MCN Deliverable Template - Mobile Cloud Networking

FUTURE COMMUNICATION ARCHITECTURE FOR MOBILE CLOUD SERVICES Acronym: Mobile Cloud Networking Project No: 318109 Integrated Project FP7-ICT-2011-8 Duration: 2012/11/01-2015/09/30

D2.3 Market Analysis and Impact of Mobile Cloud Concepts Type

Report

Deliverable No:

D2.3

Workpackage:

WP2

Leading partner:

SAP

Author(s):

Uwe Riss (Editor), Marc Villinger, Michaela Sprenger, Steffen Haase, Veselina Milanova

Dissemination level:

Public

Status:

Final

Date:

08 November 2013

Version: 1.0

1.0

Copyright  MobileCloud Networking Consortium 2012 - 2015

List of Contributors (in alphabetical order): Alvaro Rodriguez André Gomes Carlos Parada Dominique Pichon Eric Debeau Giuseppe Carella Ivano Guardini Jorge Carapinha Marco Marchision Marius Corici Simone Ruffino Thomas Michael Bohnert

STT UBERN PTIN ORANGE ORANGE TUB TI PTIN TI FHG TI ZHAW

Copyright  MobileCloud Networking Consortium 2012-2015

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Versioning and contribution history Version

Description

Contributors

0.1

Integration of drafts

Veselina Milanova, Marc Villinger, Uwe Riss

0.2

Sources are inserted into chapter 3.1 - 3.3

Michaela Sprenger

0.3

Value flow analysis details

Steffen Haase

0.4

Chapter 3.5: summary and discussion for the market analysis

Michaela Sprenger

0.5

Updating chapter 3.1-3.3.4 based on comments from Carlos

Michaela Sprenger

0.6

Updating chapter 4 based on comments from Carlos Parada Summary and Outlook Chapter 2: Corrections from V0.4 (Ivano Guardine and Marco Marchisio)

Veselina Milanova

Final version ready for submission

Marc Villinger, Michaela Sprenger, Steffen Haase, Veselina Milanova, Uwe Riss

1.0


Uwe Riss Marc Villinger

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Executive Summary This report on “Market Analysis and Impact of Mobile Cloud Concepts” is a public deliverable of the Mobile Cloud Networking (MCN) EU-FP7 Project and provides the results of the Business Model research in the first year of the MCN Project. The goal of this first research phase has been to investigate the potential implications of the concepts and technologies developed in the project in economic terms, based on the results on the scenarios and requirements, which had been identified before. This report describes the basic market situation in the telecommunications domain and a derivation of first conclusions as well as a roadmap to steer the further proceeding in Business Model design to be conducted. The report is structured in an introduction and 5 further sections: 1. The General Approach points at the overall process and the relation between the different work packages from a development process perspective proposing an overview roadmap for further investigations; 2. The Market section provide an analysis of the political, economic, social and technological situation of the telecommunications domains including the role of cloudification and the trends arising from this development; 3. The Value Creation and Value Capture section examines today’s partner networks in the telecommunications sector, their dependencies and their synergies. 4. The Value Flow Analysis section provides insights into detailed value creation processes for the previously identified scenarios and explains ways how the main services identified during the technical analysis might produce added value. 5. The Discussion section summarises the results and provides a preview how they will be used in the upcoming work of year 2. Moreover, it shows the particular challenges of the intended Business Modell research. This report presents the basic analyses on which the further business model research will be based. It explains how the individual stages through which the goals of this research are to be achieved and how the individual parts fit together. The market analysis shows the developments in the telecommunications domains, which is characterised as a transition from state owned monopolists towards a competitive market of independent players with different role, a process that has not yet come to an end. The business relations and value creation processes on the resulting market are considered and will be taken as a starting point for further research. This research is not aiming at providing details for the commercialisation of designed services in the current economic setting resulting from historical developments but aims at the design of fundamentally new ways of value creation based on insights from e-commerce and other upcoming trends of the service economy.


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Table of Contents EXECUTIVE SUMMARY ................................................................................................................................... 4 TABLE OF CONTENTS ...................................................................................................................................... 5 TABLE OF FIGURES .......................................................................................................................................... 6 TABLE OF TABLES ............................................................................................................................................ 6 LIST OF ACRONYMS ........................................................................................................................................ 7 1

INTRODUCTION ....................................................................................................................................... 9 1.1 1.2

2

MOTIVATION, OBJECTIVES AND SCOPE ..................................................................................................... 9 STRUCTURE OF THE DOCUMENT ................................................................................................................ 9

GENERAL APPROACH TOWARDS BUSINESS MODELLING ...................................................... 11 2.1 INTEGRATION IN THE METHODOLOGICAL FRAME .................................................................................... 11 2.2 OVERVIEW AND ROADMAP ...................................................................................................................... 12 2.2.1 Underlying Principles and Key Aspects of the Approach ............................................................. 12 2.2.2 Roadmap and Stages ..................................................................................................................... 13 2.3 SUMMARY AND DISCUSSION.................................................................................................................... 24

3

THE MARKET .......................................................................................................................................... 26 3.1 THE EVOLUTION OF THE TELECOMMUNICATIONS MARKET..................................................................... 26 3.1.1 The Evolution of the Mobile Market .............................................................................................. 27 3.1.2 The Emergence of the Cloud Market ............................................................................................. 27 3.2 THE MARKET IN NUMBERS...................................................................................................................... 27 3.2.1 Mobile Market Numbers................................................................................................................ 29 3.2.2 Cloud Market Numbers ................................................................................................................. 30 3.3 MARKET ANALYSIS ................................................................................................................................. 31 3.3.1 Methodology.................................................................................................................................. 32 3.3.2 Political Environment ................................................................................................................... 32 3.3.3 Economic Environment ................................................................................................................. 34 3.3.4 Social Environment ....................................................................................................................... 35 3.3.5 Technological Environment .......................................................................................................... 36 3.4 TECHNOLOGICAL DEVELOPMENTS .......................................................................................................... 37 3.4.1 Telecommunication Networks ....................................................................................................... 37 3.4.2 Mobile Communication ................................................................................................................. 39 3.4.3 Internet of Things .......................................................................................................................... 41 3.4.4 Big Data and Next Generation Analytics ...................................................................................... 42 3.4.5 Virtualization................................................................................................................................. 43 3.4.6 Cloudification ................................................................................................................................ 44 3.4.7 Soft SIM ......................................................................................................................................... 44 3.4.8 SDN and CDN ............................................................................................................................... 45 3.5 SUMMARY AND DISCUSSION.................................................................................................................... 46

4

VALUE CREATION AND VALUE CAPTURE WITHIN THE MCN CONTEXT ........................... 47 4.1 4.2 4.3 4.4 4.5 4.6

5

DEFINITION OF VALUE AND VALUE NETWORKS ...................................................................................... 47 METHODOLOGICAL APPROACH ............................................................................................................... 49 THE VALUE NETWORK OF MOBILE NETWORK OPERATORS .................................................................... 51 CURRENT GENERIC BUSINESS MODELS OF MNOS AND CLOUD PROVIDERS ........................................... 54 VALUE NETWORK ANALYSIS .................................................................................................................. 61 SUMMARY AND DISCUSSION OF IMPLICATIONS ....................................................................................... 64

VALUE FLOW ANALYSIS ..................................................................................................................... 66 5.1 5.2

MCN SCENARIO ANALYSIS ..................................................................................................................... 67 VALUE FLOW ANALYSES OF MCN SERVICES .......................................................................................... 70


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6

SUMMARY AND OUTLOOK................................................................................................................. 76

REFERENCES .................................................................................................................................................... 78

Table of figures Figure 1. Iterative Volere approach according to (Robertson & Robertson, 2006) ............................................... 11 Figure 2. Business modelling roadmap ................................................................................................................. 14 Figure 3. Approach for the development and evaluation of value network scenarios........................................... 18 Figure 4. SAP Business Model Innovation approach ............................................................................................ 20 Figure 5. Business model enterprise view ............................................................................................................. 21 Figure 6. Number of mobile subscribers – data and trend (ITU International Telecommunications Union, 2012) .............................................................................................................................................................................. 29 Figure 7. Desktop and mobile web access in percent (StatCounter Global Stats, 2013)....................................... 30 Figure 8. Workload distribution: Cloud vs. traditional data centre (Columbus, 2012) ......................................... 31 Figure 9. PEST Analysis ....................................................................................................................................... 32 Figure 10. Evolution of network technology (Sherman, 1986) ............................................................................. 37 Figure 11. Evolution of modern cellular networks – adapted from Kumar (2004) and Adachi (2001) ............... 39 Figure 12. Mobile broadband subscriptions (ITU, Sanou, 2013) .......................................................................... 41 Figure 13. An example of a value network and its three elements ........................................................................ 50 Figure 14. The MNO Value Network ................................................................................................................... 52 Figure 15. Differentiation possibilities between MNOs and MVNOs (Smura, Kiiski, & Hämmäinen, 2007) ..... 53 Figure 16. Generic network view for MNOs ........................................................................................................ 55 Figure 17. Generic enterprise view for MNOs ...................................................................................................... 56 Figure 18. Generic network view for MVNOs...................................................................................................... 57 Figure 19. Generic enterprise view for MVNOs ................................................................................................... 58 Figure 20. Generic network view for a cloud provider ......................................................................................... 59 Figure 21. Generic enterprise view for a cloud provider ....................................................................................... 61 Figure 22. Value input / output for MNOs ............................................................................................................ 61 Figure 23. The current situation of MNOs - untapped potential of intangible flows and insufficient financial flows...................................................................................................................................................................... 62 Figure 24. Main assets of MNOs .......................................................................................................................... 63 Figure 25. Distinction in service provision ........................................................................................................... 66 Figure 26. VFA for the cloud-enabled MVNO scenario ....................................................................................... 68 Figure 27. VFA for cloud-optimized MNO operations ......................................................................................... 69 Figure 28. VFA for a machine-to-machine scenario ............................................................................................. 69 Figure 29. VFA for a cluster of mobile service providers ..................................................................................... 71 Figure 30. RANaaS VFA ...................................................................................................................................... 73 Figure 31. DSSaaS VFA ....................................................................................................................................... 74 Figure 32. Extended ICN/CDNaaS VFA in combination with DSSaaS ............................................................... 75

Table of tables Table 1. Roadmap Step 1 – Definition of structures and modelling elements: Activities and required input ....... 15 Table 2. Roadmap Step 2 – Analysis of the existing value network, business models and ecosystem: Activities and required input ................................................................................................................................................. 16 Table 3. Roadmap Step 3 – Development and evaluation of value network scenarios ......................................... 19 Table 4. Roadmap Step 4 – Development of Business Models and strategies for adaptation: Activities and required input ........................................................................................................................................................ 24 Table 5. Turnover of the telecommunications industry in Europe (European Commission, 2012) ...................... 28 Table 6. Overview of technologically relevant developments .............................................................................. 36 Table 7. Aspects to be checked in a value flow analysis....................................................................................... 67 Table 8. The MCN services (also see Deliverable D2.2 Section 4.3) ................................................................... 70


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List of Acronyms 3G 3GPP 4G B2B B2C BMI CDN DSN DSS

3rd Generation of Mobile Telecommunications Technology

3rd Generation Partnership Project

DSSaaS EPC EPCaaS

4th Generation of Mobile Telecommunications Technology Business to Business Business to Customer Business Model Innovation Content Delivery Network Digital Signage Network Digital Signage System Digital Signage as a Service Evolved Packet Core EPC-as-a-Service

ETSI

European Telecommunications Standards Institute

EU GDP GPRS GSM HSS IaaS ICT ICN ICN/CDNaaS IMS

European Union Gross Domestic Product General Packet Radio Service Global System for Mobile Communications Home Subscription Service Infrastructure-as-a-Service Information and Communication Technology Information Centric Networking ICN/CDN as a Service IP Multimedia Subsystem Internet of Things Internet Service Provider

IoT ISP ITU LDCC LTE M2M MDC MNO MSA MVNO NIST NRA OTT PaaS PEST QoS RAN RANaaS RFID SaaS SI SMS SMSC

International Telecommunication Union Lausanne Data Collection Campaign Long Term Evolution Machine to Machine Mobile Data Challenge Mobile Network Operator

Mobile Service Agreement Mobile Virtual Network Operator

National Institute of Standards and Technology National Regulation Authority Over-the-top Platform-as-a-Service Political, Economic, Social, Technical Quality of Service Radio Access Network RAN-as-a-Service Radio Frequency Identifier Software-as-a-Service System Integrator Short Message Service Short Message Service Centre


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UCM UMTS VFA VMS VNA

Use Case Map Universal Mobile Telecommunication System Value Flow Analysis Voice Mail System Value Network Analysis


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1 Introduction 1.1 Motivation, Objectives and Scope Mobile Cloud Networking (MCN) is a European FP7 Large-scale Integrated Project, which aims at investigating, implementing and evaluating the technological foundations for novel mobile network architecture and technologies, leading the way to fully cloud-based mobile communication systems. Additionally, MCN aims at extending cloud computing to support on-demand and elastic provisioning of novel mobile services and developing new approaches towards business model innovation. In this respect it is the objective of the MCN project not only to achieve advances in a broad range of technical domains but also to connect these developments with novel ideas how to exploit the business value of these technologies by introducing innovative business model designs beyond state of the art. MCN Work Package 2 (WP2) is responsible for the definition of scenarios, requirements, business models and the overall architecture. Extending the results of deliverable D2.1 this report together with the deliverable D2.2 presents the results of activities performed in Task 2.2 (Business Models) during the first 12 months of the project. The basic goal of this task is to investigate the potential implications of the concepts and technologies in economic terms. The first objective of this task has been to provide a comprehensive market overview on the current and future commercial environment of the telecommunications domain. This includes the analysis of business and particularly value networks and provides an overview of existing business models of today’s main stakeholders. The investigation also includes a first analysis that shows how the new concepts and technologies and in particular the envisioned MCN services could influence value flows and enable new business opportunities. The objective is to explore how the proposed MCN concepts and technologies could potentially influence markets, enable new market entrants and exploit novel economic potentials. The second objective addresses legal, regulatory, and corporate policy issues associated with the concepts and technologies. For this purpose it is necessary to understand the current political and societal conditions that decisively influence the recent developments in the telecommunications domain. The results included in this report will be used in the next steps of the project in multiple ways: 

The following work on task T2.2 will build on the initial market and role analyses provided by this deliverable to further develop business models and business networks. The results might lead to changes in technical requirements.



MCN technical Work Packages (namely, WP3, WP4 and WP5) will later take the results of the business analysis into account as a general guideline for their requirements.



WP6 will take the business scenarios as reference to validate and demonstrate solutions in the testbeds.

1.2 Structure of the Document Following this introductory section, the remaining part of the document is structured as follows: 

Chapter 2 provides a roadmap for task T2.2 that is to clarify the role of the current market analysis and its relation to the further proceeding. It also explains how the current activities in task T2.2 are embedded in the Volere process.


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

Chapter 3 provides the actual market analysis that examines the political, economic, social and technical boundary conditions of the telecommunications sector during the last decades. It also points at current (mainly technical) trends that have to be taken into account for business model development.



Chapter 4 concentrates on the business networks and value creation processes in the telecommunications sector and provides an analysis of the value creation as well as value capture processes in this sector.



Chapter 5 refers to the specific MCN scenarios developed in deliverable D2.1 and analyses them in terms of value flows. It also refers to the services currently developed in the technical work packages and sketches initial drafts of value flows.



Chapter 6 gives a short summary of the obtained results and an outlook to the next steps.


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2 General Approach towards Business Modelling 2.1 Integration in the Methodological Frame In the foregoing MCN report D2.1 Reference Scenarios and Technical System Requirements Definition we had explained that the general development methodology of the MCN project will be based on the Volere methodology (Robertson & Robertson, 2012). As we had already seen during the initial requirements definition process, however, this methodology has to be adapted to the general conditions of research projects and the particular conditions of the MCN project, for example, the development of a series of related products with proper value propositions. We had seen that the flexibility in the Volere approach appeared to be quite helpful in this respect. After the initial Requirements Engineering process, described in D2.1, we iterated the initial stages of the development process and included a market analysis to better understand the requirements. In the course of this analysis the preliminary analysis of the stakeholder of D2.1 has been extended and supplemented by the political, economic, societal and technological (PEST) analysis that we will provide in Section 3.3. Beyond this market analysis the current report will also take the particular goal of the MCN project into account and investigates its matching to the current trends in the telecommunications domain.

Figure 1. Iterative Volere approach according to (Robertson & Robertson, 2006)

After the initial Requirements Engineering process, described in D2.1, we iterated the initial stages of the development process and included a market analysis to better understand the requirements. In the course of this analysis the preliminary analysis of the stakeholder of D2.1 has been extended and supplemented by the political, economic, societal and technological (PEST) analysis that we will provide in Section 3.3. Beyond this market analysis the current report will also take the particular goal of the MCN project into account and investigates its matching to the current trends in the telecommunications domain.


