Business Models in Telecom

techno-ECOnomics of integrated communication SYStems and services

Deliverable 03:

“Business models in telecommunications”

October 2004

Business models in telecommunications of 57

Document Information Contractual Date of Delivery: 31. 10. 2004

Actual Date of Delivery: 31. 10. 2004

Editor(s): Renjish Kumar Kaleelazhicathu (HUT)

Author(s): Renjish Kumar Kaleelazhicathu (HUT), Irena Grgic Gjerde (Telenor), Timo Smura (HUT), Heikki Hämmäinen (HUT), Tom Tesch (JvH)

Participant(s): 5

Workpackage: 2

Workpackage title: Techno-economic methodology development

Workpackage leader: Borgar T. Olsen (Telenor)

Deliverable number: 3

Deliverable title: Business models in telecommunications

Est. Person-months: 8

Security: Public

Nature: Report

Version/Revision: 1.0

Total number of pages: (including cover)

57

File name: ECOSYS_Del03_v1.0.doc

Abstract This deliverable aims to act as a reference document for ECOSYS project in the area of business models in telecom-munications ecosystem. The concept of “value network” is adopted for our studies, instead of the traditional company-specific “value chain” approach. A reference model con-sisting of various roles and relationships is developed. The roles considered in this deliverable include the network and service operator, content provider, distributor, vendor, regulatory bodies, etc. A series of example business models are sketched based on the reference model. Key players, their revenue streams and cost drivers are identi-fied for each of the business models. A company’s (player’s) internal value chains and competitive strategies are beyond the scope of this deliverable. A qualitative as-sessment framework for evaluating a business model’s suc-cess in a telecommunications market is developed. These business models will be further studied, implemented and assessed within the activities of work packages 4 and 5 of the ECOSYS project. Finally, a series of recommendations and observations are provided in order to aid the quantita-tive business case analysis in WP4 and WP5.

Keywords Business model, telecommunication, value, value network, role, relationship, reference model, qualitative assessment.


Table of Contents Document Information ....................................................................................................2 Table of Contents............................................................................................................3 Figures ...........................................................................................................................5 Tables ............................................................................................................................6 Executive Summary.........................................................................................................7 1 INTRODUCTION .......................................................................................................9

1.1 Motivation .........................................................................................................9 1.2 Scope..............................................................................................................10 1.3 Methodology....................................................................................................10 1.4 Organization of the document...........................................................................11

2 BACKGROUND AND RELATED WORK .......................................................................13 2.1 Business models ..............................................................................................13

2.1.1 Definitions ................................................................................................13 2.1.2 Classifications ...........................................................................................14

2.2 Value ..............................................................................................................15 2.2.1 Value propositions.....................................................................................16 2.2.2 Value configurations..................................................................................17 2.2.3 Comparing value configurations .................................................................22

3 VALUE IN TODAY’S TELECOM MARKET....................................................................25 3.1 Value elements in today’s telecom ....................................................................25

4 REGULATORY FRAMEWORK: CURRENT AND FUTURE...............................................28 5 REFERENCE MODEL AND VALUE CONFIGURATION: ECOSYS PERSPECTIVE ...............31

5.1 Definitions .......................................................................................................31 5.2 Reference model..............................................................................................32

5.2.1 Roles........................................................................................................32 5.2.2 Relationships ............................................................................................34

5.3 Value model ....................................................................................................37 5.3.1 Value configurations..................................................................................37 5.3.2 Value modeling .........................................................................................38

6 EXAMPLES OF TELECOM BUSINESS MODELS ...........................................................39 6.1 BM 1: Basic service provisioning model .............................................................39

6.1.1 MODEL DESCRIPTION ...............................................................................39 6.2 BM 2: CPE distribution model............................................................................41

6.2.1 MODEL DESCRIPTION ...............................................................................41 6.3 BM 3: Content provisioning...............................................................................43

6.3.1 Vertical bundling model .............................................................................43 6.3.2 Bit-pipe model ..........................................................................................45 6.3.3 Capacity reseller model for content ............................................................46

6.4 BM 4: Peer-to-peer content distribution model...................................................48 6.4.1 MODEL DESCRIPTION ...............................................................................48

6.5 BM 5: DVB-H mobile broadcasting ....................................................................48


6.5.1 MODEL DESCRIPTION ...............................................................................48 7 ASSESSMENT FRAMEWORK ....................................................................................51 8 CONCLUSIONS AND RECOMMENDATIONS ...............................................................53 Acknowledgement.........................................................................................................54 References ...................................................................................................................55 Acronyms .....................................................................................................................57


Figures Figure 1: Research approach .........................................................................................11 Figure 2 Business model definition ................................................................................13 Figure 3 Value chain by Porter, [17] ...............................................................................18 Figure 4 Value system by Porter, [17] ............................................................................19 Figure 5 Value shop configuration by Stabell & Fjeldstad, [18] .........................................20 Figure 6 Value network configuration by Stabell & Fjeldstad, [18] ....................................21 Figure 7: Changes in the proportion of communication in disposable household income, [25]

.............................................................................................................................25 Figure 8 Current EU regulatory process ..........................................................................28 Figure 9: Roles in telecom ecosystem.............................................................................32 Figure 10 Roles and Relationships reference model .........................................................35 Figure 11 Basic service provisioning model .....................................................................39 Figure 12 CPE bundling by service operator ....................................................................41 Figure 13 Direct distribution by CPE vendor ....................................................................42 Figure 14 Vertical bundling model ..................................................................................44 Figure 15 Bit-pipe model................................................................................................45 Figure 16 Capacity reseller model for content .................................................................47 Figure 17 DVB-H mobile broadcasting business model .....................................................49


Tables Table 1 Business models classifications (survey by Alt & Zimmermann) ............................14 Table 2 Business model classification (by Rappa) ............................................................14 Table 3: A comparison of value configurations ................................................................22 Table 4: Value hierarchy................................................................................................27 Table 5 Role definitions .................................................................................................32 Table 6 Relationship interface definitions ........................................................................36 Table 7 Value providers .................................................................................................38 Table 8 Basic service provisioning : revenue streams and cost drivers .............................40 Table 9 CPE bundling: revenue streams and cost drivers .................................................41 Table 10 CPE direct distribution: revenue streams and cost drivers ..................................43 Table 11 Vertical bundling: revenue streams and cost drivers ..........................................44 Table 12 Bit-pipe: revenue streams and cost drivers........................................................46 Table 13 Capacity reseller model for content: revenue streams and cost drivers ...............46 Table 14 DVB-H mobile broadcasting: revenue streams and cost drivers ..........................50


Executive Summary This deliverable “Business models in telecommunications” is part of work package 2’s (Techno-economic methodology development) activity within the ECOSYS project. The deliverable aims to act as a reference document for ECOSYS in the area of business models in telecommunications ecosystem. This exercise is essential for creating a common understanding among ECOSYS partners and providing assistance in the quantitative techno-economic analysis of business cases to be executed within WP4 and WP5. Value creation in telecommunications market is no longer limited only to a few players. New roles and relationships are becoming an integral part of telecommunications business. Hence, the traditional paradigms have become obsolete. Every player has to understand its position in the network of suppliers, customers, buyers and competitors, in order to provide greater value and maximize the profit potential. The methodologies adopted in this deliverable are qualitative in nature. These include:

• Literature survey • Constructive approach: Analysis based on construction of models, diagram, plans

and organizations. • Hermeneutic approach: Method of interpretation

Business models, in general, have multiple definitions in various literatures. The working definition of the term “business model” adopted in the deliverable is as follows: “Business model consists of service and information flows, including a description of various business players, their roles and relationships, their relative position within a value network, and description of their cost structure and sources of revenue.” The concept of “value network” is adopted for our studies, instead of the traditional company-specific “value chain” approach. The deliverable consists of: • An overview of existing theories and perceptions on business models and value. • ECOSYS’ perception of value in today’s telecommunications networks • The reference model constituting various roles and their relationships captures the

complex value networks possible in today’s telecommunications ecosystem. • Example business models, based on the reference model. These business models are:

o Basic service provisioning model o CPE distribution model o Content provisioning model

Vertical bundling Bit-pipe Capacity reseller

o Peer-to-peer content distribution model o DVB-H mobile broadcasting model


The deliverable provides a qualitative assessment framework for business models. The framework is based on a top-down approach, starting with a macro-assessment of the business model followed by a micro-assessment of each of the participating players. The deliverable also outlines key observations and recommendations beneficial for WP4 and WP5 activities. A major observation with regards to business models is that power in terms of control over the value network is distributed among multiple players depending on the type of business models chosen. Hence, a clear understanding of the key participating players and measurement of their relative power are primary requirements for realistic analysis. The qualitative assessment framework developed in this deliverable acts as a basis for identifying appropriate power sharing equation among the players in a business model.


