Three Ways Telcom Can Compete in the Digital World

Written by on July 21, 2016 in Billing & Payments, Guest Blog with 1 Comment

Emerging and metamorphosis of beautiful peacock butterflyNow that everything depends so heavily on connectivity, you would think the businesses that own the communications infrastructure would be on top of monetizing their connections. Instead, Telcos, largely in the communications service providers (CSPs) category, are being run roughshod by faster moving digital service players like Netflix, Skype, and WhatsApp, who are snapping up their customers with their more nimble business models. Adding insult to injury, these disruptors are piggybacking on the CSPs networks while riding off into the sunset with their recurring revenue and customers.

 With services like Amazon Prime Video and Hulu, it’s very easy for customers to cut the cord and walk away from their CSP. Cloud storage, mobile video, geo-based services, smart sensor connectivity, and mobile pay should be the CSPs’ new stock-in-trade. But to keep up with the on-demand market, CSPs need to change their focus from connectivity to services and become the digital service providers (DSPs) that are currently their fiercest competition.

 To complete the DSP metamorphosis, CSPs need to grow some strong wings to become as responsive as the Googles and Amazons that have become their standard-setting predators. Customers have come to expect instant-on provisioning for digital services, real-time account status, personalized recommendations, and hassle-free self-service options, and currently, CSPs can’t move fast enough to satisfy them.

 Some CSPs are slowly acquiring these traits and starting to look a little more like DSPs. But most still have a long way to go.

 Acquiring digital dexterity

To become true digital providers, CSPs have to move a lot faster. Moving from hardware to cloud solutions would help them speed infrastructure upgrades. Look no further than the clunky set-top box (STB) that every cable subscriber has as a case in point: Deploying them requires home visits by techs that are annoying to customers and expensive for providers. Unlike modern digital services that are tethered directly to the consumer, the STB perpetuates the outdated notion of tethering instead to a physical address, a notion that’s fundamentally reinforced at the lowest possible level by the CSP’s outdated BSS/OSS systems. And adding insult to injury is the fact that the consumer is then forced to pay a monthly rental fee for the STB, a fee which in just a few months exceeds the value of the STB itself.

Charter Communications is flipping the STB model with its Worldbox cloud-based TV service. Instead of using powerful and expensive STBs, Worldbox does most of its computing in the cloud, so new features can be rolled out in real time. This eliminates the installations and allows rapid deployment, faster time-to-revenue, and happier customers. That’s a how a digital service provider gets it done.

 Harness consumption data

Companies like Amazon and Netflix have mastered the art of using mountains of consumption data to gain unique insights into customer usage trends, behavior patterns, and preferences. They then use it to elevate customer service, provide highly personalized incentives, and adjust product catalogs based on empirical data, not hunches. CSPs have to start following this model in order to stay competitive.

 And it’s not like they don’t have the data, it’s just being stashed all over the building. CSPs typically keep usage data in separate systems, depending on what area of business it relates to. Finance data goes to finance, billing data to billing, and so forth. In aggregate this data is extremely valuable, but historically, CSPs have not analyzed it across all the silos to look for ways to cross-sell and upsell additional services that build customer loyalty and grow incremental revenues. In a digital economy, they can’t afford to let this valuable data go untapped.

 Overhaul legacy operations and business systems What’s really tripping up CSPs is their reliance on business systems that were in vogue when you were still wearing Hammer pants, or, if you’re under 30, diapers. The operations support systems (OSS) and business support systems (BSS), they use were designed for high-volume efficiency in supporting a limited set of services, such as voice calling and cable TV delivery, all of which were conceptually bound primarily to a geographic location rather than the consumer. In the age of machine-to-machine connectivity, IoT, and data-driven services, they’re as functional as a mullet is stylish.

 The OSS/BSS systems that they are using are neither nimble nor adaptable. Bringing new products, packages, or even promotions to market requires coding and time-consuming IT intervention. Making even the most trivial changes can take months, in a world where the business and its consumers have come to expect change to be done in days or even hours. These systems also lack real-time capabilities for fulfillment, provisioning, and customer self-service, and can’t easily support complex pricing schemes that merge subscriptions, usage, and one-time payments, or that involve third parties. These are big problems, but there is a workaround.

A silver lining in the cloud

OSS/BSS are intricate, multi-million dollar systems that touch virtually every aspect of a CSP’s business. But their most fundamental flaw is that changes to pricing, packaging, and behavior are implemented via changes to underlying code. Not only is this purely engineering-focused approach to change costly and time consuming, it also guarantees the creation of a bespoke Frankenstein of a system that has long ago truncated from its original code base.

This means that upgrading these behemoths can take years and cost millions more, all while the digital economy is shifting into high gear and passing them by. Building responsive systems is vital, as Gartner emphasized in a recent report here:  “Re-engineer the core IT, and create a new digital platform, adopting and instilling new methodologies to enable BUs to respond rapidly to capture market opportunities and deal with the high levels of uncertainty that are inherent in emerging digital ecosystems.”

 Easier said than done, right?  That’s not untrue, but there is an achievable forward path that doesn’t carry massive pain or cost. To keep up with the crowd while avoiding the pain that comes with a wholesale “rip-and-replace” of existing infrastructure, a viable alternative approach to becoming a more nimble DSP in a shorter time frame has begun to take hold at some CSPs: adding on cloud-based solutions as a net-new “agility layer” on top of that old behemoth. This “agility layer” can then be the starting point for quickly creating and managing the critical OSS/BSS functions demanded by the newer DSP products and services (recurring billing, packaging, bundling, subscription management, customer care, etc.) all while peacefully coexisting with the legacy system and providing the minimum amount of care and feeding it requires to stay operational.

By putting the power to create and change offerings in the hands of business users rather than engineers, modern cloud-based operations and business systems enable them to quickly iterate service pricing and packaging without completely disrupting or overhauling their existing infrastructure. More importantly, they can help CSPs shorten response times, improve customer service, and speed their time to market.

 Most CSPs still have a lot to change before their DSP metamorphosis is complete. As key enablers of our connected world, they’re in a prime position to cash in on the burgeoning monetization opportunities of the digital economy. While the paralysis many CSPs suffer from is understandable—given the shackles imposed on them by modes and systems that are now outdated—stasis is not going to remain a viable option for much longer.

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Brendan O'Brien

About the Author

About the Author: Brendan O'Brien is Chief Innovation Officer and Co-founder at Aria Systems. In 2002 he introduced the world to cloud billing, and innovated database-driven, enterprise-grade web applications before the concept of “cloud” was on the horizon. O’Brien is the industry’s foremost thinker on IoT and recurring revenue: enabling new business models, providing multi-dimensional customer choice, and ultimately increasing revenue. The number-one ranked cloud-billing provider, Aria, empowers enterprises to monetize a wider variety of product offerings, retain their customers for longer periods of time, and grow recurring revenue at scale. Trained as a professional stage actor and classical tenor, in the mid ‘90s Brendan realized coding paid better than acting. .

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  1. Michael Elling says:

    There are 2 fundamental issues that you are overlooking. Core app and content providers (OTT) have a holistic or complete view of demand, while edge access service providers have an incomplete view of demand. The latter is important for calculating marginal cost (and hence pricing) ex ante.

    The second is that they continue to invest capex/opex at every layer of the stack. Their vertical integration models are constantly at a disadvantage to the horizontal scale and vertically complete ecosystems of the core providers.

    The result is a retail price to underlying economic cost disparity of between 100-1000x.

    After these issues have been addressed one can begin to talk about “digital” strategies. Mind you, competitive digitization entered the industry dramatically 32 years ago. Not sure why we’re even using this term today.

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