INTERNET EVOLUTIONMost Recent Comment"Its certainly a mystery to me why telcos havent improved the quality of basic phone calls. Even so, Ive seen no evidence to suggest consumers would pay morefor basic calling, whatever their quality. What they value is convenience, ubiquity, simplicity in interfaces... so theyll ..."grahamfinnie on Terror in Telco TownDISCUSS PRINTTerror in Telco TownWritten by Graham Finnie12/14/2007 3 commentsThis past spring, telcos and their suppliers gathered in Monte Carlo for some high-stakes activity that had nothing to do with baccarat tables or roulette wheels.The focus of their top-level pow-wow was IP Multimedia Subsystem (IMS) – the technology that most big telcos and their technology vendors had once identifiedas the industry-saving technology that would enable network operators to create more IP applications more quickly, and finally escape their dangerousdependency on a handful of commodity services.Despite the tony location, the vibe at that Riviera meeting was distinctly downbeat. In half-empty rooms, few seemed eager any longer to present IMS as thecure-all for telco ills. Instead, speakers focused on the many barriers to IMS deployment. Equipment makers, telcos, handset vendors, and standards-settersargued openly about who was responsible for the sluggish adoption of IMS, and some suggested that IMS would play a much smaller role than telcos hadpreviously hoped.Just four weeks after the Monaco affair, in a conference room 6,000 miles away in San Francisco, Facebook founder Mark Zuckerberg was unveiling FacebookPlatform, a new version of the company’s applications environment that enables people with the most rudimentary software skills to create new services andembed them into the Facebook site. The new services enabled by Facebook Platform include the kinds of mobile and video applications that telcos themselveswould dearly like to supply.These two very different events reveal plenty about the crisis facing telcos as they try to adapt themselves to an emerging all-IP service environment. Telcos areonly too well aware that current services – especially telephony and Internet access – face a long, slow decline, and that they need to launchother services if they are to retain customers and maintain revenue streams. The underlying problem, though, remains unresolved: How they are goingto build those new applications as cost-effectively as those who are already building to platforms like Facebook?The answer to that question will have a huge impact on the shape of telcos in the coming decade, and on the services they provide. Right now, the one thingthats clear is that the future of telecom network operators has never been more uncertain. That uncertainty is likely to have a big impact, not only on telcos, butalso on their enterprise customers.Read on... • Page 2: A Long-Term Problem • Page 3: Testing Telco Opinion • Page 4: The Third-Party Equation • Page 5: Impact on Enterprises: Mobile to the Fore? Next Page: A Long-Term ProblemA Long-Term ProblemThe telco application crisis is by no means a new problem: In many ways it is rooted in the failure of network operators to leave their legacy technologies andtechnology relationships behind and embrace the inevitability of an all-IP future.In the past, telcos relied on suppliers of their big-iron telecom switches – companies like Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and SiemensAG (NYSE: SI; Frankfurt: SIE) – to create applications for their networks. As network digitization got under way, telcos came up in the early 1990s with theIntelligent Network (IN, also known as A-IN in the U.S.), the aim of which was to separate switching from call control. Telcos saw IN as a liberating technologythat would free them from dependency on their switch suppliers and make it easier to develop a wide range of new services.The reasoning may have been sound, but the execution fell short. Only two IN-inspired applications really caught fire: freephone (which actually predated the IN)and premium-rate calling. And the dependency on major vendors continued.In the late 1990s, a new, more sophisticated vehicle to improve the speed at which applications were delivered, called the Service Delivery Platform (SDP),emerged first in the wireless telecom sector, but it, too, ran into problems. Early SDPs were typically hugely complicated, and every vendor had a different way ofstitching all the layers and components together. Damningly, many SDPs only handled one key application – thus perpetuating the much-maligned “vertical silo”model of application development.