1 INTRODUCTION

1.1 Motivation Over a century after the invention of telephones, telecommunications has emerged as one of the fastest growing industries in the world today, with a growing influence over the global economy and people. The success of mobile communications and the emergence of Internet in the last decade have added new dimensions to the telecommunications business landscape, traditionally dominated by the fixed-lines. With the number of mobile subscribers overtaking fixed-line subscribers in recent years and the evolution of technologies to support convergence, the telecommunications industry is witnessing fundamental changes in the ways it does business. The traditional value chain concept has given way to value network [1]. Voice service, based on circuit-switched bearer technology, has been a major source of revenue for telecom service operators in the past. The emergence of technologies based on packet-switching, such as GPRS and UMTS for mobile and xDSL for fixed-line access, enables the introduction of new services, and opens up new revenue sources. While previously the main value of telecom was to realize communication between people, nowadays several new elements are added including mobility, personalization, portability, higher quality, etc. Offering new services such as person-to-person messaging, content, games and other broadband services, unlike traditional voice, which is vertically bundled, involves a number of players. These players include not only traditional telecom roles (service operator, network operator), but also players from other industries – content, IT, consumer devices. New business roles emerge, and their relationships are growing complex. Changes in the market and the telecom business are also more frequent than before. All these changes have also raised the significance of the regulatory role. The phenomenon of fixed and mobile services convergence is becoming a reality with the adoption of IP as the de facto network layer protocol. An increasing number of fixed to mobile substitutions in voice services have caused concerns among the existing fixed-line service operators to find profitable alternatives. On the other hand, convergence enables services to be accessed by subscribers irrespective of the underlying access and core network technologies, thus possibly providing value addition for the service operators and other participating players. The advent of broadband access technologies has made “triple play” - the convergence of voice, video and data communications possible. This is expected to play a major role in increasing subscriber’s loyalty, usage and revenue for all the players involved. The converged market will require new business models to exploit these opportunities. Recent initiatives in developing standardized application programming interfaces (APIs) from organizations such as Parlay/OSA [2] have enabled the opening up of network functionalities to application developers without requiring an extensive knowledge of specialized telecom systems. This will add new players to the telecom industry by allowing third party application providers to roll-out numerous value-added services over multiple access and core networks. All these issues make the telecom players face a complex and dynamic environment, and new business models. Such a complex picture of today’s telecom business cannot easily be


analysed in a linear manner of value chains. Hence, a proper understanding of the new business models in telecom asks for understanding the value networks of the participating players. Relationships emerging among the participating players in the value network such as revenue sharing, pricing and other revenue streams need to be identified. Another major challenge in this regard is to identify a framework to analyse and evaluate these business models. Convergence of voice, video and data has also contributed to the complexities in business models, which are not fully addressed in the existing literature. ECOSYS aims to evaluate various business cases emerging in the fixed and mobile communications industry. Estimating the return on investments (ROI) and other performance indicators for successful business requires a firm understanding of the changes in value networks in the industry and identification of business models suitable for the future. This deliverable aims to address all these issues by developing a framework for identification and analysis of suitable business models to be pursued by work packages 4 and 5 for business case studies in the fixed and mobile communications industry respectively.

1.2 Scope The deliverable presents our investigations on business models in telecommunications ecosystem, taking in to consideration the complex value networks involved. An overview of the key concepts, namely, business models and value, available in existing literature is presented. A working definition of business model is presented and the key elements determining the value in today’s telecommunication market are described. The concept of “value network” is adopted for our studies, instead of the traditional company-specific “value chain” approach. A reference model consisting of various roles and relationships is developed. The roles considered include the network and service operator, content provider, distributors, vendors, regulatory bodies, etc. Possible business models are described. These are considered as the basis for developing business models to be implemented and assessed in the work packages WP4 and WP5 of the ECOSYS project. Key players, their revenue streams and cost drivers are identified in each of these models. A company’s (player’s) internal value chains and competitive strategies are beyond the scope of this deliverable. A qualitative assessment framework for evaluating a business model’s success in the telecommunications market is developed. Finally, a series of recommendations and observations are provided to aid the business case analysis in WP4 and WP5.

1.3 Methodology The methodologies adopted in this deliverable are qualitative in nature. These include:

• Literature survey • Constructive approach: Analysis based on construction of models, diagram, plans

and organizations. • Hermeneutic approach: Method of interpretation

Figure 1 illustrates the research approach followed in this deliverable


Literature Survey

Definition of business models and value network

Development of telecom business models and corresponding value networks

Development of an assessment framework for business models

Literature Survey

Definition of business models and value network

Development of telecom business models and corresponding value networks

Development of an assessment framework for business models

Figure 1: Research approach

. The research approach followed four main steps:

• Literature survey: Research in the past has dealt mainly with the traditional business models and value chains. While new research is required to understand the complexities of present day and future business models and value networks, the existing literature has provided a basis on which our work has been built on.

• Business model and value network definitions: A working definition of the business

model and value networks is developed. • Telecom business models and value networks development: A reference model

constituting roles and relationships for the telecom market is described. This model serves as the basis for the development of our business models.

• Assessment framework: An assessment framework is sketched to qualitatively

evaluate the viability of business models.

Following this approach resulted in the reference model and the business models described in this deliverable. An extensive quantitative techno-economic analysis on the profitability of these business models will be conducted later within WP4 and WP5’s activities.

1.4 Organization of the document The organization of this deliverable is as follows: Chapter 2 provides an overview of the concepts of business models and value modeling. Since value is central to our understanding of the business dynamics in the telecommunications industry, we elaborate on the value in today’s telecom market in Chapter 3. Today, regulation is a major influencing factor on the telecommunications industry and market dynamics. Chapter 4 explains the current and future regulatory framework for telecommunications from the European Union’s perspective. Chapter 5 describes the ECOSYS reference model that includes the roles and relationships. It also provides ECOSYS’ perspective on value in a telecommunications business.


Examples of possible business models in telecommunications are provided in Chapter 6. Chapter 7 describes a qualitative assessment framework for business models. Chapter 8 concludes the deliverable with recommendations to assist WP4 and WP5 in their techno-economic analysis activities.


2 BACKGROUND AND RELATED WORK

In this chapter, we present a literature survey on the two key concepts in this deliverable, namely, business models and value.

2.1 Business models The term “business model” has been described in various literatures, often with different meanings that lack coherence. Thorough reviews on these differences have been conducted by many studies such as in [4], [5] and [6]. The following section describes some of the major definitions on this term that has influenced our understanding.

2.1.1 Definitions Various researchers in different contexts have provided definitions on business models. One definition that encompasses most of the other definitions and is relevant in a technology-based environment such as telecommunications is given by Chesbrough & Rosenbloom in [7]. Figure 2 depicts the key ideas of this definition.

Technical Inputs:e.g.: feasibility, performance

EconomicOutputs:e.g.: value, price, profit

Business model•Market•Value proposition•Value chain•Cost and profit•Value network•Competitive strategy

Measured in technical domain Measured in economic domain







Measured in technical domain Measured in economic domain

Figure 2 Business model definition

Here, a business model for a player consists of the following functions: • Articulate the value proposition • Identify the market segment • Define the internal value chain • Identify the cost structure and the profit potential • Position within the value network • Formulate strategy for competition


According to Chesbrough & Rosenbloom, “a successful business model creates a heuristic logic that connects technical potential with the realization of economic value.” In other words, a technology can be made successful only if it is supported by a successful business model. This is an issue to be kept in mind when dealing with business models in the telecommunications market today. Timmers [8] provides another relevant definition for business model. According to that definition, “a business model is architecture for the product, service, information flows, including a description of various business actors and their roles, a description of potential benefits for the various actors, and a description of the sources of revenue”. We consider these two definitions as the basis for our working definition of the term “business model”.

2.1.2 Classifications Much work has been done on classifying business models, mostly in the e-commerce and Internet domains. The convergence of Internet and telecommunications would mean that many of these business models are relevant for this deliverable. One such survey on classification is provided by Alt & Zimmermann in [5]. Table 1 lists the classifications and example models.

Table 1 Business models classifications (survey by Alt & Zimmermann)

Classification Business model

Business-to-customer models such as content portals, direct-sell-sites, e-tailers etc.

Sector and industry models

Business-to-business models such as two-way aggregators, information brokerage, trust and other third-party services

Revenue models subscription-based, fixed-price

Another classification is provided by Rappa in [9]. Table 2 provides an abridged list of his classification.

Table 2 Business model classification (by Rappa)

Type of model Sub-categories Marketplace exchange Business trading community Demand collection system Auction broker Transaction broker Distributor Search agent

Brokerage model Virtual Mall Advertising model Portal


Personalised portal Niche portal Classifieds Registered users Query-based paid placement contextual advertising Advertising networks Audience measurement services

Infomediary model Incentive marketing Virtual merchant Catalog merchant Click and mortar

Merchant model Bit vendor Manufacturer model Brand Integrated content

Besides these, business models specific to telecommunications domain have been identified by [10], [11], [12], [13] and [14] mainly from an operator’s perspective. [10] also provides an evaluation framework for business models.

2.2 Value Before thinking about the ways of creating, distributing and consuming value, it is important to have an unambiguous understanding of the term value itself. The notion of value has been present since the Ancient Greeks discussed it from the philosophical perspective. It has been used for a long time and in many different ways. The consequence is that today there exist a myriad of definitions and understandings describing the meaning of value. The definitions differ based on the focus, context and the perspective of their originators. Here, we describe the understanding of the value as used in the ECOSYS project, rather than having ambitions to (re)define the value or making an overview of the available definitions. Webster’s dictionary of Modern English interprets value in several ways – (1) qualitative – the relative worth, merit, or importance, (2) quantitative – monetary or material worth, as in commerce or trade, (3) relative - the worth of something in terms of the amount of other things for which it can be exchanged or in term of some medium of exchange, (4) economic – return in money, materials, services. Additionally, from the utility aspect the value can be considered as that quality of anything which renders it useful or desirable. We are considering the value from the economic perspective. It is a value that a customer is willing to pay for what a company provides for him. Such value is derived from the operations, collaboration or cooperation between the actors involved in its creation, distribution and consumption. Both customer’s and provider’s perspectives are taken into account (consumer’s value and companies value). From the company’s perspective, defining a customer’s value is an intrinsic component of a business model. An important ingredient when designing a business model is to create a value model. The value model consists of:

1. Value proposition includes identification of the key value drivers and elements, which enable the company to differentiate itself from the competitors, and

2. Value configurations includes network of partners, which describe how the value is created, who contribute to it (i.e. relationships), and how it is distributed and finally, consumed. Value configurations reflect different value creation logics.


Value model is also important for the assessment of different business models. Correctly designed robust value model enables a company to build its capabilities consistently with the value creation logic, and, consequently, to gain a competitive advantage. Value is measured by total profit, which is a reflection of the price a firm’s product commands exceeding the cost involved in creating the product. Several value-related measures are recognised in today’s economy – company value, economic value, economic profit, economic value added, and shareholder value.

