Future Telco 2014 en

Knowledge@Detecon
DETECON
Consulting
Knowledge@Detecon
Future Telco
Profitability in Telecommunications:
Seven Levers Securing the Future
The growth in data transmission traffic is unstoppable, the

revenue per user is declining. Carriers have no choice but
to modernize their network infrastructures and create new
capacities. This will not be possible unless lawmakers c reate
a regulatory framework which enables telcos to develop
new sources of revenue. Ultimately, only integrated carriers
offering attractive services they have organized themselves
and in partnerships to their customers will be successful in the

competition for end customers.
Consulting
DETECON
Future Telco
Detecon Experts have identified seven levers to support

carriers: modern network concepts, integrated deployment
of network capacities, innovation, partnering, wholesale, a

differentiated market approach and agile processes and IT.
Consulting
DETECON
Knowledge@Detecon
Future Telco
Consulting
DETECON
Copyright by Detecon International GmbH

Cologne 2014
www.detecon.com
Knowledge@Detecon
Future Telco
Content
Foreword
Challenging Future
01. Network is King!

2. Interview: The Capital Market Perspective

on Challenges Facing the Telecommunications Industry
26
Modern Network Concepts

03. Future Network Architectures
34
4. Interview: At the Forefront: Network

Expansion Oriented to Customers and Needs
50
5. Virtualization Is Transforming the Telecommunications Industry

6. Interview: The Network Must Take Over
the Intelligent Management of Data Traffic.
56
72
Integrated Deployment of Network Capacities

7. Future Broadband Communication Between
Wishful Thinking and Reality
8. Interview: How Is SaskTel Preparing for the Future
78
94
9. New Network Strategies Keep Telecommunications Business Profitable 100

10. An Effective Approach to Successful Integrated Planning of the Future 114
Detecon International GmbH
Knowledge@Detecon
Focused Innovation
11. Innovation The Future of Telecommunication
128
12. Interview: The Importance of Innovation Can Not Be Overestimated 144
Enforcement Partnering
13. Successful Partnering Generates New Growth
148
14. Interview: Partnering as Strategic Growth Weapon
160
Empowerment Wholesale
15. Managed Services Are Entering the Stage of Maturity
Results of a Survey
164
16. Wholesale Under Pressure and with New Chances
174
17. Regionalization of the Markets Challenges
188
National Wholesale and Retail Operators
Differentiated Market Approach

18. What Will Be Required from Future ICT Providers from
the Swisscom Perspective
200
19. Transformation to Value Orientation

in Marketing Performance Management
208
20. Interview: Successful Long-term Positioning on the

Competitive Telecommunications Services Market
224
Future Telco
21. Marketing and Sales: Total Turnaround
230
22. Interview: Brand Strategy Is More Important than Ever Before

in Telecommunications
244
23. Winning Hearts and Minds Loyalizing Customers

through a Convincing Customer Experience
250
24. Interview: Employee Pride Is an Important Element

of Customer Experience
264
25. Customer Self-Services: Efficiency and Customer Loyalty

in the Age of Digital Transformation

270
26. Customer Self-Services: IT Architecture as Enabler

for Digital Self-Service
286
27. From Telecommunications Company to Process Factory
298
Outlook
312
The Authors
316
About Detecon International GmbH
320
Agile Processes and IT
Knowledge@Detecon
Future Telco
Foreword
Neither the strongest nor the most intelligent survive, but the ones who can best
adapt to change. Darwins insights into the evolution of species (freely interpreted)
can be applied with astonishing accuracy to the telecommunications industry as
well: markets change and force all companies to review their structures, products,
and business models and adapt them to new conditions. This is by no means a
simple process and must be repeated constantly because in our fast-paced world of
today transformation has become a constant.We see this in a positive light. Change
is the driving force behind progress and always offers opportunities as well. Telecommunications companies should welcome transformation and boldly take charge of shaping and advancing it. Detecon International has defined seven fields of
action which open up new opportunities for companies. They begin with modern
network concepts which can be used to exploit to the full the possibilities created by
digitalization. Network capacities must be expanded while simultaneously securing
their integration. Fixed and mobile networks belong together.
Companies should strive to incorporate more agility in their processes and IT systems,
which will enable them to respond faster to changes in customer requirements and
market conditions. Everyone involved in value creation must focus on innovation.
New technologies, new products, and new services pave the way for penetrating new
markets. As they set out in new directions, telecommunications companies will work
together with partners and develop business fields that could not be any further
from their thoughts at this time. Alliances and networks allow the sharing of risks,
faster research, more specific advertising, and the realization of business models
which would be out of reach for companies going it alone.
There are revenue sources in the wholesale business just waiting to be developed in
full. A strong infrastructure can serve as more than merely a unique selling proposition in the competition for end customers. It can also be used for business models
founded on optimized utilization of network capacities and offering various levels
of quality. In the future, retail business will differentiate market segments in g reater
detail. Factors such as variances in the capabilities of network infrastructures from one
region to the next, varying intensity of competition between regions, and of course
the differences in willingness to pay and preference structures of end c ustomers must
be given consideration. Companies which take the right factors into consideration
will be successful on every market and in every segment.
Shaping the markets of tomorrow will be the privilege of those firms which take on
these exciting tasks today. I hope you enjoy reading these articles; may they inspire
you with many new ideas.
Best regards,
Francis Deprez, CEO Detecon International GmbH
Challenging Future
Network is King!
Dr. Peter Krssel
> Handling the growth in network traffic is
becoming the key task for Carriers.
> Only integrated heavy asset carriers will
have a chance of surviving. Companies which
do business exclusively as mobile network
operators have come to a dead end.
> Seven levers for each value-added stages can
support carriers in securing their profitability
long-term.
> These plans position the companies as a
key director of digital value creation, and
a driver of digital transformation
in business and society.
Network is King!
Keen Competition Among Carriers and OTTs

Breathtaking growth in network traffic will drastically change the telecommunications industry. The effect on the network operator landscape is especially
forceful in its impact. One might be tempted to say that this development is
a consequence of the success of Internet-based service providers. At the service
level, carriers are finding themselves in increasingly stiff competition with the
Internet-based service providers, the so-called over-the-top (OTT) players.
Some of these players are large corporations active worldwide such as Google,
Microsoft, Facebook, Amazon, Samsung, or Apple. They have been highly
successful in realizing immense growth in revenues by offering attractive end

devices and the matching ecosystem in terms of operating systems, services, and
apps, bypassing telecommunications companies and directly establishing stable
customer relationships as well as billing models. Although sales figures are comparable, the profit margin situation and market capitalization of some of these
companies exceed the values posted by carriers many times over. Amazon is a
prominent exception; the company is obviously pursuing a strategy of u
nrelenting
market expansion at the expense of the margin. A bewildering number of smaller,
specialist OTT service providers such as Dropbox, Spotify, Deezer, LinkedIn,
Napster, Gameloft, WhatsApp, Twitter, Zattoo, or Flickr are operating in the
shadow of the large OTT providers. Within a relatively short period of time,
they have successfully managed to position themselves worldwide in the niches
gaming, on-demand and streaming music services, films, business networks,
news, cloud-based document management, messaging, or photos. In contrast
to telecommunications companies, they offer services which scale worldwide
and can consequently realize equally economies of scope and scale. Attempts by
carriers to accelerate to match the pace of these innovations have shown limited
success. Their offers derived from their fundamental core business or the result
of the spin-off of startups, from independent innovation units, or in cooperation
with other carriers tend to be reactive in nature and frequently come too late.
Nevertheless, OTTs and end device manufacturers are also operating in a highrisk environment which is extremely fast-lived. Focusing on only a few products
or services creates dependencies, and the effects are both immediate and negative
if an important end device generation flops or if important trends in operating
systems, usability, or usage habits slip past unnoticed. The similar development
of companies which differ so widely from one another like BlackBerry, Nokia,
Motorola, Myspace, or Zynga is a vivid case in point.
Challenging Future
The relationship of the carriers to these competitors is ambivalent. On the one

hand, they have caused broadband connectivity the carriers core business to
skyrocket. The demand for broadband connectivity on both fixed and mobile
networks has in effect risen so drastically because of the attractive end devices and
the corresponding services.
But the other side of the coin is that the OTTs are contributing to the problem
of the networks reaching the limits of their capacities faster, making substantial
investments in capacity expansion necessary and these expenditures fall s quarely
on the shoulders of the carriers alone.
In view of the keen competition among classic telecommunications companies
and cable television operators (where the price is the primary weapon) and the
dominance of pricing schemes oriented to flat rates which in the fixed networks
at least is now firmly established, financing the investments by raising the prices
for the connectivity services on this market is certainly difficult, perhaps even
impossible.
Moreover, end device and OTT players are invading the realms originally ruled
by the telecommunications companies such as text messaging and voice services
in ever greater numbers. In addition, there are additional openings for attack
from the exploitation of the potential inherent in technologies such as eSIM or
in open standards for real-time communication (VoIP, chat, video telephony)
such as WebRTC now in the final stages of standardization. These factors are
putting even more downward pressure on the earnings of telecommunications
companies.
Growth in traffic is becoming a key task
The main driver for the forecasted change in the carrier landscape is the exponential rise in traffic volume. We currently generate as much traffic in two days
as in all of the year 2003. Analysys Mason predicts that data traffic in worldwide
mobile networks will increase by a factor of 17 between 2012 and 2018.1
The causes are rooted in various developments.2 The number of tablet PCs and
smartphones with display resolutions which are frequently higher than those of
HD television sets regularly available in retail trade has grown steadily in recent
years. The landscape for services and apps has truly experienced a big bang
1
2

10
Cf. Analysys Mason, Wireless Network Traffic Worldwide: Forecasts and Analysis 20132018.
Cf. Petry/Schnitter/Salisbury, Operators Caught Between Scylla and Charybdis How Much Differentiation
Potential Does the Performance Capability of the Networks Really Offer?, DMR 2/2010.
Network is King!
thanks to the enthusiasm for innovations on the part of the OTT players. These
two factors, coupled with the expansion of the broadband infrastructures for
fixed networks, the 3G and 4G hub in mobile networks, and the flat rates being
offered by operators, influence the usage habits of customers because opportunity
generates demand.
The effects produced by the new services, some of which are still in their
infancy (M2M, cloud services, virtualization of end device functions, and the
digitalization of entire branches of industry think of Industry 4.0 and of
peoples private lives), have not yet made much of a splash. It must be emphasized
that these influencing factors are by and large independent of one another. We
assume there is an exponential rather than additive cumulation leading to the
overall effect. So there is no reason to expect an end to the exorbitant growth in
traffic. The fundamental challenge for the carriers will initially be on the side of
the infrastructure.
Carriers face the extraordinary difficulty to be forced to handle the growing
traffic economically with to be upgraded networks by investing enormous
financial resources, even though at this time corporate revenue are tending in the
downward direction or, at best, stagnating.
On the revenue side, the options open to carriers are essentially to increase prices
for current services or to develop new sources of income from innovative services
and new customers. The primary task on the side of costs and investments is the
expansion and efficient operation of modern, powerful network infrastructures
oriented to earnings potential.
Regulatory framework from the political side is lacking
If carriers want to secure their profitability, they must have an important
prerequisite: a regulatory framework offering investment security and sufficient
incentive for decisions in the face of risk.
The political establishment in Europe has in the last few years set forth its demands on carriers with the intent of securing a functioning broadband infrastructure. But support, whether in the form of monetary aid or the creation of
regulatory framework conditions, has generally been noticeable for its absence,
or the proposed concepts have been too tentative. However, there have very
recently been indications of a hesitant change of heart. It results first and
foremost from recognition of the fact that a high-performance t elecommunications
infrastructure is a major competitive factor for industries. Europe has fallen
11
Challenging Future
behind in the competitive race among the regions of the world. Comparative
statistics of broadband expansion in Europe, Asia, and the USA reveal just how
clearly Europe now lags behind in fixed network and even in mobile services. The
coverage rate of the 4G standard in the USA is three to four times greater than
in Europe. South Korea is a prime example of an FTTH infrastructure which is
more or less full-area coverage and has completely run away from the Europeans.
Regulatory rulings such as the vectoring decision of the Federal Network Agency
in Germany, recent access decisions for the last mile of some national regulatory
authorities, and the initiative of the EU Commissioner Neelie Kroes, responsible
for the European Digital Agenda and author of a new draft for a regulatory
package with an eye on the single European telecommunications market,
are h
eaded in the right direction. While it is true that the initiative aimed at
eliminating roaming fees within the EU by 2016 will wipe out yet another
substantial source of income volume for carriers from the market, a path is also
being mapped out which could allow operators, under certain conditions, to
assign priorities to the handling of services from other providers based on the
payment of monetary charges. This will offer opportunities for better financing
of the required network expansion and force OTT players to contribute to the
financing of the networks.
In the end, the signals being sent out by the regulatory side in Europe are highly
disparate, as was once again demonstrated during the most recent auction of
mobile frequency licenses in Austria. The three mobile network companies
bidding for the frequencies here had to pay really high amounts in excess of two
billion euros.
The network factor: integrated heavy assets as first choice
What does the business model for telecommunications companies which will
be successful in the future look like? The possibilities range from a strict bit pipe
model to a full-service provider. Which model is ultimately most promising is a
question of three factors in particular: the infrastructural base of the fixed and
mobile network, the competitive position on the end customer market, and the
ability to manage partnerships successfully. But the consequences are of even
greater scope.
The challenge traffic growth and the need for seamless connectivity across
all infrastructures and the most highly diversified access technologies will force
carriers to build an infrastructure which is increasingly finely meshed and truly
integrated. Carriers with a granular fixed network of full-area coverage and a
12
Network is King!
matching mobile network infrastructure will clearly be at an advantage in comparison with single-business mobile network companies.
Resources at the air interface are proving to be limited. The available spectrum
will be exhausted in the foreseeable future, even refarming will not be sufficient,
and innovative technologies such as MIMO (multiple input, multiple output)
and AAS (adaptive antenna systems) cannot promise to do more than gain a little
time. Sooner or later, mobile network corporations will be forced to make the
cells smaller and smaller.3 The bottom line is that the number of cells which must
be created, maintained, connected to the core network (backhaul), and integrated into network management will increase substantially. At this time, the four
mobile network companies in Germany operate perhaps 80,000 macrocells. In
the middle term, this figure will increase by a factor of 5 at the very least. In addition to these small cells, end customers will utilize indoor cells (WiFi offloading,
femtocells) at their locations.
Not every mobile network company will be able to afford this. In fact, considering the immense investment requirements and the necessity to connect this
large number of additional cells to the core network, the fundamental question
arises as to whether single-business mobile network companies are even capable
of survival at all. Two options, dependent on parameters such as competitive
position and infrastructural base, are moving to the forefront: either doing
without an exclusive mobile network and divesting the network (sale and lease
back), taking advantage of managed service from a third party and, as a kind of
reseller, operating as a service provider or virtual network operator (MVNO) on
the market; or stepping out in the other direction and building up or acquiring
a fixed network. However, a project of this type would presumably be difficult
to carry out on mature markets because suitable options cannot be developed in
every country.
If neither of these options can be realized, or can be realized only under difficult
conditions, there is no choice other than the exit option. We can already observe
movement in this direction on the market, prominently exemplified by Vodafone. The company has divested its mobile network holding in the USA and
acquired the cable television operator KDG in Germany.
Traffic growth will be the prominent driver of consolidation on the market. Size,
volume (scaling effects, cost leadership), and utilization of network capacity
which can be monetized will be decisive for survival on the market.
3
Cf. Petry, Future Broadband Communication, p. 78 pp. in this volume.

13
Challenging Future
This is why only integrated carriers (heavy assets) will have a chance of surviving.
Companies which do business exclusively as mobile network operators have
come to a dead end. They are left with essentially three options:
> Development in the direction of an integrated carrier by acquisition or
creation of a fixed network (heavy asset)
> Positioning as an MVNO/reseller/service provider (Light Asset)
> Exit.
The priorities for a light-asset approach, an OPEX-dominated business model,
focus less on the refinancing of the networks and more on achieving the g reatest
possible spread between the costs for the purchased wholesale services and the
retail prices which can be realized on the market in conjunction with OTT
partnerships.
If the alternative of the heavy asset approach is chosen, the previously defined
question about the business model must be answered. In contrast to the light
asset model, the heavy asset model is CAPEX-dominated and requires b usiness
logic oriented to the long term. The networks are at the hub of all business
decisions. The necessary investments must be justified by the achievable revenues
and profit and/or be refinanced as quickly as possible (monetarization of the
networks). Primary focus is on improving efficiency in the allocation of CAPEX
and OPEX for the networks, the full utilization of network capacities, and the
increase in revenues.
Efficiency of the networks
Modernization heightens network efficiency
Modern network concepts enable an increase in network efficiency. Virtually all
carriers have taken a step in the direction of IP and are in the process of rigorously
shutting down legacy systems and heterogeneous, service-specific production
platforms which have developed over the course of time and of implementing
IP technology. More advanced steps toward centralization of intelligence in the
network, virtualization of network functions, reduction of active components
and locations in the network, strict application of IT principles to the classic
telecommunications products such as software-defined networks, and, finally,
automation are in the planning stages and undergoing feasibility tests; in a few
cases, some of these steps are already being implemented.4
Concepts of this nature do more than simply reduce CAPEX and, above all,
OPEX; they accelerate and flexibilize innovation, product development, provision
14
Network is King!
and billing of services, and the integration of external partners. In other words,
they create the key prerequisite for the sustained monetarization of the networks
and pave the way for marketing departments to realize innovative p
roduct ideas
and price models, either alone or in collaboration with partners on the market.
Moreover, they reduce dependencies on network component manufacturers and
create maneuvering room in dealings with OTT players.
They are of transformational significance for carriers and implicitly entail precisely
such structural, cultural, and procedural changes. Examples include the closer interaction of the process landscapes of IT, technology, and product development
departments (which are usually strictly separated in organizational structures and
lack adequate harmonization of processes) and partnering capability.
Expansion of network capacities by means of small cells and hetnets
The largest investment items are related to the increase in network capacity
either through the more efficient utilization of existing resources or by the generation or acquisition of additional resources. In the fixed network segment, there
will ultimately be no other choice than to expand the optical fiber infrastructure
in the various FTTx variants such as fiber to the building (FTTB), fiber to the
curb (FTTC), or fiber to the distribution point (FTTDP). This is an u
ndertaking
demanding extremely high investments because it is usually necessary to do
civil and underground work when laying the cable. Enormous investment sums
ranging as high as 93.8 billion, depending on the scope of the estimates and the
planned technology, have been projected for the FTTH expansion in Germany
to achieve full-area coverage.5
The mobile networks have the choice of increasing either the spectral efficiency
of the radio access technologies or the spatial reutilization of the spectrum in
cellular mobile radio systems. This ultimately means a reduction in cell sizes and
an increase in the number of cells.6
The optimization of the spectral efficiency by means of methods such as smart
antennas and MIMO as well as the utilization of higher modulation frequencies
and improved channel coding are the technologies now in use. But they will not
be sufficient to cover the rising demand or to assure viability of certain a pplication
4

5
6

Cf. Schnitter/Bornhauser, Future Network Architectures, p. 34 pp.;

Gonsa/Chrestin/Reith, Virtualization, p. 56 pp. in this volume.
Cf. Study on behalf of the German Federal Ministry of Economics and Technology (BMWi), August 2013, p. 8.
Cf. Petry, Future Broadband Communication, p. 78 pp. in this volume;
Heuermann, New Network Strategies, p.100 pp. in this volume.
15
Challenging Future
scenarios such as adequate radio coverage in street canyons or availability in buildings. There is simply no alternative to more finely meshed networks. Rather
than a few large base stations with a wide range, usually involving high costs, it
will be necessary in the future to plan, build, connect, and operate additionally a
large number of small, inexpensive cells.
In supplement to the small cells, which will be used primarily outdoors, it will
be necessary to use DSL-connected WiFi routers for end customers (indoors)
as an offload opportunity and to install so-called 3G/4G femto cells with SON
(self-organizing network) capability for improved coordination of potential
interference, all possibly requiring additional expenditures for operators related to
infrastructure and integration. Future access routers used by end customers
should ideally contain both an LTE and WiFi modem. But these devices are
beyond the conventional control of the network operators.
In the end, there will be completely new and enormous challenges in network
planning, roll-out, backhaul, logistics, required installation and maintenance
capacity, location acquisition, roll-out processes, network management, management of increasing interference, and processes for eliminating disruptions.7
Integrated planning of fixed and mobile networks
The concern will be to allocate these investments for the build-up of new grids
or the expansion of existing ones on the basis of market needs and with an eye
on the existing infrastructure to ensure that they deliver an economic profit as
quickly as possible. A precise geographic forecast, as granular as possible, of the
traffic volume is indispensable to guarantee the profitability of local capacity increases.8 It is just as important to regard fixed and mobile networks as integrated
so that the synergies between the two networks can be mined. These synergies
arise from full-area coverage from existing fixed networks, above all from the
locally available WiFi offload capacities, and from the opportunity to provide
low-cost backhaul for the smaller-cell mobile networks of the future. The smaller
the cells of the mobile networks, the greater the synergies between fixed and
mobile networks! The two networks grow together and supplement each other
synergetically. For its part, the fixed network supports the mobile network because
it can divert mobile network traffic (backhaul) or can provide offload capacities
(WiFi/femto cells). In return, the integration of the small cells can contribute to
a substantial improvement in the business case for the FTTx roll-out in the fixed
network.
7
8

Cf. Fritzsche/Schweigel/Rhong, Integrated Planning, p. 114 pp. in this volume.
16
Network is King!
Monetarization potential of the networks in wholesale and retail

Investments in the networks must produce a return. The creation of the technological basis for the efficient transport of the growing traffic volume is not an end
in itself for carriers. They must be in a position to monetarize these investments
in the networks and to realize appropriate earnings.
Network cooperationen
In view of the investment demands sketched out above, the related necessity
to utilize network capacity to the full, and the significance of scaling effects for
profitability, it is only logical to locate an important source of income in the
wholesale business.9 Cooperative ventures among carriers in the sense of
infrastructure sharing or wholebuy will be essential in the future if these
investments are to be economically justifiable.10 The room for alternatives in the
mobile sector ranges from wholesale services pursuant to regulatory requirements to managed services of varying ranges.11 The following examples are
illustrative:12
> Site sharing refers to the sharing among network operators of the passive
elements of the infrastructure such as installation sites or masts. This model will
presumably find great favor in view of the difficulties in finding suitable locations
which already exist today.
> National roaming to increase reach and/or network coverage is enticing for
new network operators on the market or for operators who do not want to
finance the next round of investments for the development of less attractive areas.
> Network sharing includes the joint usage of active as well as passive elements
in access or core networks. Spectrum sharing occurs when one network operator
takes over the optimized utilization of the spectral resources which are jointly
available on behalf of the partner(s).
9
10
11
12

Cf. Nielinger/Steingrver, Wholesale, p. 174 pp. in this volume.

Cf. Lundborg, Regionalization, p. 188 pp. in this volume.
Cf. Schmitz, Managed Services, p. 164 pp. in this volume.
Cf. Schultz/Schieder, Ways Out of the Frequency Bottleneck
New network concepts for the cost-efficient provision of mobile broadband services, DMR 2012.
17
Challenging Future
> The most far-reaching form of cooperation ends with a network operator
divesting its own network, transferring it to a third party, and acting strictly as a
reseller, virtual network operator, or service provider with respect to customers.
This option essentially corresponds to the light asset approach described above.
Carriers which have a strong infrastructural base for both fixed and m
obile
networks on a market have a unique opportunity to score points, especially in
wholesale business, as a consequence of the demand for network expansion briefly
described above and the imminent roll-out of small-cell networks and their
integration. They can force other competitors out of the infrastructure business
and consign them to the position of virtual network operators or resellers.
Business models based on QoS in wholesale
Besides the aspects of wholesale business revolving primarily around the question
of securing the required network capacities and network coverage on national
markets, additional opportunities result from the ICTization of the world or
the Internet of Things. New business fields such as cloud services, XaaS, or
M2M are leading to the dramatic gain in significance of worldwide connectivity
which functions seamlessly no matter which of the many and diversified
access technologies are in use. This achievement is subject to the conclusion of
interconnection agreements, either direct or indirect, with as many access network operators as possible around the world. The laws of large numbers apply
to this business as well so that production and delivery at low cost are possible.
However, the transport of the data traffic also has aspects of quality. Providers
must be able to attach various quality parameters such as delay, jitter, or packetloss p
robabilities to the transport.13
QoS differentiation in retail
An alternative to driving wholesale business is the chance to offer a superior
network infrastructure exclusively to the companys own retail division and to
initiate competition based on quality in the hope that end customers will be
willing to open their wallets to pay for this quality. But this is an approach which
will be difficult to turn into reality in view of the intense price competition,
established flat rates, a lack of awareness on the part of many customers that there
is any shortage (in the fixed network, at least, best effort is still sufficient for most
applications), the performance capability of cable network operators, and the
13 Cf. Gerlach/Knoben/Schellschmidt, Everything Flows The emerging cross-industry ICTization changes

competition within the wholesale business 2032, DMR 2/2012.
18
Network is King!
everything is free mentality dominant on the Internet; at most, it will appeal

to only a narrow segment of the market. Ultimately, the reasonable solution is
to move in the one direction while not neglecting the other in other words, to
realize wholesale and retail offers equally.
The prerequisites for differentiation based on quality in retail are quality features
such as the aforementioned parameters, which must be palpable for customers.
Consequently, there must be price differences based on different quality classes.
The idea of limited network resources must be given due consideration in the
form of reasonable volume dependencies.
This means nothing less than a weakening of the established flat rate regime.
Initial efforts in this direction can be noted on the market. Telekom Deutschland
announced that the pricing logic of the mobile network in the form of prices
dependent on volume would be applied to the fixed network from 2016 as a
way to highlight the limited character of network resources. The speed of the
connection for certain rate plans would be throttled when a certain data volume
had been reached. Telekom experienced firsthand just how difficult it is to change
price models which are firmly established on the market and in the minds of
customers when it found itself at the center of a shitstorm in social media as well
as the entire press landscape, from consumer protection organizations, and in the
reactions from politicians.
But telecommunications companies still have to face the major conflict in the
implementation of price models differentiated according to quality. It has not
yet been clarified whether aspects such as differentiation and prioritization b ased
on quality and subsequently perhaps discrimination against certain providers
and applications can be realized at all in view of the dominance of the principle of network neutrality. However, the digital agenda of the EU is cause for
cautious optimism among carriers. One solution which is virtually networkneutral and simultaneously differentiating is offered by temporary quality assurance
oriented to the concrete needs of end customers. For instance, one could imagine
providing a turbo or speed button which end customers can push to ensure
specific quality for a limited time when using a certain service such as viewing
an HD video or an Internet-based video service. A model of this nature (quality
on demand) would moreover be in alignment with the predicted usage behavior
of end customers purchasing digital content. These customers are less restricted
in their consumption of content by time constraints and broadcasting schedules;
they decide for themselves when and where they watch programs.
19
Challenging Future
Innovation and Partnering

Price models which differentiate according to quality or volume give rise to the
question about opportunities for cooperation between
telecommunications
companies and OTT players. Companies seeking potential new sources of revenue and possible differentiation factors in competition with other, direct
competitors will set their sights on OTT players. For the most part, telecommunications companies have been reduced, especially in the private customer
segment, to their basic business: connectivity. Their efforts to go beyond this and
offer their own innovative services at the OTT level have been and continue to
be disappointing. This statement is true of both the long-tail and the short-tail
segments of services. The logical conclusion is to conclude partnerships with
Internet-based service providers. Initial steps have been taken in this direction
as well, including the successful cooperation between Telekom Deutschland and
the music s treaming provider Spotify or the cooperation between SFR in France
and the game provider Gameloft or the music service Napster. Possible elements
of cooperation are revenue sharing models, joint marketing campaigns either
with or without separate branding, distribution partnerships, or differentiation
related to QoS, to network technology, or to rate plans.
It is foreseeable that telecommunications companies will in the future be competing for the most attractive partnerships or for their own position in so-called
multilateral smart business networks.14 Cooperative ventures of this nature are
suitable for enhancing the emotional associations of the companys own brand by
offering appropriate products, rounding off its own service portfolio, and countering the commoditization of basic services and connectivity. The decisive factors
for carriers who want to build up their negotiating strength when competing for
attractive partnerships include extensive reach or market shares in the pertinent
countries, distribution power, branding, service, and correspondingly attractive
partner models. First and foremost, however, is an attractive service-enabling
portfolio such as innovative QoS mechanisms, SLAs, AAA, LBS, billing, bundling, open APIs, multi-client capability, speed, and flexibility in systems and
processes15 which enables potential partners to become integrated into the telecommunications companies platforms quickly and without complication.
The issue which must be artfully solved by the telecommunications c ompanies
will be the clear definition of the distinction between make or buy, i.e.,
between what belongs to the core business and what is acquired through partnerships. Their own innovations will be feasible in the fields in which concepts for
services closely related to the network are created for their own customers and
also for partner companies so that the original business models of the partners
20
Network is King!
are supported by digitalization.16 Moreover, their own development of innovative

services will be logical when such services are scalable primarily on the national
markets of the relevant carriers or display a high degree of affinity to the existing
portfolio.17
It is foreseeable that the integration of the networks and the efforts in the
direction of network modernization18 all-IP, virtualization, SDN, convergence
of IT and network technology will drive genuinely seamless and convergent
connectivity services as well as open interfaces and flexible processes forward. A
highly diversified group of partners will be able to dock onto these convergent
services. The prerequisites must be created by telecommunications companies
with respect to platforms significantly faster and more flexible in the future.19
By implementing innovations in the areas closely related to networks, carriers
will make an essential contribution to, and create the fundamental prerequisites
for, the digital transformation of other business sectors. At the same time, they
will ensure the security of their original business model for the future.20
Differentiation in market development
The next area requiring major work is differentiation in market development.
Differentiation refers to the regions within one market which have been d
eveloped
with infrastructures of varying capability and to the heterogeneity of the market
segments which can be segmented according to willingness to pay as well as to
psychographic or socio-demographic criteria.21
In the first case, the available service portfolio and the connection speeds vary
from one region to the next. Such circumstances must be taken into account as
a comparison of the performance capability of competitors in this region when
entering the market and deciding on the use of marketing instruments. At this
point, the necessity for integrated planning of networks appears once again.
Integration in this context is not limited to the integration of fixed and mobile
networks; it goes beyond that to include the integration of market data such as
14
15
16
17
18
19
20
21
Cf. Krmer, Successful Partnering, p. 148 pp. in this volume.

Cf. Roos, CSS: IT Architecture, p. 286 pp. in this volume.
Cf. Helbig, From Telecommunications Company to Process Factory, p. 298 pp. in this volume.
Cf. Kellmereit/Narielvala, Innovation, p. 128 pp. in this volume.
Cf. Schnitter/Bornhauser, Future Network Architectures, p. 34 pp. in this volume.
Cf.. Gonsa/Chrestin/Reith, Virtualization, p. 56 pp. in this volume.
Cf. Theobaldt/Lnendonk, Mission Future: ICT 2032, 45 Theses on the Road to Tomorrow, 2011.
Cf. Lundborg, Regionalization, p. 188 pp. in this volume.
21
Challenging Future
competitive situation, information about existing customers, and technological

information such as the existing network infrastructures, traffic information, and
forecasts. The expansion activities can then be managed at a geographic level and
as granularly as possible with an orientation to needs and according to strictly
economic criteria, e.g., optimized for results according to the criterion NPV (net
present value).22
The second case takes as its starting point the gap on the markets found between
the segments on the basis of the criterion of willingness to pay. The segment of
discount shoppers or bargain hunters on many European markets is growing
at the expense of the segments which exhibit a greater willingness to pay. The
successful launch of low-cost brands such as yourfone in Germany or free in
France are evidence of this trend. In this respect, telecommunications companies
are called upon to give thought to correspondingly different development
strategies for the pertinent segments. Multibranding strategies, which are being
successfully pursued by some carriers such as E-Plus in Germany, can be useful.
But most nationwide carriers still act according to a single-branding strategy and
attempt to cover all of the segments and their needs by offering various rate plan
and service models. A multibranding strategy assuming that effective fencing
mechanisms are in place creates an opportunity to participate in the growth of
these segments without significant cannibalization of the core brand. Points of
differentiation can be played out across the entire marketing mix: from product
qualities and prices to bundles featuring possible additional offers, to innovative
own services or partnerships, and all the way to heterogeneous service qualities,
e.g., technical installation service and repair service on site, reachability of the call
centers, variances in the reachability of the channels, and SLAs.
Other subjects which deserve greater attention when markets are largely saturated
are churn prevention, customer retention, or loyalty management. The a cquisition
of new customers or winning back previous customers involves an unreasonably
high market investment. The care and differentiated, value-oriented treatment
of the clientele along with the mining of cross- and upselling potential from the
viewpoint of efficiency carry great weight for this reason. Top customers in the
private and business customer segment must be treated differently than customers who are less attractive for carriers from a value-oriented standpoint.23
Raising barriers to churn and establishing lock-in mechanisms do not necessarily
lead to genuine intrinsic customer loyalty to the provider in the top segment.
Such loyalty will more likely be generated by fairness and, together with rational
22 Cf. Fritzsche/Schweigel/Rhong, Integrated Planning, p. 114 pp. in this volume.
22
Network is King!
elements, by using the mechanisms of an emotional bond. Carriers must complete the step from service excellence to true customer enthusiasm. All of the
customer touch points must be optimized in terms of a thrilling customer
experience.24
As they strive to monetarize the networks, marketing departments must obey
the dictates of efficiency and effectiveness just like the technology and IT departments. The marketing investment in the form of so-called customer acquisition
costs (CAC) and customer retention costs (CRC) must be strictly aligned with
customer value. Initial experience in the area of customer self-service reveals that
the creation of positive customer experiences and an improvement in the perception of customer service in compliance with important design principles for the
underlying IT architecture can definitely go hand in hand with cost reductions,
which in some cases are substantial.25 It is important that the actions related to
marketing and sales are embedded in a framework of consistent target systems,
defined KPIs, and corresponding steering logic across all of the various marketrelated corporate divisions and channels. This framework must take into account
the situation of the specific company and the market conditions so that actions
and performance measurement can be correctly controlled.26
Basically, the prerequisites for generating true customer loyalty and enthusiasm by
means of a positive customer experience are good for carriers. Together with their
partners, integrated carriers have at their disposal an extraordinarily attractive
service portfolio which has the emotional and rational attributes n
ecessary to
open access to the exciting world of digital experience of the 21st century in all
of its many facets to their customers.
Seven levers for the integrated carrier of the future
The present business situation for many carriers is characterized by stagnating or
even declining sales, rising need for investments, high levels of debt, and falling
profits. The causes lie in the tremendous growth in traffic, the success of the
OTT players, and the keen price competition among the carriers. As long as
the earnings per bit continue to fall dramatically and the costs per bit cannot be
adjusted to match (as a minimum) the speed of the decline, many carriers will
find themselves confronted with the issue of their survival in the middle term.
23
24
25
26
Cf. Penkert/Eberwein, Customer Self-Services, p. 270 pp. in this volume.

Cf. Hauk, Customer Experience, p. 250 pp.; Aumann, Marketing and Sales, p. 230 pp. in this volume.
Cf. Eberhard, Marketing Performance Management, p. 208 pp. in this volume.
23
Challenging Future
Only integrated heavy asset carriers will be able to master the problems economically. Companies which do business exclusively as mobile network operators
have come to a dead end. They will not survive on mature markets. They have
the options of divesting their own networks and operating as resellers or MVNOs
or of merging with a fixed network operator and developing into an integrated
heavy asset carrier. If neither of these options can be realized, the exit is the only
remaining choice.
But the challenges described above remain for the integrated heavy asset carriers
as well. They must on the one hand provide additional resources and work on
their production and marketing efficiency, while on the other hand they at least
slow down the decay in the earnings per bit and develop new sources of income.
Detecon experts have identified seven levers which can support carriers in
securing their profitability long-term. The following articles describe the significance and effects of these seven levers for each value-added stages of an integrated
heavy asset carrier.
Carriers which understand how to plan, build up, operate, and monetarize
their networks highly efficiently will survive. Realization of economies of scale,
integrated network expansion aligned strictly with economic profit criteria,
implementation of modern network concepts, close linking of network and
IT, d
evelopment of new sources of income and innovative price models, and
successful acquisition of end customers through attractive own products and
services and innovative offers organized in partnerships are the success criteria for
a sustained and profitable positioning on the market.
24
Network is King!
A successful realization of the plans briefly sketched above will create substantial
opportunities for telecommunications companies. These plans lay the foundation
for securing profitability long-term, positioning the companies with respect to
customers as a key director of digital value creation, and developing from a party
driven by digital transformation in business and society to a driver of this transformation.
Figure:

Short to medium term challenges & solutions for telcos:

Seven keys to ensure profitability for integrated heavy asset carriers
Challenges
Strategic options
Mobile
Traffic
growth
Infrastructure
heavy asset
Seven keys to success for integrated heavy asset carriers
Netw
is Ki ork
ng!
1. Modern Network Concepts

2. Integrated Deployment of Network Capacities
3. Focused Innovation
OTT
Player
Resale
light asset
4. Enforcement Partnering
5. Empowerment Wholesale
No
activity
2
No
activity
6. Differentiated Market Approach

Fixed
Price
competition
7. Agile Processes & IT
Resale Infrastructure
light asset heavy asset
Attractivity of position
5 = high 1 = low
Source: Detecon
25
Interview
The Capital Market Perspective

on Challenges Facing the
Telecommunications Industry
26
Massive challenges loom in the future of

the telecommunications industry. Dramatic
growth in traffic, intense price competition
among the carriers, and the success of the
over-the-top (OTT) players these factors
will, in the short and middle term
(so a common assumption), generate
substantial pressure toward consolidation.
Frank Rothauge, AHP Capital Management,
and Wolfgang Specht, Bankhaus Lampe,
answer questions about the
validity of this assumption.
The Capital Market Perspective on Challenges Facing the Telecommunications Industry
Question: What kind of influence do the capital market and banks have on the
telecommunications industry when it comes to the challenges of the future? How
great is the capital markets influence, and what impact does it have?
Rothauge: The influence of the capital market and banks is always particularly
powerful when funds to finance activities are required. In view of the enormous
magnitude of the investments currently needed to ensure that the networks are
prepared for the future, the capital market is a weighty factor indeed. However,
the interesting phenomenon here is that the mechanism for direct influence
during the financing of new investments additional third-party capital, for instance is as a rule of less relevance than the mechanism for indirect influence,
the way the governing bodies of the companies are influenced by shareholders or
lenders. The capital market always concentrates on the highest possible return on
capital, and many telecommunications companies find it difficult to satisfy the
demands of the capital market precisely in this respect.
Specht: The differences in the time horizons of the various parties can also be
problematic. Generally speaking, investors prefer fast realization of their returns.
Moreover, they like glass-clear transparency in the assessment of the r ecoverability
of their investments. This is often contrary to the long-term investment cycles
related to investments in the network infrastructure.
Question: What needs to be done to promote the willingness of the capital market to finance new network infrastructures?
Specht: Investors must be convinced of the recoverability of their investments.
Unfortunately, they have suffered a number of disappointments in this respect in
the past. Technological trends have turned out to be shorter-lived than originally
expected. Decisions made by the regulating authorities in Europe have also
heightened competition and increased pressure on prices. Regulators here have
set for themselves a different focus from that in the USA and other countries.
European consumers have had good reason to celebrate average revenue per
user in mobile networks is only half as high as in the USA.
Rothauge: The decisive point is a change in the price mechanisms. Telecommunications is the only large infrastructure-based industry in which prices have been
declining for years. This trend has been accompanied by a creeping devaluation
of the infrastructure. Price stabilization would be highly desirable; indeed, the
establishment of a trend in the direction of slightly rising prices for infrastructurerelated services would be ideal, especially with respect to network connections.
27
Interview
The severe competition has frequently forced players to throw their plans along
these lines out the window. But they have also been guilty of not thinking their
price strategies completely through or of being too short-sighted.
Question: What price strategies should telecommunications companies pursue
to achieve this objective?
Rothauge: The sharp rise in traffic volume for every single customer resulting
from the new ways the telecommunications infrastructure is being used represents
a key opportunity for leverage in this issue. Mobile Internet is regarded as the
major driver in mobile networks; this role is played for fixed networks above
all by video content. In the USA, for instance, 30% of the traffic is related to
the utilization of video content from Netflix alone. Here is a unique chance for
the telecommunications companies to push through higher prices for higherspeed connections, especially since the competition is naturally limited as a rule
because profitable expansion will be possible solely for one single higher-speed
infrastructure. The customers need to utilize the new services will inevitably
lead to greater willingness to pay for faster connections especially if customers
are intelligently introduced to these new services. The conflict described so
frequently between OTT providers such as Netflix, Hulu, or Lovefilm and the
telecommunications providers is in reality a symbiosis: both sides are dependent
on each other for their success. But this is precisely the issue where providers
must maintain their price discipline. Ill-conceived price reductions related to
connections are absolutely counterproductive.
Specht: Moreover, a greater willingness to substitute on the part of customers
could prove to be helpful from the companies perspective. If the trend to
immaterial consumption continues, it is certainly imaginable that customers
will devote a greater portion of their budgets to telecommunications services.
This would be balanced by limitations in their purchases of CDs, DVDs, or
magazines, for example.
Question: Maintaining price discipline would be much simpler if the competitive landscape were more strongly consolidated. In comparison with the USA, the
landscape of the telecommunications companies in Europe is highly fragmented.
There is only a handful of carriers in the USA; their number in Europe is
almost unmanageable. Does Europe need to play catch-up in consolidation of
the players? How important is size as a factor?
28
Specht: Historical development undoubtedly plays a role here. Setting up

telecommunications networks was seen as a national responsibility in the past
century, analogously to other infrastructures of a network nature. The large
number of countries led to a large number of independent networks. In the
past, cross-border mergers often did not fulfill expectations for synergy effects.
And there are still national interests involved, resulting in part from the equity
holdings in a number of incumbents and making consolidation more difficult.
Rothauge: One of the major reasons for the fragmented competitive landscape in
Europe is the regulatory landscape which is still equally fragmented, characterized
as it is by 27 national regulatory authorities in the EU alone. The national regulations make it difficult for companies to exploit synergies from international mergers. However, some of the factors which play a role can never be changed. The
common language in the USA serves as the basis for a standard marketing strategy; this will never be the case in Europe. That is why I am skeptical about the
genuine benefits an international consolidation would provide, even if Europe
should successfully centralize its regulatory activities; such a consolidation is
more likely in mobile services than in the fixed networks. There is not a shadow
of doubt about the advantages of a national consolidation for the companies
but the extent of such a consolidation is restricted by the competition authorities.
Question: What do you see as the most important drivers and hurdles related to
consolidation among the telecommunications companies in Europe?
Specht: There has often been a lack of strategic sense behind the international
mergers among incumbents, and opportunities to exploit synergies have been rare.
Corporate managers must ask themselves: Why should I buy into the same problems abroad that I have on my home market? Relevant issues i nclude redundant
personnel, lack of clarity about the regulatory future, or rising infrastructure
competition. In the meantime, however, a number of restructuring steps have
been taken, and we can even see a trend in the direction of standardization of
the regulatory frameworks. There could be stronger arguments in favor of crossborder mergers in the future. Uniform network standards which are on their
way will also play a key role. The cross-border implementation and management
of services will be significantly simpler when standard all-IP networks have
been established. But there is still a long way to go before we reach that point.
29
Interview
Question: What characterizes carriers which would like to play an active role in
defining this consolidation process? How important are the stock prices, market
capitalization, or other financial KPIs?
Rothauge: Consolidation is first and foremost a question of financial strength.
Carriers with a high stock exchange value and a low level of indebtedness when
viewed, for instance, as the ratio of net indebtedness to operating profit are i deally
positioned; indebtedness in particular is of extremely great importance because
the investors initially have few benefits from the advantages of the consolidation.
But shareholders often regard mergers with a critical eye because there have been,
and there still are, many examples of counterproductive developments. Evidence
of such developments can be found in the extensive write-offs of goodwill which
have followed some of the mega-mergers. Mergers put a tremendous burden on
management and employees, frequently diverting concentration away from the
market and customers and causing companies to fall behind their competition.
These are reasons why the capital market as a rule tends to be critical in its assessment of large mergers, especially international ones, while smaller, more easily
manageable acquisitions are viewed with greater approval.
Specht: Credibility plays an important role, as does managements track record
with acquisitions and integration. When they look back, investors have seen
too many expensive acquisitions in our industry which did not fulfill growth
expectations or result in the scope of synergies as planned. One example from the
German market is the investment of France Tlcom in Mobilcom.
Question: What dos and donts should carriers take to heart if they want to be
attractive to the capital market in their consolidation scenarios?
Rothauge: In my opinion, the clearest and most consistent strategy possible is
decisive when it comes to consolidation. It is hard to explain why an incumbent
which is the market leader in its home country should suddenly buy the number
four on the mobile market of a neighboring country when it has no experience
in that country and cannot point to a convincing development strategy for the
asset. In other words, if a carrier has achieved success by pursuing an integrated
strategy with strong network depth, it should also stick with the model in the
event of international expansion. If the carrier pursues an asset light strategy,
then it should continue to do so. Above all, it must be possible to demonstrate
clearly the added value of an acquisition; at a minimum, the purchased asset
should offer an opportunity to apply once again an added value strategy which
has already been realized with success.
30
Specht: The passive role can also be interesting. If a company is able to

position itself as an attractive target for acquisition, investors will often add
an acquisition bonus to the fair value. Sometimes it is enough if members of
management simply do not deny the idea reported in the press that the
company is a candidate for acquisition.
Question: How important are cooperative ventures among telecommunications
companies as a kind of substitute for a consolidation? In what areas do cooperative
ventures among carriers make good sense?
Rothauge: Cooperative ventures among telecommunications companies as well
as with OTT providers will play a greater role in the future because there are very
few companies with the resources required to master the challenges of network
expansion all on their own. So there will certainly be closer collaboration between
strictly mobile network providers and strictly fixed network providers as a means
of resisting the pressure from integrated providers. Cooperation management
will become a key area of competence, especially for players with lower market
share, in relation to other carriers as well as OTT providers.
Specht: There are already a number of examples in the form of purchasing
cooperatives e.g., between France Tlcom and Deutsche Telekom for hardware
or of the joint development of services such as the message service Joyn, a
project of a number of European incumbents. But Joyn also reveals the dilemma
of the industry: own developments are often expensive and take too long. By the
time the product had reached market maturity, WhatsApp had conquered the
market.
Question: How can the relationship between carriers and OTT players be
successfully structured from the carrier perspective? How can carriers secure a
position of sustainable success? Are they better off as suppliers of outstanding
connectivity or as providers of a broad spectrum of their own innovative content
products as well? How important are vertical partnerships with OTT players?
Specht: Unfortunately, most carriers must be satisfied with focusing on connectivity, although they do not have to give up completely their desire to offer some
additional content. One buzzword is smart pipe: the company provides the
transport platform and aggregates a number of different services simultaneously
for the customers, but most of these services have been procured from partners.
The result is a package of network access, data volume, security solution, and
content.
31
Interview
Rothauge: To start with, the carrier is not a supplier to the OTT provider; as
a rule, it has its own relationship to the end customers. The way carriers see
themselves is characterized in part by arrogance, in part by fear. They would be
better served by a more sober self-appraisal. Clearly: there would not be a single
customer interested in fast Internet access without the millions of services and
content from Internet companies. This means that carriers have benefited greatly
from the OTT providers. The key question is whether the carriers have the skills
required for success as Internet content providers and whether this role would
be of overall benefit. Deutsche Telekom has just sold a highly successful Internet
provider like ImmobilienScout24. This clearly demonstrates that vertical
integration produces added value only if and when network connection and
content have an especially close relationship. This is the case for video and
television offerings, for example. There are some concrete examples in this
specific area which show how carriers can become successfully established with
their products and services.
Question: How do you appraise the middle-term chances of survival for smaller
regional or local carriers within a country and for so-called resellers? Arent the
latter especially at risk of being pushed out of the market, sooner or later, by the
OTT providers?
Rothauge: I dont see any risk of this happening at all. Local carriers are concentrating more and more on the network connection in their local environment.
What point would there be for an OTT provider to develop in this area? It
is certainly possible for OTT providers to become successful resellers of telecommunications services, but this will presumably not happen at the expense
of existing resellers. The latter are involved in hard-fought competition with
the carriers anyway and have created marketing strategies which are difficult for
OTTs to copy, just as the carriers have a hard time copying the content services
of the OTTs. However, we could imagine completely new reselling approaches.
The future will presumably see highly successful M2M resellers who do e specially
lucrative business in the realization of M2M strategies for specific customer
groups and applications. Equally imaginable is the development of online game
providers into successful resellers of speed options for Internet access.
Specht: There are several city and regional carriers which have already reached a
critical mass and which would find buyers if the current investors wanted to sell.
However, the vectoring decision by the German Federal Network Agency and
the draft of the new regulatory statutes in Europe pose some risks for carriers
especially with respect to their access to the local loop. I share Mr. Rothauges
32
opinion about resellers and MVNOs. More than a decade of interaction between
network operators and market has produced strong and, above all, lean p
roviders.
Moreover, it is imaginable that special rights will be granted to resellers and
MVNOs in the course of further market concentration such as a merger of O2
with E-Plus. In Austria, for example, 3 was required to guarantee access to up
to 30% of the network capacity to as many as 16 MVNOs at agreed terms and
conditions for ten years as part of its acquisition of Orange Austria.
AHP Capital Management GmbH is an assets management company for private and
professional clients approved by the German Federal Financial Supervisory Authority. AHP
offers tailored assets management in collaboration with reputable custodian banks to private
clients and advises professional investors as well in selected investment fields.
Bankhaus Lampe is one of the leading as well as one of the few independent private banks in
Germany. Founded in 1852, the traditional institution is wholly owned by the Oetker family.
Business activities concentrate on comprehensive customer support for well-to-do private
customers, midsize companies, and institutional investors.
33
Future Network
Architectures
Dr. Stefan Schnitter, Dr. Uli Bornhauser
> The choice of the right network architecture is the
decisive factor to balance competitive targets
as cost reduction, quality and flexibility.
> From a wealth of principles and trends as SDN, NfV,
Multi-Layer networks and others Telcos have to
choose the appropriate one and to develop an
end-to-end network architecture.
> Since many trends in evolving network architectures
require changes not only to the technology itself
but also to the Telcos organization and processes,
the main non-technical boundary conditions to
implement these trends have to be discussed.
34
Future Network Architectures
Core competence network are in the center of attention again

Network is king! If this claim is correct for Telcos today then network architectures
are the basis to build, develop and defend the kingdom! In times when quality
and customer experience gain more importance, it is obvious that Telcos are
refocusing on the network as their core asset and competence. In this situation,
network architectures are the most important tools to balance between the conflicting priorities of cost reduction, quality and flexibility for new revenues.
There are certain challenges relevant for nearly all operators independently of the
business segment and market they operate in that can be addressed by the future
network architecture the operator chooses to implement. The growth of traffic
and the corresponding need to invest in infrastructure to cope with this growth
is undoubtedly one of them. Until 2018, prognoses for worldwide fixed and
mobile data traffic growth are varying estimations for fixed traffic growth are
in the range of 20-30% per year whereas mobile traffic will grow in the range of
60-70% per year. This requires operators to constantly invest into their
access and core network infrastructure. New technologies and more efficient
implementations do lead to decreased costs per bit for the transport studies
show annual cost decrease per bit in the range of 15% but obviously this is
not sufficient for the described traffic growth levels if revenues stay flat or do not
increase significantly. In addition there are also disruptive effects on network
costs that are mainly related to new access technology, e.g. the roll-out of
Fiber-to-the-Home (FTTH) technologies with its high costs on civil works or the
deployment of small cells that introduces a jump in the number of base stations
that need to be deployed and connected to network.
Not only the increase of capital expenditures form a fundamental challenge but
also the growing number of subscribers requires the operator to increase the efficiency in provisioning of services and network operations to decrease operational
costs. The third major challenge addresses the ability of Telcos to design or change the services that they offer to their customers. Over-the-top (OTT) players
like Google, Amazon, and others operate with a much higher flexibility to design innovative services. Telcos need to decide whether they want to compete or
cooperate with OTT players. In case that they choose to cooperate instead
of competing, they also need flexible services or interfaces to 3rd parties to
implement revenue sharing or other partnering models. Historically, services
development cycles in operators are long and the introduction of the required
level of flexibility in services creation and partnering forms a major challenge.
As operators traditionally react carefully on new trends and developments, today
we are in a situation where most of them still cope with challenges that came up
35
in the last decades. Classical examples are the convergence of fixed and mobile
networks, the development towards next generation networks, and the migration
from purely IPv4-based to fully IPv6 capable networks and services: Traditionally
coming from separated fixed and mobile networks as well as products, operators
have understood the benefits from converging these domains. While integration
has often already happened from a marketing perspective, technical and product
integration are often still ongoing processes. Merging mobile and fixed networks
and realizing saving potential requires lengthy adjustments in the network infrastructure, IT systems, processes, and organizations. And while first products and
offerings show that convergence may have an essential impact on the product
strategy, the long term roadmaps for integrated services often do not exist yet.
The basis for developing towards a next generation network is the deployment
of and migration towards an all-IP network. Knowing the necessity of building
a unified service platform, switching off specialized legacy technology, realizing
significant OPEX and in the long run CAPEX savings, most operators started
to build all-IP networks in the last decade. However, the complexity of emulating
POTS features, providing the quality and robustness customers are used to, and
migrating customers from legacy technology took significantly longer than estimated. This observation is also true for business services where Telcos are still
operating legacy SDH networks to provide leased line services. As a result, most
operators are today in the middle of the migration process towards all-IP networks. Switching off legacy technology and realizing significant savings is often
still a long way to go, increasing the OPEX demands in the migration phase. The
resulting heterogeneity and diversification in technology drives IT complexity,
which has a negative impact on the time-to-market for new products, services,
and network adjustments. Mainly compelled by the rapid distribution of always
online devices into the mass market, more and more operators have recently
started to introduce IPv6 in their networks. The deployment of IPv6, long-time
blocked by the chicken-and-egg problem of missing IPv6 content and missing
IPv6 end-to-end connectivity, will keep operators busy for the next years: Not
only network elements, but also security concepts as well as underlying IT and
management systems need to be adjusted.
While tackling the established challenges like fixed/mobile convergence, all-IP
migration, and IPv6 deployment blocks important resources, operators already
perceive the impact of the current challenges. As results of this pressure, operators
think about models to generate new revenues (e.g. high quality transport for
selected content providers) and quick but risky ways to cut costs (like introducing so called fair use policies in flat rate markets).
36
To successfully handle the arising challenges, telecommunication operators

have to develop their network, organization, and processes in different areas
towards more lean designs and unique selling propositions. In particular quality
of experience, for example network coverage and access speed, more and more
becomes an important aspect customer perceive and are willing to pay for.
Current industry trends for future network architectures have different pro and
cons and can be grouped into four main categories: the convergence of IT and
network technologies, the convergence of different network layers, the convergence of fixed and mobile networks and the Static and Dynamic Architecture
Paradigm.1
Network architecture option 1: convergence of IT and network technologies
The convergence of IT and network technologies is by no means a very new
trend: Information and communication technologies (ICT) are seen as closely
related since long but only from the product and marketing viewpoint. Based
on recent trends and developments this convergence of IT and network technologies is also one cornerstone of Telcos future network architectures. Converging
infrastructure (IT and networks) is one major aspect but even more important
is convergence of the underlying main principles or, in fact: the introduction
of IT principles in the network domain. Some of the IT principles that are now
being introduced in network architectures are Open Source, Virtualization, open
and standardized interfaces and no vertical integration of hardware, operating
systems and applications.2
A further trend that is related to the convergence of IT and network technologies
is Software Defined Networks (SDN). Not only are many of the previously
mentioned IT principles a core part of SDN, but with SDN the network is
seen as an open and programmable fabric that is used to implement network
applications.
SDN implements a three-layer network architecture shown in Figure 1 that
separates network infrastructure, network control and application layers. Since
the SDN controller forms the central part of this architecture, interfaces to the
network infrastructure are commonly called south-bound interfaces and those to
the application layer are called north-bound interfaces. This three layer a rchitecture
is a major change to the current network architecture that is mostly vertically
integrated: That means that hardware, the basic operating systems and application
1
2
Cf. Hauk, Customer Experience, p. 250 pp. in this volume.

