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The most painful thing that telcos need to accept is that they will need to be smaller companies in the future. Perhaps not on a service SKU basis, but on a revenue and staff basis, they will be smaller. That's because they will either have to sacrifice and cannibalize their own lines of business, or someone else will. Cannibalization decisions are some of the hardest decisions that executives must make, and sometimes it takes a special exec, like Chainsaw Al Dunlap, to make the hard choices.

One good choice for telcos is to re-consolidate their different operating arms - mobile, fixed, content, etc. That's because in this era of uncertainty, they need a diversified portfolio to assure a lower risk. They can't be sure which parts of their business will succeed or flop, and have proven to make bad choices on this (LD vs. local, spinning off mobile, being a media company). Thus, it's safer to consolidate holdings. They've mostly done this.

Keep the core business, know what it is. Telcos need to understand that their core business is not "phones" or "dialtone" but connecting people. This is a time of rapid change (yes, more than usual) and with the wrong perspective, telcos can rapidly become the next "buggy whip vendors". If people are starting to communicate in new ways, you need to change with them. That means either starting the next MySpace, or participating in it. I have little faith in the telcos ability to compete with the open innovation of the net, so participating is the more realistic choice. This, have a venture arm with smart visionaries that makes strategic investments in promising companies that can disrupt your existing business. And don't do it just to scuttle them! (or others will emerge). Also, you can pull a Rupert Murdoch and buy the MySpaces of the world, but that will prove more expensive.

Get ready for real competition. You haven't seen much of it yet. Telcos shouldn't kid themselves that this comfortable oligopoly with support from lobbyists and regulators will persist. Real competition is arriving from many fronts: MSOs are at your door with "digital telephone" bundles, MVNOs want a piece of the mobile pie, IM clients are incorporating good P2P voice features, Skype is making international LD free, WiMAX and other wireless technologies are empowering greenfield ISPs to bypass you, powerful rich firms like Google, MSFT, AOL, Yahoo, Earthlink, etc. are all trying to get a link across the last mile, and municipalities are also nipping at telco's heels. The current administration in DC and Kevin Martin have provided some support, but even that is temporary. Telcos WILL need to compete, and that requires a deep change in culture.

Give people what they want. The biggest change in culture is going to be the one from which the telcos have control to where the customer does. Don't kid yourselves that telcos have been giving the customers what they want. You haven't. Telcos have given the customers some things they want, in ways that suit the telcos. You can do that in oligopoly or monopoly, but not with competition. You could give people a boring desk phone, until Carterphone, and then people went to other suppliers for more interesting designs. You can lock down bluetooth and SIM-lock your phones in oligopoly, but in a competitive market, the carrier that doesn't do this will win. You can artificially limit the ROCKR phone to 100 songs, but then it doesn't compete at all with the iPod. In the next few years, LNP, market maturity, MVNOs, MSO options, and other access options have opened up the market. The providers that give customers what they want will steal subscribers from those that try to lock people down. Give up the walled garden, or at least lower the walls.

Lower the Walls. This is important, because as much as idealists say to shut down the walled garden, the reality is that telcos don't need to. There are masses of sheeple out there who just go to the easiest option available. This means carriers can favor their solutions by making them easy, visible, and fairly priced. You will probably capture 80% of the business this way. These are the people that still have MSFT media links in the favorites of their IE browser, and have subscribe to AOL links on the desktop of their HP PC. Then for the 20% of people who want to exercise their right to choose, let them. They will like you more for it, and not churn. These are also the people who are most vocal, so you have silenced your critics, and still retained 80% of the walled garden business, and not churned the "thought leaders". I love a walled garden with open gates and low walls.

Understand who your competitors are. Stop making IM deals with Yahoo and the like on your cellphones! That's nuts. Those companies are a wolf in sheep's clothing. What is IM? A communication service! I can see outsourcing ringtone development to Yahoo, or games to Thumbplay, those aren't your core, but IM?!! This is where I don't say give the customer what they want. Put your own IM client on there, charge a flat fee if users want to interconnect with Yahoo IM, and share the rev with Yahoo. One exception: if a user wants to manually load Yahoo IM or an other themselves, then you can't stop them - but neither should you help/support them. Just make sure your data fees allows for revenues to be generated from that data traffic.

