
established operators, while other operators
are able to remain or expand in a market that
is already saturated.
It is no surprise then that in the past few
years operator interest in network sharing
has grown significantly. So why have so few
deals been successfully implemented?
Each sharing environment is , and there
may be pressures and priorities that change
throughout the process of establishing a
partnership between two operators
When looking at the challenges that make
network sharing difficult, it is important to
understand the priorities and aspirations of
each operator within a series of major decision making areas and the tension that exists
between them. These key spheres of executive influence and decision making are:
finance, sales and marketing, network
operations and technology, and organization
and governance.
Below is a summary of the top  challenges that operators face when approaching a
partnership with what might be considered
a competitor.
Cultural alignment, stakeholder management and sponsorship. As with any
partnership or merger, there must be clear
direction on how the two organizations
will work with each other and what they
aim to achieve. This may appear obvious
– but with network sharing there is a real
danger that the cultural mindset of both
organizations will tend towards their respective competitive positions.
Network coverage and control. Determining coverage areas plays a big part in
when operators should compete and when
they can collaboratively share in order to
better compete with others. Passive or
active sharing does not have to be applied
uniformly. Major cities may be too sensitive to be shared when considering the
balance between benefit and potential loss
of market position, whereas a dedicated
network in a rural area may not provide
any competitive advantage.
Program complexity and risk. Slippages
and scope changes in the program are likely to increase costs substantially. Key elements need to be assessed early and risks
mitigated within the program design.
These include network architecture and
design criteria, transmission strategy,
landlord negotiation, lease termination
costs, the creation of a target reference
network plan, and evaluating the capacity of existing sites to be shared, including
planning permission.
Shareholder and cost pressure. Operators respond by cutting costs, but further
savings are getting more complex and
harder to achieve. The network is a fixed
cost that does not respond well to traditional saving methods, making sharing an
option because it can reduce site requirements by  to  percent. It is a difficult
Key spheres of executive influence
Market advantage and
strategy (S&M/CSO)
Network operations
and technology (CTO)
Market
dynamics
Network growth
Network service
coverage and control
Regulation and
spectrum
Program complexity
and risk
Shareholder and
cost pressure
Asset valuation
and management
Finance (CFO)
The challenges are
positioned according
to their relevance to
the area of decision
making; for example,
when a challenge
borders two areas, it
is considered to be
equally relevant.
Vendor risk
sharing
Experience
and resources
Cultural alignment,
stakeholder management
and sponsorship
Organization and
governance (CEO)
EBR #3 2010 • 49
management how to share with a competitor
Network sharing is a
complex undertaking,
often on par with
mergers and
acquisitions. Each
party involved needs
to realize the effects of
sharing – not just on
their network but on
their business as a
whole.
50 • EBR #3 2010
balance to maximize financial benefits
while minimizing the impact on customers and competitive advantage. This could
be helped by inviting third party partners
to invest.
Network growth. Mobile broadband and
smartphones have had a huge impact on
the networks through increased traffic.
The economics of this traffic are significantly improved when new coverage and
capacity are combined with network consolidation and modernization. However,
the complexity of a sharing program increases the risk of not actually achieving
these benefits.
Asset valuation and management. There
is evidence that an inability to reach agreement on asset valuation has alone caused
the failure of major sharing arrangements,
particularly when the pooling of assets
within a joint venture was a necessary aspect of the program.
Experience and resources. Network sharing is a complex and unique undertaking,
particularly if consolidation of existing
coverage takes place. Large scale network
consolidation is very different from a rollout program and requires additional
resources and skills that do not typically
already exist in an operator’s organization.
Vendor risk sharing. Sophisticated risk/
reward mechanisms are now increasingly
used throughout many industries to share
risk between the parties – and even extend it to shared investment models. Key
third party partners can reduce operators’
risk by applying their expertise and economies, especially when they are involved
in setting up the structure and scope early in the process.
Regulation and spectrum. Local competitive conditions can determine the depth
and extent of what is possible and desirable to share. European government bodies and regulators have rejected network
sharing deals in the past due to concern
over competitiveness. However, these
bodies have begun to ease restrictions as
they realize the difficulties operators face
when independently evolving next generation networks.
Market dynamics.The number of potential sharing partners is usually only three to
five in each country. If two operators take
the initiative to share, the remaining choices become very limited. Being forced into
a defensive partnership with a less suitable
operator is not the best starting point for
any company. In some countries, significant funds are being made available to encourage operators to provide coverage for
rural areas – but usually with conditions
for their network to be “open access.”
COMMON PITFALLS
If operators both understand all of these
challenges and that the benefits are still
significant, why have so few deals been
successful?
The reasons why two executive teams
engage in sharing discussions may vary, but
it is the approach taken towards network
sharing that is truly important. Typically a
small team is set up in a strictly confidential
environment in order to assess the feasibility and financial benefits of sharing. If the
numbers look good, the decision to share is
reviewed at the board level and throughout
the stakeholder structure in both operators.
Agreement in principle is reached, although
some groups may remain skeptical. The
operators then invest considerable internal
resources in setting up a joint technical team
to develop the architecture and implementation plan. Key vendors are then invited to
engage, usually in a formal process, and the
executive teams then wait for the originally
identified benefits to emerge.
While this may be a simplistic view of what
actually happens, it does highlight the two
main errors made when trying to create a
shared environment with a competitor. Firstly, devolving a complex set of business decisions from two independent executive teams
to a joint technical and engineering group is
not the optimal case for sharing – and may
carry inherent risk in execution. Secondly,
not managing the competitive tensions
between two operators – who both wish to
independently control their network and the
remit of the joint network sharing team –
will fuel the skeptical view and the potential
risk of failure.
To understand why devolution of decision
making to a technical group is flawed,
consider the following examples of consequences from actual network sharing deals:
▶ A decision was made early on by the ex-
ecutive teams not to pool assets, in order
to simplify financial valuation and management. This resulted in no clear sponsorship for a long-term commitment and
limited the sharing agreement’s scope and
benefits significantly.
▶ The technical implications were worked
through, and the joint team made a decision not to share active assets. This significantly reduced benefits by limiting the
leverage that might have been created in
reducing overall costs and vendor investment. This increased the capital cost by
deploying two sets of active components
within the program.
▶ The joint team struggled to gain full sponsorship for the planned consolidation with
factions within each operator, which then
how to share with a competitor management
exploited the lack of progress as a reason
to discredit the sharing partnership.
▶ While the initial sharing program delivered short-term benefits, the longer term
interests and strategic aspirations of each
operator caused the partnership to end.
▶ The lack of consideration for customer
services management caused significant
problems during execution, because customer service complaints became difficult
to solve within a live program. The initiative lost the support of the skeptics, stakeholder alignment was compromised and
the initiative was stalled.
UNDERSTANDING STAKEHOLDER TENSIONS
In well-founded sharing partnerships, these
joint business decisions were made quickly
and decisively across the businesses. The executive teams gave clear and decisive direction to the rest of the organization and to the
external market generally. While it may appear obvious to engage executive sponsorship, the partnerships that have struggled
generally had poor executive alignment.
They have also tended to view strategic
agreement as a one-time decision at an initial stage, rather than an on-going process.