The painfully slow and expensive cycle for new service development continued into this decade, and though SDPs and other techniques have brought someimprovements, it still largely persists today. Typically, it takes up to a year to create a new service, at a cost that often runs into seven figures. And theseapplications are still usually built using arcane telco software languages that only a few thousand specialists can work with. Mainstream telecom, one frustratedexecutive suggested in Monaco, is the last hold-out for the mainframe computer environment of the 70 and 80s.The emergence of IMS (also from the wireless world) sparked new hope among telcos that theyd found the key to solving the service development problem. Insurveys of telco opinion conducted over the past two years, Heavy Reading consistently found that faster applications development was the catalyst fordeployment of IMS. By clearly separating applications development from session control and transport, IMS did a better job than IN, enabling telcos and thirdparties to create new services more easily, but in a more controlled environment than the Web.Hence for quite a few telcos, the answer to the question “Why IMS?” was, and still is, a simple one: “What’s the alternative?” Few telcos yet believe thatalternatives built around Web 2.0 offer an answer, because, as yet, they don’t provide the controllable environment that telcos believe they need.Yet for all its vaunted benefits, IMS has been slow to make the transition from standards to deployable products, and many gaps remain. Meanwhile, outside thestill-closed world of the telcos, the world of Web-oriented software mashups marches on.Facebook offers a good exemplar for these developments. The company released its new Facebook Platform in late May; by early October, there were 4,600applications listed in its Applications Directory. By early December, that number had increased to just over 10,000 as the pace of development continued to speedup. And many of them are exactly the kind of applications that telcos need to deliver. One of the most popular, simply called “Video” and used daily by more than1.2 million Facebook members, allows members to upload and share personal videos from their PC or mobile phone. Another, called “Mobile,” enables members toupload photos and notes to Facebook, and receive and reply to Facebook messages. And Facebook is, of course, only one of a myriad of platforms for thedevelopment of new Web applications.Do developments like these presage the end of the telco as we know it? Not yet. Telcos have a whole range of exploitable strengths that include ubiquitous brandawareness, strong brand values, unmatchable reach, millions of customers, and long-standing regulatory privileges. Despite the stagnation in core services, mostare, at worst, in fair-to-middling financial health – while they may not be growing as fast as Google (Nasdaq: GOOG), or generating Microsoft Corp. (Nasdaq:MSFT)’s return on equity, they are by no means financial basket cases. Still protected in many countries by benign regulation, and by the inertia of theircustomers, they have time to adapt. But adapt they must if they are to be any more than utility providers of bandwidth. Next Page: Testing Telco OpinionTesting Telco OpinionIn order to test worldwide telco opinion about these issues, Heavy Reading ran a survey in November and early December 2007, which drew responses from 126telco strategists around the world, just under half of them working for the major incumbent telcos.The results are often surprising, and suggest that telcos are not – as some believe – simply putting their hands over their ears and hoping the Web will go away.On many key issues, they already are anticipating massive change over the coming years.Take telephony. Although this service remains the core product for most telcos, few believe it has any future as a stand-alone service. More than nine out tenrespondents said that telephony would become part of a broader service offering that included messaging, IM, video communications, and other non-voiceservices. Only 8 percent said telephony would remain an important service in its own right.This view has some challenging implications for telcos. Not only do they still derive a large proportion of their revenues from telephony (especially on the wirelessside), but it’s the Web entrants that have been making the running in building integrated communications services and portals. If telcos are to compete here, theyurgently need a better engine for applications development and service enhancement. So it’s no surprise that many telcos want IMS primarily as a vehicle forcreating more integrated communications services that enhance and augment telephony in various ways, and reduce dependence on the commodity service.Typical in this respect is an IMS service from Mobilkom Austria AG & Co. KG , a subsidiary of Austria’s incumbent telco. The service, called A1 over IP, extendsMobilkom Austrias mobile phone services onto the users PC, with the same user experience, phone number, identity, services, and bill. The service includessimultaneous ringing; same number shown on outgoing calls; ability to do video and conferencing calls; IM, SMS, and presence; and a single voicemail for circuit-switched and VOIP calls. Yet this is one of only a handful of services of this type that have been developed worldwide using IMS. Next Page: The Third-Party EquationThe Third-Party EquationOur survey also asked telcos what kinds of services they would be providing in 2020, and here the results are equally interesting. The current telco orthodoxy is toprovide a broad package of services directly to end users. Yet as Figure 1 shows, only 60 percent actually endorsed that view in the long term. Most of the restexpected instead that they would be providing bandwidth, basic connectivity, and a range of enabling capabilities that would be used by third-party serviceproviders to enhance their own services.Figure 1: What will be the primary business of todays telcos in 2020?
