Emerging business Challenges for Telephony service providers.

As call rates drop further and new players enter domestic telecom sector; can strategy for bottom of pyramid market help meet growth expectations.
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DOT has issued new licenses and paved way for new entrants in telephony. Good news for telephone customers, great news for vendors. It implies new wave of capital infusion into the telecom sector; already blessed with immense capital aggregation in past decade. The new wave will benefit all stakeholders ( read Bankers/PE firms/Network equipment vendors/IT vendors; each of these stakeholders will contribute to capital aggregation in economy) .


New operators are keen on model of 'resource attraction' rather than 'resource ownership and deployment' and are looking at revenue share deals with vendors. They want entire network and IT roll out on revenue share model. Perhaps this is due to success of Bharti outsourcing deal and growing popularity of strategic outsourcing in service industry like telecoms and banks. Perhaps converting capex to opex allows CEO to dramatically improve IRR, gives better control over vendors, cash flows, and there is growing acceptance from partners to accept skewed revenue share rations. e.g. content vendors share 70% of revenues of VAS.


It is common to come across discussions/speculation on when new entrants reach scale of 20 million subs each; how will they reach there, will they be profitable, and is revenue share deal with new operators commercially viable in time horizon of 3 -5 years.


However an emerging trend that is bigger challenge confronting mobile operators (incumbents as well as new operators) is possibility of free voice calls on mobile devices enabled by google and skype etc.


Recently UK mobile operator 3 announced launch of new handset that will allow users to make free calls over the Internet via Skype. This is the first time an operator has offered a mass market mobile phone specifically enabled to make VoIP calls from a mobile handset.


Google is doing similar strategy was exploring with Verizon and Sprint, its approach was trying to bundle Google phone/ browser client into handset operating systems.


Message is loud and clear: Forces like VoIP on PC that caused PSTN revenues to drop in developed markets are now being unleashed on the mobile market. Technology has tricke down effect and some day Indian regulator may allow VoIP. Logical questions ::: why would regulator do this? Whats in it for Google/Skype ?? Whats implication for operators?

Forces driving the regulator could be following:
a) peer pressure from other regulators, (Social proof, self similarity constructs of social psychology)

b) lobbying by vendors/stakeholders (like Google/Skype etc)

c) lobbying of contrarian minded telecom operators who have fully capitalized their investments and want to change rules of game (if you think this is impossible, remember Bharti outsourcing deal ; the approach was new and contrarian for its time, it changed rule of game and challenged in sourcing that was social practice. More recently Ranbaxy sellout is explained by contrarian approach.)

d) lobbying by telecom players/ISP's not getting expected subscribers and forced to rewrite rules of game.

e) Political mandate (free mobile phone per rural household makes great election pitch)

Implications for Service providers:

a) Further drop in revenues. bulk of revenue of mobile service provider comes from voice and messaging. Of course there would be some subscription revenue coming from fixed rentals from the service. One could see following rate plans :: unlimited free VoIP calls in same network for Rs 199; STD VoIP calls @ 5 paise per minute; ISD VoIP calls @ INR 2 per minute)

b) Sharp reduction in cash flow till volumes make up for loss in revenue. (Voice and messages constitute bulk of their revenues) This may result in share price correction as valuation will depreciate on discounted cashflow model. They could come down to PE levels comparable to global peers.

c) New business models for telco where they would start opening to advertising revenues. where Google and Skype will earn revenue from advertising on free calls. (on revenue share basis)

Why would google/skye etc push this?

Google would like to monetize ad revenue from over 2 billion mobile subscribers worldwide.

Indian operators can benefit immensely with free voice calls over mobile (enabled by VoIP) targeted at specific segments; (Students, rural areas; bottom of pyramid market)

I have prepared business case on this (total ad revenue possible worldwide and in India. (please write to me for details; sharable free)

There is talk of 2 sided revenue models for telco 2.0 (more on this follows) Free VoIP calls over mobile aimed at specific segments like students, rural market etc can be starting point of two sided revenue model.

OSS BSS : Introduction

Operational Support Systems (OSS) and Business support systems (BSS) are sofware applications along with necessary hardware used by telecom service provider to run its network and business. Typical types of activities that count as part of OSS BSS are taking a customer' s order, configuring network components, creating a bill and managing faults, revenue assurance, fraud management, mediation, provisioning, inventory management, decision support system.
Evolution of OSS and BSS systems:
OSS activities were previously done manually, by passing paper around. Being person dependent activity, it was prone to inefficiency and delays. Indian telecom consumers (called subscribers in years gone by) would recollect long wait to hear dial done in their instrument even after equally long wait to get the instrument issued and installed. ) This delay was because OSS that were manual and person dependent. There was worldwide move towards system dependent operations support system, by leveraging computers. With growth of IT , the telephone companies created a number of computing systems (or software applications) which automated this activity to limited extent. Gap was that these applications were not linked to each other and therefore often required manual intervention. For example, consider the case where a customer wants to order a new telephone service. The ordering system would take the customer’s details and order parameters (type of service/plan/pre-paid/postpaid/cotact details etc), but would not be able to configure the telephone exchange directly - this would be done by a switch management system. So the details of the new service would need to be transferred from the order handling system to the switch management system - and this would normally be done by a technician rekeying the details from one screen into another - a process often referred to as “swivel chair integration”. This was clearly another source of inefficiency, so the focus on the next few years was on creating automated interfaces between the OSS applications - OSS integration. To a large extent, cheap and simple OSS integration remains the goal of Telco’s IT departments. Today there is talk of service oriented architecture using standards like BPEL to achieve goal of OSS integration; current generation can devote their carrier to this mission.
Building blocks of OSS:

Four pillers of OSS are processes, data, applications and technology. (pretty much like any IT system) These are defined as below

• Processes- the sequence of events that have to be automated.
• Data- the information that flows in predefined workflow defined in process.
• Applications- the components that implement processes to manage data (huge lines of software code)
• Technology- Software and hardware stack/standards on which applications are developed/implemented.

ITU-T did pioneering work in defining OSS architecture and its pillers (for details please refer to TMN model by ITU -T) They established a 4-layer model of TMN applicable within an OSS :

• Business Management Level(BML)
• Service Management Level(SML)
• Network Management Level(NML)
• Element Management Level(EML)

This was a basis for later work that has currently evolved to NGOSS (next generation operations support system; more on this comes shortly)
Scope of network management is defined using the FCAPS model - Fault, Configuration, Accounting, Performance and Security. FCAPS model is adopted by the ITU-T TMN standards (for details refer TMN standards M.3000 - M.3599 series.)

New Generation operations systems and software. (NGOSS)
TM forum (TMF) is body defining standards for NGOSS .
Focus of NGOSS is to address integration concerns defined above.
TM Forum has established a set of principles that an OSS integration should adopt, and givens set of models to standardised approaches for integration. The models include

• Information model : called the Shared Information/Data model, or SID
• Process model called the enhanced Telecom Operation Map, or eTOM
• Lifecycle model.

The TMF describes NGOSS as a “loosely coupled” , ' distributed' ; ' component based architecture' along with functioning application components upon which a telecom business can run. The components interact through a common information bus . The components can be programmed through the use of a process management tool to control the business processes of the service provider using the functionality provided by the components
Technolgy platform for NGOSS:

The TMF’s work so far has been technology neutral, (therefore implies that there remains considerable work to create a functioning OSS estate from NGOSS principles.) However, there are now a number of standardised technology-specific implementations of NGOSS, of which OSS through Java initiative (OSS/J) is one.