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Figure 1 shows the project’s focus shift in investigation; in comparison to the previous focus of D2.1 that was placed on requirements gathering and elaborated in D2.1 based on the input of the technical work packages WP3 to WP5 the main focus of the following project phase has been placed on product design, which mainly had a technical focus again due to the need to provide the general architecture for the MCN framework as a whole as well as for the individual technical work packages WP3 to WP5. The respective results are described in the individual deliverables of those work packages. In Task T2.2 we returned to the initial task regarding the analysis of the conditions in a more general environment that we will present in this deliverable. It is mainly directed to what we described as Knowledge Build-up in the Volere process (see D2.1) and which is to serve as basis for the later refinement of the initial usage scenarios provided in D2.1, with the goal to better understand the business condition of the planned technical developments. As the planned outcome of these activities we aim at a business model design process, which has to complement the technical developments. However as for the technical part also this business model design is not a straightforward engineering activity but will include research that goes beyond the state of the art. The expected technical components that make up what we may call the MCN Product are likely to be distributed among different business players in various combinations and based on different business models even though they all work together in one value network (see below). In the following section we will provide a deeper insight into the way how we will conduct this business analysis and how it will be related to the technical developments in the MCN project.

2.2 Overview and Roadmap Designing viable and sustainable business models is in general a complex undertaking in today’s dynamic market environment. This holds in particular for the business models to be developed in the MCN project, which are to be based on evolving technologies, potentially new standards, arising solutions and will be likely to thoroughly impact the existence and formation of market players as well as their offerings (compare also Faber, Ballon, Bouwman, & Haaker, 2003). To deal with these challenges, the constituting elements of the actual market environment as well as the network and the business models of the current market players have to be understood. This provides the foundation for the evaluation of impacts through emerging MCN developments, as well


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as market trends and other drivers in different scenarios. This evaluation will provide the basis for an educated design of future business models. It has to be emphasized that design tasks will be based on the analysis of market roles instead of market players (i.e., individual firms). A role (see also glossary) represents a single type of market actor with a distinguishable market offering, whereas a player is to be understood as a concrete enterprise that typically assumes various roles at the same time. This is in particular relevant if we consider the setting of the MCN project, which represents various large telecommunication companies assuming a wide spectrum of different roles. The focus on roles will be essential for analysing value networks and also to manage the actual complexity. In particular it is one of the central research tasks of T2.2 to transfer business model analysis and innovation methods from single companies to more abstract roles addressing principle problems in a given domain such as the telecommunications industry. In following paragraph principles and key aspects of business modelling will be discussed, to explain the foundation of the adopted approach, followed by the description of the suggested steps towards the final deliverable (D2.4 Development of Business Models, Strategies for Adaptation and Change Management & D2.6 Development of Business Models and Strategies for Adaptation and Change Management – Update).

2.2.1 Underlying Principles and Key Aspects of the Approach A business model describes the design or architecture of an organization’s value creation, delivery, and capture mechanisms (e.g., Teece, 2010). The notion that these mechanisms themselves can be the object of an organization’s systematic innovation activities has received growing attention over the past years (Amit & Zott, 2012, Schneider & Spieth, 2013). The design (i.e., creation and description) of business model alternatives, their communication, and their evaluation is at the core of a business model innovation process. Induced through technological progress (e.g., such as the trend to “cloudification” of mobile services), increasing market dynamics (e.g., due to deregulation, changing or arising customer needs), and economic turbulences, the sustainability and viability of current business models (in particular of incumbent large scale enterprises) are getting more and more under pressure. In particular it has to be discussed which value propositions should be offered, e.g., to address newly arising consumer needs or to better support their jobs. These are essential preconditions to convince customers to buy. On the other hand we have to clarify which competences and required resources are available to fulfil these value propositions adequately (e.g., Johnson, Christensen, & Kagermann, 2008). To be able to evaluate potential roles on future markets and to design corresponding business models, it is essential to understand the business models of existing market players and their network relationships. In particular we have to describe which value1 is created and how it is delivered and finally captured (the core dimensions of a business model, as depicted above). For this purpose the concept of value network analysis is a useful tool to gain the big picture and understand the business rationale of existing market players with respect to their roles, relationships and transactions (Allee, 2008). The value network concept and methodology is described in detail in Chapter 4.

1

A value (in a value network) can be represented either through assets and/or intangible assets (Allee, 2008)


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Based on the analysis of market trends and technical feasibility, impacts and dynamics in the above mentioned value network will then be analysed and market scenarios, with sets of roles and possible relationships, will be evaluated. For the resulting roles and required capabilities, a possible set of generic business models shall then be suggested as options for current market players to take into consideration for adoption. This approach shall ensure that new MCN solutions are paired with the design of compelling business models, to avoid commonly seen pitfalls of failed economic success, due to mismatch with actual market needs and customer acceptance (compare also for example Chesbrough & Rosenbloom, 2002, Teece, 2010 or Christensen & Raynor, 2003).

2.2.2 Roadmap and Stages The approach that we have planned to take is sketched in Figure 2 below. The approach consists of 4 basic stages: (1) the compilation of basic facts as the elements on which we build the business model design, (2) the analysis of the principle value network in telecommunications, (3) derived extensions and modifications due to the developed technology and (4) a more detailed analysis of the most promising designs with an in-depth analysis of possible business models.

Figure 2. Business modelling roadmap

The overall approach starts from the analysis of the market situation as we find it today. It includes the analysis of existing market players and structures. Based on this analysis the impact of possible technical developments and market trends will be analysed. The result of this analysis consists in designs of new possible networks of roles. It will also focus on new technical solutions developments that can support these networks. The options will then be evaluated and consolidated into feasible and likely scenarios. From these we finally obtain a comprehensive framework for the design of future business models as we will explicate below. With respect to Step 1 we have already provided a foundation in deliverable D2.1 – “Reference Scenarios and Technical System Requirements Definition”. We now take this analysis as the basis to derive structural elements in task T2.2. In D2.1 we have introduced stakeholders, which mainly


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correspond to the roles that we consider in this deliverable. The difference in terminology only reflects the fact that in D2.1 we did not consider market participants but possible parties, who might deal with the technical components to be developed in MCN. Due to the shift to the market analysis we now prefer the term roles. Step 2 is the main focus of the current deliverable. Here we will analyse the market situation regarding political, economic, social and technical influence factors and trends. Moreover, we will investigate existing business networks. Step 3 and 4 describe the outlook to the deliverables D2.4 and D2.6 – “Development of Business Models and Strategies for Adaptation and Change Management”. Here it is important to understand how the individual deliverables depend in each other. The individual steps are explained in the following paragraphs, along with required activities and according inputs per step. Hereby it should become clear how the market analysis influences the later designs and how each step is derived from the previous step.

Step 1: Definition of structures and modelling elements From the stakeholder analysis in D2.1, which was mainly based on technical consideration, we will now derive market roles, which mainly describe categories of companies offering a specific spectrum of services or other products. This requires the introduction of a market perspective (instead of a technical perspective), which we have gained from the study of market reports and scientific literature. It was finally supplemented by interviews that we conducted with partners working in Task T2.2. The input from MCN partners reported on the business settings of the main services RAN, EPC, IMS, DSS and ICN/CDN, respectively. They provided input about the value created by each service and possible synergies with other services. The resulting elements have been refined in further investigations to support analysis and design work. A concise definition of the building elements is essential to ensure consistency throughout all analysis as well as design steps and also to support a common understanding and communication among MCN members. The resulting lists of elements, such as roles or network relationships, will be updated and refined throughout the course of the project based on findings and conclusions (iterative approach, as suggested in D2.1 Chapter 3 - Methodology). Step 1 also included a so-called PEST (political, economic, social and technological) analysis of the current telecommunications markets and its development for the last 10 years. From the PEST analysis we have got a rather clear picture of the interplay of the different roles and their respective market conditions. The following table summarizes the planned activities in Step 1 of the roadmap as well as required inputs from other tasks and/or MCN work packages:


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Act. no.

Activity

Ref. no.

Required input from other tasks and/or work packages

1.1

Analysis of current market players in scope and definition of relevant roles

D2.1

Input from MCN partners/other WPs; literature und data base research

1.2

Definition of catalogue of existing products and services (role deliverables)

1.1


1.3

Definition of catalogue of existing capabilities and required infrastructures

1.1, 1.2


1.4

Definition of market environment

1.1, 1.3


Table 1. Roadmap Step 1 – Definition of structures and modelling elements: Activities and required input

Step 2: Analysis of the existing value network, business models and ecosystem In Step 2 we have analysed the current mobile telecommunications market setup by applying a value network analysis, as described in Chapter 4. This analysis provides an overview of the existing roles, their relationships, the executed transactions and deliverables. Moreover, it points out what the interactions and dynamics between the different roles in the network look like. Hereby we gain insights about the specific value creation capabilities of current market roles and can better understand the existing market mechanics. Finally we will also take this analysis as the basis for further modelling to design possible future value network scenarios and business models. The following table summarizes the planned activities in step 2 of the roadmap as well as required inputs from other tasks and/or MCN work packages: Act. no.

Activity

Ref. no.


2.1

Value Network Analysis  Definition of network of roles  Definition of relationships between roles  Analysis of transactions (tangible, intangible) and resulting deliverables (expertise, knowledge, revenue, products or services)

1.1 – 1.4

  

Analysis of current business models of existing market players/roles  Who: Customer segments  What: Products and services, value propositions  How: Resources, capabilities, value chain, partner / supplier network  Why: Revenue models

1.1 – 1.4

PEST/Market environment analysis

1.1 –

2.2

2.3

 

    


Market players and their roles Existing products and services Existing capabilities and required infrastructures Market environment Input from MCN partners/other WPs; literature und data base research Market players and their roles Existing products and services Existing capabilities and required infrastructures Market environment MCN partners: Business model documentation based on SAP business model canvas template (enterprise and network view)

 Market players and scope of products

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(PEST = political, economic, social, and technological environment analysis; see Section 3.3)

1.4

2.4

Collection and analysis of market trends for relevancy and potential impacts; distinction in short, medium and longterm

1.1 – 1.4, 2.3

2.5

Collection and analysis of technical trends for relevancy and potential impacts; distinction in short, medium and long-term

D2.1, 1.21.3

& services  Literature und data base research  Input from MCN partners 

PEST analysis as conducted in Section 3.3

   

Products / services, capabilities Technical scenarios Literature und data base research Input from MCN partners

Table 2. Roadmap Step 2 – Analysis of the existing value network, business models and ecosystem: Activities and required input

Step 3: Development and evaluation of value network scenarios In Step 3 we will develop various market scenarios and evaluate them by applying value network analysis (Allee, 2008) and scenario planning techniques. Scenario planning techniques facilitate the development of alternative scenarios of how the future could potentially evolve (Schoemaker, 1991) – in the given case possible development paths of the existing value network (as analysed in Step 2). Scenario planning techniques are especially useful in dynamic environments such as in the case of rapid technological change (Phaal et al., 2004). As part of the next MCN project phase and deliverable (T2.2/D2.4), further methodology for MCN scenario planning has to be developed. Based on a literature review e3-value methodology2 (Gordijn, 2002) in combination with use case maps (e.g., Hassine, Rilling, & Dssouli, 2007; Mussbacher, Amyot, & Weiss, 2007) appear to be a good fit to support scenario planning and in particular documentation (templates etc.) for MCN purposes. The suitable approach is currently being evaluated and the finally applied methodology will be documented in D2.4. “It is widely recognized that typical methodologies […] are too focused on the technology and don’t reflect the complexity and uncertainty of business operations. While business science models typically lack the rigor necessary to allow adequate analysis and to form the basis for further system developments. E3-Value models were developed to bridge the gap between business and IT groups, particularly for the development of e-business systems.” (GORDIJN & AKKERMANS, 2001)

Use case maps (UCM), which are widely applied in requirements engineering, were especially useful in supporting the interface between the business and technology view. The use case maps notation allows illustrating a scenario path relative to optional components involved in the scenario. UCMs are a scenario-based technique for describing causal relationships

“The e3-value methodology provides [graphical] modeling concepts for showing which parties exchange things of economic value with whom, and expect what in return. These concepts are based on recent economics and business science literature on e-business combined with formal ontology of systems theory.” (Gordijn, 2002) 2


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between responsibilities of one or more use cases and allow us to show use case relationships in a map-like diagram (Mussbacher et al., 2007). The process of how impacts caused by MCN technical scenarios and solutions shall be analysed and combined into value network scenarios is displayed in principle in Figure 3 below and described subsequently:

Figure 3. Approach for the development and evaluation of value network scenarios

As displayed in Figure 3, technically possible MCN scenarios are to be identified, based on the possible interaction of services and reflecting the identified market trends. Such exploration of opportunities is the first step in the business model design that is supplemented by an analysis how the current roles are affected by the implementation and operation of the novel scenarios. Here it will be important to identify new ways of value creation. To this end we will then evaluate how changes in the value flow between the different roles in the network alter value propositions. This also includes additional demands such as additional resource requirements or capacity requirements, which might even result in the identification of potentially new roles in the respective value network. To manage complexity, one role at the time shall be taken into the focus with its immediate value network relationships. This is illustrated through lines 1, 2 etc. The example of the RAN/EPC offering (No. 1) and the generic illustration (No. 2) in the above chart are displayed to explain the principle of the scenario development approach. For example, the RAN/EPC offering can be provided by either one market role or 2 separate roles. In a sequent step the resulting alternative formations of (changed and completely new) roles, relationships among roles, their transactions, as well as the occurring deliverables will be analysed for dependencies and finally aggregated into value network scenarios. It is planned that we compile a set Copyright  MobileCloud Networking Consortium 2012-2015

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of underlying assumptions regarding the current situation and the upcoming developments that we derive from the current market analysis. The defined value networks will then be checked for internal consistency and against these assumptions. The results regarding their influence on the network formation will be documented. The defined scenarios will then be compared to each other with respect to differentiating factors and the sustainability of the networks. We will show in Chapter 5 that there are certain conditions, which must be fulfilled, to achieve such sustainability. However, it is planned to refine the respective sustainability conditions for the next MCN report D2.4. Based on these conditions we will then work out the pros and cons of the individual scenarios. The particular challenge in this respect will be that we cannot only do a business model design for one individual company but must consider the entire telecommunications domain due to the network dependencies. It is to be remarked that this is a general description to illustrate the approach. Methods und templates for documentation have been evaluated and adapted to the project particular purpose (as remarked at the beginning of the paragraph). Table 3 summarizes the planned activities in Step 3 of the roadmap as well as required inputs from other tasks and/or MCN work packages: Act. no.

Activity

Ref. no.


3.1

Review list of roles and prioritization for impact check (the analysis will start with the core network roles first)

2.1, 2.2

 List of existing roles

3.2

Analysis of technical scenarios und future MCN solutions/services for impacts on each role and the according business models; identification of potential new roles

D2.1, T2.3, 2.5

Input from MCN partners / T2.3:  Technical scenarios (D2.1)  Definition of MCN services and bundling based on technical feasibility & potential market offerings  Cost estimations of services and/or packages

3.3

Analysis of market trends for impacts on each role and the according business models; identification of potential new roles

2.4

 Market trends and potential impacts (short, medium and long-term)  Input from MCN partners

3.4

Consolidation of impacts and analysis of interdependencies

3.1, 3.2, 3.3

   

3.5

Definition of alternative value network scenarios with according roles formations; documentation of underlying assumptions; cross-scenario consistency check

3.4

 Consolidated list of impacts per role  Input from MCN partners

3.6

Comparison of scenarios and work out of differentiation as well as pros and cons of each scenario; potential consolidation of scenarios

3.5

 Set of alternative value network scenarios


Technical impacts Market trends impacts New roles Review by MCN partners

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Table 3. Roadmap Step 3 – Development and evaluation of value network scenarios

Remark: This table will be updated once the scenario documentation method has been decided. Step 4: Development of business models and strategies for adaptation Once we have defined the feasible value network scenarios as part of roadmap in Step 3, it will be necessary to concentrate on the most feasible network scenarios. For the most promising scenarios we will design more specific business models based on the emerging formation of roles. Since a detailed business model design including an analysis of business model elements such as pricing models for all projected business networks is too expensive and not feasible, it is important to select the most promising scenarios for further evaluation. Here we have to consider two dimensions: 1. Ease of implementation: Scenarios that are close to existing scenarios are much easier to implement than scenarios that follow a completely new paradigm; 2. Possible business value: Regarding new technologies we expect completely new paradigms of business such as multi-sided business models, which are new and therefore more difficult to implement but provide more promising prospects and have been successfully implemented in other domains. Regarding the two dimensions we plan to provide a spectrum of design that goes from scenarios with a focus of easy implementation to those which might be quite different from current business networks but more promising. The latter will particularly address the structural insufficiencies in the telecommunications sector that our analysis displays (Chapter 0). For this purpose we will apply SAP’s business model innovation (BMI) methodology as roughly depicted in Figure 4. The according business modelling phases are displayed in Figure 5 below:


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Figure 4. SAP Business Model Innovation approach

It is to be remarked that the applied BMI methodology is a field-proven approach and includes tools, such as templates and guiding questions, which build on current knowledge in research and practice. The methodology is intellectual property of SAP AG, referenced or incorporated tools from other authors are cited accordingly and according intellectual property rights have to be observed. The methodology is provided to the project as-is and is not part of the deliverable. It will be used to produce T2.2 business modelling deliverables. Applied elements and templates will be explained as required. An important aspect of the methodology is its iterative character which is in line with the methodological approach suggested in D2.1. The above displayed phase “analysis” is covered by roadmap steps 1 to 3, which deliver the required input for the design of future business models. As part of the roadmap step 4 the phases “Design” and “Verification” will be conducted. Piloting and implementation is in the responsibility of MCN partners and other entities which seek to build on MCN project outcomes. An integral part for the documentation of the business models is the so called business model enterprise view, which is based on the widely used Osterwalder’s 9-field matrix (Osterwalder & Pigneur, 2010) and which defines the following key dimensions, as displayed in Figure 5:

Figure 5. Business model enterprise view

The elements are described as follows: A. Value Creation a. Customer Segments A company can’t serve all customers in every way. For each product the market can be segmented into groups with different needs, characteristics or behaviour. A


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company has to choose segments it can serve well and profitably. Segmenting the market by certain variables (can be used alone or in combination):  B2C / Consumer market: Geographic (e.g., region, city-size), demographic (e.g., age, gender, income), psychographic (e.g., values, attitudes, lifestyle), behavioural (e.g., purchase occasion, benefits sought, usage rate).  B2B / Industry-market: company size, geographic, industry classification/type of institution, purchasing-situation/decision making stage (new purchase vs. rebuy), benefit segmentation (reasons to buy a certain product).  Entities (that might be called partners in the first place), that have to participate in your business model to make it work and require a value proposition to be convinced, are your customers as well, even if you don’t get any money from them. Different customers deserve a specific (different) value proposition. b. Customer Relationship To ensure success of any businesses, companies must identify the type of relationship they want to create and maintain with their customer segments. Forms of customer relationships can include:  Direct employee-customer interaction: This can range from variable to dedicated personal assistance for premium customers.  Self Service: Tools provided to costumers to serve themselves easily and effectively themselves.  Automated Services: Similar to self-service but more personalized based on customer characteristics and preferences; an example is Amazon book suggestions.  Communities: Interaction among different clients and the company; sharing and discussion of knowledge and solutions.  Co-creation: A personal relationship is created through the customer’s direct input in the final outcome of the company’s products/services. c. Sales Channels A sales channel is the way of bringing products or services to market so that they can be purchased by consumers. Or in other words: A company can deliver its value proposition to its targeted customer segments through different sales channels. d. Value Proposition A value proposition is a clear statement that:   

explains how a product solves customers’ problems or improves their situation (relevancy), delivers specific benefits (ideally a quantifiable value), tells the ideal customer why they should buy from a specific company and not from competitors (unique differentiation).

e. Key Activities (Operations)


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Operations consist of the Key Activities a firm performs to run its business model and the Key Resources it needs to do so. The Key Activities are the most important activities in order to realize a firm’s value proposition such as processes or structures.


