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The Stupid Network

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A 2004 report I wrote for a global handset manufacturer on how to survive in an over-the-top world. Whilst I didn't get everything right, and I would present it differently today, it was pretty insightful for its time.

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The Stupid Network

  1. 1. Telepocalypse Ltd. The Stupid Network: A User Guide Prepared for Cinderella Somewhere, Somecountry Prepared by: Martin Geddes, Director Document version: 0.1 Date: 10 December 2004
  2. 2. Abstract Carriers keep control of the wireless value web by controlling pinch points on the flow of value through handsets, networks and retail supply chains. This gives them power over their suppliers. They can also perform fine-grained price discrimination against users for the value that flows over the network. A move to open all-IP networks undermines this business model, and enables massive disintermediation of carrier toll systems. This paper describes the mechanics of this change, what the important value creators will be in an all-IP world, and suggests strategies and tactics for the varying market conditions along the way. Change History Date 7 Nov 04 22 Nov 04 3 Dec 04 10 Dec 04 Who Martin Geddes Martin Geddes Martin Geddes Martin Geddes Version 0.1 0.2 0.3 0.4 18 Dec 04 Martin Geddes 0.5 Changes Document outline created. First draft. Cinderella v0.2 comments addressed. Added context diagram for the strategies; details on trust, billing, abuse; executive summary. 14 Dec conference call comments addressed Contacts For Telepocalypse Ltd.: Martin Geddes, Director Telepocalypse Ltd, 26/5 Annandale St., Edinburgh, EH7 4AN, UK. Skype: mgeddes Yahoo: mgeddes_uk For Cinderella: About the Author Martin Geddes is thinker, writer, coder, inventor, agitator, irritant and consultant. He writes the popular telecom strategy weblog, cited by Business Week and Forbes among others. Before becoming an independent consultant he was a technology specialist and product strategy manager at Sprint in Kansas City, USA. During his time at Sprint he filed 17 patents on various mobile handset and edge service technologies. Martin also has extensive hands-on experience in the IT industry building large transactional systems at Oracle Corporation. He holds a bachelor's degree in Mathematics and Computation from Oxford University. Telepocalyptic Quote “Who will be the biggest losers [from VOIP]? Not the fixed-line telcos, even though their revenues may fall by 25% by 2010 due to VOIP, according to Mr Mewawalla. The mobile operators are likely to be the big losers, with their revenues plunging by 80%. Together, VOIP and wireless broadband could fatally undermine their costly thirdgeneration (3G) networks.” - The Economist, 2 December 2004
  3. 3. Executive summary Cinderella is finding it harder to maintain margins and volumes in the face of consolidating and powerful wireless network operators. At the same time, wireline operators are facing significant voice service revenue loss from VoIP, and are failing to create new billable events from other newer IP applications. Technology improvements such as Wi-Fi and FLASH-OFDM suggest similar dynamics will soon apply to wireless networks. The end goal for Cinderella is to create the greatest possible appeal to consumers buying devices for open all-IP networks, regardless of the interests of the network operator. In the transition, Cinderella needs to make the most attractive handsets for today’s network operators to distribute. How network operators gain and lose control Network operators maintain command over the value web by controlling many individual value “pinch points”. These may be embedded in the handset, in the network, or external to both. Examples include the selection and positioning of menu entries, the home page URL, the ability to locate a handset and route inbound connections, and the establishment of carrier-specific retail outlets. The report provides a detailed breakdown of their nature, importance and future. These control points enable carriers to divide the profit pool in their favour compared to Cinderella, and engage in fine-grained price discrimination against users. In return, users expend considerable effort in bypassing these toll systems, and frequently meet with success. Avoidance of international voice toll fees, messaging charges and premium content costs are a way of life for many users. As the industry restructures from vertical integration to horizontal layers (separating data transport from service), the individual components that make up a communications service are exposed and potentially become separate businesses. The report uses SMS as an example of a dozen or so value elements hidden inside. Come on down, the price is wrong The prognosis for carrier control and ability to price discriminate is that such powers will steadily weaken over the rest of this decade. Other networked industries, primarily involving physical transport of goods and people, have experienced intensifying price discrimination over time. Yet the technical and economic structure of the Internet, as a transport for information goods, is fundamentally different. These precedents only serve to illuminate those differences. Keys to the operators’ power base Two critical elements are billing and digital identity. Even in a world where data transport is virtually free, there is likely to be an asymmetry in the end-user value of many communications resulting in a desire for creating a billable event. Digital identity traceable to real people, places and things provides vital glue to the system, preventing abuse. The carriers retain a critical advantage in these two areas. New ideas, not lower prices or arbitrage Other parts of the value network, however, are ripe for transfer outside of carrier control. By creating “smart” core networks that attempt to meter and add value to data 10 December 2004 Page 3 of 52 © Telepocalypse Ltd. 2004
  4. 4. flows, carriers have locked themselves in to often immediately obsolete technology. (There are cases where vertical integration of features into the network makes sense, and these are noted in the main text.) Their weakness is inability to deploy new services and change at the speed that the network edge demands. The purpose of IP networks is not low price or efficiency: it is absolute flexibility, with the network assuming the absolute minimum about the purpose and value of the connections made over it. Speak clearly after the tone This paints a potentially bright future for Cinderella, where constant innovation in applications drives an incessant demand for new handsets. A consequence is that much of the current approach to VoIP, which recreates the PSTN’s approach on an IP infrastructure, is fundamentally flawed. IP enables completely new modes of communication, richer in sensuous forms of presence, group forming and collaboration. Voice remains at the heart of this, something frequently lost in the 3G content labyrinth. Wi-Fi networks are a key starting point, because they are the dominant form of fast, open wireless IP networks deployed today. However, Cinderella is compromising its position here by its preference for dual-mode handsets, which have to defer to the interests of incumbent cellular carriers. Cinderella is potentially conceding a key strategic market to non-traditional device competitors because it over-values mobility compared to price and new functionality. Playing your cards in the game of telecom To address the market changes Cinderella needs a multi-faceted approach that recognises that different markets enjoy varying levels of incumbent power and availability of IP networks to deliver value to users. The most important change Cinderella can make is to view its handsets as sales outlets for carrier services. Simple changes can make Cinderella handsets more appealing to the core metrics of carriers (ARPU, CPGA, CCPU, churn, free cash flow). The best possible sales message to a carrier is not a sexy new form factor, nor a juicy discount. It’s evidence of better core financial performance, for example by  On-screen reminders for pre-paid users to top up.  Impulse buying of MMS messages with one-click send to the 2-3 most likely recipients (a-la Amazon one click).  Highlighting on-net calls to reduce churn “Calling Bob at Home (free on-net call!)” Many more examples are given in the text. This is a pretty dramatic shift from the traditional hunt for new features for a consumer electronics company. Additional strategies include: focusing on features that have little or no network dependence; subversive features; creating more compelling applications; helping users dodge the carriers’ net; and leveraging existing market power. The main text includes a discussion of when these strategies are appropriate. To be successful, Cinderella needs to align everything it does to a move to “stupid” IP networks, from lobbying to venture financing, customer service to M&A. The report finishes off by recapping some of the landmark ideas that have shaped the communications revolution. In particular, all readers should become familiar with the Rise of the Stupid Network and its associated follow-ons. 10 December 2004 Page 4 of 52 © Telepocalypse Ltd. 2004
  5. 5. Contents Executive summary ........................................................................................................................3 Disclaimer .......................................................................................................................................6 Introduction ....................................................................................................................................6 Part 1: Where we are ......................................................................................................................8 State of the Nation ....................................................................................................................8 Case study: Elvis has left the building ..........................................................................................9 How the carrier controls the value chain ...............................................................................9 Travelling without a ticket ..................................................................................................... 12 Part 2: Where we’re going .......................................................................................................... 14 Case Study: Dissecting SMS from an IP viewpoint .................................................................... 14 The disintermediation forecast ............................................................................................. 17 The only way is down ............................................................................................................ 19 Should you care about carrier disintermediation? .............................................................. 20 Identity and trust: linking the layers ..................................................................................... 21 Billing and value asymmetry.................................................................................................. 23 Understanding mediation ...................................................................................................... 24 Winners and losers ................................................................................................................. 28 Timeline ................................................................................................................................... 29 Part 3: How to get there ............................................................................................................. 31 Support to the winning side .................................................................................................. 31 Don’t play with their network ball ....................................................................................... 