2.2.1 Value propositions The first part of the value model design includes the identification of the value ingredients that are included in products and services. In other words, a value proposition should be made. Value proposition includes a description of all relevant value elements and drivers identified as important for the business model under study. In this section we discuss value elements in general, and present a value hierarchy. Different perspectives of value are also observed.

2.2.1.1 Value elements and drivers In order to figure out where is the value, for instance, of innovation, we need to think about the elements that contribute to it, which we call value elements. Each value configuration creates value by combining value elements and is enabled by value drivers. The selection of relevant value elements depends on the given business. Examples relevant for the telecom business include issues like removing the barriers in time, space, location, increasing simultaneousness and self-confidence, and assuring secured transactions, trust, CRM, regret-rights. Chapter 3 elaborates these in detail. As a result of identifying the value elements, a value proposition is described. It is used as the input to create a value model, and it is an important input for designing and assessing a business model.

2.2.1.2 Value hierarchy In addition to the value elements, it is important to note that different actors involved in the value creation may have different perspectives on value (analogue with QoS perspectives [15]) – value as seen by the user vs. value as seen by the producer, and with respect to time – value as observed before and after the product has been produced and consumed. Similar idea is presented in the Albrecht’s customer value creation hierarchy. According to Albrecht [16], the customer value can be thought of as forming a four-level hierarchy:

o Basic – the fundamental components of your customer value package required just to be in business.

o Expected – what customers consider “normal” for you and your competitors.

o Desired – added-value features that customers know about and would like to have but don’t necessarily expect because of the current level of performance of your competitors.

o Unanticipated – added-value features that go well beyond the learned expectations and desires the customer brings to the experience of doing business with you.

This value hierarchy is primarily used by individual companies to differentiate their products by exceeding customer expectations, but the model may also be used when analysing the value elements of the whole telecommunications industry.


2.2.2 Value configurations The second part of the value model design and a direct input into the business modeling process is the description of a value configuration. A value configuration is basically a formation including/depicting the actors that contribute to the value creation, distribution, consume, and their relationships. From the company’s perspective, it basically describes the elements of the company’s business that are valuable for the customers, and when, where and how are they created and delivered to the customer. It is also used to analyse the position of the company in the business it operates in, and to identify the items important to gain the competitive advantage. Several configurations are identified and described in the literature and used in the practice for both business and strategic purposes. These configurations focus on different aspects like transaction cost, network effects/externalities, strategic relationships, information asymmetry, branding and marketing, etc. These are not always contradictory, but rather partially overlapping. Probably the most used value configuration is a value chain; it originates in the manufacturing economy (supply chain theory) and essentially encapsulates a set of interconnected activities that bring a value/product/service to the market. Initially introduced by Porter in [17], it was used within a company to analyse the production, identify the activities and linkages between the activities, and determine the transaction cost. The idea is further generalized and applied to the complete industry, where a linear combination of several value chains is observed – not only company’s value chain, but also value chains for suppliers and customers. Such a combination of value chains constitutes a value system. But, while such a linear approach may be perfectly suitable for a manufacturing industry (associating with an assembly line), it can be quite misleading if used in a complex “service” and/or “mediator” industries [18]. Telecom industry is a mediator industry, where a telecom operator mediates between different customers by assuring a communication between them, e.g. end-customers and content provider relation via a mobile subscription provided by a MNO. The authors like Normann, Ramirez, Stabell, Fjeldstad, Afuah [19] have recognised the shortages of the value chains logic when applied in industries that is non-manufacturing, and where it is not trivial to identify the “final product”. For example, in the telecom business a “product” is not a “finished physical good”, but rather a bundle of services that enable two or more customers (who wish to be interdependent) to communicate to each other. These authors tried to describe the multiple dimensions of the elements that build up to the value delivered to customers by identifying the configurations and logic used to create the value. These include – value constellations proposed by Normann & Ramirez in [20], value shops and value networks proposed by Stabell & Fjelstad [18], but also a value web as introduced by Gordjin in relation to the e-commerce value drivers in [21]. These value configurations are described in short in the following sections, followed by a comparison table of these approaches.

2.2.2.1 Value chain and value system Michael Porter introduced the notion of both value chain and value system in relation to the strategic management decisions for the positioning of a company in a market. The value chain idea is based on the supply chain theory, where value is exchanged through the chain instead of the materials/products. It is also based on the McKinsey’s ideas on an array of activities that a company goes through to produce the final product to its customers. Value chain and value system build upon the same genuine idea, but have different scope – value chain’s scope covers one company and its activities and their linkages, while value


system is an extension of the value chain that captures several chains within an industry, i.e. its scope covers a focal company but also its partners including both sub-providers and customers.

2.2.2.2 Value chain Value chain is a linear formation where the value is produced in a linear and sequential manner, analogue to the assembly line in a factory. It envelops a set of activities that company performs in order to deliver the product to its customers. The product means economic value, since the customers are paying for consuming it. Decomposing the company’s production activities in atomic elements helps to analyse the value of what a company does and to allocate and control the transaction costs. By doing this exercise, the ideas of the company’s competitive advantages over other similar actors can be extracted. The focus of Porter’s argument is that the realization of either lower cost or differentiation depends on all the discrete activities that a company undertakes. By decomposing these into “strategically relevant” groups, managers should be able to understand the behaviour of costs as well as identify existing or potential sources of differentiation. The granularity of the decomposition (i.e. Which activity is the atomic one?) follows four considerations – activities are technologically and strategically distinct, have different economics, have a significant impact on differentiation, or represent a significant proportion of cost. Porter recognises two generic groups of activities (so-called value activities) in a value chain that a company performs when producing the value (Figure 3): • Primary activities which are directly involved in a creation of the value to the

customer. They vary depending on the company and its business, but are mainly concerned with the product assembly, its sale and transfer to the buyer as well as after-sales service. These include inbound logistics, operations, outbound logistics, marketing and sale, and service.

• Support activities that support primary activities and each other. These include procurement, technology development, firms infrastructure, and human resources management.

Third element depicted in Figure 3 is a margin that is defined as the difference between total value and the collective costs of performing the value activities.

Marketing

and Sale

Services

Operations

Inbound logistics

Outbound

logistics

Technology developmentHuman resources management

Firm infrastructure

Procurement MarginMarketing

and Sale

Services

Operations

Inbound logistics

Outbound

logistics


Firm infrastructure

Procurement Marketing

and Sale

Services

Operations

Inbound logistics

Outbound

logistics


Firm infrastructure

Procurement Margin

Figure 3 Value chain by Porter, [17]

Since these activities are interdependent, linkages between them are important in determining the success of the company. Porter argues that competitive edge often may emerge from such linkages – for instance, how buying high quality, well-prepared raw material can simplify manufacturing and reduce scrap, or how well designed manufacturing can assure quality by following the so-called “zero-defect” paradigm, or how the timing of promotional campaigns can help capacity utilisation in a fast food chain. By doing the same


things as the competitor only better and more cost-effective, a company gains a competitive advantage. The question of linkages between the activities is closely related to the issue of the internal organisation of a company, which is the issue tackled in the organisational theory. It stresses also the importance of the quality and Total Quality Management (TQM) that reduces the cost to zero simply by avoiding mistakes at each activity level.

2.2.2.3 Value system Value system is an extension of the value chain idea that covers the whole industry and not only one company. It can be considered as a combination of several independently modelled value chains that interact in the given industry. Value system may be considered also as a tool used to analyse the company’s positions relatively to other companies within an industry. It makes explicit who are the suppliers and what are the channels of the given company, and it identifies the relationships between the actors (Figure 4). In addition to the company’s value chain at least three value chains should be observed: 1. Supplier Value Chains which create and deliver the essential inputs to the company’s own chain 2. Channel Value Chains which are the delivery mechanism(s) for the firm’s products on their way to the end buyer, customer or consumer 3. Buyer’s Value Chains which are the ultimate source of differentiation because it is the product’s role in this chain that determines buyer needs. Value system also reveals the nature of the relationship between the actors – competition and/or co-operation. As a consequence, value system may be used by a company to be benchmarked against its competitors. Value system does not cover the dynamic nature of the value creation and exchange.

Supplier VC

Firm VC Channel VC

Buyer VCSupplier VC

Firm VC Channel VC

Buyer VC

VC – Value chain

Figure 4 Value system by Porter, [17]

2.2.2.4 Value shop Value shop is a circular formation that fits best the value created in service industries, where the resources (e.g. people, knowledge, money) are mobilised and concentrated in order to solve the customer’s problems. Value shop configuration was introduced by Stabell & Fjeldstad in [18]. Service industries include for example consultancy, market research, the exploration of novel ideas and R&D (new drug development, oil exploration, a new military aircraft design), health care. The companies operating in these industries offer various services – consultancy services (the delivering of a solution to a business problem by a consultant), health services (curing a patient), jurisdictional services (a lawyer winning a customer’s case in the court) etc. The shop process is iterative, involving repeatedly performing a generic set of activities until a solution is reached. The success of this model depends on the people working in the company and their intelligence. The primary activities in this model are (Figure 5):

1. Problem finding and acquisition, which involves interaction with the customer to figure out what is the exact problem that needs to be solved. It also assumes creation of a plan for solving the problem – timetable, milestones, methods.

2. Problem solving, which includes the actual generation of ideas and the execution of the developed plans.


3. Choice, which implies the decision upon the scenario and the path to follow. Several alternatives are evaluated, stresses the information asymmetry between the provider and the customer – the provider has all relevant knowledge and information; this activity is a real value to the customer.

4. Execution, which envelops the processes of implementing the above choice/decision.

5. Evaluation, where the actual results of the chosen solution are monitored and assessed. This is the feedback information to the first activity, and also to the choice activity, since it contributes to the knowledge creation.

