The Two-sided Telecoms Business Model

Re-thinking the phone company14 March 2008

Martin Geddes, Chief Analyst, STL Partnersmartin.geddes@stlpartners.com

- 2 -© STL Limited • Proprietary and Confidential

Before we begin…

- 3 -© STL Limited • Proprietary and Confidential

Telecoms is a freight business for bits

1010001011100100100101100011010000101111101010010010101010001010101111010101010100010100101001101010100010011101010110101001001010111010100101010100010101110111101000101010100101110010001000101101100101011100111010000001011001010100

Voice, video,

web, messages

- 4 -© STL Limited • Proprietary and Confidential

Container shipping: precedent

Containers vs.

IP packets

- 5 -© STL Limited • Proprietary and Confidential

Container shipping lessons

Value-based pricing of the

containers doesn’t work

#1

- 6 -© STL Limited • Proprietary and Confidential

Container shipping lessons

New technology and lowered costs are not

enough

#2

- 7 -© STL Limited • Proprietary and Confidential

Container shipping lessons

Increasing returns to scale for

infrastructure

#3

- 8 -© STL Limited • Proprietary and Confidential

Container shipping lessons

The ports get the money, not

the shipping lines

#4

- 9 -© STL Limited • Proprietary and Confidential

Container shipping lessons

People pay most for logistics solutions

#5

- 10 -© STL Limited • Proprietary and Confidential

One sidedmarket

Multi-sidedmarket

…with a twist

- 11 -© STL Limited • Proprietary and Confidential

Limits to retail growth

- 12 -© STL Limited • Proprietary and Confidential

Voice & Data Core Service Pressures

2017

% of Total Mobile Voice Minutes, Europe

2007 2012

Traditional Telephony

IP-Enhanced Carrier Telephony

Private Voice Apps & Handsets

Other

- 13 -© STL Limited • Proprietary and Confidential

The telephony interaction pyramid

Comm-unities

Relationships

Conversations

CallsRendezvous

VO

LU

ME

TE

LE

PH

ON

Y

SO

CIA

L N

ET

WO

RK

ING

- 14 -© STL Limited • Proprietary and Confidential

Telcos: still not product innovation businesses

How well do we as an industry understand what additional needs users have for voice and

messaging products, over and above what they have today?

- 15 -© STL Limited • Proprietary and Confidential

Revenue opportunities

OPEN APIsPRIVACY

FEATURESREAL-TIMESERVICES

CALLINGFEATURES

StronglyAgree

Agree

N=83

INTERNALLY-DRIVEN INNOVATIONEXTERNALLY-DRIVEN

INNOVATION

- 16 -© STL Limited • Proprietary and Confidential

Yes, but…

What’s the business model?

- 17 -© STL Limited • Proprietary and Confidential

Introducing 2-sided markets

- 18 -© STL Limited • Proprietary and Confidential

Today: Revenue only from 1 Side

Content, Apps, Devices

Network & Termination

Interconnect & Storage

Consumers

$ $Enterprises

SMEs

Multi-Nationals

Suppliers = Costs

End Users = Revenue

Telco

Products (partners’)

Products (own)

Packets & Platters

- 19 -© STL Limited • Proprietary and Confidential

Tomorrow: Revenue from 2 sides

$

‘Upstream’ Customers ‘Downstream’ Customers

Developers

Retailers

Government

Brand Advertisers

Content Owners

Telco – Retail

Millions of Customers

Thousands of Segments

Content Owners

Telco$

- 20 -© STL Limited • Proprietary and Confidential

Telcos have many valuable but latent data assets

MY PERSONAL DATA

MY STUFFMY IDENTIFIERS

MY INTERACTIONS

MY RELATIONSHIPS

MY CONTEXT

MY DEVICES

Name

Address Gender

ProfilePreferences

SIM SoftSIM

Serial NumberDevice details

Location Presence

On/OffRoaming

Pictures Videos

CalendarAddress Book

Bank School

FriendsWorkplace

Browsing History

.mobi domains QR Codes

MY CREDIT

Bad debt Demographics

Average balance

Number SIP address

IP AddressEmail

- 21 -© STL Limited • Proprietary and Confidential

Google Envies Operators in Key Areas

1. Sub-Scale in:

1. Voice & Messaging

2. Billing & Payments

3. Retail sales and customer care

4. Interoperability

2. Limited Knowledge of Customer

Google increasingly paying for inventory, skills & data

MY PERSONAL DATA

MY STUFFMY IDENTIFIERS

MY INTERACTIONS

MY RELATIONSHIPS

MY CONTEXT

MY DEVICES

Weak!

