> Executive Briefing

Dr. Markus Steingröver Jürgen Richter

Markus.Steingröver@detecon.com Juergen.Richter@detecon.com

Enabling Services
New Revenue Potentials
for Telecommunications
Wholesale
The traditional telco model is under threat. Even the wholesale
success story of the last years is mitigating due to declining
interconnection revenues and falling margins for DSL resale.
Innovative services are needed to replace diminishing wholesale
revenues. In order to sustain wholesale revenue growth rates leading
network operators actively focus on existing capabilities in their value
chain instead of passively waiting for the next technology wave.

These capabilities are currently reduced to supporting elements in the

production process of retail services. Exploiting these capabilities can
however unleash a substantial revenue potential by offering them as
separate or bundled enabling services to wholesale clients. The
wholesale customer will benefit from tailor-made solutions based on a
modular system that enable him to create new sophisticated and
targeted products. The wholesale operator will profit from reduced
churn and attracted new customers.

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 Enabling Services
Enabling Services – New Revenue Potentials for Telecommunications Wholesale

> Executive Briefing

Status quo and challenges for the wholesale business

After comfortable years for European incumbents’ wholesale units in which revenue growth
rates and EBITDAs were higher than those of the corresponding retail branches the national
wholesale story is losing momentum.

The interconnection business is declining due to increasing direct network

interconnection between competitors, price reductions for interconnection and loss of call-by-
call and preselection minutes. Price cuts for subscriber lines and DSL resale products are
also having negative impacts.

In addition the NGN ante portas bears a high level of uncertainty for the further
development of the wholesale business.

It becomes obvious that telcos have to transform their current business model if they
want to survive. The following options exist:
Q The telcos reinvent themselves as retail driven infotainment supermarkets acting as
distributor for the majority of consumer and business communications, information and
entertainment needs.
Q The telco acts as a communications wholesaler, providing infrastructure and
commodity services to service providers who in turn deliver information and
entertainment to consumers and retailers. This infrastructure could include enabling
services, such as authentication, authorization and billing and a service delivery
infrastructure that insulates the applications and services from the specifics of the
network.

Today most telcos still follow the rule “Wholesale follows Retail” and show a tendency to
migrate to the first of the above sketched models. A success is however not guaranteed.
Telefonica’s dream to become an infotainment supermarket started with the acquisition
of the entertainment production company Endemol in the year 2000. After gaining the
perception that the mere diversification into the entertainment production industry does not
compulsorily lead to synergies and would finally enhance the USP of a telco, Telefonica
found it more promising to become an aggregator and a bit pipe carrier and sold Endemol in
2007.

An aggregator does not have to be involved in the creation of content but he rather has to
focus on the sourcing and packaging of the content, i.e. content location, rendering, billing,
advertisement placement and customer care.

An example for a telco defining itself in the direction of a communications wholesaler is

British Telecom. After undergoing the regulatory-driven ‘structural separation’ and having
the ‘21C NGN’ near to completion BT Openreach is at the forefront of the innovative
wholesale service providers. BT’s wholesale enabling services cover such diverse areas as
platform and hotspots, authentification and security, billing and related functions as well as
customer premises equipment. Moreover, BT even offers ‘Personal Services’ such as IT
support manager and HR within their enabling services portfolio.

Detecon International GmbH z 01/2008 2 www.detecon.com

 Enabling Services
Enabling Services – New Revenue Potentials for Telecommunications Wholesale

> Executive Briefing

More general view on enabling services

The examination of the value chain beyond platform-centric services reveals several
approaches to establish wholesale business. The following figure shows the different
elements of a telecommunications value chain including the corresponding enabling
services.