Managing these tensions requires the
identification of a collaborative approach on
many levels in an operator’s organization. It
can be difficult for many employees to
understand that collaborating with a competitor will help them compete better with
others. Parts of the organization may consider that too much is being given away, particularly where the perceived benefit of sharing does not directly benefit them or they
are remote from the sharing team, such as
sales and marketing.
Others may appear to buy in but do not
actually feel involved and end up abstaining
from the program, particularly where senior
sponsorship is not evident.
It appears to have helped operators to first
determine what and where it is important to
maintain independence and balance that
against the potential benefits of selectively
sharing the network. This needs to incorporate a longer term strategic perspective and
not just the immediate position. This is vital
for the technical team to understand the impacts of sharing network coverage and maintain control of the customer experience as the
network environment is changed. In some
cases this has been used positively by the sharing operators to attract new customers within an area as new coverage is created.
Key suppliers play a significant role in supporting operator collaboration. An important
aspect is early engagement with major suppliers to support the joint development of an
agreed approach, including a framework
whereby they can collaborate with each other and with the various business groups within both operators. Ideally this should be done
in a shared risk/reward structure to underwrite the success of a sharing program, potentially including suppliers as stakeholders
and investors in the consolidated network.
Neutral or independent governance can
also be a solution for managing these tensions. This allows a third party to be the honest broker between the operators and can
help align differing cultures and aspirations
as well as validating the overall approach.
Whatever methods are employed to improve collaboration between the operators,
it must define, communicate and maintain
a clear intention of their joint strategy and
aligned business ambitions – supported and
sponsored fully at all executive levels of both
companies.
A STRUCTURED APPROACH
Although no two network consolidation environments are the same, it is possible to develop a plan that brings two networks together in the most optimal way, avoiding
pitfalls and ensuring engagement across all
stakeholder groups.
It is vital that the process is divided into
clear stages, ensuring that all stakeholders
are engaged with a clear understanding of
the joint approach. This must balance issues
like coverage, potential changes in competitive positioning, and achieving optimal benefits over the associated joint network architecture.
It is important to make sure that each
phase, from the early foundation and agreement on the overall strategy to detailed program initiation, has a clear set of aligned outputs. Each phase therefore needs to be gated with a set of criteria designed to drive a
consistent approach across all areas of the
business and to build consensus among all
stakeholders. Governance and stakeholder
management is then key to controlling the
transition between each phase as the process moves from high level principles to detailed design.
CONCLUSION
Successful partnerships are those in which
the partners clearly thought through their
sharing objectives and chose to work with
a partner that – above all else – provided a
good business fit.
Network sharing is a complex undertaking, often on par with mergers and acquisitions. Each party involved needs to realize
the effects of sharing – not just on their network but on their business as a whole. When
considering a structured approach, it is essential that a clear joint vision is established
EBR #3 2010 • 51
management how to share with a competitor
and sponsored from the beginning, and
that cultural alignment is both fostered
and managed throughout.
It is clear from previous sharing partnerships that it is vital for the executive team to
establish and implement a structured
approach that will:
▶ Actively manage the tensions between the
two operators and the network sharing team.
▶ Identify early in the process the appropriate
operating model and governance structure.
▶ Ensure that the entire business has bought
into the decisions and agreement.
▶ Establish the roles and engagement model
of key delivery partners early in the process.
AUTHOR
▶ MIKE TANKARD is head of
Network Sharing for the
Western & Central Europe region at Ericsson, with a primary focus on developing
the company’s approach and capabilities in network
sharing and consolidation. He has 20 years of experience in customer management, consulting and business development within telecoms and IT. Prior to
joining Ericsson, he worked for Hewlett Packard and
Nortel, developing their telecoms business and capabilities across Europe, the Middle East and Africa.
(mike.tankard@ericsson.com)
With most operators likely to consider or
review sharing opportunities in their market,
it is essential that they do so primarily from
a business perspective – and keep this
consistently aligned with the feasibility of
actually undertaking the technical and
operational aspects of sharing. ●
The three major phases of a structured approach
Organization
hierarchy
C suite
Director
1.
Market and
Foundation competitive
positioning
Network scope
and scenarios
High level
benefits and
financial
drivers
High level
organization
agreement
2.
Evaluation
n of
technicall and
operation
on
nal
approache
ches
Evaluation
n of
of
financial
benefits
fisa
and
equity
investm
me
m
ent
Evalluation
on of
operrating
g
mod
dels
Feasibility
and
program
design
Evaluation
n of
market an
nd
competit
iti
tive
impact
Gated success
criteria
3.
Technical
and
engineering
Program
initiation
Joint
network
strategy
Agreed
detailed design
Detailed
equity, asset
and benefit
management
Detailed
governance
and stakeholder
organization
Typical approach often taken by operators as natural course
The red line shows the typical path taken by operators when a relatively quick executive agreement in principle is delegated to a joint network
technology and operations team to build the detailed case. This can spoil alignment of the business requirements and increase the risk of failure.
52 • EBR #3 2010
innovation and the internet forecast
EBR #3 2010 • 53
the future of devices strategy
The value−driving role of
devices – and what to expect
The driving forces in the wireless device industry have changed dramatically. In the new era now taking shape, services
will be available anywhere, and everything and anything will be connected – in ever simpler ways. Telecom players
should watch out for what this simplification could do to their value chains.
▶ THE EARLY DAYS of the wireless device in-
dustry were dominated by firms with a
strong telecom heritage such as Ericsson,
Motorola, Nokia and Siemens. When g networks were being rolled out in the s, the
focus of development was on securing voice
and sms interoperability. Handsets were typically marketed on technical features such
as the ability to cover more than one frequency band.
The vertically integrated key players controlled not only the design, production and
marketing of mobile phones, but also the
mobile communications infrastructure.
They invested large sums in research and development to improve the performance and
reduce the size of mobile phones, evolving
their products way beyond suitcase-sized devices with limited appeal for a very narrow
base of business and professional users.
As was the case with the first pcs, software, hardware and operating systems were
all produced in-house, and assembled in proprietary architectures. Beyond the use of
core applications, there was no interaction
or value creation between the consumer and
the device manufacturer or operator after
the point of sale.
Mobile-phone sales soared in the late
s. By  the mobile phone had become a mass-market product in Western
countries and vendors’ focus shifted from
radio performance and size to product design and entertainment. A never-ending
stream of new features and standards were
now added, and handset vendors found
themselves caught in a hardware-driven hypercompetitive race.
The value chain started to unbundle with
the entry of new players that didn’t have all
technology in-house. Adding to the overall
complexity of the picture was the growing
need for multimedia software features. The
mobile phone had developed from a voice
and SMS engineering piece to a multi-application “Swiss Army knife” designed to entertain its user with mp, games, wap, fm
radio, downloadable ringtones, digital cameras and the like.
The value creation was still mainly
pre-loaded onto the device, which added to
54 • EBR #3 2010
consumers’ negativity towards g, following
its introduction in , as they didn’t
really know what to do with it. However,
some operators did attempt to improve
post point-of-sale value creation, ntt
docomo’s iMode service being the most
successful example.
THE RED THREAD
High-speed packet data and g had started
to gain traction in the wireless domain, and
fixed internet usage had shifted from static
data consumption to intensive interaction
with others (Web .). The focus for phones
also began to move from entertainment
towards connecting the user to the internet
and thus extending the possibilities for
value creation.
