Patent value is now more important and complex than ever

It is impossible to open the business pages without some reminder of the huge importance of patents to the telecoms industry.  This largely reflects the changes in the industry and the transformation of mobile devices so as to challenge the role of the PC, cameras and even books.  The government’s proposal to introduce a ten per cent rate of corporation tax for patent-related profits is designed to encourage investment in innovation in the UK, and further highlights the opportunities for those who get patent value right.  This could mean that some businesses (perhaps SMEs) should now take a greater interest in filing patents, and others will want to review their established R&D, patent management and transfer pricing arrangements so as to make best use of available tax regimes internationally.

Patent value is now more important and complex than ever as giants like Apple and Samsung battle for market share, not least because patents can provide competitive edge by delaying others’ introduction of attractive user features.  Also, the relative strengths of patent portfolios will determine the net royalty burden when competitors enter into cross-licences.  These cross-licences are needed because of technology standardisation and the existence of multiple patents that are essential in order to implement those standards.   This complicates the application of the Patent Box in the telecoms sector, because the contribution to profits from a company’s own patents is not always easy to discern.

What all this means is that patent battles are not just seen in court but also in the auction house.  Old-school technology businesses like Kodak are seeking to pay off debt by offloading under-exploited patents that could have strategic value to others as bargaining chips.  Speaking of Kodak, it is worth noting, in present economic circumstances, that the Patent Box regime contemplates the making of profits, albeit particular kinds of profits from prescribed activities calculated by making prescribed deductions.  Where losses arise from these calculations, businesses should carefully analyse how to make use of Patent Box (if at all).

Patent Box will allow companies to apply the reduced tax rate to relevant profits from the sale or licensing of patents, the sale of products that owe value to patents, and compensation won in patent litigation.  The regime is generous when it comes to products, because there need only be one European or UK patent underlying the product in order to be able to include the whole of the income from the product (and, potentially, accessories, although this is not clear) as the starting point for the calculations.  Perhaps controversially for the telecoms sector, however, this contrasts with the approach taken to services businesses: if services income is generated with reference to patent rights, an intra-company royalty arrangement must be established and the reduced tax rate can only be applied to the royalties earned for licensing of the patent to enable the services.

The draft legislation requires companies to have undertaken technical development if they are to enjoy the beneficial regime, even if they are purely licensing businesses.  This should have the effect of excluding those companies that acquire telecoms patents purely for licensing purposes (sometimes known as ‘trolls’).  However, it is open to interpretation whether the development requirement is satisfied for example by acquiring patents and then participating in the development of a relevant standard – if so, patent trolls might still qualify.  Where the tax paying company is part of a group, the development work can be done by another group company as long as the claiming company manages the patent portfolio.  This latter point may have implications for technology businesses that outsource the exploitation of patent portfolios.  The extent of required development, and of the requirement for involvement in patent management, will clearly be open to interpretation and large businesses will also need for example to consider whether to manage all intellectual property in one subsidiary or create a standalone patent holding arrangement.

The distinction between patents and other intellectual property (such as software copyright or trade marks) is another important factor, because relief will be limited to profits from patent rights.  This contrasts with similar regimes in other countries, such as Luxembourg, which do include income from other intellectual property.  Under the UK regime, the calculation of attributable profits involves a deduction of a notional royalty for the use of ‘marketing assets’ that include for example brands.  This could be particularly significant for the telecoms sector, where the contribution made by particular patents is sometimes difficult to gauge.  Unlike the pharmaceutical sector, where one patented compound will often comprise the entire product, the numerous patents for, say, features of a mobile handset, often bring only small incremental gains.

Consumers will often be entirely unaware of the contribution made to the end product by those patents.  So, for companies that do opt in to the UK regime, it will be important to ensure maximum input to the Patent Box in respect of income that could be attributed to patents, as opposed to excluded features that may be more visible to users.

The consultation on the draft legislation closes on 10th February.  This is potentially a highly attractive new regime, but it has not been developed with the telecoms sector particularly in mind.  To take best advantage companies will need to review not only their tax and transfer pricing arrangements, but also the terms of joint ventures, licensing arrangements, business disposals and acquisitions, and plans for group reorganisations.  Savings could be considerable, but planning must begin now in order for arrangements to be in place when the regime comes into operation in 2013.

Jeremy Morton is a Patent lawyer and Partner at CMS Cameron McKenna LLP

Without an adequate medium of delivery, there is no message

Way back in 1996, at the dawn of the digital revolution, Microsoft founder Bill Gates declared in an article that “Content is King.” Gates drew a parallel to television, saying that “The television revolution that began half a century ago spawned a number of industries, including the manufacturing of TV sets, but the long-term winners were those who used the medium to deliver information and entertainment.” This statement has proved prophetic.  However the ensuing evolution of content – or more specifically content quality –is also proving to be one of the greatest challenges to the digital future. Without an adequate medium of delivery, there is no message.

The iPhone, the iPad, the Android platform, the Kindle, the ultrabook – new mobile devices have transformed the world in which we live and work. But this transformation has come at an increasingly high financial cost. The scale of network investment required to achieve the performance that customers expect – and the increased need to support complex services and content – is threatening the business case for mobile broadband services.

Typical mobile operators spend between 20 percent and 30 percent of operating expenses and 50-70 percent of capital expenses on network cost. As data volumes increase and the deployments of 4G networks proliferate, so will network costs. Such increases, combined with uncertainties about how to monetize higher levels of data traffic, represent a continuing challenge to operators that could hinder future profitability and cash flow.

One of the solutions to this problem is to limit network costs through network sharing, a formal arrangement between two or more mobile operators to share various components of their networks.

Changing Strategy

Historically, networks have been considered areas of competitive differentiation. Superior network performance and coverage have been the slogans of providers for years. However, many network components today are simply table stakes and may not be true differentiators. Indeed, by focusing on cost-reduction measures such as network sharing, management may be able to reinvest savings into alternative differentiating strategies such as customer service, innovative offerings and being first-to-market with new devices.

A well-executed network sharing venture has the potential to deliver a 20 to 40 percent reduction against standalone cost run rates . From one-third to two-thirds of those benefits are rooted in cost avoidance, with the balance resulting from actual cost reductions. Equally important, network sharing can help an operator significantly accelerate deployment speed, plug coverage gaps and grow revenues without increases in network costs.