Cf. Gonsa/Chrestin/Reith, Virtualization, p. 56 pp. in this volume.
37
are usually provided by the same supplier (Cisco, Huawei, Juniper). In this sense,
todays network equipment still resembles very much the mainframe computers
from the past and SDN is on its way to change this.
In SDN architectures, in order to spate the forwarding and control functionality
one or several (logically centralized) controllers are introduced. This is done to
achieve several benefits for future network architectures: The control functionality does not need to be implemented in every network device, which leads
to simpler and potentially cheaper network devices. Device vendors can focus
on efficient forwarding and edge functionality instead. The network control
functionality is closely related to the services and their requirements having a
separate and central controller allows for implementing new service or features
faster and more flexibly. Currently, the features of services are coupled quite
tightly to functionality of network devices so this increased flexibility introduced
by an independent controller is a major step ahead. SDN based architectures also
allow for an increased granularity of control up to the control of individual traffic
flows. The introduced flexibility is maximized, in case other IT principles, like
rapid prototyping or open source, are applied to the control software.
Another presumed benefit of the SDN architecture is the network abstraction
that is implemented with the controller. As network infrastructure gets more
and more complex - abstraction is the key to master this increased complexity.
SDN controllers are used to abstract from the physical network view to various
logical views on the network topology that is presented to network services and
business application via open interfaces.Open interfaces are another benefit from
the SDN concept: In particular north-bound interfaces will enable operators
to offer network capabilities to third parties. There is a multitude of business
models that can be implemented via north-bound interfaces, e.g. enabling 3rd
parties to offer own services on the operators network, controlling the quality of
OTT services or implementing information services. North-bound interfaces to
3rd parties are a key component when an operator wants to implement a smart
pipe business model.3
Although, the first products to implement SDN are already commercially
available (e.g. OpenFlow based network controllers), the SDN concept is still
under development. In particular what granularity of control is used between
the controller and the network devices leaves room for interpretation: Initially, a low-level control of individual traffic flows was considered whereas today
38

also automated provisioning of services or user sessions is considered as software

defined networking.
Now SDN architectures are becoming reality and a multitude of use cases
exist relevance and benefits of these use cases depend on the Telcos business
model: There are SDN use cases that are more relevant for network operators,
service providers or data center operators. At the same time, use cases can be
categorized based on their respective target: Increase agility and service flexibility
(revenue focus), increase automation (OPEX focus) or optimize the use of network
infrastructure (CAPEX focus). Naturally, some of the use cases that are now discussed in the context of SDN could have been implemented by Telcos before
(e.g. in the area of automatic provisioning, bandwidth on demand). When deciding between hype and reality the Telcos should analyze their previous attempts
to implement these use cases.
Figure 1: SDN architecture
Application layer
Network
application
Business
application
North-bound interfaces
Control layer
SDN CONTROLLER
South-bound interfaces
Infrastructure layer
Optical
transport
(v)Switches
Router
Firewalls
Core
Source: Detecon
39
There are clear differences in the maturity of SDN architectures for different use
cases: SDN in the data center is entering the market today. Since there is the
complementary trend of network function virtualization (NFV) and network
operators will be implementing more and more services in data centers, all
SDN use cases for the data center will become relevant for traditional network
operators, too. Using SDN to implement a higher level of dynamics and flexibility for the creation of services is currently tested by large service providers (e.g.
NTT DoCoMo, Telefonica,) and will be implemented in operation within
one year. Implementing SDN in the wide area networks (WAN) of operators
with focus to increase network utilization is rather a mid-term use case first
implementation exists for example in Googles WAN between data centers.
Introducing the SDN concept in their future network architectures, operators
can therefore expect OPEX reduction and an increased service flexibility in the
short term and CAPEX savings in the mid- to long-term. If it seems compelling
and attractive now for operators to leverage the cost and monetization benefits
from network and IT convergence it is far from easy to implement. Besides the
challenge to create a converged IT and network technology strategy, the largest
challenge lies in the Telcos organization and processes. IT and network processes
that are currently independent and often different in their underlying principles
need to be integrated. Additionally Telcos need to build up product development
units that are able to make use of the increased flexibility that SDN architectures
bring. Finally, Telcos need to transform themselves much more into software
companies in order to fully utilize the benefits of IT and network convergence.
Network architecture option 2: convergence of network layers
Within organization and technology itself, different layers of the network infrastructure were typically planned and operated separately. This divide-andconquer approach has its advantages since it splits the tasks of network planning
and operation in separate and independent subtasks. This enables to develop
each network layer Cables, Fibers, Wavelengths/DWDM, Ethernet, IP/MPLS
individually and at its own speed. Naturally this is not the most efficient network architecture since optimization opportunities across network layers are not
leveraged.
The increased pressure for efficiency and cost reduction has led to three main
trends that all target at leveraging the benefits of a converged multi-layer network. Firstly, there is the trend of integrating the network equipment itself.
40
Based on own development or merger and acquisition activities among suppliers,

network equipment is becoming available that integrates functions of DWDM,
OTN and IP/MPLS network layers within one device. This simplifies network
architectures and can lead to reduced space and power requirements. A significant
reduction of the CAPEX for network equipment out of this hardware integration
is rather a mid-term benefit for network operators. The second and more shortterm benefit is the logical integration of layers to implement multi-layer network
planning and management. One integrated management and optimization plane
can be used to utilize the converged network more efficiently, for example when
implementing automatic mechanisms to restore connections in the IP network
when failures in the underlying transport network occur. Also mechanisms to
dynamically change the topology of the IP network based on changes in the
traffic patterns can be implemented with a multi-layer network management
plane. Similarly, multi-layer planning tools4 can be used to optimize the resources
across network layers already in the planning phase.5
The implementation of multi-layer network management and planning is already
possible today and many operators have started its implementation to leverage
the significant CAPEX and OPEX reduction it will yield. Examples to achieve
this include the implementation of multi-layer restoration, the optimization
of shared risk link groups across layers and the implementation of multi-layer
bypassing. Today Open Networking Foundation is already working on the
extension of Open Flow (standardized data plane programming protocol) down to
the transport layers such as DWDM and OTN. Among many goals of this ONF
activity Telcos identify ability to manage multi-domain/multi-vendor network as single network via a standard open interface.The last trend when implementing converged multi-layer networks is related to the organization and
processes of the network operator. Integration of the organizational units that
are responsible for planning, engineering and operation of the different network
layers is a prerequisite to fully leverage the technological possibilities described
before. Additionally it supports the general effort of all network operators to
become more efficient and reduce operational expenditures. Converging different organizational units within the operator is an ongoing process and many
operators have started to converge the fixed and mobile network units first. But
converging the organizational units that are responsible for different network
layers now is a logical and necessary next step.
4 www.networks.detecon.com
5 Cf. Fritzsche/Schweigel/Rhong, Integrated Planning, p. 114 pp. in this volume.
41
Network architecture options 3: convergence of fixed and mobile networks

The advantages of a converged fixed and mobile network are well understood and
accepted in the telecommunication industry. This is most probably the reason
why most integrated telecommunication operators are currently in the process
of merging these domains. Efficiency improvements and economies of scale that
come along with such network integration can be realized to optimize the capital
and operational expenditures.
Quick wins have already been implemented in marketing and product development. Most integrated operators provide bundled products using an integrated
sales approach with the target to improve revenues and customer loyalty.
However, even if quick wins are realized, most operators do not have a long-term
roadmap on how to evolve products to integrated services.
A more long-term benefit from fixed/mobile convergence is the implementation
of a converged network architecture. In the transport domain, the crucial tasks
to realize CAPEX and OPEX savings are mostly obvious: Beyond the different
access networks, common aggregation, backbone, and peering networks should
be used. The traffic itself is separated and prioritized according to different
quality requirements, protection mechanisms are applied where necessary for
fixed and/or mobile traffic. The complexity drivers in this domain arise mostly
from practical issues such as the need to implement synchronization in the
packet-based network when they replace circuit-switched networks.
For fixed and mobile core networks, reasonable migration strategies are typically
not that obvious. But for true convergence, also the core network should be
integrated with the fixed network. Core functionality of fixed and mobile networks has to be virtualized and deployed in common data centers. However, the
different requirements in term of redundancy and delay, for example, complicate
such an approach. A potential driver for the convergence of fixed and mobile
core networks are the all-IP migration programs in the fixed network domain on
the one hand, and the introduction of LTE in the mobile domain that is based
on an all-IP architecture as well. Since IMS-based solutions are implemented in
the fixed and mobile domain now, the target to implement only one IMS for
fixed and mobile services is clear. In an integrated network, another driver for
convergence and source of further cost reduction is the complementary usage
of technologies in the access. For example, small cell approaches like WIFI networks that are fully integrated in a 4G network with handover support could
be used to transparently offload traffic in busy hours. While this approach saves
42
CAPEX, it also significantly increases the overall complexity of the converged

network. Therefore, all optimization through fixed/mobile convergence in the
access needs to be complemented with an integrated approach for network planning and management.6
Process automation: The static and dynamic architecture paradigm
Process automation has to be an integral component of future network architectures since operational expenditures are directly driven by the effort necessary
to manage those events and incidents that require manual intervention. Typical
reasons for such incidents are physical changes or persistent failures that make
an automated processing impossible. The former group of incidents can be illustrated by capacity upgrades in the network or re-wiring of physical connections.
The latter group is represented by missing information as well as inconsistent or
wrong inventory data, for example.
To reduce operational expenditures in a stable network architecture, avoiding
incidents that require manual interaction is a straight-forward and reasonable
approach. The ability to avoid such incidents is usually closely related to the
network design and the applied processes themselves. If resources are scarce and
replacement as well as extension follows strict rules, frequent changes become
necessary. If information is redundantly kept in multiple repositories, network
topology frequently changed, and data manually edited, the probability for
inconsistent and incorrect information increases. Thus, an end-to-end architecture should whenever possible avoid that these cases appear. Successful
measures that avoid manual intervention directly pay off in terms of OPEX
reduction. Especially for traditional incumbent operators, OPEX reduction is
usually of high interest.
In modern network architectures, two principles can be observed to avoid manual
intervention: dynamic and static designs. The main idea behind dynamic designs
is to avoid static configuration and data whenever possible. Data is dynamically
gathered from the network on demand and configuration is renewed every time
it is needed; repositories are avoided whenever possible. Fixed thresholds and
rules that require immediate intervention are relaxed to tolerance ranges that
allow for a reasonable grouping and execution of measures. In contrast to this,
the main idea behind static designs is to avoid changes at all. As things are never
changed, inventories do not have to be maintained and updated; information
6

Cf. Heuermann, New Network Strategies, p. 100 pp.;

Fritzsche/Schweigel/Rhong, Integrated Planning, p. 114 pp. in this volume.
43
may even not be maintained at all but calculated from schemes when they are
required.
The difference between static and dynamic approaches in different domains can
be illustrated based on two examples: the access network and data centers. In
a dynamic access network design, the customer behind an access line is always
determined when its link comes up. Based on that process, the line is re-provisioned with the customer profile. A mapping between lines and customers,
which may become incorrect in case of re-wirings, is not maintained. Thus, the
network can be flexibly extended and adjusted; for example if access ports fail,
the process of replacing defective ports can be delayed until a reasonable number
of ports is replaced simultaneously. In a static access network design, the access
network is planned and provisioned once. Existing customers are never re-wired
due to capacity reasons or port failures, for example. Instead, spare ports for new
customers are planned in advance, uplink bandwidths are statically planned in
advance with sufficient reserve, and defect ports are immediately replaced. In
turn, reconfigurations beyond initial fulfillment and assurance are never required.
Also in the data center domain, similar strategies can be applied: Using a d
ynamic
approach, service end-points in the data centers can be flexibly adjusted between
data centers according to available and required resources. The distribution of
users to end-points may be varied depending on load, hardware defects, and
other aspects. If a static approach is applied, data centers are planed and built
once. Even if physical resources fail, planed spare capacity makes sure that users
dont have to be shifted. Strictly applying a static scheme (in contrast to the access
domain), defect hardware is simply disabled. The data center is operated until
productivity falls below a certain threshold. Once this happens, the whole data
center is renewed.
Whether static or dynamic designs are more economical depends on various
aspects. Generally, the number and complexity of processes differ. Applying
a dynamic design usually increases the number of process executions.
By
avoiding that data runs out of sync, manual intervention can still be
prevented efficiently. In turn, static designs avoid that some processes must
be applied at all. However, this is bought by spare capacity, an initial deployment with full capacity, and thus CAPEX. A decision between dynamic and
static approaches therefore also tends to be a decision between investments in
IT systems and development vs. network and service infrastructure. Note that
static approaches usually also require a more precise planning over a longer
period. While a djusting dynamically to changes in the network allows to rely
on short-term forecasts, planning and building long time ahead increases the
44
business risks that come along with unexpected developments and inaccurate
forecasts. Consequently, the reasonableness of a design principle in a certain
domain significantly depends on the external boundary conditions: if an
environment is highly volatile and requires high investments, static approaches
seem less suited.
A Case Study
The architecture trends sketched here may be applied in various different ways in
a network in general. Suitably combined and adjusted to the external edge conditions, they may help to evolve todays infrastructures towards more lean, automated, and thus cost efficient designs. A case study in this section illustrates how
the different trends may be applied and do interact in an overall architecture for
an integrated operator. The case follows reasonable developments that are visible
in projects started at different operators. It leads from the access network, via
the aggregation and backbone domains, to traffic offloading to interconnection
partners (external peering and upstream) and data centers (internal).
Access Domain
A high level of automation and the avoidance of customer and product specific
configurations are measures with high leverage to reduce operation expenditures
especially in the access network.
In a converged design for an integrated operator, the access network provides
connectivity across a wide area for both, fixed and mobile customers. A low
level of traffic aggregation in that domain as well as the continuous development process in urban construction and customer locations, densities, demands,
and expectations rather requires frequent changes in that domain over time.
Based on this boundary condition, access networks should be rather flexible,
following a dynamic design where a high level of automation is reached through
recurring discovery and configuration. The access technology should be kept
flexible, too; this allows operators to use the best access technology for different
areas, stretch capital expenditures for network modernization (e.g. fiber rollout),
and selectively improve the competitive situation where required. Since multivendor strategies are common and very much recommended in the access network,
device configurations should be as generic as possible and it is useful to i mplement
an element abstraction layer that separates functional from vendor-specific configuration activities.
45
Aggregation Domain
The main task of the aggregation domain is providing IP edge functionality towards customers and the final port aggregation towards the backbone. A flat
design preferably as a single aggregation layer keeps required capital expenditures low. The IP edge functionality focuses on transport services like IP connectivity, quality of service (QoS), traffic isolation, and bandwidth limitations
only. In the mid-term network architecture development the IP edge function
may also be virtualized with the NFV concept.7
To keep interdependencies low and flexibility high, the architecture follows next
generation network concepts and separates further services from the transport
domain towards data centers. Enforcing customer profiles, devices must be continuously provisioned and reconfigured. Thus, the IP edge should consist of highly
unified and simplified devices. In the upstream direction, CAPEX requirements
can be met through multi-layer integration of optical and IP logical transport.
Here, a static design seems reasonable, as profound adjustments beyond capacity
extensions are rare.
Another important aspect in the aggregation domain is the balance between
customer ag-gregation and provided redundancy: Required capital expenditures
and available topology diversity usually does not allow for full link redundancy in
downstream direction towards access nodes; however, especially for high-margin
business products, link-redundancy in upstream direction is essential.
Traffic Offloading Interconnection and Data Centers
As a general rule, it seems reasonable to bring network interconnections (e.g.
peering with other operators) and data centers as traffic offloading points as close
as possible to the demand i.e. the customer. In practice, the right number of
locations requires careful planning and depends on various aspects such as the
commercial aspects that mainly drive peering agreements, the existing fiber infrastructure, redundancy, and quality requirements imposed by services.
Data centers evolve towards flexible and shared resources where all elements
for service creation (e.g. mobile core, IMS, AAA), auxiliary network functions
(e.g. firewalls, load balancer, etc) and the network within the data center itself
(switches and virtual switches) are implemented in a virtualized manner: Services
instantiated on virtual machines can be flexibly shifted, deployed, chained
7
46
Cf. Gonsa/Chrestin/Reith, Virtualization, p. 56 pp. in this volume.
and terminated according to changing demands. Apart from some services that
are highly critical for business continuity, resources for network, computing and
storage can be shared. In such a highly dynamic environment, traffic flows must
be precisely and flexibly programmed, making SDN a perfect choice.
Backbone Domain
Telcos can choose to develop backbone networks in two different directions: The
first option is to reduce the backbone to as few as possible locations as p
ossible
or even to remove it completely. This approach requires a larger number of
(potentially paid) interconnections with other operators and a larger number of
data centers that host content delivery networks (CDN) to reduce the amount of
traffic that needs to be offloaded to other operators.
Figure 2: In future network architectures, new trends will find entrance in all domains.
Interconnection
Fixed/Mobile
integration
3G/4G
...
eNo
Nod deB
eB
SDN
SDN
misc
OLT
Fiber
Dynamic discovery
& configuration
(IP) Edge Device

Multi-layer
integration
Cooper
Service
virtualization
WIFI
Backbone
router
WIFI access
Last Mile
Access
Aggregation
SDN
SDN
Data center
Backbone
Offloading
Source: Detecon
47
The second option is to build and actively develop a highly efficient backbone
network that allows optimizing the costs for interconnection and number of
data centers and which is used as well to transport traffic of wholesale customers.
In this case multi-layer network architectures will be implemented to ensure
efficiency, integrating network devices from optical and packet domain and
optimizing planning and operation across network layers. In a converged backbone that transports traffic for a large variety of different service types a fine
granular control of flows and the centralizing of the control plane becomes more
important, making SDN also a design model for the backbone domain in midterm.
It is a strategic decision for the operator which of the two directions to follow in
the backbone domain depending on its business/wholesale strategy.
The decision is yours!
The trends for future network architectures form a tool-box for operators that
can be used to cope with todays and tomorrows challenges. Which tools to use
and how to prioritize them, is a question that depends on the operators specific
situation. From the architecture options mentioned above we have extracted nine
and evaluated them based on the typical situation of a incumbent Telco with
a full-service portfolio (fixed and mobile). The nine architecture development
options are:
>
>
>
>
>
>
>
>
>

SDN in the data center

SDN for flexible service production
SDN in the operators WAN
Network Function Virtualization (NFV)
Multi-Layer Planning and Operation
Multi-Layer hardware integration in network devices
Fixed-mobile convergence in transport networks
Fixed-mobile convergence in core networks
Network Architecture that implement full process automation by either the
static or dynamic model
The following figure gives a qualitative evaluation of these options regarding

their readiness for implementation short- or mid-term and regarding their
estimated financial impact CAPEX or OPEX savings or potential for new
revenues. The size of the circles indicates the implementation effort.
48
Based on its own specific situation, Telcos should make their own assessment
of these options for future network architectures and create an implementation
roadmap. The success of implementing new and innovative network architecture
concepts will depend significantly on the question if Telcos are able to converge
their organization along with their network architecture. For most of the
architecture options, a focus must especially be set on the integration of IT and
network organization and processes.
Some of the opportunities for future network architectures raise again the
questions if the Telcos want to focus on services development themselves or
prefer partnering models for example with OTTs. This business decision needs
to be taken by the Telco based on its own strategy and capabilities. The good
news from the network and its architecture is: You are free to choose both will
be supported and possible!
Figure 3: Time and impact evaluation of network architecture options
High
FM transport
Financial Impact
Multi-layer
plan and
operate
Full automation
(static/dznamic)
FM Core
SDN for
services
NFV
SDN in WAN
SDN in DC
Multi-layer
hardware
Medium
Now
Readiness for Implementation
Mid/term
Source: Detecon
49
Interview
At the Forefront: Network

Expansion Oriented to
Customers and Needs
50
The dramatic growth of traffic in telecommunications

networks entails a need for transmission speed and
capacity at all network levels which is growing at an
equally rapid pace. Telecommunications companies
must find a way to accomplish the required network
expansion, despite the immense financial resources it
will devour, in the face of modest prospects for
earnings. The challenge appears to be as daunting as
the squaring of the circle. Martin Bouchard, Senior
Vice President Functional Strategy and Programs
Technology, and Stefan Rinkel, Vice President Network Strategy, are the people responsible for network
strategy at Telekom Deutschland GmbH;
in the following interview, they answer questions
about the approach taken by a large European
incumbent to these challenges.
At the Forefront: Network Expansion Oriented to Customers and Needs
Question: How important do you believe the influence of technology strategy

will be for the overall success of Telekom Deutschland?
Martin Bouchard: Our technology strategy will determine the performance
capability and quality of our networks, so it is both the foundation and a key
success factor for an integrated carrier like Telekom. Securing the high quality of
our network means constantly investing in our network. Some of these investments have a very long timeline. In this sense, the right technology and network
expansion strategy represents a major factor for the long-term value of investments in the future of the corporation. That is why we are determined to continue the pursuit of our integrated network strategy as presented to the capital
market at the end of 2012.
Question: What will be the greatest challenges for Telekom Deutschland over the
next five years from the technological perspective, and how are you addressing
them?
Martin Bouchard: First on the list of key challenges is the optimized expansion of
broadband. We must maintain our market leadership in mobile service, continue
to expand our optic fiber lines in orientation to need and competition, and raise
the bandwidth in our existing copper-based grid by the use of vectoring. S tarting
from the basis of our high-performance fixed and mobile networks, we will
further enhance the broadband experience of our customers by offering convergent products. Other elements in our broadband strategy include cooperation
with partners and participation in public tenders for the subsidized expansion.
We regard the conversion of these grids into more flexible, more modern networks to be the second challenge. Our IP transformation is creating a simple
and efficient network architecture which substantially heightens our flexibility
during product launches and enables simpler processes when customers move
or change to a different product. In addition, we are opening our networks to
our wholesale customers by offering bitstream access services. Moreover, network
modernization allows us to shut down older platforms in consideration of technological aspects and in conformity with market demands.
The third challenge is in the more efficient production of our services. The
methods range from the virtualization of certain network functions to integrated planning with a long-term orientation such as that of access networks, for
51
Interview
instance, which take into account the optimal interaction of fixed and mobile
network expansion and the relevant technological developments. By s ignificantly
tightening the meshing of product development, technology, marketing, and
sales, we also ensure that the network platforms which have been built are used
to their full capacity more quickly and we amortize our investments.
All three of these focal points are being driven forward in concrete programs and
projects.
Question: What principles is Telekom Deutschland using as the basis to optimize
the further expansion of network capacities in terms of efficiency or while simultaneously sparing the investment budget?
Martin Bouchard: The expansion of our network is oriented to need, i.e., on the
basis of principles oriented to customers and competition. Our customers receive
from us the network they need so they can make optimal use of the services they
utilize at the right place, for the appropriate device, with the necessary bandwidth and quality.
However, this also means that we do not necessarily provide the greatest bandwidth; instead, we offer as much bandwidth as the customers need but in
excellent quality. This is the reasoning behind our current focus in many cases on
FTTC (fiber to the curb) expansion, which is less demanding on resources, over
FTTH (fiber to the home). A significant part of this newly created infrastructure
will serve as the foundation for future expansion stages, at which time we will
bring optical fiber even closer to customers.
Question: How important do you believe the following technological trends and
technologies will be for Telekom Deutschland with respect to the not-so-distant
future: SDN, virtualization, small cells, WiFi?
Stefan Rinkel: SDN, virtualization, small cells, and WiFi are completely separate subjects which will each gain in importance in its own way. That is why it
is very important to be at the cutting edge of technological development and to
integrate it early into the technology portfolio. With this in mind, we here at
Telekom are active at international conferences and in standardization work. Of
course, some key questions are still waiting for an answer such as when the new
52
At the Forefront: Network Expansion Oriented to Customers and Needs
technologies will be ready for the market and in what scope an expansion appears
to be optimal from an operational and an economic viewpoint. But the future
is clear: We will virtualize more and more network functions and utilize various
technologies even more holistically so that we can satisfy our customers demands
for bandwidth.
Question: What major factors limit the selection of the optimal technology, and
just how great is their impact?
Stefan Rinkel: Besides the issues of financial and personnel resources, there are
limitations with respect to the availability of services we procure on the market,
ranging from civil engineering to IT support services. In addition, we constantly
ask ourselves how many projects the company can and wants to manage parallel
to one another. In this context, a project portfolio management which functions
effectively plays a weighty role.
Yet another key question asks when new technologies will be available at a carrier
grade level, i.e., when they will be ready for the market and technologically mature and can be offered by multiple manufacturers. Telekom Deutschland places
great value on innovation leadership and works with its partners to drive technological innovations forward, but at the same time we do not lose sight of a multivendor strategy and the deployment of mature technologies.
Question: What convergence topics will be the most important in the future for
you: convergence of network and IT, convergence of fixed and mobile, convergence of the network layers, or other areas?
Martin Bouchard: Telekom is an integrated player. We offer our services, both
in fixed and mobile networks, across all network levels. Convergence topics hold
a key position when it comes to differentiation in competition. As networks are
being converted to IP technology, the convergence of network and IT as well as
the convergence of network levels are already playing an outstanding role. The
convergence of the networks (fixed and mobile networks) is even now reality at
the planning and roll-out levels and will continue to be expanded. At the service
level, we are in the process of developing a genuinely hybrid product which will
link fixed and mobile networks even more closely for customers.
53
Interview
Question: What decisive changes in organization and processes will convergence

issues bring about?
Martin Bouchard: Several years ago, Telekom Deutschland took a significant
organizational step in the form of its orientation to one technology. At that
time, we brought fixed and mobile networks together. The common orientation
of technology and IT is also assured by the interlocking of personnel. Moreover,
we more and more frequently work from a project orientation position when
we take on new topics. In these projects, the early integration of the appropriate
skills assures the cross-division and convergent aspects. There is an ever greater
aggregation, nationally and internationally, of the networks at the operating level
as well.
Question: What importance do you attach to the realization of partner models
with OTT providers, and what is decisive from a technological perspective for
taking advantage of opportunities or controlling risks?
Martin Bouchard: Our networks live from the attractive services which are made
accessible by partners and OTT providers. Most of these services are developed
and provided by Telekom directly. But we want to make use of the creativity of
third parties as well in this highly dynamic environment, and we are happy to
be their network partners. Our collaboration with the music streaming provider
Spotify is one example. Our goal is to integrate partners and their products into
our network and our processes quickly and flexibly.
54
AtNew
the Forefront:
Network Strategies
Network Expansion
keep Telecommunications
Oriented to Customers
Business
and
profitable
Needs
Deutsche Telekom is one of the worlds leading integrated telecommunications companies,

with some 143 million mobile customers, 31 million fixed-network lines, and more than
17 million broadband lines. We provide fixed-network/broadband, mobile communications,
Internet, and IPTV products and services for consumers, and information and communication technology (ICT) solutions for business and corporate customers. Deutsche Telekom
is present in around 50 countries. With a staff of some 230,000 employees throughout the
world, we generated revenue of 60.1 billion Euros in the 2013 financial year, over half of it
outside Germany.
55
Virtualization
Is Transforming the
Telecommunications Industry
Dr. Osvaldo Gonsa, Dr. Arne Chrestin, Lothar Reith
> Virtualization has the potential to transform
the telecommunication industry.
> Virtualization could become an outstanding
catalyst for transformation in the competition
against Internet software giants.
> Innovation management and product
development are at the epicenter of the
changes triggering virtualization in the
telecommunications industry.
> The merging of network operation and
IT service management driven by virtualization
is both a challenge and an opportunity to
re-engineer and to simplify processes
in network operation.
56
Virtualization Is Transforming the Telecommunications Industry
The potential to transform

Virtualization is a method for the allocation or in the opposite case, the
consolidation of computer resources so that at least one physical machine
executing command code is turned into a number of machines executing
command code.1 The latter are known as virtual machines (VM) because this is a
logical rather than a physical allocation. When time-sharing processes are
running, for instance, virtual machines become active either alternatively or as
needed. The virtualization software creates an abstraction layer which models
the available hardware resources multiple times, depending on capacity, for the
upper layer of applications and services.2
The application of server virtualization to network functions which previously
ran on dedicated hardware and in the future will run on standard servers as
VNF (virtualized network functions) has triggered a process of transformation.
Network functions virtualization (NFV) continues to drive this transformation.
Figure 1: Depiction of virtualization
SILO Deployment
APP
APP
APP
APP
APP
APP
OS
OS
OS
OS
OS
OS
Virtualization Software
Source: Detecon
1

2

Cloud Computing Uncovered: A Research Landscape, Mohammad Hamdaqa and Ladan Tahvildari,
ADVANCES IN COMPUTERS, VOL. 86, p. 41, 2012. ISSN: 0065-2458.
An Introduction to Virtualization: Amit Singh, January 2004,
retrieved from http://www.kernelthread.com/publications/virtualization.
57
The roots of virtualization are to be found in forty years of backward-compatible

software development in the areas of compute (X86 architecture of the first IBM
PCs), storage (hardware and software architecture of the IBM PCs with hard
drive storage and memory), and network (forty years of Ethernet). An a dditional
factor is in the open source movement, which is rooted in Linus Torvalds
decision to develop the open source operating system Linux, initially for an X86
processor in 1991.
The open source movement has transformed IT on a broad scale since 1991 and
the open source Linux has become the dominant operating system. There are
many indications that a similar transformation is imminent in the telecommunications industry. Important virtualization components are being provided by
the open source movement, these include e.g. Open vSwitch for virtualization
of local networks on one server or OpenStack as a tool for the orchestration of
cloud-based services utilizing virtual computers, storage, and networks.
All of this is supplemented by the trend to SDN (software-defined networking),
which separates a part of the network intelligence from the discrete network
nodes and places it in a central position as a kind of traffic control center. Used in
conjunction with modern network analysis methods, it enables improved traffic
management with higher granularity of the regulated traffic flows and p
rovides
access to applications via so-called north-bound interfaces.3
Hype or catalyst for competition?
Virtualization has the potential to transform telecommunications companies.
This transformation encompasses both, the way companies plan, build, and
operate their networks and the introduction of new business models of network
operators; e.g. entering into partnership in the future with one another and with
new suppliers and partners thus creating new supply chains. Companies will
develop the ability to launch a larger number of products on the market much
faster than today. The underlying physical design of core network locations will
follow the pattern of IT computer centers rather than traditional layouts. The
telecommunications world will become even more of a software-driven industry
than it is today while the pace and potential for innovation will be s ubstantially
greater. That is why virtualization could become an outstanding catalyst for
transformation in the competition against Internet software giants like Facebook,
3
4

58
Cf. Schnitter/Bornhauser, Future Network Architectures, p. 34pp. in this volume.

Can Green IT Bloom in an Economic Downturn? (Market Focus), Datamonitor,
Reference Code: DMTC2262, June 2009.
Google, and Amazon. But how will virtualization impact the telecommunications industry?
Significant savings in CAPEX and OPEX: initially OPEX, later CAPEX as well
Virtualization can legitimately claim to have high potential for the reduction
of CAPEX and OPEX: Substantial savings in CAPEX, which result from more
efficient utilization of server capacity, have been obtained in the financial services
industry, manufacturing, and in health care companies.4
Telecommunications operators fear, however, that substantial CAPEX savings
cannot be expected from virtualized network functions over the short term,
perhaps not even over the middle term. For one, it will take some time until
possible competitors of the established infrastructure providers have gained the
experience and trust which will enable them to compete effectively in essential
network functions. For their part, established telecommunications infrastructure
vendors will keep prices of virtualized systems at a high level for as long as
possible so that they do not cannibalize their traditional hardware-based business
any sooner than necessary. On the other hand, additional costs could actually
be incurred because of the necessity to create special solutions for the transition
period in which virtualized and non-virtualized functions co-exist and this will
also lead to additional CAPEX investments.
During the initial phases of the implementation of virtualization in a telecommunications network, virtualized network functions will operate in parallel to the
existing network of non-virtualized network functions in the form of d
edicated
hardware appliances. Operation of this equipment will not be suspended until
the new technology has convincingly demonstrated its reliability taking into
account the depreciation periods as well. So additional OPEX costs for parallel
operation can also be expected.. However, in the middle and long term, OPEX
savings will represent the lions share of the potential for cost reductions. Virtualization favors a trend to consolidation and site locations reduction which is
generally going on anyway and offers substantial potential for the reduction of
personnel expenses in network operation. Moreover, virtualization can reduce
expenses for energy, e.g., by shutting down servers when there is little traffic
and through more effective utilization of server capacity and the resultant lower
requirements for area and cooling; overall, there can be better exploitation of the
scaling effects in both the network infrastructure and the network operators IT
infrastructure.
59
Moderne Netzkonzepte
Manufacturer dependency: is it possible to avoid it or only shift it

Telecommunications companies today have little freedom of choice for sourcing
infrastructure outside of a small number of highly specialized providers, but the
supplier pool for virtualization products will expand enormously in the future.
The entry hurdles to the market of virtualized network functions are much lower
than to the market of dedicated hardware appliances if for no other reason,
simply because of the decomposition into smaller functional components. A
possibility is to integrate these components as functions in nodes concatenated
in a service chain where data packets are transported along a chain of service
nodes as a means of performing a service. The result can be the rise of an ecosystem from which telecommunications companies can flexibly serve themselves
in the future, taking only what they need a revolution in the telecommunications
supply chain!
The liberation from manufacturer dependency thanks to the utilization of
standard servers instead of manufacturer-specific hardware solutions is often
mentioned as one of the most important benefits of virtualization. A closely
related factor is the flexible positioning and scaling of so-called workloads, the
amount of work that one instance of a virtualized network function carries out
within a defined period of time, e.g., during rush hour. This flexibility demands
a price in the form of an additional abstraction layer on every server, the so-called
hypervisor for server virtualization.5 This is what makes it possible to have
multiple virtual machines, each of them performing one network function as a
workload, on a single physical machine. Any manufacturer dependency is no
longer related to specialized network functions, but more with respect to the
hypervisor software, at least when certain performance features are used which
have been implemented in different ways by hypervisor producers.
A different manufacturer dependency6 may be created during the selection of
the tools for the management of the virtualization environment and during the
selection of the orchestration system because a change of manufacturer at this
level is a highly complex affair. Manufacturers of virtualization environments
(hypervisor system manufacturers) are restrictive in granting permission for automatic integration via the management console because this limits their freedom
to make changes and their flexibility. There are exceptions for the vendors
accredited partners which are actually able to integrate with that vendors
management console.
5
6
60
Ovum Decision Matrix: Selecting a Virtualization and Cloud Management Solution, 2013/14.
Ovum Report: Virtualization and Cloud Management, An introduction for IT Management , 04 Apr 2013.
The development on the market for management tools used in virtualization

environments indicates however that manufacturer dependency is declining in
importance. More recent developments in so-called cross-management tools
demonstrate that some manufacturers are prepared to lower barriers so that they
can offer cross-hypervisor management. As of now, the scope of these functions is
limited. It is advisable to exercise great caution when selecting the manufacturer
of these upper-level systems because this can lead to long-term dependency on a
single manufacturer.
Increased competition: new market players sense opportunities
When a market is undergoing a period of disruption like the one the telecommunications market will be facing from virtualization, new market players seize
upon the opportunity to gain market share. These players may be new start-up
companies or established enterprises from a neighboring market. Since virtualization enables the previously separate worlds of network outfitters and the software industry to blend together, established IT companies such as HP, IBM, or
Oracle are in an outstanding starting position to secure growing market share for
themselves on the market of the telecommunications suppliers. But other companies such as Red Hat, which have grown up with the open source movement,
also have a good chance to grab a piece of the pie. As it is the market leader on the
virtualization market, the company VMware is in an especially strong position,
but the competition with open source-based virtualization environments for the
network operators business is stiff. Manufacturers of standard servers and chip
producers have also recognized the potential in the telecommunications market
and are focusing their development on requirements from this sector. Various
smaller providers are already offering what used to be hardware appliances as
virtualized network functions and have installed them in pilot or even productive
operation in the systems of innovative network operators. They are using the
experience they have gained as an advantage and are expanding vertically by
adding other network functions. The broad scope of the offered services and
products is impressive even now. Network operators would be well advised to
analyze this diversity in offered products thoroughly so that they find the partners
who best fit to the situation of the specific network operator.
61
Integration expenditures: reduction through standardization

Telecommunications companies have always designed and built new products
as silo solutions. This approach requires substantial expenditures for integration
and is a straitjacket for multivendor strategies.
The integration expenditures decline substantially when virtualized network
functions are used because of the utilization of standardized hardware and
standardized API interfaces. The utilization of standardize and, therefore open interfaces is being driven forward by the broadening of the manufacturer s pectrum
and the necessity of combining partial functions from various manufacturers.
This is exactly what network operators want to see because they do not want
to be tied to specific suppliers, and their selection criteria are encouraging the
trend. Suppliers whose proprietary interfaces and extensions make integration
with other manufacturers more difficult or permit integration solely by means of
an expensive, upper-level abstraction layer are falling behind.
Software developers incorporate the virtualized network functions into their
service applications via these well-defined open interfaces and can rely on the
functions provided by such interfaces. This is the route commonly taken in software development procedures and is followed by Google with its open source
operating system Android and by Amazon in its cloud services EC2 and AWS.
The expectation is that the integration of virtualized network functions into new
services will involve relatively low expenditures. The required open API interfaces are created as open source software within the framework of open source
projects, a process which is one of the forces driving virtualization.
Innovation engine at many levels
Innovation management and product development are at the epicenter of the
changes triggering virtualization in the telecommunications industry.
Focus being shifted to business model and process innovation
A study by IBM7 documents that, in comparison with other industries, top
management of telecommunications companies pay more attention to i nnovation
in the area of products and services and are less concerned with business model
and process innovation. Business model innovation encompasses the develop-
62
IBM Global Business Services, The Innovation Paradox in the Telecom Industry, 2006.
ment of new business fields and cooperation with new partners from other
industries while process innovation leads to a rise in operational efficiency. This
study points out that business model and process innovation has proved to be
substantially more effective than product innovation for heightening p
rofitability.
The overemphasis on product innovation in the telecommunications industry is,
at least in part, a consequence of the high requirements for capital and the r elated
lock-in with only a few manufacturers with whom the operators are engaged
today because of the high barriers to change. This gives them a strong incentive to
utilize existing systems to the greatest possible extent and to continue operating
with the current business model.
The transition to virtualized network functions can be expected to result
in CAPEX savings of only minor scope initially, but there will be substantial
cost savings in the OPEX area. The demand for capital will decline significantly overall. The lock-in to a limited number of manufacturers will also
break up. This development will allow a sharper focus on business model and
process innovation in the telecommunications sector as well. Moreover, the
generation of new opportunities on virtualization will encourage business model innovation directly.8 Thanks to their resources and infrastructure, telecommunications operators could better play up their unique selling propositions
and compete more effectively with OTT providers such as Google, Facebook,
and Amazon. The use of open source supports increased cooperation with large
developer communities. This trend will play an important role in this context.
Powerful innovation capability is a prerequisite for telecommunications
companies if they do not want to end up as nothing more than a pure bit carrier
in a less attractive position in the value chain.
Shortened product cycles improve network operators agility
Virtualization heightens network operators agility in the development of new
services in a number of ways. Virtualized network functions can be started
up and shut down again on the existing virtualization infrastructure at only
marginal cost. There are no lead-in times for planning, ordering, delivery,
installation, o perational startup, and system integration of specialized hardware.