33 Be the best footballer ............................................................................................................. 34 Have more players on the pitch ........................................................................................... 35 Bribe the public to support you ........................................................................................... 36 Cheat (but don’t get caught) ................................................................................................. 36 Foul the other side.................................................................................................................. 37 Plan for the next match ......................................................................................................... 38 Change the rules ..................................................................................................................... 39 Picking your players ............................................................................................................... 39 Case study: A marriage of inconvenience .................................................................................... 40 Summary and Conclusions ........................................................................................................ 43 Appendix A – Recommendations ............................................................................................ 44 Appendix B – Carrier points of control of value web ........................................................... 46 Appendix C – An economist’s viewpoint................................................................................ 49 Not everything that counts can be counted ....................................................................... 49 Option value ............................................................................................................................ 50 Lies, damned lies, operator revenue breakdowns .............................................................. 50 Appendix D – History & further reading ................................................................................ 51 10 December 2004 Page 5 of 52 © Telepocalypse Ltd. 2004
  6. 6. Disclaimer According to psychology research by the Harvard Business School 1, people pay too much attention to outside advice that they’ve paid for. They consistently underestimate the freely available insight and knowledge of their colleagues. So once you’ve done reading this consultant’s paper, throw it away. Shred it, burn it, or bin it. Then Skype a friend and ask what they think. Introduction This paper isn’t about the Internet. Or peer-to-peer networks. Or Wi-Fi. Or VoIP. Or even about mobile phones. It’s about all of these, and the underlying forces that unite them. There are common economic, sociological and technical drivers to the changes we see today. My goal is to help you look at familiar business problems in a new light, and challenge your assumptions about what’s possible. The most important of those problems today is: How can Cinderella compete as carriers assert increased control over content, handsets, networks and distribution? My thesis is that the current dominance of network operators over the handset makers is a transient period between two very different worlds. The tide will flow out as well as in. Cinderella wants to dominate this future world (I hope!), thus… Objective #1: Be the user’s vendor of choice for personal communications devices operating on open IP-based wireless networks. This should be Cinderella’s long-term goal. Whilst it is fine having a vision of a future that hasn’t fully arrived yet, we also need to deal with the current reality of ascendant operators. Some simple and inexpensive changes to current products Cinderella could have a great deal more success in getting handsets distributed by today’s powerful operators. Objective #2: Be the network operator’s supplier of choice for handsets not on open IP-based wireless networks. So that’s the nutshell description of “there” and “here”. But what about the journey? What you need is a unifying framework. What specific criteria make it easier to sell a handset today? And tomorrow? Product development and project investments must be aligned to these trends. Without this, projects and products are launched based on projected ROIs. To be blunt, the ROI competition is won by the department that can think of the biggest number and has the positional power or political capital to force it through. If you’re lucky you have a hit, like interchangeable handset faceplates or ring tones. If your numbers turn out to be a fantasy you have a flop instead (and I won’t humiliate anyone by providing examples!). “The Hidden Cost of Buying Information”, Harvard Business School Working Knowledge, 8 November 2004, 1 10 December 2004 Page 6 of 52 © Telepocalypse Ltd. 2004
  7. 7. But like a Vegas casino, wouldn’t it be easier playing the market with the house odds on your side? How? You align your bets with the macro trends of the industry. The rest of this paper describes the rules of the Internet game. 10 December 2004 Page 7 of 52 © Telepocalypse Ltd. 2004
  8. 8. Part 1: Where we are Power – Why the carriers have it and you don’t State of the Nation So there is a war between operators and device manufacturers to capture the value of the user’s communications. What does the battlefield look like today?  Application functionality is increasingly moving from the centre of networks (switches, video servers, session border controllers and home agents) to the edge (PCs, PVRs, PDAs, phones and other connected devices). Peer-to-peer is the ultimate expression of this trend.  The computing and communications power available at the edge are increasing at an exponential rate. CPU speeds, storage capacity, wireline and wireless transmission speeds all have doubling periods between 9 months and 2 years2. Wireless spectral capacity increases fastest of all!3  The dissolution of carrier control over wireline networks has been slowly unfolding over a period of 30 years. None of the major new applications enabled by the Internet has resulted in new billable events for telecom carriers: email, IM, chat, web, multi-user gaming or peer-to-peer file sharing.  Change for wireless networks will be faster and nastier than for wireline ones. Rights of way – spectrum – are about to become plentiful4. Network equipment is cheap, and much of the infrastructure is paid for by end users. Furthermore, the cost of wireless network deployment is more closely linked to actual subscribers than potential subscribers passed – you can start small.  The next generation of wireless networks from Flarion, IP Wireless, Kaon, etc. are low latency, cope with bursty traffic, have built-in QoS if needed, and high throughput and spectral efficiency. Perfect for moving IP packets around. WiMAX – if it ever rolls out – is just a bonus on top of these. These technologies are as transformational to telecom as the arrival of the machine gun on the military battlefield. As we’ll see, these in turn also have a common thread: The best network for the users is one that just shuffles bytes from place to place. The network doesn’t assume anything about the traffic, or try to “add value” to those bytes. Thus new applications can arise and old ones can change without asking the carrier for “Uncommon Sense”, Peter Cochrane, p200. Measured at the user, coming from: spectrum re-allocation and de-regulation, moves to smaller cells (e.g. WiFi), cognitive radios, meshing and general transmission improvements (e.g. new OFDM variants). Claude Shannon showed there was a theoretical transmission limit to a hypothetical channel, but the real world is not a single channel. 4, 11 October 2004. “According to, work begins next month on one of the IEEE's most important, and most politically charged, projects, to devise an "intelligent" air interface (cognitive radio), that can tap into unused television frequencies. This will be the standard (802.22) for fixed wireless systems that use cognitive radio techniques to switch automatically to a clear area of the band, and to avoid interfering with other occupying devices.” 2 3 10 December 2004 Page 8 of 52 © Telepocalypse Ltd. 2004
  9. 9. permission. Advances in technology at the edge are readily captured by the end user. The user doesn’t need to wait for the carrier to deploy any new features or invent a new pricing plan. The worst network for the operators is one that just shuffles bytes from place to place. Such a network offers fewer, if any, opportunities for value-add, differentiation and price discrimination of network traffic. Case study: Elvis has left the building Before we look at the deeper issues brought by end-to-end IP networks, let’s set the scene with a recap of what is happening to voice on the Internet. Perhaps the most important aspect of VoIP isn’t the rise of alternative service providers like Vonage or AT&T CallVantage. It’s the creation of totally new voice products and the complete loss of service revenue for traditional voice providers. By my own measurements5, Skype is currently supplying around 7.5bn minutes of use a year. This is 15% more than the annual outgoing international call volume from the United Kingdom6. Monthly growth rates are in the tens of percent range7. They are adding 100,000 registered user accounts every day8. Anecdotal evidence is that much Skype use is for international calling, and thus does achieve some form of toll displacement. There is no public available data on how much Skype usage is incremental to PSTN calling vs. displacement of PSTN calls. However, taking an average (and conservative) $0.02/minute displacement rate this would suggest Skype is responsible for $150m loss of profit to the global telecom industry. It isn’t hard to imagine a figure of ten times that for the global private VoIP applications industry, once Xbox Live and comparable services are added in. Whilst this seems small compared to a $1300bn industry turnover, it all comes from the bottom line. A recent and credible analyst estimate is of a total EUR6.4bn loss just within Western Europe by 20089. Consumer acceptance of VoIP and massive growth – once given a broadband connection – are now a proven fact. The presence, IM and conferencing features of Skype coupled with excellent usability are all icing on the free calling cake. But the crucial lesson is IP telephony is about innovative features and new modes of use. It is not about interconnect arbitrage, regulatory bypass or cheaper replicas of the past. How the carrier controls the value chain At a high level, carriers control the cellular industry in three ways: the messages they allow to flow over the network, the features and configuration of their handsets, and the retail distribution and branding of handsets. A detailed breakdown is shown in Appendix B – Carrier points of control of value web. These are the capabilities that enable carriers to price discriminate against users and restrict competition from outside the carrier industry. 12 noon 13 Nov 2004: 2,470,915,990 minutes served; 10.38am 20 Nov 2004: 2,616,605,453 minutes served. 6 7 8 E-mail from Skype PR representative, 22 November 2004. 9 5 10 December 2004 Page 9 of 52 © Telepocalypse Ltd. 2004