InfrastructureHuman resourcesTechnology developmentProcurement

Problem search and acquisition

TreatmentTesting

Diagnosis

Choice

InfrastructureHuman resourcesTechnology developmentProcurement

Problem search and acquisition

TreatmentTesting

Diagnosis

Choice

Figure 5 Value shop configuration by Stabell & Fjeldstad, [18]

2.2.2.5 Value network Value network configuration (Figure 6) was also proposed in [18] to depict a value configuration suitable for the “mediator” industries. Examples of the companies running such business include telecom operators, banks, insurance companies, travel brokers. These industries are operating so that single companies configure themselves (and its infrastructure) to mediate interactions and exchanges across a network of their customers. The value network configuration helps tracing the value flows relevant for the telecom industry (both tangible and intangible value elements). Furthermore, the nature of a value network is such that customers often receive more value as more customers are added to the network (positive network effects/externalities [22]). Namely, customers of value networks (in contrast to those of chains and shops) often care who the other customers of the network are because much of the value they receive is derived from explicit or implicit exchanges with these other customers. Another feature of value networks is that it captures the fact that the companies often co-produce value with their competitors – for instance, when airlines link their booking systems to enable travellers to make a single booking that spans multiple carriers, or when a telecommunications company offers interconnections to the networks of other, competing, telecommunications companies. Three primary activities are identified in the value network configuration:

1. Network promoting and contract management includes the promotion, branding and building the network, acquiring the customers, and managing contracts/agreements for the service provision. The complexity of the contracting/negotiation process increases with the increase in the volume of customers.


2. Service provisioning links the people attached to the network, and also collects the payment from them. It includes the activities of service provision, billing, accounting, charging (with different charging schemes), etc.

3. Infrastructure operations make the infrastructure capable of supporting the customers in accordance to the contracts. It includes both physical and information infrastructure, e.g. network infrastructure maintenance and operation, customers-database administration, etc.

According to Stabell & Fjelstad the cost and value drivers in this model are the scale, the capacity utilisation, the linkages and the learning. Furthermore, competitive advantage can be gained by tuning these aspects, e.g. increased capacity utilisation decreases the cost per customer, but may also decrease service level. A trade-off/optimisation performed with capacity and QoS as parameters may be performed to help making decisions in this example.

Firm infrastructureHuman resources managementProduct and process developmentProcurement

Network promotion and contract management

Infrastructure operations

Service provisioning

Firm infrastructureHuman resources managementProduct and process developmentProcurement

Network promotion and contract management

Infrastructure operations

Service provisioning

Figure 6 Value network configuration by Stabell & Fjeldstad, [18]

Sometimes, the value network is confused with the notion of a networked organisation in the technical terms, or with a social organisation/community. The main difference is that a value network exists primarily for the purpose of business enterprise and is focused on commerce and economic value creation.

2.2.2.6 Value constellation Value constellation is introduced by Norman & Ramirez in [20] as a configuration that is more appropriate to the modern business than the original value chain concept. The key idea is that the value is co-produced between the actors, and therefore it is of extreme importance to recognise the relationships between the actors. The value is created in a dynamic, iterative and interactive manner. If one looks at relationships in a co-productive system, the customer is not only passive buyer of the offering or a target, but also participates in many other ways in consuming it. Furthermore, as actors participate in ways that vary from one offering to the next and from one customer / supplier relationship to the next, it is not possible to take given characteristics for granted: co-producers constantly reassess each other, and reallocate tasks according to their new views of the comparative advantage they perceived each other to have. Actors are no longer just buying an item, adding item to it, and selling it to the next link of the chain. Instead of adding value one after the other, the partners in the production of an offering create value together through inventing new relationships. This framework has broader implications to businesses as well. Ramirez [23] argued that the organizational structures and managerial arrangements must be changed also to meet new requirements: “Value co-produced by two or more actors, with and for each others, with and for yet other actors, invites us to rethink organizational structures and managerial


arrangements for value creation inherited from the industrial era.” As an illustration of the co-producing view Normann & Ramirez used IKEA as one of the examples. According to them, one of the IKEA’s strengths has been the ability to understand where the firm fits in its own customers’ value creation universe, and to fit itself into suppliers’ and partners’ value creation system based on it. Examples of IKEA’s ideas on the value creation includes – self-service and self-assembly of the furniture, restaurants, secondary items line (the items located near to the cashiers, which cost no more than e.g. EUR 10). In a value co-production view, the actors are playing different roles in relation to different counterparts (suppliers and customers), but also in relation to a single counterpart. The actors may hold several roles simultaneously. According to Ramirez [23], actor A may simultaneously be (i) a supplier to the actor B, (ii) a customer of the actor B, (iii) a competitor of the actor B, (iv) a partner with the actor B to co-produce value towards the actor C (alliance, joint ventures), and (v) possibly a competitor with ‘B’s partners, if ‘A’s own alliance with others competes with ‘B’s [23]. The major shortage of the value constellations and Normann & Ramirez’s theory is that it focuses exclusively on the buyer/seller relationship, overseeing the issues like the possibility of competitors co-producing value, and the dynamic nature of the value creation. Also, value constellation focuses on one industry and is concerned with vertical relationships ignoring the impact of aggregating companies to value creation. An attempt to extend this idea to cover these issues was the introduction of the ecosystem theory.

2.2.2.7 Value web Value web was introduced by Gordijn in [21] in relation to the eCommerce business. The idea is very similar to the one behind the value network, and illustrates the actors involved in a web when doing business and creating value. Sometimes, it is confused with the term of value of the Web, which tackles the intrinsic value of the WWW. A nice feature of Gordijn’s work [21] is a tool he developed for depicting value models, which is based on the Use Case Maps (UCMs). It indicates not only the actors involved in the value creation, distribution and consumption, but also the reference points/interfaces where the value is exchanged (in/out points). It is a practical tool that can be used in the ECOSYS project to trace all three value flows relevant for value models in telecom.

2.2.3 Comparing value configurations In this section, a comparison table (Table 3) gives an overview of the value configurations described in chapter 2.2, and relates them to each other with respect to several issues (the original idea that inspired the authors who introduced it, the associative picture to depict the configuration, its shape and operational modus, the paradigm behind the configuration, its focus, and the deficiencies that made us avoid its usage in the ECOSYS project [24]. Note that value web is not included in this overview, since it is rather similar to value network.

Table 3: A comparison of value configurations

Value chain Value constellation

Value shop Value network

Origin Industrial society, manufacturing economy, supply chain

Information society

Information society, service economy, knowledge-driven

Information society, service economy, driven by the wish to interconnect


Association Assembly line Microprocessor in a PC

Artificial intelligence

Distributed systems/telecom net

Shape Linear model Multidimensional model

Ring model Tree model

Modus Linear, sequence, unidirectional production

Complex, a set of unidirectional relationships

Iterative, involving repeatedly performing a generic set of activities until a solution is reached

Parallel, linked multidirectional mediating interactions

Paradigm Value is added downstream by each actor in the chain. Value means only goods delivered to the customers, that in return creates the revenue

Value is created by many actors in the constellation, no clear provider or user distinction. Relationships are the key of making the competitive advantage.

Value is created by combining the knowledge of experts and information processing.

Value is created by linking two or more customers. Customers are given the access to/the possibility to use services, and to be connected.

Focus/characteristics

Physical goods, finished productTransaction cost minimisation

Relationships Problem solution Knowledge and competence Information asymmetry

Customers Relations –both customers, partners and competitors

Inner trade-off Flow vs. variation

Specialisation vs. integration

Economy of scale vs. economy of scope

Outer constraints Capacity utilisation

Knowledge leverage

Yield management

What is missing? Complexity of the service and mediator –oriented industries can not be captured.

Too much focus on the relationships, forgetting that the competitors can also contribute with some value.

Suitable only for service-oriented business.

Suitable only for mediator-oriented business.


To conclude, this chapter has introduced relevant literature related to business models and value configurations in telecom business. It should be noted that in ECOSYS, none of these models are directly taken into use. Based on the existing work and our own understanding, we have created our own definitions for business models and value networks, introduced in detail in Chapter 5.


3 VALUE IN TODAY’S TELECOM MARKET

Before we describe the value elements in today’s telecom business (incl. fixed, mobile, converged business), and the value configuration used to model the value and business in the ECOSYS project, we give some figures on the economic value of the telecom, and its relevance. The telecom market has steadily grown during the last decade, and the money an average consumer spends on communications has increased. In the OECD countries, the percentage of consumption that households use on communication increased from an average of 1.6% to 2.3% (from USD 534 to USD 933 per year) between 1991 and 2000. This increase has been the most significant among all consumption sectors, as shown in Figure 7 [25].

Figure 7: Changes in the proportion of communication in disposable household income, [25]

Following our definition, these figures indicate also an increase in the value of telecommunications services to the consumers all over the world. A major part of this increase results undoubtedly from the success of mobile telephony and increase in the number of Internet connections among households. In the near future, the adoption of broadband Internet connections is likely to further increase the consumption of communication services. Also, new electronic services (eCommerce, eLibrary, eInvesting/Market), broadcasting to terminals other than TV (mobile handsets, PCs), mobile gaming and infotainment and their features making content and services available anywhere at any time, are expected to contribute to this trend.

3.1 Value elements in today’s telecom In this section, the major elements and drivers of value in today’s telecom market are identified and discussed. The idea is not to introduce numerous new services expected to emerge in the marketplace, but instead to recognize the value generating ingredients of these.