Virtualization puts telecommunications companies in a position from which
they can respond more adequately to changes in market demands, e.g., through
faster product development and greatly simplified processes. Full automation of
the product-specific capacity management in the orchestration system replaces
8
63
anual, product-specific capacity management processes for the planning, buildm

up, and dismantling of dedicated resources. Essentially, these are the advantages
of cloud computing, which virtualization is also bringing to network operators.
New development methods such as SCRUM can be combined with virtualization to bring about major reductions in product development times. Using
virtualization technologies, feedback about prototypes can be obtained from real
customers at an earlier point in time. Pilot phases can be carried out for precise
target groups with comparatively low expenditures of time and money. These
factors will enable telecommunications companies to design, test, and launch
products on the market faster. They will even be able to position niche products
for smaller target groups on the market which could previously not be addressed
because they were not profitable. The marketing of so-called long-tail products
becomes possible. However, rigorous life cycle management is required to prevent
the uninhibited proliferation of virtualized network functions which are used so
infrequently that revenues do not cover costs despite the lower operating costs
of virtualization.
Another aspect is the trend to decomposition of applications and network functions. Smaller and more specialized network functions are created as modular
components which are more suitable for flexible assembly of new products and
services. This trend to specialization is favorable to the entry of new, small competitors on a newly evolving market for specialized network functions which
become a component of the telecommunications supply chain.
It can be expected that competing marketplaces for these specialized network
functions will appear in the future, similar to the app stores for mobile end
devices to. Third-party developers will be able to offer network functions to
network operators, and the latter can install these functions in their networkbased products in real time. Simple examples are firewall, load balancing, antivirus, and content filtering services (parental control) as virtual network functions
which adapt automatically to the changes in the virtualization environment within the framework of a service chain such as the addition of a virtual machine or
its transfer to a different physical server, i.e., a transfer during operation without
service interruption. Product managers in telecommunications companies will
take advantage of this to combine components from a number of m
anufacturers
and compose new products using so-called service chains comprising service
nodes which apply network service functions to data packets running through
the service chain. This will be a radical transformation of the process for creating
a new telecommunications product which today is still very tedious and
64
protracted. The direction is clear: towards greater automation and enhanced

agility for network operators.
But virtualization will also bring about changes for the end customers of telecommunications operators. Instead of various customer devices highly specialized
for a specific purpose (CPEs, customer premise equipment), operators will in
the future deliver a small standard server they control themselves and which is
integrated into the operators virtualization environment via a secure interface.
Depending on the requirements of the specific market and customer, this can
be a very low-cost device with limited flash storage and a simple processor or a
powerful home server platform. The required applications will be downloaded
and booted by automated processes or will be made available right from the network operators cloud.
Innovative billing methods make new partnering models possible
Billing and charging, i.e. the capture of usage data for calculation of a charge to
be put on a debit or credit account, do not at first glance appear to be affected
by virtualization. Today, charging takes place mainly at the application level
and is independent of whether the application is running on dedicated hardware or in a virtualized environment. With the implementation of modular network functions being flexible elements in a service chain it becomes possible to
design usage measurement as a specialized network function within a service
chain. This could simultaneously control service quality as a function of price,
whereby integrating policy and charging.
A network function for charging enables network operators to design more
flexible business models such as revenue sharing with content providers and other
activities. One could imagine the extension of todays online charging functions
to include the simultaneous debiting and crediting of charges for the various
parties involved in the performance of the service such as end customers, network operators, marketplace operators, and network application developers. This
would open the door to the creation of new business models such as the cooperation of a number of network operators or the cooperation of network operators
and content providers involving the participation of marketplace operators and
network application developers. Functions of this type would equate to a quantum leap in agility for telecommunications companies, which suffer especially
from the lack of flexible billing methods during the introduction of new products
because their implementation in the OSS and BSS systems takes a very long time.
65
Innovation push from open source software

The use of open source software and the exploitation of the potential in the
open source movement are closely tied to the transition to virtualized network
functions. In contrast to the telecommunications hardware now in use, software
development for x86 platforms is generally accessible. This is allowing open
source software to establish a foothold in the telecommunications segment as
well, a situation which can decisively impel the innovation and competitive
capabilities of network operators.
By using open source software, network operators obtain access to the innovation potential of a developer community distributed all around the world.
Marketplaces for network application developers arise and stimulate further
growth of the developer community because there is a business model with low
entry hurdles for the development of virtual network functions. The business
model is not based on the licensing of software, but on the use of virtualized
network functions subject to a fee. A completely new ecosystem evolves, based on
a win-win situation for network application developers, marketplace operators,
and network operators. Network operators are the customers on this marketplace; they look for network functions suitable for the composition of their new
products, assemble the functions to satisfy their specific needs, pay according to
what they use, and pass on the costs when they bill their customers. Marketplace
operators who act as the link between supply and demand will play a new and
decisive role. Some of the first examples of such ecosystems to appear include
the SDN App Store announced by HP and similar partnerships for VMware
aiming at the integration of various virtualized load-balancing and firewall network functions as a solution distributed in the network. New technologies such
as Semantic Web (Web 3.0), context-sensitive services, and software agents have
greater opportunities to find entry into network operators service portfolios via
ecosystems like these.
Open source software is an important component of these ecosystems. The open
source movement and its many projects and communities have proved that they
can transform and simultaneously drive forward an entire industry. Some of the
software programs most used worldwide today are based on open source b ecause
the principle of open source software ultimately generates superior quality and
verifiable security. Generally speaking, the use of open source is innovationfriendly because the source software is disclosed and is accessible to the developer
community for improvements. Open interfaces for the integration of function
blocks (APIs) are innovation drivers as well. They allow software developers to
access a large number, even entire libraries, of components and in the future
network functions without having to reinvent the wheel every time.
66
Simplification through comprehensive re-engineering of processes

As virtualization moves in, telecommunications companies will have to examine
closely some of their traditional ways of thinking. This will affect a number of processes which can be eliminated completely, automated, or radically re-engineered
and simplified. There will be related changes in the demands made on the knowledge and skills of the employees because the human factor will play a major role.
The process domains of the enhanced Telecom Operations Map (eTOM) the
framework for business processes in telecommunications companies defined by
the Telemanagement Forum (TMF) during years of standardization work will
be affected to varying degrees.
Figure 2: eTOM Processes
Customer
Strategy, Infrastructure and Product
Strategy and
Commit
Infrastructure
Lifecycle
Management
Operations
Product
Lifecycle
Management
Operations
Support and
Readiness
Fulfillment
Assurance
Billing and
Revenue
Management
Marketing and Offer Management
Customer Relationship Management
Service Development and Management
Service Management and Operations
Resource Development and Management

(Application, Computing and Network)
Resource Management and Operations

(Application, Computing and Network)
Supply Chain Development

and Management
Supplier/Partner Relationship Management
Enterprise
Management
Strategic and
Enterprise Planning
Enterprise Risk
Management
Financial Asset
Management
Enterprise
Effectiveness
Management
Stakeholder and
External Relationship
Management
Knowledge
and Research
Management
Human Resources
Management
Source: Detecon
67
It is obvious that changes for processes in the area Infrastructure Lifecycle

Management and the area Operations Support and Readiness are imminent.
The processes of Infrastructure Lifecycle Management will benefit from the
standardization of the infrastructure on standard servers with standard networking on an Ethernet basis and from a standard solution for network-based data
storage a major simplification in comparison with todays situation of many
product-specific silos, characterized by special life cycles specific to manufacturer
in each case and administrated by means of historically developed special solutions. The processes in the area Operations Support and Readiness serve the
provision and capacity management of the network infrastructure. They will be
drastically simplified because the network infrastructure is independent of the
product. Instead of product-specific hardware appliances, nothing more than
standard servers with standard network connection will be installed and operated
as network, storage, and server factories. Key processes in this area will be able to
run almost completely automatically in the future.
System automation (SA) is an integral part of the virtualization strategy. It e nables
automatic operation of the virtualized components managed in accordance with
guidelines (policy-based). SA has the capability of delivering a self-healing and
high-availability solution and of maximizing efficiency and availability of critical
systems and applications. In this case, the product-specific capacity management
must be assumed by the orchestration layer, which decides where an additional
workload will run, i.e., on what server an additional instance of a virtualized
network function is to be launched. This should be as close as possible to the
location of the demand, whereby ideally the current utilization of the required
networks, CPU, and storage units will be taken into account. If there is not
enough capacity available anywhere in the network or if a local or network-wide
capacity threshold value is exceeded, a manual process is initiated for the addition
of another standard server with a standard network connection and standard
storage unit.
Administrative tasks such as backup, recovery, and fault management can easily
be handled using scripts. Besides the ability to respond to operating incidents
almost in real time, the high degree of automation resulting from virtualization
also has the potential to reduce administrative costs as well as the o perating tasks.
The computer center staff employs user interfaces to create virtual servers on any
platform quickly thereby reducing drastically some major steps in the traditional
value chain. Automation makes it possible even for end customers in the business
sector to book virtual machines with the necessary connection to storage and
network on a self-service portal and to control and monitor the assignment of
workloads themselves. All in all, automation and self-service functions reduce
68
operating costs substantially because complex processes are automated, o peration

becomes simpler, and in the final analysis personnel expenses for operation
decline.
Another source for process simplification could be the implementation of the virtualization technology described above on the end customers premises in the form
of a server, programmable by the network operator without any restrictions, as a
virtual CPE. This could be administrated using the automated standard processes
of the orchestration layer, enabling the provision of updates, new functions, and
products in the simplest way possible. The previously described reformation of
the value chain through the combination of specialized network functions will
also lead to a transformation of additional telecommunications processes. In this
case, the eTOM process domain Product Lifecycle Management in particular
will be affected.
Since current virtualization technologies put important network aspects in the
hands of the service administrators or so-called DevOps who are responsible for
system operation and the development of software systems, there is a shift in
power distribution in the direction of server teams and DevOps and away from
the network teams. There is a risk that the latter will no longer have a complete
overview of all of the network aspects. So-called SDN overlay networks virtually relocate the network edge even farther to the outside and into the physical
server, which is also known as the virtualization host. This blurs the boundary
between the traditional process world of network operation depending on the
implementation variant of this network edge and process worlds from the IT
environment such as the IT infrastructure library (ITIL), which propagate
themselves into network operation. Most telecommunications companies will
already be using ITIL for the eTOM process area Assurance, anyway. ITIL is a
collection of best practices and has established itself internationally in the meantime as the de facto standard for IT service management (ITSM). The merging of
network operation and IT service management driven by virtualization is both a
challenge and an opportunity to re-engineer and to simplify processes in network
operation.
Pace of transformation depends on individual actions
Virtualization is a powerful trend now moving into the world of telecommunications. At this time, the first steps in the direction of virtualization in various
network domains are being taken. The previously mentioned CPE virtualization
and the virtualization of service layer functions are two examples. In addition,
69
the virtualization of control plane functions appears to be especially interesting.

This includes packet gateways in mobile networks, including the Layer 4 to Layer
7 value added services within the Gi LAN such as deep packet inspection as well
as components with similar function in fixed networks.
Virtualization has already transformed the world of IT a data center w
ithout
virtualization is no longer imaginable. The world of telecommunications
has certainly understood that so-called OTT players like Google, Amazon,
and
Facebook have far lower costs and can develop greater dynamics.
Telecommunications companies have decided relatively late in the game to take
advantage of what virtualization can offer. But now they are making intense
efforts to exploit the potential to cut costs and the opportunities for s implification
such as those in the field of simpler processes.
New competitors, characterized by great differences in size, focus, strategy, and
market approach, are entering the market, lured by the current state of disruption.
This has an undesirable side effect of heightening the confusion. The market is
still in an early stage and highly fragmented, as is indicated by the diversity of
providers and the diversity of pertinent products. An in-depth analysis is needed
to recognize the future winners at an early point in time.
One important influencing factor is the strength of the existing lock-in of network operators with specific network equipment vendors, an association which
has often developed historically over the course of many years. Cutting loose
from their grip in order to enjoy the advantages of a diversified ecosystem among
suppliers is a long process. This situation has an inherent risk that delay tactics
on the part of the established vendors could hinder the introduction of virtualization of network functions.
Telecommunications companies could make use of virtualization as a catalyst to
accelerate the transformation of their own innovation culture: moving toward
competition of innovation instead of competition of price. Innovation ties up
less capital when virtualization reduces OPEX and, to some extent, CAPEX for
dedicated hardware systems in test and production.
70
The experience from the first wave of investments is evidence of how meaningful
it is for telecommunications companies to rethink their business models and
organizational structures. In our estimation, however, it will be some time before
established network operations understand virtualization as a catalyst for transformation and at least five years before virtualization is being used on a wide
scale. Every network operator sets its own pace. As soon as it becomes clear
how operators can be liberated from manufacturer lock-in, and as soon as clear
evidence of superior quality of open source software is provided by important
open source projects, the competitive environment and the entire market will
change from the ground up. Network operators who refuse to go along with this
transformation will, in the middle to long term, lose their competitiveness.
71
Interview
Interview
The Network Must Take Over

the Intelligent Management
of Data Traffic.
72
In view of the predicted growth in traffic, network

operators must continue to expand the capacity of
their networks. Yet the paucity of financial
resources will force them to find ways to carry
out this expansion as efficiently as possible.
Jochen Apel, CTO Deutsche Telekom Global
Account and Head of Technical Sales Central Europe
at Alcatel-Lucent Deutschland AG, describes how
network operators can prepare to meet this
challenge and which solutions are offered
by equipment vendors.
Die FunktionThe
der intelligenten
Network Must
Steuerung
Take Over
von
theDatenverkehr
Intelligent Management
muss das Netz
of Data
bernehmen
Traffic.
Question: Looking at the situation from the equipment vendors perspective,

what will be the major infrastructural challenges which network operators will be
facing in the coming years?
Apel: There will be a number of different challenges, driven by consumers
steadily growing hunger for bandwidth and by megatrends such as M2M or
the Internet of Things. One of them will be the provisioning of ever greater
bandwidth for consumers; others will be related to low latency, extremely high
availability, and secure and protected transmission of content. The rule that data
volume on the Internet almost doubles every ten months continues to hold true.
Five years ago, we were very aware when we went onto the Internet; today,
we dont give a second thought to whether we are on or off. We are always
on the Internet. The Smartphone is on the Internet. The television is on the
Internet. The notebook or tablet as well. Even the car, the wristwatch, our home.
Everything and everyone is becoming more and more tightly networked with
everything and everyone else, 24 hours a day, seven days a week. We expect
worldwide growth to more than twelve billion devices by the end of 2015 in the
M2M sector alone. Moreover, there will be an increase by more than 800% in
video consumption and the doubling of app downloads. All of this will probably
take place within a time period of less than four years.
Neither a mobile network nor a fixed network can today master such massive
challenges on its own. The key to successful handling of these tasks is to ensure
that the network which is able best to manage a specific task is actually doing
so. One important element here is the management of data flows. However,
customers do not want their data traffic to be viewed as part of the problem.
Their willingness to accept limitations is not very great. So the network must take
over intelligent management of data traffic.
Network operators will continue to invest primarily in the expansion of access
technologies such as Vectoring and FTTx in fixed networks and LTE and LTE
Advanced (to a certain extent, carrier WiFi as well) in the mobile sector. Whether
access is provided by copper cable or via radio, the same principle applies: the
greater the bandwidth, the nearer the active access technology must move to
customers. In the fixed network sector, this means that FTTx and Vectoring
must be expanded using additional active network elements which are smaller
than those in use today. The network mesh topology in the mobile sector must
become tighter as well, which means using small cells or a carrier WiFi infrastructure which can relieve the burden on the macro cells.
73
Interview
Question: What essential trends regarding cost reductions or cost efficiency do

telecommunications network operators expect over the next three to five years?
Apel: I basically see two major trends.
The first trend is in the direction of convergent networks and applications.
Historical development has given us our currently separate networks for fixed
network communication and mobile usage, and these networks come together
at the earliest in a transport network which they share in common. Stringent
utilization of IP as a basic technology for mobile networks will greatly simplify
network convergence. The step in the direction of LTE represents an enormous
simplification, mainly because LTE represents the first technology based strictly
on IP in mobile networks. However, the changeover is not only the responsibility
of the CTOs. The challenge in mobile networks is to shut down conventional
technologies such as 2G and 3G as quickly as possible. The people in charge
of products and marketing have a special obligation to move in the direction
of all-IP. This is the only way to achieve a genuine merger of fixed and mobile
networks and the synergies resulting from it. The situation for applications is
analogous. Fixed and mobile networks are still going their separate ways on the
road to all-IP. Yet the appropriate convergent applications such as IMS/VoLTE,
Converged Payment, Policy Server, and others have long since been available.
The second megatrend concerns Network Functions Virtualization (NFV) and
Software-Defined Networking (SDN). Tremendous potential is slumbering here.
These technologies will lead to a fundamental transformation in the way n
etwork
services are produced in the future. Functions such as automatic scaling of
resources and automatic error correction will generate significant improvements
in efficiency. Cloud technologies offer a broad range of advantages, especially for
network operators who operate with a large number of subsidiaries in a global,
or at least European, environment. Today, network functions such as IMS or
enhanced Packet Core (ePC) are produced as dedicated services in every
single network, no matter how small using dedicated hardware and software,
often from different manufacturers, and by a dedicated team of experts from an
operator.These types of functions can be produced at a central location and
used locally with NFV and the corresponding backbone connecting the different
operational companies with each other, leading to savings of as much as 60% for
some services. That can significantly enhance competitiveness, especially on pricesensitive markets.
74
Die FunktionThe
der intelligenten
Network Must
Steuerung
Take Over
von
theDatenverkehr
muss das Netz
of Data
bernehmen
Traffic.
Question: What are the major trends for telecommunications operators when it
comes to new sources of income in the coming three to five years?
Apel: For many people, communications services play a role which is of equal
importance with the supply of electric power. The demand for constant a vailability
of the Internet will continue to rise. Communications networks are even today
virtually omnipresent; we use them at home, while on the go, during leisuretime activities, and at work. Without these networks, our lives would not only be
poorer because of the loss of opportunities to communicate we would also be
substantially less prosperous.
The communications industry will concentrate on providing network access to
people at any time and at any place. The key to success for network operators
is in the provision of high bandwidth in conjunction with the greatest network
availability. Over-the-top Internet players like Google, Facebook, and Amazon
cannot provide such services not yet. But the giant Internet brands need these
services more than ever before. The shifting of more and more data and services
to the cloud will only reinforce this trend. Network operators can upgrade their
port-folios in the cloud. Integrated network and data center services Infrastructure as a Service combine high-value network services with high-availability computing and storage capacity. But if we look at network production based
on NFV and SDN, the same general operating conditions apply equally to both
worlds. Genuine convergence between telecommunications and IT will then be
a reality.
Another important element is the expansion in the number of partnerships. Network operators and Internet players should see themselves as partners, not as competitors. There are certainly inhibitions here in view of the competition among
them in important sectors such as video, voice, and Web services. N
evertheless,
the large brands on the Internet need especially high quality for their services.
This is where network operators can play their trump cards. They can produce all
of the services, in a controlled and guaranteed quality, in very close proximity to
customers. Internet players value this very highly. If both sides show the required
flexibility, they will be able to find business models which are a good fit.
75
Interview
Question: Are there any significant geographical or market-related differences

related to the two questions above and, if so, how can they be described?
Apel: Network operators differ greatly in the way they build their networks and
in the consistency of the definition of their services. Ten years ago, there was an
inclination in Europe to view the communications infrastructure in the USA
as Stone Age. Neither the fixed nor the mobile networks came close to the
standards in Europe. That has turned around completely. Today, Europe is l agging
behind in worldwide comparison. Leading industrialized countries which are our
global competitors grin about the low bandwidth we have available in many
parts of Germany. In the middle term, this will cause massive harm to Europe as
a business location. The fact that not a single large Internet player comes from
Europe tells the story.
LTE is another typical example. While network operators in Europe are putting
massive investments into single RAN technology and with it indirectly still into
2G and 3G, the US is putting its focus on LTE and shutting down legacy technology, overtaking us in the fast lane. If we want to catch up, we have no choice
but to concentrate on the expansion of new technologies and to invest only in
these whenever possible.
Question: Are there any technologies which you believe have disruptive potential
for carriers revenue or cost side in the next three to five years?
Apel: Cloud technologies such as NFV and SDN will have a massive impact on
the costs for production and for the innovation process. New products can be
launched much faster and will require lower investments.
Question: What is Alcatel-Lucents starting point for providing support to
carriers?
Apel: We support our clients as they mold the future. We are strictly oriented
to the growth sectors IP networking, Ultra-broadband Access, and Cloud. A
universal all-IP infrastructure is indispensable for all network operators today,
and we support this infrastructure from the access network to the data center.
During the last ten years, we have risen to second place worldwide in the sector of
IP routing. We incorporate the knowledge we have acquired during this process
into new projects. Nor are such projects limited to the IP routing sector; they
include LTE or IP/WDM integration as well.
76
Network Must
Take Over
theDatenverkehr
of Data
Traffic.
Die FunktionThe
der intelligenten
Steuerung
von
muss das Netz
bernehmen
We provide special aid to our customers during the transformation of legacy

infrastructures such as 2G/3G, SDH, ATM, PSTN, and other networks into
lean and efficient IP networks. It is relatively simple to design and build new
networks. The great challenge is in the shut-down of legacy networks and assuring
a commercial as well as technological transformation of the products.
New disruptive technologies such as NFV offer many different benefits, but
they also confront our customers with immense organizational challenges. It is
especially important in this respect to include customers at a very early stage
of our product development. We call this co-creation. Our customers are
empowered to influence technological development and to build up and expand
their own know-how. We are highly successful in these types of partnerships with
many Tier 1 telecommunications operators through the utilization of our CloudBand solution, particularly in the NFV sector.
Alcatel-Lucent: Alcatel-Lucent is at the forefront of global communications and provides

products and innovations in IP and cloud networking, as well as ultra-broadband fixed and
wireless access. We serve service providers and their customers, as well as enterprises and
institutions throughout the world. Alcatel-Lucents Bell Labs, one of the worlds foremost
technology research institutes, is responsible for countless breakthroughs that have shaped the
networking and communications industry. We have been recognized by Thomson Reuters as
a Top 100 Global Innovator. Alcatel-Lucent has also been named Technology Hardware &
Equipment Industry Group Leader for 2013 in the Dow Jones Sustainability Indices review.
77
Future Broadband
Communication Between
Wishful Thinking
and Reality
Dr. Hans-Peter Petry
> Conventional strategies for infrastructure
implementation can not cope with the growing
data demand. This is in particular true for future
mobile broadband communication.
> Depending on the data rate growth forecast, a
substantial gap between demand and
performance will exist.
> Small Cell architectures offer a way out
of the dilemma.
> But: implementation is not trivial and
requires some paradigm changes.
78
Future Broadband Communication Between Wishful Thinking and Reality
Technologys answers to accelerating data rates

No one disputes the challenge which must be mastered for the technical and
commercially profitable realization of infrastructure and end devices arising from
the rapidly growing demand for transmission speed and capacity at all levels of
the networks. The key question for future telecommunications networks is this:
How well can todays technologies and the capabilities of the various transmission media keep up with this breathtaking growth? Will there be a gradual adjustment of technological performance capability and its progress to meet demand,
or will we run up against immutable limits in some areas which may possibly
force us to find new solutions or to initiate a paradigm shift?
The answer to this question is rather simple. It is founded in the basic principles
of information theory which have been known for quite some time. A
ccording
to C. Shannon (in an article originally published in 1948), the transmission
capacity of any transmission channel is dependent on two essential factors: the
bandwidth of the channel (the scope of the available resources) and the channel
quality which can be achieved in the particular medium, itself determined by
the ratio of receivable wanted signal to the totality of the disturbing signals,
which is basically equivalent to the sum of the noise and interference from other
transmission channels. Once this is known, the familiar transmission media can
be easily classified and possible bottlenecks can be recognized at an early stage.
Different media compared
Let us begin with optical fiber, a transmission medium in the optical frequency
domain. Owing to the extremely high frequency of optical signals, the channel
bandwidth is naturally enormous. As a rule of thumb, a rough estimate is that the
availability of bandwidth exceeds that of all other transmission media by about
six powers of ten, even if no other measures are initiated. Moreover, modern fiber
is almost perfectly insulated from interference so that the signal quality is excellent. These considerations are what make optical fiber the medium of choice with
respect to capacity and bridgeable distance for stationary connections.
The real hindrance is a matter of commercial rather than technological realization:
an optical fiber infrastructure with wide-area coverage is incredibly expensive.
Every specific instance must be carefully calculated, and in many cases the use of
this technology proves to be unprofitable. The limits to profitability excluding
subsidization of course are in the meantime well known. Yet there are still
substantial reserves for optical fiber. Even higher speeds can be achieved through
the application of technologies such as higher-order modulations, familiar from
79
other areas as a means of increasing efficiency, which can provide one more o rder
of magnitude. So we are completely justified in stating that optical fiber is a
medium which can keep pace with the growth rates of future networks without
any trouble, and it is already being used to a significant degree in core networks
today.
Far greater problems are encountered in the access area. International statistics
such as those of the OECD (last revised 2012) clearly reveal that the permeation
of broadband connections using optical fiber technology varies widely from one
country to the next. Japan and Korea lead the rankings with values of 60% to
65%, Europes leader Sweden posts 34%, while Germany is near the bottom of
the list with barely 0.8%.
Why is that? Initially, efforts were aimed at exploiting existing transmission
media mostly copper and coaxial cable to the greatest possible extent. This
is necessary because the broadband resources are several orders of magnitude
lower than that of optical fiber. Coaxial cable turns in the best performance
among this group. In terms of propagation physics, this is a low-pass system with
a usable bandwidth of up to one GHz. Modern cable with double shielding
provides good protection from interference and secures good signal quality. The
latest technologies such as DOCSIS 3.0 utilize in addition modern high-order
modulation technologies such as 256 QAM; increases in efficiency of about one
order of magnitude (factor of 10) are possible. Despite the fact that all users in
a coaxial tree must share the capacity, user data rates of about 50 Mbit/s per 6
MHz channel are today possible for fixed Internet access. If needed, channel
bundling makes it possible to increase this to as much as 200 Mbit/s. However,
it is foreseeable that the potential for any substantial further increases will soon
be exhausted.
Copper cable infrastructures run into this wall even earlier. Owing to the classic
methods used for laying copper cable, the available bandwidth is lower and the
interference level is higher because the twisted copper pairs are not shielded and
are characterized by substantial attenuation proportional to distance as well as
by substantial crosstalk. Despite these disadvantages, sophisticated technologies
such as VDSL and vectoring raise the performance thresholds in real installation
situations to about 50 and 100 Mbit/s respectively. This increase comes at the
cost of a drastic reduction of the distance which can be bridged while m
aintaining
these data rates. As a rule, no more than a few hundred meters is possible, and
the possibility of additional unforeseen effects leads to insecurity in planning.
This is why the promised performance capability includes the qualifier up to,
especially in the DSL environment. The consequence is a
correspondingly
80
issatisfied clientele. Copper has nevertheless always been a variant of distinct

d
appeal but it is definitely not future-proof in view of the continuing rise in user
data rates. Moreover, the improvement from vectoring can be exploited only if
the main cable is under the control of a single network operator an interesting
regulatory task within an open access policy!
Specific challenge: mobile broadband
Naturally enough, broadband communication becomes especially appealing
when it goes hand in hand with mobility. If this were simple and could be
realized without any constraints then all wireline technologies in the access area
would quickly become obsolete. But unfortunately the most difficult conditions
with respect to Shannons theorem are found in the mobile environment. M
obile
communications are possible thanks to electromagnetic waves in frequency
ranges suitable for mobile communications located between several multiples of
10 MHz and a maximum of 3 GHz. Beyond this point, the capability of electromagnetic waves to ensure strong broadband communications without direct line
of sight falls off significantly.
Even if the frequency range described above were fully available, the total resources
would amount to only about three-thousandths of the resources available when
using modern coaxial cable; the discrepancy to optical fiber is completely out
of sight. Frequency bands which are this attractive are of course interesting for
other radio services as well, so the entire range is allocated in an extraordinarily
complex way, utilization is strictly regulated, and changes are impossible w
ithout
protracted international coordination processes. The bottom line is that only a
few multiples of 10 MHz remain available for the individual mobile network
application of a single operator, distributed among scattered fragments. The
fragments themselves typically have ranges of 5 MHz (for 3G systems such as
UMTS) and 10/20 MHz (for 4G systems such as LTE). So even a modern 4G
system has little hope for providing anything better than 20 MHz for a radio
cell. This so-called channel bandwidth is now of the same order of magnitude as
coaxial cable (about 6 MHz here). However, since cable has far greater resources,
there are substantially more channels which can be used for step-by-step adjustments to data growth until the limit to resources is reached. The latest generation
of mobile communications systems such as LTE-A also uses channel bundling,
but the potential for improvement is limited.
Besides the lack of resources, mobile communications must struggle with the second decisive parameter of the Shannon theorem: signal quality. First of all, electromagnetic waves are subject to free-space path loss once they have been broadDetecon International GmbH
81
cast from the antenna, even if there is visual contact. This loss is proportional to
the square of distance and very quickly reaches very high values. In the m
obile
environment, obstacles and the reception circumstances inside of buildings
quickly lead to further substantial attenuation of the signal. To the same degree,
interference between the overlapping radio cells has a negative impact on signal
quality. All of these effects are well known today and are taken into account
during the planning of mobile communications systems.
But if no other steps are taken, this would mean that efficiency the channel
capacity in relation to the resources, measured in Bit/s/Hz would fall to values
well below 1; this was and is the rule for the mobile communications systems of
the first and second generations such as GSM. These systems are consequently
not suitable for true broadband applications.
Limits of efficiency improvement
As necessity is the mother of invention, technology of course began providing the
required improvements which can enhance efficiency years ago. The utilization
of higher-order modulation technologies permits the transmission of more
information by subdividing amplitudes and phases of the carrier signal into finer
and finer gradations up to 64 levels for mobile networks, 256 levels for coaxial
Figure 1: Distribution of the modulation efficiency in a real radio cell (LTE)
Cell efficiency (Bit/s/Hz)
1
m
Source: Comnets
82
Medium efficiency
Maximum efficiency
Example: LTE 20 MHz: Example: LTE 20 MHz:
Medium Rate: 40 Mbit/s
Peak Rate 100 Mbit/s
cable, and as many as 2048 levels for stationery radio relay systems. The capacity
can also be raised exploiting specific propagation phenomena (MIMO: m
ultiple
input, multiple output systems which virtually provide more channels) or the
improvement of the signal-to-noise ratio with intelligent antennas focusing
their beam to the mobile device. All of these tuning measures are adaptive in
todays technology, meaning that they can change dynamically during operation
without the user being aware of it. In the best cases, efficiency can theoretically
be increased by a factor of 20 and more.
But this is exactly the point where another problem comes up: if these tuning
measures change dynamically, it is only logical that the corresponding efficiency
and the possible transmission speed fluctuate and do not always reach the best
possible value. An example will illustrate this clearly.:
Unlike most graphs of this type, this illustration does not show the strength of the
signal distribution in a typical inner city cell; instead, it depicts the distribution of
the modulation rates, equivalent to the maximum speed existing at each s pecific
location. It can clearly be seen here that the maximum possible efficiency (in this
case: a factor of five) can be achieved only at a few positions within the cell. The
usable cell capacity can be calculated only via spatial averaging. This value is substantially lower (in this case: a factor of 2), so the total cell capacity which users
must share is equal to twice the bandwidth of the RF channel. This translates
into a real cell capacity of 40 Mbit/s for a 20 MHz LTE system. The 100 Mbit/s
usually claimed for LTE presume an efficiency factor of 5 and actually occur
only in exceptional cases. This example is certainly representative and proven by
the fact that planning engineers at mobile network operators actually work with
efficiency values of around 2 when planning their radio networks.
Anyone who uses a 3G or 4G smartphone can easily test this him-/herself. There
are numerous apps which enable users to measure download and upload speeds
directly and to assess the value of the claims for speeds of up to. In actual
practice, the value is often substantially lower than the value described above.
This is a result of other effects and influencing factors such as the cell utilization,
the power of the smartphone CPU, and, above all, the weakening of the signal in
the interior of buildings.
Besides the increase in the number of modulation levels, modern radio systems
make use of yet another tuning trick to improve transmission efficiency: the
exploitation of spatial resources referred to below by the use of the two key words
MIMO and AAS.
83
MIMO (multiple in, multiple out) makes use of multiple antennas and
radio units for transmit and receive. This makes it possible to combine
constructively signals which take different paths from the transmitter to the
receiver*. We get the effect of a larger number of channels, hence it is not
in contradiction to the Shannon Theorem. Unfortunately, the discrepancy
between theoretical maximum values and the improvements which can p
ractically
be achieved is enormous here as well. This is based on a variety of influencing
factors which are too complex to examine closely here. Let us just say this much:
one factor is that an adequate number of (decoupled) multiple channel paths
must be available, while another is that improvement only occurs if there is a
larger number of antennas on the radio base station and the end device.
Realization of this latter criterion in particular is highly restricted in modern and
compact m
obile end user devices. Nevertheless, MIMO has become established
in modern mobile communications standards; the improvements are measurable
and in the low percent range. The additional costs in the infrastructure alone, on
the other hand, are sizable.
When AAS (adaptive antenna systems) is used, the attempt is made to improve
signal quality and to have a positive impact on the second decisive parameter of
the Shannon equation. There is potential for improvement here because the standard base stations used in mobile communications systems work as a rule with
a rigid 1200 sectorization, meaning that broadcasting energy is radiated evenly
throughout the surrounding space. The antenna gain is constant and no more
than moderate. If a so-called array antenna can successfully concentrate the beam
on the mobile devices currently located in the cell at any given moment and
block out areas which are not needed, the antenna gain for each specific beam
grows and so do signal quality and capacity. Interference is weakened to the
same degree. While this sounds simple, it is quite a complicated affair in practice,
and significant hardware power is required. This has prevented the establishment
of such solutions over wide areas.
Is there a gap between demand and performance?
At this point, technical improvement measures seem to be exhausted. Figure 2
contrasts the technical potential for improvement with growth rates in the data
sector and illustrates how these factors fit together in a strategic context:
* Cf. Schultz/Petry, Speed Is (No) Magic The Performance Capability of Modern Mobile Network Standards

Between Hype and Reality, in DMR 01/2009.
84
In each case, a distinction is made between a conservative and an aggressive

approach so that a certain strategic bandwidth of the findings can be covered.
Since change factors are presented over time periods, it is of course necessary to
define a reference and target point. This period as set in Figure 2 begins in about
2002/2003 the dawning of the era of Mobile Broadband and c ontinues
through to a target of 2015/2020. Naturally enough, the growth of data
rates over this time period is not constant; like all growth processes, it takes an
S-shape. Since we are still in the early phases of the process, it is not yet f oreseeable
when we will reach a level of saturation. However, that need not concern us in
detail for our deliberations here. What is important for a rough appraisal are the
total factors during this period, which essentially reveal exponential growth.
A conservative approach to the technology considers the values of the various
improvement effects described above as they occur under unfavorable conditions
in real propagation situations, so real situations with more favorable conditions
would result in more optimistic values. An approach based on the theoretical
maximum values is definitely out of the question because such values either cannot be realized because of hardware technology issues or the probability of their
actually occurring is very low.
Figure 2: Capacity increase and growth in data rates
1000
1000
500
(200)
150
Very aggressive
Aggressive
5 times
Conservative
10
33 times
17 times
100
Frequency
resources Modulations
MIMO/
efficiency
10
AAS
(5)
(4)
Growth
data rates
1,5
30
Theoretic
maximum factors
Capacity increase
via technical measurements
(
= realististic szenario)
Source: Detecon
85
A forecast of the growth in data rates is substantially more difficult because the
number of influencing factors is much greater, and they are all characterized by a
broad range of variance. But from the standpoint of what we know today, we can
be absolutely certain that the multimedia capability of modern end devices will
continue to expand enormously. Who would have thought that a tablet would
have a higher picture resolution than a stationery HD television set? The increase
in data traffic as a consequence of flat rate offers may be an unpopular fact, but
reversing the trend would be very difficult or, more likely, impossible. At the
same time, the number of modern smartphones and tablets continues to rise at
breakneck speed, and users behavior is changing accordingly. Today, in the year
2014, we are in the middle of this process. Analysts are largely in agreement that
these effects alone will lead to growth factors of between 200 and 300 times over
the period of one decade.
There is an additional question of how these rates would have developed if the
mobile communications systems had not consistently failed to deliver on their
initial promises.
As if this were not enough: even more revolutions are imminent. One new
buzzword, the cloud, has already become an established part of our vocabulary.
At the moment, we still use this to mean the centralized storage of data without
particularly great demands on transmission capacity because the flow of data
does not necessarily have to take place in real time. But in the future, (real-time)
functions such as the computing performance of an end device will be shifted to
the cloud. This makes a lot of sense indeed because it will significantly relieve the
burdens placed on local resources; one major benefit can be a hefty prolongation
of the battery life between charges. But: the required growth in transmission speed
is enormous. Another term which has found widespread acceptance is the Internet of Things. It encompasses a series of attractive applications such as communication between machines for the enhancement of production e fficiency or the
many planned applications in medical technology for improved patient monitoring and reductions in health care costs, and, finally, innovative ideas for traffic
control and communication among vehicles leading to the final objective of the
autonomous vehicle. All of these ideas are definitely sensible and could contribute to further and sustainable improvements in our lives and surroundings. But
none of them are viable without extremely high broadband c apacity in mobile
communications and cannot be realized unless the performance capability of
mobile networks is raised to meet this demand. Figure 2 shows that even if all
of the technical possibilities at our disposal were exploited, there would still be
a gap between what is required and what is available, and further innovations in
the future will only cause the gap to become much, much wider.
86
The way out of the dilemma: small cells

This gap is so wide that it cannot be closed even if all of the available t echnological
tricks are exploited to the full. The introduction of 5G systems as successors to
2G, 3G, and 4G systems is projected at this time by the period 2020+. If the
laws of technical change showing an increase of about one order of magnitude for
each generation continue to hold, a functioning fifth generation would be at least
ten times better than todays systems. This would mean that the (theoretical) cell
capacities could feasibly push ahead into the range of 1 GBit/s. The most recent
lines of thought (source: Ericsson) consider even the possibility of targets in the
range of 1020 GBit/s. But if we look a little more closely, we see that all of the
ideas behind 5G assume the utilization of higher frequencies and the correspondingly greater resources they provide. Efficiency cannot be increased any more.
But frequencies in this range are definitely not suitable for transmission without visual contact, a fact which severely restricts their usability. We can certainly
imagine implementing solutions of this type for communications systems
in closed rooms where the probability of visual contact is high. But they will
not help to solve the problems of mobile communications, especially in urban
environments.
Fortunately, there is a way out of this dilemma. We have a method for the
exploitation of resources which is not in contradiction to the Shannon Theorem:
the use of smaller radio cells in large numbers. The relevant resource is in this
case primarily of geometrical nature and no longer one of information theory,
so there are initially no limits. However, the capacity over an area cannot be
increased at will because the many cells would interfere with one another unless
corrective measures were taken, and as their numbers grow, the electromagnetic
noise would grow in intensity. We might say that Shannon comes in through the
back door. But we can assume that a natural decoupling of the small cells from
the large cells can be achieved through proper dimensioning. In this case, signal
quality is not reduced to unacceptable levels by interference. Quite the opposite:
the proximity of the mobile end device to the (mini) base station means as a rule
a stronger signal. The bottom line is substantially better spectral efficiency within
a small cell. Even if we are conservative in our estimation, we can assume it will
double, and in many cases it will probably be higher than this. The process is the
inverse of what we see happening in a large cell. The possible growth in capacity
over an area is nevertheless enormous and can keep pace with the growth in
traffic.
87
There is nothing really revolutionary in what we have just described. WLANs

have been a fixed component of our communications world for some time now.
They represent standardized small cell technology (cell radii of a few tens of
meters under normal conditions) which are conceived strategically as wireless
extensions of a (private) wireline LAN. The latest WLAN standards use about the
same sophisticated technologies at the air interface as mobile network standards
and have consequently arrived at a technological barrier in much the same way
as the latter. However, the achievable data rates have always been several steps
ahead of mobile communications. This is in fact due to the greater cell efficiency
resulting from the factors described above. From a strictly theoretical standpoint, the capacities could be much, much greater because substantial frequency
resources are available for WLAN (unlicensed bands at 2.4 and 5.8 GHz.). But the
resources are consumed by highly inefficient resource control technologies
because WLANs are systems which can be operated in private surroundings
without any additional planning (so-called ad hoc systems)..
Nevertheless, WLAN has become widely accepted, especially in the private
sphere. No modern end devices today can afford to do without WLAN support.
The technology has also moved into the professional environment via so-called
hotspots. But the limits to what it can do quickly become apparent in these use
cases. Hotspot users of WLAN networks (often provided free of charge) report
that the speeds are severely throttled; while adequate for downloading emails or
searching the Web, they fall short of what is needed for applications using highresolution videos on YouTube and similar sites. Still, WLAN has temporarily
provided an offload, a relief of the strain placed on mobile communications
systems. But we cannot speak here of truly mobile broadband access because as
a rule only a data offload is supported. Genuine mobile features such as handover do not exist. Moreover, concerns about data protection in networks which
are so open are naturally legitimate.
However, the success of WLAN points out the clear path to be taken by future
small-cell solutions: networks with a large number of small cells of correspondingly greater efficiency and lower costs operating in licensed frequency ranges.
Network operators have here complete control over capacity and quality (services
differentiation, for instance). The technology of the air interface is identical to
that of the macro mobile radio network so that seamless transition between cells
is possible. But the large number of cells prohibits complete planning in terms of
radio technology. Other solutions will have to be found for this. Since many of
these small cells operate in closed spaces and over short distances, it is possible to
88
use much higher frequencies with their correspondingly greater resources because
the probability of an LOS (line of sight) is much greater. From this perspective,
initial thoughts and ideas for 5G systems are thoroughly sensible.
Sample calculation
We now want to take a concrete case study and investigate how small-cell concepts
elegantly resolve the dilemma between capacity and costs. We will take a specified
region for this example, the Rhine-Ruhr Valley in Germany: 17.500 sq, 12.5
Million population, one operator, 20 % market share. The following assumptions are made for the mobile network: Cell density: function of c apacity, four
cell types, rollout ten years, costs: investment, operation, and output: c apacity
and costs.
Planning for this region gives us the result (logical, really) that the cell density
must be oriented 1-to-1 to traffic density. We distinguish the various cell types
according to two types of macrocells and two types of microcells (small cells).
The two types of macrocells are the cell types classically used to date in the roll-out
of mobile networks: large and expensive systems requiring substantial a dditional
infrastructure at specially chosen locations and urban cells which require a little
less expenditure of effort, but still involve substantial costs. We will call these cell
types large cells for the purpose of simplification. But the idea of cell shrinkage
can be carried further: the next miniaturization stage is characterized by a f urther
reduction in expenditure of effort and consequently costs, but still requires
professional installation work. The final stage of miniaturization encompasses
solutions which remind us strongly of WLAN small stations, usually installed
in buildings, for which placement is no longer controlled by network operators.
In calculating how capacity and costs for the specific solutions develop over time,
we will distinguish only between large cells and small cells for the sake of
simplification. As a further simplification, we will assume that all of the systems
operate in the same frequency range, possible interference is incorporated into
the cell efficiency, and a certain allowance for frequency reuse is assumed for
small cells.
The results are unambiguous: while the capacity for a large-cell concept quickly
reaches a saturation level because of the low level and restriction of efficiency
and the costs especially for operation continue to rise steadily, a small-cell
concept is much more easily scalable and capacity rises faster than the costs. Two
89
parameters play a major role here: as noted above, cell efficiency is substantially
higher while the costs (CAPEX and OPEX) are significantly lower. Holding
fast to large-cell strategies can solve the problem regarding capacity for a certain
time, but the costs are over proportionately high and therefore unreasonable.
This c alculation does not even include the costs for additional frequency licenses.
Additional reserves are available.
Small cells, anything but self fulfilling major challenges
Simple though this solution sounds, its implementation is complex and
challenging. Almost all of the familiar approaches must be revised or even tossed
overboard completely! A network operator must tackle paradigm shifts of this
complexity at an early stage; sitting back and putting its hopes in a demanddriven adaptation strategy will not have the desired results. Let us concentrate
here on the principal challenges:
Figure 3: Capacity-cost-ratios small cells and large cells
2000
Large cell
Small cell
1560
1500
962
1000
816
500
258
0
10
Parameters:
1*20 MHz
2 Bit/s/Hz
3
Market value 2012
Market value 2012
RF Broadband
Cell Efficiency
Number of Sectors
Capital costs
Operational costs
= Overall cost inTotal (Mio. )

= Overall capacity (Gbit/s)
Source: Detecon
90
1*10 MHz
4 Bit/s/Hz
1
10% von Large Cell
10% von Large Cell
10
1. The sample calculation shows that we will have to deal with a major increase
in the number of cells and the related network complexity: a ballpark figure is at
least one order of magnitude. The application of conventional roll-out strategies
is no longer feasible. Planning and production processes must be reconsidered
in every single aspect, network management systems must cover a considerably
greater number of network elements, and data base (inventory) systems must be
able to provide substantially more data.

2. In particular, there must be a complete change in the way of thinking during
network and radio network planning. Detailed planning is out of the question
once a critical number of small cells has been reached. For one, this would be
much too expensive and time-consuming, and for another, the details of the
necessary planning parameters are not available or can be procured only at great
expense of time and effort. The solution here is self-organization. This is also a
major challenge for the IT environment. To start with, efficient algorithms are
required for the minimization of the mutual interference of the cell cluster
and coordination with the macrocells the desired enhancement of efficiency
otherwise remains an illusion; second, a monitoring of the individual cells is
absolutely essential so that undesirable effects can be averted in good time.
Possible solutions (self-organizing networks, SON) have already become available
on the market. The problem can be further reduced by intelligent frequency
allocations. Without going into the complex details, we can mention in passing
that a natural decoupling of macro- and microcells can be achieved through
the careful combination of FDD (frequency division duplex) and TDD (time
division duplex) allocations. Control by complex automatic equipment then
becomes obsolete. This requires a joint effort by operators, standardization
organizations, and regulators.
3. The large number of new radio cells requires to the same extent an increase
in the number of new connections to the aggregate network. This is p
resumably
the greatest challenge because the existing broadband connections do not,
by their nature, correlate with the possible installation sites of small cells.
Naturally, attempts will be made to make use of existing broadband connections
whenever possible. But favorable circumstances where this is possible will not be
found very often. This is especially true for small cells in outdoor areas in urban
environments. For indoor applications, network integration can be similar to
WLAN.
91
There is a vast selection of possible (backhaul) technologies. But that does not
make things any easier. We cannot go into detail here, either, so this is only a list
of alternatives:
> Optical fiber (FTTx)
> Copper lines (xDSL)
> Coaxial cable systems
> PTP (point-to-point) radio relay systems (with and without line of sight)
> PMP (point-to-multipoint) radio relay systems (with and without line of
sight)
> FSO (free space optics) systems
> Satellite connections
Each of the solutions has its own specific advantages and disadvantages which
must be carefully benchmarked in the particular case. Another possible solution
would be to link the small cells via the large cells (self-backhaul). This is definitely
an attractive variation which would no longer involve any dependency on the
fixed network in the access area. But this approach is possible only if adequate
radio bandwidth is available.
4. The capacity-cost ratios shown in the sample calculation are of course correct
only if the costs of small cells decline faster than their numbers rise, including the
costs for the network connection. For the moment, this does not appear realistic.
But the latest developments in devices and market launches are evidence that this
will be possible in the foreseeable future. Target values are created from the model
calculation which must be applied to the particular solutions in each situation.
Operating costs can be reduced dramatically especially by the introduction of
self-organizing technologies. Technical necessity and commercial feasibility are
moving in the same direction in this case.
Small cells permeate our living spaces and are much more likely to be noticed
than conventional installations on rooftops or mountain ridges. Special attention
must be devoted to their visual appearance in urban and private surroundings.
The examples for small cells given in Figure 4 point in the right direction.
Naturally, it is ideal if the backhaul component is integrated directly. The low
output level of small cells means there are no technical problems related to
electromagnetic environmental compatibility. We will have to wait and see if
there is an emotional discussion.
92
Another problem still remains for network operators, especially for small cells in
urban environments. The need for additional sites below the rooftop line (e.g., on
light masts or building walls) is enormous. Acquired rights and access, including
power supply, must be clarified in every single case and could present enormous
obstacles. In any case, initiatives for partnerships with the pertinent institutions
and private individuals in good time are highly recommended.
If adequate provisions for the projected traffic growth in future mobile networks
are to be made so that users can be assured a genuine broadband experience in
line with (or even exceeding) the promised performance capability, increasing
cell density is unavoidable. It will otherwise not be possible to maintain rates and
acquire new customers.
Small-cell solutions represent a technically and commercially feasible pathway.
But the pathway is new and not an easy one to take. The obstacles along the road
are many. Network operators must prepare to face these obstacles well in advance
and adapt their strategies and processes for the long term.
93
Interview
How Is SaskTel
Preparing for
the Future
94
Looking over the European border, you will

notice that even telecommunication companies
in North America are facing specific challenges.
Darwin Janz, A.Sc.T., Senior Planner Technology Strategy, and Klaus Ottenbreit P.Eng.,
A.Sc.T., Senior Strategic Planner,
SaskTel, provide detailed information.
How Is Sasktel Preparing for the Future
Question: As a starting point, as most of our readers do not know SaskTel, could
you give us a short introduction in your company and the local environment you
are in.
D. Janz: SaskTel is a unique service provider, in that it is wholly owned by the
Provincial Government and has a strong social mandate in delivering world
class services to the people of Saskatchewan. SaskTel has embraced the many
new technologies such as FTTP (fiber to the premise), LTE (wireless long term
evolution), VoIP services (Voice over IP) and IP TV (internet protocol television services), and is recognized as achieving many industry firsts with adoption of technology. Saskatchewan has a population of 1,108,303 with a land
geographical size of 651,900. A quick calculation shows a population density
of 1.7 persons per square kilometre. However approximately half the population resides in the metropolitan areas of the two main cities, Regina, Capital city, 2011 census population of 210,556, and Saskatoon, largest city,
2011 census population of 260,600. Saskatchewan is located in the middle
of Canada with approximately one half of the province is covered by forest,
one-third by farmland and one-eighth by fresh water. Principal Industries are
mining, agriculture, manufacturing and tourism. SaskTel is recognized as achieving many industry firsts with adoption of technology and was recognized as
one of Canadas Top 100 Employers and one of Saskatchewan Top Companies by
MediaCorp Canada Inc.
Question: Everybody is talking about data rate growth today. What is
your view on that and what are the main drivers from your perspective?
D. Janz: We are experiencing significant demand and growth for data services
and concur with industry predictions of continued exponential growth ahead.
We are not sure when the growth will flatten or reach some point of saturation.
I guess that will occur when everyone can do everything they need to in a
digital world. Until then the demand will continue with the addition of
larger and new types of consumption. From my perspective this is being driven
by the shift to a digital world, processing power of devices, powerful software,
censors, more natural human interface and social changes. Our industry is
fueling the consumption of data by spreading the availability of connectivity and
by improving upon technologies that deliver higher bandwidth. So today, it is
becoming expected to hold our powerful devices, running brilliant software, with
easy interfaces and enjoy a rich experience. People are now connected to a global
community of collaboration, entertainment and growth. Machines will be next.
Although M2M is still emerging and the individual bandwidth is viewed as
relatively small, the extent of connected devices is expected to be very large.
95
Interview
K. Ottenbreit: Both data rate and data consumption have grown for SaskTel at
a high rate. We especially see this on our wireless networks. Since 2011, we have
seen mobile data consumption has grown approximately 9X. The wireless data
consumption is largely down link related with a down to up ratio of a pproximately
10X. Traffic for the two major urban centers are running just over twice the
rural traffic with a slightly higher uplink consumption (DL/UL approximately
8-9X). Much of the traffic can be attributed to video. Uplink consumption along
the major highways in Saskatchewan is minimal. Many people will download a
movie for vehicle passengers and stream the video on the often 2 to 3 hour drives
between major centers. The uplink traffic is largely attributed to social media.
Question: We all know that fiber is well prepared to cover nearly any demand but
what is the future for mobile communications: can wireless technology progress
gradually catch up with the demand or are we approaching limits that require
new approaches?
D. Janz: I see fiber fixed broadband into homes and business and mobile
attached to nomadic people or machines as complimentary ways to gain
coverage for connectivity and bandwidth needs. I would agree that we will
see some continued growth in mobile technologies but it will most likely be
expensive and will eventually reach a limit. This limit may satisfy demands of
consumption and if not, I suspect the crafty human ingenuity will discover new
methods. If new methods are found to overcome barriers, the consumption will
then grow at an even greater rate. Human history has shown this trend with
many constrained resources.
K. Ottenbreit: SaskTel utilizes much fiber throughout the province of
Saskatchewan. All our wireless sites are backhauled via fiber and as such have the
bandwidth to support both LTE and HSPA as well multiple roaming partners.
Our wireless sites are located in order to maximize the coverage for the urban
and rural customers. The wireless technologies are becoming more efficient and
as such are approaching the theoretical Shannon limit. The current technologies
are reaching the limits of physics. Once a new approach is found and physical
realization of a cost effective solution is implemented, we will see the next gain
in bandwidth capabilities.
96
Question: Small Cell strategies are commonly seen to be a promising solution.