Negotiating, planning and managing a network sharing deal requires executive leadership to overcome multiple complexities, including organizational integration issues and regulatory challenges. The prize for overcoming these challenges is the opportunity to control costs and achieve market advantage in the years ahead.

The business case

For a typical mobile operator, the majority of network costs don’t come from the core network. They come from the access network, often called the “edge.” This includes “backhaul” – the microwave, fiber or copper connections between the core network and base stations – and the “radio access network,” the final connection to the device. A recent industry analyst report found that these elements can account for more than 80 percent of incremental network costs. Most network sharing arrangements will therefore cover one or more elements in the edge, while the backbone is rarely shared. Which elements exactly are shared or kept separate will depend on the tradeoff between cost control and differentiation that the sharing partners are willing to make.  The financial business case is one that is clearly measurable, while differentiation is much more difficult to quantify. Interestingly enough, it is the differentiation agenda that will stir up the most emotions.

Savings are usually realized by consolidating two network infrastructure footprints into one, eliminating redundant sites and connections. Cost avoidance is delivered by using another operator’s network sites or leveraging a joint deployment strategy, thereby reducing deployment  and operating costs. In addition, operators often receive a top-line boost from network sharing. By using a partner’s existing sites, operators can accelerate deployment of services and improve customer experience and retention. These have obvious positive impacts on revenues.

Mobile network sharing strategy depends on careful planning in three key areas.

Choosing the right organizational model

A formal network sharing partnership requires a dedicated organization to manage it. These arrangements are generally of three types. An operating joint venture involves both parties contributing financial and human resources to the organization. An asset-owning joint venture involves having the network sharing organization take control of the assets and liabilities related to the network share, with each party having an equity stake in the organization. The third arrangement is one where a neutral third-party operates and manages all aspects of the network sharing venture and charges back all relevant costs to the different partners.

If the sharing partners are similar in terms of spectrum position, backhaul strategy and market share, the first model is often the most appropriate. The other two models work better when there is a significant difference between the sharing operators.

Regulation

A number of important regulatory constraints, especially those focused on the impact of network sharing on competition, must be carefully considered and managed. Typically, operators cannot use network sharing to reduce competition or coordinate their market behaviors.

This restriction can hinder rollout synergies because it limits the extent to which the sharing partners can align their plans. Only the joint-venture organization is permitted to view both operators’ intentions, but it cannot share this information with either party. Both operators need to be aware of these constraints and not be tempted to compromise them in a way that would increase regulatory risk.

Integration

Successful network sharing requires meeting several integration challenges across systems, processes and people. From a technology perspective, the success of a network-sharing venture depends on the ability to align the information systems across the different organizations and to keep the information consistent for both. Network processes will also overlap, so it’s important for operators to understand each other’s existing processes, delineate the responsibilities each operator will have, and make any needed changes to either side’s approaches to support the success of the venture, as well as prevent any leakage of competitively sensitive information

Because network sharing changes the way people work, effective change management activities are important, including clear communications, team building and support for cultural change.

The common thread among these success factors is strong program management. A dedicated program management function – which drives the coordination and integration of the consolidation and rollout –can make the difference between success and failure of a network sharing venture. Some operators are looking to improve speed to value by leveraging a third party to deliver program management – an organization that can bring experience from other similar ventures and that can, by being neutral and not aligned to either side, be in a better position to make difficult decisions.

A final thought

Network sharing is a significant opportunity for network operators to keep costs under control while also improving the customer experience and retention. However, operators need to be aware of the subtleties that underpin this strategy, specifically around cost reduction versus cost avoidance. In addition, benefits will be difficult to achieve without effectively addressing a range of operational and management challenges around the organization, integration and competitive aspects. Getting this right will significantly improve an operator’s chances of driving advantage from a network sharing strategy.

Paul Bultema is Executive Director, UK and Ireland Strategy Lead, Communications, Media and Technology operating group, at Accenture. Read his comments on Customer Experience Management in a forthcoming feature due in February.

Traffic is growing, but can the networks keep up?

According to UK regulator Ofcom, we have become a ‘smartphone nation’, ultra-connected night and day via the magic of mobile technology. But the evidence suggests that the UK is falling behind the rest of the world in providing the kind of networks needed to support the explosion in mobile device usage and data consumption.

In October 2011, Ofcom announced that it has been forced to delay the UK’s 4G spectrum auction by six months, saying that a further round of consultation is required after receiving ‘substantial and strongly argued responses’ during the first round. As has been widely reported, the auction for spectrum in the 800MHz and 2.6GHz bands was initially delayed due in part to the change in government and the lack of agreement between mobile operators and Ofcom

Additional alterations to the original schedule have seen the timetable slip from the first quarter of 2012 to the second and, in light of Ofcom’s announcement, the auction will not take place until the fourth quarter. Ofcom claims that the deployment and launch of Long Term Evolution (LTE) services in the UK need not be delayed, as spectrum would not be released until 2013 anyway. However, as reported in the media, operators say that with an auction not taking place until the end of 2012, it is unlikely that LTE services will be launched in the UK much before 2014.

This poses something of a challenge for the industry as many observers, including Virgin’s CEO, believe that traffic levels will double; due to the rapid evolution of the smartphone and M2M markets and the resultant increase in demand for data-heavy applications and content. Cost conscious consumers are taking particular care when choosing mobile services; resulting in slower than expected adoption of newer, faster products. But as the smartphone market continues to make data-heavy consumption a de facto part of mobile contracts, this trend will only rise. And it’s not just Virgin that predicts such exponential growth. Luminaries such as ’father of the internet’ Vint Cerf predict exponential and continued growth of the internet and web services; all of which must be facilitated by already overstretched networks.

All this in the midst of a growing row over existing network speeds; the industry is now clamouring to find a meaningful solution to the issues of universal broadband provision and speed, and all eyes are turning to 4G / LTE to provide the answer.

The importance of ‘Superfast Broadband’

You can usually tell how significant a technology is likely to be by noting BT’s reaction. In October of this year, BT set out its superfast broadband intentions stating that its Everything Everywhere initiative (launched jointly with Orange and T-Mobile) would mean 4G trials would provide a viable broadband alternative for those in rural areas. 4G has now, undeniably, become a lynchpin in BT’s rural broadband strategy but delays to spectrum auction won’t see a launch any time soon.