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f.

Key Resources (Operations) The Key Resources represent the most important assets a firm relies on when operating its business to create and deliver value to its customers. These resources could be human, financial, physical and intellectual such as skills.

g. Key Partners In order to focus on core activities companies outsource activities and resources that they can’t perform/produce efficiently to partners (make or buy decision). Hence, partner capacities extend a company’s capacities. These relationships are characterized by a buyer-supplier relationship. Partners are generally interchangeable and deliver value in exchange for money. Hence, companies don’t have to address them with a unique value proposition. B. Value Capture a. Cost Structure The Costs block comprises the most important costs that occur when operating different business models. Usually they are closely related to the key activities performed by company in focus. Typical costs are for instance: • • • • • • •

Development Costs Production Costs Service & Support Costs Automation & Infrastructure Costs Sales & Marketing Costs Partner & Supplier Management Costs Infrastructure Costs

Differentiate between fixed (e.g., development costs) and variable costs (e.g., sales) and for the fixed costs between one-time and recurring costs. b. Revenue Streams The revenue block represents the revenue generation sources and mechanisms of a firm when offerings its products and/or services to its customers. This can be achieved in with different revenue models for instance: • • • • • • • •

Price / Item Subscription fees Leasing / Rental Licensing fees Brokerage fees Advertising fees Lead generation fees Freemium

In addition a price point has to be defined. While the revenue model is part of the strategy, the price point is rather part of the tactics.


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Besides the application of methods and tools for the generation of future MCN business models, business model templates, business model patterns and cross-industry cases will be used to facilitate the process (e.g., Gassmann et al., 2013; Österle & Kagermann, 2007; Linder & Cantrell, 2000). The following table summarizes the planned activities in step 4 of the roadmap as well as required inputs from other tasks and/or MCN work packages:

Act. no.

Activity

Ref. no.


4.1

Review and consolidate roles across scenarios for which a business model definition is required (iteration)

3.5, 3.6

 Value network scenarios  Future market roles based on scenarios  Transactions and deliverables among roles  Input from MCN partners

4.2

Review of market and technical trends for changes (iteration)

3.2, 3.3

 Market trends  Technical trends and arising solutions

4.3

Design of generic business model per role, defining:  Who: Customer segments (network relationships)  What: Services, value propositions  How: Required resources and capabilities, network relationships (suppliers, partners)  Why: Revenue model

3.13.6, 4.1, T2.3

   

4.4

Comparison of existing business models vs. future business models and identification of transformations needs

2.2, 4.3

 Current business models  MCN business models  Input from MCN partners

4.5

Definition of adaptation strategies for existing roles and players

4.4

 Current business models  MCN business models  Input from MCN partners

Value network scenarios Consolidated roles across scenarios Case research (literature Input from MCN partners

Table 4. Roadmap Step 4 – Development of Business Models and strategies for adaptation: Activities and required input

2.3 Summary and Discussion In this chapter we have related the activities in Task T2.2 to the previous activities in Task T2.1 via the Volere process. However, the activities in Task T2.2 do not only support the developments of a service-based solution as it might appear from the inclusion in the Volere process but also represent some research of its own focus, the development of new business networks based on MCN services that have not been possible up to now. In this chapter we described how we intend to approach this goal. The first step of the telecommunications market and value network analysis is to be seen as an initial but necessary step. Its aim is to understand the current situation and challenges of the telecommunications industry. The main goal of the roadmap is to show that the business model


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innovation approach cannot provide ad hoc solutions for fundamental problems but requires a planned proceeding that we have sketched in this chapter. The decisive phase will be what we have described in Steps 2 and 3. In this respect it has to be remarked that in order to develop novel approaches it will not be sufficient to focus on the designed services provided by the technical work packages and how they can be made suitable for today’s offerings. It is rather necessary to pick up today’s business trends such as the multi-sided business models that we increasingly find in the internet economy and think about possibilities how they can be transferred to or exploited in the telecommunications sector. In this respect it is not the intention of Task T2.2 to deal with the obvious extension of business as it results from general servitization but to concentrate on more advanced and challenging scenarios in our future work. However, this still requires a sound methodology of which the described roadmap is to be a part.


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3 The Market In this chapter we will provide the analysis of the telecommunications domain under additional consideration of today’s developments in the cloud sector that are relevant for it. Generally, we can say that telecommunications networks and services are the backbone of our information society, including a broad spectrum of services and technologies that reach from landlines, to mobiles, to broadband (European Commission, 2013). In the following we will analyse the main aspects of the telecommunications sector. In Section 3.1, we will provide an overview of the evolution of the telecommunications market during the last decades and will particularly look at the role that cloud computing has played in this respect. In Section 3.2, we will provide a compilation of market numbers which explain the development that we have described and make it more comprehensible. In Section 3.3, we will provide the core of the market analysis, in which we look at the different dimensions: politics, economics, society and technology. In Section 3.4 we will give an in-depth analysis of the technological dimension.

3.1 The Evolution of the Telecommunications Market In the last decades the telecommunications industry has undergone a major restructuring. This concerns the liberalization of telecommunication markets, as well as the privatization of previously state-owned companies as the two major changes (Van Kranenburg & Hagedoorn, 2008). In the 1970s, the European Commission intervened in the development of the telecommunications sector, in order to create a common market that increased economies of scale (Lemstra & Van Gorp, 2013). The European Commission started the process of liberalization in 1987, by publishing the socalled Green Paper (Ungerer, 2013). This publication can be seen as a blueprint for the telecommunications reform process in Europe (Henten, 2013): it envisioned a long-term plan to rollback monopoly power, foster competition, investment and growth, as well as a strategy to separate operational activities from regulatory oversight (Cawley, 2013). Due to the increased competition, prices in telecommunications services should decrease and innovation as well as the variety and quality of telecommunications services should be fostered (Henten, 2013). Regarding the EU telecommunications liberalization we can distinguish three phases: Phase 1 – establishing liberalization policies (1987-1998); Phase 2 – liberalization for ICT convergence (19982009) and Phase 3 – telecommunications in broader EU information society and digital economy policies and programs (Melody, 2013): In the 1980s, telephone services were still provided by national government monopolies so that the first liberalization steps were concerned with reforming national monopolies and establishing NRAs (national regulatory authorities). While in the UK the liberalization had already started with the privatization of British Telecommunications and the introduction of the national authority in 1984, other EU countries were not so open concerning the market liberalization. Therefore, it took over ten years to relax all policy restrictions on public networks and voice telephony. During the 1990s, new technologies changed the telecommunications industry dramatically. Due to the increasing number of networked personal computers and the rapidly growing internet, the convergence


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of telecommunication and information technology had started. Additionally, the emergence of mobile communication was about to reinforce that trend (Melody, 2013).

3.1.1 The Evolution of the Mobile Market Mobile communications brought along the problem that their services transcended national borders. Companies addressed this issue by collaboration with foreign mobile network operators, which enabled mobile service operators to offer services to their customers across national borders (Lemstra & Van Gorp, 2013). The Mobile Liberalization Directive of the European Commission in 1996 generated a Europe-wide mobile market where the NRAs were responsible for issuing national licenses and roaming enabled Europe-wide reach. Mobile phones transformed the European telecommunication market which achieved in 2006 a complete penetration and 800 million mobile subscribers in 2012 (Ungerer, 2013). From a technical point of view, the basis for the current mobile data transmission was created in the early 1990ies with the introduction of GSM as a standard for many countries in the world. The difference to the later introduced GPRS technology was that with GSM the customer paid for the time connected whereas GPRS ensured a constant connection but charged for the data transmitted (Peppard & Rylander, 2006). The next technological upgrade was the 3G / UMTS technology, which required investments in complementary technology and infrastructure. Since the licenses for UMTS and 3G were limited, established telecommunications service providers such as British Telecom, Deutsche Telekom or Vodafone had to bid for them in auctions, in most of the countries. Overestimating the value of the licenses incited the companies to over-investment and led to the accumulation of considerable debts (Van Kranenburg & Hagedoorn, 2008). The current promising development in the telecommunications industry – which is also relevant for the mobile market – is the cloud.

3.1.2 The Emergence of the Cloud Market Over the past two or three years major telecommunications companies launched and/or acquired cloud services (Taga, Levy, Best, & Racz, 2013). Cloud Services can be defined as “business applications that are delivered as a service on a subscription basis plus platform & infrastructure services that are available on a pay as you go model plus other related services like secure authentication, federation, data services etc. that are available for consumption on a pay per use model”.3 The cloud market will be described in detail in section 3.4.6.

3.2 The Market in Numbers This section is based on information of the European Commission (European Commission, 2012):

3

http://www.wired.com/insights/2013/03/the-real-market-size-of-public-cloud-services/


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According to Eurostat, telecommunication expenditures accounted for 2.8 % of the gross domestic product (GDP) in the EU-27 in 2010, which is less in comparison with the US (3.3 % in 2008) and Japan (3.5 % in 2008). The highest relative levels of expenditure can be found in Estonia and Bulgaria, where telecommunications expenditure was valued at over 5 % of GDP in 2010. When looking at total turnover (based on sales from all telecommunication services, including leased lines, fixed network services, cellular mobile telecommunication services, interconnection services and internet service provision), it is evident that nowadays in nearly all EU Member States (for which data is available) turnover from mobile services exceeded that from fixed network services, the main exception being Belgium, Luxemburg and Switzerland (see Table 5).

Table 5. Turnover of the telecommunications industry in Europe (European Commission, 2012)

Overall the share of fixed-line, voice operations has shrunk whereas growth within the telecommunications sector could be observed in mobile telephony markets and markets for other data services. One reason for the decline in fixed-line voice operations – besides the rise of mobile usage – are the price reductions in many EU Member States: The price for national long-distance calls on average almost halved between 2000 and 2010 and the price reduction for an international call between 2005


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and 2010 was about 19%. Moreover, the increasing usage of Skype and similar service providers is amplifying this trend, especially for international calls, where Skype is already the biggest provider (in minutes).

3.2.1 Mobile Market Numbers Today, mobile phones are the most prevalent electronic devices in the world. The International Telecommunication Union reported 7 billion mobile phones in 2012 which exceeds the number of PCs by almost 4 times (Leonard, 2013). In 2008, the 4 billion mobile phone subscriber mark was reached. According to the forecast of the International Telecommunication Union (ITU), the trend is not far from its inflection point, meaning that market growth will be decelerating soon and will reach its saturation approximately in the year 2025, with 9.4 billion mobile subscribers (see Figure 6; blue dots represent actual data, the red line visualized the trend which follows a logistic growth function) (ITU International Telecommunications Union, 2012).

Figure 6. Number of mobile subscribers – data and trend (ITU International Telecommunications Union, 2012)

Already in 2009, the number of mobile phones per 100 inhabitants in the EU-27 was at 125, meaning that – on average – more than one mobile phone per person. With a closer look on the different countries the mark of 100 mobile phones per 100 inhabitants was surpassed in 24 of the 27 countries (European Commission, 2012). Concerning the number of short-message service (SMS) texts, the variance between the different EU member countries is high: In 2009, Bulgarians sent on average 87 SMS per inhabitant, whereas the inhabitants in Lithuania and Ireland sent around 2700 SMS (European Commission, 2012). With regard to web access, the share of mobile web is increasing, though – compared to desktop web access – it is still low. In 2008 the share of mobile web access was at 0.51% and increased to 8.24% in 2013, which represents an average monthly growth rate of 5.6%. The market share of desktop web


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access dropped from 99.5% in 2008 to 91.76% in 2013 (see Figure 7) (StatCounter Global Stats, 2013).

Figure 7. Desktop and mobile web access in percent (StatCounter Global Stats, 2013)

Looking at general developments in the mobile market, businessinsider.com identified – among others – the following statistics (Leonard, 2013):     

Within one week, 80% of consumers worldwide use computers to access the web and 60 % use mobile devices. Since the end of 2010 the smartphone market is larger than the PC market. The number of smartphone users worldwide will exceed 1 billion by 2014. 86% of mobile web users access the internet while watching TV; whereas 37 % of those are looking for non-related TV content. During the next four years mobile devices (i.e. smartphones and tablets) will increase web traffic by 26 times.

3.2.2 Cloud Market Numbers According to Forrester, the global market for cloud computing will be about $241 billion in 2020, with a public cloud market of $159.3 billion (Columbus, 2012). By 2014, more than 50% of all workloads will be processed in the cloud (see Figure 8) (Columbus, 2012).


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Figure 8. Workload distribution: Cloud vs. traditional data centre (Columbus, 2012)

Software as a Service (SaaS) is one component of the overall cloud computing market and includes all business applications that are now delivered as a service. The size of the SaaS is estimated at about $20-$22 billion.4 By 2015, approximately 24 % of all new business software will be of service enabled software and the SaaS share with regard to overall software spending will be more than 13 % (Columbus, 2012). The mobile SaaS market is predicted to reach $3.7 billion by 2016. It is expected that the ability of integrating business applications on mobile devices will facilitate and drive the SaaS adoption in the corporate environment (Analytics, 2011). Infrastructure as a service (IaaS) is another component of the overall cloud computing market which includes core infrastructure, storage and other related infrastructure. Amazon.com is regarded as the leader in that segment with revenues of about $4 billion. Rackspace has estimated cloud related revenues of about $350 million. Accounting for similar players (e.g., GoGrid, Saacis, Joyent) the IaaS market can be estimated at $5-6 billion.5

3.3 Market Analysis To ensure a thorough study of the telecommunications market environment, the analysis is based on the PEST methodology. Before the different market areas are examined in detail, the next section gives an overview on the methodology.

4


5



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3.3.1 Methodology The times when the telecommunications industry was relatively stable with little change in its surroundings are over: deregulations, innovations and the convergence of markets are just a few examples why the telecommunications industry has to face a turbulent environment (Van Kranenburg & Hagedoorn, 2008). Changes in environment have a direct impact on the industry. Therefore, the different industry players have to ensure that their organization maintains a proper alignment with their environment (Smith & Grimm, 1987). Walsh argues that when a firm finds itself exposed to environmental changes it must determine the impact on its choice of strategies, its related resource deployment and the nature of its competitive advantage within that environment (Walsh, 2005). Smith and Grimm analysed the performance of different firms after a variation in the environment and pointed out that those firms that adapted their strategies out-performed those that did not (Smith & Grimm, 1987). As a consequence, the telecommunications industry should closely scan their environment for changes – for example, in available technologies – to challenge the appropriateness of their strategic logic (Sanchez & Heene, 1997). In order to explore the industry environment, this study employs a PEST analysis, which is an analysis framework of macro-environmental factors (Peng & Nunes, 2007). The acronym PEST stands for political, economic, social, and technological and is used to identify environmental influences in these specific areas (Buchanan & Gibb, 1998). The elements of the PEST analysis are depicted in Figure 9.

Figure 9. PEST Analysis

3.3.2 Political Environment After the liberalization and privatization (see 3.1) the telecommunications market is now characterized by regulations which are – in Europe – overseen by the European Commission. This commission monitors the market power of the historically state-owned monopoly providers and has the announced objective to ensure that customers benefit from regulatory and technological changes in the telecommunications industry (European Commission, 2012).