Connectivity A core value of telecommunications is connectivity. The essence of telecommunications services is in connecting people and machines, in order to allow information to be sent between these. Connectivity is achieved by linking communicating nodes together using various networking technologies, wired and wireless. The value of a network connectivity increases together with the number of nodes connected to the network. According to the famous Metcalfe’s law, the value of a network grows by the square of the size of the network. Mobility and reachability Mobility increases connectivity, by allowing people to maintain their ability to communicate and access information regardless of time or place. This “anywhere, anytime” dimension increases the value of telecommunications networks considerably, bringing value e.g. in increased productivity of workers. More importantly, it makes people more reachable: most people are always carrying mobile phones and rarely turn them off. This increased reachability increases the value of the whole telecommunications network through network effects, as the number of on-line nodes in the network increases. Converged services Convergence brings users the ability to access the same services regardless of the end-device or access network. This has an important effect on the value of services experiencing network effects, as the number of on-line users increases. As an example, instant messaging services having clients installed on both PCs and mobile phones have a larger on-line user base and are therefore of higher value for each of the users. Presence and context-awareness Presence services give people the ability to choose and inform others when, how, and with whom they want to communicate. In today’s society, the ability to be always connected may easily turn to a must. Presence services give users value e.g. from the ability to be “politely disconnected”. Context-awareness and location based services can provide extra value by automatically altering the presence states of users. Personalization Mobile communications differs from fixed line communications in that the terminals are clearly owned and used by individual persons instead of e.g. households or firms. Personalization of the devices by e.g. downloadable ring tones and wallpapers give the users value in the form of entertainment and fun, as well as a possibility to signal other people about ones interests and values. Personal preferences of users can also be informed to providers of services, in order to e.g. receive filtered and personalized advertisements, information, and content. This brings value to both the consumers and providers. Security and QoS A certain level of security and reliability is always assumed by the user of telecommunication services, and it might be difficult to charge extra money for these. Value can be added e.g. by making the required security mechanisms more transparent to the users.


Quality of service also is a rather important element of the value for any user. Many users are willing to pay more if they get QoS guarantees/or even experience “better” quality [26]. All services have some QoS requirements and the value of the services decreases if those are not met. For many services the charging of QoS should be made invisible and included in the service charge. Extra value could be added e.g. by offering QoS-capable Internet subscriptions with a possibility to prioritize different traffic flows in different classes, enabling e.g. low-delay streaming and conversational services. E- and m-services In addition to personal communications and information/content services, the Internet and mobile networks make it possible to perform many daily tasks and transactions more easily and conveniently. Networks can be used to transfer orders, invoices, money, and electronic goods, as well as to fill forms, return election votes, renew library materials etc. The actual value from these services results from savings in time and energy. Ease of use New technologies and services always require some learning from the users. Services that are easy to use bring value e.g. in time and energy savings and reduced anxiety. Easy and/or automatic log-on to networked communications services increases the value of the service through network effects. Using Albrecht’s model, the value elements recognized above can be mapped to different levels of the value hierarchy, as shown in Table 4.

Table 4: Value hierarchy

Unanticipated

Presence and

context-awareness

Desired Converged services

Expected Security and QoS

Personalization

E- and m-services

Ease of use

Basic Connectivity Mobility

and reachability

It should be noted that the classification of the value elements to the hierarchy is not static, but dynamic. In the course of time, as customers get used to the value-adding features, the value elements move downwards in the hierarchy. Unanticipated features become desired; desired features become expected, and so on.


4 REGULATORY FRAMEWORK: CURRENT AND FUTURE

Communication networks have become so important to modern societies that governments have an increasing interest to guarantee their efficient and fair operation through legal actions. The first big step was to start a massive global transition from government monopolies to competitive communications markets in the early 1990s. This transition including privatization, liberalization, and a single market creation is likely to reach its goals in Europe in 2010s, assuming no radical changes in EU politics. The next big step in Europe was the establishment of the New Regulatory Framework [27] in 2003, which defines the EU legal process for managing the technology-neutral sector-specific regulation for all communication networks. This European "clean table" regulation represents a major deviation from the US telecom regulatory scheme which is more heavily bound to the long legacy of FCC rulings. Figure 8 shows the current EU regulatory process.

Recommendation on relevant markets

Guidelines on market analysis and assessment of Significant Market Power

Market analysis and relevant market definition

Assessment of effective competition or significant market power

Cancellation, confirmation or imposition of obligations

EU Level

National Level Results

canbe vetoed by the market players

Remedies cannot be vetoed by the market players

Recommendation on relevant markets

Guidelines on market analysis and assessment of Significant Market Power

Market analysis and relevant market definition

Assessment of effective competition or significant market power

Cancellation, confirmation or imposition of obligations

EU Level

National Level Results

canbe vetoed by the market players

Remedies cannot be vetoed by the market players

Figure 8 Current EU regulatory process


The European commission has identified 7 retail and 11 wholesale markets as relevant markets in the communications domain. They are as follows:

• Retail markets o Access to PSTN at fixed location for residential and non-residential o Publicly available local/national PSTN for residential and non-residential o Publicly available international PSTN for residential and non-residential o Minimum set of leased lines up to 2Mbps

• Wholesale markets o Call origination and termination in an individual PSTN. o Transit services in the fixed PSTN o Wholesale unbundled access to metallic loops for voice and broadband o Wholesale broadband access (“bit stream” access) o Wholesale terminating and trunk segments of leased lines o Access and call origination in public mobile networks o Voice call termination in public mobile networks o Wholesale national market for international roaming on public mobile o Broadcasting transmission services, to deliver broadcast content to end-

users. In addition to sector-specific regulation, EU is proceeding in adopting the changes due to Internet in all necessary bodies of law. We summarize this evolution from the ECOSYS viewpoint per legal domain as follows. The New Regulatory Framework includes two major structural intentions: 1. The technology-neutrality which implies the regulatory convergence of telephony,

computer and broadcasting networks. This convergence is now taking place in European countries, for instance, as merger of national regulatory units of telephony, computer and broadcasting into a single national body.

2. The separation of network operation from service operation which is in line with, for instance, the Internet technology that separates the transport services from end-to-end service provision. This separation appears currently to traditional operators as a regulatory requirement of separate accounting and ban of cross-subsidies between network and service units of the operator. It also appears as requirement for the network unit to offer the wholesale transport service at the same price to internal and external service operators. This regulatory separation brings up the question of the evolution of value networks: do the vertical operator conglomerates gradually diverge into independent network and service operator businesses?

Competition Law serves similar purposes with the sector-specific New Regulatory Framework, such as promotion of fair and innovative competition in the marketplace. In theory, the sector-specific competition regulation should gradually diminish and merge into the general Competition Law. So far this merger is far away in the future and probably happens in the same timeframe as the above mentioned privatization and liberalization process. This close linkage between Competition and Communications regulation implies need for continuous coordination and will cause conflicts because of the rapid evolution of technology and services.


Intellectual Property Law has been challenged by the Internet phenomenon. Regarding digital content there are two schools of thought, those who emphasize the efficient creation of content (hard copyright, media industry) and those who emphasize the efficient distribution of content (soft copyright, consumer benefit). It seems likely that the hard copyright school has a stronger case which means that technologies and services for content protection (e.g. digital rights management) and micro-payments (e.g. prepaid, digital wallets) will be an important part of evolution. Media Law is based on constitutional rights such as freedom of speech. Instead of detailed guidance by authorities, the market behavior of media players is in many countries guided by industry self-regulation. This is a result of the principle that government should not exercise significant power over independent media. Privacy Law has also been challenged by Internet. Law is being enhanced in EU to better cover items such as location service, spam filtering, and management of user profiles. The sanctions for violation of Privacy Law are likely to become sufficient for protecting the rights of individuals as well as the healthy operation of Internet. This is one important aspect to secure the continuing growth of Internet traffic. Financial Law is relevant from service operator viewpoint because one of the key strategic issues is the adoption of efficient mechanisms to support electronic commerce, both for digital and physical merchandise. The division of tasks between operators and banks is being tested. For instance, extending the operator's billing and charging to new domains is limited by the requirement of getting a license for exercising banking business.


5 REFERENCE MODEL AND VALUE CONFIGURATION: ECOSYS PERSPECTIVE

This section presents the working definitions for “business models” and “value networks”, roles and relationships reference model and value configurations from an ECOSYS [24] perspective.

5.1 Definitions The working definition for business model adopted in this deliverable is based on the definitions provided by Chesbrough and Rosenbloom in [7] and Timmers in [8] (refer Chapter 2). Our definition is stated as follows: “Business model consists of service and information flows, including a description of various business players, their roles and relationships, their relative position within a value network and description of their cost structure and sources of revenue.” We do not specify the company internal value chains and competitive strategies involved. The concept of value as perceived by various literatures is presented in Chapter 2. In this deliverable, we have adopted the concept of “value network” instead of the traditional company-specific “value chain” approach. We define value network as a network of relationships that generates economic and other types of value through dynamic exchanges between two or more participating players. The exchanges may be tangible or intangible in nature. This definition is based on [3]. Other terminologies used in this deliverable are defined as follows: • Player: Participating entities in a business model. It can either be 1) a business entity

that provides services or 2) customer that consumes services. • Role: Functionalities of players in a business model. A player can take one or more

different roles. • Relationship: Illustrates the exchange of information between two roles/players/layers in

the system. These information exchanges can be of two types: 1) technical (data flow, control flow etc), 2) business (monetary flow, contracts etc).

• Vertical bundling: This refers to the extent to which a player controls the production and

distribution of services in a value chain. This is also known as vertical integration. For instance, traditionally, an operator providing voice telephony services had integrated the service and network operator roles, thus maintaining complete control over the value chain.

• Revenue model: A revenue model describes the revenue streams available for a player

in a business model. Some examples of revenue models are subscription and transaction fee based models.


5.2 Reference model The major components of the reference model considered in this deliverable are: • Roles • Relationships: Only the business relationships are presented in this deliverable.

5.2.1 Roles Figure 9 illustrates the roles that exist in the telecommunications ecosystem from an ECOSYS perspective.

End-user

Distributor

CPE Vendor

Third party billing service provider

Regulator

Service Operator

Subscriber

Access networkoperator

Core network operator

Network Equipment Vendor (Network elements and services)

Service Integrator

ContentAggregator

Contentprovider

Contentproducer/owner

Value-added Service Provider

End-user

Distributor

CPE Vendor


Regulator

Service Operator

Subscriber



Network Equipment Vendor (Network elements and services)

Service Integrator

ContentAggregator

Contentprovider


Value-added Service Provider

Figure 9: Roles in telecom ecosystem

Table 5 describes the roles illustrated in Figure 9.