4G not only helps support today’s technologies, internet, email, phone and video traffic but also allows higher quality consumption; something that consumers are demanding more and more of. As VoIP moves to deliver ISDN-grade calls, video conferencing moves into HD technology, emails support large photos and other big attachments and the internet is used for the download of large files and software, the networks are groaning under the strain. 4G alleviates this strain by allowing the provision of high-speed services, delivered over a wider spectrum.

At the time of writing, 3G coverage stands at approximately 75 per cent of the country but, as revealed recently by the BBC, coverage remains patchy in some areas and is by no means guaranteed.

The BBC study showed that, overall, people are getting 3G approximately three quarters of the time, but coverage is nothing like as good as the operators would have you believe. Most city-dwellers will have great coverage but there will be certain places, even near city centres, where some if not all the networks are just not providing a decent connection. The overall conclusion is rural areas, whilst struggling to obtain fixed-line broadband, are also suffering as a result of patchy 3G coverage.

The Business Case for 4G

According to a recently published report  on mobile data consumption by Allot Communications, UK data consumption increased by 77 per cent in the first half of 2011, with video streaming increasing by 93 per cent overall. This increase makes mobile video streaming the biggest culprit in terms of data consumption, with a 39 per cent share. The report shows the majority of all video streaming comes courtesy of YouTube, with the video giant accounting for 52 per cent of that total. Not only does YouTube account over half of all video streaming, it’s responsible for 22 per cent of all mobile bandwidth usage, making it by far the most popular mobile destination. What this report shows is that mobile consumption is far exceeding expectations and there’s an enormous revenue opportunity here for networks, service and content providers alike.

4G is much more than high access speeds — it is a new network paradigm. Unsurprisingly, 3G operators are learning that future average revenue per user (ARPU) does not come from traditional services like voice services but data services such as mobile, video, music, games, Internet access, navigation and messaging (SMS and MMS) are the path to greater profits. The trend is unmistakable and leads to more services that exploit infrastructure offered by future advances in technology.

Faster is Better – Be Prepared

Broadband provision over FTTC or FTTH is suffering as a result of a number of factors: cost of tunnelling into hard-to-reach areas; perceived lack of funding; and low uptake in some rural areas. Network initiatives, such as the connection of 50,000 new build properties to Fluidata’s broadband network, which give inexpensive access to rural areas via existing networks, are providing the solution in some areas but, where a need is identified where networks can’t reach, alternative solutions are critical.

Satellite can plug some of the gaps and the Government’s rural funding pledge will connect more areas but, the reality is, mobile networks are amongst the more far-reaching and, therefore, offer the promise of ubiquitous coverage in even the most remote areas.

The reported delay to the spectrum auction and rollout of 4G networks in Britain is costing businesses an estimated £732m a year and so finding a solution is imperative.

When 4G becomes a reality in Europe, this should open the door for the industry to create a new breed of products and services but one final consideration should be its ability to deal with perennial problems of service contention. Will 4G deliver the same varying mobile broadband speeds depending on the time of day? Currently download speeds can vary by as much as 25 per cent at peak periods and in high density urban areas and with limited backhaul capability resulting in slower data delivery. It could be that the power that 4G possesses may remain locked if technology can’t deliver.

Piers Daniell is MD of service provider Fluidata

Can businesses risk choosing one technology over another?

The richness and diversity of today’s intensely competitive mobile market has provided a level of choice like never before. With Apple, RIM, Google and Microsoft battling it out, we have seen an explosion in the development of devices and applications for consumer and enterprise use.

If the battle between the major players in this multi-platform, multi device world seems somewhat  familiar, it’s perhaps because we can draw a number of parallels between the smartphone wars of today and the PC wars waged in the 80’s and 90’s.  The names have changed but, essentially, what we’re now seeing, as the battle lines are drawn and re-drawn between Apple and Android, is reminiscent of the Microsoft and Mac wars which played out a couple of decades ago.

As the giants jostle for position, what can we learn from these PC wars of the past and what does it mean for developers and enterprises alike, faced with the choice of investing in a mobile ecosystem?

Back in the 80’s as the software giants, IBM, Linux and Microsoft fought for share in the desktop market, Apple emerged with a proprietary model, which locked users in to their ecosystem, fostering brand loyalty and setting new standards in the user interface experience.

Just as in the 80’s, when Apple captured market share through this innovation over the more established players  in the PC market, now too, we see a smartphone market where the other mobile giants are playing catch up with the functionality it offers. It’s the same business model as the Mac PC, in which Apple will not license the use of its iOS to any other company.  With this closed business model, Apple has seen its revenues rise to $28.27bn in the quarter ending September 2011 compared to revenue of $20.34bn, in the same quarter the year before.

Now history is repeating itself with the battle of the ‘open’ versus the ‘closed’ models.  Android, for example, is achieving dominance with the open business approach: seeding its software across the market to achieve critical mass and widespread adoption and influencing hardware manufacturers to embrace its OS.  It has also focused on the more price sensitive spectrum of the hardware market. This approach – in which Google licenses the mobile Android OS for free – has now seen it surpassing other players to become the most used smartphone operating system.

But whatever the paradigm of the platform selected, be it open or closed, both can result in ‘lock-in’ for developers and enterprises alike. Competition and diversity has its advantages, providing choice and driving innovation, however the multi-platform era and the explosion of devices and platforms also creates uncertainty around which players will dominate. Therefore, for developers and those tasked with investing in a platform, it’s difficult to determine where the best commercial opportunities will come from. Moreover, the rate of change of new versions of operating systems and hardware has created a ‘lock-in’ of a different kind: it can be difficult to innovate or remain competitive with an old system or an old device which can’t be upgraded due to budget.

These choices now facing enterprises in the mobile space were played out as the PC market evolved. Regardless of which hardware is selected, once you have bought into an interface or an operating system, be it proprietary or an ‘open’ system, it becomes costly to change. Investment in a new platform in an enterprise environment represents a significant outlay and, besides the cost of migration, there is a sharp learning curve for users and those supporting a new OS.  The risk lies in making choices that could limit them from moving to a different platform or from incorporating new devices in the future, as well as the need to ensure integration with existing applications, ease of interoperability and ongoing support.