Examples for Enabling Services along the Value Chain

1 2 3 4 5 6 7 8 9

Management
Switching

Intelligent

Marketing
Transport

Services

Provider
devices

& Sales
Service

Service
Control

Access
Access

Added

Billing
Value
End

1 2 3 4 5
Q Voice and video Q (Proxy) RADIUS Q VPN Q Switching of Q Typical IN
telephony Q Support for Q SLA imple- multi-media services
Q Personalization emergency mentation sessions instead Q MM Mail Box
services Q IP multicast
of voice-only Q Identity
Q Digital Rights
support by IP sessions
Management Q QoS-functions Q Location
routers (for IPTV) Q Session control information

6 7
Q Service creation
platforms
Q IN platforms
Q Policy control
Q Single sign on
Q Directory functions
8 9
Q Interconnection, Q Ready-to-use Q Flexible pricing
ENUM platforms, and billing models
Q Mobile / fixed e.g. order mana- Q Prepaid
number portabilitiy gement systems,
Q Firewall / Viruswall
contract server

Fig. 1: Enabling services along the value chain

Within the variety of enabling services ‘location information’ is worth looking at in greater
detail, since it is one of the enabling services with the most promising revenue potential.
Q In the case that the network owner possesses a ‘Loc Info Brokerage’ platform the
enabling service ‘location information’ can be used to address the market for
‘Location Based Services’.
Q The ‘location information’ regarding mobile devices or fixed DSL CPEs can be forwarded
to an application provider or an advertiser transforming the ‘location information’ e.g
into a ‘traffic measurement’ application or a ‘buddy-finder’.
Q By offering additional enabling services like data protection service or micro payment
service a client can tailor an enabling service bundle to his preference.

Detecon International GmbH z 01/2008 3 www.detecon.com

 Enabling Services
Enabling Services – New Revenue Potentials for Telecommunications Wholesale

> Executive Briefing

In the following examples of enabling services offered by telco wholesale innovation

leaders are presented.

Web Services (British Telecom) Portal (NTT)

Web21C SDK: Web portal site:

Set of libraries allowing application developers Information portal site providing a broad range
to use Web Services such as of content via the Internet based on a high
Q send SMS messages, place phone calls and speed content platform
control conf. calls from their applications
Q develop voice-enabled applications &
services

Authentication (British Telecom) Hosting (Korea Telecom)

“URU” (You are you): Internet data center:

Automated online identity verification service
embedded in client's existing online registration
systems providing identity authentication
hosting the computing systems of content
providers and enterprise customers for Web-
based data delivery. In addition, supply of a
variety of other services such as messaging
and call center

Fig. 2: Enabling services of wholesale innovation leaders

Modular system based Wholesale Model

Enabling services will take off at the latest when the transformation to NGN is completed. In
an NGN the platform owner will provide a portfolio of service elements based on a ‘Service
Oriented Architecture’.

Service elements could for example be voice signaling, QoS-transport or network information
like presence or identity. These service elements will then be offered against payment via a
web-based partner portal to the own retail unit or external ISPs or vISP. These customers
can now combine service elements with their own services in order to generate new
offerings. This will result in an ecosystem of innovative companies building their own
services around the incumbent’s platform features. With the opening up of platform
functionalities the incumbent can thus benefit from the innovation power and
flexibilities of third parties and finally participate in the service revenues of these
innovative companies.

Detecon International GmbH z 01/2008 4 www.detecon.com

 Recommendation
Enabling Services – New Revenue Potentials for Telecommunications Wholesale

> Executive Briefing

Conclusion & Recommendation

Wholesale operators need to do two things in order to successfully cope with the
transformation in the wholesale markets and associated declining wholesale revenues:

1. Explore enabling services as a new and innovative source of wholesale

revenues as they promise to exploit the existing value chain more comprehensively
and effectively! Wholesale operators should analyze the entire set of enabling
services which could be offered and concentrate on those with promising revenue
potentials. The assessment should include the possible impact of the migration to
NGN.

2. Enabling services should be offered in a lean and modular system. In

accordance with the general Web 2.0 trend, enabling services should be offered as
modular systems. This enables wholesale customers to choose from a variety of
wholesale platform functions in order to build their own new and innovative retail
services.

Detecon International GmbH z 01/2008 5 www.detecon.com