Table 5 Role definitions

Role Description End-user An entity taking up this role is the ultimate consumer of services and

content provided in the telecom ecosystem.


Subscriber An entity taking up this role pays for the services and content provided in the telecom ecosystem and has a direct relationship with the provider. However, this entity may not necessarily be the end-user of these services and content. A subscriber can be classified as: 1) Post-paid or pre-paid (based on mode of payment), 2) Consumer or business (based on type of entity)

Service operator An entity taking up this role provides basic communication services such as voice and video telephony to subscribers over telecom networks (fixed-line and mobile). A service operator doesn’t own the networks. It enters into service level agreements (SLAs) with access and core network operators for network capacity. Other major responsibilities of this role include: 1) Management of subscriber profiles, subscriber acquisition and retention 2) providing security services 3) Charging and billing the subscribers for service usage. The service operator role may resell its network capacity to third parties such as content aggregators.

Access network operator

An entity taking up this role owns and administrates the access networks (local loop) such as DSL or mobile base stations and provides transport or bearer services to the service operator. In other words, this entity sells access network capacity to service operators enabling them to reach its subscribers.

Transmission network operator

An entity taking up this role owns and administrates the transmission networks such as optical backbone networks and provides transmission services to the core network operator.


An entity taking up this role owns and administrates the core network elements such as the PSTN and mobile switches, routers and offers core network capacity to the access network operator.

Network equipment vendor

An entity taking up this role primarily manufactures either by themselves or through original equipment manufacturers (OEMs) network elements and related services and distributes them to network operators (both access and core) as well as to service operators.

CPE vendor An entity taking up this role provides customer premises equipment (CPE) such as desktop computers or mobile terminals used by the end-users. This entity may also provide auxiliary software and hardware such as operating systems and batteries essential for the proper functioning of CPE.

Distributor An entity taking up this role acts as the retailer for CPE and/or service subscriptions. The means of distribution can be through a shop or over the link/air downloads.

Value-added service provider (VASP)

An entity taking up this role provides services that are complementary in nature or add value to the basic set of services provided by a service operator. Examples of such services include location-based services and presence.


An entity taking up this role provides billing services to the service operator, VASP or content aggregators. This role acts as a financial intermediary (or clearing house) between two or more service operators. In return, it gets a share of the revenue earned by the operators. Credit card companies and banks fall in this category.


Regulator Regulator’s primary role is to maximise social welfare by laying down rules and guidelines essential for sustaining a competitive market and technological environment and acting as a facilitator or mediator between service operators, subscribers and network operator. Regulator plays a neutral role in the telecom ecosystem and acts as a representative of the government.

Service Integrator An entity taking up this role provides service platform functionality that enables roles, offering services and application access to subscribers, without requiring an extensive knowledge of the underlying telecom system. Some examples of these functionalities include Parlay/OSA Gateway that provides APIs for charging and billing service, QoS etc.

Content producer/owner

An entity (business or individual) that takes up this role would develop and maintain content applications such as games, music etc. It may own the content (owner) or act as developers for an owner.

Content provider An entity taking up this role publishes and sells the content developed by itself or by other content producers. Other activities include marketing the content, conducting market research etc. Sega, a game publisher is one such content provider.

Content Aggregator

An entity taking up this role acts as an intermediary between service operators and content providers for offering a portfolio of content (such as games, music or ringtones). It takes the content produced by Content providers, and converts it into a suitable format depending on the context (terminal capabilities, location, personal indications/preferences, etc.). it usually offers several types of content at a single stop (e.g. a content portal) combining music, videos, films, books, etc.

5.2.2 Relationships Understanding the relationships that exist among the business entities taking up one or more roles is crucial for designing business models. After identifying the user-provider relationships between the roles described in previous section, we comprised the result into the reference model illustrated in Figure 10.


TPB_Ser

Transmissionnetworkoperator

Cap_Whl

End user

Subscriber

Serviceoperator

Accessnetworkoperator

Corenetworkoperator

Distributor

CPE Vendor

Networkequipment

vendor

Service Integrator

Regulator

Third partybilling service

provider

VASprovider

Contentaggregator

Contentprovider

Contentproducer/

owner

VA_Ser

CPE_Whl

CPE_Ret

Mkt_Rg

Nwk_Rg

Nwk_Rg

Cont_Ret

Billing

NES_Ven

NES_VenSer_Int

Ser_Int

NES_Ven

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Cust_

TPB_Ser

TPB_Ser Cont_Whl

Cont_Whl

VA_SerCom_RetCap_Ret

Cap_Whl

Cap_Whl

Cap_Whl

TPB_Ser


Cap_Whl

End user

Subscriber

Serviceoperator


Corenetworkoperator

Distributor

CPE Vendor

Networkequipment

vendor

Service Integrator

Regulator


provider

VASprovider

Contentaggregator

Contentprovider

Contentproducer/

owner

VA_Ser

CPE_Whl

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Corenetworkoperator

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CPE Vendor

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provider

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Cap_Whl

Cap_Whl

Cap_WhlTransmission

networkoperator

Cap_Whl

End user

Subscriber

Serviceoperator


Corenetworkoperator

Distributor

CPE Vendor

Networkequipment

vendor

Service Integrator

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provider

VASprovider

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vendor

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provider

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Cust_

TPB_Ser

TPB_Ser Cont_Whl

Cont_Whl

VA_SerVA_SerCom_RetCap_Ret

Cap_Whl

Cap_Whl

Cap_Whl

Figure 10 Roles and Relationships reference model

The figure depicts the roles and relationships among them. The direction of arrows indicates the value flow. Table 6 describes each of the business relationship interfaces.


Table 6 Relationship interface definitions

Interface Description Cust_ This interface represents the relationship between the end-user and the

subscriber roles.

CPE_Ret This interface represents the retail relationship developed between the distributor and end-user roles for the distribution of CPE and related services.

CPE_Whl This interface represents the relationship developed between roles for the wholesale distribution of CPE and related services. This relationship exists between the CPE vendor and distributor.

Sbs_Dstr This interface represents the relationship developed between the subscriber and distributor roles.

Com_Ret This interface represents the relationship developed between roles for the retail provisioning of communication services such as voice, video telephony, email etc. This relationship exists between service operator and subscriber

Cont_Ret This interface represents the relationship between roles for the retail provisioning of content. This relationship exists between: 1) Content aggregator and subscriber 2) Content provider and subscriber

Cont_Whl This interface represents the relationship between roles for the wholesale provisioning of content. This relationship exists between: 1) content aggregator and service operator 2) content provider and service operator 3) content provider and content aggregator 4) content producer and content provider

Cap_Ret This interface represents the relationship between roles for the retail provisioning of access network capacity services. This relationship exists between the service operator and subscriber.

Cap_Whl This interface represents the relationship between roles for the wholesale provisioning of network capacity services. This relationship exists between: 1) Access network operator and service operator 2) Core network operator and access network operator 3) Core network operator and service operator

TPB_Ser This interface represents the relationship between roles for the provisioning of third party billing services. This relationship exists between a third party billing provider and the following roles: 1) Service operator 2) VASP 3) Content aggregator/provider/producer

Mkt_Rg This interface represents the relationship developed between the regulator and service operator roles for the implementation of market regulations in order to provide market fairness. Pricing regulation is one example of such market regulation.

Nwk_Rg This interface represents the relationship that exists between regulator and the network operator roles (both access and core) for the implementation of network regulations such as mobile spectrum distribution, wholesale pricing and interconnection.


Ser_Int This interface represents the relationship that exists between the service integrator and network operator (both access and core) roles for the implementation of service platforms that enable network independent services and applications.

VA_Ser This interface represents the relationship between a value-added service provider and the following roles: 1) Service operator 2) Subscriber

NES_Ven This interface represents network equipment vendor’s relationship with the following roles: 1) Core network operator 2) Access network operator 3) Service operator

5.3 Value model

5.3.1 Value configurations Porter’s work meant a lot for the strategy theory, but, having telecom business in mind, it is necessary to mention that a point of criticism has been that Porter’s value chain model was codified in a way that made it more suited to manufacturing than service industries. More recently, it has been criticised for being modelled too closely on the assembly line analogy – being too linear, too unidirectional and too sequential. Stabell and Fjeldstad showed in [18] the limitations of the value-chain model’s usage in service and mediating industries (e.g. insurance, banking, hospitals, telecom). In their view, the value chain logic does not sufficiently capture the value-creation logic of the telecom business. They suggest using the networked value creation logic. In practice, one should think of a value network configuration when modelling the value in the telecom business. We adopt this view in the ECOSYS project, and consider the value network as the basis for creating example business models described in the Chapter 6. Change in perceptions regarding value analysis has already been discussed in detail in Chapter 2. A value network generates economic value through complex dynamic exchanges between an enterprise, its customers, suppliers, strategic partners and stakeholders. These networks operate on the principle of exchange where three different value flows need to be traced. Each of value flows follows the migration of the items of value exchanged among the actors involved in the value network. In other words, we need to trace: 1. Value chains – A flow of goods, services, revenue, which involves direct exchanges for paid services, delivery of goods, services, contracts and invoices and the return receipt of orders, request for proposals, confirmations or payment. 2. Knowledge value flow– a (logical) value flow denoting the exchange of strategic information, planning knowledge, process knowledge, collaborative design, policy development, etc. 3. Intangibles value flow– a value flow of intangible value and benefits. These are value that cannot be assigned a monetary sign, and benefits that go beyond actual service such as a sense of community, customer loyalty, image enhancement or branding. Value flows are not unidirectional, but rather multipoint-to-multipoint and interdependent. They run around and loop back again in complex exchanges that encompass many threads or chains of value. In order to create a robust business model that will lead to a competitive advantage, all flows should be captured and analysed.


