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Can Big Telco do Perestroika?

Part 1: Wrestling with IP-zilla

The smart choice: opportunity from uncertainty

Shock therapy?

STL's super smart chief analyst Martin Geddes, kicked off proceedings. STL has an interesting approach to brainstorming: once the incumbent operators are seated, shock tactics are applied.

At the previous brainstorm last October, the mobile network operators were greeted with "Ten Things I Hate About You". As a counterpart, the net people were confronted with "Ten Things I Hate About Internet Culture". There was much merit to both arguments.

This generates plenty of feedback - and the audience chimes in with real-time anonymized feedback and questions.

As Day One progressed, the confrontational theme was developed with Geddes's choice of statistics.

IM messaging, he said, threatens to wipe out operator revenue from text messaging. Geddes showed how easy it is to bypass SMS using Vyke, which reroutes the text via IP protocols. (It actually isn't that easy to use; it needs a smartphone, starting a third party program, switching contexts back and forth, and praying the message is delivered: but it's worth doing if you're abroad).

You'll notice that this tactic has much in common with cults. Break them down, so you can build them up psychologically later.

However the operators present at Telco 2.0 didn't need their illusions shattered.

"As an industry," said a strategist at one global mobile operator, "we now need to compete with other industries - there are better and less risky ways (for markets) to make money, such as biotech".

Operators didn't flinch from specifics.

"MMS was a classic example of how we got it wrong," a marketing chief at another mobile operator explained.

"We were seduced by a new technology, cameraphones, and fell for the argument that 'richer experience' is more valuable. We accepted it at a time blip... we now know people don't want to send videos."

(Ironically, it's a mistake the web evangelists are now repeating, with their irrational expectations for "user generated content", you'll note. Home grown videos are proving a niche interest for experimental operators, but hardly a big revenue driver.)

In fact, the operators don't seem believe that change can be prevented. An audience poll (sample size: 300) revealed that most expect to see Wi-Fi in the majority phones by 2010, and mobile VoIP to become mainstream at about the same time. In fact, operators peg the 2009 to 2010 time frame as the period of biggest upheaval, and the most popular choice of word for this was "traumatic".

While change is inevitable, more operators are pessimistic than optimistic that they'll prosper from the IP switch, and successfully shift away from being vertically-integrated monolithic companies to more nimble and open operators. They're certainly more optimistic about their prospects than the fixed-line carriers, who are nervous that IP-TV will be ready and working, and an attractive advertising platform.

The pessimism was tempered by some unusual findings. When researchers canvas opinion outside the industry, they get a more optimistic response. Service companies and content providers are itching for a crack at partnering with operators who can boast a user base of 60m in each of several countries, despite setbacks with the many attempts at 'Walled Gardens'.

The Web or TV simply can't match audiences like that. Advertising companies also think the operators are seriously undervaluing their assets: operators sit on what a gold-mine of personal user data they fail to exploit.

(Whether this is as exploitable as advertisers think is another question. One operator explained that only rarely can you assume that the person holding the handset is either traceable, or the name on the bill. Prepay customers don't leave a fixed address with the operator; commercial customers don't divulge the employee details; and in family plans, you have to guess who's got which number.)

But Geddes made a telling point. If voice revenues are squeezed by VoIP, there are plenty of other opportunities.

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