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There are several European directives and regulations which range from rules concerning access to how price controls could be used in order to control the significant market power within the different markets. To ensure consistency with European regulations such as price controls can only be implemented with the consultation of the European Commission (BT Group plc, 2012). In times of changes, in technologies the regulatory frameworks need to be adapted to take account of the recent technological developments. One example is the updated regulatory framework for electronic communications in the EU, which was updated due to a major increase in voice-overinternet telephony as well as growing demand of television services over broadband lines (European Commission, 2012). The plan for these envisioned changes is consolidated in the Digital Agenda for Europe which is the first of seven flagships initiatives of Europe 2020 – the EU`s growth strategy. This initiative aims at (European Commission, 2013):     

Providing a regulatory framework for electronic communications, promoting competition and consumer rights; Promoting investment in broadband networks supporting high-speed Internet; Supporting wireless technologies, such as 3G and LTE; Protecting mobile users from high roaming charges when travelling in the EU or internationally; Taking a leading role in international discussions on Internet development and governance.

The EU telecommunication rules included in the digital agenda are designed to be simple, to support long-term deregulation and to be technology-neutral as well as flexible, in order to be able to cope with the fast-changing markets. So far, the digital agenda does not seem to be able to stop or turn the downward trend in European telecommunication companies: EU telecommunication operators` market capitalization is declining just as Europe`s share of the global telecommunications market. To make the digital agenda a success in this fast changing market environment, one has to deal with the regulatory fundamentals in order to achieve one single European regulatory space with a strategy that focuses on competition and investment (Ungerer, 2013). One example for the fast changing telecommunications environment is the mobile market. The first set of rules on mobile roaming charges was put in place in June 2007 and introduced maximum prices for phone calls taken and received while abroad. This roaming regulation was revised in 2009 and extended by rules and maximum prices for SMS. The general idea of fostering competition also in the roaming market was introduced in the last review of 2012, which aims at giving the customer more information and alternative operators in the foreign European countries. Due to the increase in smart phones and the corresponding internet access via mobile devices, the regulation also aims at lowering prices for data roaming (European Commission, 2012). Another example that illustrates how regulations have to be created or adapted due to changes in technologies is cloud services. The EU introduced a cloud computing strategy that aims at (European Commission, 2013):  

Cutting through the jungle of different standards; Identifying safe and fair contract terms and conditions for consumers and small firms;


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

Establishing a so called European Cloud Partnership, with the participation of public authorities and industry, in order to stimulate the take-up and effective use of cloud computing, particularly by Europe's public sector.

3.3.3 Economic Environment Since the political and legal environment foster competition in the telecommunications industry (see chapter above), rivalry among telecommunication service providers becomes fierce. Penetration rates for mobile phones are close to saturation (see 3.2.1), meaning that the number of customers can only be significantly increased by acquiring customers of the competition. At the end, this might end up in a zero-game for the service providers, so that the potential for growth lies in providing the customer with additional content and services on top of voice and connectivity (Peppard & Rylander, 2006). The following statements in Section 3.3.3 result from information collected from MCN partners and compiled in a concise overview of the economic situation as it is perceived by them. Today’s customers expect much more from their telecommunications providers than they used to: they ask for data and voice services on all their devices, also the mobile ones. At the same time, telecommunication incumbents have to deal with new competitive players in the market: Due to the liberalization of the telecommunications market, MVNOs (mobile virtual network operators) entered the market by buying bandwidth from incumbents and selling network access to their customers under their own brand (Peppard & Rylander, 2006). This leads to a fierce price competition and as a consequence margins are being squeezed under an incredible pressure. As the traditional communications markets are stagnating or declining, telecommunications need to consider new business models to tab into new growth and revenue sources for the future. With regard to their value chain and value networks, this means for example to work with upstream partners to deliver services to downstream customers. In other words, telecommunications could operate in socalled “multi-sided business models”. Customers are interested in apps, media content and cloud services both in their leisure time, as well as in their business life. From a service provider`s perspective, these developments represent an increase in complexity with regard to billing, rating and charging. Other technology trends are likely to enforce the situation: with the “internet of things” Machine-to Machine – or M2M – services are growing, which can be an attractive revenue source for the telecommunication operators. This would include on the one hand that service providers would deliver the network for smart devices such as smart meters, eHealths devices etc. On the other hand, they could create and sell new services and apps for these devices. These changes will require telecommunications to move out of their comfort zone to tackle business in new areas. The telecommunication industry is going through an incredibly tumultuous time and this radical change can be uncomfortable. However, these changes and the dynamic nature of the market could be an incredible opportunity. To survive telecommunications need to change fast, react quickly to opportunities, rollout new products and services fast and make important business decisions to change these services if needed in near real-time. Despite the downward trend in their current business, telecommunications are in an ideal spot to take advantage of the new digital economy. With regard to the value chain, they are located between upstream partners and downstream customers and could provide a service broker platform to enable Copyright  MobileCloud Networking Consortium 2012-2015

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the new services that are being demanded by the market. One example to fully leverage their position is billing: Billing is at the core of the Telecommunications business. By having an already existing direct relationship with their end customer, telecommunications are in a perfect position to build on this relationship for new innovative services. However, a change in business model would be required since the old business model and legacy infrastructure does not necessarily support the flexibility required to take advantage of this opportunity. Part of these new business models are new revenue sources: Marketing departments at Telecommunications are increasingly under pressure to rollout new, innovative services, as fast as possible, in an attempt to see what works and what doesn’t and start opening up new revenue streams. In order to keep their customers they need to create customer loyalty, which in turn requires telecommunications companies to offer the right products at the right time for each customer. Marketers at Telecommunications companies are constantly looking at new ways to enable this type of personalization. Cloud revenues are increasing faster than anything else in the telecommunications portfolio (Arthur D. Little, 2013). The reason why cloud revenues are becoming more and more significant is that not only individuals move their personal data into the cloud, but also companies use the cloud to store and process their data. Recent estimates indicate that these developments could double the EU cloud sector's current revenues to nearly €80 billion by 2020 (European Commission, 2013).

3.3.4 Social Environment The social environment of the telecommunications industry is driven by different factors (Linsker, 2013) and (Leonard, 2013): 

Mobile data traffic Due to social networks more people visit online platforms and generate mobile data traffic. Since mobile data traffic is increasing, mobile commerce is getting more important: There are a growing number of shops and companies which offer apps and mobile websites to foster sales via mobile devices.



Mobile advertising and marketing Compared to PCs, mobile devices are different concerning advertising and marketing. This is true from a technological perspective, but also from a social one: By accessing the internet via a mobile device, the user is more involved so that advertising and marketing approaches have to be adapted to the mobile context.



Location-based services The most popular queries of mobile users are geographical: Users ask for directions while they are on their way and they would like to know where they can find what. More than a quarter of all mobile web users frequently use those location based services. As a consequence, this is an opportunity for offline stores to acquire new customers. When potential customers get discounts, coupons or additional information more than half of them are willing to share their location. For those under 34 years, the willingness to share the current location is even higher, especially when they search


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for data about sales within a mile of their location. 

Applications The internet access via mobile devices is absolutely different compared to accessing the web via a PC: app developers compete to create apps that turn your mobile to a Swiss knife. In 2012, the number of apps in the Apple App store almost reached one million and the Android`s official blog announced more than 25 billion downloads.



Virtual wallets Smartphones and tablets are increasingly used as a virtual wallet to pay, for example, for train or bus tickets via a mobile app. 20% of smartphone owners and 25% of tablet owners have already used their mobile device as a virtual wallet.



Mobile coupons and barcodes Since mobile devices are used to get location based services (see above), it seems likely that users also use their smartphones to get discounts or more information on products. Almost half of the users of mobile devices plan to scan barcodes more often, in order to get more information with regard to their product of interest.

Mobile phones are not only a technical device: it is a fashion item that gives access to services in everyday life as for example emailing, contact management, transactions and entertainment (Peppard & Rylander, 2006).

3.3.5 Technological Environment The technical development in the telecommunications sector is one of the main drivers in the development of this domain, which provides quite a number of different facets. Since the MCN project is mainly technology driven we will deal with the technological environment in more detail than regarding the other market aspects. We will do this in the subsequent Section 3.4 that is completely dedicated to this issue. Table 6 gives an overview of the main factors and shows the section, in which it will be described. Sect.

Aspect

Sect.

Aspect

3.4.1.

Development of Telecommunication Networks

3.4.5.

Virtualization of Services

3.4.2.

Expanding Mobile Communication

3.4.6.

Cloudification of Services

3.4.3.

Development of the Internet of Things

3.4.7.

Soft SIM

3.4.4.

Big Data or Next Generation Analytics and its Influence on Telecommunications

3.4.8.

SDN and CDN

Table 6. Overview of technologically relevant developments


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3.4 Technological Developments Following leading business analysts, here are several strategically important technologies, which are influencing the telecommunications industry (Gartner. 2012; Accenture). These will be elaborated in the following in detail since their understanding is necessary for the success of the MCN project and in particular for the business analysis, for which it has to be made explicit in a comprehensible overview.

3.4.1

Telecommunication Networks

With the network, which increased in complexity constantly to allow more and more people to connect through the telephone, also the switching and transmission technologies evolved. With the first automated (but still partially mechanical) switching devices in the 1920s, electronic switching solutions gradually wandered towards more flexible and low cost solutions. Especially the introduction of multiplexing, allowed telecommunication companies to lower costs where the placement of landline cables showed to be costly, as several different connections could share a single line. This was made even easier with the introduction of digital technology. It allowed network management and switching to be made cheaper and cheaper, while additional services could be offered on top of the major goal, to simply enable people to contact each other through great distances. Improvements for providers and users included (Sherman, 1986):     

Switching towards computer-controlled, all-digital network; Integration of voice, data, and image traffic; Increase availability and options for local communication services; Increase availability of high-capacity communication links (to support higher demands); Technology to improve the flow of premise communication.

This evolution of switching technology is shown in Figure 10:

Figure 10. Evolution of network technology (Sherman, 1986)


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The electronic digital technology was one of the last general trends to be seen in the network infrastructure environment, starting in the mid-1970s. This process still continues throughout the world and held/holds several advantages:    

The cost of digital technology declines more rapidly than the cost of analogue technology; The number of additional hardware in form of interface circuits and other analogue devices is lowered; Multiplexing is eased implicitly; Performance and quality could generally be increased (lower error rate, error correction, …).

In a more general sense, digitization, therefore, holds essential advantages such as flexibility, that manifested itself within concrete consequence for businesses (ISPs) and customers (Sherman, 1986). Digitization also allowed an intelligent concept to be established upon the network infrastructure. Through the use of signalling sub-networks and the development of according software, rule- and instruction-based connection handling could be realized allowing new applications, like conference calls, call forwarding, credit-card calls, etc. Companies were suddenly able to determine call routing paths automatically, based upon certain pre-defined rules. For instance, hotline calls could be forwarded to specific destinations according to the time of day, or the location of the call source. In the following years intelligent network technology provided the foundation also for private networks. Software defined dialling plans and service levels enabled networks to be quickly and easily reconfigured, without the need to touch the actual physical infrastructure or to provide according dedicated private lines. The telecommunication industry was allowed to operate at higher efficiency and, thus, lower costs. This major driver within business improvements will be a main driver for future technologies as well. Additionally, this development also allowed for increased capacity, increased availability, and higher standards of quality for the existing services. On top, the offerings of new services and applications were enabled, like conference calls, call forwarding, credit-card calls, etc. Customers were able to directly benefit from the business aspects in the form of lower pricing but, at the same time, were able to experience direct product improvements, like higher availability and new extensions being established on top forming new kinds of products, which were mentioned earlier. The same form of software-aided infrastructure management is also a partial goal within the MCN project. Allowing quick, easy, and flexible changes within the mobile networking infrastructure would obviously allow for similar advantages in efficiency and costs. Additionally, the efficiency aspect is also incorporated within the concept of Voice / IP convergence. While bundling voice, data and media contents on top of the same underlying IP based infrastructure, providers already harvest the potential of the according digitalization. Cheaper bundle products with extended functionalities can be offered to the customer, at lower costs, for instance, because the installation and infrastructure costs are now focused on one access channel, for example, DSL/FTTH land lines or TV cable lines. Extended functionalities refer to aspects like multiple phone numbers, which can be flexibly designated to several devices, for example, in the form of VoIP lines made available for cell phones, PCs, legacy land line telephones, or even modern SmartTVs, or on demand TV with extended information platforms. The same kind of bundling is not at a similar level, yet, when it comes to mobile communication. Voice Channels are still mostly operated through 2G channels, while data uses several different channels starting with WiFi, 2G GPRS, 3G UMTS/HSDPA, or even 4G LTE


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networks. The convergence of especially Voice and IP services needs to be pushed, in order to create new value propositions to customers and cost savings/increased efficiencies for providers.

3.4.2

Mobile Communication

Based on analogue transmission technology, the first-generation mobile networking system was established in the 1980s. While it did address the availability of telephone services, it was merely a first step towards cellular networking not concerned with certain aspects that are taken for granted today. For example, there was no attempt to create global (or even European) standards, nor were there any concepts of allowing for roaming or other cooperative solutions. For instance, Nordic countries deployed so-called Nordic Mobile Telephones, but UK and Ireland offered a Total Access Communication System. It was not even possible to use the available frequency spectrum in efficient ways (Mishra, 2004). An overview of the different stages of the evolution of cellular network technology is provided by Figure 11.

Figure 11. Evolution of modern cellular networks – adapted from Kumar (2004) and Adachi (2001)

In the mid-80s, with the formation of the ETSI, the European Telecommunications Standards Institute, first attempts of standardization and specification of mobile communication technologies took place. This resulted in the development of the GSM (Global System for Mobile communication), which was based on digital transmissions. This did not just have an impact on the compatibility of several service providers, but also increased the overall quality, efficiency and even enabled the offering of new services. It included all basic services like speech and data transmissions, fax services, and also provided the extension to the fixed telephone networks. First GSM networks became reality around 1991. The standardization also allowed for the cooperation of several service providers across several countries in the form of the first roaming agreement contracts (Nokia Siemens Networks, 2011).


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Value Added Services further extended the system by providing additional platforms for asymmetrical communication. These were, for example, Voice Mail Systems (VMS) and the Short Message Service Centres (SMSC). The latter became a huge commercial success for the service providers and the telecommunication industry. Another major step in enhancements was made with the introduction of GPRS (General Packet Radio Services), which allowed the transmission of packet data on the air-interface. The dedicated subnetwork handling these packets was called the ‘packet core network’, which was also integrated with the existing IP based technology. This also allowed the integration with the TCP/IP based Internet services, which were newly developed back then. To counter the relatively low data rates at the beginning, a protocol called the Wireless Application Protocol (WAP) was created, in order to reduce the amount of bytes exchanged over the air. With supporting handhelds, it allowed a convenient and fast alternative to the actual internet (TCP/IP) with similar capabilities, for instance, information retrieval and digital 2-way communication, on a smaller scale to account for limited hardware resources and navigation technologies on the handhelds back then. These new opportunities were more and more used commercially at the end of the 1990s. In 1997, the Merita Bank of Finland launched the first mobile banking system based on SMS. In 1998, the first downloadable content, a ring tone download, was launched also in Finland. These services spread rapidly in the early 2000s, with mobile parking payment, train ticketing, or even airline ticketing in Japan. While SMS provided a direct revenue impact to the providers – they were able to charge for each transmitted message –, the IP based services bore the risk of not being able to leverage the transmission capabilities in the form of actual revenue that easily. The focus on IP networks became even more relevant for the 3G and 4G networks. These extensions to the existing GSM network were mainly focused on increasing the maximum transmission rates and targeted at the existing TCP/IP based services, like mobile Internet. Within the 3rd Generation Partnership Project (3GPP), several partially interdependent technology standards besides the original UMTS were developed. Additionally, a concept, called IP Multimedia Subsystem (IMS), emerged within the mobile communication industry, which was also standardized by the 3GPP. It introduced another layer above the transportation plane and, thus, separated the service control and the underlying transportation concepts (the actual network). It was also providing further features like Quality of Service (QoS), session control, and subscriber and mobility management for IP based multimedia services. It is able to integrate many (IP-based) complementary access technologies (Schmidt, Wilde, Schülke, & Costa, 2007). Particularly, the newest standards, being established under the umbrella of 4G networks, are already directly based on the IP technology. These standards, for instance LTE, further push the boundaries of transmission rates that can be achieved from mobile devices. The need for delivery of IP-based services (voice, video, multimedia, data) was an essential requirement for the next-generation networks (NGN) that are being developed (Ludwig, 2009).


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Figure 12. Mobile broadband subscriptions (ITU, Sanou, 2013)

The usage of mobile internet is rising: As an example, 30 Million people in Germany access the Internet via their mobile devices (Accenture, 2012). These mobile devices are used both for leisure and work and organizations will need to tackle the issue of employees bringing their own devices into the workplace (Gartner, 2012). The access via mobile devices is positively influenced by mobile centric applications. An overview of the development of mobile broadband subscriptions is provided by Figure 12.