Mobile broadband for pcs and smartphones are two segments that have since
experienced rapid growth, with the pc
industry influencing the wireless device industry in several ways. The focus has shifted from a list of features to operating
systems, applications and user experience.
Operating systems for smartphones have
become the new battleground. The old view
of the smartphone as a productivity enhancement tool has been replaced by a lifestyle focus and the incorporation of popular
Web . applications. The importance of
ecosystems has also risen as products have
become increasingly linked to value contributors outside the single company domain.
The value chain has continued to be transformed, with more clearly defined roles for
handset vendors and chipset suppliers, but
integration has varied depending on the
device segment targeted, with less flexibility in the lower segments and a more modular approach (as with pcs) in the high-end
segments. The handset vendors have
integrated vertically upwards in the value
chain, and phones now come with services
(for example, Nokia and Ovi, Apple and
iTunes, Android and Marketplace, rim
and BlackBerry App World, Sony Ericsson
and PlayNow+, Amazon Kindle and
Amazon Services), bypassing and, in some
cases, competing with the operators’
service offerings.
strategy the
Yet, despite diverse developments, there
is a general pattern common to all the stages outlined so far, and this is likely to continue into the future:
Increased interdependency: During the
early days, the main dependency was on the
standardization body defining the communication standard. Companies were still in
complete control of their offering, from base
station to device. This has shifted over time,
so that managing ecosystems has now become part of a company’s core strategy.
Transformation of the value chain: The
value chain is constantly transforming as it
moves towards specialization when markets mature. However, depending on conditions, it shifts between vertical and horizontal integration in an infinite loop. These
future of devices
movements appear in different parts of the
value chain at the same time, depending on
the value capture opportunities identified.
A good example in recent years has been the
vertical integration of devices and services,
which is likely to break up as soon as horizontal alternatives appear on the market.
Wireless convergence: The wireless-device
market started off as a mobile-phone market. Over time, however, so many features
and services have been added that the
device is now in principle a small computer,
positioned as the hub of our lives. Single
device convergence has now reached
a level where it has started to diverge into
different shapes and form factors, and the
central value will be in the services you
connect to more than the device.
EBR #3 2010 • 55
the future of devices strategy
Birth of the “connect-me” era
▶ In the summer of , the long-
rumored iPhone was launched. Market expectations were high; Apple
had previously had tremendous success with the iPod and its related service, the iTunes music store. When
the first iPhone was unveiled, the
telecom industry was astonished that
Apple had introduced a product that
not only lacked all the latest technological features, but was not even
compliant with major operators’
requirements – it didn’t even have G
or MMS.
However, instead of getting into
the same phone hardware battle as
the rest of the industry, Apple prioritized superior user experience combined with the ability to download
content and applications; to manage
the device via iTunes; and to connect
to Apple’s already established
ecosystem.
The iPhone was a classic case of
market disruption, and completely
shifted the industry focus; suddenly
everyone was occupied with creating
smartphones with touch screens and
application stores. Google entered
the wireless-device industry shortly
after Apple. But it did so from a different angle, by offering the Android
open-source operating system with
its ecosystem of third-party developers attached for free to the device
manufacturers, and thereby further
stimulating the ongoing transition.
56 • EBR #3 2010
Looking ahead, we are now entering
a new phase, where services will be available anywhere, and where everything and
anything will be connected. The key trends
described below point to a time when anywhere is the common denominator, and this
will have implications for the future of
wireless applications.
KEY TRENDS
Everything and anything gets connected:
Modems and connectivity enable new types
of devices and services driven by increasing
consumer demand for mobility. We have
already witnessed the take-up of mobile
broadband in the pc industry. The next
growth areas will be mm and consumer
electronics, with cars, homes, cameras,
vending machines, refrigerators and tvs
among the items getting connected.
New business models with alternative billing structures such as one-stop shops, and
the ad-funded model, along with more
simplified modularized plug-and-play solutions, will make it easier for newcomers to
focus on the value-added service instead of
the enabling technologies. The biggest
hurdle today to scaling a business for mobile
devices is managing the complexity of all
unique network characteristics, which
requires costly hands-on interoperability
testing, certification and type approval for
each individual market.
Ecosystems – the new world order: The
increasing interdependency between the key
stakeholders on the market (already important during the previous era) changes the
boundaries of how we define a company and
a product proposition. Today a company
must manage and balance the interests of
standardization bodies, partners and opensource communities as well as third-party
developers, which all contribute to creating
value for its products. Devices and services
go together, and their actual value is in the
joint offering, not the components. It is clear
that mobile devices are going the way of pcs,
with their value vanishing unless services
are attached.
Also evident from today’s market is the
growing importance of managing ecosystems across verticals. Here, the user experience is the focal point, meaning access to
services as well as remote access to content
on any device with a unified user experience.
Apple has established a strong position with
the iTunes Store, addressing multiple vertical applications and continuously broadening the scope with iTunes as the horizontal
glue layer between the various vertical
applications. The iTunes application is available for both the pc and the Mac environment, and works as the tool for managing
devices, content and services. New categories, technologies and quality levels of
content and services have been added
continuously: for example, downloadable
music, audio books, movies, tv-series, podcasts (both audio and video), applications
(programs and games), and eBooks for
iPhone, iPad, Apple tv and iPod. And on the
horizon are streaming services and a more
accessible cloud-based service offering.
The cloud is taking over: As data moves
to the cloud, so does computing. Services
are now available on the web, and the browser is becoming an ever-richer application
environment. The shift towards mobile
cloud computing means that we are moving
towards an infrastructure where both storing and processing of data takes place outside the mobile device.
We already have access to numerous
mobile cloud computing applications,
including Spotify, Google Maps, Gmail, and
Facebook. Social networks play an increasing role in our lives; and, after developing
them on the desktop, we are now seeing
them evolve in the mobile environment. In
February  Facebook announced that the
number of mobile users had passed  million, with a higher growth rate for mobile
than desktop. In May  it was announced
that Facebook was the most visited site in
the world. However, data storage and
processing for the majority of applications
still takes place on the mobile devices themselves and not in the cloud.
Same service – any screen: Content and
service convergence across multiple screens
is the next opportunity to create value. Some
view this as a key development and an alternative to diversification into services. A user
can, for example, start watching a high-definition video stream at home on the tv, then
leave the house and continue to watch via
a mobile device. A typical data stream for
high definition would consume –Mbps –
not much for an lte network that will have
typical user rates of -Mbps.
As cloud-based content and services grow,
it is increasingly important that everything
works the same way across all devices. The
key to success is a framework for unifying
devices across all screens and integrating
services across device types. New devices
will facilitate service partnerships, with
seamless transitions between different entry
points enabling access to the same services.
Finally it and telecoms will converge.
Continued value shift from hard to soft:
The wireless device industry is coming
closer to the pc value-chain paradigm with
modularized hardware, software and services. For device manufacturers, differentiation
and value addition are increasingly coming
strategy the
future of devices
Just like the PC industry, the wireless device industry is moving towards greater specialization, meaning that the entry barriers to new device players will
be lower.
from integration with software, content and
services. Devices can no longer be considered a distinct entity separate from content
and services, and players with an integrated
device and service offering are outperforming the others.