Segment your market. The US market is finally saturated (more or less). Yeah, I know someday we'll get more than 100% penetration, but the land-grab is over and now we're competing for each-other's subs. You want a new sub, you gotta churn them away from some other carrier. Per-minute rates are lower in the US than any other country, and subs are already not using all their "anytime" minutes. That means that finally differentiation and segmentation actually mean something, and that carriers can successfully compete on those characteristics. When I worked for SK Telecom of Korea in 2001-2003, we had 7 different market segments in the Korean market. Subs would choose a phone, and then choose a segment. Their services, pricing, default content, menus, and UI would all reflect their segment. They did not need a youth MVNO, since SKT had a dedicated team (like Boost) focused on that segment. They even built clubs in the major cities around the UTO youth brand, where kids could go and hang out (like a cafe), but only if they were in the UTO! US carriers have barely touched segmentation, with Boost and with some anemic "enterprise" efforts. What about segmenting by value of the customer?

Customer Service. Yeah, customer service is largely about managing costs. And that's fine for the average ARPU sub. But there are many customers for whom "cost management" should be considered in light of the revenues these customers bring in. I spoke with a Canadian sub last week, who told me he spends $200+/mo on his cellular bill. He dropped his Blackberry in the toilet, and was trying to get a replacement. He called the support number (the same support # Rogers gives to a high-school student with a $30 plan) and got a run-around. Now why doesn't this guy have a special support number for prime customers? The CSR answering the phone should not be a machine, and should be wearing white gloves and wearing a tuxedo. Someone should have noted his account, and sent him a replacement phone overnight by FedEx...God forbid he should subscribe to another carrier while Rogers gave him the runaround. These are cash cow customers, why aren't they treated differently from the herd? Get on it. The CSR screens should have a system that prominently displays how much that customer is worth using a formula based on loyalty, revenues, costs they incur, devices they need, etc. High-value customers should get no wait-time, human interaction, and "the customer is right" treatment. It would be such a shock to the customer that they would never churn.

Smart Pipes. Stop worrying about being dumb pipes. Carriers that function in fear of being dumb pipes usually try to be a media company instead of a carrier. They usually fail at being a media company, and then become dumb pipes as customers work around them. Why not, instead, focus on being smart pipes, charging fairly and incrementally for all traffic, and all grades of QoS of the traffic? Carriers should offer a neutral network, that doesn't discriminate, but that does charge for features that are important to a network. For data these are: available bandwidth, amount of throughput, latency of packets, and peak-load impact. Charge a customer based on what they want. Charge more if they want more. It's like pricing EV-DO data at $30/mo for 2GB or less of traffic and $40/mo for 4GB or less. Seems simple, but people always underestimate the consumer and say "Yeah, but people don't know what 2GB is, so we need to charge flat rates." Then they charge flat rates, and get pissed off when customers host a server on their EV-DO card. Hey, that's not a problem, that's an opportunity for up-sell! The carrier should say, "Looks like your hosting a server, there, friend. That's a lot of traffic...gonna cost ya." I work with wireless broadband carriers like Woosh in New Zealand, and that's exactly how they operate: metered use (with usage dashboard and email usage warnings) with upsells. Ready to be shocked? Then look at the packages they have here: http://www.woosh.com/ContentClient/Phone/PhonePricing.aspx and don't forget that those are New Zealand dollars ($US 0.72). That's not a dumb pipe, that's a smart pipe. It segments the market based on needs, and charges for higher value, all while maintaining network neutrality.

Good examples of brazen, bold, yet forward-thinking carrier strategies are not hard to find. Verizon's efforts with FiOS are groundbreaking (literally). When telcos buried copper, they were able to leverage that investment for a hundred years. Fiber is the new long-term investment. No wireless technology or MSO technology can hope to compete in terms of capacity. When some smart innovators invent the next big thing, fiber will be able to carry it, and maybe cable won't. Sprint's efforts with WiMAX are bold. There will be inevitable competition from new technologies, but Sprint has grabbed the bull by the horns. And don't neglect Hutchison Whampoa's 3 in the UK. They were out of the gates too early with 3G, and suffered because of it, but today they are the rule-breakers in UK telecom, opening up their mobile devices as a platform and even promoting services like Skype. They are positioning themselves as a smart pipe, not as just a provider of services - that's different for sure. Either way, telcos are going to get out of the comfort zone. You can own it, or you can get pwned.