Consolidation is Inevitable
For developers, the risk lies in opting for a platform which may become obsolete and commercial interests dictate that market share will be a key factor when considering which platform to develop for.  It’s not a decision which businesses or developers can afford to postpone for much longer; with IDC predicting that the global mobile worker population to increase to more than 1.19 billion in 2013, up from 919.4 million in 2008.

To add to this complexity, with the tablet market evolving at a pace, there are further changes ahead and most businesses will want their applications to work both on smartphones and on tablets, because each has its own uses and relevance. Can businesses risk choosing one technology over another?

The competing platforms of the smartphone market and diversity of platforms have made the stakes, for companies faced with mobile strategy decisions, much higher. Instead of the two-horse race of the 90’s between Microsoft vs Apple, companies now have the ‘paradox of choice’ and the pace of change has accelerated, with operating systems updated more frequently and hardware lifecycles shortened. However, if we can learn something from the PC wars it is that convergence is inevitable and, while new entrants may yet emerge to shake things up, eventually there will be consolidation of just two or three big players, be it through partnerships or acquisitions.

Unlike the 90’s however, the question of who will win, is perhaps the wrong one for today’s smartphone market and the question now should be, why choose one model or ecosystem over another? Whilst enterprises are faced with options, times have moved on, and it may be too limiting to think in terms of ‘winners’ and ‘losers’ or the drawbacks of ‘lock-in’ to one channel – be it operating system, platform or device.

Our multi device, multi application world is driving the need for greater flexibility and approaches are needed which can deal with the complexity of taking any application to any channel.  So, instead we should think about the power of choice, providing developers and enterprises alike with the flexibility to transition applications across platforms and devices without the ‘rip and replace’ scenario of the past.   In this way the limitations of vendor lock-in which typified the PC wars, need not repeat itself.

David Akka is the UK, Eire & Nordics MD of Magic Software

The number of SIMs in the channel will grow as LTE is adopted

Growth in the Long-term Evolution (LTE) market is accelerating. Operators are moving forward with plans and auctions taking place, helping the technology to become a global standard. As of August this year, operators had launched 24 commercial networks in 16 countries worldwide. Only one year ago, the total was three, and the number is expected to grow to 71 by the end of this year, according to the Global Mobile Suppliers Association (GSA).

Today, according to analyst In-Stat, more than half of all new network deployments are LTE based. The firm predicts the US will see the biggest increase in LTE based subscriptions, with growth of 2,100 per cent from 2011 to 2015.

While the ongoing economic downturn may have slowed market growth a little, the appetite of subscribers for the latest smart phones and mobile devices remains largely undiminished. More bandwidth is therefore required to accommodate this growth and that in turn is driving the uptake for LTE.

Challenges Ahead

However, many questions do remain about the future of the technology – not least how are legacy services like voice and SMS going to be rendered? With the focus of the new LTE world on mobile broadband, operators will need to support these next-generation solutions while continuing to support 3G, 2G and, where appropriate, CDMA devices. This will inevitably result in growth in the number of devices and SIM cards moving through distribution channels.

As mobile broadband expands, developing competitive services and points of differentiation will be increasingly critical to operators in winning market share.

A significant proportion of new mobile broadband subscribers are prepaid. The anonymous nature of this payment method makes it hard for operators to engage with these subscribers, particularly if they are using the pre-provisioning model common in most markets.

Some operators are already moving away from pre-provisioning for their 2G and 3G services, and instead adopting dynamic provisioning. This is an approach that delays network provisioning and the allocation of resources to SIM cards until the point of first use. Importantly, it also enables an on-device interaction with the user at that point. Dynamic provisioning therefore gives operators an immediate opportunity for engagement, interaction and dialogue. Using this method allows them to gather the missing information they need and deliver tailored marketing messages and promotional incentives to new subscribers.

As LTE and mobile broadband drive the development of a wider range of devices, the ability to make this interaction, both device and location aware, is an important part of a competitive strategy.

As Susan Welsh de Grimaldo, director of the Strategy Analytics Mobile Broadband Opportunities (MBO) service, highlights: “in 2014, almost half of mobile broadband net subscriber additions will be on devices other than mobile phones.”

Operators need to know that there is a significant difference between the kind of interaction suitable for a user with a feature phone connected to a GPRS network, and that appropriate for a LTE-network connected tablet with large colour screen and multi-touch capability. If the operator wants to provide the best possible user experience, it needs to understand the nature of each device with which it is engaging – whether a GPRS connected feature phone or the latest state-of-the-art tablet.

With Dynamic SIM Allocation (DSA), operators can tailor the sign-up and products offered depending on the device type and/or other factors like location. They can use the capabilities of the browser on the device to explain tariffs and options clearly – reducing confusion and increasing customer satisfaction. And they can offer relevant promotions – including operator-supporting two-sided business models and advertising.

The ability to offer personalisation is further enhanced by recent upgrades to DSA which allow operators to engage with prepaid subscribers not just at the point of first use but also through the lifetime of the contract to offer vanity number selection, new tariff options or service upgrades. For operators, one of the key benefits of delivering this level of personalisation is that it helps them keep churn rates under control.

Boom in Connected Devices

Sophisticated connected devices are thriving, and this will accelerate as LTE is deployed. The proliferation of these devices offers a great opportunity to transform the way that operators market themselves to mobile subscribers by changing the nature of the user interface. For example, users of connected devices can automatically be taken to an easy-to-use web portal or landing page that they can personalise according to their specific requirements, allowing them to choose suitable tariffs, price plans and data limits. This browser-based approach also opens up opportunities for the operator to promote its brand more effectively and to deliver high-impact and highly persuasive marketing campaigns.

The other problem with the existing pre-provisioning models, when it comes to supporting increased numbers of SIM cards, is that every card will require space on the HSS and other key network elements. This not only reduces available capacity, it is also extremely expensive.

The operator will typically be forced to make a large upfront investment both in the cards and in the network space they occupy. To add to the problem, much of this investment ends up wasted because a significant proportion of SIM cards shipped are never used.

Pre-provisioning can also lead to an uneven distribution of SIM cards across vital elements like the HSS. Uniform loading of these elements relies on accurate forecasting significantly in advance of sales, and any variation from forecasts can result in a sub-optimal distribution that may ultimately involve expensive re-homing of subscribers between HSSs.