Click thumbnail for full image.Although still a minority view, there is no doubt that it is gaining ground fast, and the more far-sighted among telco strategists are anticipating a future in whichthey de-emphasize their own services, and devote much more time to adding value to third-party services – a strategy that has far-reaching implications for theway that applications are built. The most obvious is that telcos need to get a lot better at partnering – and Figure 2 shows that telcos already understand that, atleast in principle. It shows that over 50 percent believe better partnering is one of the keys to success – against just 21 percent who thought that successdepended on providing unique new services of their own.Figure 2: Which of the following is most important to the future of todays mainstream telcos?Click thumbnail for full image.In one of the most interesting insights into telco thinking, the Scandinavian incumbent TeliaSonera AB (Nasdaq: TLSN) set out a partner-centric future in April inwhich, as Karri Mikkonen, head of strategy, put it, telcos were transformed from “network operating service providers” to “service connection enablers.” As Figure3 shows, in an IMS service environment, TeliaSonera still sees itself providing some basic and enhanced services, but it also sees a big role for third parties usingits IMS Service Creation Architecture.Figure 3: TeliaSoneras view of the future IMS applications environment
Click thumbnail for full image.So what is it, exactly, that telcos believe they can profitably provide to those third parties, other than bandwidth? Like many other telcos, TeliaSonera is pinning itshopes on so-called “applications enablers,” which are now taking center stage in telco thinking. The "enabler" concept is by no means precise, but the basic idea,sometimes going by the name of “service brokering,” is analogous to the mashup concept. It envisages telcos allowing third parties access to telco resources orinformation – for example, whether a telco subscriber is “present” on the network in the instant messaging sense – to add value to the third party’s serviceoffering. The third party would then pay the telco for that information.Other enablers that might be traded in this way include: • Subscriber identity and authentication • Subscriber location • Subscriber device in use • Subscriber profile and preferences • Ability to bill subscribers • Access to call or session control logic • Provisioning and configuration • QOS toolsThe last of these capabilities is the most controversial. It envisages connecting third parties to the QOS and policy tools that are increasingly being built into telconetwork routers and access equipment, so as to discriminate among different applications and give special treatment to services that are said to need it. But manyWeb and Internet service providers are strongly opposed to this idea, arguing that the principle of “network neutrality” must be maintained, primarily by simplyproviding enough bandwidth.Here, the two communities clearly part company. When we asked our telco respondents about “network neutrality” – a concept that is strongly supported by bigWeb service providers like Google – our telco respondents voted overwhelmingly against it, as Figure 4 shows. On this issue, at least, there is a big gap tobridge.Figure 4: Which of the following statements about network neutrality do you agree with more?Click thumbnail for full image.
Moreover – and here there is a similar gap to bridge – just what kind of software environment are telcos going to create to ensure that third parties actually takethem up on the offer to partner? IMS does allow telco resources like call control to be exposed to third-party developers, but the tools to do this, such as OSAParlay, are still only usable by relatively experienced software programmers, and certainly cannot be used by the average tech-savvy end user in the way thatGoogle and Facebook APIs can. An alternative or complementary technique would be to expose telco capabilities at a much higher level, using standard softwaretools, including open-source tools based on Ajax software, for example.This is too large an issue to tackle in a single article, but it’s enough to say that there is more than one camp on this issue, often inside the same telcos, withconservatives and radicals battling for control.BT Group plc (NYSE: BT; London: BTA) is perhaps the best public example of a telco that is seriously exploring the issue. Although BT is still planning a significantIMS deployment, its investment there seems increasingly focused on next-generation IP telephony. In the meantime, BT is also exploring more radical ways toopen up its applications environment to third parties.The most important of these initiatives is Web 21C, which complements its better-known 21CN project. While 21CN is focused on replacing BT’s PSTN with an all-IP NGN, Web 21C is focused on ensuring the new network is blooming with third-party applications. To this end, BT has created a software development kit (SDK)that provides third-party access over standard SOA and Web services interfaces to functionality that includes voice calling, conference calls, messaging, location,and subscriber profile information. BT has built policy, billing, and security tools into the platform to reassure its own developers that network and OSS integrity isnot being compromised in the process.While still in beta, Web 21C attracted 2,500 developers to sign up to the program – proving that, if nothing else, there is a real interest among developers incollaborating with telcos.And BT’s interest in Web software is certainly matched in our survey. We asked telcos to rank the importance of different kinds of applications or service creationplatforms for next-generation telcos, and the results are shown in Figure 5. Although SIP, the basis for IMS, comes out on top, both Web services and Web 2.0rank close behind, while other high-level telco applications platforms such as OSA Parlay attract much less interest.Figure 5: Rate the importance of the following applications or service creation platforms for next-generation telcosClick thumbnail for full image.But it remains moot whether a move to embrace Web services and Web 2.0 can happen fast enough to pull telcos back into the applications creation mainstream.To say the least, the average telco will want a lot of reassurance before making its underlying call and session logic available on a routine basis to mashupmavens. Telco brand values are based on trust and reliability – and no telco will want to see that blown away by the promiscuous deployment of too many ill-thought-out applications. Meanwhile, however, applications continue to multiply on the Web. Next Page: Impact on Enterprises: Mobile to the Fore?Impact on Enterprises: Mobile to the Fore?What does all of this mean for the enterprise user?At the very least, the role of telcos is certain to change, but the way forward is murky. On the one hand, our survey suggested that most telcos expect to play amore prominent role in enterprise services in the future. On the other, however, enterprises are no longer the priority they once were.By a majority of 4 to 1, respondents said that telcos would play a more important role in enterprise services in the future, as Figure 6 shows. This result reflectsthe widespread belief among telcos that developments in managed services and the emergence of concepts such as “Software as a Service” can only increase the