Category Archives: Fixed-line PSTN telecoms

International & Irish communications market data published

The end of the telco as we know it?

The telcos and the blow-in giants of the internet (Facebook, Apple and Google) are shaping up for a battle royal, and whatever the outcome, the world of telecoms will change for good. Will we soon see the end of the telco as we know it?

Right now, the giants of the internet already have control of most of the devices that we use for our mobile communications. They are building a portfolio of internet-based communications services (Google Voice, Apple Facetime…) – or buying them (Whatsapp). These ‘over the top’ services are eating into telcos’ revenues, but the telcos retain control of their key assets – the phone number and the cellular network.

The giants of the internet are active at the other end of the seven-layer model too – investing in infrastructure like subsea fibre-optic cables. Moreover, Google has launched ‘Google Fiber‘, providing broadband service to homes in the USA – initially to Kansas City, and now rolling out to another 34 other cities in the USA. Interestingly the basic connectivity service is free – you just pay the $300 or so installation cost. Imagine a fixed line telco in Ireland offering that!

But wait, there’s more. Yesterday (24th April) it was reported that Google are considering offering free wi-fi in those same cities. It is already (just about) possible to port your US landline number to Google Voice – so with an Android smartphone, a VoIP app and a landline number you can have cordless (though not truly cellular) coverage over public wi-fi. Calls might even be free of charge.

The easy way into full mobile service is by becoming a mobile virtual network operator, or MVNO. Google is reported to have been in MVNO talks with US mobile operators Verizon and Sprint. It is of course only a matter of time before a mobile operator breaks ranks and does a deal with Google. Like Diarmait Mac Murchada’s pledge of allegiance to Henry II of England in exchange for support in his attempt to regain the Kingship of Leinster, such a deal is likely to be the thin end of the wedge. Already we see the integration of a SMS interface into Google Hangouts – encouraging the customer to to choose the more feature-rich and lower cost Hangout IM instead of sending an SMS. Will we see the same with voice calls over wifi? While the Irish MVNOs are owned by the likes of Tescos, the MNOs will sleep soundly. But Google as an MVNO? Be afraid, mobile operators.

It used to be said that the telecoms industry had succeeded by sacrificing functionality for ubiquity – if the computer industry had invented the telephone, we would have all had colour videophones 30 years ago… but most of them would be unable to communicate with each other. The telecoms industry, however has achieved something very special – any phone number in the world owned by any phone company using any technology can be called from any other phone on the planet. What a great and unique achievement! However, if an intelligent terminal can handle a multiplicity of standards, perhaps this lack of functionality has become the Achilles’ heel of the telcos?

Of course, there are many things that telcos do well that the internet companies can’t – like providing (almost) nationwide connectivity. However, their business is being eaten into by the Internet behemoths. The end of the telco as we know it is, if not nigh, then at least a likely scenario in the long term, perhaps even in Ireland. Interesting times ahead.

How MCI’s ‘friends and family’ tariff and campaign changed telecoms marketing

1 Reply

In 1991, US landline carrier MCI launched an offer that was to be copied by fixed and mobile telcos across the world – its ‘Friends and family’ tariff and campaign.

Nowadays it is hard to imagine a world without competitive telecoms, but competition in US telecoms had only begun, slowly, from 1984 (in Europe, competitive telecoms began with Mercury Communications in 1982). The USA telecoms market was split between the local exchange carriers (LECs) and the long-distance carriers. At the time, there were three significant long-distance operators in the USA – AT&T, the incumbent, plus MCI and Sprint, the challengers.

MCI’s early history was so dogged with lawsuits to win the right to compete that wags joked that MCI was ‘a legal practice with a telecoms tower on top’. MCI was later to fall in the Worldcom accounting scandal and is now a subsidiary of Verizon.

So, back to the story. By 1991 MCI has established itself as a serious player in the long-distance market. MCI decided to launch a new type of tariff, where the caller would gain an extra hefty discount if the person they were calling was also an MCI customer. The story goes that the MCI team heard that AT&T was working on a similar plan, but that the billing development would take many months for both companies (telecoms veterans will know that billing system development is usually the bottleneck in telco services), so MCI rented a warehouse, hired hundreds of clerical staff, gave them desks and computers, and taught them to them calculate the discounts by hand – then launched the service. MCI’s ‘Friends and family’ service was a massive success . By the time the competitors responded, MCI had gained massive market share and the battle for ‘Friends and family’ was over.

It seems obvious in hindsight that telco customers tell their friends about the purchases they make. We all accept now that for communications products, an economic incentive can be designed to add to the social pressure already existing, and will drive customers to follow their friends in switching telecoms provider. A former colleague of mine, Dr. Daniel Birke, explored this phenomenon in his Ph.D thesis and subsequent book.