MY CREDIT

- 22 -© STL Limited • Proprietary and Confidential

Telco Future: 3 x business models

Developers

Retailers

Government

Brand Advertisers

Content Owners

Telco (Retail)

$$

Telco Retail

Telco Wholesale

$$$$

$$

Up

stre

am P

artn

ers

Do

wn

stream E

nd

Users

Telcos

Payments between telcos

Millions of Customers

Thousands of Segments

Telco Platform

Payments between telcos

- 23 -© STL Limited • Proprietary and Confidential

Examples of2-sided markets

- 24 -© STL Limited • Proprietary and Confidential

Learning from the master

- 25 -© STL Limited • Proprietary and Confidential

Google: Lowers transaction costs

HUGE SCALE

FREE products for end users

CHEAP advertising for brands=

+

LOW COST per transaction

+

Massive investment in Google platform

- 26 -© STL Limited • Proprietary and Confidential

Betfair: Stock Exchange for Gamblers

Bookie Punter‘To Win the Champions

League’

- 27 -© STL Limited • Proprietary and Confidential

Strong Growth from Big Scale Platform

• Explodes in 2003 following launch of open API for bookies

• More transactions than all European stock exchanges COMBINED

- 28 -© STL Limited • Proprietary and Confidential

A New Telco Proposition?

- 29 -© STL Limited • Proprietary and Confidential

Additional Telco Value Proposition

Now:Bundled voice,

messaging, video and

internet access

Next:

PersonalisedLogistics Services

for Data

- 30 -© STL Limited • Proprietary and Confidential

Logistics Services in the Physical world

1. DistributionCollectionMulti-Modal TransportDelivery

2. B2B VASTax & Duty ManagementDocumentation ManagementDenied Party ScreeningScheduling & Supply Chain ManagementSystems IntegrationTracking & Monitoring

- 31 -© STL Limited • Proprietary and Confidential

‘Personalised Logistics Services … for Data’

1. DistributionOrigination & CaptureMulti-Modal TransportTermination & Display

2. B2B2C VASIdentity, Authentication, SecurityAdvertising, Marketing ServicesEcommerceOrder FulfilmentBilling & PaymentsCustomer Services

Telco (2.0)

- 32 -© STL Limited • Proprietary and Confidential

1. Distribution Platform

- 33 -© STL Limited • Proprietary and Confidential

New Types of Wholesale Products

Video

Content delivery

networks for 3rd parties

Data

“Postage and packing

included!” – for data

Become supplier for 3rd

party voice services

Voice

+

- 34 -© STL Limited • Proprietary and Confidential

2. B2B2C Value Added Services

Platform

- 35 -© STL Limited • Proprietary and Confidential

Current Approach: Media & Advertising…

TelcoBrand Advertisers

Consumers

$ $Enterprises

SMEs

Multi-Nationals

Upstream Customers Revenue Side 1

Downstream Customers Revenue Side 2

- 36 -© STL Limited • Proprietary and Confidential

…but market is too small!

Revenue, $ Billions

20062010

$2,000bn

$2,490bn

$425bn $533bn

$30bn $62bn

Fixed and MobileTelecoms

Global advertising

On-line and mobileadvertising

- 37 -© STL Limited • Proprietary and Confidential

Open Up More Markets for Telco Platform

$

Developers

Retailers

Government

Brand Advertisers

Content Owners

Telco – Retail

Millions of Customers

Thousands of Segments

Content Owners

Telco Platform$

B2B2C VAS

Distribution

Upstream Customers Downstream Customers

- 38 -© STL Limited • Proprietary and Confidential

VAS: Help Customers Interact More Easily

Developers

Retailers

Government

Brand Advertisers

Content Owners

Telco – Retail

Customers – Revenue Side 1

Customers – Revenue Side 2Barriers

Identifying Other Party, Authorisation & Security

Promoting Offer

Conducting transaction

Fulfilling Order

Billing & Payment

Service & Support

Millions of Customers

Thousands of Segments

- 39 -© STL Limited • Proprietary and Confidential

VAS: Telcos assets well suited

Developers

Retailers

Government

Brand Advertisers

Content Owners

Telco – Retail

Customers – Revenue Side 1

Customers – Revenue Side 2Barriers

Identifying Other Party, Authorisation & Security

Promoting Offer

Conducting transaction

Fulfilling Order

Billing & Payment

Service & Support

Telco Capabilities &

Assets

Millions of Customers

Thousands of Segments

- 40 -© STL Limited • Proprietary and Confidential

Value of the opportunity

- 41 -© STL Limited • Proprietary and Confidential

Potential Market of $350+ billion?

- 42 -© STL Limited • Proprietary and Confidential

Making it happen

- 43 -© STL Limited • Proprietary and Confidential

Five things to get right

ScalePackaging

Rewards

PrivacyReliability

The Two-sided Telecoms Market Opportunity

THANK YOUMore info at www.telco2.net/blog

An eComm 2008 presentation –

http://eCommMedia.com for more