What is your opinion on that in particular for dense traffic areas?
K. Ottenbreit: SaskTel has taken the traditional approach to dealing with wireless capacity. The first and easiest step was to add multiple carriers to the existing
macro sites. Along with this is some antenna optimization without losing too
much coverage. The next step for us was the sector splits with some busy sites
carrying as many as 6 sectors. Additional macro sites have been added with the
necessary decrease of existing cell footprints and re-optimization. Smaller microcell poles, stealth poles and street light pole sites have been utilized in addition to
in-building solutions utilizing dedicated sectors and DAS (Distributed Antenna
System). These solutions have been deployed in targeted dense wireless traffic
locations. Wi-Fi and femto cells will be investigated and utilized when and where
they make business sense.
Question: In your environment you also are focusing areas with low population
densities. How do you handle that challenge reflecting the fact that broadband
should be available everywhere?
D. Janz: This is a significant challenge that is not only limited to low population
densities but is also a challenge with respect to our overall operation. The
Telecommunications or or ICT (Information Communications Technology)
industry, technology solutions and costs are aligned for large scale. SaskTel has a
limited scale and is challenged with low population densities. Combined with
these challenges, SaskTel is operating with growing competition from t raditional
providers and with internet services that displace both function and revenue.
Our ability to flourish connectivity and bandwidth to low populated areas
has been achieved to a large extend because of our unique government ownership and social mandate. The people of Saskatchewan enjoy some of the best
service in North America. Having that service available, brings great pride and
value our communities. In summary, SaskTel will continually be challenged
with costs, complexity, keeping the pace of technology while the competition
grows s tronger. I suspect this means or reaffirms that we need to discover and use
better ways: Network Function Virtualization, Cloud, shared network functions,
partners, new models.
97
Interview
K. Ottenbreit: Our provincial capital city has a population density of just

over 1500 people per square km. Conversely, some areas of Saskatchewan have
population densities as low as 0.1 persons per square km. We have built wireless
infrastructure far into the rural areas of Saskatchewan as well as fiber into some
communities with populations as low as 500 people. Our owner, the Provincial
Government has mandated that we provide services to all of Saskatchewan.
Our wireless footprint serves approximately 95% of the population of
Saskatchewan. Although some site locations show a better positive business case
than others, it is the substantial and contiguous coverage that our customers desire
and as such, we deliver. Customers utilize USB wireless dongles to get connectivity
where copper connections are not available. In very remote areas we utilize
satellite.
Question: Small Cell strategies are elegant but offer a lot of new challenges, e.g.
SON, Backhaul, site acquisition, optical outfit. How do you see them and what
is your experience so far?
K. Ottenbreit: Approximately 20% of our macro sites produce 80 % of the
traffic. Additionally, 90% of the traffic is produced indoors. Saskatchewans
climate can range from -40 C to +35C or more. SaskTel has deployed a small
amount of microcells. To date we have seen good correlation between the LTE
and HSPA microcells. Overall there is approximately a 5% improvement with
a single microcell. Since the microcells are located near the high traffic areas,
coverage into problematic buildings is improved, resulting in significant reduction in required downlink power during busy hour.

Placement of the small cell sites continues to be problematic when dealing with
the government municipalities. Lead times can be in excess of 16 months for
some locations before approval is acquired. Due to finite spectrum holdings, very
busy sites become tricky to deploy due to co-channel interference.
D. Janz: Self Organizing Networks are still relatively new in our RAN. As more
micro-cell and in-building solutions are deployed, the task of managing RAN
parameters such as neighbor lists becomes quite daunting. There is still a level
of distrust in letting cells organize these parameters on their own. Initial deployment of SON will most likely be open loop where parameters are suggested and
98
then evaluated by the optimizing engineers. As confidence in the technology

builds and more cells and micro-cells are deployed, there will be more reliance
on SON. As SON matures with new additional features, we see the role of the
optimizing engineers evolving to troubleshooting specific customer issues
Question: We often hear the opinion that WiFi in particular used as offload
from the mobile network can at least partly resolve traffic problems. What is your
opinion on that and how do you use WiFi in your approach?
K. Ottenbreit: Wi-Fi is a necessity in some locations where microcells cannot be
deployed due to co-channel interference. The younger customers have all grown
up with Wi-Fi and as such often seek out locations where Wi-Fi is available.
We have recently deployed Wi-Fi in a large stadium that seats 44,000 people.
To date, the Wi-Fi network in the stadium processes approximately 90-100
GBytes of traffic per football game. The traffic does not traverse the 3GPP core
at this time. Other deployments are still pending a proper business case analysis.
Saskatchewan Telecommunications Holding Corporation (SaskTel) is the leading full

service communications provider in Saskatchewan, with $1.2 billion in annual revenue and
over 1.44 million customer connections including 607,659 wireless accesses, 492,070 wireline network accesses, 250,068 Internet and data accesses and 97,262 Max (TV) subscribers.
SaskTel offers a wide range of communications products and services including competitive
voice, data, Internet, entertainment, security monitoring, messaging, cellular, wireless data
and directory services. In addition, SaskTel International offers software solutions and project
consulting in countries around the world. SaskTel and its wholly-owned subsidiaries have a
workforce of 4,031 full-time equivalent employees (FTEs).
99
New Network Strategies Keep

Telecommunications Business
Profitable
Dr. Arnulf Heuermann
> Increasing data transmission traffic leads

to a necessary adaption in capacities.
CAPEX and OPEX for the mobile
network operators rise.
> Competitive pressure, flat rates and the
success of the OTT providers prevent
a parallel sales increase for
mobile network operators.
> Substantial synergies between
fixed and mobile networks
can stop falling margins.
> Process optimization, partnering and
new price models are essential for
long-term profitablility.
100
New Network Strategies Keep Telecommunications Business Profitable
Omnipresent communication is a trend

Utilization of information and communications technologies (ICT) has b ecome
a constant companion during almost every moment of our lives. ICT is more
than an instrument to create more division of labor and mobility or to reduce
costs. It is one of the driving forces behind the social changes around us, enables
innovations and opening up new prospects for growth in almost all sectors of the
economy.
The Internet of Things cannot be realized without full-area availability of
broadband data communications for people, vehicles, machines, and c onsumer
products. The usage of Internet-based services and applications is becoming
independent of the type of device and network being used. The size of the
devices is the primary factor determining whether they are more likely to be used
statically (as fixed network devices) monitors in conference rooms and living
rooms, for instance or whether they are used mobile cameras, smartphones,
tablet PCs, and navigation devices.
In the future, there will be far more devices capable of communication than
there are people. Devices and machines will communicate without human
intervention whether in the form of software updates, push emails, or telematics data. U
tilization by people will move away from classic voice transmission
to data communications supported by videos and images, the internet is transforming to a media distribution platform. Local storage of data will decrease
because of cloud virtualization. Most of the data transmission will continue to
be billed on a flat-rate basis, largely without regard for actual usage. There is consequently no reason to expect the current trend toward extremely rapid growth
in (mobile) data transmission to weaken significantly over the next decade. We
expect mobile data transmissions in Germany to increase in volume by at least
115 to 150 times by the end of the next decade and for every resident to have
about four devices with communications capability. Numerous analysts expect
even far higher figures.
Telecommunications markets in the profitability trap
During the initial build-up phase of a mobile network, wide-area coverage is
the first objective. Antennas which can transmit powerful signals are located on
towers so that they can broadcast over the largest possible area. Depending on
frequency of the signal and the topography, a cell of this type can have a radius
of up to 10 km, and the costs for land, building, electricity and emergency power
connections, and cable or directional radio connection make it very expensive.
101
However, the data rate available to a user in a cell declines as the distance from the
antenna increases and is further reduced by attenuation from building walls and
other physical obstacles. But it decreases especially precipitously with the number
of users communicating simultaneously in the cell and the bandwidth demand
of their applications. If the number of users and their data traffic increase in one
cell, the number of antennas and cell locations must increase as well.1 This is why
the cell radius in densely populated urban areas is significantly smaller only a
few hundred meters as a rule.
Increasing data transmission traffic consequently leads to a necessary adaptation
in capacities as soon as certain thresholds are exceeded during peak load
periods. CAPEX and OPEX for the network operators rise. Assuming that the
transmission traffic for Germany grows as forecast by a minimum of 115 to 150
times the present volume by the year 2025, the annual CAPEX for German
mobile network operators will rise by an annual average of 14% and OPEX by an
annual 4% unless there are changes in the network expansion strategy.
None of this would be a problem if only the growth in transmission volume
were accompanied by a similar rise in revenues. But that is currently not the
case for network operators revenues in mobile networks are stagnating or even
declining. Rising online revenues are being realized by the service and application
providers like Apple, Google, eBay, or Amazon. The network operators had
virtually no success in forcing these over-the-top (OTT) providers to pay a
share of the costs incurred by growing data volume. The prices for the network
operators end c ustomers, in contrast, are largely independent of the volume used
for the s ervices. It is extraordinarily difficult to eliminate flat rates, once they have
become established in the competitive environment. Even attempts to lower the
volume cap run into serious resistance on the market.
In addition, regulated prices in segments such as roaming and termination
charges tend to result in declining sales and profits and services such as text
messaging, which have been effective in generating sales and earnings, are being
eroded by growing use of OTT applications like WhatsApp.
This sharp decline in profits in mobile network business is a serious threat to network operators. A simulation calculation for Germany reveals the risk of carriers
not being able to earn enough to cover their depreciation from 2016 on (negative
EBIT) and that even the operating business EBITDA could be in the red from
2022.
1
102
Strategic options for securing profitability

Generally speaking, a mobile network company can attempt to prevent cost
increases by enhancing the efficiency of the radio network or off-loading the
traffic into other networks. Another possibility is compensation through higher
revenues.
More spectrum and more efficient technology
Technologically, it would be possible to transmit more data at relatively low
additional cost in the existing network structures by using more bandwidth
and more frequency bands. But using a large number of frequency bands makes
the technology for the end devices more complicated and consequently more
expensive. Even today, LTE is transmitted across a very large number of various
frequency bands which cannot all be received by all devices. Spectrum is not
renewable a resource which is in short supply and therefore precious and it is
owned by the government. This is especially true of the bands in the range from 0
to 4 GHz which can be used for mobile communications. New allocations of the
limited frequencies for mobile network providers are usually issued today during
an a uction, and the required investments quickly rise into the billions.
Figure 1: Development of profitability in Germany during conventional network expansion
Cloud,
M2M
Detecon Case Germany: MNOs revenues and cost
following a conventional network deployment approach
m Euro
30000
User
Behavior
More &
better
Devices
25000
More rich
Content
20000
Far mor
Traffic
15000
10000
Shrinking
margins
5000
EBIT
negative
EBITDA
negative
0
2010
Flat
Rates
2012
2014
= Revenues
2016
= OPEX
2018
2020
2022
2024
2026
= OPEX + Depreciation
Source: Detecon
103
Obviously the need for additional spectrum for mobile communications has
been recognized, and the work to make it available is being driven forward internationally by the ITU, regionally by the EU, and nationally by regulatory
authorities. The European Commission is planning to open or rededicate new
spectrum with a bandwidth of 1500 MHz for mobile communications applications by 2016; the GSMA is calling for expansion all the way to 1945 MHz. The
German Federal Network Agency wants to carry out a technologically neutral
reallocation of the existing mobile spectrum in 2016 and provide 140 MHz of
new spectrum in the 700 MHz and 1.5 GHz bands. Even beyond these steps,
another almost 1000 MHz could be made available by 2026.
However, many of the frequency ranges which could possibly be used are c urrently
blocked by the military, radio, and television or by other public and private
users. Clearing out these spectral ranges involves substantial technological
adaptations for these users at a high cost in terms of money and, above all, time.
There are legitimate doubts about the magnitude of the spectrum which can be
rededicated, and chronological progress is hampered further by the high level of
international cooperation required. One possible consequence of these factors
could be that the provision of additional spectrum will be unable to keep pace
with the demands of increasing transmission traffic, heightening even more
the importance of more efficient utilization of the current spectrum. New
technologies such as 4G and 5G can optimize frequency utilization. There is
a widespread opinion that more efficient technology can solve all problems
at the air interface. The most realistic opportunity appears to be the planned
technologically neutral allocation of the frequencies previously released solely
for GSM or UMTS. New standards are not tied to specific frequencies, and old
frequency bands can be used for significantly greater data volumes with the aid of
LTE and LTE-A technology.
However, even using the latest and best technology can increase data rates only
to a physically absolute limit defined by Shannons Law. In actual practice,
attenuation in buildings, the distance to the radio cell, and interference with
other cells restrict data rates and limit the value for LTE to about 2 bit/s for each
Hz (outdoor). So if the bandwidth in a cell is 10 MHz, download speeds of about
20 Mbps are achievable as an average. Even if absolutely cutting-edge 5G or 6G
technologies make it possible to double these data rates, the demand for data
rates will presumably rise even faster than the rate of utilization efficiency.
104
Higher speeds can also be realized if frequency re-farming makes greater range
allocations available, especially in rural areas. The usual practice during spectrum auctions is to limit various providers to range allocations of no more than
10 MHz in a certain band. But this makes it virtually impossible to achieve
the broadband targets of the EU 30 Mbps for everyone, everywhere. This has
prompted some countries to begin auctioning off the entire bandwidth in the
800 or 700 band, for example to a single bidder who then, as a monopolist, has
the obligation to make high-speed capacity accessible to all other providers on a
wholesale basis. In view of the inefficiencies typically associated with monopolies,
there is still substantial disagreement among politicians, economists, and regulators about this approach.
In summary, we can determine that more, and more efficiently utilized, spectrum
reduces the pressure on mobile network companies with regard to the need to
expand networks. But without a new infrastructure, this type of expansion can
neither completely master the rise in transmission traffic nor put an end to the
loss of profitability. Other means must be found to close this gap.
WiFi offloading, heterogeneous networks, and small cells
Theoretically, the additional capacity could be made available simply by building
more of todays macrocells. However, this would be inefficient for a number of
reasons: capacities increase under-proportionately because of interference, while
the costs continue to rise proportionately. If, on the other hand, the macrocells
are supplemented by a large number of small cells, the distance to the users can
be reduced, resulting in efficient utilization of the radio signal, possibly higher
data transmission rates, improved battery life, and lower radiation level exposure.
The macrocell networks of the mobile network providers would even today be
unable to handle the data traffic on mobile devices if users did not already divert
traffic directly into fixed networks via WiFi. About 75% of the mobile data traffic
in Germany is handled at home or in the office where both mobile services and
WiFi are often available. Many modern smartphones and tablets automatically
connect with available WiFi networks.
Physically, WiFi is virtually identical with a femto cell, a mobile network small
cell, which is usually connected to a private broadband Internet connection in
the building. However, WiFi utilizes an unlicensed spectrum which is free of
charge and is unable to transfer a mobile user from one cell to the next. This
feature is why WiFi and public WiFi hotspots are typically grouped with fixed
105
networks. Nonetheless, the handover capability is not a fundamental problem;

future technologies are already preparing for the convergence of WiFi and mobile
networks in this respect.
Today, there are several million WiFi cells in Germany; the comparative figure
for mobile network cells is about 80,000. Despite this large number, the WiFi
spectrum proves to be quite restricted. Many of us have experienced the airport
lounge problem: the device can receive the WiFi signal in full strength, but,
owing to the numerous users in the cell, Internet access is not possible.
Future mobile networks will have to add small cells as supplements in other spectral ranges to resolve this issue. Physically, there will no longer be any discernible
difference between a fixed network connection and a mobile one. The antennas
most of them located indoors, others mounted on street light masts, distribution
points, or building walls as well will direct traffic in a small cell directly into
the Internet via copper, optical fiber, or directional radio. Distinctions which
currently still exist between mobile and fixed connection networks will be a
thing of the past. Convergent networks in which users can use one and the same
application across various devices and media, whether fixed or mobile, are being
discussed under the heading of heterogeneous networks (HetNets).
Simulation calculations show that small cell networks are perfectly scalable, have
fewer problems from interference than macrocell networks, and can be perfectly
adapted to match the future demand for data. But they will require a huge increase
by a factor of 20 in our simulation in the current number of macrocells, and
the costs of the access and aggregation network will become eminently relevant.
Essentially, macrocells are needed only in rural areas.
Subject to the reality of certain assumptions about the costs (e.g., mass production similar to WiFi, self-organizing configuration, significant gains in spectrum
efficiency), the savings from the utilization of small cells will be so great that
the threat of losses for mobile network operators can be warded off by this new
network strategy alone.
Synergies between small cells and optical fiber expansion
We estimate that the demand for small cells in the peak period will rise to over
30 Mbps per cell in Germany. As previously mentioned, the costs for the radio
cell connection (aggregation network) become highly relevant as the number of
106
cells grows. Private and public WiFi is typically connected to the core network via
xDSL. Unfortunately, it will be virtually impossible to handle the extremely high
data transmission rates of the future using the copper networks (xDSL) which
were installed for telephony. Microwave connections can achieve the necessary
speeds with no trouble, but there must be a line of sight from one antenna to
the next, making their installation in cities difficult. Non-line-of-sight technologies could provide an alternative in the future. Another ideal transmission
medium would be optical fiber networks, which various providers are currently
rolling out in many densely populated areas. This can obviously open the door to
substantial synergies between fixed and mobile networks.
If the small cell network is connected to optical fiber, fewer small cells will be
required to handle the demand for data transmission than if the cells are all connected using xDSL. Network operators will be able to save OPEX and CAPEX
from the reduction in the number of additional microcells needed.
From the reverse perspective, the provision of some two million small cells in
multiple-residence complexes can contribute to the financing of the FTTH
expansion. Once an optical fiber cable has been laid in a street or a building
to transmit mobile data traffic, connecting new residences entails relatively low
additional expenditures.
However, exploiting these synergies requires integrated planning and coordinated
roll-out for future HetNets. Typically, only integrated network operators will
have the financial resources to offer services both in fixed and mobile networks.
The decline in profitability is less dramatic for them.
Higher revenues from small cell networks
Network operators can generate higher revenues by
> introducing price schedules charging higher rates for customers requiring
higher data volume;
> selling services and applications to customers so profitably that the additional
costs for the rising data traffic volume are compensated; or
> passing on the costs for network expansion to service and application providers who use the network operators to reach their customers.
107
Realistically speaking, all three of these methods will have to be used, but their
impact will vary.
Avoiding the flat rate trap is currently one of the greatest problems on the
market. Customers, who usually have no idea of the required data volumes
before launching an application, reject linear volume rates. The competition
among MNOs and MVNOs has prevented the complete elimination of flat
rates. However, t here are a number of ideas in both retail and wholesale business
which will make it possible for network operators to increase their revenues as
volume rises.
Retail price models: 2
> One option which is already becoming more widespread is the volume cap
with an additional purchase option: when users have exceeded the data volume
included in their flat rate, the speed is throttled until they pay an additional
charge to restore the original speed.
> Another possibility, already common in fixed networks, is to differentiate
rates according to speed for mobile connections: the flat rate varies depending on
the data transmission rate chosen by users.
> Another option is user differentiation. Prioritized VIP users paying a higher
rate can utilize a guaranteed minimum speed in every small cell while customers
with lower-price rates receive only the best effort speed.
> Excessive investments in radio cells can be reduced by media differentiation
based on the load on the radio cell at any given time. The quality of the services
is adjusted according to network status and user profile. For instance, an HD
video transmission can be downscaled to normal video standard if the cell is
overloaded.
> There can be a differentiation among various services in future small cell networks. Standard best effort services may be contained in flat rate packages, but
users must pay extra for premium services such as HD voice, video, mobile TV,
and other features.
Cf. Aumann, Marketing and Sales, p. 230 pp. in this volume.
108
Wholesale price models: 3

> Generally speaking, partner differentiation as a wholesale price model is conceivable. Prioritized services can be routed at guaranteed quality for providers
who are willing to pay more while others accept only best effort.
> At the moment, little use is being made of the option to sell market-relevant
data (with the customers consent) to OTT players.
Many of these ideas must be modified to comply with the applicable regulatory
requirements for network neutrality, non-discrimination, cost orientation, and
data protection. There is often a very fine line between differentiation and discrimination, and this definitely limits the possibilities for increasing revenue in the
area of mobile data communications.
We were especially conservative in carrying out the simulation calculations to
determine the impact of increased revenues on the profits of German mobile
network operators. The chart below illustrates the cumulative effects of small
cell network strategies, WiFi offloading, optical fiber connection of the small
cells, and rising revenues from innovative price models. The small cell base case
assumes for Germany that future traffic will be handled exclusively by expanding
capacity through the addition of over two million small cells. This will keep companies operating in the black until 2025.
The number of small cells can be significantly reduced if more of them are connected to optical fiber rather than DSL grids. If the optical fiber costs for small
cells are shared with the private users of optical fiber connections, there will be
substantial improvement in the EBIT margins. The revenue increases from private optical fiber users have not been included in the calculations.
WiFi offloading of 13% of total traffic would increase margins even further, as
would the introduction of innovative rate plans. Sensitivity analyses regarding
the ARPU, the cost per optical fiber connection, or higher percentages of WiFi
offloading can improve the EBIT margin to over 20%. These measures can secure
the profitability of mobile networks.
109
Implementation steps for mobile network operators

These future trends give rise to challenges for mobile network operators during
the implementation of a new strategy; mastering these challenges will be essential
for survival, but a certain lead-in time will be unavoidable.
Forecast capability
The quality demanded of forecasts will be higher: in the future, such forecasts will
have to be much more precise and provide greater differentiation in the data.4
Basically, exact planning of a microcell roll-out requires network operators to be
able to project what traffic volume must be handled per street and building. Topdown approaches must be supplemented by regional and local geomarketing.
Since the prediction of the behavior of individual customers affects this more
and more, big data infrastructure must be established here and watertight data
protection must be incorporated into the planning right from the beginning.
Network strategy, WiFi integration, and partnership approaches
One challenge which many network operators have not yet solved concerns the
integration of private and public WiFi into the future small cell networks. This
Figure 2: Business case simulation
Mio. Euro
7000
German MNOs EBIT simulation
6000
=
=
=
=
5000
4000
Small cell base case

Small cell with fibre roll-out
Small cell with fibre roll-out & Wifi offloading
Pricing measures
3000
= 11% margin
= 10% margin
= 8% margin
2000
1000
= -1% margin
0
-1000
Source: Detecon
110
2015
2020
2025
issue is especially complicated because the WiFi market is characterized by a large

number of small and very small companies which operate locally in the unregulated spectrum. But coordination of the small cell mobile world with the existing
and planned WiFi networks is necessary, as is possibly the technical integration
of standards and systems.
Cost efficiency will be a fundamental driver of any strategy on the saturated
markets of the future. It will include realizing competitive advantages more from
differentiation of services and applications, prices, performance, and customer
service rather than through unnecessary redundancies in expensive i nfrastructure.
Radio network operators must decide early whether to pursue in the future a
strategy based on operation as capacity providers of especially cost-intensive
access and concentration networks or on procurement of this section of the value
chain.5
Partnership approaches and integrated planning are also necessary to exploit
synergies between microcell networks and optical fiber expansion in urban
centers.
Efficiently dealing with the demand for sites, significantly greater than that for
large cell networks, will not be possible without expanding the scope of partnerships. This has less to do with the joint use of antenna locations by mobile
network operators now common in Europe and involves more the cooperation
with municipal utilities, housing companies and similar institutions.
End devices
Work does not stop with the access and aggregation networks; coordination with
manufacturers of end devices will play a decisive role for the success of small
cell networks. The handover from one cell to the next will be the rule, not the
exception, in small cell networks. Devices will require significantly more complex
algorithms for the selection of WiFi or mobile cells than before. While the user is
driving through the city, for example, the device should (depending on speed) log
on to a macrocell rather than to the many stronger small cells along the route.
Fundamental considerations regarding the possible intervention of network
operators in the device software must be clarified for each operating system.
4
5

111
Spectrum and regulation

Within the next few years, a major part of the mobile radio spectrum in Europe
will be reallocated and expanded substantially. In Germany, for instance, all of
the current mobile licenses and the assigned frequencies will expire in 2016 and
be reallocated in an auction. At the same time, parts of the 700 MHz band now
used principally for radio will be added. Extending the mobile spectrum in the
range above 2500 MHz is in planning. While the high frequencies are primarily
of interest for urban centers, i.e., small cells, because of the small cell radius, the
lower frequencies can supplement the macrocells in rural areas at low cost.
In rural areas, radio networks will in the middle term be the only infrastructure
which can offer high-speed broadband communications because coaxial cable
and optical fiber networks do not exist here and it is simply not possible to
expand such networks profitably into these areas. Regulators consequently
have an especially great responsibility to make use of the frequencies in such a
way as to enable very high data transmission rates. Unfortunately, planning in
Germany, even for the 700 MHz range, presently foresees the auctioning of
frequency blocks with a range of 10 MHz for all network providers. But small
frequency blocks limit the achievable data transmission rates or make the
design of devices with the capability of using all of the various frequency spectra
more expensive. It would be worthwhile to consider auctioning the entire 700
spectrum to one operator who would then be obligated to make regulated
wholesale offers to all other service providers.
Another possibility would be to permit spectrum trading among network
operators for the purpose of realizing services with higher data transmission rates
in rural areas.
Technology concepts and processes
Small cell networks will be able to ward off the imminent collapse in profits
among mobile network operators only if the related potential for lowering OPEX
and CAPEX expenses is exploited in full as well. This will require major adaptations of current processes and procurement procedures.
Reducing CAPEX will mean lowering procurement costs for future small cell
routers to the magnitude of todays WiFi devices through stepped-up standardization, mass production, and standardization of LTE and WiFi technology. The
industry is already well on its way in this respect.
112
Substantial OPEX reductions can be achieved through self-organizing network

structures and the shifting of costs for electricity, equipment, and maintenance
to users.
Price differentiation and regulation
Many of the possibilities for coupling network operator revenues with the
development of rising traffic volume described above include a gray area with
respect to the requirements for network neutrality, data protection, and nondiscrimination. Discussions of these topics in the press at this time, however,
arise primarily from cases of obvious misuse or even criminal behavior.
It is important for mobile network operators to look further and to enter into
talks with regulatory authorities, with an eye on the future, concerning where
exactly the boundary between reasonable, efficient price differentiation and
prohibited discrimination lies. It might be useful to create a cross-industry round
table discussion to resolve the issues before regulators and courts begin to define
the market by issuing regulations and prohibitions.
113
An Effective Approach to
Successful Integrated
Planning of the Future
Lutz Fritzsche, Dr. Mathias Schweigel, Dr. Rong Zhao
>The prices which can be charged per transmitted

bit are stagnating or even falling. End users are
aware of this because of the flat rate models which
allow them to use telecommunications networks
for an unlimited time in return for a basic fee.
> Network operators are faced with the challenge of
aligning costs for planning, construction, and
operation of the required communications
infrastructure with limited revenues.
> Operators can meet the required cost-cutting targets
only by rigorously exploiting all of the potential for
saving money and by efficiently expanding networks
at the exact points where it is required.
> The fundamental prerequisite for their success is
comprehensively integrated planning
oriented to potential.
114
An Effective Approach to Successful Integrated Planning of the Future
Vision of a future network infrastructure

OTT, 3-D HDTV, or HD video conferences and other broadband services are
already available today or are on the threshold of their market launch. The life
cycle of a new service or technology from its development to implementation is
becoming shorter and shorter. New requirements for the network infrastructure
appear at closer and closer intervals. The use of cloud computing has undergone
intensive tests in many countries and has been identified by marketing and end
customers as an extremely interesting alternative to current data storage concepts.
More and more private and business data are being stored on the Internet. Recent
estimates indicate that the share of the total traffic to data centers found in the
cloud will rise to 69% by 2017.1
In 1984, Nielsen proclaimed Nielsens Law of Internet Bandwidth, which states
that the Internet bandwidth will double every two years.2 This prediction has
held true with very few exceptions: bandwidth per customer has risen from about
120 bit/s in 1983 to as much as 100 Mbit/s today. Internet traffic has increased in
comparably dramatic fashion as the number of customers has ballooned.
Not too long ago, the European Commission published its Digital A
genda.3
The primary objective of this agenda is to secure sustained economic and
social benefits from a digital single market based on high-speed Internet and
interoperable applications. One of the pillars of the policy envisions activities in
the telecommunications sector to secure fast broadband service with download
rates of 30 Mbit/s or more for all EU citizens by 2020 and 50% of European
households subscribing to ultrafast broadband Internet connections above 100
Mbit/s by 2020.4
The primary concern for end customers is that they are satisfied with the p
urchased
services or the provided bandwidth regardless of the technology b ehind its realization through a fixed or mobile network connection.
The expansion of broadband service is of national significance because of its
economic impact, prompting governments to initiate programs aimed at this
1 Global Cloud Index, Forecast and Methodology, 20122017, White Paper, Cisco, 2013.
2 http://www.nngroup.com/articles/law-of-bandwidth.
3 European Commission, A Digital Agenda for Europe, COM(2010) 245, Brussels, May 19, 2010.
4 Bundeskanzleramt sterreich, http://www.bka.gv.at/site/4295/default.aspx.
115
o bjective. The Federal Network Agency has declared in its broadband strategy
for Germany5 that the aforementioned goals will be achieved ... by a technology
mix and in competition. An important parallel requirement for the broadband
strategy was the exploitation of synergies among various infrastructure owners.
Market observers note that the revenues of network operators continue to
stagnate. This is in part a consequence of the level of market saturation. M
oreover,
the trend to flat rate models limits revenues. This situation can be resolved by the
development of new customers. M2M communication, for instance, might well
create new customer groups. But since these customers do not need sleep or
rest, there will be a permanent change in traffic flows and load relationships. It is
more than doubtful that it will be possible to secure an increase in the price per
bit as the measure of the utilized network resources.
There are several goals regarding the future network architectures which can be
observed: convergence of the various network levels, convergence of fixed and
mobile networks, convergence of IT and network technologies, and convergence
of static and dynamic architectural paradigms.
Many network operators currently regard the convergence of fixed and mobile
networks as their primary task, both in network planning and implementation. Simplified network architecture,6 networks with higher capacity,7 the secure
quality of the service, and the combination of products from fixed and mobile
network sectors create the most important preconditions for satisfying customers. One issue is the question of how operators should plan and expand future
networks so that they can satisfy these requirements. But there is another side to
this: competitive pressures on network operators will remain enormous in the
future as well, and they will have to find a way to complete these tasks despite the
caps on their budgets.
Challenges in planning
The planning of telecommunications networks is a means of managing and
expanding available network resources such as transmission capacities while
simultaneously complying with cost limits, performance indicators, and threshold
5
6

7
German Federal Ministry of Economics and Technology (BMWi), www.bmwi.de

Cf. Schnitter/Bornhauser, Future Network Architectures, p. 34 pp.;
Gonsa/Chrestin/Reith, Virtualization, p. 56 pp. in this volume.
116
values for reliability. There will be little change in these fundamental objectives
in future telecommunications networks. The challenges in the planning of future
networks will arise to a far greater extent in the constraints related to realization.
As a rule, telecommunications networks consist of a number of partial networks
such as signaling and transit networks, whereby the latter can function either
circuit- or packet-switched. The distinction between fixed and mobile networks
is another example. This differentiation serves in part to reduce complexity because the partial networks are planned and operated separately from one another.
But this separation was and is a consequence of their history as well because certain technologies became available later than others and were simply added to an
existing infrastructure. The systems for operation of the partial networks naturally
differ from one another; they have been specifically adapted to the existing technology, and in general merging them into a single system requires substantial
effort. However, this separation presents an obstacle to finding a cross-layer
solution for the entire network at optimal cost. It is often the cause of multiple redundancies of security measures against network failure at various network
levels or can even result in a lack of precisely such redundancies. Path diversity in
a packet-switched transit network, for instance, can use the same underground
cable. If there is a cable break, the service quality may suffer, a situation which
could result in the payment of penalties or loss of income.
The merger of the various partial networks is a reasonable step and is being
driven forward, as shown by the integration of the transit network technologies
IP/MPLS and WDM. The convergence of the previously separate fixed and
mobile networks and consequently their joint usage of transit network capacities
and locations can be viewed in the same context. In the long run, this integration
will simplify planning of the telecommunications networks.
As far as technologies are concerned, the technical constraints are just as significant as local influences. For instance, the characteristics of the ground whether
rock or sand for laying underground cable or the possible installation of an above-ground cable connection and the related labor costs play an essential role in
the comparative analysis of the various transmission technologies. Conclusions
cannot be transferred directly from one geographic area and market to another.
Regulatory aspects, competitors, customers expectations, and special features of
geography have a major influence on planning results. Planning is always a local
decision.
117
One challenge for the planning, however, is and will remain the integration
of the network data from active and passive network technology. When the
appropriate protocols are used, it is possible to record automatically and p
rocess
configuration and capacity utilization information from the active network
technology, and this can be used to create highly accurate network models for
planning purposes. Passive network technology cannot be monitored by this kind
of automation, so the quality of these data and subsequently the planning results
will continue to be highly dependent on the commitment of the responsible
departments in the future.
The progress in the integration of inventory systems for network operation opens
up new prospects for the planning of telecommunications networks. Consistent
data storage of the current network is an important prerequisite for c ross-layer
network planning of various technologies which takes the specific properties
into account. This information must be combined with certain command
variables such as maximum load for network analysis; it also provides a valuable
foundation for strategic planning for the initiation of technological conversions
in combination with tactical considerations.
But even integrated planning in future networks will be confronted with challenges comparable to those facing network planners in the past. The constraints will
change, new interdependencies will arise. However, improved data storage, more
powerful computer performance, more precise network models, and improved
algorithms will help to master the greater complexity. The general problem of
recreating the subject of the examination as precisely as necessary inherent in
any modeling will still be around.
Approach for successful integrated planning
Constraints
The challenge in creating uniform planning for an entire network results from
the large number of different constraints which must be processed while giving
due consideration to the possibilities of the existing network or the planned technology. These constraints can be classified in the dimensions of time, space, and
degree of detail.
Each of these dimensions is subject to its own constraints and possible solutions
which steer the planning process. It must be noted that these dimensions can
in part be used independently of one another for the input parameters and the
planning results.
118
The time level determines how quickly the planning results can be realized.
Obviously the scope of action for short-term immediate measures differs from
that of long-term projects. As far as the input parameters of the planning are
concerned, time plays a role in the assessment of the current situation and the
history of the network (measurement data).
The spatial level defines the distribution of the resources over an area in the
results. In terms of the input parameters, this can refer to the availability of free
resources (movable, immovable), user distribution, or traffic volume in the area.
The definition of the planning area parts of the network or the complete network also falls in this category.
The degree of detail determines whether the planning is carried out at the user or
at a higher abstraction level, e.g., service level. The degree of detail in the input
data often varies, so they must be adjusted and matched on the basis of suitable
assumptions. The degree of detail in the results will naturally be determined by
the input value with the lowest degree of detail, so it is desirable for the planning
process to have information which is as detailed as possible. The abstraction and
compilation of this detailed information in the extent required for the planning
must be carried out by the planning tool which is used.
The following are examples of various combinations of the aforementioned
dimensions:
> Best possible exploitation of available free resources which are spatially
restricted. This includes free transmission capacities such as wavelengths and
fibers as well as free interfaces in installed devices.
> Optimal distribution of available resources which can be distributed spatially
without restrictions. Examples are interface cards in the warehouse or allowances
for leasable transmission capacities.
> Expansion of the network in alignment with demand at locations with the
highest projected market potential.
> Remedy of a spatially limited overload on a device or a transmission line.
119
Realization of the integrated planning

The realization of integrated planning in the future will be even more heavily
dependent on appropriate software solutions than in the past. The ability of these
programs to process large quantities of detailed network data with c onfiguration
information, measurement data, and load values will serve as the basis for
forecasting the need for resources in the future. However, parameters which can
be quantified and measured only with great difficulty will continue to play a role
in the future, especially in the middle- and long-term network planning. It will
not be possible to automate planning as a creative process completely, especially
for strategic considerations, in the immediate future.
Rising to the challenges of standard network planning will require a concept
which both integrates the network planning smoothly into the network operators
processes and itself exerts an integrating effect, e.g., on the convergence of the
former mobile and fixed network sectors.
Moreover, this integrated planning must encompass to the greatest possible
extent all of the network layers from the services to the infrastructure. It should
consider market and technology data and unify various planning horizons such
as those existing for strategic planning or project planning.
Planning of various time horizons
One possibility is a three-stage planning process comprising strategic planning,
detailed concept, and implementation.8 Strategic network planning entails looking ahead over a period of five to ten years, and its objective is the development
of future-proof network concepts and structures with a special focus on commercial aspects. The input data and influencing factors for strategic planning are
manifold, including items such as marketing forecasts, technology trends, service
concepts, and the existing networks. Although this requires sophisticated strategic planning, it offers in return high potential for optimization when drafting
concepts for new technical platforms, for example.
The detailed network concept underpins the results of the strategic network
planning with technical details and continues to develop it over a period of one
to three years. While strategic planning works with aggregated network objects
in defined regions of a network, the network concept covers the realization in
8

Grunert/Meyer/Knfel/Zhao: From Strategy to Implementation Tool based Planning of Optical Networks,

Asia Communications & Photonics Conference & Exhibition (ACP 2011).
120
spatially concrete network objects such as devices and lines. The implementation
steers and secures the realization of the planning results.

Table:

Degree of detail for network nodes, lines, and demand in the various phases of
integrated network planning
Strategic planning
Detailed Concept
Implementation
Network
nodes
Aggregated nodes
Single network nodes as

devices
Devices with equipment

information
(components)
Lines
Aggregated line bundles

between aggregated nodes
Single lines connected to

devices
Single lines connected to

ports
Demand
Aggregated demand
between aggregated nodes
routed over line bundles
Specific demand between

single nodes routed over
single lines
Specific demand between

single nodes routed over
through single lines and
ending in tributary ports
Generally speaking, the degree of detail in the planning results rises parallel
to the progress of the depicted planning phases. The planning results will become more and more detailed and precise the closer the implementation phase
comes. Focus of strategic planning is on the preparation of concepts for possible
platforms and on the interdependencies within them. Strategic planning must
give c onsideration to influencing factors for which the determination of exact
values proves difficult. The consequence is that the degree of detail for strategic
planning is relatively low. The detailed network concept provides a reliable
network development concept in terms of network investment and life cycle
management for a period of one to three years.
Cross-layer planning
A cross-layer perspective is important during all of the phases. In the past,
established network operators set up many widely diverse technical platforms
which were often planned independently of one another in different departments.
Occasionally the utilization of other platforms was hidden, which led to subsequent costs which had not been budgeted. For instance, the existing optical
fiber infrastructure must be taken into account right from the strategic planning
phase of a new transit network platform so that any investment costs which
may be required for its expansion can be budgeted. Cross-layer planning is not
possible without comprehensive and correct documentation of the operated net-
121
work platforms and their interdependencies as well as of the offered services and
extending to the utilized infrastructure across all layers.
Tool support
Results cannot be produced within the desired time frame during any phase of
the planning process and the data volume, which is often daunting, cannot be
processed without effective tool support.
A standard tool concept is needed which permits concrete calculations using
specifically developed building blocks during every single phase and enables the
transfer of results without any interface problems. The network documentation
itself remains in the network operators systems.
Prerequisites for integrated planning
The prerequisites for integrated network planning include above all comprehensive
network documentation, the preparation of forecasts of the greatest possible
precision, and the support of the planning process by the processes established in
the operators business.
Comprehensive, contemporaneous, and cross-IT system network documentation is the
basis for every planning project.
An outstanding example is a standard ID concept for locations which represents
the basis for every kind of network documentation. A unique ID for locations,
whatever form it may take, must be applicable to all of the network operators
departments, to every IT system (regardless of whether OSS or a planning or
order system), or to every type of location (regardless of whether the technology
at the location is active or passive). Building on the standardized identification
of the locations, a unique ID must also be assigned to the network objects such
as active and passive devices, transit lines, cable, or routes. The creation of an ID
which includes an indication of the geographic location is helpful. Cross-layer
documentation is often a problem, but it is indispensable during the planning
phase. It should display the connections of point objects with one another such
as the allocation of devices to locations or of components to devices as well as
information about lead and configuration information for linear objects such
as the configuration of the fiber pairs with DWDM systems or the laying of
cables along routes. This cross-layer documentation is absolutely mandatory so
122
that statements about the load on specific network objects, network areas, or the
complete network can be made or so that nondisjoint routings can be identified.
Comprehensive network documentation must also include the customers on the
mass and individual market along with their input data relevant for planning
such as the bandwidth of DSL connections.
The number of documentation systems in use should be limited. A standard
inventory extending in coverage from access to aggregation to core networks and
encompassing all of the technologies is optimal.
The most precise forecasts possible throughout all of the diverse phases of planning
Beyond a doubt, the preparation of forecasts belongs to the essential input data
for every stage of the planning process. A distinction must be made here b etween
the forecasts for internal and external customers. Whereas internal forecasts
designate, for example, the need for a line to a platform which will be used by
another platform, external forecasts are characterized by predictions for customers on the mass and individual market and in wholesale business. The forecasts
must be provided in correlation to the time period for every planning phase.
By their nature, forecasts for a time ten years in the future will be less precise
than those for the coming year, so regular review is necessary. Forecasts based on
dependable data such as population, structural development, average income, or
penetration by competitors should be prepared for the early stage of the strategic
planning.
The living processes in the network operators business must encourage, not hinder
integrated network planning
Integrated network planning will prove to be a success only if the established
processes in the network operators business have a supportive effect. Above all,
the principle of To each his own Excel list must be tossed overboard so that
redundant plans can be avoided and a smooth transfer of the planning results
of the various phases can become possible. In addition, responsibilities in the
planning process must be clearly defined and the results must also be realized in
network operation!
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Examples for application of integrated planning

Optimal network expansion strategy
The available technologies give a network operator the chance to realize services
using a broad range of diverse technologies. The local influences must always
be taken into account. They include market data like the customers income
position and the competition as well as technical realization. While investors are
often concerned with the costs for the construction of a completely new network,
the most precise mapping possible of the existing infrastructure, along with configuration and load information as the basis for a precise estimate of the network
expansion and extension costs, is important for established network operators.
Integrated, cross-technology, end-to-end network planning can be used to draw
up the optimal network expansion strategy. In preparing the strategy, mobile and
fixed network technologies must be combined, the existing infrastructure must
be given due consideration, and projected market data over a period of several
years must be processed.
This type of planning results in recommendations for action describing what
technologies should be used in what areas so that the network expansion is
driven forward while maintaining cost efficiency. In the same way, various rollout scenarios can be examined and compared with one another. Synergy effects
from the combined usage of various technologies can be examined in detail.
The results can easily be tested for plausibility when a geo-based network p
lanning
tool for technical modeling is used. The possibility of breaking the calculated
costs all the way down to specific devices guarantees transparency and ensures the
applicability of the planning results.
Strategic planning
Carriers faced with the task of establishing strategic network planning for a
period of up to ten years with the aid of a suitable software program should
follow the procedure below.
124
First, they should begin by analyzing the as-is network. The next step is the identification of the existing logical and technical platforms and the corresponding
data sources. A suitable planning tool is used to import and aggregate the as-is
network consisting of individual devices and lines. Aggregation is based on each
connection area with one aggregated location as the compilation of all of the existing locations and devices and as the terminus of the line bundle. This procedure
drastically reduces the volume of the data. The aggregate network created in this
fashion provides the foundation for strategic planning which can be carried out
in the form of scenario calculations.
Both concrete platform shutdowns and the setup of new platforms can be examined in the scenarios. In addition, the methodology for the scenario calculation
can be implemented by the development of modified building blocks for automated calculations.
Figure 1: Approach Networks
Existing Network
Aggregated Network
Planning
Scenario
1
Planning
Planning
Scenario
Scenario
2
n
Identification of the logical and technical platforms and the

related data sources, allocation of the network elements to the
platforms.
Aggregation of locations, devices, and lines
Modeling of the real cable sections..
Conducting strategic planning in the form of scenario

calculations.
Source: Detecon
125
The building blocks should treat the aspects customers and services (e.g., with
respect to the distribution of nationwide forecasts to the connection areas), platforms (such as the automatic generation of network topologies), dimensions and
cost estimates, and the cable network.
It then becomes possible for the network operator to determine the development
of the network topology for a new aggregation platform over a period of ten
years (including the required investment costs), to describe the development of
the load on the cable network, and to identify required investments, for example.
Figure 2: Example for the building blocks of network planning
Customer and services
D1
Mass market
Business
customers
D2
D3
C
Wholesale
D4
D6
Platforms
Traffic
modeling
Topology
E1
Dimension of
aggregation
points
Bundle
dimensions
E2
Cable network
Cable
dimensions
Source: Detecon
126
Costs/
Reporting
Costs/
Reporting
Benefits: network transparency and efficiency

Effective integrated planning is capable of creating transparency across all of the
different network areas, maintaining control of network costs, and maximizing
the commercial benefits. The most important advantages for network operators
can be summarized as follows:
Comprehensive view of fixed and mobile networks: Integrated planning makes it
possible to obtain a complete picture of fixed and mobile network systems from
the technical as well as marketing perspective. Integrated planning can include
a broad range of highly diverse technologies for the realization of needs or
customers products.
Crossover network planning and analysis: In contrast to segmented strategic
planning, integrated planning creates transparency among the various network
levels and layers. This includes above all a consistent view from services to transit
layers to cable network and route infrastructure.
Sound selection of future network developments: Integrated planning makes it
possible to calculate scenarios especially for middle- and long-term planning
periods, ensures their comparability particularly with respect to expected costs
and thus simplifies the selection of the best variation. The calculations incorporate market as well as technical data.
Close meshing with the IT infrastructure: Integrated planning requires close
meshing with the IT infrastructure in the company. It paves the way for the
simultaneous realization of planning tasks and the necessary adaptations in IT so
that fast product development can be achieved.
127
Focused Innovation
Innovation The Future of

Telecommunication
Daniel Kellmereit, Yasmin Narielvala
> The predominant mistake that Telcos

did was not focusing on their core
competences, and underestimating the
competitive market environment in
some of these innovation areas.
> A mix of alternative innovations
approaches is key: internal innovation,
open innovation and external cooperation.
> Nuturing Future big Bets requires
commitment and excellence.
128
Innovation The Future of Telecommunication
Why innovating?
Innovation has been on the agenda of many large corporations for a number of
years. The idea of a unique and superior customer proposition, followed by major
success and market domination sounds attractive, and a few, selected companies
that succeeded have shown, how rewarding this can be. So why has this topic
caught so much attentions amongst Telcos in the past years? Why have Telcos
started so many costly initiatives in this area, despite a history of providing communication services to customers, driven by an innovative supplier ecosystem?
The reasons for this innovation push can be found when looking into macro
economic developments of the past two decades: Declining revenues in historical
profit pools due to deregulation and new market entrants, in combination with
market saturation and missing major new growth waves after broadband and
mobile. Even in many emerging markets, growth is starting to slow down. But
maybe the most obvious reason for Telcos to get active in this space was the
competition of what Telcos call OTT (Over the Top) players, like Google, Apple,
Facebook, Amazon, Skype (now Microsoft) and most recently companies like
Whats App or Viber. These companies were starting to cut into long standing
profit pools of Telcos, like voice and SMS services, that have been untouched
for long time. Also, most of these companies have been successful in building a
direct relationship to customers, bypassing carrier sales and billing channels.
Given the increased competition in markets with blurring borders and a constantly changing competitive environment, Telcos decided to act. The question
was, what markets should they attack? And how, where, with whom should they
innovate in order to keep their market position?
What Telcos should focus on
Telcos have been active in a number of innovation fields in the past years. They
hired experts, started large innovation programs and built internal innovation
groups. While most of the new initiatives sounded promising, and helped
to improve the image towards shareholders, they did not even come close to
generating the levels of revenue and profit that Telcos are used to from their core
business. Why were most of these innovation initiatives not successful? In our
opinion, the predominant mistake that Telcos did was not focusing on their core
competences, and underestimating the competitive market environment in some
of these innovation areas.
129
Focused Innovation
Telcos have always been great at channeling best-in-class technologies to the

market, largely by taking external innovations and selling them into their
customer base. Continuing that success story means staying within this area of
core competence. From an innovation perspective the new challenge is to define
where and how to find these best-in-class technologies and integrate them into
core distribution platforms better than anyone else. This means using not one,
but many different approaches:
> Changing things internally around the core business to supplement or compliment
technologies that will be brought to market. Most markets have intense competition
today, so there needs to be something that the telco does fundamentally different
than his competitors to succeed.
> Leverage outside innovation by new approaches to get closer to innovators,
these can be innovation networks, incubation approaches or the build-up of
innovation foresight tools and units.
> Smart partnering becomes the evolution of traditional vendor relationships. Telcos
are really good at managing complex innovations from vendors. As markets are
saturating, this competence is becoming more and more of an efficiency game,
leveraging economies of scale by centralizing procurement functions amongst
different entities, or building alliances to increase buying power.
> One of the most important weaknesses in Telco innovation approaches we have
observed in the last years is a lack of focus and commitment. Building new businesses
is really, really hard, and is often dramatically underestimated. The efforts that
go into building a substantial new business are tremendous, the investments are
fairly large and the time horizon towards profitability rather long (5-8 years). The
portfolio of initiatives at many carriers, aimed to generate new business, often
show a huge amount of small projects that neither have strong top management
support, nor funding to really make an impact.
So what can be done differently? Try to find markets where you are really able to
compete, make a small number of the big bets and execute on them brilliantly,
make a larger number of smaller bets, to stay close to relevant developments and
act quickly, ones one of these areas becomes a major market or business and kill
new businesses consequently and quickly, if they do not work out.