  10. 10. The chart below shows these control factors. Each factor is rated on two axes. The horizontal axis shows the degree of control the operator exerts over the pinch point compared to the handset vendor. The vertical axis determines the amount to which the factor is exploited to support market and pricing power. At one extreme the user (or public) has no choice and the factor is exploited to the greatest possible extent to achieve price discrimination. At the other extreme, the vendor has no power over the user whatsoever. The shape of the factor shows the type of control – handset, network, or other. The size of each factor indicates how important the factor is to enabling disintermediation. The shaded areas show the two key extremes, one where the network operator is in charge of everything (operator tyranny), and the other where the user has absolute freedom (user utopia). Since there are many more device makers than network operators, users have a strong bias towards handset vendor control of features. Regulatory Distribution Handset software platform Dominates Operator Provisioning & Roaming Which vendor is more in control? Network packet flow Branding Contact handset Numbering Certification Home page URL Proxies & gateways Home deck Layer 1-3 DRM Application environment integration Operator Tyranny Vendor in control Operator User Utopia Cinderella Dominates Cinderella Customer data User in control Absolute user freedom Handset UI configuration Cinderella Tyranny No user freedom Figure 1 - Market power map of wireless today It looks complex, but it isn’t:  Stuff near the bottom edge is causing the user to bleed money because of a lack of choice, control or competition.  Stuff on the left makes the operator richer at the expense of Cinderella.  Stuff on the right makes Cinderella richer at the expense of the operator. Some quick usage notes. The values are my own estimates, and reasonable people could disagree over the size and position of any factor. Cinderella is welcome to perform its own analysis. The chart also aggregates positions of the two industries: Cinderella is taken to represent the whole handset and middleware space, and all carriers are treated as 10 December 2004 Page 10 of 52 © Telepocalypse Ltd. 2004
  11. 11. one. Obviously the degree of control, say, Vodafone has over its suppliers is likely to diverge greatly from that of the carriers as a whole. Not surprisingly, power is currently concentrated with the operators. The bottom left quadrant is where the user has little power and the carrier is in command – operator tyranny. Not shown on the chart, because they offer no control to either party, are functions well inside the user utopia of choice and low prices: applications, accessories, consumer magazines, etc. With a more detailed map of the battlefield there’s less excuse for shrugging our shoulders and accepting carriers as the king makers. We can instead start to analyse which carriers are in charge, how powerful they are, and where there weaknesses might be. Let’s take a look at the same picture, but overlay it with the dynamics of the industry. Regulatory Distribution Handset software platform Dominates Operator Which vendor is more in control? Provisioning & Roaming Network packet flow Branding Numbering Contact handset Certification Home page URL Proxies & gateways Layer 1-3 DRM Application environment integration Vendor in control Operator User Utopia Cinderella Dominates Cinderella Customer data User in control Absolute user freedom Handset UI configuration Home deck Operator Tyranny No user freedom Cinderella Tyranny Figure 2 -- Dynamics of market control in wireless With the possible exception of DRM, pretty much everything is headed in the direction of openness. More smartphones, more Wi-Fi networks, more operating systems, more choice of vendors, more carriers and MVNOs competing, tougher regulation, more spectrum, faster network technology. Now let’s compare it with the wireline world. Add together the PCs, DVDs, VCRs, PVRs, phones, set-top boxes, gaming devices, Microsoft operating systems, and so on, and declare them to be the “edge” vendors fighting against the network operator “core”. The positions and sizes of the market control factors all move substantially. It’s quite a contrast: 10 December 2004 Page 11 of 52 © Telepocalypse Ltd. 2004
  12. 12. Absolute user freedom User Utopia Layer 1-3 Distribution Application environment integration DRM Device UI configuration Branding Customer data Which vendor is more in control? Proxies & gateways Operator Tyranny Vendor in control Regulatory Numbering Edge Dominates Edge Device software platform Home page URL Dominates Operator Operator Network packet flow User in control Contact Certification device No user freedom Figure 3 -- Market control map of wireline world Probably the only thing that’s worse on wireline from the user’s perspective is regulation. Wireline carriers have had longer to perfect the art of regulatory capture. Travelling without a ticket The economic goal of a carrier is to extract value from communications over its network through the generation of billable events. Nothing else counts. To do this, you have to price discriminate between the messages that flow over the network. But the customers are increasing finding ways around those toll barriers. The trend has been running for decades, but is now accelerating. The table below illustrates just some of the ways in which telecom customers bypass carrier tolls. This list is by no means exhaustive. The methods highlighted in bold rely on an IP network for by-pass. Those in italics use circuit-switched telephony as the transport. Service Toll gate Means of bypass Examples Circuit voice International call interconnect Calling cards IDT Circuit voice Premium rates for cross-network calls (e.g. mobile to mobile) Prefix dialling of landline numbers to preserve bucket for xnet calls 10 December 2004 Page 12 of 52 © Telepocalypse Ltd. 2004
  13. 13. Circuit voice Roaming charges + handset lock-down Unlocked handsets and thirdparty prepaid SIM Expansys (handsets); Circuit voice PSTN switch VoIP + Wi-Fi Skype for Pocket PC Telex and telegram Gateway/separate network Fax machine N/A Fax PSTN switch Fax-email gateway eFax Fax PSTN switch Fax-IP gateway Mediatrix MMS for photos MMS gateway Email + IP network; File N/A transfer in IM applications (e.g. MSN, Skype) + IP network; SMS for notification (“check your email”); Bluetooth file transfer; face-to-face viewing; sneakernet via flash memory cards SMS Mobile originated message charges Java/Symbian application + IP Network SMSSend [defunct], Agilemobile Ringtones Download vending machine User-created ring tones; flash memory cards or Bluetooth Xingtone Push-totalk Gateway/proxy Java application + IP Network FastMobile (SIM cards) Disintermediation of carrier tolls is clearly more than a few isolated examples: it is a pattern that practically forms a way of life for users. To complement these toll-bypass methods, customers can also engage in “lock-in bypass” by getting their handsets unlocked. There are many website that can be used to procure unlock codes for just a few euros. Q: How might the product and sales approach differ for a closed vs. open carrier? Q: How does the role of third party retailers (e.g. Carphone Warehouse) and alternative distribution channels change with the openness of the carrier? Q: How do Cinderella’s handset designs help or inhibit users to bypass carrier tolls? 10 December 2004 Page 13 of 52 © Telepocalypse Ltd. 2004
  14. 14. Part 2: Where we’re going Wealth – Where it comes from, where it goes to Case Study: Dissecting SMS from an IP viewpoint How do IP networks enable disintermediation of carrier services and tolls? To find out, let’s take apart the familiar SMS service. The goal is to understand what value the carrier might be adding. We can then start to discuss how and when the carrier might be bypassed. Many articles on price discrimination of IP data transport include a table along the following lines10: Service kB consumption Example Pricing Revenue per MB SMS ringtone/logo 0.2 kB $2 (UK) $13,981 SMS message 0.1 kB $0.15 (UK) $1,573 Complex ringtone/logo 2.0 kB $3 (UK) $1,536 Java download (game) 15 kB $3 (Japan) $204 144 kB $0.10 (US) $0.71 1 min voice call These are very misleading because they attribute the value that comes from these services to the transport element alone. I could post you a box of gold and a box of manure, but the relative transport costs tell me nothing about the postal system or the goods! You only learn about the value of the gold by being told about wedding social customs, mining costs, secure storage costs, central banking institutions, currency issuance and inflationary effects of competing stores of value. You don’t learn anything about those by looking at the value of the stamp on the box. All that tells you is gold is heavy, not why the user paid $10,000 for it. IP networks help move us from a vertically integrated to a horizontally layered industry. Most of those horizontal functions have been hidden inside telcos, but are emerging as separate industries in their own right. You can assign the value of a service to the component parts of that service. (You need both an architect and a plumber to build a house, but you expect to pay more to the architect.) Before assigning value to functional elements of SMS, we need to know what those elements are. In the diagram below, Aino is sending an SMS to Bo. The key components of the transaction are shown: handsets, radio networks, SMS messaging centres, longhaul interconnect, home agents/HLRs, customer database, billing and policing. Remember, the customer sees no value any of these things per se. 10 “Forget Bandwidth-Hungry Applications: Focus On Non-Voice Mobile Services That Generate Higher Profit Margins than Voice Telephony”, This is a truly terrible piece of analysis, and I take great pleasure in picking it apart! Until you run out of spectrum or network capacity there is zero marginal cost of transmission, and capacity is a sunk cost that should be ignored. $/Mb is the worst possible metric to run a network by. 10 December 2004 Page 14 of 52 © Telepocalypse Ltd. 2004
  15. 15. SMSC SMSC Home Agent Customer Database Invoice Alice Bob Figure 4 – Functional decomposition of SMS transmission Now let’s take the same picture, but look at it through our polarized “value” glasses: Transmission SMSC Storage SMSC Universality Home Mobility Agent Delivery Availability Customer Accountability Database Invoice Usability Alice Ubiquity Urgency Relevance Bob Governance Figure 5 – Value decomposition of SMS transmission 10 December 2004 Page 15 of 52 © Telepocalypse Ltd. 2004
  16. 16. So what does your 10¢ to send an SMS buy you? Where does the value come from?  Is it the basic “postage and packing” charge? The ability to enter the information into the handset, tuned for usability? To have it transmitted and delivered? (Think of the difference between these as being between having the package delivered to your home address and having to collect it from the depot.)  How much is attributable to the availability of coverage: the service comes to you, rather than you to it? The universality of the service via interconnect agreements? The ubiquity of the receiving apparatus?  The storage of the data sent to sometimes disconnected recipients? The resolution of mobility, delivering to the user wherever they may roam? (Think of this as the difference between a package delivered to your home address and one delivered personally to you.)  What value is attached to the ability to cause the recipient’s handset to ring and vibrate, indicating urgency to the message? (Do Blackberry users have their devices vibrate with every email? Rarely. Why not?) Every message is billed (or subtracts from a bucket), and thus has cost which would only be incurred if the message has relevance. Without this, how do you know the recipient will bother reading messages?  What if the system is abused? Somehow there has to be governance, which in turn relies on some means of tracing malicious users and accountability. You can almost imagine getting an itemised bill for each SMS, with sub-totals from 3GPP, Verisign, NeuStar, Level 3, the FCC, Cinderella and so on. Decoupling the connectivity from the service – as IP networks do – makes it easier for these elements to exist as separate businesses. For some, the carrier retains a natural advantage. For example, every customer has a network identity, and this naturally leads to the carrier as the supplier of digital identities. Every customer gets a bill, which makes the carrier the natural conduit for 3rd party charges. But others are under attack: witness the gradual increase in dynamic DNS services11, open ENUM registries and even competing name/address resolution systems like DUNDi. A better understanding of the sources of value helps Cinderella build products that compete or collaborate with carriers on the right parts of the value network. Cheap, open IP networks make disintermediation of carrier services possible, but not inevitable. People will continue to use SMS even when offered a free e-mail alternative. This is because e-mail does not have all the value attributes of SMS the customer desires (e.g. governance, ubiquity). It also lacks the economic structure that content and service providers need, such as premium charges to vote in TV reality shows like Big Brother or Pop Idol. A long list of providers is found at s/. Unlike traditional DNS, the cross-reference from domain name to IP address is not cached for significant periods. If I move around I can change my IP address immediately, without waiting two days for DNS servers all over the world to propagate my record. This comes at a cost of performance and resilience. It’s less functional than mobile IP, but more than adequate for 80% of user needs. 11 10 December 2004 Page 16 of 52 © Telepocalypse Ltd. 2004