But just like the pc industry, the wireless
device industry is moving towards greater
specialization, meaning that the entry
barriers to new device players will be lower.
Variable rather than fixed costs will become
more significant, and core r&d capability
will not be a requirement for competitive
advantage among device manufacturers.
There will be a rush of new entrants from
countries such as China that have perfected
low-cost manufacturing of modular products such as consumer electronics and pcs.
As entry barriers fall, profitability is likely to
flow away from device manufacturers
to manufacturers of key performanceenhancing components and modules (both
hardware and software).
WHAT DOES THE FUTURE HOLD?
The challenge for industry players will be to
ensure the right complementary assets
depending on their position in the value
chain, as well as to secure a strong ecosystem, as the definition of company scope has
broadened. For the industry as a whole the
most important thing will be to manage the
innovation space for new business, revenue
and distribution models to ensure a massmarket uptake of wireless capabilities
beyond the product categories of today.
Smartphones will continue to evolve,
providing new features and expanding into
new markets. They will be among an expanding range of smart devices that will include
tablets, netbooks, eBook readers or entrylevel smartphones. Along with these smart
devices we will see the growth of connected
devices, especially within the mm and
consumer electronics categories; these will
require optimized thin modems that are
multi-mode capable. Depending on penetration rate and volume, we will see both
plug-and-play modules as well as highly
integrated solutions to reduce cost.
The convergence of ecosystems and introduction of new device categories will
increase the demand for more simplified
plug-and-play solutions; this will in turn
open the way for new innovations and business models. The type-approval and certification process conducted within the telecom
industry to launch new devices needs to be
simplified to allow the long tail of future
device categories to reach the market without costs becoming too high.
The go-to-market approach and ecosystem for wlan can be used as an illustration
of how things can be simplified. A wlan
chipset can be embedded in any device by
any manufacturer and distributed globally;
this kind of wireless device is completely
disconnected from the network as well as
from whoever is paying for the data traffic.
New revenue models will ensure that the
data traffic is paid for, but this may not be
apparent to the user since it will not be manageable to have subscriptions for every
cellular-connected device. Simpler ways of
connecting wireless devices, like wlan, may
of course erode traditional telecom revenue
models that are based on network-managed
subscriptions, unless ways to simplify them
are found.
Each specific application area must define
the best revenue model. Amazon Kindle is
an exciting start – the user’s data consumption is bundled into the e-subscriptions and
e-book downloads. The upcoming demand
for simpler plug-and-play solutions is a great
challenge for both operators and device
manufacturers but it has already demonstrated its potential in creating new business
opportunities for the whole industry. ●
AUTHOR
▶ MARTIN ZANDER
is Director and head of
Portfolio Management at
ST-Ericsson. He has
previously worked in a
variety of product management and marketing
and sales positions within the Ericsson Group, both
in Sweden and Japan. He has a double Master degree in Technology Management and Strategy from
Lund University, Sweden, and his main research interests are scenario analysis, industrial structural
changes and value-chain evolution.
(martin.zander@stericsson.com)
EBR #3 2010 • 57
Send your contribution to the editor-in-chief at mats.thoren@jgcommunication.se
JAHANGIR MOHAMMED
OPINION
Realize the promise of M2M – make it
work out of the box
Based on revenue per user alone, the market for machine-to-machine (MM) technologies may not seem viable.
However, when low churn and low acquisition costs are taken into account, the potential of MM is clear.
The key metric that operators need to consider is margin. But first they must take some crucial steps.
DESPITE THE ECONOMIC downturn, the M2M market has remained
Each vertical is different and has specific needs. However, from a
buoyant. It is a market full of promise, with the ability to revitalize the
network standpoint all devices are similar in their requirements: they
global economy. The new generation of connected
need a module, connectivity, a management platform
gadgets flooding the market – e-readers, automotive
and a SIM card to connect to the network, and are
telematics, utilities/smart grid applications, gaming,
therefore subject to the same challenges.
The phone, the
mobile healthcare (M-health), and tracking devices –
Ericsson has famously set out a vision of 50 billion
laptop, the tablet – with
demonstrates the opportunities for vendors and operaconnected devices worldwide in the next decade. In
these devices, getting
tors. These devices are a testament to the accessibility
order to meet this goal, several factors have to be in
of the M2M market.
place across the entire M2M ecosystem.
connected is the point. It
Previously, because of high costs, only large organiis the end game. The
zations were able to afford to build and maintain their
BUILD HIGH QUALITY DEVICES QUICKLY AND EASILY
phone, the laptop, the
own dedicated data networks. But as business models
The next generation of connected devices is not being
tablet – with these
have advanced and chipsets have become cheaper, we
built by traditional handset manufacturers. Among
are witnessing widespread adoption, with an array of
others, the automotive, construction, machinery,
devices, getting
commercial and consumer devices emerging from
consumer electronics and energy industries are now
connected is the point. It
manufacturers all over the world.
building wireless devices. But without the mobile
is the end game.
M2M connectivity began industrially, creating
expertise of companies such as Nokia, these comparevenue growth for the enterprise market. M2M has
nies often struggle to get wireless right the first time.
since branched out, and these revenue streams have
According to research we have conducted at Jasper
grown into a consumer market – opening the door for operators to
Wireless, more than 60 percent of connected device launches are delayed
monetize this opportunity on an unprecedented scale.
because of application redesign needs, and up to 80 percent of device
The demand for different applications and verticals varies across the
applications are “aggressive” or “abusive” when connected to the mobile
globe, with the UK and the US markets witnessing growth in consumer
network. Devices might exhibit aggressive behavior, for example, by
electronics and M-health applications; Asia showing a sharp uptake of
constantly trying to connect to the mobile network. This results in an
smart grid technology; Australia seeing an influx of mining and vending
excessive signaling load on the mobile network, causing a deterioration
solutions; and Latin America favoring asset-tracking and point of sale
in quality for the end user, who gets a fragmented service.
(POS) systems.
Mobile operators and ecosystem vendors must ensure they offer the
“
”
58 • EBR #3 2010
technology and support necessary to
o power the development
of these devices. Imagine a plug-and-play
nd-play module, ready to
connect out of the box: certainly nott an easy concept, but one
that would make a dramatic difference
rence in reaching the 50
billion connected devices vision.
ENABLE ENTERPRISE CUSTOMERS
TO BECOME SERVICE PROVIDERS
In the M2M market, mobile operatorss are witnessing a fundamental shift as the end-user relationship
ship is transferred to the
enterprise vendor. In most cases, the
he end user has no idea
who is supplying the connectivity, as it is bundled in as part
of a larger solution.
Let’s take BMW as an example. Ass far as BMW owners
are concerned, BMW is the service provider responsible
for their connected Assist services.. BMW manages
all aspects of service delivery, technical
hnical support,
subscription management, provisioning
ning and more.
The network operator is invisible to
o the end user.
What enables connected devicee manufacturers
like BMW to be successful is the ability
ility to run this aspect
of their business as a service provider. And this requires very tight integration and support from their operator partners.
Operators, for their part, must have the solutions in place that enable
their customers to become service providers. Eliminating this level of
business complexity for device manufacturers allows for larger scale and
faster time to market.
MAKE IT SIMPLE AND TRANSPARENT FOR THE END USER
User experience is typically discussed in the context of consumer devices.