130
Innovation activities not a success story yet

Driven by that threat, many Telcos, especially the large, global players, started
innovation initiatives, built innovation groups, fostered innovation culture
amongst employees, build software groups or digital groups to compete against
the big software and cloud powerhouses. But in the end, success in these new
markets is a question of overall competitive strength, scale, ability to make large
bets, and overall company agility and DNA. Telcos tend to score poor in most of
these categories: Most of them are only active in a couple of markets, have tiny
software groups in comparison to any large software players, and o rganizational
structures are rather inflexible and focused on groups/silos. Large software players
can often monetize their products and services in more than 160 target markets
worldwide. They have a very large pool of software engineers with deep expertise
and cutting edge knowledge.
Starting in 2010, incubation became the new buzzword for a number of Telcos.
Very prominent groups were built by the largest carrier groups. Telefonica started
Wayra, a global accelerator network with an appealing business proposition.
Figure 1: Telcos are well behind best practise in all partnering success factors.
Success factors
TELCO Status Quo
Strategic Partner Scouting

Resources and Investment
Easy Partner Integration
Partner Lifecycle Manangement
Top Management Responsibilty
Standardized Tools & Processes
low
high
Source: Detecon
131
Focused Innovation
Vodafone started Xone, a global innovation center with core activities in the San
Francisco Bay Area and other international markets. Verizon and Sprint opened
up or re-opened facilities in the Bay Area. AT&T started foundry innovation
centers to facilitate innovation through a diverse, collaborative community.
Where will these incubators end up? At this point in time, it is too early to say
which model, and how many of the initiatives will be successful. What is clear,
is that it is extremely difficult to leverage incubation as a trend, when there is no
clear strategy, proposition, mandate, and mid to long-term funding.
The Telco as best in class partner for innovators
The latest wave of Telco innovation activities is focused on partnering.1 The idea
is basically to become a best in class partner for innovative product and services
companies, to become a very attractive channel for startups and high growth
companies that pushes products through its core channels into the market.
Attractive revenue share agreements between Telcos and large and small
innovation partners should guarantee future revenue streams. On top of that,
Telcos are hoping to leverage the positive branding and image effects that some
of these players certainly bring to the table. While this again sounds like a very
appealing p
roposition, Telcos are running into operational difficulties. The

biggest hurdle to a successful adoption of such strategy is a lack of required
organization, processes, and technology platforms. To be an attractive channel
partner, Telcos have to massively invest into state of the art partnering
platforms. This requires much more than a classic vendor setup. It requires a deep
understanding of current and future requirements in the partner ecosystem.
Currently, despite clear effort of Telcos to become more partner friendly, many
startups prefer to do business with other digital players, rather than going through
the often still painful process of partnering with a Telco. Where do we have
successful partnering models today that are showing a potential roadmap for
future Telco partnerships? One of the very successful partnerships between Telcos
and high growth tech startups is Spotify, the Swedish music-streaming service.
While the basic service is free to all users, the company partnered with a number
of European Telcos to provide premium services with guaranteed quality of
service, which is critical for such an application. Telcos are able to use
Spotify as a marketing instrument, to acquire specific customers. The Spotify
132
partnership therefore includes all of the important ingredients that are key for a
successful partnership:
> a clear value proposition that is based on certain network and provisioning assets,
> quality of service as a differentiator that can be monetized,
> positive marketing and branding effects,
> tangible benefits for the Telco partner in terms of marketing and sales
channel leverage.
Telco adjacent industries
Finally, Telcos have started to move into large adjacent verticals. The focus here
is mostly on areas, where connectivity assets can be leveraged. Large verticals
include healthcare, education, finance/payments, M2M, cloud, security and
entertainment/content. Most Telcos started internal groups with the aim to
build these areas into larger business segments in the near future. Large Telcos
acquired some businesses in these areas in order to get a first footprint in these new
markets. Some Telcos realigned their assets, and bundled certain competences
under one new leadership.
Also here, it is too early to say if this strategy will lead to success. What we
can mostly observe though, is that competition in these market adjacencies is
very strong, and that most players in these verticals have already started to move
into the same direction by acquiring network related or digital assets, or by
forming strategic new business segments with solid funding and top management
visibility and reporting. On the Telco side, however, these verticals are often
lacking the talent, funding and long-term perspective, that is needed in order to
be successful. The mentality of a carrier is thinking in month, maximum annual
cycles. In many of these future markets, it can take up to 10 years of massive
investments, in order to be successful. Looking at how long it took Google to
build the infrastructure around self-driving cars, next generation internet access
and wearables before being relevant in these new verticals, reveals how long it
can take: Investment phases of 5-8 years, with a breakeven of a new unit after 10
years are not the exception.
133
Focused Innovation
M&A and Venture Capital to foster innovation

M&A in the Telco segment has mostly been focused on extending the footprint
of existing, classic Telco services into new markets. Telcos either expanded geographically, or from fixed line into mobile or vice versa. Given the fact, that most
Telcos are very large organizations, resistant to radical change, and not event
able to take large risks (stock markets expect most Telcos to be in the low risk
stable cash flow category), investment strategy has to largely follow this low risk
pattern as well.
In the digital arena, Telcos have taken a couple of bets. In comparison to their
core business, these are still relatively small investments; however, there also have
been a few prominent acquisitions: SingTel branched out into mobile advertising,
through the acquisition of Amobee for 321 million USD. Telefonica group
acquired Jajah, an innovative voice service, in 2010 for 270 million USD in order
to leverage the technology and service throughout its global footprint. Verizon
acquired Hughes Telematics for 612 Million USD to bolster its M2M business
and Terremark for 1.4 billion USD to further expand into cloud computing.
These acquisitions show a clear trend towards increased M&A activity in the
digital space.
While it is too early to say if these acquisitions will become sustainable, longterm businesses, they still show the strong urge of large Telcos do differentiate
and grow beyond the core. Large Telcos have contributed the majority share of
these deals in the past years, hoping to be able to leverage the acquired companys
assets throughout their business footprint. Smaller carriers with business either in
a single country or region have been much less active.
To address the early-stage technology segment, a number of Telcos have
established Corporate Venture Capital (CVC) groups. While some are only
financially-driven, the majority of them have a clear mission to support internal
innovation initiatives and build a portfolio of synergetic partnerships around the
core business. Most of the CVCs are what we call Evergreen Funds, meaning
it allows the business to renew its debt periodically, pushing back the maturity
date each time. The financial return of these funds is difficult to measure, as
Telcos usually do not publish this data in detail in their financial statements.
However, when we interviewed a number of these CVCs in the San Francisco
Bay Area, we found out that some of the funds seem to have a very good Internal
Rate of Return (IRR). So at least from a pure financial perspective, some of these
134
vehicles seem to work well. The second piece of the equation, synergies with the
core business, is even more difficult to quantify. Nearly all CVC groups have
to go through board approval processes, meaning that managing directors of
business groups and divisions need to approve each individual deal. Synergies
therefore exist through this integrated investment approach, they are just very
difficult to measure and quantify.
The question remains, should a Telco invest in this segment? Looking at
performance data of in-house R&D groups, one can clearly say that many of
these investment vehicles provider better returns. Synergies with the core business
and organizational setup to fully leverage these remain to be a field of o ngoing
improvement.
Towards the future
Despite the many challenges there is little cause for some of the pessimism that
currently manifests itself amongst top executives within the industry. For sure,
there are significant obstacles. However, considering the assets and resources at
the telecoms disposal, there is still a clear opportunity to successfully redefine the
future.
Innovation is the key to this redefinition. By driving internal innovation initiatives
that bring together and enrich the best of external 3rd party innovation, telecoms
can continue to offer the unique value proposition that has kept them at the forefront of technology delivery for decades.
The lessons learned from current innovation approaches clearly show that there
is no longer one single approach for how to innovate within the telco. In the end,
success relies on a mix of multiple solutions blending internal innovation, open
innovation and external cooperation. Innovation in the future needs to encompass multiple stakeholders, different approaches and integrated functions, but
somehow run as a well-orchestrated, cohesive solution.
There are lessons learned that make it clear that there are innovation areas where
telcos should definitely not be active. Firstly, you cannot innovate up the
value chain, i.e. into the area of software and services. In this space, strong global
competitors such as Google, Facebook and myriad start-ups have showed time
and again that they can move faster and more effectively into new areas. Dropbox
and Box can create global storage solutions in the cloud faster than any tele-
135
Focused Innovation
com player. Similarly, telecoms focus on providing local solutions, dealing with
complex country-specific industry regulation can be of great value, but in the
area of simple applications and services with little or no regulatory barriers, the
telecoms lack of ability to compete on a global scale limits their opportunity.
Similarly, you cannot innovate down the value chain, i.e. into the area of hardware solutions. Here again, OEMs such as Apple and Samsung, and network
equipment vendors, lead by Chinese manufacturers such as Huawei, have the
ability to build solutions catering to a global market, providing them with economies of scale that cannot be matched by any telecom. OEMs have the research
capabilities and the necessary historical expertise to bring device and network
innovation rapidly and effectively to market via their product roadmaps
aggregating feedback from customers globally and incorporating this into their
upcoming release cycles. Any attempts to try to out-smart or out-pace their established core competencies in this area would be challenging at best.
So where should telcos innovation efforts be focused? Firstly, the most critical area is to continue to innovate internally, but to do so in a way that is
completely aligned with core competences. Secondly, telcos still need to harness outside-in technology innovation from 3rd party vendors and suppliers in
order to fulfill the entire technology stack toward customers. In the past,
telcos simply followed the roadmaps of external 3rd party vendors, brought in
their technologies, tested, improved and scaled them before deploying them for
the mass market. Today, multiple integration methods must be used to source
innovation. On the one hand, telcos can consider how to foster disruptive ideas
in a low risk way through venturing and incubation. Additionally, they can
look to leverage existing assets to spur innovation within the market, through
enabling. And finally, given the number of digital solutions required in the
future, telcos need to look to cooperate with best in class suppliers of services and
software, through smart partnering.
The different pieces from internal competence-focused innovation, through
external open innovation, to 3rd party partnering create an overarching
innovation approach of the future that has the potential to best harness new
opportunities in the most cost and risk-optimized way. However, one last puzzle
piece remains: the idea to still continuously search for the next big thing.
These are the one or two potential opportunities that come about through
digital transformation that could become the next wave of enormous growth, like
internet connectivity or mobile before. To do this requires a mindset to continuously search for these opportunities and then place big bets on those potential
136
areas where potential growth could come. These areas of opportunity will be
quickly claimed by someone in the digital ecosystem, and for the telco to be the
one to win they must clearly position themselves to be better at executing than
the competition at an early stage.
The Telecoms Innovation Artillery
From our experience working in telecoms innovation over many years, we b elieve
that a large number of approaches to innovation are essential. Interestingly, m
ajor
telecoms operators have already at least partially established initiatives in almost
all of these areas. In the next section we outline our views, based on historical and
current efforts, of where and how the telecom can use its existing innovation
artillery to build out a successful innovation approach for the future. And most
critically, beyond highlighting the relevant assets, we present our perspectives on
where and how this needs to be slightly refocused to create a more significant
impact into the future.
Strengthen but focus internal innovation efforts
There is unfortuantely much innovation effort and investment undertaken by
telcos in recent years that has resulted in zero return. The internet boom and
the growth of web-services was held up as some sort of hidden promised land of
opportunity for creating copycat services which would easily outperform the
web-service players and lead the telecom towards clear value-add revenues. Much
investment went into internal innovation in these areas, and most of it was
wasted.
In our opinion, one of the key learnings from the past is that internal innovation
efforts into the future must become much better aligned with core competences.
So what are the telcos core competencies?
On the one hand, telcos are e xceptional at bringing together complex technologies from various suppliers, enriching t hese and bringing them to mass markets.
This capability is of great relevance for innovation in the future. End users both
consumers and enterprises do require smart yet simple solutions in complex
fields such as M2M and sensor networks, cloud, and network security. These
areas require a specialist with deep technology expertise relevant for local markets
and local regulations, that can to bring together best-in-class vendor technologies, package them in a way that is suitable for the mass market and provide them
as a simplified service offering.
137
Focused Innovation
Telcos also have fundamental core competences beyond network technology.

For example, telcos are leaders in customer relationship management from sales
through after-sales support, with very sophisticated methods, processes and tools.
From mass marketing, through customer acquisition, through churn management to customer engagement, the telecoms industry is clearly a leader, with
assets and potential to take on even the most formidable competition.
Today, most efforts within internal product and strategy departments related to
innovation are highly product and service centric. When reflected against the
core competences, it is fairly clear to see that this effort is largely misaligned.
On the other hand, other groups within the organization tasked with a longer
term perspective, such as R&D groups, have a mandate to focus on technology
integration and enhancement of supplier offerings, a goal which is clearly well
aligned with core competencies. Our belief is that a long-term mandate is r equired
for these groups within the organization.
Finally, within the telecom, the entire area of innovation in customer relationship
management is vastly underserved. Given that this is such a critical competence of
the organization, the lack of attention placed in this field is somewhat s urprising.
Development of technologies, product enhancements, business models or other
approaches to better support the customer relationship function could have
significant impact.
Figure 2: Five key ingredients are crucial to build a successful foundation
Clear positioning
and value proposition
Strategy &
Positioning
Organizational design
is the backbone
of successful incubators
Bridge between start-ups and

corporation, incubators requires lean
processes and agile decision making
Incubation
processes
Organizational
structure
Incubator
services
People management
Source: Detecon
138
Corporations need to leverage their

core competencies to provide unique
offerings and services for top start-ups
Successful incubators require
innovative HR approaches
We believe that there is too much focus currently on p

roduct and service innovation, and far too little emphasis on internal innovation in tools, technologies and
processes for customer relationship management.
Focus incubation efforts based on clear strategic goals
Incubation has become a popular approach to drive innovation within many
corporate environments in recent years. The latest wave of interest in incubation
began in the Silicon Valley just a few years ago. Players such as 500 Start-ups and
Y Combinator provided a new breed of agile start-ups with the coaching, mentoring and capital they needed at an early stage to kick-start their ideas. Large
corporates had previously dabbled in incubation, but watching the success of
the current wave of proponents they also became fascinated with the model. For
telecoms players in particular, the promise of being able to access a vast number
of new ideas for potential products, services and technologies that could offset
challenges within the core without the risks they had seen in internal development was highly promising.
Many telcos rushed to the new approach. Incubation became a hot trend.
However, in many cases the underlying goals and objectives of the incubator
were never clearly defined. For some the goal of the incubator was to try to create
a positive Public Relations impact. For others, the underlying goal was really to drive revenues in the short to mid-term through integration of incubated
ideas within the portfolio. However, time and again, incubators were established
with a significant chasm between the underlying goals and the execution of the
incubation approach.
It is important to note that the current hype around incubation and start-up
acceleration has led to an oversupply of early-stage capital in the market.
Telecoms need to be careful about their positioning against high-quality standalone incubators and other corporate incubation efforts. We expect that up to
90% of all current incubation activities will fail and it is still open as to which
models, geographies and product categories will be most successful. Telcos must
be extremely cautious and focused in their strategic planning of incubation
efforts to ensure that their goals and investments are matched to the potential
opportunity.
139
Focused Innovation
Partner to leverage external core competences

As outlined in more depth in other chapters of this book, partnering is a crucial
cornerstone of the future telco.2 In the previous section, we looked at the areas
of the value chain where it did not make sense for the telco to innovate internally, primarily up the stack into software and services and down the stack
into hardware. However, the core competence of aggregating 3rd party solutions,
enriching them and bringing them to market at scale is still a valuable asset that
can be leveraged.
Increasingly today, telecoms players are starting to create partnerships with multiple smaller suppliers. In M2M for example, many players now have created
a semi-open 3rd party platform, where partners can dock-on with their own
solutions. In the new digital paradigm the telco is reinventing itself from a provider of 3rd party-based communications services, to a provider of 3rd party-based
digital services.
Despite the fact that players are already partnering widely the current ad hoc
approach does not seem scalable or sustainable. At some point, partnering
within the telecom needs to be seen as a core competence, and provided with
the resources and investment that entails. Much better processes and tools for
identification of focus areas for creating 3rd party relationships, more in depth
approaches to support selection of best partners, and more robust capabilities
for integration of partner competencies need to be developed. Partnering needs
to be seen as a lifecycle and not just an acquisition effort. Partners should be
managed and coached through the lifecycle, even up to and including constant
review of when to terminate the partnership.
Telecoms need to learn from other industries to understand best-practice use of
partnering methodologies. There are many existing examples of companies who
have built a core competence in managing complex channels and ecosystems of
partners. What is clear from these best-practice players is that if partnering is a
core competence and a core driver of future innovation which we believe it
should be! the investment and focus placed on partnering needs to be dramatically increased.
140
Nuturing future big bets requires commitment and excellence

In their search for the next big thing telecoms players have looked to try to
drive new opportunities across an incredibly broad spectrum of services: across
technology fields such as M2M and cloud, verticals such as health, car, energy
and education, consumer services such as payment and TV and many, many
more. These efforts all focus on trying to create momentum for trying to find
the next big growth opportunity, aligned with the current wave of digital transformation.
In some best practice telcos, these new initiatives have been established not just as
slogans and catch-phrases, but with determined effort and significant investment.
In others, attempts to capitalize on these opportunities have been less impressive.
We believe that continuing to seek out the most important and relevant opportunity for future growth is a key pillar of the future innovation strategy. Creating
focused units that can execute on these opportunities is fundamental. However,
when creating these units two factors need to be carefully considered: firstly
Figure 3: Successfully building adjacent businesses requires real commitment, large investments, a stringent process,
top talent
Funding
Team
Governance
Significant initial outlay

Mid/longterm outlook
Continuous investment
Top talent
Competitive incentives
Cross-functional expertise
Independant units
P&L responsibility
Single accountability
Case Study
2002
Acqui-Hired
talent and
players initially
2006
Setup as
independent
business unit
2008
Invested
$480 Mn in
technology
for new
services
2010
Partners
with players
like SUN,
Linux
Unit structure tweaked

to promote
independent
innovation
2012
More than
$2 Bn
annual
investment
Source: Detecon
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Focused Innovation
which areas are the right ones to focus on, and secondly, once the focus is in
place how to maximize impact within this area to ensure sustainable competitive
advantage in the future.
The real opportunity for telcos in many of these fields should be assessed up
front through more rigorous and realistic calculation of their true revenue and
margin potential. By assessing the challenges and complexities of the competitive
landscape and the real value that the telco has to offer, it would be p
ossible to
eliminate many of the current areas of action. Alternatively, areas where some
telcos have been slow to react would have come more sharply into focus. C
hoosing
the right 3-5 areas of action that have potential given the assets and capabilities
of the telco within a specific market is critical.
Once the fields of action are chosen, it is imperative for telcos to realize the need
to put in place outstanding teams, support ventures with significant funding,
and build sub-units with a governance structure that encourages them to thrive.
Consider the case of when Amazon moved into Web Services. The case study
clearly outlines the core requirements for successful execution of any new business approach.
New fields of action are a major component for the future telco innovation strategy. Execution within these fields must be reassessed to become bestpractice, learning from other players and industries. Only then will it be possible
to compete with the many other players who are also vying for a position in these
emerging opportunities.
A mix of alternative innovations approaches is key
Although the landscape today is very different from the past, there are still very
clear imperatives for innovation within the telco. Not all innovation has to be
internal, much (as in the past) will need to be open and 3rd party driven. The
key is to blend together a mix of alternative innovation approaches, each with a
specific goal, to create a holistic approach towards finding short and longer term
ways to drive sustainable value.
Internal innovation will play a role in the future. The key requirement is to
sharpen historical efforts to focus clearly on core competences. These are both
within the network technology domain as well as more broadly in areas such as
vendor management and customer relationship management. Leading innovation in these areas, leveraging and enriching supplier offerings will provide an
important springboard for longer term cost savings and efficiencies.
142
External innovation, through partnering and incubation in particular, provides

the complimentary springboard to internal innovation. Whilst internal efforts
can drive cost efficiencies, drawing in external 3rd party innovation should be
done with a key goal to drive growth. This can be short term and incremental,
through partnering with smaller players, or longer term and more strategic
through i ncubation or through larger partners with complimentary competences.
Beyond tactical measures for cost savings and revenue growth, there is still the
ability of the telco to attempt to move into new blue oceans. This should
also not be neglected within the innovation strategy. Realigning the corporate
strategy to incorporate highly focused big bets will provide an additional piece to
ensure that the next wave of opportunity is not missed. The key learning here for
telcos is to understand and build the right mix of talent, structure and funding to
promote excellence. It is not sufficient to try to create mediocre business units;
the technology field is far too crowded.
Given the complexity of the innovation solution of the future, the key for the
telco is to find a way to execute the various methods in a smart way. Different
teams and organizational units with stakes in innovation should consciously
accept that the multiple complimentary methods and approaches are required to
position for the future, and build the necessary foundation to orchestrate these
various disparate efforts to maximize their impact on the organization.
The benefit is that if its done right it will lead to sustainable future revenues
despite the constantly changing technology landscape.
143
Interview
The Importance of
Innovation Can Not Be
Overestimated
144
Innovation is a driver of growth and growth

opportunities were desperately sought for in
telecommunication markets. More focus and
more flexibility postulates Dennis Tsu, Stanford
Research Institute (SRI). He is Executive Director of
Innovation Programs for SRI International and
manages the team that develops and
delivers SRIsInnovation Programs.
The Importance of Innovation Can Not Be Overestimated
Question: Dennis, you work with a lot of clients to develop processes for driving
and managing innovation. Can you tell us a little more about SRIs approach?
Tsu: SRI International has developed his own methodology, which we call
the 5 Disciplines Of Innovation, or 5DOI, that we have applied ourselves
across multiple technologies and markets. We have shared this with thousands
of clients, including governments, universities, enterprises, and entrepreneurs in
over 20 countries around the globe. Our CEO, Curt Carlson, described these
disciplines in a book, Innovation, the Five Disciplines For Creating What
Customers Want. At SRI, we define innovation as the creation and delivery of
new customer value in the marketplace with a sustainable business model for the
enterprise producing it. This definition takes us far beyond ideas and creativity to
an organization-wide, managed process. We really believe that these 5 Disciplines
are fundamental and basic and can and should be applied in almost all i ndustries.
The first point is our focus on meeting important customer needs, instead of
focusing simply on interesting research topics, helps assure that the results of
our work will have positive impact for our clients, partners, end users, and the
marketplace. The second point concerns the value creation: For every initiative,
we work closely with clients to articulate their important needs; define the most
compelling and unique approach to address their needs; analyze the benefits per
costs of that approach; and quantify why the chosen approach is better than the
competition and alternatives. This NABC method Needs, Approach, Benefits
(per costs), and Competition helps us quickly define, create, and communicate
the highest customer value. Third, we are working with Innovation Champions.
Each project is driven by a passionate advocate to advance the value creation
process. We believe having a champion for each initiative is critical to success.
At SRI, if theres no champion, theres no project. Fourth, we have Innovation
Teams. Champions build productive teams. Our multidisciplinary, team-based
approach taps into the collective genius of SRI, our clients, and our partners. SRI
has pioneered open innovation for decades by bringing the best collaborators
and ideas together to meet our clients needs. And last but not least our fifth
discipline is the Organizational Alignment. Our innovation teams align with
client and partner needs to ensure we are focused on delivering the highest value.
SRI is committed to leadership in innovation best practices and in the continuous
improvement of our business.
145
Interview
Question: So would you see any specific challenges within innovation for the
Telecommunications industry?
Tsu: Yes, there are three specific challenges in innovating in Telecom that I
could highlight. The first is how do you define your charter? what will your
organization allow you to consider as a viable product or service offering? We
see that many organizations in the telecommunications industry box themselves
in and dont allow innovation outside the box. The second is what will your
regulators and shareholders allow? In most countries Telecom Operators are regulated entities, and this creates a challenge for innovation. And lastly, the challenges
of innovating within any big company culture where there are entrenched
interests and organizations that want to preserve the status quo. Since most Telecom Operators are large organizations, this is a challenge that must be overcome
to successfully innovate.
Question: Are there differences in the approach toward innovation for R&D
centric organizations vs. companies that operate a mostly regionally focused
business like Telcos with much less R&D spending?
Tsu: On the question of whether Telcos should be innovating differently because
they are regionally focused and spend less on R&D this needs to be parsed into
at least three different questions.
First, spending on R&D does not equal innovation. Some of the most innovative companies in the world spend less than 3% of their revenues on R&D. So,
we do believe Telcos can innovate even if they do not spend a lot on R&D.
Second, a regional focus can be a both a blessing and a curse. It allows for a better
and deeper understanding of your customer base, and their specific needs and
wants. And it means that you really need to be conscious of your competition in
your territory and decide how you want to be perceived in innovation relative
to the other service providers in your geography. And then you need management processes that allow you to execute on that strategy.
Third, as operators with large staffs delivering services to large numbers of customers both consumers and enterprises you face particular challenges to
the rollout and implementation of any innovation. This innovation execution
challenge needs to be well understood as part of your process of managing innovation.
146
The Importance of Innovation Can Not Be Overestimated
Question: Are there any recent trends and changes that you have incorporated
into your innovation frameworks? In general, are these innovation frameworks
very static, or do they change over time?
Tsu: The 5DOI Principles or Disciplines have stood SRI in good stead for more
than the last 20 years, so we think the basic disciplines remain fundamental and
sound. However, everything evolves over time. For example the Internet, mobile devices, app stores, and so on, have dramatically changed the cost and time
involved in rolling out a new application business. Also, the financing of startups is evolving, with angel investors playing a larger role and the venture capital
industry adapting to this. On a more technical front, 3D printing is at the cusp
of altering the manufacturing process, while the world is more and more interconnected and therefore your competition is now global from day 1 for almost
all products and services. And of course, the average lifespan of a large (F500)
company is getting shorter. The importance of innovation even for large telecom operators cannot be overstated.
As a result of these changes and many others going on in the world, we think
its increasingly important to stay focused on the fundamentals. That includes
understanding your market and customers what do they really need, understanding the competition and why or how you are better or different, and being
able to articulate the benefits youre delivering to your customer compared to
their costs in a way they can understand.
SRI International is a nonprofit, independent research and innovation center serving

government and industry. We provide basic and applied research, laboratory and advisory
services, technology development and licenses, deployable systems, products, and venture
opportunities. SRIs Innovation Programs help organizations in government, academia, and
industry to develop and implement processes that encourage, foster, and manage innovation
and entrepreneurship within a supportive ecosystem. These programs have multiple repeat
clients around the globe in Canada, Chile, Malaysia, the Mideast, Japan, Finland, Turkey
and other countries, as well as in the United States.
147
Successful Partnering
Generates New Growth
Dr. Christian Krmer
> Growth on the saturated telecommunications markets is an elusive target; its achievement requires companies to diversify onto new
markets with new products or to increase the
depth of their value creation.
> Partnerships represent a low-risk alternative
for telecommunications companies which
enables them to realize new business models
and develop new markets quickly.
> But successful partnering also demands the
build-up of new skills by the participating
companies at both the organizational and
cultural levels.
148
Successful Partnering Generates New Growth
How can growth be achieved when the core business is stagnating?

The telecommunications industry is under pressure. Revenues on mature
markets such as Germany have been shifting at an increasingly faster rate from
fixed to mobile networks for a number of years. While the demand for mobile
Internet is rising in the latter sector, revenues in absolute figures are declining.
Cable network operators have been the only players who have been able to post
record growth rates in the past five years.1 From the global perspective, the outlook for the telecommunications industry is not so dim. Based on data from the
European Information Technology Observatory (EITO), the industry a ssociation
BITKOM2 projects rising revenues from ICT infrastructure and services for
2014. The BRIC countries are growing the fastest, followed by the USA at about
half the speed. But as soon as these markets have reached a certain maturity level,
the international network operators will be confronted with the same problem
that already exists in Germany: finding a way to achieve growth in the face of
stagnation in the core business.
In their efforts to solve the problem, telecommunications companies have for
quite some time now been expanding their service portfolio in the direction of
higher-value services providing additional customer benefits. The traditional core
services of network operators are transmitting and making accessible data and
voice. Their cloud services, for instance, offer customers additional protection
from data loss and unauthorized access as well as availability via any Internet
connection regardless of time and location. Triple play products combining TV/
video, telephony, and Internet into a single package are another example.
Deutsche Telekom attracts triple-play customers, for instance, with its Entertain service and audio-visual entertainment; however, it is dependent on third
parties to provide content for this higher-value data service.
The deeper companies efforts push them into new market and product sectors,
the greater their risks. Experience shows that the development of solutions which
function technically is not enough to ensure success on new markets.
Reducing risks and achieving goals together
Cooperation packages which network operators develop in collaboration with
partners offering content, IT, or hardware are more promising of success and
involve fewer risks than own developments and own operation. By choosing
1
2
Cf. the study Branchenkompass 2013: Telekommunikation, F.A.Z. Institut 2012.

BITKOM Press Release (11/11/2013). Worldwide ITC Market Grows by 3.8% .
149
the right partners, operators strengthen their competitive position, share investment risks and expenses, and increase their customer reach, ideally to full-area
coverage. The possibilities offered by partnering are many and varied, and the
motivation to move in this direction comes from similar reasons across all industries. In todays age of an increasingly digitalized, globalized economy,
virtually every business model has come under pressure. Customer requirements
change from one moment to the next, technological innovations cast doubt on
established products and services, and new competitors are able to defy even large
international corporations. The value chains are undergoing major transformation
and demand flexibility and speed in previously unknown dimensions.
Companies are cooperating with one another so that they can keep pace with
these dynamic changes and, by working together, achieve common goals.
Sales, marketing, and innovation partnerships, for instance, serve to increase
revenues. Setting up new cross-industry business models is a means of increasing
the
average revenue per user (ARPU). Outsourcing, the establishment of
shared service
centers, and near- and offshoring serve primarily to reduce
costs. Partnering surrenders the holistic structure of an in-house value chain in
favor of the strengths of a network. This trend will continue. Future competition
will no longer take place between individual companies, but between crosscompany corporate alliances and virtual corporate networks. These networks, the
so-called smart business networks, are evolving into a key organizational form
in todays business world.3 They are characterized by closely meshed business
models among their players and make it possible to enter into business relationships quickly and fl
exibly; in the event the relationship proves to be of little value,
it can be dissolved just as simply.
One good example of successful partnering is the cooperation between Telekom
and the music streaming service provider Spotify. The corporations fixed and
mobile network subscribers can simply add the streaming service to their rate plan
and pay for it as part of their monthly telephone bill. This is more convenient
for customers than booking the service separately. They enjoy yet another advantage the usage is not charged to their data allocation. When customers of other
mobile network providers listen to music on Spotify while on the go, every transmitted byte is deducted from the data volume of their contract. The competitors
of Spotify and Telekom have entered into similar cooperative agreements or are
in the process of negotiating such contracts. E-Plus is partner with Napster in
Germany, Vodafone cooperates with the service Ampya of ProSiebenSat.1 Media
3 Cf. Krmer/Schuhbauer/Zenner (2011): Intelligent Crossovers Next Generation Collaboration in Business

Networks; Detecon Management Report 2011.
150
AG, and Mobilcom-Debitel collaborates with Juke, the streaming subsidiary of

the electronics retailer Media-Saturn.
The carriers involved in these partnerships concentrate on their core businesses
of distribution, transport, and billing, distributing information over smart
infrastructures and high-performance networks with high bandwidths (VDSL,
fiber-to-the-home, LTE) and high transmission speeds from 25 Mbit/sec to 50
Mbit/sec to 100 Mbit/sec downstream. In addition, they use the contact points
of their own sales departments to market partner products in return for a share
of the revenues. In the other direction, sales partners are contracted to increase
customer reach in the event that their own sales departments are not, or not
adequately, represented in certain market segments.
OTT products kindle competition
The digital medial value chain illustrates the growing need for partnerships.
Telecommunications companies are not alone in experiencing pressure from the
increasing number of over-the-top (OTT) services. OTT is the distribution of
voice, video, and data services via the public Internet without the controlling
management of a mobile network, fixed network, or Internet service provider.
OTT products such as WhatsApp, Skype, and the up and coming Google Voice
featuring voice and text messaging services are crowding into the core business
of the telecommunications companies. These products offer telephony and
messaging free of charge or at extremely low rates via the Internet protocol; the
sole consequence for the providers is the increased demand for more bandwidth
and reliable service quality.
In the IPTV segment, video portals like Netflix or Hulu are competing with the
services offered by the ISPs. Providers traditionally distribute audio-visual content via a content network which gives them control over the feed-in and billing
of the content. Standardized applications now enable users to access videos by
means of various devices, bypassing the providers who no longer serve as middlemen operating between the content providers and the consumers. The new services give consumers an alternative to set-top boxes. The rise of OTT services
has rekindled the competition between Internet providers, telecommunications
companies, and providers of devices and applications. Yet at the same time, this
development has created the space for partnerships. Every single one of these
competitors is dependent on the performance of services outside of its own core
business if it wants to offer superior products and services.
151
The value potential of business with OTT services is high. While advertising
revenues in classic TV distribution are rising at no more than moderate rates (even
stagnating or declining on some markets), experts predict a tripling of a dvertising
revenues via OTT services in the time from 2013 to 2018. Net advertising
revenues via OTT services in Western Europe exceeded one billion euros in
2013. This figure will grow to about three billion euros by 2018.
Partnership potential on the media market
OTT services kindle competition among companies at various stages of the
digital media value chain. Simultaneously, they open up space for partnerships
because every provider requires services from its competitors for the realization
of new business models, whether providers of hardware and IT services or
telecommunications companies in the content sector. Web providers require
access to customers via radio, cable, or optical fiber, while classic content
distributors such as television broadcasters are dependent on both access to
customers and the transport of their content.
Identifying and acquiring partners
If carriers are to take full advantage of growth opportunities, they must identify
and acquire the right partners. Only the top 3 providers of each vertical sector are
Figure 1: Partnership potential on the media market
Content Distribution
Application
Web
Browser and Search Engine
ACCESS
Hardware
Source: Detecon
152
TELCOS
genuine candidates for successful expansion of value creation onto new m

arkets.
Companies should also explore possible coalitions with innovative startups the
shooting stars of the industry at an early stage as an ace in the hole. It is
imperative that they proactively seek out partnerships. All too frequently, companies carry out activities of this type as a sideline. A company can offer monetary or image-enhancing incentives to attract partners. Moreover, it is extremely
important to create a culture of trust; most partnerships end in failure because
one of the parties feels it has been outsmarted by the other.
The choice of partners should be aimed at securing long-term competitiveness
and not just quick returns, so partner management must be oriented to assuring
sustained benefits for both sides. Nevertheless, speed plays a massive role.
A glance at the music streaming market in Germany reveals that there are 14
different providers today. In the middle to long term, however, only three to five
market players will survive worldwide. Viewed against this background, telecommunications companies have the task of carefully examining potential partners,
identifying providers who will be competitive in the long run, and winning them
over with cooperation models attractive to both sides.
Companies need a kind of early-warning radar so that they can identify the
value chains with the greatest potential for returns, competitiveness, and security
appropriate to their position and probe the field of possible partners with clear
goals in mind. By doing so, they can approach the winners on the market as
their partners of choice at an early stage.4 Since it will not always be possible to
acquire the top 3 providers in an industry, companies must also observe newcomers so that they identify the future winners among the startups at an early
stage. A professional partner analysis provides insights about the appropriate
partners and their potential for development.
The right positioning in the network
Companies must find a competitive position in their value creation networks
where they can generate genuine added value. The role they can play here d
epends
on their core competence and their strategic corporate goals. Conducting a
strategic market and competition analysis or commissioning such an analysis will
help companies to find the right role. Experts with cross-industry market knowledge are able to predict the development of markets and customer requirements.
Cf. Kellmereit/Narielvala, Innovation, p. 128 pp. in this volume.
153
They analyze and break down into segments the various links of an existing value
chain and appraise them to determine which ones are served well and which ones
are not served so well. Based on the strengths and goals of a telecommunications
company, these experts identify the position in the chain where the firm should
ideally be placed.
Carriers in particular have the opportunity to play the role of the network
operator or a provider for managed and application services (MSP/ASP). The
operators job is to take charge of network operation, logistics, and billing. When
they play the role of an MSP or an ASP, carriers act as service providers who
take over the management of networks and services or who become platform
operators offering and hosting application-oriented services. Another option
for c arriers is to concentrate on building a media and content company which
utilizes their digital channels to convey multimedia content and mobile solutions
to their customers. The fourth possibility is to concentrate on branding, concept,
and sales and service oriented to consumers. Carriers in this role have the tasks of
interacting with the market, doing research, and collaborating with teams from
production to draw up long-term strategies for market development.
Carriers can even bracket various value creation stages and encompass stages in
which partners boast absolute strengths. If they simultaneously take over both
the infrastructure and the branding, sales, and service, they will cover device
manufacturers and content producers. The suitable position in a cooperation
model for any carrier is dependent on its own strengths and on the gap in the
needs of the target market which must be covered. If competence is oriented
strictly to telecommunications, the role of network operator would initially be
the most logical one.
The role of channel leader can also be considered if brand and network competence is strong. The channel leader holds a key position in the value network
and develops a general strategy for all of the partners. A company wanting to
fulfill this role must be competent in the fields of partnership design and system
leadership.
154
Strengthening partnering capability

The capability of partnering the network capability of a carrier will be the
deciding issue in the future for success and survival in the meshed industries
and on fast-paced markets. Companies must be able to adapt to their partners,
conclude cooperation agreements, and collaborate to create convincing products
and services. Thorny issues such as revenue sharing and exit strategies will also
become a component of routine business. Partnerships are temporary by nature.
Exit mechanisms developed at an early stage provide for a fair and frictionless
disconnect in the event that a cooperative venture does not work out.
Flexibility will become a key success factor as markets become more and more
volatile. Companies will no longer be able to survive in the long run by offering
a rigid product line. They must act quickly, comprehensively, and sustainably to
take advantage of any opportunities which arise. If customer requirements on a
market change, a company must be prepared and able to jump to another market
and to find new partners for the development of a new product strategy.
This flexibility requires professional, friction-free partner management which
enables companies to connect with and disconnect from new and old co-players,
allow alliances to be oriented to new requirements, and promote the special
strengths of the involved parties.
Figure 2: Positioning opportunities for telecommunications companies
CUSTOMERS
Roles close to Telco
Internet
Plattform
Provider
Roles faraway from Telco
Infrastructure
Managed Services
and
Plattform Vendor
Network
Operator
Access
Device
Provider
Media and
Content
Company
App Store
Broadcasters
Devices
Content
aggregation
Applications
Playout/
Distribution
Network, Platform, Hardware
Content and Services
Resellers
Customer
Service
Provider
Branding/
Sales
Service
Market Development
Source: Detecon
155
Becoming the channel leader

Complex value networks need strategic management and coordination. They will
not have the tendency to evolve into self-regulating systems. We can assume that
certain co-players will turn into leaders who are capable of managing value chains
in competition. These companies will create the framework conditions leading to
win-win situations for their members.
Companies with strong brands, good partnering expertise, and far-sighted
network design character have the best chances to take on the role of a channel
leader. They must have the skills required to oversee and manage the entire B2B
and B2C chain. This is essential above all for new services such as those in the
M2M sector.
If a telecommunications company wants to take on the function of channel
leader, it must not become tied to the role of connectivity provider. Instead, it
must act as the orchestrator in its partnerships. This is also a desirable role to
play because the network orchestrator will receive the major share of the growth
in value which is jointly created. The channel leaders must be capable of highly
professional management of alliances. The necessary skills include clear communication, openness, and almost complete transparency. These are the prerequisites
for a partnership which works well. If a company is to be accepted by its p
artners
as the channel leader, it should, on the one hand, assume responsibility for
coordination and, on the other hand, act as a fair intermediary among the parties.
A company suspected of acting unilaterally in its own interests cannot become a
channel leader.
In terms of coordination, the orchestrator has responsibility for two task areas: it
must create efficient procedures for changes, terminations, etc. (process-related
coordination)5 and it must ensure that status and order information and other
data are conveyed to the right position in the value chain (information-related
coordination). These processes must run in real time so that customers enjoy a
seamless customer experience.6 Products and services created within the framework of a partnership must nevertheless appear to consumers to be from a single
source.
5
6
Cf. Helbig, From Telecommunications Company to Process Factory, p. 298 pp. in this volume.
Cf. Hauk, Customer Experience, p. 250 pp.; Penkert/Eberwein, Customer Self-Services, p. 270 pp. in this volume.
156
Transformation and setting up operating management

Two steps are necessary to survive in network-centric competition by following
a partnership approach: companies must complete a strategic business transformation, and they must set up the operating management of their partnering and
network activities.
Strategic business transformation requires a realignment of value creation activities to the competitive position which is being sought. Anyone who does not
want to invest in mergers can consider the cooperative strategies of partnering
in addition to organic change management of its business. Such strategies range
from joint ventures, carve-outs, and outsourcing to the establishment of shared
service centers and to classic cooperative ventures without capital investments.
Ones own value share in the chain changes substantially as a consequence of this
realignment. Partners a carrier wants to use for differentiation will be brought
into play as appropriate. This is not simply a material decision. It involves a fundamental change in attitude. A carriers future objective must no longer be the
conduct of all value creation activities by itself; it must now make specific use
of partners competence to offer competitive products and services. This applies
to both OTT services and to infrastructural subjects such as wholebuying. In
the past, the subject of partnership was treated as a stepchild and an operating
issue. Today, it is a strategic core task demanding significantly more attention and
utilization of resources.
Once the partner alliance is in place, the network must be set into motion
and kept in motion. Traditional regulating mechanisms such as organization
and processes provide the framework conditions for performance of the services.
However, the question of whether the division of labor evolves efficiently or
remains stuck in paralysis, lack of orientation, or frictional losses is decided at
the interfaces of the concrete cooperation, at the point of collaboration. The
binding alignment of the market players and their mobilization in the d
irection
of the common goal become success factors where cooperation is especially
important.
On the technical side, there are a number of solutions and tools for the support
of the cross-company collaboration. Companies with the intention to cooperate
should provide the appropriate means to their employees at an early stage so that
157
the collaboration can enjoy the best possible support from the very beginning.
Depending on the collaboration model, such means can include Web-centric
supplier portals for the support of the purchasing department, social work spaces
where project members from various companies can work together across all
media, and cloud computing applications for the distribution of data to a large
number of devices and users. Video conferences, Web meetings, data exchange
using EDI 2.0, and the utilization of social media round out the collaboration.
Cooperative procedures are accelerated by process-steered workflows at the team
level.
A holistic management approach followed by companies to develop and organize
their partnerships on the basis of the value creation analysis is important. The
cooperation managers must initiate the required adaptations and transformations
so that the actors in the network can interact smoothly. Taut management with
the appropriate governance, guidance, and collaboration technologies secures the
performance of the network.
Figure 3: Procedural model for remodeling the value chain

Value Chain Analyse
Partner selection
Identification of value chain gaps and

opportunities
SWOT of value strategies
Long list/short list partners
Strategy/M-O-P-S
Decide on Value Chain Strategy
Options: Make, Outsource/
Shared Service Center, Partner/JV
Performance Measurement
Define KPIs
Set-up steering logic and system
Collaborative Action Plan
Adjustment actions
Optimization actions
Source: Detecon
158
Plan
Build
Process of
remodeling the
value chain
Monitor
Run
Partner Initiation and Contract design

Approach short list partners and
initiate contract negotiations
Transition and Transformation

Adapt interfaces, applications, data
links, and, if necessary, locations
Make the Network Run
Connect the new partner
Engage collaborative ICT and push
processes
Well-structured remodeling in four stages

We recommend that companies follow a 4-stage procedural model so that the
remodeling of a value chain and partner management can be driven forward
according to a solid structure and schedule. This model has proven its value
in many consulting projects and covers the entire lifecycle of a value creation
network. The decisive element for the success of the remodeling is the process
design during the transformation phase. No matter what the nature of the
cooperation, tasks will have to be distributed differently, so processes, p
rocess
steps, and responsibilities must, as a minimum, be examined closely and, if
necessary, modified.
The organizational optimization begins as soon as there is agreement on a new
section and on the optimization of the process chains which the parties will
from now on follow jointly. The objective is to realize a common, sensible, and
consistent process. The basis of the management model is the entrepreneurship of
its members. Control opportunities increase at another point: IT standards and
the existence of M2M control systems make the monitoring of the flow of goods
in the value chains and of the responses of the customers increasingly simple.
Tracking the success of the partnership and the measured value contribution of
every single partner will become even more deeply integrated into companies
control systems in the future. And: partnerships are temporary by nature. Suitable
exit mechanisms must be set up in advance so that a fair and smooth disconnect
is possible if the cooperation does not work out.
Always achieving growth with a culture of sharing
Virtual value networks will dominate the market in the future. Control over the
value chain through ownership will cease to exist. Companies have no choice but
to develop the competence which will enable them to manage their networks by
means of power and management other than financial possession. A culture of
understanding for other partner organizations, of sharing, and of professional
cooperation at all corporate levels will be required for joint success in value
creation of the future: on teams, between departments, and at the level of s trategic
management. Companies able to acquire this competence will always be able to
exploit new growth potential even on saturated markets.
159
Interview
Partnering as Strategic
Growth Weapon
160
Professor Jens Bcker studies the development of

marketing strategies on dynamic markets marked by
technology, especially the ICT market. He is professor for business administration and marketing
at the University Bonn-Rhine-Sieg, a member of
the Board of Directors of the M2M-Allianz e.V.,
and scientific advisor to a management consultancy
in Bonn. In his opinion, the enhancement of the
partnering capabilities of telecommunications
companies must be given a very high
position on their agendas.
Partnering as Strategic Growth Weapon
Question: Have you noticed a relative increase in partnering activities as a growth

strategy among telecommunications companies?
Prof. Bcker: Telecommunications companies are making increasing use of partnering as a strategic growth weapon because it is important to avoid the risk of a
dumb bit pipe. This arises from the awareness that specialists are often superior
to all-rounders. It is the reason these companies like to enter into partnerships
with innovative service providers it rounds off their portfolios. Companies like
Spotify or ClickandBuy have the advantage that they enjoy a very close proximity
to the market, being small players which are few in number in business policy.
On the other side, the investment for the large network operators is manageable,
the potential negative image transfer from the partners activities to their own
brand is limited, and the risk of a flop is restricted to the partner.
Question: The telecommunications industry frequently aims to play an enabler
role in new, digitally driven business models. Have telecommunications companies taken over the leading role in machine-to-machine (M2M) initiatives?
Prof. Bcker: I dont believe that the battle for leadership in value networks has
been decided. Telecommunications companies have proved on standardized mass
markets that they can turn the market around. But the specific technological
solution competence and industry support on the new highly individual and
dynamic markets such as M2M are oriented to customer target groups which are
mostly very narrow in scale. Their needs can certainly be served by companies
from the IT industry such as IBM, ATOS, Computacenter, or Bechtle as well.
Network operators have their USP in the transport infrastructure, the digital distribution of solutions, and wide-area distribution. However, the various
M2M initiatives driven by telecommunications and the creation of partnering
departments by the operators indicate that the prerequisite for enablership
partnering capability is systematically being reinforced. An enabler is expected
to have the ability to orchestrate players from various industries.
161
Interview
Question: What role does partnering play in the roll-out of M2M solutions?
Prof. Bcker: Technological solution competence is undoubtedly the top business card for the competitiveness of such networks. Partnering is the most important hygiene factor. Both partner selection and management of partners during ongoing operations are decisive for success just as much, by the way, as
the ability to disconnect from weak partners and to replace them quickly with
more powerful cooperation partners. This capability is especially decisive on the
outsourcing market, which is becoming increasingly characterized by secondgeneration outsourcing or multi-vendor solutions.
Question: How has the quality of partnering changed over the last ten years?
Prof. Bcker: During the last decade, partnering has developed from an
operational vicarious agent to bridge bottlenecks in resources into a strategic
factor. On the revenue side, it plays an important role as innovation and sales
partnering. The quality and speed of these types of cooperation are continuing to accelerate. In view of the growing maturity of the telecommunications
industry, partnering helps telecommunications companies to concentrate on
their core capabilities. Outsourcing deals and the shifting of cross-over tasks
even R&D to supplying partners mine potential for cost reductions which
simply cannot be mobilized in the form of conventional cost-cutting projects.
Question: What developments can we expect to see in the future?
Prof. Bcker: Carriers will continue to enhance their partnering capabilities
within the framework of their growth objectives. The creation of strategically
motivated partner management can be found at or near the top of the agendas
of many providers. The skills which will be really high up on the job d
escription
for partner managers: the capability of developing networks strategically and
acquiring leading companies as partners; proven expertise in the field of partner
selection and the management of partner portfolios; and talent for i mplementation
which keeps cooperative ventures agile and leads to mutual success.
162
Partnering as Strategic Growth Weapon
163
Managed Services Are Entering

the Stage of Maturity
Results of a Survey
Manfred Schmitz
> For more than ten years managed

services have helped many network
operators to be strategically fit.
> Expectations on managed services
will be even higher in future.
> The results of an international survey
show, that OPEX optimization and cost
predictability were mentioned as the
top priorities in business strategy. For
the future there is a trend to
service quality.
> Extending additional functional
processes and IT managed services
announce the third phase of the
managed service model.
164
Managed Services Are Entering the Stage of Maturity Results of a Survey
More than ten years of managed services

If telecom operators want to remain competitive on an increasingly tough market,
they must evolve. For more than ten years, managed services have helped many
network operators to achieve better cost efficiency, close gaps in operational competence, and sharpen focus on their core business. As they seek to master the
challenges arising from new market players as well as the convergence of network
technologies and IT, operators will expect even more from managed services.
Over the years, Detecon has been involved in number of projects around the globe
in the field of managed services. Our consultants have supported o perators during
all phases of the process, ranging from assistance in making strategic decisions
to preparation of tender documentation, evaluation, contract n
egotiation, and
transitions and including evaluation of the impact of MS and a re-design of
the model.This article looks at the key drivers behind managed services and the
new expectations from telco operators. It highlights the results of the survey
conducted by Detecon among a number of telecom operators around the world,
evaluating the current status of outsourcing, preferences, and inclinations as
well as future trends in this dynamic field. The survey results have been built
based on both primary research consisting of face to face interviews with decision
makers on 5 continents who are responsible for telecom network operations and
collections of Detecon expert experiences, as well as secondary research using
external reports and databases with over 3,500 Managed Services deals.
Managed services have been available in the telecom industry for more than ten
years. During this period, technologies have progressed rapidly, and operators
demands on managed services have evolved at a similar pace. Technology change is actually one of the key factors driving operators to use managed services.
More than ten years ago, mobile networks were being installed at a furious rate
around the world. Many operators who lacked the required skills and processes
to operate the emerging technology and were simultaneously focused on cost
efficiency turned to the equipment vendors for managed services. A model known
as PBOT (Plan, Build, Operate, and Transfer) was created. As the level of their
trust in vendors was relatively low, many operators obtained equipment from
different suppliers. The transfer phase never took place, resulting in multi-vendor
networks operated by several managed service providers (MSP). It was typical of
such networks that each managed service provider was responsible for its own
equipment.
165
There exists another model, driven sometimes by commercial interests but

often by pro-competition regulation, in which existing network operators p
rovide
network resources together with operations services to other service providers
who may actually be their competitors. Mobile virtual networks and backhaul
connectivity are examples of this model. However, the provision of such resources
is normally based on a wholesale arrangement with limited service flexibility
in terms of SLA and KPI. This may work fine if the products are simple and
commodity-like, or if the competitors pose little threat to the market share.
Otherwise, the tricky relationship of cooperation-competition will greatly
influence the potential of the service offering. Exceptions are being observed
in the c ountries where structural separation of the retail and wholesale arms is
mandated on the dominant network operators. Despite the complexity we expect
a strong increase of these kinds of arrangements in alignment with heavy assets
vs. light assets approach as further described in this book.*
Priorities of outsourcing are cost-related, service quality and focus on business
are named as well
Even today, the top objectives in using managed services are still cost-related. In
Detecons survey of operators around the world, OPEX optimization and cost
predictability were mentioned by more than 50% as the top priorities in their
business strategy. Nonetheless, we should not ignore the fact that other objectives
such as service quality and focus on business were named as well. While
greater weight is being given to such goals, however, they tend to be regarded as
an extension of the cost-related objectives rather than as significant alternatives.
It should also be noted that there were major regional differences regarding such
priorities.
This vividly illustrates that the exact nature of managed services continues to
be specific to locality. The issue of professional expertise is an especially good
example. Some markets in Africa and the Middle East still have difficulty
finding people with the right professional skills and expertise. Situations like this
represent a genuine opportunity for the introduction of managed services.
Cf. Krssel, Network is King!, p. 8 pp. in this volume.
166
Operators generally happy with managed services