Assessing the Benefits

The pre-provisioning model does have one important advantage, however: namely, that the SIM works immediately it is in the user’s hands. So, how do operators find a cost-effective alternative that preserves this important benefit?

Dynamic provisioning achieves this by allowing new SIM cards to interact with the provisioning process via the mobile network despite not having previously been provisioned. This means that the allocation of network resources can be deferred until the point of first use.

There is no need, for example, to buy HSS capacity to support SIM cards that are inactive in the supply chain and uniform loading of HSSs can be ensured by appropriate selection when the SIM is first used, rather than weeks in advance.

In commercial terms, the main benefit is that this new approach allows operators to eliminate upfront costs they would typically incur if using the pre-provisioning model. In particular, it helps them avoid the requirement to buy and commission more network platforms than are actually needed, simply in order to accommodate SIM cards that may never be used nor generate any revenue.

Operators who are implementing systems and processes for LTE should seize the opportunity to implement dynamic provisioning and optimise their logistics. The ideal is to deploy a dynamic provisioning solution that supports integration with 3G and LTE networks and build processes for allocating resources appropriate to the devices and networks used.

Positive Prospects

The dynamic growth in LTE networks and consequent rapid increase in the volume of mobile broadband and connected devices is presenting opportunities to wireless operators to drive incremental revenues.

However, it also brings challenges including the requirement to effectively manage the dynamic growth in SIM card volumes and associated issues of cost and capacity and the need to handle the dramatic increase in end users opting for pre-paid subscriptions as mobile broadband becomes ever more popular. Consequently, they will need to engage proactively with end users to deliver exceptional quality-of-service and high-impact marketing campaigns and promotional incentives.

With the availability of dynamic provisioning solutions, operators are well placed to address these challenges, capitalise on new market opportunities and face the wireless future with confidence.

Thad Dupper is chairman and CEO, Evolving Systems

By Vikram Shanbhag, Vice President, Mobile Messaging Solutions, Comviva

In the last 48 hours that I have been in Dubai with the purpose of attending the ME Telco event, I am hearing a lot, I must say overloaded on the topic “Mobile Data”.  It’s Data, Data, everywhere, a hot topic globally more so in the MENA region, given the proliferation of smart devices, smart networks and a smart subscriber base that is looking for change. I hosted a closed door seminar yesterday wherein my close engagement with the Mobile Operator community has resulted in me sharing the thoughts below.

Today Mobile Data occupies the highest mindshare in the operator community. The profitability of telecom service provider’s data operations depends on how they act in response to the explosive growth in mobile broadband traffic. Notwithstanding the fact that the mobile data market in the MENA region is on a steep growth trajectory, 133% in the period 2009-2014, operators need to ready themselves now for even further growth. Simply augmenting the network infrastructure is a capital intensive proposition.  As competition is fierce and there are limits to data service charges to be charged to the customer, operators are faced with a trade-off between the revenue-to-capex ratio and the quality of experience on offer — unless they handle the data traffic more intelligently.

Given this operators are looking at changing the rules of the game, they are aware that standard run-of-the-mill plans and packages are history and they must innovate on creating value for every dollar that the subscriber spends on their network. Most operators have invested in advanced and stand alone solutions to address the high growth they have experienced on mobile data.  They keeping enhancing the fat pipes and have added peripheral solutions such as optimization and acceleration to manage their networks gracefully. However the outcome of this has not been impactful as envisaged and the challenges remain the same, namely how to Manage, Optimize and Monetize.  I call it the MOM challenge for the mobile operator.

“Manage” challenges would mean to deploy an intelligent policy and charging control solution that would assure proper allocation of network resources, based on subscriber’s needs and what the network can deliver.

“Optimize” challenges centre on addressing needs for faster access speeds and consistent service quality; letting subscribers enjoy an optimized mobile internet experience.

“Monetize” challenges primarily hover around restricting excessive usage by a few users whilst driving mass adoption, flexibility to create tariff plans based on speed, services, traffic, time, device type, applications, thus moving away from conventionally unmetered flat pricing propositions.

It’s not that mobile operators have not attempted to address the above challenges.  They have in fact gone ahead and deployed specialized and niche solutions to manage data traffic.  These solution modules are typically deployed by the operators from independent best-of-breed vendors whose focus is on addressing individual problems and they sure do a great job in overcoming the challenges given to them however things fail when these individual vendors need to work together and collectively offer a seamless experience for operators and their subscribers. Subscribers complain about a suboptimal usage experience and sluggish speeds, further operators are saddled with higher Capex and Opex as they need to manage multiple vendors, solutions, and equipment. The onus thus falls on the operator to envision a comprehensive blueprint at the forefront and then orchestrate the phase wise implementation of the complete infrastructure to manage the growing MOM challenge.  Larger operators with deeper pockets and a deeper technical and project management skills could manage to pull off such a feat and meet the data demands in time however others face a daunting task.

Given this fact, today operators are looking at solutions that can seriously address their end-to-end needs to the address the MOM challenge from a single vendor, wherein they are looking at an integrated, consistent, unified, solid solution for data pipe management that delivers a hassle free and smooth experience to them and their subscribers.

The solution that addresses the MOM challenge in its simplest form would compromise:

• An “Optimize” module addressing  user expectations for an enhanced Internet experience
• DPI (Deep Packet Inspection) / PCEF (Policy and Charging Enforcement Function) and PCRF (Policy and Charging Rules Function) modules, which would address the “Manage” and “Monetize” challenges been faced by the operator.

It’s imperative for solution offerings to keep in mind to optimize the operators spend on these modules and thereby resulting in a faster ROI. An integrated solution would surely result in reducing the operator capex and opex at the same time offer flexibility to create differentiators in their competitive markets in a timely manner. Furthermore given the exponential growth already experienced in mobile data and expected in future, the solution offering should be scalable over time, capacity and functional dimensions with minimal disruption to service. Hence operators can greatly benefit from a mobile data platform package that starts out small and can scale effectively over time.  More and more operators are now convinced with the thought that a single integrated solution to address the MOM challenge would be the way forward for them to build, address and evolve their mobile data infrastructure.  Wishing you all an exciting time at the show and in Dubai over these next two days!

Watch Qualcomm discuss video over wifi at Broadband World Forum 2011

When Netflix decided to separate DVD delivery from its video streaming service, consumers rebelled. Many dropped both services and the company lost half its value on Wall Street. Trouble like this is commonplace for cable TV and satellite providers, which, according to the American Customer Satisfaction Index (ACSI), both consistently rank low in customer satisfaction surveys.