But even in the most industrial of cases, an excellent user experience is
still a vital aspect of a solution’s success.
For those of us in the mobile network business, M2M brings about a
▶ JAHANGIR MOHAMM
MOHAMMED founded Jasper
Wireless in 2004 and serves a
as the company’s CEO.
Prior to this, Jahangir found
founded and served as the
CEO of Kineto Wireless. He has previously also
worked at AT&T Bell Laboratories
Laborator and Lucent. Jasper
Wireless won the 2009 World
Wo
Communications
Award for its M2M platform, w
which enables mobile
operators to connect and supp
support a variety of emerging consumer electronic and bu
business devices on their
networks. Current operator pa
partners include AT&T,
Telefónica, América Móvil, Vimp
VimpelCom, SingTel, KPN,
Telstra and Rogers Communications.
Communicat
fundamental shift in how we m
must think about the
market. The phone, the laptop, tthe tablet – with these
devices, getting connected is the
th point. It is the end
game. When a laptop gets tu
turned on, there is an
explicit “connect” action to perform.
p
In the M2M
market, in almost all cases, there
th
is no need for a
discrete “connect” action on the par
part of the end user if, in
fact,
fact there is an end user at all.
all
That’s because for most connected devices, the connectivity is an
enabler of a larger, more important, component. For e-readers, the
consumer buys books. For smart grids, the utilities manage energy
consumption. For fleet companies, the result is real-time location of
their assets. Mobile connectivity is not the primary goal – it is a means
to an end.
These devices – energy meters, cars, e-readers, health monitors –
simply need to perform what they are supposed to do without any
additional effort by the end user, the installer or the clinician. Mobile
connectivity should simply work out of the box.
To accomplish this, operators must have the platform and systems in
place to eliminate the complexity of embedded mobile connectivity.
EBR #3 2010 • 59
Send your contribution to the editor-in-chief at mats.thoren@jgcommunication.se
This starts in the development phase by providing device manufacturers
with the design tools to build a high-quality product. It continues by
enabling companies to eliminate dead-on-arrival devices through
network testing capabilities for use at the time of manufacture. Once at
its final location, whether in the hands of an installer or a consumer, the
wireless device should automatically function on first power-up –
effectively enabling the device to simply work out of the box.
But great user experience doesn’t end once the device is live and
functional. Inevitably there will be instances where the device doesn’t
perform as expected. If consumers phone in with a problem, support
technicians should have the information they need to resolve the issue
quickly. This means putting key network diagnostics directly into the
hands of the device manufacturer.
MAKE THE ECONOMICS WORK FOR ALL PARTIES
Much has been said about M2M being a low ARPU business for mobile
operators. That is certainly true. In most markets, M2M ARPU is about 10
percent or less than that of a typical handset subscriber. On the basis of
ARPU alone, M2M does not look viable. However, when low churn and
acquisition costs are factored in, the market for M2M looks excellent.
The key metric that operators should consider is margin. Of course,
the key to high margins in a low ARPU business is eliminating costs.
Operators should therefore choose a highly automated M2M platform
so as to reduce the costs of providing these services.
For enterprises looking to build a connected device business, the
economics come down to the business model. For many industries,
embedded connectivity is viewed purely as a cost. Finding a flexible
business model that takes into account the unique usage profile of
the devices across all demographics can help to optimize costs. The
same is true for intelligent rate-plan management and sophisticated
exception reporting. For some industries, such as consumer electronics, embedded connectivity is an additional revenue stream. Using
a connected devices platform to employ advanced upselling and
cross-selling techniques can yield significant revenue opportunities.
For module and chipset manufacturers, the economics come down
to scale. Eliminating many of the cost and complexity barriers above
will help fuel the market. Organic mass-market adoption drives volume
– although finding opportunities to accelerate market adoption can, of
course, go a long way to help.
By addressing each of the market factors above, the vision of 50 billion
connected devices will surely become a reality. Each company in the
ecosystem plays an important role. Through partnerships – such as those
between operators and connected device platform providers entered
into all over the world – this new ecosystem can come together and
provide the technology and support necessary to power successful M2M
devices. ●
60 • EBR #3 2010
#3 2010
These devices – energy meters, cars, e-readers, health
“monitors
– simply need to perform what they are supposed
to do without any additional effort by the end user, the
installer or the clinician. Mobile connectivity should simply
work out of the box
”
Ericsson helps operators
save 25% on network costs
by managing its network
outsourcing and enables it
to focus in its customers
lives and experiences.
details
8
▶… OF  SPOTS
occupied by Nokia
on a list of Asia’s
top-selling mobile
phones in September, with the top
position held by
Nokia’s 2322C
model. Samsung
took the other two
places on the list
from GfK Asia.
“If you look at when the telephone came out, the front page of the
New York Times said that people would never leave their
home again.”
FUTURIST NICK BILTON, IN WIRED, TALKING ABOUT RECURRING SOCIETAL FEARS OF NEW TECHNOLOGY.
Mobile advertising booms
Mobile not cannibalizing fixed
▶ MOBILE BROADBAND
customers will outnumber fixed-line customers
in Finland by 2011, says
Finnish telco Elisa. But the
company also says that
mobile is not eating into
its fixed-line business, with
most customers signing up
for both services.
Mobile data volumes
have also doubled in the
past year, company officials said at a press event
in London, but this was
driven primarily by new
customers, with average
monthly use rising to only
1.88GB of data per month,
up from 1.5GB last year.
NZ government
funds broadband
▶ THE NEW ZEALAND
government has
committed to rolling out
ultra-fast broadband
to 97 percent of the
country’s schools within
six years. This means the
government will now
pay for the physical fiber
from the street to school
buildings. Previously,
schools had to self-finance
such connections.
LTE sign-ups
pass 150
▶ THE GLOBAL mobile
Suppliers Association
says that more than 150
operators in 64 countries
have invested in LTE.
This includes 133 firm
operator commitments in
46 countries, plus 43 “precommitment” trials or pilot
projects in 18 additional
countries.
62 • EBR #3 2010
▶ MOBILE ADVERTISING REVENUE will reach around USD 24 billion by 2015, after hitting USD 3.5 billion in 2010, says research firm Informa Telecoms & Media. Apple and Google have driven recent mobile ad growth, with Google on track to generate USD 1 billion in mobile ad revenue in 2010 and the launch of Apple’s iAd advertising platform forcing its rivals to speed
up their own plans. Operators’ mobile advertising share will decline to 20 percent in 2015 from 26 percent today, Informa says.
EU combats energy drain
▶ THE EUROPEAN Union has
launched the Steeper project to
lower the energy usage of electronic
devices and extend their battery life.
The ultimate goal is to use
nanotechnology to reduce the
operating value of devices to less
than .V – a -fold increase in
efficiency – and to eliminate power
consumption when devices are in
passive or standby modes. The EU
says this “vampire energy” accounts
for up to  percent of the electricity
used in homes and offices. ●
14,000,000
▶… SMART HOMES WORLDWIDE by 2014, says IMS Research, though a company executive recently
warned that many consumers may resist giving up control of their energy use to smart meters.
executive summary
The great scare – how telecom
and media can embrace the
internet threat
By Nathan Hegedus, page 10
▶ Media expert Lucy Küng
focuses much of her work on
the upheaval caused when a
new generation of technology
platforms – such as the internet
and the iPad – threatens to
replace tried and tested models
– such as broadcast tv and the
printed magazine.