  17. 17. The disintermediation forecast So in this fight to extract the value from the network, who will win? Can carriers set up effective toll booths on the wireless Internet? The carrier doesn’t know the value of the traffic Telecom isn’t the first network-based industry involved in the transport or transmission of goods and services. The physical distribution networks such as canals, railroads, turnpikes, airlines or lighthouses have served the routing needs of commerce for centuries. These have formed exquisitely complex price discrimination regimes and counter-regulatory structures. Won’t telecom go the same way? No. The Internet is genuinely unique, and its structure suggests these parallels will not result in the same price discrimination architecture12. The complexity is at the edge, and is changing rapidly. That makes it hard to build pricing mechanisms into the network when the network has little knowledge of the application and its worth. Information goods lack the predictable uniformity of physical goods: a canal boat has a very narrow range of practical uses compared to a fast Internet connection. The carrier can’t see the traffic even when it knows the value Companies like pCube pride themselves on being able to identify and “traffic shape” Skype packets etc. In principle, the carriers can try to identify toll-avoiding traffic on their packet network, and block or charge for it. But users are not passively going to pay the tolls. Applications will use non-standard ports, change the IP address of servers, encrypt or split their messages, tunnel via other protocols, and mix messages with useless “salt” data. Encryption via VPNs and Opportunistic IPsec (a feature of IPv6 replicable in IPv4) make the carrier even less able to enforce their pricing regimes. Do operators want to get into an arms race with their customers? Bearing in mind the lack of success of the copyright cartels13 in trimming illegal peer-to-peer networks, how likely is it that carriers can prevent the transmission of entirely legal user-generated (and user-copyrighted) content? Multi-region DVD players and unlocked handsets are hardly a rarity, so hardware control has a poor precedent at preventing revenue leakage. The carrier doesn’t have anything left to charge for Technology is rapidly increasing available bandwidth. Lack of scarcity means lack of economic rent. The biggest priority for carriers should be increasing usage, not capping it via high charges. Scarcity can only be artificially imposed via oligopolistic market structures or lobbying to exclude competition14. 12 “Pricing and Architecture of the Internet: Historical Perspectives from Telecommunications and Transportation”, August 2004. Much of this section paraphrases that report. with commentary at 13 Cartel – “A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members. “ Examples: RIAA, MPAA, Business Software Alliance. 14 “Philly, Verizon strike WiFi agreement “, MSNBC, 30 November 2004, “The city of Philadelphia and Verizon Communications Inc. struck an agreement Tuesday that would allow the city to provide wireless Internet access as a municipal service even if Gov. Ed Rendell signs legislation to give Verizon the power to scuttle the project.”, 10 December 2004 Page 17 of 52 © Telepocalypse Ltd. 2004
  18. 18. One hole in the operator’s spectrum cartel is Wi-Fi; it would be no surprise to see the 2.4Ghz band expand, and cognitive radios make inroads into TV UHF bands. It’s just a question of time. Users won’t play the game The users pay directly for Internet connectivity. However, most physical transport charges are for cargo or business use that is subsequently incorporated into other goods. The user doesn’t see the price discrimination that charges extra for a truck to cross a toll bridge compared to a car. Behavioural economics tells us that people react extremely negatively to price discrimination, and are willing to pay extra for simple prices, especially flat-rate ones. Most of the costs of physical transport systems were associated with the core of the network. The Internet reverses this. Since the edges are paying most of the infrastructure costs (e.g. PCs, game consoles, phone handsets), they control the system. Efforts to price discriminate via handset and network control can backfire, as this review15 (and many similar ones) pans Verizon’s lock-down efforts: Verizon customers have been waiting for a phone with a feature list like that on the Motorola V710. … Unfortunately, the phone doesn't live up to expectations. … To transfer photos out to your PC, you'll have to purchase a memory card or pay to e-mail them to yourself. We think it's unfair of Verizon to limit the phone in that way. Other carriers undermine efforts to charge Consider a market like Denmark’s with many incumbents and MVNOs. What’s the quickest and cheapest way to differentiate yourself from your competition? Make your network and handsets more open. Hence there’s an openness ratchet effect that accompanies increasing competition. It hasn’t worked yet Efforts at price discrimination and rationing scarcity within the data transport network have so far met with limited success. Think of ATM, QoS, RSVP, MPLS, multicasting, congestion pricing and active networks. Not one has achieved its economic goals. The big growth continues to be in best-effort IP networks. The money spent on network price discrimination and rationing is better allocated to simply increasing capacity. 15 PC Magazine, undated,,1759,1639784,00.asp 10 December 2004 Page 18 of 52 © Telepocalypse Ltd. 2004
  19. 19. The only way is down The Vodafone Live! 3G launch explicitly says they are trying to move towards value pricing on their network16: Figure 6 - Vodafone steers customers away from open Internet The “free browsing” only refers to that within the walled garden: all other packet data is charged at premium GPRS rates. Effectively this slide states that none of the profit pool will be shared with the edge (i.e. customer or Cinderella). But it also exhibits a weakness of the carriers. The services they offer themselves are constrained by their own general packet data pricing. They can’t charge more for a service than the equivalent packet data rate plus a mark-up for the value attributes discussed in the earlier dissection of SMS. If they try, and the handset and network aren’t locked down, then someone will bypass them. This will drive carriers towards metered services that are low value/high data need, like mobile video. Unfortunately for the carriers, the limited nature of the handset form factor makes these among the less compelling applications. You can only consume so many bits per second through a two inch screen. However, they could encourage massive use of bandwidth for video and file sharing, squeezing the capacity for general packet data and creating an artificial scarcity into which they can sell quality-of-service guarantees for a hefty price. Cellular voice is coming close to being disintermediated17: a Vodafone UK 3G card offers 75Mb for £23.50, which at 5Kb/s is the equivalent of 250 minutes of talk time. A 200 minute talk plan is £30/month. To make up the difference you would have to use a VoIP service provider, which at a blended mobile and landline rate of 5p/minute adds about an extra £10 to the 3G cost. Clearly, their pricing structure is no accident. Taken from This is not to dismiss issues of quality of service and congestion; but given the marginal reputation of wireless for signal quality customers are likely to accept richer audio codecs at the expense of momentary glitches from packet loss. 16 17 10 December 2004 Page 19 of 52 © Telepocalypse Ltd. 2004
  20. 20. Should you care about carrier disintermediation? Yes. In monopolistic markets price discrimination reduces consumer welfare. It decreases usage, lowers perceived service value, and diverts the customer communications budgets away from the network edge. However, in competitive markets price discrimination works to achieve a more efficient allocation of resources 18. Furthermore, it extends the market downwards: people who could not previously have afforded the service now can, cross-subsidised by others who are paying more for the same service. This points us to a critical lesson: Go downmarket where the carriers are in control. Go upmarket where the edge is in command. What does this mean? If the carrier has great market power and uses it to lock-down their devices and network, they will exercise strong price discrimination. High-end handsets will not realise their full potential to the user: the price discrimination will erode perceived value. Cinderella will not achieve the anticipated premium prices. What is the point of Cinderella investing billions in new service-enabling features of smartphones (e.g. Symbian OS) if Vodafone, DoCoMo and friends control the profit pool? However, low-end users may be sucked into the market by price discrimination. These might be underserved by a more traditional Cinderella handset strategy. Don’t try to offer a shrunk-down laptop computer. Instead build a vertical VoIP application into a simple handset, add smart presence features and a wideband audio codec, and make it easy for the carrier to charge for it. Indeed, it may pay off to reinforce carrier control at the lower end of the market, particularly when trying to extend service into otherwise underserved or unreachable markets. At the low end of the handset market the carriers offer lower subsidies (there’s only so much you can knock off a $50 wholesale price.) Many phones are even sold at a profit. The lack of a subsidy lever weakens the carrier’s ability to exert control over handset features. That means whatever threatening features you do want to sneak in against the carrier’s wishes are more easily done at the lower end of the market. Summary: Carrier in control? Forget the smartphones, keep it simple. The converse is where the carrier is weak and creates an open network environment. Here you do want miniaturised open computing platforms that make the most of IP. At the high end you’ll get higher margins, because the users get the full value of the product without artificial limitations. (People pay extra to buy unlocked phones today.) The end result might see carriers stratifying into ones centred on lower-end handsets with fierce price discrimination, and ones supporting faster IP networks with higher-end premium handsets. “Price Discrimination”, 18 10 December 2004 Page 20 of 52 © Telepocalypse Ltd. 2004