The ACSI found that for the first two quarters of 2011, “higher fees are significantly dampening customer satisfaction [for cable and satellite TV service], more so than in other industries.” J.D. Powers drew a similar conclusion, finding that customer satisfaction for all TV services fell in 2010.

Price dissatisfaction is only one of the challenges facing TV service providers today.

An even more pressing problem is the fact that consumers are turning to the Internet for more and more rich media. Consumers want instant availability to content on any device, at any time and with the ability to switch from device to device on the fly without interrupting the service. But, the two devices that could potentially manage this device-to-device sharing, the set-top box and wifi gateway, weren’t designed to deliver multiple video streams over wireless connections. This results in a poor user experience.

As a result, consumers are starting to drop traditional cable TV services in favor of on-demand – or pirated content available on the Internet – and a new set of equipment. Consumers, and especially those in the under-30 demographic, simply aren’t satisfied with dated video delivery models.

“Why am I paying $100+ each month for 200+ channels when I only watch HGTV, the Travel Channel and sports?” they ask. “And why can’t I watch the shows I recorded on my DVR on my iPad or Android phone?”

Pay TV Delivery Model Fails to Keep Up with Consumer Preferences

Of course, one of the ways TV service providers respond to customer dissatisfaction is to point to the poor performance of online video. Netflix streams drop and its streaming catalog is growing, but still in the infancy stage. Hulu has limited content and suffers from the same performance issues as Netflix. YouTube is rife with useless and low-quality videos. Illegal BitTorrent videos take forever to download.

Consumers put up with these problems, though, because the price is right – anywhere from free to less than $10 per month. As the price rises, though, say for something like MLB.TV (Major League Baseball), consumers won’t settle for poor performance online any more than they do with cable or satellite TV.

In a pinched economy, the pressure to deliver only the content customers want will become increasingly important. If consumers can get what they want from online streaming and pay-per-view services, while saving money each month, they’ll opt for the flexibility and cost savings en masse. Meanwhile, cable TV and satellite providers may permanently lose their pathway into the home.

High Setup and Support Costs Apply Even More Pressure, Opening the Door to Google or Amazon?

Now, let’s throw yet another wrench into the mix: HDTV. Everyone wants HD streaming, and this demand is even more pronounced among early adopters. Consumers are seeking providers who can deliver HD content to any device, anywhere in the home, and with performance on par with or better than classic cable TV service. If TV service providers don’t think ahead and prepare their offering for this new demand someone else (Google? Amazon? A recovered Netflix?) will come along and steal their business. If past history foretells the future, an offer of a new and more attuned service at a lower price point often results in the demise of the established providers. Trying to ward off competitors using your existing model cannot be a viable strategy in a free market when your customers are crying for change.

The Way Forward: Video over wifi

Today, set-top boxes/DVRs are the hub of video services. An increasing number of savvy consumers dislike these devices, since they know that most new HDTVs have the computing power to make these set-top boxes unnecessary. Meanwhile, DVR functionality tends to be low, with most service providers actually dumbing down the devices by shutting down services and blocking peripheral ports. Thus, in-the-know consumers chafe at paying $15 each month for what is essentially an overpriced, underperforming storage device.

Set-top boxes could conceivably rebound to serve as a hub for video sharing, but most consumers want their content centralized on a device with better sharing capabilities, such as the home gateway. As content shifts away from set-top boxes, wifi gateways will become ever more important.

Unfortunately, today’s installed wifi networks aren’t quite ready for the coming “my content, my way, my device” consumer wave. Today’s gateways don’t yet enable you to start watching a program on your HDTV, before bumping it over to your netbook on the kitchen table and onwards to your iPad as you head to the basement to check on the laundry.

That doesn’t mean this is not technically feasible. It is. New high-capacity, multi-stream capable wifi solutions are starting to hit the market, and some of the major service providers have already expressed the intention to cash in on this new opportunity.

The opportunity for Video over wifi is huge. New, robust wifi solutions can stream content from Internet video services, direct content to be consumed later to appropriate consumer-picked storage depositories, facilitate in-house device-to-device sharing, and even enable carrier-approved P2P sharing to overcome network bottlenecks.

wifi gateways can even help providers lower opex and support costs. New customers will be able to log onto online self-service portals to get setup, and once service is established, carriers will have a better ability to remotely monitor service quality and troubleshoot without sending a service truck.

Is interference from a microwave oven causing an iPad in the kitchen to drop video streams? Onboard diagnostic tools in the wifi gateway will help remote technicians pinpoint the problem at a fraction of the cost of today’s cable or satellite service calls.

Let’s face it: the most important cable into the home these days is the broadband connection. Number two probably isn’t a cable at all, but rather cellular service. Cable and satellite TV services are a distant third. With carriers bundling services anyway, TV service providers would be well served to set their sights on the right cable into the home and the right box (the wifi gateway) to keep up with consumers’ changing behaviors.

Whichever cable TV or satellite provider, or whichever newcomer like Amazon, Google or Apple, figures out how to wirelessly stream multiple video services to multiple devices at once will be able to differentiate itself from competitors in a market where consumers often have trouble seeing any difference from one service provider to the next.

The first TV service provider to meet this challenge won’t have to answer the question of “Why am I paying so much for these services?” Customers of this forward-thinking provider will have a vast range of new services at their fingertips, services better tailored to meet their evolving consumption demands, and services for which they’ll be willing to pay.

Patrick Ribardiere is director of product management with a focus on carrier technologies in the networking business unit at Qualcomm Atheros.

Sources:

1. Netflix debacle: http://www.boston.com/business/technology/articles/2011/09/19/netflix_separates_its_dvd_streaming_businesses/?camp=obnetwork

2. Cable/satellite customer satisfaction survey: http://www.theacsi.org/index.php?option=com_content&view=article&id=246&Itemid=291

3. A good overview of cable TV satisfaction surveys: http://www.fiercecable.com/special-reports/cable-customer-service-struggles-climb

4. JD Power’s survey: Customers of traditional cable providers are particularly dissatisfied with their cost of service. (**NOTE: Last year this study came out on 10/6, so we may want to update this at the last minute.) http://businesscenter.jdpower.com/news/pressrelease.aspx?ID=2010166

Rory Sutherland, Ogilvy

Rory Sutherland began his career in advertising and marketing at Ogilvy in 1990, working on a then obscure US brand called Microsoft. In the 21 years since he’s risen to the position of vice president of Ogilvy Group and creative director of UK arm OgilvyOne and has seen a lot of change come about through the rapid adoption of technology.