5.3.2 Value modeling For the purpose of value modelling it is important to relate the identified value elements and the value producers. Different actors and players in the value network provide different value elements. For example, connectivity and mobility are clearly provided by the network operators, whereas security must be taken care of in many different levels. Table 7 illustrates this, by mapping the value elements to the value configuration.

Table 7 Value providers

End-user

CPE Vendor

Service operator

Personalization E- and m-

services

Access Network operator

Mobility and

reachability

Core Network Operator

Connectivity

Value-Added Service Provider


Content aggregator/

provider Personaliza

tion

Converged services

Presence and

context-awareness Ease of

use

Content producer/

owner

Security

and QoS

E- and m-services


6 EXAMPLES OF TELECOM BUSINESS MODELS

This chapter describes the telecommunications business models in detail. A series of business models applicable for telecommunications services are described. The participating players, relationship interfaces, revenue streams and cost drivers are listed for respective models. We do not specify the company internal value chains and competitive strategies involved. The direction of arrows in all the business models represents the direction of service flow. Revenue flow is considered to be in the opposite direction. In some cases revenue sharing exists between two players, which is bidirectional. The ellipse in all the figures represents a player. A player may take up one or more roles. The rectangular boxes within the ellipse represent the roles.

6.1 BM 1: Basic service provisioning model

6.1.1 MODEL DESCRIPTION

Com_RetCap_Ret

Cap_Whl

Subscriber

Service Operator

Access Network Operator

Transmission Network Operator


Com_RetCap_Ret

Cap_Whl

Subscriber

Service Operator

Access Network Operator

Transmission Network Operator


Figure 11 Basic service provisioning model


This business model describes a basic service provisioning scenario, where the user buys services from the Service Operator and thus subscribes for telecommunication services. The subscriber can either be an individual or a business organisation. Service operator acts as the main responsible player towards the Subscriber. It provides telecom services like voice and video telephony, Internet access, value-added services etc. In order to reach its customers, and provide them with services, service operator needs to buy network access and transport services from the network operator. Network operator is a player who operates both access and core portions of a network infrastructure. In this scenario, two types of service level agreements exist.

1. A subscriber enters into a contract or service level agreement (SLA) with the service operator for the usage of services. The contract can be of two types: post-paid or pre-paid, based on the mode of subscription payment. In the case of post-paid contract, the subscriber is billed by the service operator for basic connectivity and communication services on a monthly basis. A service operator may adopt different pricing models to charge for the services provided. The billing service is taken care of by the service operator, thus incurring OPEX.

2. A SLA exists between the service and the network operator for the provisioning of core and access network services. SLA includes monitoring and maintenance of network QoS, reliability and fault-tolerance, charging etc.

Figure 11 illustrates this model. In this figure, the network operator player takes up the roles of access, transmission and core network operators. Table 8 lists the revenue streams and cost drivers for the key players in this model.

Table 8 Basic service provisioning : revenue streams and cost drivers

Player Roles Revenue Cost Interface Streams Interface Drivers

Cap_Ret

Monthly fee from the subscriber for connectivity Com_Ret

Subscriber management cost (includes subscriber acquisition and retention), Billing cost

Service operator

Service operator Com_Ret

A variable fee for communication services Cap_Whl SLA cost

Network operator

Access network operator, transmission network operator, core network operator Cap_Whl

SLA revenue from service operator Internal

Network equipment purchase and maintenance cost


6.2 BM 2: CPE distribution model

6.2.1 MODEL DESCRIPTION This business model is used for the retail distribution of CPE to the end-user. The CPE can be distributed in two different ways.

6.2.1.1 CPE bundling by service operator This method is mostly seen in the case of mobile services where the CPE vendor directly sells the equipments to the service operator who in turn distributes them (mobile terminals in this case) directly to the end-user and the cost of CPE is included in the basic subscription fee. The service operator takes up the additional role of distributor and hence is the key player. The service operator may provide subsidies to the subscriber in this scenario. Figure 12 illustrates the model. Table 9 lists the revenue streams and cost drivers for the key players.

CPE_Ret

Cust_

End-user

Distributor

CPE Vendor

Com_RetCap_Ret

Service Operator

CPE_Whl

Subscriber

CPE_Ret

Cust_

End-user

Distributor

CPE Vendor

Com_RetCap_Ret

Service Operator

CPE_Whl

Subscriber

Figure 12 CPE bundling by service operator

Table 9 CPE bundling: revenue streams and cost drivers

Player Roles Revenue Cost Interface Streams Interface Streams

Cap_Ret

Monthly fee from the subscriber for connectivity Internal

Distribution channel setup cost

Service operator

Service operator, Distributor

Com_Ret

Variable fee for communication services CPE_Whl

CPE purchasing cost


CPE_Ret CPE revenue from end-user CPE_Ret

CPE subsidy cost, Device management cost

CPE Vendor CPE_Whl

CPE revenue from service operator Internal

CPE manufacturing cost (includes OEM outsourcing)

6.2.1.2 Direct distribution by CPE vendor In this case, the CPE distribution is directly taken care of by the CPE vendor as shown in Figure 13. This is the usual method of distribution followed in fixed-line service business. Here, CPE vendor and service operator may have equal or higher power with respect to each other based on the control over the CPE distribution network and the subscriber base respectively. Revenue sharing deals may exist between the distributor and Service operator (for subscription distribution).

Sbs_Dstr

Cust_

Com_RetCap_Ret

Revenue Sharing

CPE_RetEnd-user

Subscriber

Service Operator

Distributor

CPE Vendor

CPE_Whl

Sbs_Dstr

Cust_

Com_RetCap_Ret

Revenue Sharing

CPE_RetEnd-user

Subscriber

Service Operator

Distributor

CPE Vendor

CPE_Whl

Figure 13 Direct distribution by CPE vendor

Table 10 lists the revenue streams and cost drivers for key players in this model.


Table 10 CPE direct distribution: revenue streams and cost drivers


Service operator Service operator

Cap_Ret, Com_Ret

Connectivity and service fee from subscribers Internal

Subscriber management and acquisition cost, SLA cost

CPE Vendor CPE vendor CPE_Whl CPE revenue from distributor Internal

CPE manufacturing cost (includes OEM outsourcing)

CPE_Ret CPE revenue from end-users Internal

Distribution channel setup cost

Distributor Distributor Sbs_Dstr

Revenue from subscription distribution CPE_Whl

CPE purchasing cost

6.3 BM 3: Content provisioning

6.3.1 Vertical bundling model

6.3.1.1 MODEL DESCRIPTION This model is used for the provisioning of content by a service operator. The service operator purchases wholesale content from various content players (such as content providers and producers) and thus takes up the additional role of a content aggregator. Service operator is the key player in this model having a direct relationship with the subscriber base, providing content through a portal and billing the subscriber for the services. By assuming the role of content aggregator, a service operator can gain greater control of the value network. This is also known as vertical bundling. Figure 14 illustrates the model. Table 11 lists the revenue streams and cost drivers for key players.


Cont_Whl

Cont_Whl

Cont_Ret

Cap_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator

Cont_Whl

Cont_Whl

Cont_Ret

Cap_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator

Figure 14 Vertical bundling model

Table 11 Vertical bundling: revenue streams and cost drivers


Cont_Ret

Content subscription revenue Cont_Whl

Content purchase and aggregation cost

Service operator

Service operator, Content aggregator Cap_Ret Connectivity fee Internal

Capacity provisioning cost


6.3.2 Bit-pipe model This model is used for content provisioning by third parties such as content aggregators. Here, the third party offers content to the subscribers over service operator’s network capacity. The third party has a direct relationship with the subscriber and hence is a key player. A third party billing service operator (such as credit card agency or banks) will provide billing services on behalf of the content aggregator. The content distribution is considered to be over the link/air. Here, the service operator bills its subscribers only for the transport data usage, hence the “bit-pipe” model. Content aggregator and third party billing service provider are the key players in this model. Figure 15 illustrates the model.

Cont_Whl

Cont_Whl

Cap_RetBilling

TPB_Ser

Cont_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator


Cont_Whl

Cont_Whl

Cap_RetBilling

TPB_Ser

Cont_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator


Figure 15 Bit-pipe model


Table 12 lists the revenue streams and cost drivers for key players.

Table 12 Bit-pipe: revenue streams and cost drivers


Content aggregator

Content aggregator Cont_Ret

Content usage revenue Cont_Whl



Third party billing service provider TPB_Ser

Billing service revenue from content aggregator Billing

Billing provisioning cost

Service operator Service operator Cap_Ret

Data usage revenue from subscribers Internal


6.3.3 Capacity reseller model for content In this model, the third party such as the content aggregator provides content to the subscribers using a service operator’s network capacity. Here, the service operator resells a part of its capacity and also provides billing services on behalf of the content aggregator. The content aggregator in turn has to pay for the billing service and capacity usage to the service operator. A revenue sharing model can also exist between these players for content usage. These revenue models may differ depending on the type of content provided. Figure 16 illustrates the model. Table 13 lists the revenue streams and cost drivers for key players.