  21. 21. Identity and trust: linking the layers Identity in a nutshell Let’s try to understand how critical identity is in the future of telecom. The communications industry is slowly and painfully transforming from vertical integration to horizontal layers. Those horizontal players then gain economies of scale within their layer and niche. The glue between these layers is identity. Cinderella must have a digital identity business strategy to be successful in managing this change. Every interaction between the layers involves some explicit or implicit exchange of identity data about the thing being exchanged. Without it, no value can flow between the layers. This is not a technology problem. Economic value in identities We can create many types of identities: phone numbers, IP addresses, handset IMEI, email address, personal domain name, account number, etc. Two key things differentiate these identities. The first is the existence of links from the digital identity to real people, places and things. The second is the extent to which they are either explicitly revealed to the target of the communication, or can be traced back via a third party. Does it point to something real? Can I find out what it points to? When an identity is offered in transaction in a way that can be traced back to someone who would suffer a loss as a result then this identity possesses identity collateral. Landline connections are associated with a place. Post-paid cellular is associated with a person through a credit check. And pre-paid cellular is associated with a device. Abuse could respectively result in arrest, exclusion or device deprovisioning. The value of identity collateral comes from preventing abuse rather enabling services. Telecom isn’t alone in finding there’s a significant profit to be made from mitigating the undesirable effects from some underlying technology. For example compare the abundance of food of modern agriculture and the diet and pharmaceutical industries that manage the resulting obesity. Or motor vehicles and the insurance industry19. The money isn’t in making VoIP calls. It’s in stopping unwanted ones from making your phone ring! Again – this is not a technology problem. Identity creates value in specific situations. Understanding how they are related is key to making money from the disaggregated components of a voice call. Good identities cost money to make Whilst a carrier might spend $25bn building a network, it can also cost $5-10bn to acquire the customers and their identity data. Just because the balance sheet only depreciates the network doesn’t mean the identity data isn’t core to the operation of that provider. Consider the difference in fortunes of “retail” telecom operators (who have identity collateral for sale) and their wholesale “dumb pipe” competitors who don’t. Identity is big business, just a hidden one. What about directory businesses with 50% (or more) margins – surely they’re just sorted lists of identities? Largest US automobile insurer 2003 profit: $3.1bn (State Farm). Largest US automobile manufacturer: $3.8bn (General Motors). 19 10 December 2004 Page 21 of 52 © Telepocalypse Ltd. 2004
  22. 22. To illustrate the critical importance of identity collateral, note that Japan has recently flirted with an outright ban on pre-paid cellular phones20 to curb fraud and abuse. Instead they are settling for more rigorous identity checks. This administrative work will cost the carriers a lot of money. What advantage can they and the handset vendors make out of the enhanced identity collateral? The carriers have a natural advantage in providing digital identity. Everyone who buys a connection must reveal something about themselves, even if only the identity of the device to be provisioned to the network. Their natural advantage must be kept in mind when formulating competitive strategy in deploying new applications. Repeat – this is not a technology problem. Choosing the right identifiers is a business issue, because they are business assets with tangible value. Trust – the other side of identity Telcos are trusted by their customers in a big way: your calls aren’t wiretapped without due authority, your call details are kept private, calls are routed correctly, caller ID works21, your voicemails are secure, you rely on the system for emergency service, and so on. With a smart network, much of that exchange of value occurs within the telco’s castle walls. This reduces the amount of trust required in the system, because no boundaries are crossed. It also reduces the cost. For example, the phone doesn’t need to authenticate to the voicemail system as well as the network. But when you distribute these functions to the edge of the network, they start crossing trust boundaries. If the telco just supplies connectivity, someone or something else is doing all the above functions. It’s much harder to build a trusted distributed system. For instance, the more recent peer-to-peer file-sharing networks have become poisoned with deliberately mislabelled and incomplete files spread by irate rights holders. Napster’s centralized directory architecture made it less resilient to legal attack but easier to build trust. Skype maintains a centralised authentication architecture22, despite every other aspect of the system being distributed to the network edges. Some bad news: nobody I know of has really cracked the measurement and classification of trust for public networks, or related it to the economics of communications and placed a value on it23. Yet without trust the system collapses: it is worth hundreds of billions of dollars. A possible research area for Cinderella? One last time – this is not a technology problem. Trust is tied to branding. Brand is a business issue. Whose logo lights up and says “trust me”? “Japan rejects ban on prepaid mobiles”, Telecom Asia, 16 November 2004, 21 A misplaced confidence: see the tale of and the history of phone phreaking. 22 “An Analysis of the Skype Peer-to-Peer Internet Telephony Protocol”, Salman A. Baset and Henning Schulzrinne, Columbia University, September 15, 2004, 23 Although a good starting point is at 20 10 December 2004 Page 22 of 52 © Telepocalypse Ltd. 2004
  23. 23. Billing and value asymmetry If VoIP calls are free, why do we need billing? And without billing, what does a telco have to offer? Here lies an unexpected source of operator power. The costs of network technology are decreasing, while the costs of complex billing systems remain somewhere between amazing and extraordinary. At some point the billing part of telecom may become a major or dominant cost compared to the network. A common misconception is that this is somehow ridiculous and unsustainable, and will cause a collapse of the telcos. This is a superficially a very attractive argument. Surely the transaction costs of an efficiently run service should always be low? Definitely. However, a communications “service” is often partly a brokerage fee. That means some of your money is being passed on to a third party. Even with zero transaction costs, you’ll still have to pay. One case is where there are termination fees of some sort. This is the exception rather than the rule on the Internet, so until VoIP calls to Mars become a common reality, we’ll not discuss it further. The other case where charges persist is when the caller is drawing on the resources or attention of the callee. There is some exchange of value going on, and the direction and magnitude of the exchange are clear. Such charges are made via explicit or hidden premium rate tolls. Standard premium rate numbers are well known and merit no further discussion. The “hidden” ones are of greater interest, however, since they may act as a precedent for a wide range of services in future. The United Kingdom has a fascinating system whereby calls to the 0870 area code24 are tied to an obsolete BT national calling rate. This rate is vastly more expensive than the cheap rates national calling rates available in the competitive market – often by an order of magnitude or more. Revenue sharing is allowed with the callee, typically at a rate of around 3-4p (US$0.07) per minute. In other words, this is a premium rate calling system, but with a lower price than on standard premium rate services (typically 20p100p/minute). The low unit price is made up for with massive volume. This numbering scheme exists despite the 09xxx number range in theory having been assigned as the sole means of offering premium services, and 08xxx being for nongeographic numbers (like 0800 freephone). Thousands of companies, large and small, have flocked to using these 0870 numbers for inbound calls. An airline or utility company might run up hundreds of millions of minutes of use, and the revenue starts to become a lot of money. Indeed, according to the UK regulator between a quarter and a third of BT’s metered call revenues come from 0870 (and similar) numbers 25. Most companies block outgoing calls to 09xxx numbers, but not 08xxx numbers, so there have been few barriers to adoption. What companies are doing is using their temporary market power over customers to extract revenue. Want to change your airline ticket? Ask some questions of the shop staff? Complain about the goods you bought? Get ready to pay. Oh, and since there is no limit on the use of queuing systems on 0870 numbers (unlike 09xxx premium rate numbers), the longer you wait the more you pay. Devious. Other codes, such as 0871 and 0845 are also used. For simplicity’s sake, we shall only refer to 0870. “NTS (Number Translation Services) focus group meeting notes and action”, 3 June 2004, 24 25 OFCOM, 10 December 2004 Page 23 of 52 © Telepocalypse Ltd. 2004
  24. 24. You can expect this to spread from being an isolated example to being the norm. For consumer-to-consumer and business-to-business the exchange of value is not clear, and indeed minute-metered telephony is likely to disappear on both wired and wireless networks. (Small businesses also look and act more like consumers than business accounts.) But for business-to-consumer or consumer-to-business communications this need not be the case. Who cares if the telemarketer calls at dinner time on your premium €5/minute public number? The lesson? The existence of free transport and carrier service disintermediation via IP doesn’t mean the end of billable events. Other variants are also possible on the “charge for value exchange” equation. For example, carriers who get user to call freephone numbers might get a finders fee on any sale – the 21st century replacement for the yellow pages, mixed in with Google’s business model. Clearly the billing capability of carriers will continue to be a source of power, and against much of the punditry that just sees the Skype phenomenon and free calling for everyone. Understanding mediation Smart vs. dumb pipes The opposite of a dumb pipe is a smart pipe. Any smartness built into the network beyond simple connectivity is mediating the flow of messages, ideas and innovation between users and service providers and device makers. When and how do smart pipes make sense? How is value added by mediation of data flows? There is no shortage of Cinderella networking products that are “smart pipe” elements. Think of messaging gateways, web proxies, SIP proxies, and session controllers. These aren’t merely services on a dump pipe network that handsets can choose to draw on; rather they are the only way of connecting points of the network. Their use is compulsory. These indeed perform essential functions such as recording billable events, authorisation, non-repudiation of transactions, firewalling, media translations, and so on. Yet these functions can be performed by an autonomous edge using alternative technologies such as token-based micropayments, trusted computing, and P2P voice using newer codecs. The smart network model only makes sense in four cases, which may overlap.  Getting the old and the new to work together. When there is a gap in technology generations, it’s sometimes easier to address the tyranny of the installed base with a smart network. For example, an analogue telephone adapter does this for a tone-dial phone and an IP network. Old handsets know nothing of new protocols, even if they have the CPU power and memory to speak them.  Bleeding edge. The second scenario where smart networks win out is where there is technological deficiency, and the efficiency of a dumb pipe is not enough to sustain the application. These requirements are often non-functional in nature (e.g. availability, performance, manageability, security). In this case vertical integration of the application with the network is justified. 10 December 2004 Page 24 of 52 © Telepocalypse Ltd. 2004