3.4.3

Internet of Things

The concept of ‘Internet of Things’ (IoT), also known as Machine Type Communication (MTC), is an idea that tries to merge the virtual world of the internet, with the real world of physical objects. Often supported by RFID technology, this concept allows the documentation of real world objects, its properties, and certain events on it to be tracked. This information is then aggregated and stored, to provide a complete picture about the object at its current state and all historical data that was collected on it during the past, for example, properties, origin, ownership, and other sensory data collected from its surroundings. “This ‘real-life’ context can unlock the door to various business, environmental, personal, and social contexts hitherto inaccessible to Internet applications.” (Welidurne, Battle, & Cole, 2009). The emergence of this idea will sooner or later also have an impact on mobile communications. All the information gathered within an Internet of Things ecosystem is usually stored within a central database. Thus, the information needs to be transmitted from wherever sensory data is being collected to a central point of data storage. The utilization of the mobile capabilities of mobile networking technologies, therefore, is only a matter of time and is also covered by the MCN project within the ‘Machine-to-Machine’ (M2M) communication scenario6. This concept is not limited to a business or private customer environment. Applications will appear in both areas equally, which will end in the greatest possible amount of potential IoT devices to be

6

MCN Deliverable D2.1, Ch. 4.3


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established in the future. This huge amount of potential devices and the relatively low amount of data that is being transmitted by each device, probably in relatively long intervals, represents a specific characteristic. Just like in sensor networks it seems interesting to certain groups of potential customers to offer such connectivity. Future dedicated networks, thus, might be able to deal with this development, probably in the form of network offerings that are aimed directly at Machine-2-Machine communication of such type. These special types of networks would be limited to lower data rates, technology that uses less power and communication modules that do not rely on SIM-cards or related individual mobile data contracts. An on-demand dedicated network to be established quickly and with a scalable amount of supported devices, possibly in combination with appropriate central application – or database servers –, might create new momentum for both such technological concepts like the IoT and new business models within the mobile communication industry. More detailed value propositions and market scenarios need to be defined and evaluated in future work.

3.4.4

Big Data and Next Generation Analytics

The analysis of data provided by modern mobile computing technology can be a vital source for insights to the research community and certain companies. The data collected from a vast amount of sensors integrated into modern smartphones (GPS, accelerometer, camera, light sensors, WLAN receivers, etc.) could hold potential to answer a number of research questions about “real-life phenomena, including individual traits, as well as human mobility, communication, and interaction patterns” (Laurila, Gatica-Perez, Aad, 2012). The applicability of this kind of research has been demonstrated in many different efforts. For instance, demonstrated by Nokia within the Mobile Data Challenge (MDC), an effort to actually utilize all possible sensory data from real smartphones, gather it and apply research methods to answer social science questions. To actually gather the data, the design and implementation of this process was executed within the Lausanne Data Collection Campaign (LDCC), which was based on experiences from other research done earlier, with the focus on how such mobile sensoring experiments can be designed and implemented (Miluzzo, Lane, & Fodor, 2008). Special research questions to be answered within this project were:   

Semantic place prediction: identify and predict significant places that users visit frequently; Next place prediction: predicting the next destination a user will go to given a certain context; Demographic attribute prediction: classification of users within demographic groups.

Such information can also be interesting within the scope of the MCN project, since the next place prediction is closely related to the Digital Signage Service (DSS), which is to be incorporate within the new architecture of the MCN. Within the telecommunications industry, this concept is not a mere idea but, after a trial period, has become a real and growing market. American telecommunication companies, like Verizon or Sprint, are known for turning anonymous user data into profits as they sell the gathered datasets, like recorded locations and usage details of voice and data services, to interested groups (Troianovski, 2013). Customers for this kind of data are in the first place companies, like AirSage, ComScore Inc. or SAP AG, that further analyse the provided data to gain valuable information from it. These insights, then, are further sold to cover a recently created and further growing demand from transportation planners, retailers and marketers, who seek to increase effectiveness, efficiency and profitability of their businesses. SAP estimates the market value of these reports to increase to $9.6 billion annually by the year 2016, almost double the revenue of $5.5 billion that was generated in 2012 ( Kharif, 2013).


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The concept of commercializing user data, though, is not trivial. Especially privacy concerns keep companies and users alert. Businesses that are related to gather user data in some way are not viable at any locations worldwide. Data protection and privacy laws can differ greatly between countries, which can render certain business models to be illegal in certain regions.

3.4.5

Virtualization

Virtualization is a concept that has been around since the 1960s, but picked up in importance throughout the 2000s, climaxing in becoming one of the industry’s megatrends around 2006, because of its increasing economic potential within the IT industry (Goth, 2007). In this context, virtualization refers to the simulation or mere emulation of a specific hardware. Within hardware virtualization, there are several desirable advantages over the utilization of actual physical hardware, which outweigh possible disadvantages. Within the computer landscape, these advantages of virtualization are usually flexibility, scalability, security and increased efficiency. It allows for “consistent resource access across multiple heterogeneous platforms […] and enables mapping of multiple logical resource instances onto the same physical resource”. Thus, individually configured operating systems on a single computer can be instantiated and released almost instantaneously to free unnecessarily occupied resources or use free resources of a machine. This allows a more efficient utilization of the existing hardware. Since virtual hardware is not restricted to physical boundaries, another advantage is the possibility to transfer certain states easily via existing networks or even decentralize the execution. Combined with powerful dynamic load monitors and managing applications, this flexibility results in enormous economic potential, saving a vast amount of energy and physical hardware, compared to the preceding concepts. With the concept of grid computing, virtualization is taken to another level, allowing several computers spread throughout a particular network, for instance, the Internet, to act as a single highly powered computing device, a virtual super computer bringing the advantages of virtualization to the field of grid computing (Keahey & Freeman, 2008). The MCN project heavily relies on the concept of virtualization. To make legacy systems more flexible and adaptable to sudden changing circumstances, many parts of the mobile networking infrastructure need to be virtualized, allowing these virtual components to be positioned wherever it is best suitable to meet technical requirements, like latency, on one side, and high economic efficiency, on the other. The more hardware components can be ported, the more flexible the system becomes, and the more businesses can benefit from the increase in efficiency (resulting in cost savings), flexibility (allowing on demand deployment, enabling cloud services) and even new business models, resulting from the elimination of certain physical boundaries or other restricting characteristics. Among all the virtualization types, network virtualization plays a vital role. It can not only increase flexibility, manageability or security, it allows virtual devices to communicate with each other in the first place. In a more general sense, it provides a possibility to combine a variety of heterogeneous networking concepts to coexist on a “shared physical substrate” (Chowdhury & Boutaba, 2010). Additionally, network virtualization plays an important role when it comes to major architectural changes within the existing networks. Current Internet technology is considered to be insufficient to adequately cope with future challenges (Feldmann, 2007). A possibility to overcome this is the usage of network virtualization to slowly establish new concepts, architectures and technologies, which tend to be more successful than attempts of radical changes (Anderson & Peterson, 2005; Carapinha & Jiménez, 2009).


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3.4.6

Cloudification

Closely related to virtualization and distributed computing is the trend of cloud computing. While concepts of decentralized software and services over the Internet are not new and have been around for a while, certain aspects, or particular characteristics, were added throughout the last years to differentiate cloud-based services from former concepts. It can be defined as “[a] large-scale distributed computing paradigm that is driven by economies of scale, in which a pool of abstracted, virtualized, dynamically-scalable, managed computing power, storage, platforms, and services are delivered on demand to external customers over the Internet.” (Foster, Zhao, Raicu, & Lu, 2008). Parts of this definition cover the major characteristics that make up the “Nist Cloud Computing Definition” (Mell, Grance, 2011). While virtualization is a concept that is utilized to realize the MCN on the technical side, the idea of cloud computing defines how the constructed services and technologies of the MCN are intended to be offered and what characteristics they are supposed to have. Viewed from a more economical standpoint cloud is a general purpose technology (Etro, 2009), which allows for huge cost savings on the consumer and business customer side (Sustainability, Dutta, Schwab, & Greenhill, 2010), as well as new business models and revenue streams for the operators (Rings et al., 2009; Verchere, 2011). Especially for the telecommunication industry, cloud computing has become a double-edged sword. While many telecommunications companies are capable of offering their own cloud services without the need for intense investments – appropriate infrastructure is a part of their business already –, they do suffer from another aspect when it comes to provided data lines for end consumers and other customers. As more cloud services are offered to businesses and end-consumers, the needed bandwidths increased. Especially the up- and download of multimedia content to and from cloud services (like private cloud storage) require an ever increasing amount of bandwidth and traffic (Accenture, 2011; Wi-fi Alliance, 2013; Deutscher ,2013). While cloud operators profit from increasing revenues for their newly offered services in many areas, communication providers like landline or mobile operators are merely providing the connectivity between servers and clients, which does not provide according profits, due to a steady costly increase in bandwidth and traffic that has to be accounted for in a harsh and dynamic competition within the communication markets (Accenture, 2012; Xu, Teo, & Wang, 2003). The existing business model of a mere connectivity provider, which in many cases incorporates a flat rate offerings for the customers, is not suitable anymore to capture the according value that the provided infrastructure provides to the cloud operators.

3.4.7

Soft SIM

In many mobile networks, the SIM card is a central technology to identify and authorize mobile devices. It provides a somewhat7 secure method to detach a mobile device from the necessary authorization mechanism and allows this authorization information that usually is directly related to services contracts, to be securely transferred between devices, by simply switching a SIM card between them. This little process makes it a little less convenient for mobile phone users to switch between carriers and contracts, respectively, quickly. But even more inconvenience is done to other

7

Recent security flaws have been identified (Olson, 2013)


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mobile network users that don’t have physical access to all the mobile devices on a regular basis. The solution to this inconvenience issue is already a reality in the form of a Soft SIM, also referred to as an eSim, an embedded SIM, or also White SIM. This concept allows the identification information and software of a SIM card to be altered on the fly, through a software program enabling users to switch between carriers instantly, just like switching between wireless networks. A major demand for a technology of this type comes from the embedded industry that develops M2M communicating devices or companies that rely on them, such as the automobile industry. Modern cars include mobile communication devices directly to allow for modern features like always up to date satellite navigation, internet access, instant traffic data, or other driving related digital services (Dano, 2013). With a dynamic SIM card solution, the car connectivity could be adapted to several countries automatically, or M2M communication devices could quickly be updated to always use the newest and cheapest mobile data carrier (Cowan, 2012). This is why the GSM-Association (GSMA) has launched the embedded SIM initiative in corporation with several mobile network operators and SIM card manufacturers to specify develop and standardize the next evolution of the SIM system (GSMA, 2010). The potential of a dynamic SIM is hard to evaluate at this point. For specific applications, like M2M communication, it seems to be the better more suitable way in the future over the legacy SIM card systems. Within the MCN project, such scenarios play an essential role. Services like the ‘Machinetype Communication Mobile Cloud’8 and ‘MCN-enabled Digital Signage’9 would greatly benefit from the flexibility that a Soft SIM concept would induce, and thus, it should be considered in this project.

3.4.8

SDN and CDN

With increasing complexity of networking infrastructure the need for new concepts arose, which allow for an easier and quicker adaption of these networks to certain events. Two concepts of dealing with network traffic and network management are Software Defined Networking (SDN) and the Content Delivery Network (CDN). Since these concepts are also covered in the Value Flow Analysis (Section Error! Reference source not found.), this paragraph will only give a brief overview. SDN

The SDN, which can also be seen as a general networking architecture, separates the control plane from the data plane, which allows the network to be monitored and controlled in a centralized manner. This replaces the somewhat limited legacy concept of propagating networking rules iteratively throughout the networking devices (e.g., routers) and allows more complex and very dynamic networking rules to be programmatically implemented and executed, which can even depend on data provided by the entire networking infrastructure, instead of just the data provided by one switching/routing device. This real-time data can be used to make immediate and more precise decisions and generate appropriate responses, which can be executed immediately, upon optimization, security, outage, or maintenance. To ensure a holistic approach, this architecture also incorporates support for virtual networks and virtual devices, which allows all policies and rules to be applied equally throughout virtual and physical networks (Miniman, 2013).

8


9



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The actual implementation of this architecture heavily relies on the actions of the manufacturers of the networking equipment. Each device needs to be able to communicate with an SDN controlling instance and act on commands accordingly. Additionally, the SDN concept could be implemented as a proprietary solution from each networking device provider, which can further decelerate the realisation of SDNs. CDN

Another adaptable solution to increase networking performance is a CDN. In essence this concept describes a system of servers and controlling entities (e.g., a Request-Routing-System), which allow content to be distributed in an economical manner. Distributed throughout a network, a certain amount of servers (replicas) provide copies of particular content, which usually consists of a high amount of data (e.g., multimedia files like video-streams). When a client requests this content, the CDN redirects that request to a replica that is most adequate at that particular time. The rules for this routing can incorporate information about the requested content itself (not everything can be provided within all the caching servers), server-load, distance to the requesting client, or bandwidth limitations. This allows the network to use its resources more efficiently and provide higher standards of quality to the clients, for instance if a big video file can be provided from a server located very closely to the requested client, instead of having to transmit it between continents every time a request comes from far away. Especially the increased bandwidth demands for online video streaming (Deutscher, 2013) made it necessary for the telecommunications industry to incorporate CDNs to ensure an efficient network usage and reduce bandwidth demands on their backbones.

3.5 Summary and Discussion The market analysis gives an overview over the environment which the telecommunications industry is embedded in. In the political environment the European Commission is supporting growth through the Digital Agenda. Also for the growing cloud markets, a cloud strategy of the European Commission tries to establish a standard solution and to trigger the effective use of cloud technologies. The economic environment is characterized by a fierce rivalry among telecommunication service providers. Penetration rates for mobile phones are close to saturation, so that the demand for new revenue sources – and in this context also new business models – is increasing. Developments in the social environment pave the way for new services and consequently new business models: Innovation areas in the offering portfolio of telecommunications companies are for example location-based services and virtual wallets. These developments in the social environment are supported through innovations in the technological area. For example, the internet of things in combination with big data and next generation analytics enable location-based services. The environment of the telecommunications industry serves as the basis for new developments in the telecommunication business and is thereby the foundation of business model innovation.


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4 Value Creation and Value Capture within the MCN Context This chapter takes a look at the cloud and telecommunications market from the perspective of value capture and value creation. Value creation and value capture are critical processes for economically viable businesses (Teece, 2010). Customers buy products or services because they see some value in these, which often means that these products and services help them resolve a fundamental problem (Christensen, Anthony, Berstell, & Nitterhouse, 2007). If companies don`t manage to create the value customers are looking for, they will not manage to keep their customers and will face problems in generating revenue flows. All this shows that the value perspective of products and services opens up other dimensions than their mere technical analysis. In this respect a crucial point will consist in relating the technical and the business perspective without reducing one to the other. To this end we first (Section 4.1) explain the notion and relevance of the value term in the context of business models. We also point out what value networks are and in which way they can help to illustrate and analyse the relationships between involved roles in the market. Section 4.1 provides the theoretical foundation for the analysis of the value network and explains the approach we follow. The actual analysis begins with Section 4.3, where we map the current value network in the mobile broadband market. Based on this map we zoom into the business models of the major roles in Section 4.4 to better understand their current way of doing business. In Section 4.5 we analyse in more detail why mobile network operators need to find new business opportunities. The main outcomes of this chapter are summarized in Section 4.6.

4.1 Definition of Value and Value Networks The term value has multiple facets and can be considered from various perspectives. Value can be the quantified monetary worth of something, following Woodruff`s examples of high-value customers or value of an organization (Woodruff, 1997). From a customer perspective value is often perceived to be low price, quality or the benefits a customer gains from a product or service. Zeithaml has defined customer value on the basis of her study of consumer perceptions as a subjective assessment of the utility of what one gets in relation to what one has paid or given (Zeithaml, 1988). In particular, this means that often the value is not determined by the objective relevance of a product but by the perceived benefit that the consumers associate with it. Consequently, the revenue that customers are willing to spend for such product directly refers to this perceived benefit; an imbalance between objective relevance and perceived benefit generally leads to problems regarding the revenue flow. The identification of such imbalance is one of the results that we can gain from the value analysis. In the course of the network economy, the value term has changed as well. Tapscott notes that particularly the value of intangible assets increased within the new economy due to the increasing role of so-called “smart” products that are knowledge-based and do not possess physical representations (Tapscott, 1999). This development has also brought about new ways of doing business; in particular multi-sided business models (Evans & Schmalensee 2007), the effect of which has not yet fully reached the telecommunications industry. In this respect the value network analysis provided information about intangible assets and their value opening up opportunities for the development of multi-sided business models in this sector as well. Ulaga (2003) has identified four value characteristics common across the different perspectives: (1) the subjectivity of the value concept; (2) its trade-off character between benefits and sacrifices; (3) the Copyright  MobileCloud Networking Consortium 2012-2015

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multiple facets of the benefits and sacrifices; and (4) its relativeness to competition. In other words, value denotes the relationship between what stakeholders perceive to get (perceived benefits) and what they perceive to give (perceived sacrifice). For example, customers value a service or product, if it ensures them more benefits than it causes costs. This result emphasizes the role of subjectivity discussed by Zeithaml so that we take this meaning as a basis for the value concept within this deliverable. The nature of the value created in these business networks was initially regarded as solely monetary as already suggested in Woodruff’s examples, mentioned above. The consideration of intellectual capital and intangibles as a form of value, especially in a broader, macro perspective, has been manifested in Allee’s work (2000). She argues that we cannot completely grasp the relevance and importance of intangibles if we try to translate them into financial terms. Seeing their value as it is, without trying to turn it into numbers, offers many different opportunities for growth and development. For these reasons, in the current work the definition of value is amended by relating it to “a tangible or intangible good or service, knowledge, or benefit that is desirable or useful to its recipients so that they are willing to return a fair price or exchange” (Allee, 2000, p. 28). Allee’s amendment as well emphasizes the interplay of perceived value and revenue. On the other hand, revenue plays a decisive role for the sustainability of a business that cannot run on the basis of incoming intangibles only. To emphasize this decisive difference we will distinguish financial and non-financial value in the following, where the former refers to the transfer of revenue while the latter describes all value related to the exchange of other assets. As mentioned at the beginning of this chapter, value creation and value capture are the central processes that determine the economic viability of business (Teece, 2010). The concept of value creation across companies, their suppliers and partners was first introduced and described by Michael Porter in 1985 (Porter, 1985). His value chain framework provides a strategic view on the activities that make up business and allow determining the potential for business differentiation and thus the competitive advantage. Later on, Christensen and Rosenbloom (1995) used the term value networks as “the context within which a firm competes and solves customers’ problems” (p.233). These authors highlighted the value network as an important factor for the innovation success of incumbent or entrant companies. Here we have to emphasize that the success of today’s business becomes more and more dependent on their respective ecosystems. This means that it is definitely not sufficient to concentrate on individual companies but requires the analysis of their partners. The interplay of MNOs and MVNOs is only one example in this respect. The creation of economic value has changed fundamentally recently (Möller, Rajala, & Svahn, 2005). As already mentioned above, in the late 1990s the emergence of the New Economy brought along a digitalization and servitization and led to fundamental changes in the value concept. This was due to the fact that with the establishment of New Economy organizations, the concept of the value chain reached its limits and proved to be unable to thoroughly describe the value creation process of the digital world (Peppard & Rylander, 2006). The advanced conceptualization of markets as ecosystems and networks is the result of theoretical work in the research areas innovation, alliances, and networks (Basole & Rouse, 2008). For this reason, many authors have adopted a network-based perspective on the process of value creation (Möller, Rajala, & Svahn, 2005; Parolini, 1999; Kothandaraman & Wilson, 2000). According to Parolini (1999), the main difference to previous conceptions is that there are several actors, which coordinate their value creation activities in order to jointly enable the offering of a product or service. This is what she calls a value creating system, which essentially


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means that business networks can be regarded as systems where suppliers, partners, and buyers interact with each other in order to create, deliver, and receive value. The value creating system is described as value network, where the latter represents “a web of relationships that generates tangible and intangible value through complex dynamic exchanges between two or more individuals, groups or organizations” (Allee, 2003, p. 605). In Allee’s definition, an important aspect for the analysis of the value network is the distinction of value creation related to tangible and intangible assets by and for participants in the value network. The network as such is the general basis of value conversion. A first step to unlocking the potential of value networks for the analysis of the cloud and telecommunications market is to map and understand existing relationships and value flows.