MCI’s ‘Friends & family’ tariff and campaign was successful because it combined two key elements:

A tariff discount for caller if the recipient was also a user of MCI’s long-distance service
A member-get-member campaign where the customers were encouraged to ask their friends to join MCI to avail of the discount, or to pass the phone numbers of friends to MCI salespeople.

It is worth pointing out that MCI’s ‘Friends & family’ tariff was fundamentally different to the on-net mobile tariffs that are almost ubiquitous today. Firstly, on-net calls are cheaper to deliver than offnet calls, because they attract no interconnect payment whereas MCI gained no savings from delivering calls to ‘Friends and family’ destination because the service was provided by the LEC in either case. Secondly, differentiating between on-net & offnet destinations in a billing system is relatively straightforward, whereas MCI had to apply the discount based on each customer’s individual list of ‘Friends and family’ destinations.

Perhaps the story of the warehouse full of staff at computers typing up bills is an urban myth, but MCI’s success was a lesson to all telcos: social influence is a strong force in marketing. Combine a generous offer to a customer’s social group with an easy mechanism for sharing, and your customers will market your product for you. Add in a strong brand and an excellent user experience and your customers become apostles. It is hard to achieve but for those that do, the rewards are considerable.

A version of this post appears on the idiro.com blog.

Q3 Comreg report reveals interesting developments in Irish telecoms

Leave a reply

Comreg’s latest quarterly report, published just before Christmas, makes for interesting reading. Here, in aid of brevity given the evening that’s in it, are some observations on the report and what it means for us in the Irish telecomms industry:

Telecoms is still getting cheaper – see chart 1.4.1. This is probably driven by quad-play, in part, but we await the next quarterly report to see whether prices continue to decline with the consolidation in the mobile industry. This tallies with Figure 4.5.1 which shows that mobile ARPU continues to fall.
Eircom’s loss of fixed line market share continues, albeit at a reduced rate. It is too early to say whether Eircom TV is starting to arrest the decline. Certainly, as chart 2.2.3 below shows, most of the growth in fixed-lines seems to be coming from UPC. This is backed up by the growth in triple-play services shown in graph 2.2.4. Apologies for the poor quality graphic – the original (here) is a little more legible, though still hard to read.

Green = Eircom, light blue = UPC, orange = Digiweb, red = Vodafone (fixed), purple = Imagine, dark blue? = Sky, maroon = OAOs & black = total subscriptions (right axis)

Chart 3.1.2 shows that fixed broadband is substituting for mobile broadband. Overall growth in broadband penetration seems to have plateaued – surely have we not reached saturation? Chart 3.3.1 shows that Ireland is well below the European average on broadband penetration, and the days are gone when one could argue that household size was a significant factor there. This is a real issue – how can Ireland become a knowledge economy if we don’t get the people using computers? Some of the research findings suggest that home broadband in Ireland is expensive (fig 3.5.1), whereas other charts suggest that price is not the main issue. However, according to research published elsewhere, our broadband is also too slow. Research published here shows that Irish broadband upload and download broadband speeds are towards to bottom of the list of European countries.

And what of mobile?

For the first time in a long time, the proportion of postpaid (vs. prepaid) subscriptions fell, albeit slightly – as evidenced in fig 4.2.1. Are consumers or operators pulling back from great deals on postpaid smartphones at the bottom of the market?
Chart 4.3.1 below tells an interesting story. It will come to no surprise to telecoms heads that SMS volumes are falling through the floor as Over-The-Air (OTA) services grow. Whatsapp has over 400 Million users! Of course, mobile data volumes are growing fast – they almost doubled in the last 2 years, as the chart shows.

Chart 4.3.5, when taken with 4.3.1 above, shows that the growth in mobile data volumes comes from both the number of users and the volume per user. No surprise there.
Comreg are doing a good job of keeping us abreast of the new field of machine-to-machine (M2M) communications. Figure 4.6.1 shows that Vodafone and O2 have most of the market between them.
Fig 4.3.2 shows the breakdown of mobile outgoing calls. Another first for Q3 2013 – the volume of mobile international and roaming calls outstrips that of mobile to fixed numbers for first time. So punters are taking fixed lines (2.2.3, above) but they’re probably not giving the numbers out, and if they are, their friends are electing to call them on the mobile.
Figure 4.3.4 shows that about ⅔ of mobile voice minutes are on-net. Research has shown that people tend to choose the same network as their social group – this phenomenon is much more marked in countries (e.g. Portugal) where the price advantage for calling on-net is stronger.

Overall, another interesting report and a couple of firsts for this quarter. One request to COMREG, please: can you publish the report as a higher-resolution pdf please? Some graphics (e.g. 2.2.3) are difficult to read.

Happy New Year to all!