Table 13 Capacity reseller model for content: revenue streams and cost drivers


Billing

Billing service revenue from Content aggregator Billing

Billing provisioning cost

Service operator Service operator Cap_Whl

Resell capacity revenue from content aggregator Internal


Content aggregator

Content aggregator Cont_Ret

Content subscription revenue( revenue may be shared between service operator and content aggregator) Cont_Whl



Cont_Whl

Cont_Whl

Cap_Whl

Cap_Ret Billing

Revenue Sharing

Cont_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator

Cont_Whl

Cont_Whl

Cap_Whl

Cap_Ret Billing

Revenue Sharing

Cont_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator

Cont_Whl

Cap_Whl

Cap_Ret Billing

Revenue Sharing

Cont_Ret

Service Operator

Subscriber

End-user


Contentprovider

ContentAggregator

Figure 16 Capacity reseller model for content

The content provided using the business models mentioned in this section are of different types. Examples of content include news, entertainment, games etc. Two or more content can be provided using the same business model. However, they may be vary in the type of technology related functionalities and relationships. Examples of value-added services include location-based content, presence services etc. Some of the revenue models used by the key players in content provisioning are as follows:

o Transaction-based fee o Fixed subscription fee o Usage-based fee such as time or traffic


o License fee o Value-based fee such as for location-specific content

6.4 BM 4: Peer-to-peer content distribution model

6.4.1 MODEL DESCRIPTION Peer-to-peer (P2P) traffic has risen in recent years taking up a major part of the access and core network capacity. Currently, peer-to-peer content is distributed in two different ways.

6.4.1.1 With Digital Rights Management (DRM) The business model would follow either of the ones described in section 6.3 depending on who provides the content. The additional role introduced in this model is the DRM [28] provider (rights issuer). This role can be taken up by the service operator or by a third party such as VASP, content aggregator or billing service provider with appropriate revenue-sharing models among the players.

6.4.1.2 Without DRM No clear business model exists for this scenario. Typically, the peer-to-peer content would appear as transport data for the service operator, in which case, it can charge the subscriber based on revenue models such as usage-based fee. Content owners have so far considered P2P as a threat, but this situation may change. Some observations indicate that P2P can be an efficient marketing channel for commercial content. For instance, movie producers can increase DVD sales by distributing lower quality or short versions of full movies via P2P without DRM. As DRM becomes more popular, P2P is likely to become an important channel for the full commercial content distribution.

6.5 BM 5: DVB-H mobile broadcasting

6.5.1 MODEL DESCRIPTION The business model structure in the mobile broadcasting case is the same as in the Reference Model, but the players taking the roles are often different. For example, the network is no longer the cellular network, but a DVB-H –based broadcasting network. For the return channel, the mobile networks can be used. Content can be same that is broadcasted in traditional television networks or different, e.g. data services such as weather info, software packages, anti-virus updates etc. Broadcasting services are most economic when there is a large demand for the same data stream from many people at the same time.


Cont_WhlCap_Whl

Com_Ret

Cont_Whl

Cont_Ret

End-user

Subscriber

Core networkoperator



ContentAggregator

Contentprovider

Value-addedservice provider

VA_Ser

Service operator

Figure 17 DVB-H mobile broadcasting business model

Figure 17 illustrates the model. The figure illustrates only the content delivery part of the business model. The return channel uses the mobile networks according to the business models treated earlier in this deliverable. Typically, the broadcast service operators act also as content aggregators, aggregating multiple TV programs or data streams to the broadcasted channel. The actual broadcasting network can be operated by another player, who sells wholesale capacity to the service operator. Table 14 lists the revenue streams and cost drivers for the key players.


Table 14 DVB-H mobile broadcasting: revenue streams and cost drivers

Revenues Costs Players Roles Interfaces Streams Interfaces Drivers

Service operator

Service operator+ Content aggregator

Com_ret Monthly tariff for content subscriptions

Cap_whl

Monthly/annual or usage-based tariff for broadcasting capacity

Cont_ret

Usage-based tariffs for content sold directly to consumers

Cont_whl Costs of rights to broadcasted content

VA_Ser Costs of value-added services

Internal

Customer acquisition, marketing, provisioning, billing etc. related

Network operator

Access network operator + Core network operator

Cap_whl

Monthly/annual or usage-based tariffs for broadcasting capacity

Cap_whl Tariffs for core network capacity

Internal (and with network vendors)

Build-up, operation and maintenance costs of DVB-H access network and core network

Content provider (e.g. TV production company)

Content provider Cont_whl

Wholesale tariffs for content

Cont_whl Buying rights from content providers

Content producer / owner (e.g. advertiser, TV format owner)

Content producer / owner

Cont_whl Selling rights to content providers

Internal

Investments (time and money) on creating new content

Value-added service provider

Value-added service provider

VA_Ser

Selling value added services to service operators

Internal

Investments (time and money) on creating new services


7 ASSESSMENT FRAMEWORK

Assessment of a business model’s viability prior to its implementation is often difficult and ambiguous. Assessment of business model can be done both qualitatively and quantitatively. Quantitative methodologies such as the one adopted by ECOSYS for business case analysis can be considered as a concrete approach towards assessing the viability of business models involved. However, qualitative assessment of the value network, as the first step would enable identifying the fundamental flaws inherent in the business model under consideration and thus help in eliminating the faults before any implementation is actually undertaken. In this chapter, we describe a qualitative framework, based on a top-down approach, starting with a macro-assessment of the business model followed by a micro-assessment of each of the participating players. The following set of parameters can act as a preliminary list for comparing two or more business models aiming to provide similar value to a customer.

o Value to the end-user: Providing value to the end-user or customer is the ultimate motive for any business model. Hence, a business model should be able to meet all the requirements for providing value to a customer that includes quality, quantity, pricing and ease of access.

o Complexity and coordination level: This refers to the level of complexity in terms of the number of players and associated roles in a business models and coordination among them which may have an impact on the overall efficiency. Some of the efficiency metrics to be considered are the operational or transaction cost and pricing. An appropriate balance between efficiency and the number of players has to be struck for a successful business model.

o Power dynamics: Players participating in a business model have varying degrees of bargaining power. Hence, an appropriate agreement (which includes revenue sharing) has to be struck according to the strength of each player in a relationship. It should be noted that the relative power of each player may change according to the type of roles it takes from time to time thus changing the power equation.

o Choice of technologies: Technology plays a key role in telecommunications ecosystem which has been a hotbed of innovative and disruptive technologies. Choice of technology in terms of the following also directs the success of a business model:

Architectural complexity: This may lead to a longer time-to-market or interoperability issues.

Evolution path: Technologies with clear evolution path enable greater benefits to both the producers as well as the customers.

Scalability: Scalable technologies can support the varying needs of customers.

Substitutes: Substitute technologies may render the business model based on older technologies worthless.

o Regulation: Regulation has become a major factor of influence in today’s telecommunications market and industry. Every relationship in a business model has to be checked with respect to regulatory rules in order to avoid any hindrances that could create bias against the participating players.


In order to assess the relative bargaining power of a player in a relationship, the following parameters should be considered. Here, the unit of analysis is a player.

o Nature of roles taken by player: The nature of the role can be a deciding factor in determining the power of a player. A player may take up a key role that allows it to have a greater control over the value network.

o Number of roles: More number of roles taken by player would result in greater control of the value network. This can be a major factor in cases where no single role has maximum influence over the value network.

o Number of customers: Larger the number of customers, greater is the power of the player.

o Number of suppliers: Larger the number of suppliers, greater is the power of the player.

o Number of substitutes: Larger the number of substitutes, greater is the competition and weaker is the bargaining power of the player.

The above mentioned framework can be adopted to evaluate mobile, fixed or convergent business models by introducing metrics specific to these markets.


8 CONCLUSIONS AND RECOMMENDATIONS

Our effort in this deliverable has been primarily to identify possible business models in the telecommunications ecosystem. This exercise is essential for ECOSYS in order to conduct meaningful analysis of business cases, since the traditional paradigms have become obsolete. Value creation is no longer limited only to a few players. New roles and relationships are becoming an integral part of telecommunications business. Every player has to understand its position in the network of suppliers, customers, buyers and competitors, in order to provide greater value and maximize the profit potential. The deliverable provides an overview of existing theories and perceptions on business models and value. Business models, in general, have multiple definitions in various literatures. Through this deliverable, we have provided a working definition of the business model that can act as a basis for further discussions in ECOSYS. The meaning of value in telecommunications business has seen rapid changes in recent years. Our understanding of this value is also described. The concept of “value network” is adopted for our studies, instead of the traditional company-specific “value chain” approach. The reference model constituting various roles and their relationships captures the complex value networks possible in today’s telecommunications ecosystem. The nature of each relationship is identified. All our business models are based on this reference model. A player can have one or more of these roles and relationships in a business model. A major observation with regards to business models is that power in terms of control over the value network is distributed among multiple players depending on the type of business models chosen. Hence, a clear understanding of the key participating players and measurement of their relative power are primary requirements for realistic analysis. We identify the key players in each of the business models. It should be noted that there is no single business model that can enable all the telecom services that we see today or expect in the future. Different services will require different business models adding to the overall complexity. We provide a qualitative assessment framework for business models by identifying the key indicators to be considered, as a first step, before actual implementation. The qualitative assessment framework developed in this deliverable should act as a starting point for business case analysis in WP4 and WP5. This should enable the identification of appropriate power sharing equation among the players in a business model.


Acknowledgement We express our sincere gratitude to all the ECOSYS participants for their invaluable feedback and active participation in discussions related to this deliverable.


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Acronyms Acronym Term Description

2.5G 2G Systems + Advanced Data Services (ie GPRS)

3G Third Generation Mobile Systems (as defined by IMT-2000)

API Application Programming Interface

ASP Application Service Provider

B3G Beyond 3G

BSP Backbone Service Provider

C&B Charging and Billing

DRM Digital Rights Management

DSL Digital Subscriber Line

EU European Union

GRX GPRS Roaming eXchange

GSM Global System for Mobile communications

IP Internet Protocol

ISP Internet Service Provider

IX Internet eXchange

LBS Location-based Service

MVNO Mobile Virtual Network Operator

NAP Network Access Point

OSA Open Systems Architecture

ROI Return on Investment

SO Service Operator

UMTS Universal Mobile Telecommunications System (as defined by 3GPP)

VASP Value Added Service Provider

WAN Wide Area Network

WLAN Wireless Local Area Network

WWW World Wide Web

Business Models in Telecom

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