4.2 Methodological Approach The approach of value networks is very useful for analysis and visualization of value creation within a network of interrelated stakeholders (Ojala & Tyrväinen, 2011). The theoretical basis for value network analysis (VNA) lies in network analysis which has been established to describe organizations, work groups, and purposeful networks in general (Allee & Schwabe, 2011). Generally firms use VNA as a tool to model and evaluate their capabilities of value creation, conversion and asset utilization. Referring to this capability, we will apply VNA to evaluate how mobile networks could use their services for value creation within a suitable partner network. The ability to efficiently convert one form of value into another and leverage the outcome is an important success factor for companies as well as the basis of new business models (Allee, 2008). The efficiency of such conversion mainly depends on a company’s capabilities that are related to the available resources such as machines or infrastructure and its know-how. A well-known example for such value conversion and asset utilization is Amazon’s Elastic Compute Cloud that originated from Amazon’s existing expertise in managing computing capacity and the use of so far unexploited hardware capacities. According to Allee (2008), the process of conducting VNA can be divided into two parts: (1) representing the value network of interest, and (2), conducting the actual analysis based on this representation. The first part identifies the key players in the network and the value exchanges between them. The representation is conducted by means of three elements: (1) Roles represent people, organizations, work groups or any other unit that carries out specific functions contributing to the value creation in the network. Contributions can be initiating actions, engaging in interactions, taking decisions, and adding tangible or intangible value to the network. In this context, business entities can have more than one role, for example, Telecom Italia is at the same time in the role of an MNO and a cloud provider. (2) Transactions describe the movements of assets passing from one role to another denote; they are represented by directional links between roles. Transactions can be designated by dashed or solid lines. Dashed lines depict the flow of intangibles, whereas solid lines depict the flow of tangibles. (3) Deliverables denote the actual tangibles or intangibles conveyed through transactions from one role to another. For example, deliverables can be expertise, knowledge, revenue, products, or services. Figure 13 depicts an example of a simplified value network with all three elements. Role B provides Role A with training (intangible value), for which A makes a transaction of a training fee (tangible


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value) to B. Depending on the purpose of the network, the value exchange can be broken down to more detailed transactions (e.g., offer and order process, exchange of training materials, etc.).

Figure 13. An example of a value network and its three elements

As soon as the key roles, transactions and deliverables are determined, we can start the actual value network analysis. For the purpose of a thorough market analysis we later complement the value network with the individual value analysis of the most important players. We describe the general business models of mobile network operators, their virtual counterparts, and cloud providers to illustrate their current way of operation in the next section. Section 4.5 discusses the insights gain from the value network and the individual business model views. The goal of this part of the analysis is, on the one hand, to assess the network dynamics as a whole and on the other hand, to examine each role and how it converts value in the network. These goals are achieved by splitting the analysis into the following three steps: (1) The exchange analysis takes a closer look at value dynamics and the value conversion capability of the network. It examines patterns of value exchange and aims at gathering insights on how healthy the whole system is according to its value exchange. Key questions in that analysis step are: is the ratio between tangible and intangible exchange reasonable? Are there any bottlenecks or missing links, for example, in terms of reciprocity? (2) The impact analysis is conducted for the role of interest, for example, a company, and eventually for other key roles whose performance and influence are critical to the role of interest. The analysis takes into account each transaction and deliverable flowing into the role. This input is then evaluated according to its cost, benefit, and potential to be still leveraged from the role perspective. In summary, the impact analysis aims at showing which value inputs contribute to value creation within the role and whether the role manages to realize value out of the input it receives. (3) In contrast to (2), value creation analysis rather focuses on the output of the key roles. Its basic principle follows the idea of value chain analysis where each role adds up value to the product / service and passes it further. Value creation analysis poses the questions whether existing assets are optimally used to create the needed value output and to what extent the role benefits from providing this output. Complemented with insights from the individual business models these steps deliver valuable insights about the network structure, the relationships between the players of interest and all others as well as about unbalances in the network that can be used to create new business opportunities. In Chapter 5 we will show how we can derive more detailed value flow analyses from the VNA in order to identify individual value creation processes. In fact, it is not possible to analyse isolated business models of


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individual companies since value creation is usual a communal process; the business model analysis is just a more detailed investigation of what we can identify as value creating network.

4.3 The Value Network of Mobile Network Operators During the past years the mobile telecommunications market has witnessed a lot of changes. All of these were initiated by the European Union green paper from 1987. This paper has shaped the strategy for necessary reforms in the information economy to stimulate its development and growth (Cawley, 2013). According to the plan these reforms are to be carried out in different phases. First, competition was introduced to terminal equipment; then to data, value added services, and mobile services (Ungerer, 2013). Competition in these areas has as well led to several waves of investments such as in mobile cellular networks and long distance infrastructure for voice and data (Cawley, 2013). Today we can regard 1998 as the year in which full liberalization of the EU telecommunications sector was achieved (Ungerer, 2013). The results of the undergone reforms are very significant for mobile operators and their networks. They have been obligated to give up their monopoly position and open up space for competition. Fall of prices and saturated markets characterize the current situation in the traditional telecommunications industry (Halaoui, Smayra, & Sursock, 2011). However, there is light in the tunnel for mobile operators. Trends such as the growing demand for mobile broadband services due to the wide usage of smart mobile devices (smartphones and tablets) are a chance for mobile operators to rethink their way of doing business. How could a new business strategy for MNOs look like? The analysis of the MNO value network gives deeper insights into the relationships between the different players. It further unveils potential for changing the network and thus for new business opportunities. This section first presents the MNO value network and the players involved in it. On this basis, it then analyses the network in terms of exchange, impact, and value creation to draw conclusions for possible future developments in the market from MNO perspective. In Figure 14 we have summarized the main roles, transactions and deliverables. The grey rectangles next to each role designate its key capacity that adds value to the whole network. The transaction of connectivity is shown in black and differs in colour from other deliverables since it is of main interest. The various roles who take part in the MNO value network have been identified by examining relevant literature. This section lists the key roles and describes their contribution and relationships in the network. The roles that we have identified in the value network mainly correspond to those that we had previously identified in D2.1 – Chapter 4.


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Figure 14. The MNO Value Network

Mobile Network Operators virtually enjoyed monopoly before the European Union set the grounds for liberalization of the telecommunications sector (Cawley, 2013). They control the infrastructure and resources (radio access networks, computer centres, broadband capacity, expertise, etc.) needed for delivering network connectivity and, on top of that, they also provide a wide variety of telecommunications services (e.g., voice and video communication, SMS and others). MNOs are currently struggling with saturated markets and stagnating, even decreasing revenues (Eul, Freyberg, & Jaeger, 2010; Halaoui, Smayra, & Sursock, 2011). The main value creation activity MNOs are involved in is the management of network and infrastructure services. These services should be delivered continuously in high quality and a secure manner. These are the main values MNO customers expect to get. The value capture process is reflected in the value network as incoming revenue flows and encompasses as well cost-effective asset utilization. Mobile Virtual Network Operators provide telecommunications services just as MNOs. However, what distinguishes these MVNOs from MNOs is the fact that they do not own and manage access networks by themselves. They buy the connectivity necessary for their offering from the MNOs and hand it on to their customers. Thus, they manage their brand relationship with customers (Peppard & Rylander, 2006) and compete at the same time with MNOs at the service level and co-operate with them at the infrastructure level (Smura, Kiiski, & Hämmäinen, 2007). As already mentioned in D2.1 and Section 3.3.3 since 2000 many new virtual operators have entered the European mobile markets (Smura, Kiiski, & Hämmäinen, 2007) due to the regulation policy of the European Union. The specific role of MVNOs, which at the same time depend on MNOs but also compete with them, mostly relies Copyright  MobileCloud Networking Consortium 2012-2015

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on their flexibility and the concentration on niche markets that cannot be completely covered by MNOs. Different kinds of MVNOs exist on the market. Some of them take over the network capacity directly from MNOs and give it further to consumers, these are the so called full MVNOs; others take over only certain functions across the value network such as the following two: 1) Service providers sell subscriptions to end or business customers. Their main tasks and main contribution to the value network include customer relationship management, billing, and customer management services (Smura, Kiiski, & Hämmäinen, 2007). For example, retail service incomes are the only revenue streams for SPs. Many MNOs have their own SPs integrated in their portfolio, so they can cover the whole process from running a network to distributing network services to end customers. 2) Mobile virtual network enablers act as a middleman between MNOs and MVNOs or SPs. They manage technically the radio access capacity they get from MNOs and thus facilitate the operations MVNOs or SPs would in other cases have to do themselves. Figure 15 sums up the differentiation between MNOs and the just described possible MVNO forms.

Figure 15. Differentiation possibilities between MNOs and MVNOs (Smura, Kiiski, & Hämmäinen, 2007)

When we mention MVNOs in this deliverable we refer to an operator or provider who does not own and operate a radio access network, no matter of the more specific function he takes over (see D2.1 for more details). The added value MVNOs contribute to the network is billing, customer care functions, and their niche services targeting a specific customer group (TelecomSpace, 2013). For example, the MVNO Lebara in Switzerland offers special rates for voice calls and SMS messages abroad. ICT infrastructure vendors are telecommunications software providers (e.g., NEC, Intel) or network hardware vendors. The latter are equipment vendors supporting mobility and the end-to-end delivery of mobility services (e.g., Cisco, Intel). ICT infrastructure vendors as well play a role as integrators of their software / hardware into existing network technologies. With their services and products and their expertise with respect to infrastructure they play a crucial role in the provision of the physical telecommunication network. Cloud Service Providers offer on-demand access to applications, computing platforms and infrastructure over the Internet, which is also becoming more and more relevant in the telecommunications sector. The Cloud and cloud services have been described by the scientific and the practitioner communities in different manners and there appears to be no clear agreement upon one common definition. However, discussions in literature point to a new deployment and delivery IT paradigm (Stanoevska-Slabeva & Wozniak, 2010). Based on the National Institute of Standards and Copyright  MobileCloud Networking Consortium 2012-2015

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Technology (NIST) definition of cloud computing, cloud providers can be described as providers of software, cloud platform and / or cloud infrastructure as a service (Mell & Grance, 2011). They add value to the network as they enable OTT providers to offer and scale their services without having to take care of the underlying infrastructure. Over-the-top (OTT) providers emerged with the mobile Internet capabilities. On the one hand, they can be seen as service providers offering telecommunications services over the Internet. However, in contrast to MNOs and MVNOs, they do not operate or lease a network (Bertin, Crespi, & L`Hostis, 2011). Examples for such service providers are Skype, Viber, and WhatsApp. On the other hand, the definition of OTT can be broadened to any service provider that offers applications or services via the Internet, thus bypassing traditional distribution channels, for example, services such as Netflix and YouTube (Entwistle, 2010). The current work uses this last, broader definition. OTT providers make the mobile network more useful to end and business customers by offering different services and applications. Individual End Users are private persons who subscribe to telecommunications and broadband services, offered by MNOs or MVNOs. When using different online applications, they are customers of OTT and eventually cloud providers. However, possible links between end customers and cloud providers are not taken into account for the MNO value network. Enterprise End Users are power users of telecommunications and broadband services in a business context. They can make use of outsourced applications with on-demand access, cloud-based computing platforms and infrastructure (storage and data centres included). Individual and Enterprise End Users are both an important revenue source for all participants in the network. The relationships between the described network participants can be seen from an individual perspective as well. In order to better understand how the most important roles for this analysis create and deliver value to others, we zoom into their specific business models. In the following section generic network and enterprise views for both MNOs and cloud providers are depicted and explained.

4.4 Current Generic Business Models of MNOs and Cloud Providers The generic business models shown in this section include the main elements and characteristics of MNO, MVNO, and cloud business models. Actual business models of certain companies do not necessarily contain all these elements and they can encompass further aspects as well. However, such generic representations contribute to a better understanding of how the MNO, MVNO, or cloud business is basically done. Main source of information for the generic MNO business model are the business models provided by Telecom Italia and Portugal Telecom. Additional resources are cited in the text. Figure 16 depicts a generic network view of the MNO business model. For a detailed explanation of the network and enterprise view on business models see Section 2.2.2, Step 4. MNOs have a very big partner network that enables the offer and delivery not only of connectivity but as well of many other additional services they provide to their customers. Hardware and software vendors take care of the network infrastructure together with MNOs, delivering network equipment and original equipment manufacturer (OEM) software. Some of them can also take over the role of system integrators and install the hardware/software at the MNO´s site. MNOs cooperate with many MNO counterparties abroad to ensure their customers can still use telecommunications services when they are outside the country. They have agreements with mobile device manufacturers in order to promote certain devices Copyright  MobileCloud Networking Consortium 2012-2015

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with a matching service plan. These so called preconfigured packages can be distributed both through own distributing channels as well as through retailers and resellers the MNO has agreements with. Last but not least, MNOs can partner with content providers to offer their customers an enhanced media user experience. Examples for that are the cooperation of Orange with the music service provider Spotify for end customers under 2710 and the partnership of Deutsche Telekom with different movie studios for offering the video rental service Videoload. Please note that the figure does not aim at an extensive representation of all possible MNO partners but the most common ones. In some special cases MNOs can cooperate with further parties, for instance, with fixed-line operators to build a geographical network. The MNO customer network is as well multifaceted. End / business customers, MVNOs, and the public sector deliver revenue in exchange for telecommunications services, devices, and support. The competition consists not only of other MNOs and MVNOs for certain niches but as well of OTT and OTT Voice over IP providers such as Skype and the German company sipgate11.

Figure 16. Generic network view for MNOs

In order to be successful within this network, MNOs need to accomplish certain activities, reach and persuade their customers, and elaborate a revenue mechanism ensuring a good balance between costs and business volume. Figure 17 summarizes the way MNOs function as enterprises in a business model canvas. The customer and partner network is the same as depicted in Figure 16. In order to attract customers, MNOs have a different main value proposition (and respectively service, see Figure 17) for each customer segment. The art of customer relationship and the distribution channels are the

10

http://shop.orange.ch/en/icat/orange-young, accessed on the 29th of July 2013.

11

http://www.sipgate.de/, accessed on the 7th of August 2013.


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same for business customers, MVNOs, and the public sector. MNOs usually reach their end customers via direct channels and maintain a short- or mid-term relationship with them. In order to ensure the provision of the value proposition to the right customer group, a MNO has to deploy its physical and software infrastructure in a reliable manner. Further necessary operations are dedicated partner management to maintain good business relationships with all different partners and customer support to take care of customer needs and problems. These operations require certain resources that a MNO should have available such as skilled human resources, industry knowledge, and global presence for partner acquisition. The MNO revenue structure shows that MNOs receive revenues from different sources: they charge customers for data plans, voice and carrier services. MVNOs deliver revenues for the network services they get, retailers and resellers as well contribute revenues for preconfigured packages. On the cost side, MNOs have to deal with general costs for marketing, administration, HR as every other company. Additionally to these costs come network development, operating and maintenance costs, including expenses for software and physical infrastructure.