Sutherland doesn’t refer to what he does as marketing or advertising, instead he calls it the application of behavioural economics across the marketing media and tech industries—a discipline which has led him to champion the mobile phone as the single biggest tool for inciting behavioural change.

“Mobile and digital media are very good at lots of things, which caused people to think that digital media and the web would destroy all traditional media and advertising,” he says, adding that this outcome would indeed have been likely if the marketing industry didn’t understand the idea of comparative advantage.

Comparative advantage, in Sutherland’s example, takes two islands: one island better at growing corn and even better at making bicycles than the other. Yet the best way to maximise the commercial value of the whole ecosystem is for the one island that is substantially better at making bicycles to do so, while the other country grows corn. The philosophy being that they should focus not just on what they are good at, but what they are remarkably good at. Even if one island is more efficient in the production of all goods, it can still gain by trading with a less-efficient island, as long as they have different relative efficiencies.

“We should ask how each media available to us can play to its own strengths as in to its comparative advantage, not just everything its good at. We are only just realising that TV still has the advantage of certain qualities in that it has emotional reach and the ability to create fame and buzz,” Sutherland says. “Mobile on the other hand is quite different. Its context is timeliness, the ability to engage people in sophisticated dialogue. Its advantage may actually be closer to customer service than advertising. You can’t substitute reach in one place with an equal amount of reach elsewhere. Different media are complimentary.”

Sutherland expands on the importance of context, with the notion that the value of something, while subjective, is also contextual.

“The decision you make on any issue depends on when you make that decision. Such as your decision to book a [city hire bicycle] depends on when you make that booking. If you do it in advance your attention is on high minded things like exercise, but if you make it at the last minute your attention is on low minded things like how late you are and whether it’s raining,” he says. “So you need a pricing scheme that caters to both.”

The same application of behavioural economics could be used to leverage yield management to a company’s advantage, an airline for example. “If you told customers which of ten flights to New York was the emptiest perhaps they could be tempted to pay extra,” Sutherland says. “The key is you’re generating value not through the requirement of extra resources, but through the better understanding of individual human preference. Better understanding people can help you deliver more incremental value without changing the material thing you offer.”

We all like to think that we follow through on our high minded intentions—all those charitable donations should we win the lottery, but the decision we make and the way we compare things depends where we are and at what point in the decision making process we are in. Humans can only concentrate on one thing at a time, we focus on one arbitrary metric, and make the decision on that. For years the one comparative metric for digital cameras was how many megapixels it had. It was an accessible numerical value. But we’ve recently hit the wall where ten megapixels or so is probably enough for most people, forcing the camera manufacturers to re-evaluate their situation.

“Someone might decide to move 20 miles out of town to get an extra bedroom on their house, because the attraction of an extra bedroom is very high in their consciousness at this time. But once you move, the extra room loses its novelty very quickly while the pain of the longer commute is experienced every day.

“This is how human attention distorts decision making,” Sutherland explains. “Advertisers don’t just have target audiences, they also have target moments. It’s the context in which I can persuade someone to take a bicycle rather than a car or the train. It’s one way in which mobile enjoys a significant strength, due to the fact that it is such a timely tool for communication and context.

“If you provide people with the means, then the attitudes will follow,” he says. “The mobile is the single most potent way of creating behavioural change over the next 20 to 30 years, yet our adoption of technology has already leapt ahead of our understanding of it. “Over the next ten to 15 years we will see a slowdown in technological progress.”

Sutherland disagrees that all things technological progress at an exponential rate and claims instead there are bursts of change punctuated by periods of relative stability, with perhaps small levels of incremental improvement. “What I’d like to see is the discussion move away from what is technologically possible now and towards what is the proper human use to be derived from these technologies,” he says.

Ian Carrington, Google

There’s no denying the impact Google has had on the mobile industry in the last few years. The web giant has its fingers in many pies that at one point constituted large parts of the operators’ lunch. At Google’s second annual Think Mobile event, held in London in June, Ian Carrington, mobile advertising sales director at Google, talked us through present and future opportunities the firm sees in the mobile space.

Carrington opened with a quip originally made by Eric Schmidt, then Google’s CEO, who said: “If you don’t have a mobile strategy, you don’t have a future strategy.” Although Carrington said this is not absolutely true of every single business, it is true for most of them, as the future is using mobile to engage with your brand.

“Lots of people are failing to capitalise on mobile, and the mobile market is succeeding in spite of itself. There are still lots of opportunities left to capture,” he said. Carrington highlighted the famous prediction, made in the first quarter of 2010, by Mary Meeker—tech futurist, venture capitalist and ex-Wall Street securities analyst, known to many as “Queen of the Net”. Meeker predicted that in two years’ time, the first quarter of 2012, mobile phone sales would surpass PC sales. The surprise wasn’t in the prediction itself, which came to pass, the surprise was in how far out Meeker’s forecast was in terms of timeline. Mobile phone sales surpassed PC sales for the first time in the fourth quarter of 2010, just nine months after Meeker made her statement.

“This epitomises the pace of change. Very soon over 50 per cent of UK users will have a smartphone,” said Carrington. “And this is something they have with them, and use constantly. The vast majority of mobile usage is incremental. Mobile usage peaks in the morning then at lunch then in the evening.” Carrington highlighted Google’s own UK research, which found that 44 per cent of UK users go to bed with mobile phone at their side and 53 per cent are ‘dual screening’ at home—using a mobile device and watching TV at the same time. This phenomenon lends credence to Carrington’s recommendation that advertisers have an integrated campaign across all forms of media.

“Google sees 12 per cent of all its search queries coming from the mobile phone, and there is some great data that can be gleaned from Adwords or Google Analytics about what’s happening, but few people are looking at this data,” he said.

“A mobile optimised site removes a big barrier on one enabling device between you and users. So develop and integrate you mobile strategy, incorporating both apps and the web. Often the big disconnect is that there is no mobile optimised website. Brands need to make it easy to by stuff.”