New technology has in these
instances been the most significant trigger of change, although
deregulation and globalization
have also played a role.
The irony is that technological
advances could be a force for
renewal and growth if incumbents – in both the media and
in telecom – get their organizational acts together. And the
big challenge is organizational.
It’s not strategic, and it’s not
really about resources.
Content is absolutely core to
the future. Very few people buy
technology per se; they buy it
because of what that technology can do for them. And they
buy technology they don’t particularly like if it allows them to
access certain content.
The balance of power is shifting
toward players further down
the value chain. These players,
which represent a wide range,
have very deep pockets, certainly in comparison with many
media players, and often control the new platforms.
Telecom operators have a toehold in the “net generation.”
This critical consumer group of
 to -year-olds is increasingly indifferent to traditional
media products, but extremely
interested in the connected,
collaborative environment of
the internet.
All that most media companies
have just now is their control of
the ethereal realm of creating
content.
Even if newspapers migrate
every print reader to paying
online, they will still make large
losses. Switching off the presses, after a hypothetical future
print-to-digital tipping point,
might save newspapers  percent of their total costs, but this
is not enough to make up the
gap from the smaller online
income. Even adding iPad income to web paywall revenue
would only total half the income newspapers are currently making from print.
Clever collaboration is in the
best interests of both media
and telecom firms. They should
try to work fast, follow through
on good ideas fast, launch them
in beta fast, and then see what
the response is.
Larger organizations are often
very skilled at exploiting their
existing products but that process seems to squeeze out exploration, which is what the
current environment calls for.
To get past this, top managers
must be explicit that creativity
is central to the organization's
future.
Rise of the machines
By Mariette Lehto, page 20
▶ Today, we can see a clear
trend of operators increasingly
moving into vertical mm markets – but most network operators are not geared to handle
this radically different line of
business.
Vertical solutions are often diverse and consist of a wide variety of technologies and applications. To secure quick time to
market and reduce the need for
managing complex integration
projects, operators deploying
mm have most commonly used
a wholesale business model.
Running a wholesale business
is a volume game and has tough
cost-effectiveness requirements. Typical mm arpu is
usd – per month and can
be just a few usd per year or
lower. On average, mm accounts for  percent of mobile
arpu, while mobile operators
have developed their networks
for serving customers with
monthly arpus of usd –.
When providing mm services
for the consumer market, costs
such as customer care per connection have to be scaled down.
The technical capabilities are
there, but a number of business
issues need to be solved. The
connected device ecosystem is
often complex and fragmented.
Service providers and enterprise customers are expected to
interact with multiple parties to
get the “things” connected.
For many enterprises, this interaction requires special competence, resources and telecom
understanding, something they
may not have. End-to-end integration time and complexity
is easy to underestimate. But
complexity can be countered
by bringing in people with the
right expertise.
Simplicity equals cost efficiency, but making it simple is not
that simple. When entering
new business areas, operators
need both process and system
flexibility.
There are several ways to achieve this balance:
Improvements in existing infrastructure: adding new features, products and services to
the existing infrastructure enables quick time to market and
reduces the investment risk.
However, incremental improvements in infrastructure
may not be enough; there are
also organizational challenges
in terms of the prioritization of
different businesses.
Software as a service has already proven a viable model in
putting mm into operation
and maintaining good service.
The challenge is to have a software package that includes all
the functionality necessary to
provide the services that customers ask for. Quality-ofservice enforcement, for example, requires traffic functionality. It’s not only a matter of
device provisioning.
Redevelopment of the infrastructure: this involves ambitious development projects,
which require detailed vertical
understanding, and technical
and financial resources.
Outsourcing the infrastructure:
operators can benefit from
business partnerships with telecom vendors, in which the
vendor builds and operates the
infrastructure based on the
vertical-specific business requirements.
The experience of an early
starter
By Benny Ritzén, page 28
▶ Norwegian incumbent Telenor is a pioneer in taking
MM services to the market on
a global scale. Telenor offers a
wide range of managed mm
services, from tracking vehicles
and shipments in transit to
reading electricity meters.
Per Simonsen, ceo Telenor
Connexion, and Hans Christian
Haugli, ceo Telenor Objects,
explain why building business
from machine connectivity is
so different from what operators are used to doing:
It’s about moving from selling
products to selling services.
This has a huge impact on business processes and business
models, and requires quite a
substantial shift on the customer side.
mm is fundamentally different
from the traditional telecom
offering and as a consequence,
operators must fundamentally
change to adapt to it.
The overall mindset needs to
change too, because you are
switching from being local to
global. Operators tend to be
local by nature, while mm customers are mostly global.
Most mm is about large volumes of connections, but relatively small data volumes per
connection. However, there is
also an opportunity to generate
new types of revenue tied to
services supporting pure connectivity – some examples include monitoring and surveillance, lab and field-testing and
service-level agreements.
mm customers require something fundamentally different
from what traditional telecom
customers require. You need to
take those needs seriously in
the marketplace and that is why
Telenor has made the decision
to separate the mm business.
There are at least three positions an operator can take in
the mm market. One is the
connectivity position. The sec-
»»»
EBR #3 2010 • 63
executive summary
»»»
ond is to be a vertical solution
provider, making the whole
solution. The third is providing
a sort of Internet of Things
switch. Telenor has taken all
three positions. Telcos are good
at doing the same thing over
and over again and doing it
with high quality. But in mm,
you really have to understand
the requirements and functionality to do this properly at all
levels, including installations
and maintenance of devices.
Moving beyond mm to the
Internet of Things market, you
need standard interfaces to get
access to the information without having to know a lot about
the connectivity and the devices themselves. You need an
abstraction layer in between so
getting access to device data
becomes as easy as making an
internet application. This will
require standardization that is
not in place yet.
The Internet of Things in the
eyes of the users
By Joakim Formo, page 32
The Internet of Things needs
innovative ways of interfacing
with its users to make it clear that
its power is not in any of its single connections, but in the totality of interconnections. Otherwise it is going to be very hard to
create the mass-market platform
the industry is hoping for.
Different kinds of gadgets and
gizmos are gradually turning
into hybrid devices that are
services as much as they are
physical objects. These days,
the pads and pods – in all their
different shapes and forms –
are also expected to be the
portals to an integrated ecosystem of services and applications. But how do we create
mass demand?
The technology has to be
shaped into something people
understand, like, want and
enjoy. Designing innovative
service concepts and novel
ways of interacting with technology is very much about
understanding how users apply
mental models to make sense
of something.
64 • EBR #3 2010
In one study, most of the participants confirmed that they
knew what a wireless network
was, in reality meaning that
they knew what it was used for,
or how to use it.
However, none of the participants actually explained their
Wi-Fi networks by describing
any of the characteristics of a
network. The participants’
definition of a wireless network
was that it is something (typically a laptop) that connects to
the internet, for example. In
other words, people casually
define a wireless network as a
replacement for a cable.
For the Wi-Fi networks in our
homes today, the metaphor of
invisible wires is perfectly adequate. But for a future scenario where we have billions of
networked things, this simplified understanding becomes a
limitation.