  25. 25.  Stable applications. Where no further change is expected the application can be vertically integrated with the network to optimise cost or performance. A wireless home automation system (heating, lighting, ventilation, thermostat, controls) might arguably fit this category26. The system requirements are very predictable and stable. No need for IPv6, just a low price. This scenario is not typical of mobile handsets, where the user interface is “soft” (a screen and alphanumeric keypad).  Where the edge is blurred. Finally, you might have a smart network where the intercept and smarts occurs on the user’s “home turf”. If the user has complete control over the installation and removal of the smart networking feature, there is no economic incentive to bypass it and no restriction on innovation at the network edge. For example, consider a system that transparently intercepts email and checks for viruses, or one that scans downloads for overbearing enduser licenses27. An interesting dilemma with this case is in the corporate environment where the demand for innovation by employees (e.g. using IM systems, Skype, etc.) may exceed the appetite for change of the infrastructure owner. An example of bad design and inappropriate tying of application functionality to the network is Bluetooth. When the technology was conceived vertical integration might have been necessary. But by the time it came to market, it was an obsolete28 technology cul-de-sac29. Now it’s an inflexible and restricted set of capabilities where all innovation and change needs the blessing of the carriers. This is the exact opposite of the Internet philosophy of making the connectivity as dumb as a bag of rocks. Recent attempts to put smart networking features into the network edge have flopped. Technologies like OPES [Open Pluggable Edge Servers] have largely disappeared from the map. Qualcomm’s EV-DV network technology is under a cloud: why include special channels for circuit voice alongside a packet network, when you can run everything over IP? The trend is clear: stupid networks are pushing out smart ones. Stages of application evolution Most computer applications have a rich heritage stretching back into a pre-computerised world: despite what Silicon Valley would have you believe, social networking didn’t begin in 2003. The base capability normally goes through six stages of evolution. The application’s core function stays constant, although the form mutates and the reach, speed and convenience increase over time. For example, the act of sending a body of text for later delivery has been achieved through hand-delivered scrolls, the postal service, telegram, telex, fax, email, and SMS. The diagram below illustrates a simplified view of the stages of evolution of every class of communications application. Voice calling is used to illustrate the stages. In reality there is overlap of the stages, jumping of stages, grey areas between stages, concurrent transition of several stages, and even occasional regression (e.g. Napster’s closure). Proponents of ZigBee and related wireless networking standards might disagree with this example. 28 29,14179,2913885,00.html 26 27 10 December 2004 Page 25 of 52 © Telepocalypse Ltd. 2004
  26. 26. 1 1876 AT&T “Ma Bell” era, Cellular voice Nobody can build it yet 2 Needs a dedicated network Se r vic 1996 e Net2Phone, Yahoo! IM voice chat 3 2000 Works on IP, some loss of functionality Vonage, Cisco SIP phone 4 Works on IP, meets user needs Pr od uc t Fe atu r 2003 Skype, Peerio 5 e 2005 P2P IP application ? 6 Integrated platform Figure 7 –Evolution of communications applications The descent down the chain is a result of economics, not technology. A smart verticallyintegrated network lets you meter value and discourages innovation, and thus encourages users by-pass it using IP. The operator of centralised IP infrastructure will seek economic rent, again driving traffic towards peer-to-peer. A sole supplier of an application’s user interface gains market power, and the user interface gets stripped off leaving the bare underlying platform. Finally that becomes an open source platform, and nobody makes any money from the basic application service any more. The last stage hasn’t happened yet on voice calling. In this sixth stage, instead of a common application (e.g. POTS, Yahoo! Messenger, Skype) and user interface, an application platform with many services built on top comes to dominate. It has happened with stored media distribution already: more than 50% of P2P traffic is from BitTorrent, eclipsing the previous generation of vertically integrated IP applications, KaZaA and eDonkey. The recently released APIs from Skype are a first step30. The first ever Motorola cellular call in 1973 was a transition from stage 1 to stage 2. Internet Protocol wasn’t standardised until 1981, so that was as far as it was going to go. Current 2G and 3G handsets rely on a portal and/or web proxy infrastructure to gate access to premium content – centralised stage 4 technology. Future DRM technology would move that functionality into the handset, at a cost of extra memory and For the observant, note that SIP is a protocol, not a platform. Skype APIs provide you access to a specific operational infrastructure. SIP might be used as plumbing between the components of the platform, which perform specific functions for particular owners. But SIP isn’t a platform, and the future platform(s) for VoIP are still in play. 30 10 December 2004 Page 26 of 52 © Telepocalypse Ltd. 2004
  27. 27. management. Super-distribution of encrypted content is then possible via multiple systems including P2P. Peerio’s technology allows peer-based storage of files including fragmented and encrypted voicemails. Your desk phone, and all your colleagues’ desk phones, together store multiple copies of your voicemail. You no longer need a central voicemail server. This is also an example of a transition from stage 4 to stage 5. Their APIs are a contender for being the stage 6 platform. Services, products and features Voice calling is turning from a service into a product, and then from a product into a feature of a larger communication and collaboration system:  You pay for a service on a recurring basis. This is either metered (depending on how much you used) or flat-fee (usually with a slight price premium against average usage to reflect the user value of predictable charges).  A product is a one-off buy, like a SIP adapter box and a telephone. If it works as advertised, you buy two Peerio phones, plug them in, and get voicemail and calling without any service provider needed.  The feature of “speak to someone not physically present” is being subsumed into larger systems like Xbox Live, Skype, or Yahoo! Messenger in conjunction with presence, collaboration, workflow, group forming and vertical application features. These have very diverse business models. This is both a threat and an opportunity to Cinderella. Handsets are products, and diverting service revenues into handsets is clearly desirable. Being just a feature of a bigger picture is a mixed blessing – good if you’re successful at doing alliances, bad if someone else takes control of the profit pool (the bogeyman usually being Microsoft). At the same time, as we saw in the SMS example, components of the voice calling applications may become spun out. These in turn can become services, products or features. Digital identity will remain as a service. Ubiquity might be associated with the product (e.g. leveraging Cinderella’s x% market share to create a faceplate market). Storage of messages becomes a feature of a device, not a network service. No magic in Internet Protocol A quick but vitally important lesson. When someone says they’ve got a strategy to move to an all-IP architecture, keep probing. What you want to know is whether their architecture still has application processing embedded in the network itself, and if so what their justification is. It’s still possible to build a smart network using dumb pipes, thus recreating all the inflexibility of the circuit-switched world. Just because it’s on Internet Protocol doesn’t mean it’s done right. Do you really need a SIP proxy? A session border controller? A media gateway? A traffic shaper? What’s the price in terms of flexibility of the solution? Is the solution full of mediation, but just shifted to an IP platform? Skype has equivalents to all these functions, but not implemented as $500,000 boxes sold to telcos. Given Skype works and scales, how much value are these products adding? 10 December 2004 Page 27 of 52 © Telepocalypse Ltd. 2004
  28. 28. Winners and losers The billion-dollar question: who gets the prizes from the transition to open IP networks with open devices? The following table assumes such a transition occurs, and makes some educated guesses as to who the winners and losers might be31. Note that “winner” and “loser” are the relative changes as a result of such a shift. Some of these sectors may be excellent or poor business prospects regardless of the direction of change. Who Examples Winner or Loser Why? Handset OEMs & ODMs Flextronics, Compal Winner More change and innovation at the edge shortens replacement period. Don’t carry marketing costs, inventory risk, etc. in times of rapid change. Component manufacturers SkyCross, Texas Instruments Winner Fortunes tied to that of handset OEMs. MNVOs Virgin Mobile Winner Innovation in sales and distribution likely to be more critical than product innovation for retail of access services. Application developers Jamdat Winner Massive amount of unrealised innovation potential; sticky applications with increasing returns to scale from community use and group forming Software vendors Microsoft Winner Dominance of platform over pipe; localisation and application testing/certification. Media content creators Disney Losers? No news that peer-to-peer is a problem. Possibility of big wins later with service-oriented business models (e.g. selection of music of likely interest) Aggregators and publishers Handango Winners Increased choice requires middleman to help filter and perform QA. Access network operators DoCoMo, Vodafone Losers Unable to retain consumer surplus, facilities competition, regulation. Long-haul data network operators Level 3, Global Crossing Winner Open IP access networks will spur additional demand. Low margin, high volume, predictable profit; exclusive rights-of-way (road, railway, pipeline, pylons) form barriers to entry. Network equipment vendors Lucent, Nortel Mixed Continued destruction of traditional switch and PBX business, but increased layer 1 and 2 sales Independent Retailers Carphone warehouse Winner Likely to offer better deals than retailers tied to one network 31 Cinderella is deliberately not in this list; whilst it is part OEM/ODM, it also performs value chain orchestration that can’t be summarised so simplistically. Overall, Cinderella’s a winner. 10 December 2004 Page 28 of 52 © Telepocalypse Ltd. 2004