The respondents to our survey indicated that the top objective of OPEX
optimization had largely been achieved; managed services have definitely helped
the operators to reduce operational costs. When asked about cost p
redictability,
78% of our respondents were satisfied, and another 11% even rated the
accomplishment as exceeding expectations. Cost efficiency is only one of the
selling points of managed services. When it comes to the evaluation and s election
of offers, 77% of our respondents found it most important for the MSPs to
demonstrate that they have proven frameworks, processes, tools, and operational
models. MSPs always promise to introduce the best processes featuring appropriate
tools for efficient performance of daily operations and maintenance activities.
Optimized processes and efficient tools, supplemented by economies of scale in
other services provided by experts in regional/global centers of excellence and
NOCs, also help to drive down the costs of operations.
Most of the operators are happy with their outsourcing decision. Over time, trust
in the MSP has risen to the level of partnership. Some operators with multiple
Figure 1: Priorities of Outsourcing Strategy
33%
30%
30%
=
=
=
=
=
30%
25%
22% 22%
17%
20%
18%
15%
11%
OPEX Reduction
Middle East
Africa
Asia
Europe
America
Cost Predictability
20%20%19%
12%
Service quality
15%
14%
13%
13%
11%
10%
Focus on
Business
14%
13%
10%
9%
8%
Organisation &
Process framework
9%
8%
6%
Professional
Expertise
Source: Detecon
167
MSPs have started to consolidate the number of partners in order to minimize

operational complexities and the tasks of vendor management.
The operators have a clear picture of the experience and capabilities they value
highly in their managed service providers. Proven frameworks, processes, and
tools as well as a proven operational model are the most important factors in their
assessment of a managed service offer. They also view well-trained personnel as a
core asset to be provided by the MSPs.
Trends toward consolidation
The large majority of our respondents (71%) had contracts with multiple MSPs;
a regional split (i.e., each vendor operating a separate region) was more common
than a network segment split (e.g., one vendor operating the core and another
operating RAN). However, more than half of them indicated a slight preference
for a single MSP and network segment split. A process split, e.g., one vendor
responsible for fault management and another for optimization, did not exist
among the operators we interviewed.
Consolidation of partners is one of the big steps towards a more efficient o utsourcing
model. It ranks as one of the top sourcing tactics of the network o perators
and will drive the development of managed services in the coming years. The
reduction in complexity and the backing of a trusted partner will enable o perators
to focus more on their core business.
It is not without risks
Transition from the current mode of operation to the target mode, whether it is
from in-house operations to managed services or from multi-MSPs to a single
partner, is never an easy task. 31% of the respondents were disappointed by
the partnership approach of the MSPs. They found that the MSPs were often
inflexible in their contract negotiations. Starting up the managed services was
often a painful experience. Operators were often highly optimistic about project
milestones. For example, an average of 3.4 months was planned for transition, and the subsequent stabilization period was expected to last 3.1 months.
The actual time for both turned out to be more than twice as long. One of the
respondents noted that we suffered from hiccups during the transition and
this affected our KPIs, and another said that overcoming the transition from
in-house to MS has been a hurdle, but we were able to improve our network KPIs
168
after transition (12 months). 38% of our respondents were unhappy about the
slow start of services, which often caused milestones for SLA/KPI achievement
to be missed.
Although the top objective of cost control was fully achieved, service quality,
which ranked as the third top objective of managed services in our survey,
was not always fully delivered. One-third of the respondents said that service
quality delivery was below expectations. Other areas of dissatisfaction included
access to best processes and expertise, which were, however, relatively low on the
operators agenda. The level of dissatisfaction in that area was closely linked to
the quality and time of preparation allocated during the first phases of managed
services implementation. As operators are generally performing these tasks for
the first time, there is frequently a lack of experience which can be bridged by
using external help.
Extending to other functional processes
The network lifecycle consists of the phases Plan, Build and Run. Managed
services are utilized mostly in the Run phase, i.e., operations, although
occasionally in the Build phase as well. Consolidation of managed services
for the Run phase proves that it is a successful model. The past few years have
seen strong growth in the use of managed services. The fastest growth can be
observed in the Build phase when the MSPs, usually the equipment vendors,
are contracted to roll out the network. This trend will continue in the coming
years. As to the Plan processes, they represent a key strategic area, and many
operators would like to keep planning activities within the company. However,
third parties have been successful in taking over some of these activities. Our
survey indicates there will be strong growth in outsourcing activities related to
these functional processes in the next two years.
MSPs will continue to take over more of the duties in implementation-oriented
design as well as network deployment and operations. Operators who have
typically treated activities related to strategy and design as a core competency are
now more open to the idea of outsourcing such tasks. Operators display a clear
preference (61%) for delegating such activities to telco equipment vendors over
assigning the activities to in-house departments (25%) or to business management consultants (7%). However, professional services in the strategic area may
differ from the operational area in their approach.
169
Extending to IT managed services

Besides assuming responsibility for additional functional processes, some MSPs
are actively working to expand their service offering to the IT sector. In this
sense, IT refers to systems and platforms supporting the telco networks such as
content management, CRM systems, business support systems, and provisioning
systems rather than the internal IT infrastructure like LAN and desktop. Most
of the IT system operations are currently handled by IT system outsourcers or
in-house staff. Telco vendors have barely penetrated this area, so there is significant potential for telco vendors to acquire market share in terms of the support
systems. Issues like network quality and customer experience are closely linked
with such support systems. Telco vendors are in a good position to propose
solutions focused on enhancing end-to-end network quality and customer
experience by bringing in their network equipment together with support
systems, improving the interfaces, and introducing operational processes adapted

to the telco business needs.
Figure 2: Growing trend for managed services in various functional processes
MC*
Mapping
Telecom
Vendors
Capabilities
PLAN
Build
RUN
MC
Strat.
Plan.
NW
Design
Detail.
Plan.
NW
Deploy
NW
Expansion
NW
Surveil
1st
Line
2nd
Line
SPM
Perf.
Mgmt.
Optimization
Left Bar = current

Right Bar = future
* Managed Capacity
Source: Detecon
170
= 0% - 33% Operators outsource

To look further ahead, development such as virtualizing of networks with

service-defined networking (SDN) may push Managed Services even further.
The decoupling of control plane from data plane and infrastructure layer would
result in less hardware to be maintained in the field. With control systems located
remotely and managed centrally, operators can enjoy further economy-of-scale
benefit from Managed Services.
Customer experience expectations and closer partnership
While cost-related targets have up to now been the top priority for contracting
managed services, service quality and customer experience are revealed by our
survey to rank as the most important considerations in the coming years. To be
sure, cost and efficiency will continue to play a major role in operators decisions,
but they have become standard expectations in a managed services deal,
causing a shift in focus to customer and service experience. This trend is clearly
illustrated by the responses in our survey when we asked operators to specify the
Figure 3: Expansion of managed services
MC*
PLAN
Build
RUN
Mechanical
Telco
Fast paced
Expansion
Services
IT- &
Support
Systems
Slow Paced
Expansion
* Managed Capacity
Source: Detecon
171
areas in their current MS setup they would like to adjust. The results:
>
>
>
>
>
Focus of KPIs on customer experience survey (32%)

Focus on end-to-end service quality management (32%)
Transfer of some CAPEX responsibilities to the partner (21%)
Initiatives for energy management (9%)
Introduction of revenue sharing model (6%)
Customer experience and service quality will play a major role as operators seek
greater differentiation from their competitors. Operators expect adaptation
and improvement of the related SLAs/KPIs, which, to a certain extent, can be
achieved by better support systems. Such expectations actually open a door to
this IT business segment for telco vendors. However, if they hope to seize the
opportunity, telco vendors will first have to demonstrate their abilities and knowhow, something that is currently lacking in their service and product portfolios.
Besides, extending managed services into the IT segment means pushing the
partnership up to a new level. More trust between the partners is critical. There
will be challenges to overcome and compromises to be reached in various issues
such as those discussed above: flexibility during contract negotiations, operators
expectations regarding service start and project milestone achievement, desire to
transfer some CAPEX responsibilities to the vendors, and even a revenue sharing
model for managed services.
Evolve and move forward!
Our survey shows that telco operators have reached the 2nd phase of managed
services development; they have started consolidating service partners, reducing
operational complexities, and extending the scope to more functional processes
related to strategy. A good level of trust has been built up between the partners. With technologies advancing further towards data and broadband services,
value-added services, convergence of wired and wireless networks, and crossover
of IT into the telco world, managed services are well on their way into the 3rd
phase of development. During this 3rd phase, operators will push their KPI
expectations more deeply into the customer experience category, extending their
scope to cover other processes like planning and technical areas like IT, with the
aim of securing added improvement in service quality, customer experience, and
cost efficiency. The transformed managed services will be characterized by an unprecedented level of trust and partnership between telco vendors and operators,
which will allow operators to focus more on their core business in the face of the
increasing competition.
172
The managed services model is an important strategy among global telecom

groups. The extent of outsourcing may vary among regions and depend on the
market situation. For example, Africa, APAC, and Europe expect to outsource
more processes in the near future. While Europe may limit outsourcing to certain
technical areas, the Middle East is expected to extend managed services to both
processes and technical areas. In general, the managed services model has been
successful up to this point, and the 3rd phase has come as a natural development. As we continue to progress along the road, there will definitely be many
challenges to overcome. One challenge, as noted by some respondents, is the
evolution of our mindset:
The biggest hurdle in our outsourcing strategy has been the acceptance
in change of philosophy regarding how to manage the business
not by people, but by KPIs,
and
Mindset alignment is the real challenge.
In any case, this fast-changing telecom world with challenges and threats from
new technologies and market players will continue to rely on managed services as
a useful means of helping operators to stay competitive and achieve operational
excellence.
It has become abundantly clear that the scope of the mission which started ten
years ago as a simple OPEX-cutting exercise limited to basic operational activities
and typified by a limited level of trust in service providers has expanded. Operators are largely happy with their decision and plan to expand the scheme into
more areas and to cover a greater number of processes. Over time, the level of
trust has risen to the level of partnership, an essential development for involving
service providers in sensitive areas such as planning, strategic planning of the network, areas related to sensitive customer data like billing, or actions enabling an
operator to create differentiation such as outsourcing of application development
and provision of content.
As part of their activities for the near future, operators are planning to expand
outsourcing into IT and various support systems and services. Consolidation of
vendors across the telco and IT world and consolidation of the main areas of outsourcing for the telco infrastructure sector (Plan, Build, Run) will play a major
role in operators outsourcing strategy.
173
Wholesale Under Pressure

and with New Opportunities
Dr. Olaf Nielinger
Dr. Markus Steingrver
> Wholesale markets are undergoing major

change. Demand for increasingly complex
system solutions for managed services in lieu
of standardized mass business is growing.
> Wholesalers must learn how to operate in
smaller units and professionally along the
entire value chain. Partnerships function as
success factors to provide support
for wholesale business.
> In the future, wholesale business will play
an important role as part of the integrated
fixed and mobile network strategies of network
operators. This is the only approach which will
enable comprehensive realization of economies
of scale generally recognized as the
prerequisite for low-cost offers
on retail markets.
174
Wholesale Under Pressure and with New Opportunities
Changes on the market necessitate new wholesale business models

Wholesale business models are currently undergoing major changes. Although
the revenue sources of the past are shrinking or collapsing, the migration to the
all-over-IP world and the explosion in data traffic are opening up many new
fields of operation for wholesalers.
Global providers are supplementing transmission-only services with higher-value
offers such as cloud products. In 2011, only about 42% of Akamais revenues
still came from traditional content distribution business while the company was
already earning 58% of its income with cloud services.
At the same time, these providers are expanding geographically into new m
arkets,
both globally (the takeover of Global Crossing by Level 3 is one example) and
regionally (as illustrated by the acquisition of Pantel by Turk Telekom). Broadly
speaking, a focus on the fast-growing emerging markets and developing countries
can be observed.
Adding value to generate growth is another megatrend in wholesale business.
System integration is becoming relevant as a value element and will play a
more significant role in the wholesale world of the future. BT, for instance, is
successively expanding its portfolio by the addition of cloud service (BT Compute) and supply chain solution business (BT Trace). Virtela is a virtual provider
of managed services focusing on system solutions and on-demand solutions for
global business customers.
In brief, the great megatrends in wholesale business feature the augmentation of the value chain in conjunction with the simultaneous broadening of the
Tabele: Fields of action in wholesale business
Field of action
Comment
Strategic thrust
Managed network service/Mobile

backhaul
Core drivers of future wholesale business
Growth
Voice services/Interconnection
Securing revenues
Defense
Data center strategy
Satisfying demand and market Complementary strategy

requirements
Wholesale triple play
Achieve customer lock-in
Complementary strategy
Small cell strategy
Investment in the future
Growth
Partnership strategy
Innovation and expansion
Complementary strategy
175
footprint. A data center strategy, partnerships, and mobile backhaul services, all
aimed at creating more value, are right at the top of the list of priorities. When
these future-oriented strategic tasks are combined with those from legacy b usiness,
six specific fields of action can be identified.
Wholesale strategies in the acces network
Broadband is the primary business driver in the access sector. However, the
markets have developed to a point where nothing less than triple play or even
more comprehensive bundled services are truly competitive. Without a portfolio
of bundled services, there is not a chance of binding customers long-term to a
specific provider on todays highly competitive wholesale market (lock-in effect).
Network operators in almost all countries have begun to offer commercial
IPTV services (mostly as multi-play bundles of various services), to their retail
market customers. A standard IPTV offer includes a basic package of 50100
TV channels, additional channels on a subscription basis, plus video-on-demand
services and top sports events as pay-per-view (PPV) offers. The wholesale
customers in turn require wholesale IPTV solutions which enable a fully convergent portfolio of fixed network, wireless services, broadband Internet, and
TV. The objective is to position an offer which can successfully compete with the
aggressive marketing activities of cable TV operators and others.
The provision of multi-play services is dependent on the availability of broadband with a transmission rate of about 20 Mb/s per household. Network
operators cannot provide broadband at this speed level without either upgrading
their copper-based access networks using digital subscriber line (xDSL) technologies or rolling out optical fiber-to-the-home (FTTH) access networks. For all
practical purposes, optical fiber can provide unlimited bandwidth, but this is not
true of xDSL technologies, even enhanced by vectoring. In the medium to long
term, xDSL providers will have to modernize their networks and lay optical fiber
closer and closer to the end customers.
While incumbents already own their own copper and FTTx access networks,
alternative network operators can select from a number of options which
enable them to offer IPTV services: utilization or creation of their own FTTx
infrastructure, utilization of unbundled local loop or line sharing, access to
176
broadband input services in the access network (bitstream access) suitable for the
provision of IPTV (multi-cast functionality is required), or the utilization of a
bundle of wholesale IPTV input products as part of a specific wholesale solution.
From the wholesalers perspective, a sustainable, long-term wholesale strategy for
broadband access networks needs to secure customer loyalty and achieve lock-in
effects. Such a strategy comprises a number of elements:
1. Business model: Business targets, services, and the related bundling
strategy and pricing must be fine-tuned to match the segmentation of the
wholesale customer market.
2. Platform and processes: The specifications for the underlying platforms and
processes must be carefully defined to ensure that all planned wholesale services
can indeed be marketed.
3. EInfluence on the retail market: Wholesale-retail interdependencies must be
analyzed in detail to uncover conflicting goals and to ensure that the appropriate
management decisions are made.
4. Regulation management: Besides implementing current regulatory decisions
(multi-casting, for instance), wholesalers should anticipate possible regulatory
requirements. Just one example: the bundling of mobile and fixed network
services could lead to regulatory consequences.
Mobile Backhaul
Viewed from the wholesale providers perspective, the explosion in mobile broadband traffic has two important effects. One concerns the enormous pressure on
mobile network providers to expand their networks and the concomitant cost
pressure on them. The right wholesale products could provide significant relief
here. The second is that mobile data traffic is virtually the only telecommunications market which is growing. Wholesale products can enable fixed network
providers and fixed network divisions to participate in this growth as well.
Mobile backhaul solutions for mobile network providers initially represent pointto-point solutions connecting all parts of the mobile network from the BTS to
the backbone network. As the LTE infrastructures continue to expand, these
177
solutions will increasingly be transformed into NGN solutions optimized for

greater bandwidth and reduced latency. But this is only one further step toward
a stringent, goal-oriented backhaul wholesale strategy: wholesale services for
mobile network operators can certainly develop beyond the simple mobile backhaul solution and move in the direction of full-scale outsourcing. Mobile network operators could then concentrate on providing mobile services, marketing,
sales, and billing. Herein lies significant revenue potential, but successfully
exploiting it will require as a minimum coverage of the following aspects: successful
positioning on the outsourcing and managed services market alongside providers
such as Huawei, Ericsson, and IT service providers; close ties to the customers
so that customer needs and requirements can be anticipated (wholesale business
is in this case a solution business and not the traditional selling of one simple
service!); and the intelligent bundling of services aimed at generating lock-in
effects and strengthening customer loyalty.
Optical fiber network operators must consider further effects. The explosion in
mobile broadband traffic will force mobile network providers to depend more
and more on small cells, i.e., cells with a smaller radius, but greater data throughput (FN: Cf. HPP, p. kk; AHS, tt). Economies of scale make it possible for
optical fiber network operators to offer small cell wholesale products at low
cost. Mobile network providers cannot close the gap to this cost structure. The
expansion of the optical fiber infrastructure should allow these and similar considerations to be incorporated into network planning at an early stage. The market
potential of bundled small cells with backhaul services appears to be enormous.
Voice services and interconnection
Until now, interconnection has been the strongest driver of revenues in wholesale
business. However, NGN migration is turning voice interconnection services
into data services and they are significantly less expensive. An adjustment in
cost-based termination rates ordered by regulatory authorities will result in substantial loss of revenue while new income sources and new wholesale products
will be slow in developing.
Moreover, many regulators are dramatically lowering the cost yardstick used as
the basis for the determination of interconnection rates by changing over to the
so-called pure LRIC model (Long Run Incremental Cost) or are at least conside1

Cf. Petry, Future Broadband Communication, p. 78 pp.;

Heuermann, New Network Strategies, p. 100 pp. in this volume.
178
ring this changeover. The application of this yardstick means that interconnection rates are determined solely on the basis of the variable costs without taking
any overhead costs whatsoever into account, and the consequences are dramatic:
interconnection rates can decline by as much as 90%. The driver behind this
development is the EU Commission, which is calling for further harmonization of interconnection rates within the European Union. In the opinion of the
Commission, the variations in national cost standards and the different levels
of termination rates have a negative impact on the common market. The
standardization of fixed and mobile network interconnection rates is also planned
in the medium term; roaming charges will also decline to the level of on-net calls.
So wholesalers need a defense strategy incorporating tight regulation management. The minimum objective is to coordinate this development with the
revenue development of other services. Appropriate cost modeling of the various
interconnection services, one of the most crucial elements of a defense strategy,
is the focus of attention. However, this regulation management will not, in the
long run, prevent regulators from doing away completely with termination rates
by changing over to a so-called bill-and-keep regime. Wholesalers will have no
choice but to identify alternative high-growth revenue drivers.
IP monetarization
Meeting the demands for network expansion is an enormous undertaking. Huge
sums are required to fund the investments, exceeding the capability of any s ingle
operator. This is behind the trend to partnerships and cooperative ventures for
expansion as a way to limit investment risks. Yet at the same time, the good
economic sense of investments in the network infrastructure is being questioned
more and more often. Pressure on prices and margins in wholesale business will
remain high even in the future, and the business model which compensates for
declining prices by raising volume has also come to the end of the line. The
present logic for network expansion is part of the problem, based as it is on overprovisioning: as soon as available network capacity is fully utilized, new capacity
is created. As costs rise and income declines, the loss of profitability for transmission business is foreseeable. Flat rates and all you can eat packages which
increase traffic without improving the revenue side reinforce the trend. There is
no incentive to make efficient use of bandwidth.
179
Business models based on QoS
It is essential for carriers to make optimal use of networks and to offer efficient
added-value transmission service in addition to the dumb pipe basic transport.
The issue at stake here is how to earn money from the transport of data traffic in
the future as well. The most important drivers are quality-based (QoS) business
models which allocate types of data traffic to a number of quality classes with
varied pricing. Traffic management prioritizes traffic in higher-value quality classes
required for bandwidth-sensitive applications such as online games or HD video
streaming and permits a breakdown into various QoS classes. Other models for
traffic differentiation are the introduction of a charge for traffic termination, the
prioritization of traffic coming from own (content) offers or selected partners, or
the introduction of an 0800 model2 in which the traffic from partner networks
is not charged against the data cap of the purchased Internet packages (Spotify
model). However, the prioritization or discrimination of Internet traffic always
has a regulatory implication. Discrimination is at the heart of the debate on network neutrality under what circumstances and to what extent can regulatory
authorities accept the prioritization of or discrimination against data traffic. Even
though many regulators essentially recognize and acknowledge that permitting
differentiation according to quality is an economic necessity, authorities have still
not succeeded in providing a clear definition of best effort, the definition of the
minimum requirements which must be included in a basic package for open and
unrestricted access to the Internet.
Regional expansion
Other means of wholesale diversification can be found in internationalization. International wholesale business is determined by the regional situation.
Conditions are dictated first and foremost by the density of the data network,
which varies greatly from one region to another. Moreover, business conditions
for international wholesale business in the USA or Europe differ fundamentally
from those in South America or Asia. But all of the continents see one common
trend: the regionalization of international wholesale business. Carriers with a
strategically favorable location Egypt, Turkey, Singapore, Hong Kong, or the
United Arab Emirates, for instance are playing an increasingly important role.
0800 refers to German toll free numbers
180
New regional specialists base their newly oriented market approaches on p

roximity
to the customers, regional network coverage, redundant connections to intercontinental cables, and enhanced understanding of local market conditions. Local
championship is a powerful proposition in regional wholesale business if the
regional providers succeed in carving out their niches in competition with the
global connectivity operators such as Level 3, Cable & Wireless, Tata, or Verizon.
Eyeball principle
Another trend in international data business has its counterpart in the introduction of termination rates at the national level. National incumbents with a
strong retail basis are challenging more and more the billing practice for wholesale
Internet access products. The previous practice has been for the national Internet
service providers to purchase Internet access a service known as IP transit. The
termination of the traffic in the specific network is free of charge. Large incumbents argue today, especially with respect to content providers, that their network
coverage on their home market offers access to a large number of potential customers for the content providers hence the name eyeball. If the latter want
to profit from this market potential, they must pay a fee for the access to the end
customers. This equates to a paradigm shift from content is king to end customer is king. The outcome of this battle is uncertain. The probability of successful implementation is greatest at the point where the arguments of the national
providers are backed by substantial numbers of customers and their a ctions can
cause significant harm to content providers.
New services require a more extensive sales and segment approach
Sales and sales operations will be valued more highly in the modern wholesale
world. The business horizon for wholesale business has broadened tremendously
because of the requirements, especially the demands made on data centers for
provision of the services. The proposition for data centers includes the existing
wholesale data center portfolio physical infrastructure, access, connectivity, and
platform services but it extends to complex IT applications, support functions,
and other professional services. Data centers are at the heart of the cloud universe and encompass infrastructure, platform, and software services (IaaS, PaaS,
181
SaaS). The possible portfolio range is broad: content, storage, hosting, white label
service, and business outsourcing, to name just a few areas of application. There
is significant business potential here.
If this potential is to be developed, the approach to wholesale customers and the
segment strategy must be completely overhauled. The focus will shift to sales
and sales operations. An extended data center proposition aims at new customer segments such as cloud and Web 2.0 service providers, intermediate dealers,
content providers, system integrators, and resellers. The customers have little in
common with traditional wholesale customers. The new segments require more
complex solutions, provided in toolkit-type modules and, in part, in partnerships. So new wholesale approaches always require new segment strategies as well
so that they can satisfy the range of customer requirements. Web 2.0 providers
look for simple self-service provision; flexible and dynamic adjustment of traffic
capacity is the decisive sales argument for content providers; cloud providers
demand resource elasticity or consumption-based pay-as-you-go solutions. The
order of the day: away from technology-driven wholesale business and toward a
customer-oriented market approach!
The second argument for putting more emphasis on the customer side is in the
nature of wholesale business in the sense of large account business with long-term
loyalty. Proximity and familiarity with customers are not only required to serve
specific demands; they are essential for defining jointly with customers w
in-win
partnerships and long-term customer loyalty in the sense of stickiness. This works
only if the customers needs and pain points are known and appropriate solutions are offered. This approach goes beyond normal key account management
because it implies the quantification of business options. A sustainable common
foundation for business can be laid only if both sides achieve higher profitability
when working together than when each operates in isolation. The more exact the
knowledge about the customers, the simpler the modeling of a business model
based on partnership.3
This is also true because success in wholesale is dependent on large projects
and customer relationships of long-term stability. Wholesale megatrends are of
outstanding significance. One current example is mobile backhaul, the return
direction of mobile traffic from the base station/Node B to the backbone. Owing
to the expected data volumes, traffic can be managed effectively only if the return
3
182
flow is based on broadband optical fiber connections. Since the connection to the
base stations is very expensive, some mobile network providers are starting to concentrate on simple access and leaving network connection, in some cases network
operation as well, in the hands of specialized partners. A flexible mobile backhaul
proposition and the exact knowledge of network performance capability and
readiness of the mobile network operator is indispensable for w
holesale business
so that long-term and far-reaching partnerships can be established. Broadband
connection of base stations also helps incumbents broadband retail business and
is another argument in favor of an integrated fixed and mobile network strategy encompassing retail and wholesale. Further expansion of network capacities
through small cells and HetNets opens up more opportunities to wholesalers
with a strong network infrastructure all the way to complete outsourcing of
network services and network management services.
Partnerships as prerequisite for business success
Partnerships are rapidly rising in importance parallel to the increase in demand
for investments in high broadband infrastructures and in the complexity of the
end-to-end value creation. Partnerships share the business risk among a number
of shoulders, support a faster market entry, and enable the compilation of an
attractive product portfolio which can satisfy all of the customers demands
end to end. Obviously partnerships are an important building block enabling
the fast and flexible action on the market which in turn leads to long-term and
sustainable success.
There is nothing new about this paradigm! Partnerships have always been a
determining force in business relationships. From the traditional wholesale
and telecommunications perspective, a partnership is viewed as successful if
each of the partners can achieve healthy development of its core business field.
For typical incumbents, the traditional wholesale partnership must maintain a
balance b etween reduction of the investment risk, high platform utilization in
the sense of generation of scaling effects, and strong price stability at the retail
level. Partnerships make good sense only in a well-balanced triad. This is living
practice and describes wholesale bread and butter business.
It is supplemented by new variants in wholesale business in which the typical
incumbent wholesaler does not perform solely as a seller, but also buys whole-
183
sale services, i.e., at the wholebuy level. Typical examples can be found in highbroadband access business in which the networks are expanded in coordinated
activities because of the high investment requirements. One operator expands in a
region, provides non-discriminatory access to its own network to a competitor,
and receives in return non-discriminatory access in regions in which the competitor has expanded the network. Competitors here can be other telecommunications
operators, utilities, or alternative competitors who have the appropriate infrastructure.
Reciprocal models of this type have long been implemented but they are not
without their pitfalls. Creating truly fair partnerships is not such a simple matter.
Processes and technical interfaces must be reconciled, and ultimately the e ntire
corporate culture must be adapted if omnipresent incumbents must exercise
restraint and purchase access to end customers via wholesale access products.
But the new pressure point of the partnership challenge is a different one: speed,
especially the implementation speed of core business partnerships such as those
in the access sector. An increase in speed presumes test methods and s tandardized
implementation modules which help the partners to quantify quickly the
benefits of a partnership, to identify suitable partner models, and, in particular,
to initiate technical and operational implementation steps rapidly. This is true
not only for traditional partnerships between telecommunications operators, but
explicitly encompasses new partnerships with utilities or housing associations.
The second core challenge is related to the depth of the partnership. Cloud and
Web 2.0 make new demands on the traditional, line-driven telecommunications
business. New partnerships are aimed at innovation and the development of new
business fields. Platform business models such as billing, payment, or verification
are product features which are served by wholesale platforms today, but can be
purchased in part from third-party providers. There is a significant opportunity
here to offer this service to small Web 2.0 or e-commerce providers quickly and
flexibly. New and more extensive partnerships are necessary in the same way that
cloud services such as software as a service, platform as a service, and infrastructure as a service represent requirements which can be satisfied only by third-party
providers. New product demands, pressures of innovation and competition, and
customers demands for end-to-end marketing are the drivers here.
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M2M becoming established as a niche business

Machine-to-machine communication (M2M) is another major trend on the
current communications landscape. M2M business differs significantly from traditional telecommunications business models. M2M communication e ncompasses
fully automated data transfer between two machines which are physically separated from one another and a central server. As a business model, M2M combines
connectivity with an IT-based application scenario such as vehicle traffic control,
automated payment processing, smart metering, or transport and development.
M2M includes both fully automated and user-initiated communication.
The M2M value chain includes the modem and/or end device in the machine
on the one hand and the connectivity between machines, often supplemented by
automated M2M management platforms, on the other, plus the IT application
for control of the end device as a central element of the value chain.
M2M telecommunications business is located in a gray area between wholesale
and key account business. The wholesale components represent the basic feature of
the provision of connectivity between two parties via technologies based on either
mobile or fixed networks. Communication via SIM cards is the most commonly
found variant. In this respect, M2M business frequently displays a similarity
with MVNO business in the sense of management of a SIM card o peration.
Platform-based added-value services like those of provision, verification, or
billing familiar from MVNO business are additional link-up points for wholesale
business.
In contrast, the IT application for control of the end device must satisfy the
demands inherent in its utilization. Examples include the special security requirements for payments made using a mobile card reader, real-time monitoring of vital functions in medicine, optimization of load utilization in power grids through
intelligent, self-regulating load balancing, tracking and traffic flow optimization
in the transportation sector, or automatic update and patching functions for
smartphones or GPS devices. Additional potential arises from automated production and manufacturing strategies driven especially from Germany which
can be grouped under the general heading of Industry 4.0. M2M is beyond a
doubt a growth business: the cost pressure on companies is, and will remain, very
185
high, which is why especially flexible and mobile M2M solutions will continue
to be in demand in the future.
The challenge to wholesale business is the utilization of the strengths from platform-based connectivity business: SIM card management, number planning and
number management with regulated number blocks as a scarce resource, management of roaming costs for cross-border solutions such as in the transportation sector in connected car solutions, and the provision of pre-configured devices.
This is where the telecommunications sector, especially wholesale business, has a
comparative advantage thanks to its wealth of experience, and it must transform
this advantage into future business potential while determinedly developing further its business models.
Strong wholesale business as success factor for integrated network operators
In summary, we see that wholesale markets are undergoing major changes and
that complexity is increasing. The range of demands on wholesalers is t remendous.
The need for increasingly complex system solutions for managed services in lieu
of standardized mass business is growing. Wholesalers must learn how to o perate
in smaller units and professionally along the entire value chain. Partnerships
provide support in this area. The identification and management of suitable partnerships is a success factor in wholesale business.
Moreover, wholesale business will play an important role as part of the integrated
fixed and mobile network strategies of network operators in the future. This is
the only way to realize successfully economies of scale, in turn the prerequisite
for low-cost services for development of retail markets. Once this point has been
reached, strong wholesale business will become a success factor for integrated
network operators.
186
187
Regionalization of the Markets

Challenges National Wholesale
and Retail Operators
Martin Lundborg
> The trend toward regionalized markets

continues unabated.
> National telecommunications companies
must adapt their operations to align with
regionalization and initiate the required
measures in wholesale and retail business.
> Actions relevant to regionalization
include determining the optimal
technology mix, optimizing wholesale
services (including the introduction
and revamping of regionalized wholesale
services), the procurement of wholesale
services, and the introduction of
a multi-brand strategy.
188
Regionalization of the Markets Challenges National Wholesale and Retail Operators
Trend to regionalization
The deregulation of the telecommunications markets in Europe in the 1990s laid
the foundation for the development of markets which were no longer delineated
strictly by national borders. On the one hand, the EU Commissions mission is
to promote a single market in Europe, and many national operators initiated
international expansion. On the other hand, competitors entered the market
without achieving a too costly nationwide full coverage. Incumbents were
unable to immediately fund the investments required to create a state-of-the-art
nework (e.g. FTTx) and, at the same time, full-coverage infrastructure. The
result: r egionalization of the markets.
Regionalization is an issue with many different aspects. Due to the investments
in FTTx networks and the introduction of DOCSIS 3.0 (3.1 in the future),
carried out in selected areas, Europe now possesses a patchwork of technologies.
By its nature, this patchwork causes substantial differences in terms of bandwidth
among the regions, especially between urban and rural areas.
A second aspect of regionalization concerns market entry of local or regional
providers which have no ambitions/abilities to offer their services on a nationwide basis. Stokab in Sweden, ATB-Nett in Norway, or NetCologne in Germany
are only a few examples of local and regional market newcomers in the FTTx
sector. This development is also due to the introduction of infrastructure-based,
intramodal competition, in particular when the unbundling of the local loop was
initiated. Competitors who procure local loops as a wholesale service have not
contributed to any expansion of national networks.
Cost differences between rural and urban areas are driving the regionalization
process as well. This is especially true for fixed access networks, but mobile networks are affected as well. This will presumably lead to even greater regional
differentiation of the services and products in the future. Faced with these
conditions in their field of operation, national providers must decide whether
they should offer regionalized prices.
These aspects leads us to the following questions:
> Is there a trend to regionalized markets, and what are its recognizable features?
> What effects does regionalization have on the broadband markets, especially
on prices and wholesale services?
> How must the nationally active network operators react to regionalization so
that they can optimally exploit its business potential?
189
Access markets in Europe are regional

The regionalization of the markets is being driven by a number of factors,
including network expansion, the business models, and, to a lesser degree, regulation. These factors clearly indicate that regionalization is supply-side driven.
Many governments in Europe as well as the EU Commission have defined
targets for the expansion of broadband services in excess of 16 Mbit/s. The EU
Commissions target is a market penetration of 30 Mbit/s for all households
in 2020, but only 50% of the connections will presumably have a minimum
speed of 100 Mbit/s.1 The EU Commission apparently does not expect national
full-area coverage to be realized within the coming years.
The map below shows the status of NGA service in various regions in 2012. This
map clearly illustrates that there are no longer any national broadband markets
as of today. An even more differentiated picture emerges if the availability of
services in terms of the various technologies is considered. While ADSL is offered
nationwide with almost full coverage, network coverage of VDSL is about 25%,
FTTP (fiber to the premise) approx. 10%, and DOCSIS 3 at approx. 40%.2
Above all, when it comes to networks a gap is predominant between rural and
urban areas. Broadband in the country is provided almost exclusively by ADSL
and wireless solutions. The differences between NGA expansion in the urban
areas and in the country can be explained primarily as a consequence of the costs.
A cost study conducted by the WIK [Scientific Institute for Infrastructure and
Communications] on behalf of the German Ministry of Economics reveals enormous differences in costs differing according to the density of the households.
The CAPEX per household is substantially lower in urban areas.3
Based on these market and cost circumstances and in view of the time it takes to
roll out full-area coverage of broadband access networks (NGA), we can expect
these regional divergences to remain or even to increase in the middle term.
The business models implemented are the second factor driving regionalization.
At the beginning of 2013, a mere 21.9% of the NGA connections were attributable to incumbents. Moreover, only 3.8% of the CATV connections belonged
to incumbents.4 In other words, the incumbents and their ADSL networks are
facing competitors offering CATV or FTTx networks in most of the urban
regions of Europe. In other regions, the incumbents and their ADSL networks
are still the sole providers or compete only with mobile networks.
190
Figure 1: NGA in Europe

= 100%
= 65% und <100%
= 35% und <65%
= >0% und <35%
= 0%
Source: EU Commission, Digital Agenda Europe, Scoreboard
1 Additional information at the URL: http://ec.europa.eu/digital-agenda/en/scoreboard.

2 EU Commission, Digital Agenda Europe, Scoreboard 2013, http://ec.europa.eu/digital-agenda/en/scoreboard.
3/4 WIK, Economic and Legal Framework Conditions for the Expansion and Financing of Broadband High
performance Infrastructure in Sparsely Settled Areas, Study on behalf of the German Federal Ministry of Economics

and Technology (BMWi), Bad Honnef, 1 June 2011, p. 20.
191
The regional differences have an impact on pricing strategies. When CATV

operators with 40% network coverage or other providers operating regionally and
locally introduce prices which differ significantly from those of the incumbents,
the result is a regionalization of the prices. Hence, this regionalization occurs
even if the incumbents continue to offer national prices.
This is resulting in higher p
rices in areas where there is barely one broadband
provider implementing DOCSIS 3 or FTTx while they will be below-average in
the cities where a number of providers are engaged in fierce competition.
Regulatory authorities have already reacted to market situations characterized
by divergent network coverage from one region to the next, differing business
models, and varying price strategies. Portugal, Austria and Great Britain were
the first in Europe to introduce regionalized regulation in 2008 and 2009.
The wholesale markets for bitstream access in Portugal and Great Britain are
delineated on the basis of the number of providers in the specific access area.
In Great Britain, the number of competitors with their own infrastructure
in certain geographical territories was essentially the basis for the regulation.5
The markets were classified into service regions, i.e. at the MDF level, and
divided into three clusters. The first cluster included the service regions with
one operator (BT), Cluster 2 defined regions with BT plus a maximum of two
additional providers, and Cluster 3 contained the service regions with four or
more providers. There was no notable market dominance in Cluster 3, so sectorspecific regulation was suspended here. In 2013, the Ofcom conducted a new
market analysis of the bitstream market; the regionalization has been maintained.
The market for bitstream connections in Portugal was also determined to be
regional by the regulatory authority. This was justified due to the influence of
the cable operator on the market situation. Two geographic markets were defined
and regulation was suspended in one of them.6
5
6

Ofcom, Review of the Wholesale Broadband Access Markets 2006/07.

ANACOM, Markets for the Supply of Wholesale (Physical) Network Infrastructure Access at a Fixed Location and
Wholesale Broadband Access, January 2009, www.anacom.pt.
192
In Austria7 the regulatory authority defined boundaries to national markets,

but wanted to establish differing regulatory obligations according to the various
regions. The decision in favor of regionalization was made in 2008. However,
the Higher Administrative Court in Austria nullified the decision because the
judges did not see any possibility to impose regional differences in the obligations
within a national market. As a consequence, regionalization has for the moment
not been realized in Austrian regulation.
Demand and price elasticity for connections with high bitrates
The outcome on pricing due to the regionalization and the heterogeneous
market situation raises questions about price elasticity, the effects of prices on
the p
enetration rates and the market, and how sensitively the end customers react
to prices.The most interesting observation in this respect is that there is a lack of
consistency in price elasticity according to bandwidth.
Numerous academic studies have been conducted on the subjects of willingness
to pay (WTP) and price elasticity of the demand for broadband connections.
Takanori Ida and Toshifumi Kuroda have determined (for the Japanese market)
that price elasticity of the demand for ADSL is low, but that it is high for FTTH
and CATV (DOCSIS 3.0).8 In another study, Takanori Ida and Masayuki Sato
come to the conclusion that the price elasticity of the demand for ADSL is higher
if FTTH is offered in the access area.9
The studies on prices demonstrate that end customers do not (at this time) clearly
distinguish among the various technologies such as CATV and FTTH. Cardona
et al. draw the conclusion that the demand for ADSL connections in markets
with offers for a number of access technologies such as CATV, 3G, and FTTx is
elastic. Hence there is a substitution among broadband technologies.10
7 TKK, Decision M 1/07-534 of 04/07/2008. Higher Administrative Court, File No. 2008/03/0116,

17/12/2008, and TKK, Decision M 1/10 of 15/11/2010.
8 Ida/Kuroda, Discrete Choice Model Analysis of Demand for Broadband in Japan.
9 Ida/Sato, Conjoint Analysis of Consumer Preferences for Broadband Services in Japan,

The Kyoto Economic Review 75(2), p. 115-127, December 2006.
10 Cardona/Schwartz/Yurtoglu/Zulehner,

Demand estimation and market definition for broadband internet services, July 2007.
193
Although substitutions occur among the various broadband technologies and

between fast and slow broadband connections, this is not always the case when it
comes to demand for Internet. Dutz et al. determine that there is not any crossprice elasticity between narrowband (dial-up in this case) and broadband and
that overall the price elasticity for broadband declined between 2005 and 2008.11
Other studies reveal that end customers are prepared to pay for higher bandwidths and reliability. Gregory Rosston et al. assume in their study that the
willingness to pay rises parallel to education level, household income, and online
experience and declines with increasing age. However, the results do not indicate
any difference between rural and urban areas.12 Other studies on willingness to
pay document the price elasticity of the demand for higher bandwidths.13
The studies leads us to the conclusion that the willingness to pay for Internet as
a fundamental service is generally very high, but willingness to pay for higher or
additional bandwidth is low. This conclusion can be backed up by empirical data
as well. The chart below shows the prices and price development for broadband
connections in Europe.
The necessity for market segmentation and price differentiation
The fact that there are such significant differences in competition, regionally and
locally, and that end customers do not essentially differentiate between technologies and bandwidths as long as basic service is available implies that providers on
a market are barely able, if at all, to rely on their access products (with premium
bandwidth) as unique selling points. Any provider operating in an e nvironment
where there is a number of competitors has no choice but to p
articipate in the
product and price competition. This is not the case on markets where one provider
is the sole one. If there is little competition in a market, it can be assumed that as
a rule of thumb the providers will realize higher revenues through price differentiation at the expense of the consumer surplus.14
11

12

13

14

Dutz/Willig, The Substantial Consumer Benefit of Broadband Connectivity for US House-holds, Mimeo; in:
Rosston/Savage/Waldman, Household Demand for Broadband Internet Service,
Final Report to the Broadband.gov Task Force, Federal Communication Commission, 29 January 2010, pp. 9-10.
Rosston/Savage/Waldman, Household Demand for Broadband Internet Service, Final Report to the
Broadband.gov Task Force, Federal Communication Commission, 29 January 2010. pp. 9-10.
Varian, The Demand for Bandwidth: Evidence from the INDEX Project, Mimeo, University of
California Berkeley, in: Rosston/Savage/Waldman, Household Demand for Broadband Internet Service,
Final Report to the Broadband.gov Task Force, Federal Communication Commission, 29 January 2010, pp. 10-11
Savage/Waldman, Broadband Internet Access, Awareness and Use: Analysis of United States household
Data, Telecommunications Policy 29, p. 615-633, Cadman/Dineen, Price and Income Elasticity of
Demand for Broadband Subscriptions: A cross-sectional Model of OECD countries, SPC Network, February 2008.
Lundborg/Ruhle/Bahr, Discounts and Price Discrimination in the Telecommunications Regulation of
NGA Networks, ITS Conference, Kopenhagen, September 2010, www.econstor.eu/dspace/handle/10419/44349.
194
In other words, higher prices can be charged by introducing product and price
options without causing turnover to decline.
The following scenarios are possible:
1. Regional markets without competition: High prices and high turnover can be
realized on these types of markets.
2. Regional markets with a number of NGA and DOCSIS 3 providers: Price competition is intense because of substitution effects and the number of competitors.
High bandwidths make it possible to offer additional services (such as IPTV) as
product differentiation.
3. Regional markets with only one provider of NGA or DOCSIS 3 connections, but
a number of providers offering ADSL connections: Price competition exists, but the
provider of the NGA or DOCSIS 3 connections will be able to bill customers a
small surcharge for higher bandwidths.
4. Regional markets with a number of ADSL providers, but no NGA or DOCSIS 3
providers: Comparable with Scenario 2 the price competition is intense. Since
bandwidths are limited, differentiation opportunities by offering additional
services such as IPTV are also limited.
The investments of NGA networks are CAPEX-intense and cannot be realized
without a price premium. Any network operator which is the only provider o ffering
NGA or DOCSIS 3 in an area will be able to charge a premium without any
great difficulties.
Figure 2: Prices per Bandwidth in the EU
Mbps 60
50
40
= 4-8 Mbps
= 12-30 Mbps
= 30+ Mbps
56,3
49,0
39,4
30
47,0
39,0
38,0
33,4
28,5
33,0
33,1
20
28,2
23,9
32,5
28,1
24,7
10
0
2007
2008
2009
2010
2011
2012
Source: EU Commission, Digital Agenda Europe, Scoreboard

195
In other regions, however, the operators will have to offer additional products such
as IPTV, music streaming, cloud services, email services and security packages,
implementing innovative price strategies, marketing strategies and other measures
if they want to realize sufficient margins.
In terms of price strategies, it must be assumed that the price lists will become
less transparent and more complex. The number of price variations will rise and
the price spread will become greater as competition increases.15
Since there are such great regional differences and the network operators must
improve and optimize their margins, a long-term strategy based on p
rice
and product differentiation with regional differences is required. Sacrificing
higher margins in those regions where competition is limited for the sake of
implementing national price and product strategies is not a rewarding approach.
Regionalization measures for nationally active network operators
National operators have a number of options for realizing regionalization. The
simplest method is to introduce products and prices which vary from one region
to the next. But many national providers are reluctant of taking such a direct step,
and they have good reason for this. The disadvantaged customers can b ecome
frustrated because they live in the wrong area and must pay more for the same
service. Moreover, advertising becomes more complicated when multiple prices
must be communicated. However, there are alternative paths for the realization of
regionalization for national operators who are reluctant to i ntroduce regionalized
products in the market.
Technology mix
The technology mix (which technology in which area) is an important strategic
decision during the network roll-out. While it is true that the long-term goal
of every nation-wide network operator must be to expand its FTTH coverage
to the entire country, there are a number of different paths to take, above all
to decide on where to implement VDSL with/without vectoring, FTTB, and
radio-based solutions.The utilization of different technologies from one region
to the next means that network operators can no longer launch standard products on a nationwide basis. A technology mix, on the other hand, enables the
15 Lach/Moraga-Gonzlez, Asymmetric Price Effects on Competition, February 2009.
196
i mplementation of product features varying according to region, but with unified

prices across the country, i.e. the same price for all customers but customers with
a fiber c onnection gets more bandwidth for the same price. Some operators have
already put this type of approach into practice.16
Wholesale business
However, the wholesale service markets offer leverage for regionalization.17 The
CAPEX required for an NGA roll-out with significant fixed costs as a result
means that the costs does not scale with the number of customers, i.e. unit costs
can be reduced primarily by means of higher customer penetration rates. An
optimized wholesale service strategy can increase the the utilization of the network. Provided that the wholesale services do not cannibalize the end customer business to a greater extent, this is an opportunity to improve profitability significantly through wholesale services. This and other factors such as the
increase in intermodal competition mean that the importance of the wholesale
services is expecteded to increase.
Wholesale service products such as bitstream access, unbundled local loops i.e.
virtually undebundled local loops in the future and resale allow consideration
of differing conditions from one region to the next and their realization on the
market. Network operators can set up wholesale service contracts for bitstream
advance services which provide for varying prices and terms and conditions
according to region. But it is also possible to pass on variances in costs to the
advance service procurers on the basis of a regionalized price list. For example,
advance services can be designed in such a way that advance services procurers
must pay different amounts for the connection to transfer points, network connections, collocation, and other services depending on the region. Greater or
lower shares of the costs of any particular advance service can be passed on to the
advance service procurers on the basis of region.
As far as unbundled local loops are concerned, there have always been regional
differences in the roll-out caused by the cost situation of the wholesale buyers
(unbundling operators). Hence, due to the cost situation, the unbundling
operators have focused on the densely populated areas, also referred to as cherrypicking, which has driven the regionalization.
16

17

See (among others) the products offered by Telekom Deutschland, URL: http://www.telekom.de/ and Telia Sonera in
Sweden, URL: http://www.telia.se/privat/bredband/abonnemang-kontantkort/produkt/telia-bredband-via-telejacket.
TKK, Decision M 1/07-534 of 04/07/2008. Higher Administrative Court, File No. 2008/03/0116,
17/12/2008. and TKK, Decision M 1/10 of 15/11/2010.
197
As described above, some regulatory authorities in Europe have already responded

to regionalization and decided to implement regional market b oundaries. If the
national operators move forward with regionalization, even more regulatory
authorities in Europe can be expected to decide to pursue a course of
regionalization. Since regionalization has so far affected the market for bitstream
access and not the wholesale markets for unbundled local loops, its impact on the
markets has been limited.
A Regulations against price-margin-squeezes have been adopted in competition
law and need to be considered as well.18 If thethe retail prices, which are too low
in relation to the prices of the wholesale services, this implies critical restraints
on competition and has been banned by competition law and in the sectorspecific regulation. If national operators can show that their costs in rural areas
are higher than in cities, they have the chance to introduce wholesale prices and
retail prices which differ regionally, yet are in compliance with competition law.
The important point here is that the differences do not create a price-marginsqueeze. Consequently, the wholesale strategy and the retail prices must be consistant. A combination of high wholesale prices and low retail prices in a region
can easily produce the prohibited price-margin-squeeze and must be avoided.
Wholesale procurement
Besides bringing own wholesale services to the market, nationwide operators can
procure wholesale services themselves in order to circumvent regional differences.
For instance, a nationwide operator can use wholesale procurement to fill the
geographical gaps in its network in order to provide full coverage. The thereby
challenge to overcome is the complexity caused to the internal processes. This
is especially true if the only locally available wholesale providers of FTTx or
DOCSIS 3 are small which means that a larger number of suppliers must be
coordinated. Nevertheless, wholesale procurement offers a solution to nationwide
operators because CAPEX can be reduced while still provide sufficient coverage.
18