Its true power is to be found in
the core characteristics of the
network as such, and the opportunities that these core
characteristics enable are currently hidden in a blind spot
created by the mental model
and the analog ancestors. Users
may think they understand
what the Internet of Things is,
but in fact, they will not be able
to see its real potential.
The cable is currently the mental model for a network and the
World Wide Web is about to
become the analog ancestor of
the Internet of Things. These
metaphors are insufficient to
explain the nature and opportunities of this technology evolution. A new innovative and
intuitive way of understanding
the interconnections must be
introduced. Otherwise an insufficient mental model will
obscure the possibility of having
 billion connected devices.
Chinese technology’s big
chance to go global
By David Callahan, page 36
▶ The Chinese government
sees the Internet of Things as
an opportunity to take the lead
in global technology standardization, according to Flora
Wu, principal analyst with bda,
a Beijing-based consulting
firm.
There are several technologies
competing and no set standard
yet. That is one reason for the
Chinese government’s ambitions. China has rolled out its
own G technology and now
the government and operators
are starting to invest in lte, g
and the post-g technologies.
In addition to a sensor technology center in Wuxi, the Ministry of Industry and Information
recently collaborated with the
local Wuxi government and
Jiangsu Province to create a
national r&d center devoted to
the Internet of Things.
China Mobile, China Telecom
and China Unicom have taken
the lead in the Internet of
Things market. China’s largest
operator, China Mobile, already
counts  million mm terminals
in its network – about  percent more than .
Che Wu Tong, a car telematics
and location-based application
for vehicles, is China Mobile’s
most widely used mm service.
Chongqing Mobile is the base
for parent company China Mobile’s mm business and its
capabilities will be upgraded to
operate the platform for the
entire network. To date, five
provincial subsidiaries have set
up their own mm platforms,
Wu says.
China Mobile has piloted livestock tracking, as well as remote greenhouse monitoring.
By October , as many as
, terminals were involved
in these trials.
China Telecom has trialed
MM applications in dozens of
industries, including transportation, energy and environmental sustainability. In the financial sector, China Unicom has
launched a service enabling
customers to use handsets to
make payments from their Bank
of Communications account.
Yu Xiaohui, deputy chief engineer of China Academy of
Telecommunication Research
(catr) says the Chinese government is exploring how the
Internet of Things can raise
living standards and improve
industrial productivity in a
“smart and green” way.
The Internet of Things will also
play an important role in raising the living standards of the
Chinese people, for example by
improving food safety and security.
The application of the Internet
of Things is still in the explorative stage, and Yu thinks there
is still a need for an action plan
and a strategic road map.
He says the Internet of Things
consists of three very important key factors: one is sensing
and identification; the second
is transmitting information via
the interconnected networks;
and the third is intelligent processing of information.
mm is a core part of the Internet of Things, but it doesn’t
represent the whole concept.
As well as the communication
between machines, there
should be a human aspect to
the concept. Via the Internet of
Things, people should be able
to identify and control the nature of the machines to improve productivity and living
standards.
Operators need an ecosystem
to support 50 billion
connections
By Mats Alendal, page 40
▶ Network operators are very
well positioned to benefit from
the mm wave, given their ability to stimulate ecosystem developments, influence consumer behavior and, potentially, provide services to customers.
However, operators need to
shift their business away from
supplying voice and data services toward becoming an integral part of a wide variety of
industrial vertical solutions.
Real-time capabilities and
quality-of-service (QoS) guarantees will be critical. Operators should also ensure their
mm platforms are open and
standards-based to provide
interoperability between ecosystem players and vertical industries. But this is not the only
executive summary
issue – an efficiently functioning mm ecosystem is an essential safeguard against market fragmentation.
The demands on the network
and the platforms that handle
the devices and their connectivity will grow. There will also
be an increasing need to make
mobile network internet applications similar to fixed internet applications, from a development point of view. It must
be attractive and cost-efficient
to build applications for mm
over mobile systems or to adapt
existing applications to work in
a mobile environment.
If solutions are not based on
both network and communications knowledge, operators risk
losing some of the new mm
opportunities, such as monetization of data.
mm will progress from smsbased to internet-based applications. Mobile and fixed devices should seamlessly integrate into enterprise applications side by side.
All operators running networks, fixed as well as mobile,
work with QoS. The combination of a scarce resource like
spectrum – and the need to
cater for a large number of lowarpu devices in mobile systems
means there is a strong argument for the differentiation of
service levels and hence service
level agreements (slas).
Two key conclusions about the
demands on an mm platform
are:
The mobile network needs
to be isolated from the application to the extent that as many
as possible of the mobile specifics – such as direct ip addressing and having devices “always
on” – are hidden and taken care
of by the platform.
The platform needs to cater
for differentiation and enforcement of different slas to provide cost-optimized solutions
for a variety of applications.
As a result, an operator aiming
to seize a major share of future
internet traffic and revenues
needs a platform that is efficient
in both provisioning and managing devices, as well as control-
ling traffic in real time in order
to implement the sla chosen.
How Telstra gained speed to
market – without blowing the
budget
By Colin Goodwin and Mark Chaseling, page 45
▶ Traffic volume across Telstra’s fixed and mobile network
has doubled over the last few
years. Yet the company’s annual capital spending on the
national transmission infrastructure actually declined over
this period.
Telstra started to transform the
structure of its national transmission network in . The
original telephony-oriented
architecture was replaced with
a much more powerful and
flexible Ethernet-enabled architecture. Telstra can now
bring both fixed and mobile
IP-based services to market
more quickly.
Historically, Telstra was the
incumbent ptt, with its focus
squarely on telephony. The success of first generation broadband in adsl and data services
on mobile networks in the early
s showed Telstra that fixed
and mobile data/ip traffic would
soon overtake telephony traffic.
In , a new hierarchical
transmission architecture was
established and then progressively put in place. For  to
, capital expenditure on
long-haul transmission equipment decreased somewhat –
yet the capacity of the network
has continued to grow to support a doubling of traffic volumes – an effective growth rate
of about  percent a year to
the end of .
Telstra’s transmission network
now covers every town and city
in Australia. The network has
ample capacity and the scalability needed for growth is
largely decoupled from equipment investment spending.
New network services can be
rolled out rapidly and at low
incremental cost.
As a result of the scalability of
the network and the fact that
the majority of mobile base stations now have gigabit Ethernet
interfaces, Telstra has been able
to repeatedly increase the
speeds of the g hspa access
network without a specific
transmission upgrade program.
The new transmission network
is also the foundation for Telstra’s new iptv service. Telstra
is building a content distribution network (cdn) that caches
video content at key transmission points around Australia.
Video capacity requirements
are simply rolled into the overall capacity growth program.
The network strategy adopted
by Telstra is not limited to exploiting cost efficiencies. It is
firmly grounded in the operator’s future business requirements. Telstra’s success with its
network transformation is a
lesson about the close connection between network strategy
and business benefits, as well
as between technology solution
provider and carrier.
The benefits and barriers of
network sharing
By Mike Tankard, page 49
▶ The arguments for network
sharing are well known. The
real challenge with network
sharing is to make cooperation
between competitors work.