  29. 29. Timeline As you can see from the evolution of voice calling, change is rapid through the last few stages. How soon can Cinderella expect to wait before the floodgates of wireless IP connectivity are opened? Let’s take a look at the key ingredients:  Technology. Fast low-latency symmetric IP networks are coming on stream32. Flarion, IP Wireless, and Wi-Fi are here now. WiMAX, as long as I stays the course, will arrive in 2005 for large-scale deployment in 2006/7. Its close cousin, 802.20, is on a similar timescale. The 802.22 standard will allow re-use of TV spectrum for IP networks. The team has just started work and might deliver useable hardware in 2-3 years. Scaling of mobile mesh networks is still a basic research problem.  Regulation. The FCC’s Spectrum Policy Task Force issued its initial report on reform in 2002, and continues to modernise US spectrum policy. The UK’s OFCOM has expanded unlicensed wireless spectrum by 50% in its Q4 2004 review. The Norwegians have just auctioned off 3.5GHz for IP wireless.  Operators. Nextel are flirting with a Flarion roll-out in the US, and even the second-rate alternatives (EV-DO, HDSPA, EDGE) are good enough for VoIP, even if the scaling characteristics and latency are lousy. Some are waking up to the reality that they really are just going to be a bit pipe33.  Customers. VoIP is transitioning from early adopters to early majority. The chasm is being crossed. They’re used to IP applications on the wired Internet. They’re ready. UMTS may be a dead-end: it’s stuck in a world of distributing stale packaged media content over asymmetiric links that don’t cope well with bursty two-way IP traffic. In a bid to maximize bits per hertz and peak throughput it’s lost sight of the user’s needs: low latency, low jitter, low channel access times, predictable throughput, symmetric. More bandwidth comes last after all of those. Metro Wi-Fi is a big deal, with a real addressable market by 2006-7. Wi-Fi in the home and enterprise is a reality already. The time to act is now. However, to do a rigorous analysis of the changes in operator control and IP network deployment would require a data collection effort beyond the scope of this paper. Q: As new applications are embedded in handsets, which of the value components from the SMS example might be overlooked? How can Cinderella gain advantage by fixing these? Q: How easily can users track their data use on Cinderella devices? Does this matter? Q: What are the circumstances where people could use their mobile phone but choose to use an alternative service (e.g. landline phone, e-mail)? What features might be added to a handset to enable greater price discrimination in such situations in favour of the handset? Q: What would the effect on Cinderella be if SPIT (Spam over Internet Telephony) becomes common? How could Cinderella phones be made more attractive to users, or less likely to be The Qualcomm EV-DO roadmap fails to make the grade: too much latency, poor reverse link scaling, highly asymmetric. 33 32 10 December 2004 Page 29 of 52 © Telepocalypse Ltd. 2004
  30. 30. associated with outgoing nuisance messaging? positioning? How might that affect Cinderella’s brand Q: Open Wi-Fi access points are common in the USA and Europe. What are the implications for identity collateral? What is the likely future of this situation? Q: What current Cinderella features are being used in a B2C or C2B context where there might be a mismatch between the value received and the payment made? What opportunities exist to create such services? Q: Which Cinderella products (network as well as handset) are associated with which stages of application development? What technologies might threaten them? How might Cinderella’s product portfolio look in 5 years from now measured on this scale? Q: What happens to operator handset subsidies on all-IP networks? Do operators subsidize handsets more in order to retain control over them? Or do they find it impossible as margins are squeezed, and users buy open/unlocked handsets to avoid carrier tolls? Who stands to gain from an open environment and might become an alternative source of subsidy? Q: If the current circuit-switched cellular voice network didn’t exist, and we suddenly invented fast IP-based networks, what would the services look like when freed from past design constraints? Would British callers always send you their current weather along with the caller ID? Would we start or end calls, or just fade in and out multiple audio streams, some of which would be like a baby monitor or TV in the background? 10 December 2004 Page 30 of 52 © Telepocalypse Ltd. 2004
  31. 31. Part 3: How to get there Sex – Survival of the fittest Now for the meat: what Cinderella needs to do to appeal to today’s operators and tomorrow’s users. How does Cinderella avoid losing at football when playing against the bigger kids? Support to the winning side The natural reaction to a threat from the Vodafone’s of the world is either to fight (e.g. by trying to appeal directly to the end user) or flee (do Vodafone’s bidding). But are there other options worth considering? Yes, definitely. There are some compelling, if unglamorous, opportunities to differentiate Cinderella from other handset manufacturers and increase appeal to the carrier distribution channel. Network service customer acquisition & retention Core to Billing operator’s Customer care business Logistics Partnerships & alliances Default applications and settings Branding A Personalised settings selected by user Third party accessories Management of userPeripheral to generated content (e.g. operator’s photos) business Media content (e.g. news clips) Look & feel Retail distribution B Non-billable services (e.g. built-in games, address book sync) Operating system Handset form factor Development platform Developer program UI framework C Handset customer acquisition and retention Peripheral to Cinderella’s business Core to Cinderella’s business Cinderella’s product handset innovation is currently focused on quadrant C. In combating the threat from carriers attention normally gets focused on quadrant B. But this fight over control is a win/lose proposition, and Cinderella might be the loser. A better approach in the short term is quadrant A, the win/win space. Cinderella can make the carrier happier in ways that don’t hurt Cinderella. Let’s look at how by examining how carriers make and lose money. 10 December 2004 Page 31 of 52 © Telepocalypse Ltd. 2004
  32. 32. Customer acquisition & retention Customer care Service revenues Hardware: Network, spectrum, handsets Figure 8 -- Abstract financial view of a carrier There’s not a lot Cinderella can do about the hardware platform costs of carriers, bar giving its own products away for free. But there is a lot that can be done elsewhere. To stimulate your thinking here are some examples of innovations Cinderella could engage in. To increase service revenues:  Increase impulse buying of MMS messages by adding “one-click” send of photos to most common/likely recipients.  Increase SMS to voice call up-sell by adding message at bottom of SMS display “Press TALK to call Jukka Tolonen”.  Likewise from voice to video call, or voice call to 800 number to an m-commerce transaction.  Birthday marked in the calendar? An anniversary? Remind them to call!  Don’t make users remember top-up call numbers, directory enquiries, etc. Etch them on the back of the phone.  Add features that actively enable carriers to perform price discrimination. This could be as simple as handsets flagging discounts at certain periods to particular individuals for named services (e.g. MMS). (Discounting a high standard price is economically the same as raising a low standard price at other times, but the framing makes a world of difference in customer acceptance.)  Create handset environments and content vending services that serve to obfuscate real prices through mechanisms such as loyalty points.  Increase pre-paid top-up frequency and amount. Remind the user to top-up. Pitch offers. Increase carrier free cash flow. 10 December 2004 Page 32 of 52 © Telepocalypse Ltd. 2004
  33. 33. To decrease customer acquisition & retention costs:  Enable viral customer acquisition (e.g. SIM cards that can support multiple carriers and encourage on-the-spot switching, customers can message coupons to each other).  Make handsets that encourage on-net calls by highlighting callers with on-net call rates. Make customer fear cost of off-net call rates if switching.  Build RFID tags into handsets for stock tracking. To decrease customer care costs:  Turn the home screen into a trouble ticket tracking facility; avoid customers calling in for status updates.  Make the phone and network elements more aware of network congestion, decrease support calls about service quality.  Distribute a “how to” DVD with each new phone introducing the key features. I’m sure the collective intellect of Cinderella can come up with much better examples than the few I have thought up. The key thread is that these all treat the carrier as the real customer, with (on average) no loss of welfare to the end user in their implementation. This has the additional benefit of sweetening some bitter pills that Cinderella might try to feed to operators. Don’t play with their network ball So we’ve rejected a head-on assault on carriers, and looked at ways of putting some lipstick on the operator-controlled pig. What other alternatives are there in dealing with overbearing carriers and a lack of open IP networks? Well, you can’t lose at football if you play tennis instead – just play a different game to the carriers. There’s a world of communications over short distances that is unappealing to carriers because it doesn’t fit their business model of building networks and creating billable events. This would include gaming over IR or RF links, “Toothing”, picture exchange, contact swapping and comparison, m-payments, proximity adverts, and security ID systems. What are the untapped social and commercial opportunities of RFID, and other near-field RF34? How much priority do these receive in Cinderella today compared to more traditional network-centric investments? Cinderella is already experimenting with adding non-network features such as haptic (touch) interfaces to devices to help differentiate them35. We’ve seen hand-waving LED message boards36. The ultimate in new features is to import the whole functionality of other devices into converged handsets. We’ve already seen MP3 players, satellite37 and FM radio, and games consoles take this route. They only avoid the carrier bottleneck to the extent that the content is delivered by means other than the carrier network. For more examples see 36 37 34 35 10 December 2004 Page 33 of 52 © Telepocalypse Ltd. 2004
  34. 34. Be the best footballer I could flatter myself by suggesting Cinderella’s already got a better team physiotherapist by hiring me. But then how to play superior football against a strong opposition? Assume there’s a growing world of open networks on which to deploy innovative IP applications. What are the likely criteria for success? No doubt Cinderella has received endless excellent external and internal advice on this matter, and it is with some reservation I submit my own thoughts. Based on my reading, winners are more likely to emerge if they align with the following interlinked trends. But that doesn’t exclude success coming from other directions. Trend #1: Communication over content. If you haven’t read the seminal paper Content is Not King38 then I suggest you make it your first task after finishing this one. Extending the arguments in that paper, I suggest there are four layers to the communications cake, and the higher the layer the more compelling the revenue opportunity. Tools like SMS and voice calls need not be shoe-horned into any one of these, and indeed multi-purpose services appear to dominate today. Layer Type Description 3 Social services Share your holiday photos with friends and family. 2 Transactional services Book a holiday to a warm place. 1 Interactive See the weather and a map you can zoom in on and animate, change from Celsius to Fahrenheit and back. 0 Informational See the weather forecast, view a news clip. Trend #2: Presence and Pre-sense. An extraordinary (and rather long) paper39 from Douglas Galbi, an economist at the Federal Communications Commission, suggests that there are three fundamental modes of communication: information-passing, narrative and presence. However, he draws a much wider scope around presence. Think of it as the sense of being there, or that which enables us to make sense of what we see and hear (literally “pre-sense” – what you contextually feel before you make sense of the message). Presence is a form of sensuousness, and Galbi reaches for examples such as medieval illuminated manuscripts to help us understand the colder modern methods of communication. He suggests services which communicate sensuous presence make the most money. By this argument, applications like Skype with high-quality audio codecs that help you hear the breathing and subtle intonation are extremely compelling. Why doesn’t your phone let you feel or hear your lover’s heartbeat? Why isn’t 3G used to deploy better audio codecs where you can hear each other’s breathing? Trend #3: Immersive. There are likewise three forms of narrative40, of increasing value. They are:  Story-Telling: unidirectional, passive audience, linear (film, TV, radio, print, etc.) “Content is not King”, Andrew Odlyzko, First Monday, January 2001, 39 “Sense in Communication”, Douglas Galbi, October 2003, 40 “The Age of Story-Dwelling”, 38 10 December 2004 Page 34 of 52 © Telepocalypse Ltd. 2004