The price for connecting calls is going to keep dropping dramatically over the next 5 years as VoIP is adopted and user acceptance grows.

In the short term, traditional telecoms should look to minimize costs of operations, tout benefits such as call quality, reliability over new providers. Traditional telcos can also leverage their huge installed base of customers. One approach for a telco would be to maximize its relationships with commercial customers. An area which is less driven by price and more by quality and completeness of solution and where new telcos have a very weak play.

Longer term, telcos will have to upgrade their networks to take advantage of VoIP cost benefits as well as offer additional services and retain / grow user base through triple and quad play and further enhance commercial services.

Evolution means the survival of the fittest. The question is who is fitting what. And in the telecom world, you need to raise your margins to keep fit. There are two ways of doing this: Keep the customers and charge them more; or give up having customers and become a service center for service providers, providing customer service, operations, infrastructure etc. that is best in class. Recognize that the IPTV services, the ISP:s, the other people who are already today using the infrastructure are services in the same way as the voice services, and spin out voice into a separate company, who buys infrastructure and customer service on the same terms as other players.

If you want to keep the company providing telephony services, do so. But it is not your core business any more.

//Johan (personal opinion, not that of my employer).

The future is all about connectivity and where telcos have made a mistake to date is in assuming that it is about content. Content is becoming connectivity and telcos have the central role in the connectivity business. Nonetheless they continue to see themselves in a strangely truncated way acting as carriers for content (broadband or mobile). The distinction between content and connectivity is disappearing and what you need in order to take advantage of that is a relationship with the new creative community.

 Some European telcos have made itneresting steps in this direction but they too are erring. KPB for example has hired in ex-MTV staffers to help develop its IPTV services. Big mistake - the future is not about conventional content it is about the merging of content with the desire to be in touch.

Start breaking down the barriers between content and carriage in your own minds. Look at all th eways people connect (twitter is the prime example), Look at how content is transformig into different types of messaging.

Do the research. Look at how the existing creative community will soon enter freefall - for example advertising production companies that are udner severe pressure to create ultra low cost content, content off-shore outsourcing, creative pooling, even here.... techndirt insights. What you need to do is have a strategy to convert mass content/connectivity production into your supplier and customer.

What are the key challenges facing a traditional telecom firm today?

Subscriber driven demands:
1. Subscribers want quality services at ever reducing cost
2. Subscribers want the ability to have any service on any device
3. Social Networking, collaboration and Web 2.0 like features
4. Tailored services to meet their needs in close to real time

Technology driven pressures:
1. MuniWifi and device convergence with VoIP technologies
2. The promise of WiMax as a 4G platform for voice, video and internet access
3. IP centric platforms that allow non-traditional telecom providers to provide voice to the home
4. Disruptive technology providers (Skype, Vonage, Jajah, Gizmo etc) that provide free and low cost voice across geographies

In order to begin to put these challenges in context with today's telecom firm we need to identify the core competency of these organizations.

A telecom firm id very much a network centric organization. They understand redundancy and real time processing and as a result they have a tendency to over engineer solutions in search of 5-9's (99.999%) this means that such organizations struggle to be truly innovative and are slow to react to market changes.

Measure this against something like Skype. They only promise best effort but the calls still gets through. The voice quality is typically excellent but sometimes it degrades, however the average subscriber is willing to compromise quality for free or low cost calls, as long as the quality is good enough.

Another example of where the network mindset restricts opportunity is in the domain of location based services. By the nature of the system GSM has a role to play in Location Based Services (LBS). The network solution looks to identify a person within 1 meter the adequate solution for most services would be within a single network cell.

So the core competency is operating a network and focusing on high availability. For the same reason that I wouldn’t ask the IT department to run my marketing traditional telecom firms should not look to compete with content presentation against the media channels now converging on their space.

A cable operator or TV channel understands content and selling of that content very well, this is what they do. The central theme usually revolves around advertising as these represents the bulk of the funding for such operations. There is some transactional revenue from pay-per-view services and this is growing slowly. A recent study stated that the average SKY subscriber in the UK pays GBP 400 per year on the service. Most of this is from the monthly cost of the bundled services and some from PPV movies and sporting events.