The top  challenges that operators face when approaching
a partnership with what might
be considered a competitor are:
Cultural alignment, stakeholder management and sponsorship
Network coverage and control
Program complexity and risk
Shareholder and cost pressure
Network growth
Asset valuation and management
Experience and resources
Vendor risk sharing
Regulation and spectrum
Market dynamics
The reasons for sharing may
vary, but it is the approach
taken towards network sharing
that is truly important. Typically a small team is set up in
order to assess the feasibility
and financial benefits. If the
numbers look good, agreement
in principle is reached, although
some groups may remain skeptical. The operators invest considerable internal resources in
setting up a joint technical team
to develop the architecture and
implementation plan. Key vendors are then invited to engage
and the executive teams then
wait for the originally identified
benefits to emerge.
This highlights the two main
errors made when trying to
create a shared environment.
Devolving a complex set of
business decisions from two
independent executive teams
to a joint technical and engineering group is not the optimal case for sharing. Not managing the competitive tensions
between two operators will fuel
skepticism and increase the
risk of failure.
In well-founded sharing partnerships, these joint business
decisions were made quickly
and decisively across the businesses. The executive teams
gave clear and decisive direction to the rest of the organization and to the external market
generally. While it may appear
obvious to engage executive
sponsorship, the partnerships
that have struggled generally
had poor executive alignment.
Managing these tensions requires the identification of a
collaborative approach on
many levels in an operator’s
organization. It can be difficult
for many employees to understand that collaborating with a
competitor will help them compete better with others. Some
may consider that too much is
being given away, others may
appear to buy in but do not actually feel involved and end up
abstaining from the program.
It helps to first determine where
it is important to maintain independence, and balance that
against the potential benefits of
selectively sharing the network.
This demands a longer-term
strategic perspective.
Key suppliers play a significant
role in supporting operator collaboration. Neutral or independent governance can also be a
»»»
EBR #3 2010 • 65
executive summary
»»»
solution for managing these
tensions.
Although no two-network consolidation environments are the
same, it is possible to develop a
plan that avoids the pitfalls and
ensures engagement across all
stakeholder groups.
It is vital for the executive team
to establish and implement a
structured approach that will:
actively manage the tensions
between the two operators and
the network sharing team,
identify the appropriate operating model and governance
structure early in the process,
ensure that everyone in the
company has bought into the
decisions and agreement, and
establish the roles and engagement model of key delivery
partners early in the process.
The value-driving role of
devices – and what to expect
By Martin Zander, page 54
▶ The early days of the wireless
device industry were dominated by vertically integrated
key players that controlled design, production and marketing
of mobile phones, and also the
mobile communications infrastructure.
Mobile broadband for pcs and
smartphones has since experienced rapid growth, with the
pc industry influencing the
wireless device industry in several ways. The importance of
ecosystems has also increased
as products have become increasingly linked to value contributors outside the single
company domain.
The value chain has continued
to be transformed, with more
clearly defined roles for handset vendors and chipset suppliers. The handset vendors have
integrated vertically upwards in
the value chain, and phones
now come with services, bypassing and, in some cases,
competing with the operators’
service offerings.
There is a general pattern common to all the stages outlined
so far, and this is likely to continue into the future:
Increased interdependency:
66 • EBR #3 2010
Managing ecosystems has now
become part of a company’s
core strategy.
Transformation of the value
chain: It shifts between vertical
and horizontal integration in an
infinite loop. These movements
appear in different parts of the
value chain at the same time.
Wireless convergence: Single
device convergence has now
reached a level where it has
started to diverge into different
shapes and form factors. The
central value will be in the services you connect to more than
the device.
Looking ahead, the key trends
are that:
Everything and anything gets
connected: Take-up of mobile
broadband in the pc industry
is strong and the next growth
areas will be mm and consumer electronics.
Ecosystems – the new world
order: Today a company must
manage and balance the interests of standardization bodies,
partners and open-source communities as well as third-party
developers.
The cloud is taking over: Mobile
cloud computing means that
we are moving towards an
infrastructure where both storing and processing of data take
place outside the mobile device.
Same service – any screen: Content and service convergence
across multiple screens is the
next opportunity to create
value. Some view this as a key
development and an alternative
to diversification into services.
Continued value shift from
hard to soft: For device manufacturers, differentiation and
value addition are increasingly
coming from integration with
software, content and services.
Smartphones will continue to
evolve. They will be among an
expanding range of smart devices that will include tablets,
netbooks, e-readers or entrylevel smartphones. We will also
see the growth of connected
devices. These will require optimized thin modems that are
multi-mode capable.
The introduction of new device
categories will increase the de-
mand for more simplified solutions. For example, a wlan
chipset can be embedded in any
device by any manufacturer and
distributed globally; this kind of
wireless device is completely
disconnected from the network
as well as from whoever is paying for the data traffic.
Simpler ways of connecting
wireless devices, like wlan,
may erode traditional telecom
revenue models that are based
on network-managed subscriptions, unless ways to simplify
them are found.
The upcoming demand for
simpler plug-and-play solutions is a great challenge for
both operators and device
manufacturers but it has already demonstrated its potential in creating new business
opportunities for the whole
industry.
Realize the promise of M2M
– make it work out of the box
By Jahangir Mohammed, page 58
▶ Despite the economic downturn, the mm market has remained buoyant. It is a market
full of promise, with the ability
to revitalize the global economy.
Previously, because of high
costs, only large organizations
were able to afford to build and
maintain their own dedicated
data networks. But as business
models have advanced and
chipsets have become cheaper,
we are witnessing widespread
adoption, with an array of commercial and consumer devices
emerging from manufacturers
all over the world.
Each vertical is different and
has specific needs. However,
from a network standpoint all
devices are similar in their requirements: they need a module, connectivity, a management platform and a sim card
to connect to the network, and
are therefore subject to the
same challenges.
Connected devices are typically not being built by traditional handset manufacturers.
More than  percent of connected device launches are
delayed because of application
redesign needs, and up to 
percent of device applications
create problems.
Mobile operators and ecosystem
vendors must ensure they offer
the technology and support
necessary to power the development of these devices. Imagine
a plug-and-play module, ready
to connect out of the box.
What enables connected device
manufacturers to be successful
is the ability to run this aspect
of their business as a service
provider. And this requires very
tight integration and support
from their operator partners.
Operators, for their part, must
have the solutions in place that
enable their customers to become service providers. Eliminating this level of business
complexity for device manufacturers allows for larger scale
and faster time to market.
Even in the most industrial of
cases, an excellent user experience is still a vital aspect of a
solution’s success. Operators
must have the platform and
systems in place to eliminate
the complexity of embedded
mobile connectivity. This starts
in the development phase by
providing device manufacturers with the design tools to
build a high-quality product.
It’s true that mm is a low arpu
business for mobile operators.
The key metric that operators
should consider is margin. The
key to high margins in a low
arpu business is eliminating
costs. Operators should therefore choose a highly automated
mm platform so as to reduce
the costs of providing these
services.
For enterprises looking to build
a connected device business,
the economics come down to
the business model. Using a
connected devices platform to
employ advanced upselling and
cross-selling techniques can
yield significant revenue opportunities.
For module and chipset manufacturers, the economics come
down to scale. Eliminating many
of the cost and complexity barriers will help fuel the market.
A city’s investment in broadband is
proven to boost entrepreneurialism and
innovation, making life richer in every way.
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