Figure 17. Generic enterprise view for MNOs

The generic business model of MVNOs can be deduced from the generic MNO business model as depicted in Figure 18. For this reason, we will explain the parts of it which are only typical for MVNOs. The main difference between MNOs and MVNOs is that the latter need to concentrate on very specific customer segments. Trying to cover a broad range of customer segments would mean for MVNOs entering a fierce competition with too many other operators. That is why they usually focus on customer segments that encompass price-sensitive and less quality-sensitive end consumers or


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consumers with a certain, clearly defined lifestyle (Schröder & Henneking, 2005). Examples for MVNOs targeting lifestyle markets are youth brands such as Virgin Mobile in the UK. The strong focus on specific customer groups has impact on the way MVNOs function as enterprises as shown in Figure 19. To ensure competitiveness and retain customers for at least a short- to midterm relationship, MVNOs need to gain very deep industry and customer insights. Due to the price sensitivity of their target customers MVNOs cannot increase their margins with higher prices. The opportunities for gaining revenues and margins are cost efficiency and understanding of the target customer group. Cost efficiency refers to the design of their marketing mix, human resource structure, processes, and distribution channels. Infrastructure costs are either rather small or depend on the contract with the partner MNO and the Mobile Service Agreement (MSA). Revenues usually come from traditional voice and message services. If the MVNO strategy includes offering data services, revenues from these flow in as well. As far as the distribution strategy encompasses partnering with retailers and resellers, the customer reach becomes greater and revenues from these partnerships can be expected.

Figure 18. Generic network view for MVNOs


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Figure 19. Generic enterprise view for MVNOs

The generic business model of cloud providers is depicted in Figure 20 and Figure 21. Figure 20 shows the network environment of a typical cloud provider. Particularly interesting about this network view is that cloud providers can cooperate and compete with each other. This is due to the fact that the presented business model is generic for all kinds of cloud providers, including the ones offering Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). An IaaS provider can cooperate with a PaaS provider, thus delivering greater value to customers; however, the IaaS provider still competes with other IaaS providers. Such cooperation types are not unknown in the cloud industry (Porta, Karimi, & Botros, 2009). Further possible partners for cloud providers are system integrators (SI) and consultants, hardware providers, and brokers. All of them but hardware providers enlarge the customer base of cloud providers since they reach various customer groups which the cloud provider may not have the resources to serve by himself. This means that there are situations where the cloud provider may not have a direct relationship with customers since this relationship is maintained through SIs, consultants and brokers. For example, business customers get in contact with system integrators and consultants to evaluate the costs and gains of a cloud strategy. If they decide to use cloud services, the SIs take care of the integration process of the customer systems into the cloud and get in touch with the needed cloud providers. Cloud brokers or aggregators as they are referred to in Leimeister, Böhm, Riedl, & Krcmar, 2010, are a special form of system integrators. They bring multiple services together in one service and ensure data interoperability and security between different systems (Plummer & Kenney, 2009).


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The customers segments of a cloud provider can be defined as follows: 1) private users that cannot afford maintaining infrastructure or platform by themselves; 2) business customers (B2B) that want to save costs and reduce in-house efforts; and 3) research organizations which need to handle great amounts of data. These customer segments can be as well served by managed hosting service providers, other cloud providers or build up an in-house cloud service.

Figure 20. Generic network view for a cloud provider

Figure 21 shows the enterprise view (for terminology see Section 2.2.2) of a cloud provider business model. All three customer segments – private users, B2B, and research organizations, are addressed by a distinct value proposition. For private users it is important to have control over deployment and costs as well as a flexible access to enterprise-level IT infrastructure and resources. Research organisations can rely on a fully scalable and customizable cloud solution. The main value proposition for B2B customers is the significant reduction of IT costs. The reduction for enterprises has been quantified by IBM Research to be about 50% for labour costs and utilization of IT server and other components is estimated to reach 75% (Porta, Karimi, & Botros, 2009). An overall value proposition for all customer segments is on-demand access to an easy-to-use, professionally maintained and scalable cloud solution. As already mentioned before, cloud providers do not always have a direct relationship with their customers. SIs, consultants, and brokers are an additional distribution channel and then they manage the customer relationship. Account managers take care of large customers (direct distribution channel) and aim at maintaining a long-term relationship with them. Several main activities emerge from the value propositions cloud providers claim for their services. First of all, it is vital to comply with the demands of the cloud computing concept to ensure scalability, flexibility, and on-demand access. The compliance requires a certain amount of development work cloud providers are engaged in. Cloud providers as well have to manage their partner network, for


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instance, in order to widen their customer base and ensure interoperability between systems. Further activities include support and distribution. Necessary resources are reliable infrastructure (own or provided by partner cloud providers), software, and partnership programs for SIs, consultants, and brokers. The cost-revenue structure looks rather simple in Figure 21. The costs result from the very technical character of cloud services mainly in costs for infrastructure, maintenance, development, and support. Further costs are the ones for communication and partner management. However, on the revenue side there are many options for revenue generation. The pay per use or on-demand model encompasses payments according to what is offered as a service. For example, IaaS charging models can include power and number of CPUs, server type, needed storage capacity, system administration, and others (CGI, 2010). PaaS and SaaS charging models can as well be based on different criteria. The pay per use model can be combined with long-term subscriptions for reserved instances, revenues from bidding (the so called spot market) and service fees. In summary, one can conclude that the main stakeholders, MNOS, MVNOs, and cloud providers partner with service providers for two reasons. First, they can use them as an additional distribution channel such as retailers, resellers, SIs, brokers, etc. Second, they can complement provided service to strengthen the overall value proposition such as device manufacturers, cloud providers, etc. The ability to identify and involve necessary partners into the own value creation and delivery network seems to be getting more important as industry boundaries are becoming blurred. However, what do MNOs, MVNOs, and cloud providers get out of the value network to serve their own business models? The next section is dedicated to the analysis of the network and delivers first insights on opportunities and misbalances that need to be addressed.


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Figure 21. Generic enterprise view for a cloud provider

4.5 Value Network Analysis This section analyses the patterns of value exchange between the described roles, how MNOs manage to use the input they get from other roles for their value creation process, and how they utilize existing assets. A pattern that strikes at first glance in the network is the one of reciprocity – all players but one become as much input as they produce outcome as measured by the number of transactions. Mobile network operators are the exception since their output is slightly larger than the input they get. Figure 22 presents an overview of the MNO value input and output, split into financial and non-financial deliverable types.

Figure 22. Value input / output for MNOs

The indirect non-financial transactions designating connectivity and flowing from MNOs to OTT and cloud providers (the dotted black arrow) seem to be not delivering any direct benefit for MNOs. This becomes clear from the generic MNO business model as well, since OTT and cloud providers are not depicted in the enterprise or network view as partners or customers; MNOs are rather the ones who use cloud services. These two indirect links therefore represent so called value “dead ends”. It seems that OTT and cloud providers benefit on the expense of network operators by indirectly using the broadband connectivity of their customers to deliver their own services. Copyright  MobileCloud Networking Consortium 2012-2015

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If we take a closer look at the MNO role, there are several financial and non-financial transactions flowing in. The financial transactions designate revenues flowing from other roles into MNOs for the services they provide. The non-financial flow designates software and hardware products ICT infrastructure vendors integrate into MNO networks. If one thinks about the standing of traditional MNOs in comparison to newer ones, there may be an additional intangible value flowing from customers to traditional MNOs – trust. Examples for such traditional operators are Swisscom or Deutsche Telekom, both deriving from previous state telecommunications companies. Due to historical developments they have invested a lot in their own networks (during the investment waves after 1987) and have gained the trust of consumers as the first provider of telecommunications services. However, important to note here is that consumer trust in this case does not refer to trust in general. It refers to trust in the quality of connectivity because the operators actually own the network used and can therefore assure very good coverage. Such operators seem to still have room for improvement to convert consumer trust into actual financial flows. They have already reached a certain share of all subscriptions, so striving for a bit more may still be attractive, but it alone does not provide a promising future for MNOs and great revenues. Traditional MNOs need to look for further possibilities to exploit consumer trust. A further insight can be gained by examining the revenue flows and the actual costs that arise from offering mobile connectivity. Currently, MNOs are struggling for market share in saturated markets, knowing that they need to find additional opportunities to keep and further develop their business. The situation of MNOs can be described as shown in Figure 9. They have a large customer base; however, their financial flows are not sufficient to cover all costs (especially investments in faster networks) and to retain the average revenue per user.

Figure 23. The current situation of MNOs - untapped potential of intangible flows and insufficient financial flows

As already mentioned, MNOs receive less input as they produce output (see Figure 22). This could be explained in two different ways. The first one could be that MNOs utilize their internal assets and the value they get from other players in such a way that they are able to convert it into greater value. However, the insights just described point to a different explanation. The reason for this unbalanced situation is untapped potential for converting self-created value for others into negotiable value for the MNO. The value dead ends going from MNOs to OTT and cloud providers are a good example of untapped potential (see Figure 23). The biggest assets of operators are their networks and their existing customer base, both shown in Figure 24. These assets should be used together with the value inputs shown in Figure 22 to create value for MNOs and for other roles in the network, for example, end or business consumers. As already suggested, there seems to be untapped potential for value creation and asset utilization within Copyright  MobileCloud Networking Consortium 2012-2015

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MNOs. That potential is researched from five different perspectives on value creation: asset utilization, value conversion process, value enhancements, perceived value from recipient perspective, and social value.

Figure 24. Main assets of MNOs

The first dimension, asset utilization, looks at how well MNOs leverage their assets to create each value output. MNO value output consists of mobile services (connectivity) and telecommunication services (voice, SMS, etc.). In order to provide the output, MNOs manage radio access networks, computer centres, and further resources necessary for creating and delivering connectivity. The effectiveness of MNO internal activities to provide output is rather difficult to categorize since a lot of different factors impact it. However, the network infrastructure of MNOs can be leveraged to become more efficient and less cost-intensive by developing a network cloud and eventually providing cloud services for business customers. The knowhow from owning and managing a high-performance network can be seen as a key advantage over existing cloud providers on the market (Gerwig, 2010). The network advantage can be combined with the already existing customer base of MNOs, especially with regard to business consumers. This combination seems to be fruitful for expanding and bundling services in the cloud market as well as in the OTT market. Different applications can help to create the need for high-performance bandwidth and respectively help to charge consumers higher rates for different bandwidth offerings. A good example of putting this into practice is Swisscom’s mobile tariff, Natel Infinity, which offers different download speeds within different subscription options. The speed-based tariff idea has not only the advantage of bringing customers pay more for a greater service, but it as well diminishes the need for OTT offerings like Viber and WhatsApp, if it includes voice and messaging without any additional charges (Bieler, 2012). The second dimension, value conversion, explores how MNOs turn value inputs into value outputs. An important value input, which MNOs get from the network, is the software and hardware provided by ICT infrastructure vendors. MNOs extend this value with their networks and thus are able to provide telecommunication and connectivity for other roles. The financial flows they receive as value input support the management and maintenance of their network infrastructure. Since MNOs are not only owners but as well creators of the main feature that makes them unique (their networks), there is no primary basic value input that they add value to or extend in order to build their unique selling proposition. That is why the third dimension, value enhancements, which treats exactly the enhancements of features created by a role, is not relevant in this situation. The transaction’s perceived value from recipient perspective represents the fourth dimension of the analysis. MNOs’ value recipients (excluding the recipients of financial flows) are end and business consumers as well as OTT and cloud providers (in an indirect way). From consumer perspective the value MNOs provide is essential although slowly becoming invisible. Telecommunications and connectivity are becoming a ubiquitous part of everyday live. The perspective of OTT and cloud providers is a bit different. They cannot deliver their services without using the connectivity provided Copyright  MobileCloud Networking Consortium 2012-2015

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by MNOs. However, instead of being MNO customers themselves for the service delivery, they profit from the fact that their own customers already have a broadband subscription that OTT and cloud providers use to convey their services. A comparison of the MNO cost to maintain and provide connectivity with the perceived value by OTT and cloud providers leads to the conclusion that there is a great disequilibrium from MNO perspective. Finally, the fifth, social value dimension deals with the positive or negative effect of value outputs for the industry, society, and for the environment. Societal implications of bandwidth and telecommunication services are an especially interesting aspect of the value creation process. With the emergence of the mobile Internet and mobile Internet services, several areas have experienced key social changes (Campbell & Park, 2008; Thielmann, Van der Velden, Fischer, & Vogler, 2012). MNOs can benefit from these social changes by facilitating the further adoption of mobile services in everyday situations and thus creating new consumer needs they can satisfy.

4.6 Summary and Discussion of Implications The value network analysis of the MNO network and the generic business models for MNOs, MVNOs, and cloud providers contribute to the understanding of the interrelations between mobile networks and cloud services. Furthermore, they have revealed a number of insights about the current situation of MNOs and their opportunities for change. These insights can be summarized as follows: 1. There are roles in the MNO network which seem to benefit from others’ offerings without providing any compensation. 2. Customer base has been identified as an important asset of MNOs that has not yet been fully realised. 3. MNOs invest a great part of their internal assets in providing value for other network participants. However, incoming revenues are not sufficient to completely justify these investments. 4. The infrastructure assets MNOs own can be better incorporated into the value creation process and can lead to the opening of new markets and new revenue streams. 5. There is urgent need to increase the perceived value of broadband services for OTT and cloud providers. In such a way, MNOs have a better chance at receiving value back. The key value created by mobile network operators, namely connectivity, is necessary for almost all other network participants. Could this mean that networks are becoming a utility, just like water and electricity? According to the foreword of the Global Innovation Index Report for 2013 “connectivity has become a basic human right” (Cornell University, 2013, p. xiii). However, MNOs seem to be thinking in a different way about connectivity. They are struggling to increase their revenues not only from end and business consumers but as well from service providers (OTT and cloud). A good example for this point is the recent agreement between Google and Orange (former France Télécom). According to Orange’s head, Stéphane Richard, the retrieval of YouTube videos and Google search queries are responsible for up to half of the data traffic. So Orange reports to have managed to set up an agreement with Google according to which Google pays for the data delivery of their services (Reissmann, 2013). In this case, Orange has achieved a better utilization of its assets and has increased its value as perceived by a service provider. Although the agreement is reported to have come into being due to Orange’s strategic position in Africa, it is a very first step for MNOs towards making more out of their networks. Even though there are still a lot of ambiguous questions related to such revenue mechanisms


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(network neutrality, double charging from consumers and providers, etc.), they are worth to be thought through. The fast development pace in the technological and regulatory area will inevitably further enforce the discussion about these revenue options and sharpen the threads and opportunities for all network participants.


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5 Value Flow Analysis In the previous section we have addressed Step 1 and 2 of the roadmap presented in Section 2.2. In the following steps we want to concentrate on the impact of these considerations on the MCN conception. The analysis presented in the previous chapters has provided the background against which the MCN project is developing its new technologies. Now we want to have a closer look at core scenarios developed in the requirements engineering in D2.1 as well as the core services to be designed in the first year of the project and start to provide a rough overview of their value creating capacities and their place in the telecommunications value network as a first approach towards Step 3. To this end we will apply a methodology that SAP has recently developed to better understand the value creation in networks regarding individual services and goods. It is called Value Flow Analysis (VFA) and aims at a more fine-grained investigation of the value creation in networks. In contrast to the Value Network Analysis that we have presented before VFA targets the smallest identifiable entities of value creation in a value network, which are often related to specific services or goods to be offered. The main idea is to start with specific services (for the sake of simplicity we will concentrate on services instead handling goods and services) and analyse which partner in the value network contributes in which way to make this service available to the end customer creating and a revenue share for all involved parties. By such concentration on one service the value analysis becomes more comprehensible since the complexity is reduced, however, at the expense of partially neglecting synergies in offering related services. Here we make the assumption that in general each service must independently contribute to the value creation and that synergies only reduce the costs in offering these services. Even if this assumption might not be completely correct it nevertheless directs the view towards the key features of value creation we are interested in. This VFA also analyses the end user’s perception of services (and goods). For example, if an end customer is interested in a rental car service, he or she is generally not interested in the technical maintenance service provided by another partner to the rental car provider. The latter service is surely necessary for the provision of the main (primary) service but not in the focus of the end customer who would regard it at secondary. In Figure 25 we described how we distinguish between primary and secondary services in the representation of values flows; the primary value flow leads to the addressee while the secondary value flow is directed towards the primary service that it supports.

Figure 25. Distinction in service provision

The distinction between primary and secondary value flows is essential since it is indicator for the reasonableness of value flows. Generally end customer are only willing to pay for primary services while they take secondary services for granted unless secondary services appear as add-ons that are separately charged to the end customer. In the rental car example no customer would like to separately


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pay for the technical maintenance of their rental car that they would take for granted and provided by the rental car provider. No.

Aspect of Analysis

Rationale

1

General value gain

Each partner that contributes to the provision of a service must partake in the value distribution, i.e., they must gain some value from their contribution. Value flows are generally depicted in blue.

2

General revenue gain

No. 1 ensures that all partners gain some value from the service offering. Some of the values can be non-monetary. At the end of the day, however, each partner must be able to transform nonmonetary values into revenue. Revenues will be depicted in green.

3

Order of service provision

No. 2 ensures that each partner finally gets a share of revenue. However, we must make sure that this revenue flow corresponds to the primary service (or a secondary add-on service). Therefore we have to determine the order (primary, secondary etc.) of services.

4

Core value creation

The value flow analysis primarily focuses on the core (or minimal set) of value creation. We can augment in primary value creation by additional services (and service providers) but these have to be indicated by different colours.