19
Commission Decision of 21 May 2003 relating to a proceeding under Article 82 of the Treaty
(Case COMP/C-1/37.451, 37.578, 37.579 Deutsche Telekom AG), OJ L 263, 14.10.2003 (Deutsche Telekom),
Commission Decision of 4 July 2007 relating to a proceeding under Article 82 of the EC Treaty
(Case COMP/38.784 Wanadoo Espaa V. Telefnica), OJ C 83, 2.4.2008 (Telefnica).
Cf. Aumann, Marketing and Sales, p. 230 pp. in this volume.
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Multi-brand strategy
Nationwide operators who do not want to give up their national m
arketing
approach and nationally uniform prices have the opportunity to adapt to
regionalization by applying a multi-brand strategy. Second or third brands from

within the operator can be launched in order to provide broadband connections
under new names and with differentiated pricing.19 In this way, the operators
can implement regionalized marketing and sales concepts with different prices
in different regions.
Conclusions and outlook
The trend toward regionalized markets is will prevail. There are several reasons
for this:
> The expansion of NGA networks will take a number of years, it is being
handled differently among different regions, and it is far from being c ompleted.
> There are multiple technologies for broadband connections on the market,
but they generally do not assure full-area service coverage.
> There are various providers offering connections with bandwidths higher
than ADSL (to about 16 Mbit/s), but none of them is in a position to
establish a network with full national coverage in the next years.
> The CAPEX discrepancy between the densely populated urban areas and the
more rural areas is substantial.
The deviating conditions among the regions have a negative impact on nationally
standardized business models. Instead of this approach, products and prices must
be aligned to local and regional circumstances. National network operators must
be prepared to deal with regionalization and initiate regionalization measures.
Actions which operators should consider include determining the optimal
technology mix, optimizing the provision ofwholesale services (including the
introduction and revamping of regionalized wholesale services), the procurement
of wholesale services, and the introduction of a multi-brand strategy.
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What Will Be Required from

Future ICT Providers from
the Swisscom Perspective
The Swisscom mission statement contains a promise:
We want to guide our customers into the digital world.
We want to show them what they can do to feel
confident and safe in this world and how to navigate
its many regions quickly and easily, paving the
way to extraordinary experiences and performance.
But we cannot do this without the trust of
our customers earning this trust anew
every single day is at the focus of our efforts.
Building from this objective as the starting point
Stefan Berg, Senior Strategy Manager,
reflects on the challenges and opportunities which
will arise in the next few years, focusing
in particular on Switzerland and
the business customer segment.
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What Will Be Required from Future ICT Providers from the Swisscom Perspective
The Swiss B2B market

There are several special aspects of the Swiss ICT market which set it apart from
other markets in Europe. One is the relatively small size of Switzerland in terms
of its geographic boundaries and population. Another is the relatively high level
of prosperity among its inhabitants (per capita gross domestic product ranks
fifth in Europe)1, an above-average price level, and protection which mitigates
the effects of EU legislation on the ICT market so that the impact is not too
dramatic.
However, the existence of a strong midsize business segment is comparable with
other European countries such as Germany. Of the approximately 320,000 companies registered in Switzerland, only about 3,800 (about 1.2%) have a workforce
larger than 100. The by comparison relatively limited ICT budgets of small and
midsize businesses (SMB) with fewer than 100 employees on the one hand and
the small number (in absolute terms) of large companies on the other establish
the boundaries within which every Swiss ICT company on the B2B market
must operate when designing its portfolio, especially pricing and scaling effects.
However and this is the good news the ICT budgets of the small companies
are growing overproportionately. The Swiss market research company MSM, for
instance, expects ICT expenditures of the SMBs to increase by as much as 5%
annually over the next two years.2
Providing access and connectivity services to business customers is primarily a
local business in an environment of largely local competitors. In contrast, any
services going beyond the provision of access present a challenge because of the
growing competition from ICT providers operating globally. The services offered
by Amazon (Cloud and Web Services, Managed Workplace), Microsoft (Azure,
Office 365, including Lync), or Google (Enterprise Apps), to mention only
a few, are attractive to users, simple to use, and simultaneously define a price
benchmark. The growth rate of 5,000 new corporate customers every day quoted
by Google CEO Larry Page is clear evidence that these services must be taken
seriously 3 even (especially) in Switzerland, where well-known companies have
also made decisions in favor of Google Enterprise and similar services.4
These general conditions in combination with global trends such as the mobilization of the labor force and companies, globalization, digitalization of internal
1 IWF, Oktober 2013.
2 MSM, ICT-Markt Schweiz 2013, Mid-Year Update.
3 http://www.zdnet.com/blog/btl/google-enterprise-5000-new-customers-a-day/67572.
4 Example: press releases Ringier Sep. 2009, Holcim Mrz 2013, Roche Feb. 2012, Sunrise 2008.
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business processes, and the changes which have generally been triggered by the
Internet have driven the transformation of classic telecommunications providers
into modern ICT service providers in recent years. This process continues apace.
What changes will ICT companies have to realize over the next three to five years
in order to continue profitable operations on the market?
Focus above all on customer needs
Sales structures in the telco B2B segment were once clear and simple. There
was one central contact point for customers which was used to sell relatively
standardized, technology-focused products. The outsourcing discussion revolved
around the operational takeover of clearly defined areas of IT operations.
This situation has undergone a radical transformation. In the meantime, 50%
of the available IT budget in a company is allocated by the business departments. This trend will continue, and the role of the central IT departments will
continue to change. The consequences also affect Swisscom in its role as ICT
solution provider: understanding the needs of customers has become a complex
undertaking! The marketing department of a chocolate producer, the production
department of a midsize watchmaker, or the IT department of a large international
bank all have different needs which in part diverge significantly, and they express what they want in no uncertain terms. ICT companies which want to
be able to develop the right mix of horizontal, scalable standard products and
industry-specific solutions must make greater efforts to learn the language of the
customers and to understand the special circumstances and business processes of
each industry. Customer segmentation based on size of the company alone is no
longer adequate.
In addition to the unceasing acquisition of industry-specific knowledge, Swisscom is committed to a human-centric design approach. Design focusing on
people is more than just a method; it is primarily a question of the attitude
of all employees and management. Taking into account the complete customer
experience chain from Day 1 of development, including marketing, service, and
support; constant interaction among all of the departments; joint development
of longer-term product and service visions; and learning by doing require a
cultural transformation throughout the entire organization.
Naturally we cannot ignore the cloud in this context especially as a flexible
solution for the realization of widely divergent customer needs and not only
as a technological concept. The strict separation between Internet (e.g., Web
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information, social media, external storage and file sharing) and intranet (file
server, CRM systems, SAP) is breaking down faster and faster because of the
implementation of CRM based on social media (such as Facebook), cloud services
(such as Evernote and Dropbox), and new technologies (such as WebRTC-based
call centers). State-of-the-art cloud services enable us to offer to our customers a
consistent customer experience without giving up security.5
Create sustainable revenues
The fact that volume-based revenues (voice, data, text messages) are in decline and
experiencing constantly growing pressure from flat rate plans and OTT services
is old hat. While it has been possible in recent years to keep revenues dependent
on usage relatively stable in the B2B segment, especially among large customers,6
the flat rate effect already familiar in the private customer segment will dominate
the B2B segment as well within a few years. Moreover, other business fields such
as the classic PBX business (sales, leasing, operation) will face disruptive pressures
as will of course in the middle term roaming revenues.
What is called for here is the artful conversion of the revenues which, as described
above, can no longer be deemed sustainable into sustainable revenues. In the
mobile network segment, Swisscom has succeeded in initiating a change by introducing innovative Infinity rate plans for private and business customers. The
proactive, consistent elimination of usage-dependent components and the introduction of rates oriented to customer needs and based on speeds without a
volume cap have been embraced by the market. Swisscom has not only stabilized
revenues, but gained additional market share as well. The introduction of upper
limits to volume in fixed and mobile networks now under discussion by other
telecommunications companies is not regarded at Swisscom as conducive to
achieving corporate goals. Transparent costs which can be confidently budgeted
along with consistently high service quality are features on which customers can
depend.
Swisscom has made a greater commitment to managed service approaches as
a means of securing revenues in the PBX segment. Simplicity, flexibility, and
security as well as low costs are important requirements of our customers.
5 http://www.swisscom.ch/its/de/it-services/news/Magazin/insights0113_die_cloudifizierung.html.
6 Swisscom Facts & Figures, December 31, 2012, P&L Breakdown, Corporate Business Revenues.
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Complete solutions and their operation from a single source, connectivity which
goes hand in hand with communications and collaboration solutions from the
Internet, an attractive best-in-class security portfolio, and guaranteed data s torage
in Switzerland are our response to these requirements. Swisscom will continue to
develop its portfolio in this area.
Strengthen innovation capability
The term innovation is used colloquially in the sense of new ideas and i nventions
and their commercial realization. In a narrower sense, innovations do not result
until ideas are realized in the form of new products, services, or procedures which
are actually applied successfully and penetrate the market.7
Based on this definition, it is fair to say that in the past the majority of the telecommunications companies positioned themselves more as participating innovation followers than as innovation leaders. Exceptions from the rule are found
mainly in the network sector, in part in the IP-TV segment, or in a few, select
services such as M-PESA, a highly successful African mobile payment service
based on text messages. The innovations on the smartphone market driven by
Apple, HTC, Samsung, and others and the explosive growth in mobile data
business which has resulted are classic examples of the participatory role.
Considering the core competencies of a classic telecommunications company,
this is not surprising and it was also acceptable as long as growth could be
generated by adding more subscribers or increasing ARPU. But now that this is
no longer the case, the importance of innovations is rising sharply. How should
this challenge which is ultimately a cultural transformation as well be met?
Partnering is the frequently encountered answer, often little more than a kneejerk response in this context. Partnering certainly plays an important role, whether
for the generation of new services (e.g., through OTT and access bundling), in
the provision of content, or in service development and delivery. The attempt to
develop a better Office 365 than Microsoft is undoubtedly doomed to failure.
But if you are the third Office 365 reseller on the market, you must be prepared
to answer critical questions about the differentiation and sustainability of this
strategy. Which of the partners involved in this interaction enjoys the greater
advantages and what dependencies are generated must be carefully considered.
Cf. Mller-Prothmann/Drr, Innovationsmanagement. Strategien, Methoden und Werkzeuge fr systematische

Innovationsprozesse, 2009, p. 7. Quote: Innovation = Idea + Invention + Diffusion.
204
Swisscom is firmly convinced that its own innovations are more than just possible;
they are absolutely mandatory if we are to be successful market players in the
future. The intelligent exploitation of our own strengths and assets, p
ossibly in
combination with partner products or services for the generation of added value
for customers, is for Swisscom an essential key to differentiation and success.
It will often be necessary for Swisscom to enter uncharted territory and to step
beyond the threshold of its own standard competencies; this is completely
intentional and will be further developed by our staff. Here are some examples:
> Using the FTTS technology (fiber-to-the-street or, in ITU terminology, fiberto-the-distribution-point, FTTdp) developed jointly with an OEM, Swisscom
installs optical fiber to within about 200 meters of the building, reducing the
length of the copper connection. The additional implementation of vectoring
in 2014, followed in the middle term by G.fast, in combination with a new,
innovative GB-capable home router, is the basis for new IP- and cloud-based
services even in areas where the installation of FTTH is not yet planned. The dual
processor platform in the router has sufficient computing power to handle
future applications as well. Software defined networking (SDN) is a technological
enabler which will open the door to many further opportunities in the future.
> In the IP-TV sector, Swisscom has expanded the platform provided by the
manufacturer by adding innovative features such as replay8 or the complete
integration of mobile end devices. These extensions are based on excellent network quality in both the fixed and mobile networks, access to the home network,
and the right software development capabilities for the mobile applications.
> The capability to develop own software is also important in the area of communication and collaboration. The communications app iO9 made available by
Swisscom to customers of other mobile network providers as well as our own or
the video conference solution for SMBs, Vidia, now in the beta test phase, are
examples of our own developments.
Non-technical assets should also be mentioned: a strong local shop network,
experienced and competent customer service, or pronounced process experience
(e.g., in billing) can make decisive contributions to the innovation process. R
ecent
events have heightened awareness for data protection and local data storage; these
aspects cannot be neglected.
8

9

http://www.swisscom.ch/de/privatkunden/swisscom-tv/funktionen.html watch programs on 90 channels,

time-shifted back by up to 30 hours without previously programming a recording and on mobile end devices as well.
iO offers voice, chat, and presence functions independently of SIM cards. Swisscom customers and customers of other
network operators who have booked an additional subscription can also call fixed line phone numbers in Switzer-
land or Europe free of charge.
205
But technological developments in the coming years will provide further starting
points for the development of own innovations. The potential for the use of software defined networking or big data analytics as the basis for new end customer
products has not yet been mined.
Increase efficiency
Despite all of the excitement about new and innovative products lean production of services, optimized in respect of costs, is also an area which must
remain in the spotlight. Standardized platforms and efficient processes are concepts which have been the subject of discussion in the industry for many years.
The ways the cloud can be used to address customer needs were described above.
It is an enabler with great potential to improve our customers efficiency. Swisscom will pursue this approach internally as well and migrate a major part of its
own IT applications to the Swisscom cloud by 2016. It is Swisscoms philosophy
to use its own products itself. This practice is supportive of a continuous improvement process and helps new products to achieve maturity faster.
Swisscom was able to gain valuable experience with this concept during the
implementation of the Managed Unified Communications and Collaboration
(Managed UCC) products which were consistently rolled out at all of the
locations in the company. In addition to the aforementioned product m
aturity,
this led to a significant enhancement of efficiency and reduction of travel
expenses. Eating your own dog food really does work, and Swisscom will
steadfastly continue to follow this principle.
However, one aspect should not be forgotten in the midst of all of these efficiency
measures: the flexibility and agility required to try out ideas especially when
they are seemingly over the top as a basis for innovations must be maintained.
A highly standardized VW platform may be eminently suitable for low-cost production of a number of different Polo or Golf models but you cant build a Tesla
on it. Flexible innovation departments which have been provided with adequate
resources and skills are the crystallization seeds for new developments.
206
Advanced development of the labor force

Last, but not least: best service is a Swisscom objective and a major differentiation feature and cannot be achieved without the Swisscom employees as
the guides for the customers. The ongoing evolvement of motivation and skills
in the technical (IP migration, cloud, SDN) and the non-technical (customer
understanding, human-centric design) areas are prerequisites for ensuring the
right customer-centric attitude among the staff. Without such an attitude, it
will not be possible to keep our service promises to our customers and to fulfill
our B2B vision, namely: helping our customers to become more efficient and
successful in their own businesses through innovative and high-quality products
and services.
Conclusion
The velocity of the transformation in the ICT industry will continue to accelerate
in the next few years. Technologies will evolve rapidly, new providers will appear
with fascinating new products and services, and competition will become stiffer.
This is all we can be absolutely sure about when talking about the ICT market. In
a market environment of this nature, long-term customer relationships in which
complete trust has evolved on the basis of excellent service and innovative and
high-quality products are invaluable and the key to profitable growth. Earning
this trust anew every single day is the objective of Swisscom.
As Switzerlands leading telecom provider, Swisscom is a trustworthy companion in the

digital world. Our aim is to inspire our customers with the best network, superb offers and
outstanding service. Our turnover of CHF 2,821 million and EBITDA of CHF 1,061 million in the first quarter of 2014 are around the same level as last year. Ecological and social
performance levels are more or less as planned: We achieved our targets for 2013.
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Transformation to
Value Orientation in Marketing
Performance Management
Ulrike Eberhard
> An empirical benchmark study among
marketing and sales managers in
telecommunications companies identifies
the critical success factors for marketing
performance management.
> Owing to the market saturation on their
core markets and the tectonic shifts in market
structures, many telecommunications operators
are faced with the challenge of transforming
their marketing performance management
from customer, revenue, or EBITDA growth
into a value orientation.
> The results of this study and of other analyses
can be used to determine valuable recommendations and innovative starting points for
the implementation of this type of marketing
performance management.
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Transformation to Value Orientation in Marketing Performance Management
Global benchmark study: learning how to optimize

Extremely high penetration rates in mobile networks by the end of 2013,
levels of more than 128% of the population in industrialized countries and 90%
of the population in developing countries had been reached have brought
telecommunications companies face to face with the harsh reality of market
saturation. The intensity of the competitive battles and pressures on the KPIs
continue to rise. Operators who find themselves in these kinds of situations typically optimize their networks and related operations, contract third-party service
providers for the management of secondary processes, or initiate other organizational changes involving substantial reductions in headcount. Experience with
numerous operators and knowledge of the influence of marketing on companies
success in other saturated sectors reveal that enormous potential lies slumbering
in the marketing management of telecommunications companies; if exploited, it
can contribute to the success of the company.
A worldwide benchmark study conducted among 35 telecommunications
operators in Europe, Asia, North and South America, MENA, and Africa
uncovers the key factors for success. The results offer support to marketing and
sales staffs seeking to focus on relevant objectives and their efficient realization.
The study was based on a framework concept for marketing performance
management (MPM) developed specifically for fixed and mobile network
operators. It incorporates goal-oriented, integrated planning and implementation of steering and KPI systems, analysis and prediction methods, programs (products and services, customer experience, regional roll-out), and o rganizational
structures and processes for all of a telecommunications operators activities
which are in close proximity to customers and related to products, prices, sales,
and communications.
The foundation of the study is a broad interpretation of the concept of performance, enabling due consideration of the various market and corporate circumstances. Performance is consequently defined very generally as the degree of
achievement of goals and can be applied to a number of specific goal categories such as customer, revenue, and margin growth, improved growth rates, and
increased value.
Interviews with the top managers from 35 telecommunications companies were
conducted personally and in line with a standardized questionnaire. Moreover,
KPI analyses of the participating companies and their regional competitors based
on business reports and studies from international telecommunications analysts
209
from 2010 to 2013 (Merrill Lynch, GSMA, TeleGeography, Ovum, Analysys

Mason, Pyramid Research, Yankee Group) were correlated to the results of the
interviews, revealing the relationships between the defined objectives, the actual
activities, and the operators achievement of their objectives.
The interviewed operators structure and implement their MPM activities in
many different ways. It was possible to identify four groups which could be clearly distinguished according to the focus of their activities: 49% focus on customer
growth, 27% on turnover growth, 14% on margin growth, and 9% on value
growth.
Matching with objectives is critical to success optimization needed here!
However, it must be noted that many operators do not always align their MPM
activities with the primary objectives they have set for themselves. This means
that the operators in the aforementioned groups do not necessarily pursue their
objectives with the priorities expected in view of the focus of their activities.
But operators who ensure a close match are obviously more successful than companies which do not match activities with objective:
> Only 28% of the interviewed operators are positioned in the optimal
corridor the match of primary goals and actual MPM activities is very high.
The majority of 72%, however, are outside of this corridor.
> In comparison with the operators who do not display a clear match between
objectives and activities, the companies within the optimal corridor surpass their
local competitors in terms of achievement of primary objectives by a significant
margin. The difference in relative goal achievement amounts to +54%!
The lack of alignment between objectives and MPM activities is frequently a consequence of the lack of transformation management. Targets have already been
raised, e.g., from growth in turnover to growth in margin, but the KPI systems,
analysis procedures, programs, and organizational structures and processes have
not been consistently adapted. A rigid organizational structure is an especially
great hindrance to efficient adaptation of all MPM measures to the new goals in
some cases.
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KPI management, analyses, programs, and organization learning from peers!

A detailed analysis of the respondents leads to the following findings for the four
areas of marketing performance management:
KPI systems are the key success factor: The majority of the surveyed companies
regard KPI systems to be the key success factor for their MPM. Especially
those c ompanies which fall within the aforementioned best fit corridor and are
obviously more successful than their regional competitors attribute c omparatively
much greater significance to their KPI system than companies outside of the
corridor. Moreover, their KPI systems (according to the companies own statements) are especially striking in terms of the following properties:
> balance between financial, quantitative, and qualitative KPIs
> early indicators which enable initiation of countermeasures at an early stage
> integration with the KPI systems of the departments responsible for IT and
networks
> inclusion of knowledge management and learning processes for the
continuous improvement of marketing performance management.
Interestingly, KPI systems of the operators who prioritize value growth cause
fewer contradictory or ambiguous situations during decision-making processes
than those of all other operators, even though such systems cover a greater
number of quantitative and qualitative KPIs and display substantially tighter
networking with the KPI systems of other departments in the company such as
networks and IT.
Marketing analytics focus and continuous improvement are what count: When it
comes to marketing performance analytics and predictive modeling, a general
trend toward improvement of the fundamental skills in data, information, and
knowledge management for MPM can be determined for all of the operators. Big
data are slowly moving into the operators marketing and sales departments as
well. Depending on the precise issue, 30% to 40% of the respondents work with
major aspects of big data analytics. However, the majority do not enhance their
basic information for making decisions with structured and unstructured data
from sources such as customer panels, device panels, or social media.
Regardless of their focus, the top priority for all telecommunications companies is
given to churn and migration analyses. Almost 90% of them conduct these a nalyses
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monthly, some even weekly. Market share analyses, conducted by 60% of the
operators with the same frequency, are a distant second. The former u ndoubtedly
serve as early indicators for market share shifts and must consequently be checked
more regularly.
There are a few differences here and there among the various groups. Companies
with a sharper focus on margin targets make less use as a whole of analyses and predictions in comparison with value-oriented companies. The logical assumption
is that these companies as a rule look for short-term potential for cost reductions
and include marketing performance analytics as well. They make comparatively
greater use only of profitability analyses for regions and advertising efficiency
analyses than other operations. In contrast, the chief commercial o fficers (CCO)
of the value-oriented telecommunications companies prioritize the intensity
and standardization of the analytics related to brand value, customer lifetime
value (CLV), net present value (NPV) of the products and regions, return on
marketing invest (ROMI), and customer satisfaction and loyalty slightly higher
than others. Nevertheless, they still make intensive use of their earlier analysis
methods. This could be one of the reasons for their relative lack of success with
regard to value targets.
Classic procedures still dominate predictive modeling; in other words, predictions
of the risk of bad debt for new customers, projections of terminations, and early
detection of fraud and customer value (CLV) of current clientele belong to the
routine operations of almost all telecommunications companies. The s ituation is
different for models used to predict usage behavior, i.e., the utilization of voice,
data, content, and applications. While prediction of the voice minutes is part
of the daily routine for all, these models intend to standardize and include in
the regular reports the predictions regarding the usage of data services or specific
content and applications which have found only sporadic use in projects. This is
the case regardless of the group in which the companies are classified.
Generally speaking, it can be determined that telecommunications companies
display a very high commitment to marketing analytics, but there is frequently
a lack of the necessary focus. Especially companies which have redefined their
goals frequently fail to adapt their analyses to align with the new situation.
Moreover, although telecommunications companies have become aware of
certain innovative analysis methods such as prediction methods to determine the
customer lifetime values (CLV) of current clientele and new customers, the operators have not yet seen any justification for their intensive use. This is the case,
for instance, if a carriers top priority is achieving strong customer growth and a
greater market share.
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Marketing performance programs from analysis to implementation competence:

Success in marketing management cannot be achieved without the creative
and meaningful conversion of analysis results into actions and the coordinated realization of such actions on the market. Good news for the study participants: evidently those who are less successful the ones outside of the best fit
corridor are particularly aware that they must significantly improve their skills
in the analytical phase of data collection, the distillation of the relevant information, and the generation of knowledge about relationships as well as (and
especially) in the conversion of the analysis results into effective initiatives and
programs ranging from design to operational implementation. Their future plans
for marketing performance programs are substantially more ambitious than the
plans of telecommunications companies which have already achieved success.
The marketing performance programs analyzed specifically in the study strategic
and operational programs for optimization of segmentation, sales, products and
services, rates, and communications are relevant for all of the operators and are
all utilized in standardized form frequently (sometimes more, sometimes less so).
As suspected, however, the composition of the program portfolio, the frequency
of application, and the degree of standardization vary significantly from one group
to the next. We have observed that most telecommunicationscompanies still
continue their use of the programs typically aimed solely at growth of clientele
and revenues in their pursuit of short- or long-term profit targets.
Organization of the MPM integration at all levels: The foundation for successful
MPM is laid by the structural and procedural organization of the areas of
responsibility in the MPM. Almost 50% of the surveyed operators have a central
MPM department. The other half operate with localized MPM. Responsibility
has largely been assigned to the various business departments sales, product
management, communications, and customer care which are coordinated at
best via KPIs and occasionally by issuing strategic directives. However, 50% of
these companies are planning to centralize these activities.
A close look at the various groups reveals that centralization is more pronounced
in the companies oriented to margins and values (75%) and is seen in only a
minority (40%) of the companies oriented to growth in clientele or revenue. The
latter tend to leave responsibility for MPM in the business departments.
Profit orientation quite obviously demands greater coordination and integration
of steering functions because isolated profit maximization actions achieve optimal results only locally, but do not necessarily result in maximization of overall
213
profit. This is why a central MPM department should ideally be able to depend
on strong support from top management, an especially critical factor for companies operating on mature markets. The study shows that in fact 40% of the MPM
departments of the companies oriented to growth in margins and/or value report
directly to top management. This is the case for only 27% of the companies
focusing on customers or revenues.
Each of the central MPM departments is responsible for reporting and
controlling as a minimum. But only half of them develop strategic directives or
coordinate strategic marketing programs themselves; a minority of 10% conduct isolated marketing programs. The scope of responsibilities for central MPM
departments at successful operators goes well beyond analysis, monitoring,
and controlling. They are much more deeply involved in strategy development
and, in part, in the realization of larger-scale marketing programs. Evidently,
many telecommunications companies must still expand the responsibility of
MPM for KPI reporting and controlling to include analyses and forecasts of the
impact of marketing initiatives or programs and to mesh such activities with
partial r esponsibility for implementation.
It is striking that a greater share of the successful companies in particular, besides
having central MPM departments holding adequate authority, utilize multiple
instruments for the coordination of all marketing functions or departments,
including above all else annual target agreements (100%), strategic planning
(60%), standardized processes (50%), program management office (40%), and
weekly meetings (90%). MPM must not stop at the borders of the marketing
departments. Close coordination with the network and IT departments is
required if the marketing departments at telecommunications companies are to
be able to implement measures successfully. Ideally, the intermeshing of these
departments will extend to all management tasks: KPI systems, strategic planning,
analytics, programs, and organization. The respondents confirm that there is a lot
of room for optimization here. Only 28% and/or 26% of all respondents report
good or excellent coordination between marketing and networks and b etween
marketing and IT, respectively. It will come as no surprise that the results from
the successful companies in the best fit corridor are significantly better in this
respect.
Margin and value targets gaining in importance telcos are not ambitious enough!
Many of the operators participating in the study are not pursuing the marketing
goals which they should on the basis of their market and corporate position. It
214
is especially striking that many have not yet taken the required step to margin
or value orientation and have not yet recognized the necessity of transformation
into a profitable MPM:
> A recommendation has been given to 37% to concentrate primarily on
growth in margins, but only 46% of this group have actually followed this
recommendation.
> Owing to the market and corporate position, 20% need to prioritize sustained
profitability over short-term profit goals; in other words, their recommended
targets are related to value. But only 14% of this group have taken this advice.
During the course of the interviews, it became clear that some of the operators
had already shifted their focus to margin targets, but they subsequently suffered
unexpected and substantial loss of market share. Since the latter is an important
driver for short- and long-term profitability, especially in network economies and
on oligopolistic markets, these operators returned to customer growth.
Figure 1: Main factor for success: recommendations for prioritization of objectives congruent with market and

corporate position
Market Leader
Market Follower
Telco Positioning
Goal Recommendations Based on Life Cycle

Revenue
Marge*
Value
Margin*
Margin*
Revenue
Revenue
Margin
Customers
Revenue
Margin
Revenue
Growth
Stagnation/Decline
Market Life Cycle Phase
= Recommendation for setting goals according to situation; in the event of double goals, the underlined goals must be prioritized
*) Margin refers to EBITDA margin; value refers to concepts such as ROCE, ROMI, shareholder value, etc.
Source: Detecon
215
The art of successful margin- and value-oriented MPM lies in maintaining

balance between retention of the customer base and growth in margins and/or in
improving customer structure within a stable market share during the pursuit of
value targets on highly saturated markets.
In the chapter below, we will be focusing on concrete recommendations for
transformation to value-based marketing performance management because this
has now become the current challenge for many telcos or will confront them in
the short or middle term.
Transformation to value-oriented marketing performance management

The motivation: value orientation in marketing
Many telecommunications companies are facing the challenges related to
saturated markets and the resultant stagnation in customer and revenue growth
for voice and data services. Tectonic shifts in market structures in the direction
of OTT providers such as Skype and WhatsApp have even caused declines in
revenues from core business. Some companies are posting falling EBITDA margins as well because the costs, especially for network operation, are rising, the
adherence to device subsidization to avoid churn leads to high subscriber acquisition cost/subscriber retention cost (SAC/SRC), and the spreading popularity
of flat rates inevitably contributes to revenue stagnation. Some companies, after
conducting multiple cost optimization programs, have in the meantime changed
over to systematic value-oriented corporate management 1 as clearly indicated by
the use of such performance indicators as return on capital employed (ROCE)
or economic value added (EVA) and the extensive remarks on these indicators in
business reports.
However, systematic implementation of value orientation in marketing activities
of telecommunications companies can be discerned only in isolated cases, as evidenced by the study. This is a consequence of the overproportional significance of
marketing for revenue, which ultimately raises value as a major driver of ROCE
and remains set as a KPI, and in the fact that marketing expenditures do not
represent investments per se from the financial perspective. Last, but not least,
the customer market share continues to be an important success factor for profit.
However, there are numerous examples showing that marketing creates sustained
value for companies. Moreover, it is also well known that the brand value,
1
Cf. Hauk, Customer Experience, p. 250 pp. in this volume.
216
which is heavily influenced by marketing, is measured either as goodwill during

corporate acquisitions or can be monetarized by granting brand licenses.
Company assessments during acquisitions are frequently discussed as the value
of the customer base (customer equity), i.e., the total of the individual customer
lifetime values (CLV).
This is precisely the point where value-oriented MPM begins. It views m
arketing
and the related expenditures as an investment namely, as an investment in brand
or customer values. These investments are intended to lead to positive cash flow
in the future which, evaluated using the DCF method, are clearly higher than
those of alternative investment opportunities in marketing. In c omparison with
other MPM concepts, the focus here is on long-term cash flow orientation and
not on profit maximization in the current or budgeted fiscal year. This p
erspective
is vital for the survival of telecommunications companies operating on markets
which are becoming saturated because customers who change providers or who
do not extend their contracts are usually lost for a number of years or can be
persuaded to come back only with the aid of very high marketing investments.
Value-oriented marketing in this sense emphasizes the use of return on m
arketing
investment (ROMI) as a key target and management variable. However, we
recommend that network operators take a view enhanced by two key components
which give special consideration to the structural changes in the ICT world and
the decisive value drivers in telecommunications: the addition of n
on-monetary,
social customer values and the integration with value-oriented expansion of
the network infrastructures. This does not exclude management on the basis of
ROMI, which continues to be useful as a key variable.
The initial point: return on marketing investment
ROMI is defined as the ratio of customer equity less indirect marketing expenditures, i.e., expenditures which are not directly attributable to specific customers, as the numerator and the total direct and indirect marketing expenditures
as the denominator. Customer equity here is the total CLV of all of the companys
customers, i.e., the cash flow discounted at a specific point in time by the weighted
average cost of capital (WACC) for the expenditures directly attributable to a
customer over the entire lifetime of the customer relationship, from conclusion
of the contract to its termination.
Direct marketing expenditures are incurred especially for device subsidization,
license fees for digital content and applications, sales commissions,
interconnection, and bonuses and discounts within the framework of direct
217
Definition of Return on Marketing Investment (ROMI)

ROMI =
Ui,t

Revenue from Customer i in Period t

Examples: ARPU, ASPU, ARPA
i==
11
(Ui,t DirMA i,t )

(1 + r )t
l
GesMA
(1 + r )t
t =1
IndMA t
(1 + r )
t =1
DirMA i,t Direct Marketing Expenditures for Customer i in Period t.

Examples: device subsidies, contract commissions per customer or for customer revenue,

direct campaigns, forwarding charges, license fees; revenue sharing for service provider
IndMA t

Indirect Marketing Expenditures in Period t, i.e., Marketing Expenditures Not Directly

Attributable to a Customer
Examples: advertising (TV, radio, print, online, outdoor), sponsoring, sales commissions,
personnel expenses for marketing and sales, investments in product platforms
GesMAt Total Marketing Expenditures in Period t = DirMAit + IndMAt

r
Discount Rate
campaigns. All of the other marketing expenditures which cannot be attributed

directly to a customer are indirect marketing investments for classic offline and
online advertising, public relations, and point of sale.
The differentiation of the ROMI according to customer segments (SMB,
corporate, private customers), regions and distribution channels (points of sale,
service providers, MVNOs, specialist retailers), as well as according to initiatives
such as new products, campaigns, loyalty programs, or rate plan innovations is
useful for concrete management actions.
The expansion: customer value segmentation with CLV and advocacy score
Management of direct and indirect marketing expenditures oriented to ROMI
logically depends on a customer segmentation based on CLV. Customers who
secure high positive cash flow because of their long-time relationship or low
churn risk are prioritized over customers who frequently switch providers and,
moreover, generate low ARPUs.
Forecast methods which compare historical data records with actual behavior
in terms of call minutes to third-party networks, ratio of outgoing to incoming
minutes in relationship to remaining contractual term, or customer complaints
as the basis for predictions about probability of a future change and development
of revenues from certain customers are useful for the creation of this type of
CLV segmentation of the clientele. As the importance of general data services,
218
VoIP and IP-based chat, and instant messaging services grows, these methods,
which are still strongly aligned to classic telephony, must be adapted and refined.
Properties such as quality of the data connections (e.g., connection times,
dropped connections, data throughput in Mbps, latency, duration of the data
connections, device replacements, and use of providers own or partner OTT
services) are becoming more important.
Suitable marketing programs start with these parameters. They steer d
irect
marketing investments for device upgrades or loyalty bonuses to current
customers who generate high revenues and may, under certain circumstances, be
considering a change or into temporary price reductions for new customers who
simultaneously conclude a number of contracts with the company. Actions of
this type are familiar from other sectors such as insurance and banking.
However, management of the CLV falls short if and when it measures the
value of a customer solely on the basis of the related revenues and expenditures.
Customers increase customer equity both directly and indirectly through their
recommendations and their influence because they either recruit new customers
for the telecommunications operators or hinder others from making a change.
Their loyalty is especially important in view of technological developments such
as eSIM or even soft SIM and the intervention of regulatory authorities in product policies such as the reduction of minimum contract terms.
As OTT services increase, even more aspects of customer assessment which
are not of immediately financial nature will enter the picture. Customers who
display a high degree and high quality of interaction with the provider and its
services initially independently of their CLV will be assessed as more valuable
than those who do not make any kind of impression. This customer value can be
interpreted as social customer value. It is typically measured by means of scoring
methods which take into account the four following types of interaction, either
individually or in combination:
1. Active, direct customer recommendations: customers recommend or recruit
new customers directly for the provider. The net promoter scoring method is
widely used for this purpose.
2. Active utilization of network sharing services such as utilization of the WLAN
TO GO service developed in cooperation between Deutsche Telekom and the
Spanish startup Fon in 2013, which customers worldwide use to share their WiFi
connections with other customers.
219
3. Active, direct feedback, e.g., participation in various surveys, positive/negative

contact with customer care.
4. Active online influence, i.e., influencing perception of the provider by the
frequency and quality of postings by customers and non-customers on social
networks. Providers such as Klout, Kred, PeerinIndex, and Tweetlevel specialize
in social media analytics and appraise these types of activities of individual
online users, taking into account factors like the number of their followers and
fans, number and quality of their postings, and views and reactions such as likes
and comments to their postings by other users.
Value-based MPM of telecommunications companies should supplement the
CLV-based customer segmentation with segmentation based on an advocacy
score.
Customers who simultaneously have a high CLV and high advocacy score (A,
high-carat followers) are the strongest drivers of customer equity. Customers with
a high advocacy score, but at the same time low CLV (B, demanding supporters) are a source of potential and concrete starting points for cross- and upselling. They could be especially interesting targets for services featuring network
Figure 2: Expanded Customer Value Segmentation a combination of CLV and Customer Advocacy Score
Customer Lifetime Value
Mindless
Money Blowers
High-carat
followers
Worthless
Grasshoppers
Demanding
Supporters
Customer Advocacy Score
Source: Detecon
220
sharing properties such as WLAN TO GO from Deutsche Telekom or

OTT services. The loyalty of these customers can be strengthened by providing
incentives from cooperation with OTT rewards programs such as beenitoo or kii.
MasterCard, for example, offers vouchers for Twitter activities.
Telecommunications companies seeking further growth from new business
models using mobile apps, mobile payment, and the related digital advertising
will achieve a high degree of monetization of their channels from the use of
customer insights, especially from customers with a high advocacy score.
The integration: expansion of the network infrastructure oriented to customer

value
Marketing performance programs aligned with CLV and/or a high advocacy
score certainly lead to optimal value management of marketing expenditures
for product and service development, customer care, sales systems, campaigns,
and communication. However, telecommunications companies guided by value
orientation should emphasize close coordination between marketing, IT, and
networks much more than ever before for two major reasons.
First of all, the greatest part of investments by far goes into network licenses
and infrastructure for improvement of network coverage and increase in network
capacities. CEOs and CFOs who steer their companies by means of ROCE
should be especially diligent in their planning of these investments. At the
moment, this is particularly important for the on-going LTE roll-outs, mobile
backhauling, and FTTx expansion.
Second, the structure and scope of the introduction of new services, rate plans,
devices, and campaigns are developing a powerful impetus unlike any seen
before, and this is having a huge effect on the utilization of capacity of IT and
network systems and consequently on the quality of the services, especially
data services. In extreme cases, the launch of the iPhone a few years ago, as one
example, caused failure of regional networks, and the harm to their image reduced their value. In other regions, we see networks with large idle capacities which
do not generate any added value at all.
Optimal value-based management of network expansion begins with the c ustomer
value segmentation described above and identifies the primary locations of the
various segments and the differences in regional demands on network quality;
one example is the difference in average data throughput in Mbps during the
busy hour because of the types of service being used primarily at such times
221
(video streaming in HD, social media, instant messaging, navigation). Demands

in network quality, differentiated according to region, in conjunction with the
correlating usage forecast provided by marketing and coordinated with network
expansion planning, are decisive for regional optimization of network expansion
on a value basis.2
The analysis of the current regional network performance data will help to
identify early indicators and their threshold value for quality-oriented network
expansion differentiated according to region.
The trailblazer: big data
A key challenge to the transformation to expanded value-oriented MPM
is found in the development of the analysis, forecast, and planning methods
required for this purpose. The new technologies and their increasingly powerful
processors and storage capacities and new intelligent algorithms for the analysis
of structured and unstructured data, known collectively as big data, open the
doors to new opportunities. For instance, more and more data about the impact
on success of various campaigns can be stored and analyzed with respect to CLV
and advocacy score over longer periods of time, thus heightening the reliability of
the forecasts and consequently the effectiveness and ROMI of future campaigns.
What is more, intelligent algorithms for recognition of patterns and early warning
make contemporaneous management possible. In the field of social customer
assessment, for example, negative posts from customers with high advocacy
scores can be identified relatively quickly, and fast and appropriate response can
stop avalanches of bad publicity before they become too great.
In addition, the new trends revolving around big data enable analyses of data
containing geographical references. Answers to questions such as What services
are being used by what customer value segments, where, and with what quality
demands? are especially useful for integrated, value-oriented network planning.
The circle to integrated, value-oriented expansion and marketing of the network
infrastructure in coordination between marketing and technology can be closed
through comprehensive correlation and regression analyses of data from many
sources, including device utilization data for services, network performance
222
data from the various network components from the radio network to the core,
connected third-party IT systems, customer satisfaction data, CLV data, and
advocacy score data. This lays the groundwork for an increase in ROMI relevant
for the CCO and of the long-term ROCE, a KPI which is used above all by CEO
and CFO for value-oriented management of the company.
Mastering transformation
The benchmarking study of international telecommunications providers has
shown that many providers should consider a change to value-oriented MPM in
the immediate future. Their markets are characterized by stagnation in customers
and revenues, usually accompanied by pressure on EBITDA margins. Moreover,
we were able to demonstrate that only focused structure and orchestration of KPI
systems, marketing analytics, marketing programs, and the underlying organization will lead to success.
The ROMI as the starting point, expansion of CLV on the basis of customer
advocacy score segmentation, and the integration of the approach with the
expansion planning for network infrastructures represent the primary features of
expanded, value-oriented MPM. The new technical opportunities discussed in
the context of big data must be rigorously exploited.
During the changeover to this approach, many telecommunications companies
will run up against challenges which can be mastered only by professional
transformation management which involves all of the companys stakeholders,
establishes a clear value-oriented strategy and related KPI system, and creates the
organizational prerequisites structure and processes for closer coordination
within marketing and between marketing and technology. IT will be challenged
as well by the demand to provide the necessary systems, data, and analytics. Last,
but not least, change management, accompanied by training and coaching of all
of the involved employees, will be needed.
223
Interview
Successful Long-term
Positioning on the
Competitive Telecommunications
Services Market
224
Colt Technology Services is an established

alternative provider of business communications
solutions which began operating across Europe
immediately after the deregulation of the telecommunications markets. Just like the large incumbents, this firm
finds itself facing the question of how telecommunications
companies can master the challenges arising from the convergence of classic telecommunications and IT, the trends
of globalization, and the related changes in customer
requirements. Bernd Krause, Authorized Commercial
Representative and Director Sales, Sales Germany
Branded, Colt Technology Services, has answers to this
and the question about successful long-term positioning.
Successful Long-term Positioning on the Competitive Telecommunications Services Market
Question: What does Colt consider to be the primary challenges which will have
to be mastered on the market in the future? What actions and ideas do you have
for meeting these challenges?
Krause: Our market positioning in the B2B sector is based on being the Information Delivery Platform for European Business for our customers. This means
that Colt and its ICT services aim to be at the center of acquiring, processing,
and distributing information on behalf of its customers and will play a pioneering
role in finding solutions to all of the business challenges confronting European
corporations in this technological field. If we are to fulfill this vision, we require
a powerful technical ICT infrastructure which is continuously being expanded
and in which we constantly invest.
At this time, we have one of the leading networks in Europe as well as more than
20 computer centers. The Colt optical fiber network has a total length of 43,000
kilometers, connects 22 countries, and encompasses municipal networks in 39
European metropolises, featuring direct optical fiber connections into 18,000
buildings and to the European data centers. This system is the foundation which
gives our employees all over Europe the unique opportunity to provide to our
customers high-quality, reliable, and scalable products along with solutions in
compliance with a uniform European standard. This means that the services
we perform everywhere on our continent have the identical service description
and quality. This portfolio of powerful services a combination of network and
IT infrastructure with expertise in the areas of IT managed services, network
and communications solutions must of course be perfectly transported in its
breadth and depth to the market by our employees. There will be three key challenges in the coming years. First, the expansion of the network infrastructure
must be continued so that the new, network-centric, ICT-convergent services
(cloud) can be rolled out for customers on a broadband infrastructure. Second,
there is the further expansion of the cloud platforms and IT services from the
Colt computer centers so that the industrialization of IT via cloud services can
offer our customers additional opportunities to heighten the efficiency of their
operations. The third challenge is in the transformation of our organization from
an infrastructure-centric to an ICT solution-oriented organization which concentrates its work entirely on producing benefits for our customers.
Question: How does Colt, an internationally operating carrier, secure the connectivity for its customers across all of the countries? Do you construct your own
networks, or do you rely on cooperation agreements or advance services?
225
Interview
Krause: We fundamentally regard ourselves to be European technology providers.