  35. 35.  Story-Forming: bi-directional, interactive (board games, conversation, computer games, some live theatre, etc.)  Story-Dwelling: multi-dimensional, immersed participants, networked (live sports, MMORPGs, simulation, real life, most good networked media, i.e. internet) What is a Blackberry device other than a way of immersive dwelling in the corporate soap opera? Trend #4: Group forming. Networked communications services come in three flavours, also of increasing value:  Sarnoff’s Law states that broadcast-type networks increase in value with the number of nodes. Ten times the viewers, ten times the value. Streaming media works this way.  Metcalf’s Law suggests that networks which enable peer-to-peer communications increase in value with the square of the number of nodes. Ten times the participants gives a hundred times the number of possible connections. The phone network is like this, if we discount conference calling.  Reed’s Law takes this further. Communications systems that enable arbitrary group forming increase in value exponentially (~2n) with the number of nodes. Ten times the users, a thousand times the number of possible groups. Chat rooms work more like this. To put it crudely, it’s more fun doing it in a group than in pairs, and only losers do it on their own. Unsurprisingly there are caveats, limitations and shades of grey. (If you discuss a TV programme around the office coffee machine, was it a broadcast application or a group-forming one?) But collaborative applications that enable rapid assembly and dissolution of groups have the theory on their side. Trend #5: People really like to talk. You don’t say! But you wouldn’t guess it from the 3G hype and crash. Talk is compelling for some of the reasons above – interactive, sensuous, collaborative, etc. But there’s more to it than that. Voice calling is ripe for reinvention. Why isn’t voicemail ever stored on the phone? Why do I have to “end” every call – can’t I just listen in? I do on Skype! Why can I only hear one call at once – maybe I can have a chat with someone in the foreground while waiting for the conference call to start in the background. How to integrate picture taking with calling? Why can’t I see what you’re seeing? Why is sending a picture a separate experience from the call, and something I have to interrupt the call for? Have more players on the pitch Every time someone buys a Cinderella phone, they aren’t buying their #2 choice. One of the opposition players gets sent off the field. Despite some recent hiccups, Cinderella retains around a 30% global market share of the handset market, and is #1 in the market by all measures. This means that Cinderella should be searching for “increasing returns to scale” capabilities. For example, with P2P VoIP there is no need to make the codec carrier-specific. Cinderella phones could automatically negotiate a higher-quality audio connection. If every Cinderella phone has a P2P client, the market is seeded with a critical mass of users. 10 December 2004 Page 35 of 52 © Telepocalypse Ltd. 2004
  36. 36. This phenomenon of increasing returns works at two levels. At one extreme it works across whole user populations within a carrier, country or globally. In some ways Cinderella has devolved this “increasing returns to scale” issue to the Symbian effort. But how much of Symbian’s resources are devoted to “me too” type features versus things that have positive network effects? At the other end of the spectrum comes a single household. If Dad buys a Cinderella phone, what features would make Mum and the kids buy them too? Just like Microsoft vertically ties the browser and Office into Windows, how can Cinderella horizontally tie purchases together? Bribe the public to support you The supporters are the end users, and Cinderella might have to create handsets that are irresistible to the user despite the carrier’s objections. The user’s choice of handset is, ultimately, final. The carrier’s goalkeeper might also be open to a bit of additional persuasion by generous gifts. After all, we’re only trying to pursue our original two objectives: get the carriers to love Cinderella despite our taste for open IP networks, and the users to love Cinderella because we free them from the carrier cage. One crude way of doing this is simply to lowball the price of artificially open-architecture devices. Make the second or third 3G operator in each market a distribution offer they can’t refuse. Or bypass them and stuff the independent retail channel with open devices. Users could be encouraged by features that enable them to manage their minute buckets. Simply enter the size of the bucket and the billing day of the month, and the handset tracks the rest. A more advanced system could even periodically screen-scrape the web account management page for the information. In markets where various carrier pre-select access codes exist, the handset could actively manage least-cost routing on behalf of the user. International calls would be automatically prefixed with a calling card access number and PIN; mobile out-ofnetwork calls would come from the main minute bucket; geographic landline calls would use an access code. No user would ever have to manage this on their own. These techniques are clearly in opposition to our first tactic of selectively playing for the carrier opposition. We’re appealing to the users over the heads of the carrier, or simply paying the carrier off. The trick is to know when to be nice and when to be nasty. The approach would have to vary with the power of the carrier, their degree of openness, and the distribution channel for the handsets. There’s a difference between a bribe and a sales incentive. You just have to know what it is! Cheat (but don’t get caught) This probably ought to be a tear-off and throw-away section to the report. You didn’t read this, and I deny all knowledge of writing it. It’s all a bit too Machiavellian for a standard management consultancy report. Are these facts possibly related?  Cheap Chinese-made DVD players from Wal*Mart are very popular with the public. 10 December 2004 Page 36 of 52 © Telepocalypse Ltd. 2004
  37. 37.  The Chinese have a massive trade deficit in intellectual property goods and a reputation for piracy of software, music and movies.  Chinese DVD players often have an easily accessible, ahem, “service menu” that enables region switching. It isn’t unheard of for devices to be riddled with hidden functionality that goes against the interests of the distributors or content providers but is attractive to end customers. Phone unlock codes, mod chips for Playstations, hacked PVRs, overclocked CPUs. People have always been tinkering with the artificial limits on their hardware. It would be unethical to actively pursue a program of hidden trapdoors. However, Cinderella doesn’t need to be over officious in preventing exploration and full exploitation of the handset’s hardware. It’s the equivalent of tugging at the other player’s shirt when tackling them. Ungentlemanly, impolite, but not a red card offence. I’ll leave the rest to your imagination. Foul the other side Telecom is sometimes a dirty business. Sorry if you were hoping for better. The “bribe the supporters” approach was an explicit financial appeal to users and carriers: pay them to be open. This one is a bit more subtle. Cinderella might not itself deploy features that make toll avoidance and cost management easier for users. But Cinderella could deploy features that make it really easy for third parties to do this. For example, what if the address book had a “prefix” capability before each phone number? Could this mysteriously be populated with carrier pre-select codes by users? What if there was space inside to store a second SIM card, even if the phone doesn’t actually support multiple SIMs? Or how about an SD card slot that can be turned into a second SIM making it easy to swap networks? What about making it really easy for third parties to create intelligent clip-on charging holsters to devices? These could access the phone’s full functionality, except maybe the air interface. So when you put your phone in the charging cradle at home it becomes a corded land-line phone, complete with address book. No need to wait for complex dualmode Wi-Fi chipsets and solve the handoff problem. This would spoil the carrier’s fixed/wireless displacement program, but the users would love it. Cinderella should encourage the encryption of absolutely everything. That makes carrier metering of value much tougher. Encouragement of encryption could be simple psychological plays, like reminding users “this session is not secure”. Or like the PC browser, why not nag the user to ask if they want encryption as the default? The general characteristics of such Trojan features are:  They enable the customer to avoid price discrimination or obfuscation via alternative channels of communication, or  They prevent carriers from seeing the value of the traffic, or  They help users avoid lock-down (e.g. application signing) by smuggling that functionality into other places. 10 December 2004 Page 37 of 52 © Telepocalypse Ltd. 2004
  38. 38. Plan for the next match Sometimes you just have to build up the strength of your team and hope for better outcomes the next time. You never know, some better players might come on the market, and the opposition team might not be so good next year. The lack of an open IP network can come from one of two sources:  Carrier policy. The carrier is using their market power to block access at the handset or in the network.  Technology. The network is incapable of supporting any of the throughput, latency, jitter or security requirements. Neither of these is fixed in stone, and both can improve over time. Cinderella can give itself an advantage by anticipating changes in policy and improvements in technology. The installed base should provide the least possible drag in moving to open IP networks. Changes in policy are the easiest to deal with. Every lock-down feature of a phone should be reversible over-the-air (using IOTA or whatever standard Cinderella chooses). Nothing should be burned in permanently: if a carrier changes their mind, the existing handsets should not be a barrier to change. Cinderella should try to support features that associate the lock-down policy with the network the phone provisions to, not the handset itself. So if you roam to a different network with a more liberal outlook, the phone would automatically adopt the new profile. New types of IP-friendly air interface technology generally require a new handset. But there are plenty of lesser changes that occur: new protocols, new types of service, new networked resources. If it isn’t doing so already, Cinderella probably ought to be seeding the market with the following features where economic and technical constraints allow:   IPv6 support where possible  SIP and encryption protocols in the API profile of every handset  Support for dynamic DNS services. Create a Cinderella DDNS service to map IMEI/MEIDs to IP addresses and other entries!  Make it possible for users to discover their IP address and tell if it’s static or dynamic, public or private.  35% of all Internet traffic comes from the BitTorrent P2P service41, but no Cinderella phone contains a BitTorrent client. Spot an opportunity?  Support for audio codecs better than that of POTS42.  42 TCP/IP stack even in phones that are officially “voice and SMS only”.  41 The only certainty is uncertainty. Make upgrades to the firmware quick and painless – and preferably under user control. API access to low-level IP services. Plain Old Telephone Service 10 December 2004 Page 38 of 52 © Telepocalypse Ltd. 2004