Google’s research shows the green shoots of opportunity in this space. According to the firm, 28 per cent of UK mobile phone owners have used the mobile to buy goods or service, while 13 per cent of all mobile search queries are retail related.

Google, of course, has made a big splash in this area, unveiling in May a plan for NFC mobile payments via the handset. Google Wallet is in the field trial phase and won’t become a commercial reality until later in the summer, but at that point is supported by the Nexus S 4G (WiMAX) handset on the Sprint network in the US, with the 3G version of the Nexus S, also sporting an NFC chip, expected to follow soon after.

Citi, MasterCard and First Data are the launch partners, supporting two payment solutions: a PayPass eligible Citi MasterCard and a virtual Google Prepaid card. The retail side will be based on the MasterCard PayPass network—a merchant point of sale service covering more than 124,000 PayPass-enabled merchants nationally and more than 311,000 globally. The first Google Wallet field tests are focused in New York and San Francisco, where many retailers, Coca-Cola vending machines and even taxis are PayPass-enabled, including major outlets such as CVS, Jack in the Box, Sports Authority and Sunoco.

Google, naturally, will also be involved in the delivery of relevant deals, promotions and loyalty rewards as it steps up its presence in the buoyant coupons and vouchers space. “We’re seeing an eight per cent year on year increase in the usage of mobile coupons,” Carrington added.

At present, entertainment is the biggest vertical the web giant deals with on the mobile. Over 40 per cent of all tweets are made via mobile and there are 200 million mobile views on YouTube every day, accounting for 10 per cent of the site’s total traffic. Meanwhile, travel is the fastest growth sector. Around 65 per cent of UK respondents use a mobile phone to aid them on their journey while travelling.

But does an integrated marketing strategy mean apps, mobile web, or both? According to Carrington, people using apps and the mobile web for different things. Brands should be using apps to drive customer retention and loyalty: consider that Apple App Store downloads have rocketed to 14 billion from five billion last year. While Android has gone to 4.5 billion downloads, a four fold increase in 12 months. “The last billion took 60 days, the first billion took four months,” Carrington said of Android. “But the mobile web, via a mobile optimised site, is all about customer acquisition and commerce,” he said.

Charles Dunstone

As the 1990s came around, UK entrepreneur Charles Dunstone had recently started selling ‘car phones’ from his flat in London’s Marylebone. Two decades later and Carphone Warehouse is one of the UK’s great success stories, established as a major high street brand with overseas expansion in place through Europe to the USA.

But Dunstone, who remains co-founder and CEO of Carphone Warehouse, is humble about the firm’s origins and maintains that “generally what happens in the mobile business is anything that wasn’t anticipated.

“To understand the mobile industry you have to understand the history of it,” he says. “I didn’t really have any insight when I first started out in the business, I was really just stumbling around trying to make a living.” And if Dunstone is saying that his success was sheer fluke, he shares a similar attitude to other ‘accidentally’ successful players in the business.

“All through the history of mobile, everyone has failed to understand its potential and then they’ve failed to capitalise on it,” he says. “Yet the mobile business has succeeded in spite of the incompetence of the people running it.”

Going back to the early days of Carphone Warehouse and the arrival of his first business opportunity, Dunstone highlights Vodafone predecessor Racal, one of the UK’s first mobile licensees. “When the first mobile licences were awarded, Racal said it anticipated that one day there would be around 600,000 mobile phone users in the UK. Even the government thought they were being recklessly optimistic.” Today that number is close to 80 million, at nearly 130 per cent penetration.

The next thing to astonish was the success of SMS. It’s an oft-quoted story that the original spec for GSM was designed by engineers who thought it would be useful for the networks to be able to communicate with their customers. SMS fit the bill in this instance. “But one of the senior guys at Nokia revealed to me that when they first made a GSM phone they could not conceive of why anyone would ever use SMS,” Dunstone says. “But the engineers couldn’t decide whether the inclusion of the technology was optional, or a mandatory part of the spec, so they included it anyway just to be safe. So text messaging is 100 per cent accidental.

It’s unbelievable that SMS is so light in usage of the network, yet operators can charge so much for it. SMS was the start point for data pricing.” And again, the industry failed to capitalise on it until much later. “The success of the Blackberry is a great reflection of this. People couldn’t use data until a company came along and said ‘look here’s a device that lets you do email really well from a handheld’.” Yet Dunstone finds that this model is becoming increasingly challenged. He likens devices that are good at one thing to the Wang of the PC market. When the PC first arrived on the scent it couldn’t do word processing, so Wang filled the gap with an electronic word processor. As the PC evolved users moved away from devices that did just one thing really well and gravitated towards multi purpose gadgets.

“There’s been a transformation in the last three to four years. Fundamentally the incumbent players in the market have squandered their opportunity to such an extent that there’s a whole new tier of people that are now the most influential in the market. It’s the people who develop the operating systems, not those who operate the networks or provide the hardware,” says Dunstone, citing the impact of Apple and Google. “It’s a sad reflection on everyone else that it’s taken these new entrants to come in and show everyone else how to sell mobile data.”

The use of the mobile as a payment mechanism is a battle Dunstone believes the operators should be able to win as they are used to thousands of micro transactions. “But Apple has shown that if you can let people spend money so easily that they barely notice they’re doing it, they can pick your pocket £1 at a time. Whoever can consolidate on some kind of one click transaction, whether it’s Amazon or Apple or whoever is winning an enormous prize.”

And he believes more change is to come: “Fundamentally, mobile-only platforms feel like they’ve had their day. Today people want to use their phone to get to the service they want and the days of the mobile operator being able to force people to do things their way has been very much discredited.

“Users of smartphones are not just users of phones, they are users of every other type of technology too. We’ve found that 52 per cent of people calling into a call centre are already browsing the site of the company they are calling on another screen. So you have to understand that when someone’s talking to you they’re also checking your site and your competitors’ sites at the same time. And we all have inconsistencies in the way we present information via different channels. You have to have a homogenous service offering across all the different channels,” he says.

“Mobile is complementary to the desktop internet experience and it’s commonly used by savvy and high tech users. You get very targeted responses from people because they are not just browsing, they are looking for something specific. So conversions over the mobile more valuable than those from desktop. The only way to succeed in this industry is via experimentation—and fortune favours the brave.”