Insights from the IQPC number portability summit 2013

1 Reply

Carin Johansson giving an excellent overview of the state of number portability worldwide

I had the privilege of attending the IQPC Number Portability Global Summit earlier this month.

Number portability has been important for the development of competition in telecoms. The conference addressed a wide variety of topics around the subject. Here are some of the points that resonated:

According to one well-respected speaker, 75 countries have implemented number portability (NP) on their fixed (FNP) or mobile (MNP) networks.
Many others, including Jamaica, Trinidad, Afghanistan, Armenia, Togo and Tunisia are likely to implement number portability by the end of 2014.
Some countries, e.g. Russia, are struggling against technical, commercial and political obstacles to implementing number portability
User experiences of MNP vary widely. In Portugal, callers to ported numbers are greeted with a message warning them that the call may cost more. In countries like Ireland, Ghana and Israel, mobile numbers can be ported in under an hour, whereas in some other countries it can take weeks.
In some countries (e.g. UK) the customer approaches her current network and requests porting (this is known as donor-led porting). Best practice, followed by many countries, is that the customer requests porting from the network to which they wish to port (recipient-led porting).
The technical platforms and processes underpinning porting continue to evolve, in response to customer needs (or rather operators’ new product opportunities), technical advances and the pursuit of efficiencies.

My talk to the conference covered three areas:

1. The evolution of in the importance of number porting

Mobile numbers will continue to be an important way to be reached by almost all mobile users, but callers can now find and contact at least some of their targets on social media.

The evolution of the importance of number portability

Against that, the cost and difficulty of porting is now very low in most markets, so porting will continue to be popular for the foreseeable future.When truly portable mobile phones arrived (first for businesses, then with the advent of prepaid, for the mass market), the mobile phone number filled a need left unfulfilled: a simple reliable means of reaching someone anywhere, anytime. Porting was introduced to improve the free functioning of telecoms markets. In 2003, the value of porting to the Irish economy was estimated at £IR 129M.

More recently, social media has emerged as a far superior way to find and contact people. Although it has limitations, it removes many of the costs of changing the mobile number. However, in parallel the costs (monetary and service interruption) to users of porting continue to decline, and many operators incentivise port-in. Number porting is here to stay.

2. Insights based on analysing porter data

Idiro has analysed data relating to porting customers in a variety of markets. I presented a number of insights (anonymised, of course) on the characteristics of porters based on multiple markets. I also described in detail the phenomenon of porting contagion. The power of word-of-mouth results in many consumers following their friends when they switch networks. This accounts for a high proportion of porting overall. Big thanks to my Idiro colleague Lorcan Treanor for the analysis behind these insights. Please contact Idiro to learn more about these insights.

3. How Idiro SNA helps meet the challenges of porting churn

The SNA analytics service from my employers, Idiro, is a perfect fit for the marketing problems around mobile number porting. Idiro scores can be used in Member-get-member acquisition campaigns and in retention campaigns to reduce porting churn.

Freddie McBride of CEPT presenting on service portability

I was chairman on the second day of the conference, which focussed on Service Portability. There is great interest in this topic – where the customer ports not only their fixed and mobile numbers but other elements of their package as well, up to the entire quad-play bundle.

Though the concept is an appealing one, in practice the challenges are large. Imagine being a customer with a home phone, mobile phone, TV and broadband bundle, and moving it to a competitor. Every provider’s service bundle is different, and porting the entire bundle will require the customer (or the recipient operator) to make careful choices. In addition, speakers pointed out that the delay in porting different services will vary, so during a transition period the customer will be receiving some services from the donor operator and some from the recipient operator.

There are challenges aplenty there and it is clear that there is no consensus over the best way forward. One might (at the risk of overestimating the similarities) say that the discussion on service portability is where the number portability was 25 years ago.

Overall, the conference was well-organised and the speakers well chosen. However, as with many other telecoms conferences, the voice of the customer was hardly heard at all. Quality was mostly described in technical telecoms terms, rather than the quality as measured by the user. Almost no primary or secondary research on customer experience was presented by regulators, operators or vendors. At the end of the conference (I missed one talk) I had learned nothing about consumers’ expectations for porting and how well they were being met.

If the voice of the consumer is not heard, how will their needs be met? It was ever thus in the telecoms industry – or at least, it has been for the last 25 years – and it is a reason that OTT services like Whatsapp are eating SMS and MMS’s lunch. Despite being excellent in what it did cover, by its omissions this conference reminded me again of why the telecoms industry needs to cop itself on and develop a passion for the customer, or risk its share of customer communications being progressively eroded.

(a version of this post appeared on the Idiro blog)

The Irish Telecoms Blog

What's happening in the mobile, internet, TV and fixed line telecoms industry – from an Irish perspective