The telecom firm, in contrast, is mostly funded from transactional revenue. This is voice per minute or SMS per unit at the core.

What are the assets that the telecom firm has?

The traditional telco has a large customer base and good knowledge of the demographic and the spending pattern. The key success factor is turning this into something of tangible value to the content providers.

The demand for social networking in the youth and modern business market can be fulfilled by mining the data from friends and family type closed calling groups and VPN calling circles available today. The most extreme example is an idea that I framed called “The Russian Doll VPN” this is convergence of degrees of separation plus virtual private networking that gives a dimension of intimacy with the called or calling party.

Of course the telco’s have the network itself this is the bulk of their spending on network rollout, upgrade and operation. This is their core competency. The challenge is to use these assets in an adaptive way.

The bottom line!

Change is constant: the challenges of IP platforms, VoIP, mobile TV and subscriber demands are here to stay. The discussions over net neutrality and deep packet inspection highlight the resistance of the telecom firms to adapt and understand the model today. The reality is that networks are dumb pipes and will never really evolve much past that. IP Multimedia Subsystems (IMS) will put more pressure on the telco’s rather that facilitate their approach to fully converged, four play operators. The mind set is too far removed from the dynamic, fast moving organization required.

One of the successes of SprintNextel was their acceptance of themselves as a provider of bandwidth and to establish themselves as a Mobile Virtual Network Enabler (MVNE) to which the new tier of MVNO’s such as DisneyMobile, Ampd and the ill-fated ESPNMobile were beneficiaries of. ESPNMobile failed because of a flaw in the marketing but the basic concept stands true that the traditional telecom firm provides their core competency and the MVNO’s provide the market presentation and capture.

This leaves the telco in a position of comfort on receiving pure transactional revenues without any of the subscriber capture costs. It leaves them with a single focus of network operation and maintenance.

The next success will be selling their customer data to new MVNO’s who can then approach their targeted demographic in an aligned marketing campaign. Many of the MVNO’s are already media knowledgeable and know how to succeed at this. The business plan is be nature focused on behaviors and content that they know their audience will want.

So the bottom line is that in order to survive telecom firms should accept that the days of “build it and they will come” for subscribers are over.

Market variety, flexibility and cost are too compelling for subscribers to ignore.

The telecom firms need to remove themselves from the negotiation and re-target MVNO’s as their customer. This leaves them in the position of talking networks to MOU purchasers on the MVNO side and leave the subscriber centric organization to handle the marketing and customer care.

This opens up new revenue streams from unpredicted markets for the telco whilst mitigating the risk for them at the same time. They are more likely to be able to sell excess bandwidth to other MVNO’s than redefine their marketing offerings to sell it directly to subscribers.

This will prove to be a win-win for both parties.

Mobile: Till now mobile industry is very much concentrated on voice services. Data services are slowly rising but still there is time for mobile data services to catch up fully. With voice call costs coming down mobile voice services are fast eating up the fixed line voice services. Mobile Voice is becoming preferred voice carrier in many countries but mobile data services has long way to go.

Broad Band: Broad Band speeds are fast increasing. With the increasing broad band speeds the companies like Joost plan to change the way people watch the TV in future (On demand TV). But broad band still has way to go in many countries.

The telecom operators always concentrated on voice services as they are major revenue earners for them. While mobile is becoming the preferred voice carrier in many countries, it is not well suited to data services, and this has as much to do with the current business models from the operators.

Solution: For data services, telecom operators may have to change their model. One way to provide cheaper data services to users and at the same time earning good profits is to come up with good advertising model.

Example: Lets say User A, is accessing website www.advertisingmodel.com, the site itself may be having the advertisements on their web pages, the operators can reserve some part of the screen to display their own ads by which they can earn the profits. With the small screens of mobiles it may be difficult to show the operators advertisements on part of screen, other solution is before taking the user to the web page www.advertisingmodel.com intermittently the operator can display his own advertisement for say 5 seconds before redirecting to the web page. Further this advertisements can be contextual. since the services are provided by operators themselves they can use some kind of proxy servers to implement this.