Table 7. Aspects to be checked in a value flow analysis

The individual aspects about the soundness of a value flow network can be obtained from the value diagrams that we will provide in the following. The main aspects of analysis are compiled in Table 7. Since we are interested in the principle sustainability of value flows we will concentrate on the aspects No. 1 – 3 and mainly ignore No. 4 for the time being. In the following we will start with the value flow analysis of the targeted scenarios provided in deliverable D2.1 and investigate what the value flow looks like. At the end of the discussion of the different scenarios we will discuss the results by comparing them to the current situation in telecommunications value networks as we have found them in Chapter 4.

5.1 MCN Scenario Analysis In this section we will apply value flow analysis to the scenarios that we specified as reference scenarios in the Requirements Engineering Deliverable D2.1. The goal is to find out about similarities and differences between the different scenarios but also about opportunities that go beyond the presented designs, which were mainly technologically motivated. In the Cloud-enabled MVNO scenario an airline (Shamrock Airlines) offers special flight tickets for customers who plan to attend a certain sports event. In order to make the offering more attractive Shamrock Airlines plans to offer their customers a particular service for this event which consists of providing local mobile telephone and internet services for the duration of the event. For this purpose they contract a local MNO that provides these temporary services. To be able to do so the local MNO contracts a cloud provider that runs the required telecommunications services. The value flow for this service is depicted in Figure 26. The provided connectivity increases the value of Shamrock Airlines’ offering and should lead to an increase in their revenue. This means that the connectivity is secondary to the flight service that is primary. Part of the revenue stream has to be shared with the connectivity provider. Additional value for the local MNO could be the provision of


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customer data. As deviation from the value flow depicted in Figure 26 Shamrock Airlines could also offer connectivity as a cheap add-on to their ticket so that their customers would make their contract directly with the local MNO. In this case the provision of mobile connection would become a separate service (connected to the flight service) and the revenue stream would go from the end customer to the MNO similar to the contracts that airlines have with rental car providers. Finally the MNO would buy cloud services from a service provider to handle the additional capacity that is required by this cooperation.

Figure 26. VFA for the cloud-enabled MVNO scenario

All partners take part in the value and revenue sharing. The pattern resembles a classical supply chain but the transfer of data from the airline to the MNO might bring along additional value for the latter. The particular relation to the MCN development consists in the fact that the local MNO can only offer this service due to the fact that they can assume that telecommunications services can be virtualised and outsourced to a cloud provider for a limited period of time. The second scenario, the Cloud-optimized MNO Operations scenario, is related to a broadcasting company, which wants to extent the provision of their programme through mobile devices in connection with a particular event – as in the previous example. To realize the event-related mobile provision the broadcasting company works together with a local mobile connectivity provider that possesses the required know-how and business relations to cloud providers. To realise the provision of the requested services the mobile connectivity provider also has to make use of additional cloud services for which they contract a cloud provider. The value flow is similar to that of the previous case. The main partner of the end user is the broadcasting company that enriches its offering by addition of mobiles services. To this end they have to divert part of their revenue to the MNO that again has to share revenue with the cloud provider. As in the previous case mobile connectivity appears as a secondary value to the broadcaster’s primary value to content provision. The general value flow for cloud-optimized MNO provision is depicted in Figure 27.


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Figure 27. VFA for cloud-optimized MNO operations

Both scenarios are quite similar in their business design representing traditional value chains. The main difference between them lies in the extent of cloudified services on which they make demand. This corresponds to the variability in MVNO provision but is further supported by the cloudification of services. A similar schema can also be recognised in the third scenario that describes the mobile data collection of a heating provider. In this scenario each heating device sporadically sends use data to a central data collection unit. An MCN Service Provider enables the mobile data transfer under specific conditions. This scenario is described in Figure 28.

Figure 28. VFA for a machine-to-machine scenario


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The business setting is again rather conventional while the actual challenges can be found on the technology side. However, the scenario shows that mobile connectivity services can essentially support other services even without large data transfer. Moreover, it is just the sporadic data transfer that distinguishes the scenario from ordinary cases. We stop the presentation of the value flow analyses for the scenarios described in D2.1 since also the remaining scenarios (MCN-enabled Digital Signage, End-to-End Mobile Cloud) follow the same schema. The decisive remark regarding these scenarios is, however, that the revenue flow for the mobile connectivity provider that we had found in the analysis of today’s value creation in the telecommunications domain is different from the flows described in this section. There the revenue flow does not come from the service provider but directly from the end user of the respective services. The revenue flow that we have described in the three scenarios above appears to be more reasonable than the revenue stream that would be realized in today’s business setting; here the end customer pays for a secondary service that only supports the provision of the primary service – a distortion compared to the end consumers’ expectations that results in a unbalanced revenue stream as described in Section Error! Reference source not found..

5.2 Value Flow Analyses of MCN Services We performed a second series of preliminary value flow analyses for the main services that have been suggested by the technical work packages. Of course we could not perform such analysis on the basis of real setting but based on the input that we got from the partners we could at least design first sketches of possible value flow settings. These sketches can be understood as initial activities of Step 3 in the BMI Roadmap described before. MCN Service

Description

RANaaS

The RANaaS allows any type of Radio Access Network (RAN), 3GPP and non-3GPP based, to be provided on demand to enterprise end users (EEUs). The goal of the IMSaaS is to develop a platform for offering IMS infrastructures to the EEU on demand, applying the cloud principles. Its innovation is mainly represented by the cloudification and virtualization of the main network entities without changing the related standard. The EPCaaS represents a “cloudified” implementation of 3GPP EPC architecture, which can be provided on demand to enterprise end users (EEUs), by means of the MCN architectural framework described in this deliverable. The ICN/CDNaaS is a combined service that integrates the top features provided by Content Delivery Networks (CDNs) and the concept of Information Centric Networking (ICN) in a single service (features can be disable to have a CDN only service). The set of electronic displays form a network which is centrally managed by a central server. The two key parts of digital signage are on one side the contents and on the other side the technology that supports the entire service. These are provided as a service on demand within the DSSaaS concept.

IMSaaS

EPCaaS

ICN/CDNaaS

DSSaaS

Table 8. The MCN services (also see Deliverable D2.2 Section 4.3)

The most important services for the provision of mobile connectivity through the cloud have been identified as the Radio Access Network (RAN) service and the Evolved Package Core (EPC) services. Both mutually depend on each other and are combined under the umbrella of today’s Copyright  MobileCloud Networking Consortium 2012-2015

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telecommunication providers. In addition to these services we also examined several other central services that played a central role in the scenarios determined in Deliverable D2.1. They also correspond to the main services that are described in Deliverable D2.2. A compilation of these main services in provided in Table 8. Regarding the specific capacities the RAN service mainly depends on a localized infrastructure while the EPC service is generally non-localized. While the RAN service enables the physical accessibility to the mobile network, in the form of wireless access equipment, the EPC yields the computational capacity required to run the mobile network. Its main purpose poses the appropriate handling of incoming packets from either direction. In comparison to the business situation in the past the actual mobile connectivity only plays a secondary role compared to the main service provision. The general interplay between RAN / EPC service and (application) service providers is depicted in Figure 29. The figure shows that in general we have a triple service dependency: the application service is primary (to the end user), the mobile connectivity is secondary while finally the RAN service is tertiary. This interplay corresponds to the variability in the interaction of MVNOs and MNOs described in Section 4.3. Besides this variability Figure 29 shows that the revenue is simply cascaded from service provider to service provider according to the order of service. In addition to the values directly related to service provision and corresponding revenue there are also hidden value flows that consist in the customer data that the RAN / EPC service providers obtain from end users and application providers due to their service offerings. This access to these datasets that are across all application service providers is a value reservoir that has not yet been fully exploited in the past but is becoming more and more important in the course of growing capabilities of business analytics (see Section 3.4.4). This trend can be further fostered by the consequent introduction of Analytics as a service, which might not only support the operational aspects of service provision in a distributed environment but also the exploitation of the high amount of data that are available.

Figure 29. VFA for a cluster of mobile service providers


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The consequent operation of the service landscape intended by the MCN project with flexible inclusion of additional services such as EPC or RAN requires that the respective service are transparently available on a suitable market. Another MCN service, which is highly interconnected to the RAN and the EPC services, is the IMSaaS (see Deliverable D2.2 Section 4.3). It completes the service landscape for the basic mobile networking functionality presenting the application layer connectivity framework, which lies on top of the EPC, and enables additional application services. The cloudification of this service is a logical step towards the provision of the desired levels of efficiency, flexibility and scalability. These aspects seem to mark the only increase in value for all parties that directly rely on certain core functionalities and might benefit from additional control over particular properties of the network core, like the Home Subscriber Server HSS, which represents the network entity that stores user and subscription data within a database for authorisation purposes. Each conceptualized MCN service depicts a special network of value flows with more or less changes with respect to the respective market situation. As previously stated the RANaaS marks a vital entity to the MCN concept as it tries to separate a previously internal business process into a stand-alone RAN service that can be individually commercialized. This separation allows for a new type of interrelationship and business model. While the goal of previous market systems was providing connectivity only, now a service provider can offer any service in combination the connectivity services to be developed. In such combination the service and the necessary access channel bring more value to customers as they do not need to care about contracting with suitable mobile operators. A total amount of fees is charged towards the end user for the complete service provision so that the end user is not concerned with appropriate connectivity contracts needed to be able to actually use a service. The value for a customer of a specific service is increased. We can say that the value flows between the actual market entities are highly important for this concept. Through economies of scale and even more through economies of scope a RANaaS provider profits from lower costs compared to individual RAN solutions of mobile operators. Maintenance efforts can be provided more efficiently, while the potential to decrease redundancies is higher. Because of the reliance of RAN on an EPC to obtain the actual connectivity to other networks and channels, the operation of RAN services will mostly go in hand with other EPC services. A service provider, on the other hand, is initially confronted with higher costs, as charges, which the end users have directly paid to a mobile operator, are now shifted to the service providers. These providers are now in the position to make their own demands on service quality and availability. Data intensive services, like audio or video streaming, that have been discriminated through limited data contracts or service availability are now able to close that gap towards many of their potential customers and offer a solid package without any uncontrollable third-party dependency such as special prioritisation by carriers. To some extent this problem within the current markets is tackled by special contracts between service providers and mobile operators. Such partnerships create higher value for certain customer groups and also bear the potential for exclusive contracts, decreasing the amount of available customers for a service provider simply by excluding mobile users of other carriers’ networks.


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Figure 30. RANaaS VFA

Figure 30 shows a specific view of the value flow of the RANaaS; however, we have to keep in mind that we cannot separate it from the EPC service, as mentioned above. From the interviews that we conducted it resulted that the IMSaaS plays a comparable role to the EPCaaS. Therefore we decided to omit an additional IMSaaS VFA. However, when it should become clear that there are essential differences in the value flows of both services we can add this specific IMS VFA. Another projected service is called DSSaaS (Digital Signage as a Service). The principle value of the DSS service is the easier deployment of a DS (Digital Signage) network than it is possible today. In this respect DSS is one of the example of services that can profit from the mobile cloud infrastructure. Today such deployment depends on the access of the players to the internet, which is usually different for any location, which makes the deployment rather costly. With a mobile solution the deployment would become more independent of the particular location and setting. We can describe the fundamentals of the DSS value flow as follows. Attracted by the content provided by the DSS (e.g., by commercials), the end user (customer) is motivated to purchase a service or good. Part of the revenue from this purchase has been transferred to the Content Provider (e.g., for broadcasting commercials). In order to broadcast the content the Content Provider requires DSS services that include hardware (e.g., players and displays) and software (e.g., management software). These are provided (sold or rented) by the DSS Provider. For this purpose the DSS Provider requires a reliable and appropriate connectivity between the content server and the players, which is provided by a Connectivity Provider. The latter again could be comprised of a value flow system based on EPCaaS and RANaaS concepts, which can provide the necessary flexibility and reliability that is desirable for this DSS service. An overview of the DSS value flow is given in Figure 31.


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Figure 31. DSSaaS VFA

A closely related service projected in the MCN project is the ICN/CDNaaS. It combines the benefits of two concepts, Information-centric Networking and Content Delivery Network. The former introduces a novel kind of networking paradigm to support constellations where information is generated at one point and distributed as a copy to a big amount of distributed clients (e.g., multimedia content); this brings advantages over legacy host-based networking concepts. In addition, a selfmanaging storage and delivery method (CDN) can increase efficiency in information distribution by utilizing caches and smart content identification systems. The ICN-/CDNaaS offers new possibilities for Content Providers allowing them to efficiently utilise existing infrastructure and resources, as well as optimizing network use. This increases the value for Content Providers directly who seek reliable and appropriate content distribution, as discussed earlier. Looking at specific content types, for example, content created for DSS, the advantages for the DSS Provider, and consequently the Content Provider, who uses the DSS to distribute advertisement, becomes clear. When better QoS (e.g., for DSS content) can be ensured, higher quality advertisement (e.g., HD video commercials) can be delivered. This subsequently increases the revenue for the Content Providers attracting more customers through that channel. The very nature of DSS content, being created once and distributed as copies to a possibly huge number of clients (DSS players), allows it to highly benefit by the ICN/CDN capabilities. The general value flow that results from an ICN/CDN extension of the DSS scenario is described in Figure 32.


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The utilization of such a service by the Connectivity Provider does initially impose higher costs in the form of fees that have to be paid. At the same time, though, the Connectivity Provider can benefit from savings by the optimized data flow or create higher value for its customers, the Content Providers. Furthermore, the end users benefit from better QoS when content services are used and more valuable DS services are offered.

Figure 32. Extended ICN/CDNaaS VFA in combination with DSSaaS


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6 Summary and Outlook In the present report we continued the work, which had been reported in deliverable D2.1. It has been the aim to realise a smooth transition although the focus has been shifted. While D2.1 focussed at technical and business research, the second phase has been characterised by a split into more technical aspects (D2.2) and more business-related investigations herein. Nevertheless it is the aim to ensure a continuous exchange between technical and business tasks. In Chapter 5 we have referred to the scenarios described in D2.1 but have subjected them to value flow analysis instead of a technical consideration. Here the aim has been to gain a better understanding of the implications of the intended servitization and cloudification. However, the market analysis that we performed in Chapter 0 has also shown that the telecommunications sector is in a fundamental change. Old business models appear to be insufficient to ensure a sustainable development in this domain. New technologies have brought about new offerings for customers from which the sector does not yet sufficiently profit. At the same time we also observe fundamental changes in other business areas, which are mainly related to the new opportunities of the information society realised through the internet. Telecommunications technology enables the mobile consumption of these new opportunities but has not yet become an integrated part of it with respect to its business models. Therefore the development of new technologies must not be misunderstood as an attempt to exclusively increase the profitability of current business models in this domain without addressing the fundamental challenges that we described in Chapter 0. Therefore the role of task T2.2 in the project cannot be to simply adapt existing business models and the technical components that support their realisation but the role is definitely to fathom new perspectives that might come with the development of these new technologies. In this sense task T2.2 must go beyond the short-term goal of supplying technical work packages with useful information about the business aspects of new services. It is rather the aim to use the novel service architecture to think about principle new opportunities. The way that we envision to achieve this goal has been sketched in Chapter Error! Reference source not found.. Here we have to keep in mind that we are aiming at a challenging research goal since most approaches towards business model innovation today aim at individual companies but not at entire industry sectors. This will require a refinement of the existing approaches and explains why we did not become too detailed in the description of the business model innovation roadmap. These details are the subject of research to come and will be based on existing approaches but will definitely require additional research effort. Regarding today’s business developments, in particular with respect to the internet and e-business, and taking the opportunities of a consequent servitization into account, it appears as most promising to consider the development of business networks. The development of multi-sided business models, in which different parties jointly create added value beyond traditional supply changes, blazes the trail towards new economic perspective. Here we can recognize two different strategies: those that develop these novel opportunities on top of existing business models – for example, in this way the Amazon.com marketplace, which originally was an online bookstore only, has become a complex system where customers are deeply involved in the offering of goods and add considerable value – and those that develop completely new networks since traditional models have not been successful at all – one might see Google in this category since paid search services have never been really successful and it was only the complex innovative interaction of Google, advertisers and end users that brought success. In any case it is necessary to investigate today’s business networks in the telecommunications


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domain to get a starting point for such an endeavour. This analysis has mainly been performed in Chapter 4 and was supplemented by the work in Chapter 5. It is particularly the interplay of MNOs and MVNOs that shows in which direction such development could go. However, it might be too limited to restrict the investigation to the provisioning of connectivity only. To go beyond the traditional realm of business it seems to be promising to investigate possible synergies between connectivity and other service providers. One aspect that becomes interesting in this respect is the use of customer data leveraged by novel data analytics tools. We can observe similar developments in other domains and Google’s approach is only one example how companies can profit from the use of customer data. Telecommunication companies have huge amounts of customer data at their disposal and this could enable them to develop alternative business models; a service-orientation might attract services developers to design new services compositions on novel platforms. This will require research in possible network constellation as described in Chapter Error! Reference source not found.. According to this vision we will concentrate on the investigation of telecommunications-related business networks and investigate to which extent approaches from other domains can be transferred to this domain. This is not straightforward since mobile connectivity is not as such a sophisticated service that has to be enriched in various ways to become marketable. This poses a particular challenge since we have to leave beaten tracks and look into new directions. This becomes obvious in Step 3 of the roadmap that consists of the exploration of various opportunities. However, it is to be remarked that the described results have to be effectively understood as work-inprogress. In Chapter 2 we had already discussed the overall roadmap of Task T2.2 that will guide the subsequent work in in this task. According to the described the current analysis phased will be continued by an ideation phase, in which the opportunities for new business models are to be fathomed in collaboration with the other partners.


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