Nevertheless, we follow our customers with our services as well as our network
services worldwide. We are able to realize this presence solely because we have
negotiated network interconnections with several hundred cooperation partners;
thanks to these agreements, we can provide products at fair market prices to our
customers even in countries without a Colt network footprint. Using MPLS
and Ethernet network interconnections with our partners, we can offer our
customers new locations for their corporate networks in the most remote regions
of America, Asia, or Africa, enabling them to enjoy the quality of service and
security they are accustomed to in Europe even at these sites.
Moreover, we also have an excellent position on the Asian market thanks to
our cooperation with our affiliate KVH in Japan, Asias Information Delivery
Platform, because we can access their optical fiber infrastructure and services
and provide connectivity to the corporate networks of our customers at fair market prices.
Question: Colt operates its own fixed network and offers wireless services on
the basis of third-party infrastructures, i.e., cooperation agreements. Is this not
proving to be a disadvantage for Colt in view of the trend to merger of fixed
and mobile networks, the convergence of services, and the necessity to model
mobility components in the connectivity of people, devices, and things? Does
this possibly restrict Colt to specific segments or services or force it into a niche?
Krause: In the past, Colt made wireless service solutions available wherever they
were of essential importance for our customers for example, the mobile dial-up
of our customers field representatives into the hub of their MPLS VPN and
will continue to offer such services in the future. In this respect, the provision of
FMC integration by offering suitable apps on the mobile devices being used is
indispensable. However, it is not absolutely necessary for Colt to operate mobile
connectivity itself because we are a company which works closely with its partners, and we can utilize the services of partners who provide the required mobile
bandwidth.
That does not mean that we will never go this way ourselves. But the road must
lead to an absolutely profitable solution; we will certainly not take this step no
matter what the price. Too many companies without a mobile network have lost
enormous amounts of money here. Our customers appreciate our chosen path of
ICT convergence which we have been persistently following for many years and
which documents our innovative capability.
226
Regardless of whether a technology company decides in favor of FMC or ICT

convergence, even companies dominated by infrastructure such as telecommunications companies must embrace partnerships and not fall victim to the conviction that they must develop, operate, and market everything themselves; this
plays an important role because the demands on our market are too diversified.
Being successful on the market means that missing service modules must always
be obtained from national or international partners and incorporated into the
companys own value chain.
Colt, for instance, realizes almost two-thirds of its total revenue from cooperation models of some kind and not from direct sales. A significant contribution
comes from national and regional distribution partners who provide optimal
on-site service to midsize customers during the installation of customized communications services.
The distribution partner channel is especially prominent at Colt because an
attractive incentive model for this type of distribution outsourcing has been in
place on the market for more than 15 years; over the course of the years, our active
partner management has created a stable and effective network of r elationships.
There are now several hundred distribution agencies and their employees who are
actively and successfully selling Colt products and solutions all across Europe.
Question: Does Colt, being a provider which serves primarily business customers,
find itself exposed to the growing competition from OTT players to the same
extent as carriers operating in the private customer segment? What role do
the large classic IT service providers and IT solution providers like SAP, HP,
Oracle, Microsoft, T-Systems play here as well as smaller IT service providers
specializing in particular applications who have also discovered cloud-based
services as a new field of growth for themselves?
Krause: The impact of OTT players familiar from the private customer segment is
limited to our business strategy. OTTs can flex their muscles only in the customer
segment of the VSEs and smaller SMEs where the requirements placed on ICT
service are not so demanding.
The requirements for data throughput, latency periods, and security of the
network and IT infrastructure in our sweet spot, the midsize to large business
customer segment, have reached such a high level that only a proven B2B provider such as ourselves can meet them. That is why, for example, we have brought
all of the ICT security experts from across Europe to a security center in London, where they can provide the competence required to meet the demands for
227
Interview
protection against attacks from within and from the outside every single day,
24/7/365. Moreover, there is the factor of keeping our customers data within the
jurisdiction of European laws, which we can always promise. We can even guarantee that the data of our customers in Germany remain in our local computer
centers in Hamburg, Berlin, and Frankfurt if this is desired.
However, the diversity of the competition has risen significantly as a consequence of the trend toward cloud services because various IT cloud companies
have joined the ranks of the telecommunications companies. We take this very
seriously. Still, the requirement profiles of the customers vary to such a degree
that most companies are able to provide only a part of the required services. Yet
customers still expect one-stop shopping. Providers who have learned how to
combine their assets with the assets of others are best equipped to deal with this
conundrum. Colt has had excellent experience with cooperation agreements in
the necessary fields. This approach has brought us success on the international
stage so that we can intensify our efforts on the optimization of our own work
rather than spending our time worrying about our competitors.
Question: Does this mean that Colt depends on cooperation with partners when
it comes to the subject of innovation in the frequently mentioned areas such as
cloud, XaaS, M2M, and convergence? How are these innovative products marketed and distributed in the direction of customers?
Krause: Since we view ourselves in this environment primarily as technology
providers operating out of our computer centers, we take a position on the reseller market as an enabler to carriers and resellers; we make our cloud platforms
available to them and do not offer our own retail products to end customers. The
focus of our product line is on the sector of infrastructure as a service (IaaS).
Our current software as a service (SaaS) line covers the communications and collaboration segment in companies, includes Microsoft Exchange, SharePoint, and
Lync, and is also marketed as a reseller product so that our European partners can
sell their own ICT service to their customers.
Colt takes advantage in this case of the classic distribution channels existing on
the ICT market while also pointing the way to a new approach in the B2B field, a
kind of franchise system. It includes international and national carriers, classic IT
distributors across Europe like Avnet and Arrow, new cloud distributors, national
and local resellers and IT system companies, and national franchise companies.
228
This latter channel is of special importance because franchise companies act as

branded resellers to offer Colt-branded products on the resale market and thereby communicate as exclusive reseller partners the Colt brand all the way to the
end customers. This franchise channel, which we have newly created, is unique
on the B2B ICT market and will provide major impetus to our strategy because
we also sell and then operate as resellers standard communications services such
as voice, IP access, and Ethernet services via the reseller cloud portal Ceano,
which the franchisees can use to market and operate IT services from the cloud.
Question: What are the major core elements which differentiate Colt from the
competition?
Krause: Colt views itself as an integrator of voice, data, and managed IT (cloud)
services, so we are active in a steadily growing segment of the IT sector as well because the pace of market penetration in the European business customer segment
is accelerating. Owing to our ability to perform these integrated services in Europe with our own infrastructure and our own skills, we are in an ideal position to
increase the share of wallet among our customers and to acquire new customers.
An additional decisive element is that the hunger for bandwidth will grow
strongly because of the steady penetration of the market by cloud services, and
Colt, by continuing to expand its optical fiber network in the backbone sector
as well as in urban networks and the last mile, has chosen the right technology
to create high-quality loyalty in the business customer segment and to generate
enthusiasm on this market for Colt. Thanks to all of these assets and the skills
which characterize Colt Technology Services, we come very close to achieving
our goal of being the Information Delivery Platform for European Business.
Colt is an international IT services company. We help businesses perform better by removing

the complexity around delivering and integrating network, data centre and IT services. From
individual products to fully integrated solutions, Colt provides tailored services to enterprises, small businesses, channel partners and operators. Our network spans 22 European
countries, 20 data centres and we have an increasing presence in the U.S., Asia and Africa.
Colt delivers advanced business performance wherever our customers need it. Our customers
benefit from simple, seamless solutions which cut through the complexity of IT services
leaving them free to focus on core business objectives. This is what makes Colt the Information Delivery Platform.
229
Marketing and Sales:

Total Turnaround
Clemens Aumann
> Solution strategies for marketing and sales

focus on proximity to the customer and
organizational efficiency.
> M-commerce platforms are predestined to
act as the basis for the modeling of crosschannel management and for
customer convenience.
> Quality differentiation and partnering save
future revenues, and simple and modular
products build the structural basis.
> Multi-brand management maximizes market
penetration. The assignment of concrete
accountability for profit and loss
stimulates competition and therefore
effectivity and efficiency.
230
Marketing and Sales: Total Turnaround
Solution strategy for marketing and sales:

proximity to the customer and organizational efficiency
There are two pressure points on the demand side having an impact on carriers at
the moment: the pressure from substitution created by OTT providers for voice
telephony, messaging, and other applications, and the rising demand for data
volume and bandwidth with simultaneously declining revenues per unit. Both
factors put direct pressure on earnings.
If sales and marketing departments hope to fulfill their responsibilities to achieve
growth and profitability long-term, they will have to master two imperative tasks
which arise from these circumstances: the defense of existing and the exploitation
of new revenue sources and the obligation to reduce costs.
The external facet of the solution strategy is directed at maximizing proximity
to the customer. The objective is to secure a line of products and services which
satisfies segment-specific customer needs better than the offers of the competitors
while taking advantage of the variations in prices customers are willing to pay.
Moreover and definitely meant literally proximity to the customer means
personal advising of customers by the companys own employees in sales and
marketing. This type of consulting support is still of major importance in service
and sales for the majority of customers. So carriers can utilize this type of support
as an effective means for positive differentiation, especially because typical OTT
providers will not have this contact path at their disposal even in the middle
term.
The primary objective of the internally oriented changes is to improve efficiency.
Harmonization of sales channels opens the door to cost reductions by steering
customers into less expensive channels and by cutting expenses in administrative areas. Proximity to the market can be anchored in organizational terms by
modeling (sub-)brands as profit centers. Such an alignment with profitability
goals serves as a key means for heightening marketing efficiency and promoting
effective marketing measures.
The hygiene factor found in all functional and emotional demand trends is
convenience. Convenience requires a consistent and comprehensive concept
encompassing all of the processes of an information-buy use characterized
by minimal expenditures of time and effort for customers. As this cannot be
achieved without knowledge of the need leading to demand, it provides a further
argument for the encouragement of proximity to the customer.
231
Both of these solution strategies are applicable, albeit in varying forms, to all
three of the marketing building blocks described briefly below: sales, products,
and brand.
These are the key changes in the marketing building blocks sales, products, and
brand:
Sales: Cross-channel management based on m-commerce platforms satisfies
future convenience requirements of customers and is the sine qua non for comprehensive optimization of marketing.
Products: Quality differentiation and partnering secure future revenues.
Simplification and modularization are the structural requirements.
Brand: Multiple-brand policies will maximize market penetration. The establishment of a profit center organization assures effectiveness and efficiency through
competition.
Sales: cross-channel management
Cross-channel is regarded as standard by many of todays consumers. The combination of offline and online during a purchase process is everyday routine and
on a path of steady growth thanks to smartphones. A few clicks on a smartphone
are all that is needed to obtain information about a providers price, product,
performance, and service and to make purchases. Moreover, the point in time
and place of the handover of the goods can be flexibly selected and optimized by
customers for their needs depending on whether they prefer short distances or
short time periods. Carriers who provide their customers with freedom of choice
in the form of optimized channel hopping can differentiate themselves from the
competition by the added value for customers and innovative character created
in this way; moreover, they can justify charging premium prices.
Reality in sales departments is lagging behind the real-life behavior of customers.
Incentive and information systems which are limited to specific channels make
it more difficult to distribute the steps in a single concrete buying process across
a number of channels. Disruptions when changing channels are consequently
the norm and the result of the silo organization oriented to a single channel
in each case usually found today. These disruptions during a change of channels
are the source of expense and risk. Costs are incurred by the conduct of multiple processes for determining needs and advising sessions. There is also a risk
that c ustomers will cancel an unfinished buying process and turn to a different
232
rovider. Todays sales structures are often relicts from the channel landscape
p
of the 1990s, supplemented by the new channel e-commerce. Historically
speaking, direct and indirect sales are deliberately brought into conflict with each
other, and multiple, overlapping customer contacts are accepted as the price.
First step: channel coordination brands as basis for differentiation. Today, the
parallel marketing actions of the various channels lead to offer constellations
which repeatedly overlap and are not plausible for customers. If, for instance, an
offer is made only on a certain channel, the price on a different channel is also
different. Inconsistencies of this nature demand explanation, weaken the brand,
and ultimately mean that every price is negotiable. True, it is possible to c oordinate
campaigns among the channels and reduce the incidence of especially great
differences in the offers. But this measure essentially aims at achieving nothing
more than the avoidance of collateral damage instead the creation of added
value and is therefore suitable solely for a transition phase. When all is said and
done, the transparency available to customers from the use of smartphone and
Internet turns extensive price and offer differentiation into a problem. That is
why there must be a guarantee of the same pricing across all channels. At the
same time, differentiation in the future can be oriented to segments. A p
ossible
solution here involves (sub-)brands. Price and service differentiation between
various brandings can be achieved in a clear form which is understandable both
to customers and the companys own organization. Examples include carrier
basic brand, carrier premium brand, carrier business brand.
The orientation to m-commerce changes the entire marketing mix. Another factor
driving the revision of the product portfolio is the ongoing rise in the use of
smartphones by customers during the acquisition process. Low search costs for
users represent a key success criterion for the design by providers. The required
adaptations for the special conditions of mobile use1 prove to be far-reaching:
both in the visualization and, in no small measure, in the structure of the offered
service itself in the form of a simply structured and presented portfolio for the
rate plans, service, and end devices, for instance. But as the mobile form of access
will be dominant in the future, it is the guiding light for the presentation and
structuring of all service content aimed at the mass market across all channels.
The (cost) benefits demand radical integration. The goal is to secure coherent planning, integrated control, a consistent line of products and services, and cross-over
monitoring and incentive systems. Integration of such comprehensive nature
does more than simply enhance proximity to the customer. It reduces costs
1
An example for this can be seen at www.sfr.fr mobile access (per Nov. 2012).
233
s ignificantly and can even finance itself. These are only a few of the cost-reducing
effects: lead management becomes clearer and faster, customer queries can be
answered with fewer follow-up questions and errors, and the administrative costs
for individual channels are eliminated as are the expenditures for maintenance
and administration of various control and management platforms incurred today
for every single channel.
Tangibility: unique differentiation over OTT providers by our man on the spot. At
this time, the potential inherent in the workforce employed in the carriers sales
and service organizations and working in the geographical field is not being fully
exploited. Unfortunately, these organizations are viewed in practice primarily
from the viewpoint of costs. The fact that these employees, thanks to their
opportunities for direct interaction and their personal competence as advisors,
represent a differentiation feature is ignored. OTTs may be able to upload
exciting video clips onto YouTube but they will hardly be able to create opportunities for sincere personal encounters in the short term. But the significance of
personal interaction will play an elementary role in sales and service especially in
the future.
I am the product! The necessary change in the way of thinking is not limited
to the management perspective; it must spread to the role image and self-understanding of all employees.2 Although the share of the service and information
sector continues to rise, there is still at this time a tremendous heterogeneity in
the mindset of employees when it comes to viewing themselves as a part of the
offered service; indeed, in general the tendency is more in the direction away
from such an attitude. Turning this around and convincing the great majority of
employees to engage passionately in their work is a key challenge for management. Significant improvement in this area also contributes to alleviating the
weakness of the carriers in terms of their proximity to the customer criticized
at the b eginning of this article. Suitable measures to bring this about include
transparently applied idea and suggestion programs and a frank handling of
grievances.
Partners are an elementary part of the cross-channel concept. The relationship of
the companies to their (trading) partners must be revised in a similar fashion.
External partners will continue to be of essential importance in the sense of
providing geographically far-reaching sales opportunities and service which, as a
whole, address all segments while nevertheless operating as efficiently as p
ossible.
2
Cf. Hauk, Customer Experience, p. 250 pp., Gouthier, Employee Pride, p. 264 pp. in this volume.
234
The seamlessness of channel hopping by potential customers and customers

which is necessary demands significant information transparency with respect
to the partners and vice-versa. Ultimately, this binds the partners more closely
together. The IT bonds become tighter, and the tasks and obligations of the
partner with respect to handling data and the loyal presentation and marketing
of the core services of the brand become greater. A key hygiene factor for a wellfunctioning relationship is the creation of a transparent incentive system which
generates trust. The future opportunities of cooperative ventures which pursue
strictly short-term sales targets are highly limited in such a scenario. These action
partnerships with a limited term are especially useful as a door-opener for the
initial approach to specific microsegments.
Use mobile individualization and self-service. At the turn of the millennium,
product managers fought tooth and nail to obtain a prominent place in the insert
accompanying the invoices sent out every month; today, this position is found
on the providers home page. However, an intelligent adaptation of the home
page based on recognized or stored data specific to the visiting customer is a
description of potential which is largely unexplored. Equally, the degree to which
self-service opportunities for customers have been tailored for mobile requirements is still low. This is regrettable, especially since customers display decidedly
open attitudes toward self-services, especially on mobile end devices.3
The shop is dead long live the shop: new old roles for classic channels. As
e-/m-commerce take over larger shares of simple information and transaction
functions, new space opens up or new challenges, depending on your viewpoint for existing channels, especially for classic brick-and-mortar stores. The
interest in personal discussions and advice remains high. Many mobile buyers still
want to examine the end devices before they make their final purchase decision.
Besides this touch function for end devices and accessories, the expansion of
after-sales service beckons. This situation is in line with demographic change and
the further expansion of complex offers. In terms of logistics, a shop can as a supplement provide the customer-friendly position of warehouse and pick-up point.
3-D printers, beyond the financial reach of individuals, could lure digital innovators into the shops. Overall, carriers do not make adequate use of the chance
to work actively with customers on solutions here; workshops or playgrounds for
the most widely diverse interest groups could enhance the social network in real
life. The tangible person to person experience supports the differentiation from
OTTs and drives forward a customer-centric market approach.
3
Cf. Penkert/Eberwein, Customer Self-Service, p. 270 pp., Roos, CSS: IT Architecture, p. 286 pp. in this volume.
235
New channels for complex advising. Video chats are expensive, in part because the
1-to-1 form of communication means that the agent can serve only one c ustomer
at a time, limiting this form of interaction to high-revenue customers and s ervices.
Nevertheless, communication using image and voice offers substantial benefits in
communications whether for presentation of products or for solving problems
in installation or use. Smartphones with their cameras are a catalyst in this area
as well. As this development continues, the current form of a call center appears
increasingly antiquated. The anonymity and non-committal nature of todays
form of customer care are especially striking here a factor which, alone because
of experience with social media such as Facebook, no longer appears modern
to most customers. The recipe used by many providers, in the meantime with
proven effect, of meeting the resultant demand by maintaining their own social
network sites, is the first step toward fulfilling these requirements, but logically
leads as well to a review of the current implementation practice of contact center
activities in the form of calls and chats.
E-/m-commerce platforms are predestined to act as the basis for the modeling of
cross-channel management. The platforms for e-/m-commerce come with the
best prerequisites to serve as the foundation for orchestration of cross-channel
management. They can reproduce the full length of the acquisition chain and
already offer now a broad variety of interfaces to the sales systems of the classic
channels. Moreover, they are specialized in the two key communication channels
Internet and mobile and include opportunities for integrating partners.4
Effective marketing: measure success, optimize measures. The orchestration using
e-/m-commerce platforms generates additional opportunities. Since these platforms are designed in alignment with real time and control capability, they
ensure significantly improved transparency of marketing activities. Tests and
pilot programs can be carried out here faster, more precisely, and, above all, more
comprehensively because they extend across all channels. The gain in knowledge
of sales and marketing activities is the primary benefit which can be realized
from the direct internal improvements in efficiency. Whether the knowledge is
of tactical nature, provides the key to optimal marketing of new products, gives
rise to new campaign structures, or is a revelation regarding the repositioning of
entire sales forms the internal added value of the integration will be at least as
high as the external added value in the form of substantially heightened customer
friendliness. This cannot be accomplished without the organizational integration
of the channels as well as the appropriate comprehensive overhaul of the IT
infrastructure.
4
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Channel silos are torn down. The target image of segment-oriented, cross-channel
customer interaction is subject to the prerequisite of a coherent organization
under single leadership. There is a lot to be done in this direction and it begins
with the fact that in practice the responsibility for online is quite often (still)
in the marketing department. Nor are all of the channels required to report to a
chief sales officer. The concrete design of cross-channel, optimal sales operations
ultimately requires the classification and subordination of specific channels
within an overall construction including their integration.
Products: innovations and renovations in the portfolio
Additional revenues from quality differentiation of the core products and from new
markets. One point is that telecommunications has a key role to play in many
market fields which, unless it actively contributes, will develop only slowly, if at
all. Direct examples are intelligent transport infrastructures and the networked
home. Another point is that there is still earning potential in classic telecommunications core services themselves.
Turn quality into money. There are many voices in the telecommunications
industry which are quick to deny fundamentally that quality differentiation
offers opportunities for revenues: price is the one and only competition factor.
However, a glance at the market of any given country quickly reveals that the
more expensive network is as a rule the one that is also perceived to be better. It is
surprising that this subject has been so thoroughly neglected in the past while the
experiments of the pricing specialists fill volumes in the histories of the mobile
networks. We can also put it this way: The telecommunications industry has n
ever
made an effort to differentiate according to quality; the price-centric situation of
today describes merely the results of providers actions which have never moved
in any other direction. This is precisely the reason why we consider this to be a
major lever which can be used, even (and especially) in the telecommunications
core services to generate new revenues and defend existing ones.
Challenge: dimensions of quality. One of the reasons for the neglect of differentiation based on quality is the fact that it is many times more difficult to
implement in practical terms than price, which at least appears to be clear and
simple and in the dimensions in which it is expressed, that is also the case
(euros, dollars, yuan). But anyone who has ever tried to calculate the right
price of a provider for one minute of mobile network service concludes that this
237
simplicity and truth are mere phantoms. The modeling of quality is found, if
at all, in a single figure currently shown exclusively in the form of published test
results and customer surveys. A ranking of network quality can be read from this
figure. However, it is precisely the rather more diffuse characteristic of the quality
concept which is equally an ideal and an urgent field of work for marketing.
What is needed is an identification of which characteristics and dimensions are
relevant for which target groups, and how these characteristics and features can
be served, documented, sold, and billed.
Quality I: the classic quality of customer service. Various carriers have recently been striking out on new paths in the consumer segment. In the past the
customer service quality offered by providers to their customers was tied either
tacitly to a premium rate plan, the amount of the invoice or their (VIP) status.
Now some are taking the approach of openly offering customer service packages
as enhanced services in their price argumentation or even decoupling these
packages completely from the selected telecommunications service and offering
them for sale separately. In the business customer segments, service level agreements featuring various terms and conditions are requested, accepted, and priced
according to what is offered. When supplemented by self-service, products of
differing quality levels which can be integrated relatively quickly into a marketing
process optimized for costs and revenues are created in customer service.
Quality II: network quality. THE epic battlefield in national advertising c ampaigns!
Powerful images emotionalize the benefits of the network for i ndividual c ustomers
or for the community. Numbers and acronyms document the technical superiority of the specific network, which is additionally confirmed by the test results
from impartial institutions. This approach is necessary and meaningful because
network quality is subject to criteria varying among individuals and, moreover,
its actual performance is dependent to an enormous degree on time, place, and
application. In this respect, the influencing of perception by means of classic
advertising is indispensable.
For carriers to achieve a sustained quality positioning, they must also operationalize the crossover quality criteria as well as those identified for specific s egments as
especially relevant. This means, on the one hand, an unambiguous, communicated
promise of service for each quality criterion and, on the other hand, the tangibility of the quality experience, supplemented by proactive m
anagement of expectations. The derived communications measures can be conducted generically,
specific to segments, and individually. Customers requiring high bandwidth
238
performance should be put in a position which enables them to determine the

service quality, e.g. by current and forecast bandwidth records for their particular
location. Simple statistics can illustrate how high the proportion of dropped calls
within a certain period of time was and what led to these drops. Appropriate
messages alert the affected user groups to future restrictions or current issues.
Approaches such as Netzwetter can be used for generic i llustration, irrespective
of the target group, for network performance, and d
efined KPIs can be u
pdated
hourly and communicated. In addition, channels such as social media are a way
to obtain proactively information about gaps in network performance from
subscribers and to manage them just as proactively in public on the social network. Besides the information generated from the networks, concrete actions for
network optimization can be defined and direct contacts for small cells can be
identified on this basis. The tangible experience of differing levels of quality also
serves to support the technical differentiation of quality.
Quality III: differentiation of existing services. There is also potential for earnings in
the core service. Car-to-car calling, preferably in conference quality, remains an
unfulfilled wish even for the drivers of the most luxurious vehicles and an undeveloped source of revenue for carriers. While 4K television sets are almost within
reach, high definition in voice telephony continues to live in the shadows even
though voice quality has noticeably deteriorated with the implementation of digital technology. Encryption of voice and data transmission is no more an available option than the prioritized connection when radio cells are utilized to the full
extent of their capacity. There is even a lag in meeting the need for retroactive
or temporary procurement of higher bandwidths in many cases, there is little
awareness of the possibility, or media disruptions have to be accepted when it is
used. Customers using M2M have completely different demands when it comes
to the points in time and reliability, but very little thought is given to this now.
My carrier is my castle instead of Big Brother. Many different business models
and applications are listed in the tag cloud Big Data. Utilizing the data economically is driven in two closely related directions: inwardly in the form of
determining potential for innovation and optimization or to third parties in
the sale of relevant data to other companies. But a completely different role offers
an opportunity to carriers which gives them even more support in differentiating themselves from OTTs: the role of a fiduciary for personal data. Customers
have long since realized that their personal information has value. But from the
customer perspective, personal data security (in email, for instance) cannot be
achieved without tinkering, causing a lot of trouble and without a trace of
239
c onvenience. There is a gap in the offered services here. Carriers can create significant added value by coming up with solutions which combine data security and
the selective disclosure of data with convenience (single sign-on).5 Since carriers
unlike OTTs are bound by tangible and national laws and are in any case
in immediate proximity to the critical processes because they are infrastructure
providers for data transmission, any services they offer in this direction appear
credible to many customers and necessary.
Partnering additional revenue from sales performance and differentiation. Since
the innovation capabilities of the carriers are not anywhere near being adequate
to cover the demand, partnering is an important approach. Internally, technical
and procedural interfaces still prove to be inadequate. Another obstacle is related
to the lack of size of national carriers: from the viewpoint of globally operating partners, they are often second choice. Cooperating with other carriers can
generate the critical mass. Various forms of cooperation with other carriers or
with a leader in the particular industry are also necessary for the development of
new market fields such as smart home and Industry 4.0.6
Brand: More brands. Agile brands. Each one a profit center.
The carrier brand becomes an umbrella brand. Brands managed as monoliths
will be confronted with two challenges in the future. On the one side, they will
be promoted by the expansion of the product portfolio, which will grow from
variations in the product line differentiated according to quality and the assumption of additional functional elements addressing above all niche segments. On
the other side, the smartphone as a communications channel the decisive one
in the future demands a self-explanatory and clearly structured presentation
of the products and services. Structured sub-brands can provide a solution for
this balancing act between expansion and simplification. Its modeling can be
based on the addressed niches, the technologies, quality levels, and/or the types of needs which are covered. The planning of an adequate architecture is the
responsibility of the brand management.
Branding determines the rules of the game for market-oriented activities. The brand
architecture thus developed provides the elementary orientation framework
5

6
The application CheckAp from Swisscom, which helps iOS and Android users to determine when apps attempt to
access critical functions and data, and the initiative for a national email network by Telekom Deutschland are steps
in this direction.
Cf. Krmer, Successful Partnering, p. 148 pp.; Kellmereit/Narielvala, Innovation, p. 128 pp. in this volume.
240
for the concrete design of all market-oriented activities. It defines the essential
rules of the game which create the differentiation in all of the individual p
artial
brands. This includes the clarification of what technical innovations should
be made available to what (sub-)brands at what point in time. We regard the
development, evolution, and, in particular, the sustained realization of this
structure within the sales and market organization to be the greatest challenges
and success factors for future market development. Moreover, brand management is confronted by the challenge of questioning critically the performance of
its own brand portfolio.
Maximum market coverage requires more than one brand. At some point, every
(umbrella) brand reaches its limits. Determining these limits and coming up
with solutions for the development of successor groups outside of the own brand
is another task of brand management. Rules for the positioning space of the
third brands must be defined in advance and measuring instruments must be
established so that the contribution of specific branding becomes measurable.
As the objective is maximum market coverage, generous space for taking action
should be allowed. With respect to the typical knock-out criterion of cannibalization, the onus of proof can be reversed the core brand must demonstrate
that it will be permanently disadvantaged by the activities of another brand. The
following arguments also speak in favor of such a reversal.
Pressure from third brands on the core brand is necessary. The majority of observers
expect an increase in oligopolistic structures on the telecommunications market.
In theory, such market conditions encourage passive behavior on the part of
providers and innovation and customer orientation are more likely the last concern than the first choice.7 Competition not only vitalizes business; it also keeps
companies fit and ensures faster (re)action. The deliberate and broad opening
of wholesale is consequently a highly appropriate approach to promoting both
the performance capability and the efficiency of carriers own market-oriented
organization. Moreover, it leads to space for innovations in which ideas such as
a social media brand, temporary brands, and other concepts can be tried out.
In a comparison of industries, the customer service offered by telecommunications providers ranks well below average
(107th place out of 126 industries; flanked in the rankings by budget hotels and garden centers/flower markets),
www.servicevalue.de .
241
Suitable platforms are the prerequisites for operational implementation. So an

important step is to design the nature and quality of the pre-service products to
be manageable, performable, and billable. Moreover, there must be a w
eighing
of what services the carrier will offer to the (third) brand: billing, sales, and
customer care are essential elements. In view of the future organizational form for
marketing, sales, and branding sketched out here briefly, however, these (product)
platforms will be required in any case. Their expansion by the addition of the
partnering capability function represents only a minor additional investment.
Total transformation of the market development. The transformation of production
and subsequently organization and processes as well to the IP protocol is the
key challenge in the change for the carriers technical departments. The i nevitable
reorganization of the marketing departments is absolutely comparable: the
present silo form of the sales channels has exceeded its expiration date no less so
than the function- and product-centric organizational forms in marketing. Any
future-proof market management organization of the carriers must be o riented
toward driving cost reductions through transparency and efficiency pressure and
creating effective competitive advantages through customer orientation.
Everything becomes wholesale: every brand is a profit center. We regard the
assignment of concrete accountability for profit and loss in a specific demand
segment to be a constructive core means of remedying the current lack of
external customer orientation and internal transparency. It is assured by clear
cost transparency and the measurement of the success of actions. The segmentrelated marketing units purchase the product building blocks required for their
success, bundle them under their (sub-)brand, and address the segments assigned
to them with these brands. We believe the third or sub-brands are a suitable
differentiation criterion for profit-loss accountability. Sales and services will
also be procured in modular form by the individual market departments and
configured as required by the specific market. The cross-channel platforms
described briefly enable the measurement and control of marketing success. The
principle of (modular) service procurement can be expanded all the way to the
brand: the market departments pay license fees to the brand management for the
utilization of the brand, contributing to the latters refinancing.
242
243
Interview
Brand Strategy Is More

Important than Ever Before
in Telecommunications
244
What has long been normal practice in the

automotive and cigarette industries is now
finding favor in the telecommunications
industry: one company offers a number of
brands from one and the same product line
Ingo Gebhardt, owner of the agency
GMK Markenberatung, explains how brand
management can be utilized to
exploit the willingness to buy
among heterogeneous groups.
Brand Strategy Is More Important than Ever Before in Telecommunications
Question: The telecommunications industry is a market characterized by consolidation tendencies. What would you advise companies to do when brands which
were originally in competition with one another suddenly find themselves under
the same roof?
Gebhardt: In the same way that markets and products are merging today, brands
have become part of consolidation processes. As a result, brand strategy in the
telecommunications sector is of considerably greater importance than simply
image and brand awareness. Consolidation tendencies are forcing telecommunications companies to weigh a wide range of diversified brand strategy options. If
promised performance, products, and target group can be logically aligned with
one another, the greatest potential is undoubtedly in brand migration. It not
only offers an opportunity to strengthen the perception of brand competence,
but reduces as well the complexity of the brand management. However, if the
new brand line is associated with target groups and the promise of benefits which
are by and large contrary to the positioning of the established master brand, I
advise making a clear distinction between the brands. This is the only strategy
with any prospect of satisfying heterogeneous customer needs through focused
and credible brand propositions.
Question: OTT providers such as Google, Amazon, and Apple are a source
of increasingly stiff competition for network operators. What role does brand
management play in this conflict, and how should the network operators
branding be positioned so that it can become a success?
Gebhardt: Rarely have the competition parameters in an industry changed as
radically as we see in the telecommunications industry. Observers have noted for
some time that the boundaries between the Internet, media, and entertainment
markets are blurring. But the battle for market shares has intensified beyond
anything in the past. I have the impression that the traditional telecommunications companies reacted far too late to this drastic change and resigned themselves to a place on the back bench a long time ago. Whereas a customer like me
used to decide consciously in favor of D1 or D2, today I want the new Samsung
Galaxy S5 or the new iPhone 5S. The same goes for content another area in
which telecommunications providers have not been able to establish a convincing position as competent authorities. The term network operator essentially
says it all. For the future, I see two positioning options for telecommunications
companies if they want to remain competitive on this hard-fought market: Either
they concentrate strictly on their core business network operation and invest
245
Interview
innovation and development budgets primarily in network technology, or they

position themselves as fully integrated providers with their own B2B and B2C
models. My assessment is that this can succeed only with strong brands based
on anticipatory and market-oriented action. The companies in question develop
new products featuring promises of relevant and appealing benefits, firms which
are flexible enough to re-orient their business fields and, last, but not least, which
proactively drive forward consolidation and cooperation activities.
Question: Partnering describes one of the key strategies of the carriers for
future growth. One of the sources of conflict in a partnership is in the concrete
positioning of its own brand. What do you consider to be the success factors for
a good partnership with staying power?
Gebhardt: The competitive ability of market players in the telecommunications
industry is increasingly dependent on how well they manage to integrate new
business models into the value chain. Under market conditions like these, it is
not unusual for partnering to act as a strategic enabler. The complementary
supplementing of competence fields and the interactive image transfer promise
a stronger competitive position as well as access to new customer groups. But
this should not be assumed to mean that any and every partnership in the telecommunications industry is a prospective success. In fact, the success of a brand
partnership is linked to two essential conditions. One is that its credibility derives
from a fit of the brand values, meaning that the participating companies must be
largely congruent in their brand personality. The second is that the partnership
of brands promises a better competitive position only if and when it results in
genuine added value for the customer. This in turn presumes that an exclusive
that is, a unique brand proposition and service result from the supplementing
of the competence fields.
Question: On the customers side, we see a continuation in the strong trend
toward the utilization of smartphones for shopping and service incidents. What
does this mean for brand management?
Gebhardt: The utilization of smartphones is a development which has in the
meantime reached the point of no return. In October 2013, about 37 million
people in Germany owned a smartphone. Half of these smartphone owners are
always online, no matter where they are. These mobile devices have made the
greatest contribution to the shifting of shopping and services from stores or telephone hotlines to the Internet. Telecommunications companies must recognize
246
and exploit the potential of these mobile brand contact points so that they can
manage their customer relationships. It is not enough, although also necessary, to
optimize the home page for the commonly used smartphone operating systems
such as iOS and Android; customer-oriented apps must be used to increase user
friendliness and to create a contact point consistent with the brand.
Question: What role will multi-branding approaches play in the future? What
advantages and challenges do you see in their realization?
Gebhardt: One consequence of convergence is that the telecommunications
industry is characterized more than ever before by heterogeneous target groups.
Multi-branding approaches are an appropriate means of addressing these target groups precisely and credibly. Since the specific brands are relatively autonomous in their actions, they also promise benefits of speed and flexibility of not
insubstantial proportions and this can be a decisive competitive advantage, especially in view of the short life cycles of products and innovations which have now
become the norm. In an industry which sells its products and services primarily
as a function of price, multi-branding approaches can be used to exploit the
potential of heterogeneous willingness to buy, for instance although there
is always an inherent risk of potential cannibalization effects and heightened
demands on the brand portfolio management.
Question: What impact do the developments in Web-based communications,
i.e., online shops and online advertising as well as social networks, have on
established brands? Will it become simpler for companies to establish completely
new brands through the use of such channels?
Gebhardt: The most important communication channels between brand and
consumer today are Web-based. So it is not surprising that marketers in the
telecommunications sector also take these channels seriously and are shifting their
budgets even further in the online direction. Telecommunications companies
invest almost 20% of their entire marketing budget in the optimization of their
infrastructure with a special focus on online activities in the areas social media,
mobile marketing, and online advertising. There is no question whatsoever that
Web-based communications offer opportunities to communicate more directly
and interactively than ever before with the specific target groups. Nonetheless,
it must be absolutely clear to everyone that the time and effort required for the
establishment of new brands are substantially higher today because of the diversity of new channels and the increasingly selective behavior of customers. More-
247
Interview
over, Web-based communications have completely new requirements for brand

communication. Brand dialog instead of brand monolog is now the theme.
Todays Web-based communications have virtually nothing to do with the old
means of classic communications. If the potential of digital brand management
is to be exploited optimally, we will need products and services tailored to match
users and, above all, the channels and which are in addition consistently tied to
offline activities.
Question: Analysis and controlling of the brand success do not in practice always
have the standing that theoretical concepts demand. Why do companies have
such difficulties in this respect?
Gebhardt: My experience is that two preconditions must essentially be met if
brand controlling for a company is to be realized over the long term and to
result in benefits. One is that all of the brand-relevant services and activities on
the companys side must be recorded and not just the significant effects of the
brand on the customers. In my opinion, the former point is precisely where the
weakness in brand controlling of many companies is to be found. Effects such as
brand awareness, image, and perception can be described down to the smallest
details, but as a rule cannot be traced back to previous activities. Do specific
actions at certain contact points actually create the desired brand image within
the target group? This and other questions cannot be answered unless the internal
brand controlling pursues an approach with a clear relationship to action. I
always advise my clients to prepare a lean KPI concept which considers equally
brand effects and brand-relevant company activities. Unless the relationship to
daily business is secured, brand controlling cannot truly realize its full potential
for the company and the brand.
248
Another, no less significant success factor for brand controlling involves its implementation within the corporate organization. If there is to be genuine longterm profit for a brand from success measurement, internal expertise must be
built up so that data will not only be continuously recorded, but so that they can
also be analyzed against the background of concrete actions.
GMK Markenberatung is a strategic partner for brand analysis, positioning, and implementation in all points of contact. The focus is to create an efficient brand value. A successful
brand is not a question of budget, but of consequence. GMK Markenberatung has offices in
Munich and Cologne, and was founded in 2006 by Ingo Gebhardt and Hans Meier-Kortwig.
249
Winning Hearts and Minds

Loyalizing Customers through a
Convincing Customer Experience
Joachim Hauk
> Customer experience offers new
differentiation opportunities for the
telecommunication industry.
> The fields of action range from brand
promise to net quality, service culture
and product and process experience.
> Out recommendations build on one another
and jointly contribute to the
successful establishment of
customer experience management.
250
Winning Hearts and Minds Loyalizing Customers Through a Convincing Customer Experience
Potential for differentiation in competition through customer experience

Telecommunications companies are on the look-out for differentiation opportunities, so it is no wonder that customer experience management (CEM) has
become a topic of interest especially in this industry. Its objective is to increase
profitability for companies operating in an intensely competitive and dynamic
market through emotional loyalization and a differentiated portfolio of p
roducts
1
and
customer oriented services. The effectiveness of outstanding
customer
experience (CEX) as a differentiation feature is documented by Forresters
Customer Experience Index, which has been surveyed for North America since
2007. It reveals that there has been a moderate general improvement in average
values over the course of the years, but the CEX outperformers continue to achieve a
clear differentiation, and the gap between outperformers (CEX leaders) and underperformers (CEX laggards) is in some cases growing even larger.2 The development in stock prices for CEX champions outdistances the market average by
a factor of three. The evidence is clear: undeviating orientation to customer
experience pays for itself economically as well.
At the heart of CEM is the focus on the customer perspective at the moment when
customers come into contact with a providers products, services, and p
rocesses.
In contrast to programs with focus on a specific function, e.g., improvement
of service excellence, it is possible to achieve a high level of consistency at all
customer touch points. Special attention is devoted to the moments of truth
(MoT) critical situations in which companies have the chance to strengthen
a customer relationship or run the risk of leaving a lasting negative impression
on their customers. MoT describe critical customer processes such as provisioning, a service problem, or a complaint. The error-free provisioning of a product
in compliance with all deadlines and featuring plug-and-play which functions
properly in conjunction with friendly instructions for complex products enhances
readiness to buy and reinforces loyalty while a combination of postponements,
unsuccessful provisioning attempts and a lack of transparency in the processes
can, in extreme cases, lead directly to the cancellation of an order; at the very
least, it will have a long-lasting impact on future purchasing behavior. MoTs are
not, however, tied exclusively to critical processes. If a customer urgently requires
a duplicate invoice and an inordinate amount of time passes before it is received,
a supposedly secondary routine process can become highly relevant and critical
in the customers perception.
1

2
Cf. Hauk/Schulz: Customer Experience Management fr Telekommunikationsunternehmen, pp. 391-392. , in:

Customer Experience, Forum Dienstleistungsmanagement, 2012, pp. 391-392.
Forrester, The Customer Experience Index 2013, pp. 6.
251
In this context, it is expressly a matter of delighting customers with n

oticeable
added value and not just creating additional services. Flexible and pragmatic
service behavior is a good example: A worldwide study by the Corporate
Executive Board was able to determine a direct causal relationship between

speed of solution, simplicity, and efficiency and customer loyalty: the less time a
customer required to obtain a solution for a problem, the greater the reinforcement of the customer loyalty.3
Guaranteeing customer experience during all phases of the life cycle is an enormous
challenge and requires the interaction of processes, systems, and organization at
all customer touch points. Companies must align their own p
erformance with
the individual questions and expectations of their customers this precisely
is the great opportunity for differentiation from the competition! The holistic
perspective of CEM offers the chance to take leave of the one size fits all
approach and to fulfill instead the relevant requirements and expectations of
specific customer segments according to their profitability potential.
Objectives and impact areas of customer experience management
Times of economic challenge give rise to changes in objectives. A study conducted
by the TM Forum on customer experience reveals that the enhancement of
customer satisfaction and the strengthening of loyalty are currently the top
priorities for telecommunications companies.4 This is caused by a change from
the focus on new customers during the growth phase and a redirection toward
the strengthening of loyalty in the existing customer base. In terms of priority,
reduction of operating costs follows in second place.5 This is related to certain
fields of action: improvement of productivity through process and organizational
efficiency, restructuring in the sense of concentration on customers, and cost
reductions through value-oriented, segment-specific customer management.
The generation of additional revenue takes third place and includes cross- and
upselling approaches for expanded services such as cloud services or unique ID
which require enhanced data protection and the trust of customers.
The achievement of these objectives in the relevant fields of action requires a high
level of consistency from telecommunications providers, a critical factor for the
success of customer experience.
3 Cf. Corporate Executive Board: Shifting the Loyalty Curve. Mitigating Disloyalty by

Reducing Customer Effort, 2010, p. 8.
4/5 Cf. TM Forum Insights Research, Customer Experience: Hitting a moving target, 2013, p. 16.
252
Ideally, orientation and prioritization are designed based on a target picture of the
customer experience. This is a major precondition for the necesaary consistent
control of products and processes.
In this kind of target picture, rational target attributes such as user friendliness
or availability join with emotional target attitudes such as reliability or individual
communication to describe the (desired!) customer experience with the provider.
Only then can the customer experiences generated at a number of touch points
in the various corporate units by means of different processes be encompassed in
a consistent overall picture. Moreover, the target image provides a guideline for
design of the relevant instruments for measuring customer experience.
The target picture provides indispensable orientation especially for employees
in direct contact with customers and their respective actions in customer
situations. Moreover the cultural transformation important for successful
customer experience management can also be guided through the use of the
target picture. Our experience with CEM transformation programs highlights
the fact that companies are not yet adequately prioritizing and steering the
element of culture in comparison with the concrete optimization measures.
Figure 1: Fields of action for telecommunications companies for the realization of CEX
Brand
promise
Network
quality
CEX
etablished in
claim strategy
and field
targets
Network
quality
accessibilty
and reliability
Branding
guidelines for
CE-strategies
Derivation
of CE components to
be focused
Usability
of product
and service
offering
Service
culture
Service
culture
Steering still
strongly
efficiency
oriented
CE oriented
interactionsstrategies
and MoT
management
Channel
offer
Channel
Offer and
contact
surface
Cross Channel capability
Weighted
steering
channel
management
logics
Product
experience
User
Experience
integrated in
product development
Etablishment
of design
thinking
methods
Process
experience
Customer
oriented improvement
methods
Main enablers
and process
stability
Reduction of
non-valuable
contacts
Source: Detecon
253
But employee pride and motivation are an important component of customer

experience, as has been affirmed by diverse studies.6
Last, but not least, the target picture serves as a structural element to shape a
companys communication with the outside world. Along with the sustainability
of the target picture, the genuine commitment to implementation and the
credibility of the effort are decisive factors for success. If the companys CE target
picture creates excessive expectations in the public mind and poor i mplementation
causes the customer experience to fall well short of the aspired standards, the
communication can generate substantial negative impact. One example of this
from Germany is the 1&1 campaign with the Director Customer Satisfaction
Marcell DAvis. The godfather of service quickly became one of the most
despised figures in advertising because many consumers felt they had been
deceived. A better recommendation is to pursue a course of prudence in dealing
with the public and to ensure that concrete performance exceeds the promises
made in communication.
Recommendations for action for CEM in telecommunications companies
Based on the Detecon study and our project experience, we have derived six
recommendations for action to optimize customer experience for telecommunications providers, which we have tested and validated in dedicated projects. The
recommendations build on one another and jointly contribute to the successful
establishment of CEM in the company.
Assure consistency of brand promises with customer experience
A companys image and its brand promises definitively shape customer
expectations concerning performance and quality; thus they have a direct
impact on the CEX. Customers have greater demands towards premium
brands, for instance, than towards discount providers. Consistency of individual
experience and brand values creates trust and sincerity. In reality, however,
the values and properties of a company communicated via the brand do not
always match the actual experience customers have with the companys products,
processes, and employees (vertical inconsistency). Moreover, various channels
often contain different offers with the consequence that CEX are differing from
one touch point to the next (horizontal inconsistency).
6
Cf. Gouthier, Employee Pride, p. 264 pp. in this volume.
254
However, companies are expected to deliver on their brand proposition during

every single customer experience. If brand proposition and CEX do not match,
either the image components must be adapted or the target image of the customer experience management has to be modified.
Specific analyses of advertising effectiveness to determine congruity of brand
identity and brand awareness can be of help here. Beside that social media
monitoring delivers an objective measurement of the perception of a companys
performance in relevant blogs, forums, and social networks.
From the results of these analyses key measures affecting all touch points can be
derived to support the brand values in customer interaction:
> Culturally anchoring the brand proposition in the companys guidelines for
managers and employees, including regular appraisal of compliance with these
guidelines.
> Developing overarching specifications for service and interaction goals from
the CEX target picture.
> Assuring consistency in offers, discounts, and benefits, periodic c onduction
reviews and audits on customer experience, supplemented by systematic
confrontation of employees and especially managers with critical customer
situations within the course of training programs.

CEX is only one element of branding. But customers concrete experience in
their interaction with the company makes a decisive contribution to the successful establishment of a brand. The signaling function ofthe respective strategic
principles for the necessary cultural transformation of the company are therefore
of extraordinarily high relevance.7
Knowing what customers really want
Although this sounds so simple, it is often inexcusably neglected in reality!
Obviously companies collect information about their customers needs,
perception of performance, and expectations. This information is crucial as the

customers perception of performance, for example, can be compared to the
Cf. Acklin (2011), Studienergebnisse zu Design Thinking und Customer Experience Management bei
Unternehmen des CX-Forums, p. 8.
255
internally measured performance. By this basic elements, performance and

excitement elements can be identified from the customers perspective.
But if these types of information are determined in separate corporate units and
not related to one another frequently itself not a simple undertaking b ecause
of the different methods used for their collection8 an opportunity to gain
tremendous insight is missed. Loyalty and satisfaction indices are calculated in
representative surveys mostly without a chance to analyze the root causes in the
specific cases which display extremely positive or negative assessments. From
insights gained in such direct analysis of critical events important conclusions
for processes, business transactions, or customer situations can be drawn. This
leads to our recommendation to collate data at a central location in a customer
intelligence department which can distill general insights from the raw data and
provide the findings to the relevant principals for customer-centric segmentation,
brand management, product development, and service design.
Assure performance in basics, introduce delight elements
Basic services cover the minimum requirements of the customers. The c ompulsory
requirements for companies include assuring reliable and high-quality performance in basic elements as well as recognizing faulty or poor performance at an
early stage and counteracting it.
Including the customers perspective in product and process design is decisive.
Methods such as design thinking and customer journey mapping help i dentify and
address desired product features and the other expectations from the c ustomers
experience perspective The analysis of customer contacts enables companies to
identify basic requirements for products and processes which are currently not
being satisfied adequately and to initiate countermeasures.
Despite all of their efforts, companies can rarely fulfill completely all of the
expectations of all of their customers and still be profitable. Customer dissatisfaction may be caused by infrastructural problems or complex processes involving many or all departments which cannot be optimized in the short or medium
term. But companies can look ahead to identify critical customer situations, the
moments of truth, which will arise in the future and prepare to meet them
head-on with a bundle of suitable measures. When dealing with dissatisfied
customers, for example, the transparency of the customer situation and related
8
Cf. TM Forum Insight Research: Quick insight customer experience: Leveraging the wealth of network data, 2013, p.14.
256
activities plays an important role. The basis for this comes from a standardized
CRM system, including detailed customer contact history, encompassing all
channels. The phenomenon of treating symptoms instead of the root cause turns
out to be critical; in the event of recurring malfunctions, the elimination of the
malfunction is more crucial and helpful than any compensatory credit.
Success or failure in these critical, negative customer situations is determined by
having the option of specialized customer care teams for complex problems such
as recurring malfunctions. Repeated attempts to find a solution in a standard
service layout are frustrating for customers and economically harmful to the
company. The ability to recognize and control these types of critical business
incidents at an early stage is above all a product of experience and control
settings. With a professional approach a fast learning curve can be achieved.
The loyalization of customers by means of emotional measures, so-called
delight elements, characterizes an important component of customer retention
in a ddition to the legal bond variations such as contract terms and the related
barriers to churn.
Due to low customer involvement a differentiation by product is more difficult in the telecommunications industry. Telecommunications providers can
mitigate this commodity perception by entering into carefully chosen partnerships, either in the area of content (music, videos, or games) or with the manufacturers of exclusive devices. In such a scenario securing consistency of the customer
experience to prevent predetermined breaking points between the partners.
Campaigns focused on transporting delight elements and goodwill are most
effective, when used with the right dosage. If executed too intensively, the positive
loyalization effect loses its punch, and there is a risk that customers will interpret
them as an indication of downpricing potential and rather demand rebates.
Delight elements are almost completely worthless if basic requirements are not
satisfied and, depending on the exact situation, can even result in undesirable
customer reactions. Attempts by companies to generate excitement seem
superfluous rather than sincere if the reason for the dissatisfaction is not corrected.
The result is even greater dissatisfaction and a negative attitude toward any
further loyalization efforts.
257
Delight measures add distinctive highlights emphasizing the positive aspects of

the customer relationship if linked to concrete customer situations or life cycle.
One example from the insurance business is the offer of special driving skills
training programs (e.g. cold weather driving) for car insurance policyholders who
have been accident-free for a longer period of time; this loyalization instruments
rewards their driving habits.
Employees as the key to success
Employees are for customers the first and foremost representatives of a credible
and sincere realization of customer experience, so they must be well trained in
communication skills and have the required professional competence. But above
everything else, they must be motivated to support the customer experience
target picture and have the will to excite customers! Empowerment and a firmly
established service culture act along with qualifications to support employees as
their development moves in this direction.9
Companies must select and train the right employees for specific categories of
customer contacts and ensure the appropriateness of their qualifications for
customer interactions. Competent and well-trained employees improve the rate
of first-contact solutions and reduce the rate of unnecessary follow-up contacts.
Especially at the customer touch points employee satisfaction is an decisive
determinator for customer satisfaction. Motivated staff acting autonomously and
sensitively to the specific context within reasonably defined limits of action are
capable of finding individual problem solutions which serve the interests of both
customers and companies. Solution-oriented behavior in customer interaction is
encouraged by these factors:
>

>
>

>

>
>
Employee training programs which communicate the importance and target

picture of customer experience,
Understanding of the companys quality philosophy,
Anchoring of the corporate values in guidelines and rewards for behavior in
line with those values,
Consistent information levels about customers and their ongoing processes
in all customer interactions,
Direct and transparent communications with employees and customers,
Internal and external communication of success.
Cf. Hauk/Eberwein/Jost/Hoffmann/Luyken: Customer Experience Management in der Telekommunikationsbranche,

Detecon study, pp. 45-46, 2013.
258
Emotional customer loyalisation is based in large part on the effects of behavior

exhibited to customers and the attitudes reflected in this behavior.
A consistent target system must model this effect and weigh it so that it is in
equilibrium with goals for efficiency and revenues. Merit-based compensation
can be an effective instrument for steering behavior, albeit a risky one. C
ompanies
should ensure that the individual target values are compatible with the
general corporate goals. However, it would be utopian to believe that behavior in
complex, dynamic environments can be completely steered just by a target system.
The values of the corporate culture must be able to handle the growing number
of unforeseeable special cases in accordance with the maxim of principles, not
rules10.
Loyalization through participation and interaction
Depersonalized contact between customers and companies can cause customers
to feel that they are caught up in intransparent machinery which does not
respond to customer desires and requirements. But this is not primarily a question
of the channel; excellent online self-service is valued by customers and perceived
as tailored specifically to their situation.11 Uninspired advice felt to consist of
standard phrases in a shop, on the other hand, gives little sense of personal
involvement despite the direct contact.
The promotion of participation requires a thinking in contact chains and the
processing of customers reactions. Customers quite correctly feel ignored if they
take part in surveys and express specific suggestions for desired improvements,
only to wait in vain for any comments or consideration of their ideas. Surveys
and many other opportunities for customer interaction reveal to a company a
wealth of information about the customers, their experience with the products,
and their perception of the company. Making effective use of this unstructured
information represents one of the challenges of customer experience. Customer
feedback uncovers systematic performance weaknesses and enables companies
to quickly initiate measures for improvement which will truly satisfy customer
needs. A fundamental prerequisite for this achievement is a constructive approach
to dealing with mistakes in the company. Successful companies are characterized
by constant monitoring and the swift and konsequent realization of measures
for improvement. Centralized customer feedback management as an impartial
10 Wohland/Huther-Fries/ Wiemeyer/Wilmes: Vom Wissen zum Knnen, Detecon-Study, 2004.

11 Cf. Penkert/Eberwein, Customer Self-Service, p. 270 pp. in this volume.
259
instance within the organization supports implementation. The underlying feedback loop consists of the phases collect, analyze, and optimize.
Companies can actively involve customers through transparency of processes and
coherency of interactions. With this in mind, we recommend providing multiple
channel offerings for interaction to customers, including the companys own
communications about itself and its products on social media channels such as
social networks, administrated forums, and exclusive communities. Companies
which make a strong appearance here are viewed as transparent and trustworthy. Proactive communication in case of service problems or delays
demonstrates fairness and commitment in the same way as the proactive provision
of status information. This form of communication supports the process of
laying an emotional foundation and building loyalty between customers and
companies.
Participating customers and acquired fans have a far-reaching, augmenting
impact on others. They reward a company and its efforts with acceptance, loyalty,
and by spreading the word.
Figure: 2: Professional management of customer feedback
Feedback categories
Suggestions
Complaints
Opinions
Ideas
Source: Detecon
260
Input channels and media

E-Mail
Shops
Letter
Contact Center
E-Channel
Fax
Service Technicians
Retail-Partner
Corporate Sales Agents
News
Web
Blogs
Product Reviews
Communities
Focus Groups
Customer Interviews
Forum
Procedure
Incoming
feedback
Use of special
programs or the
usual channels
and media
Feedback Contact driver

and causes
categoriza Customer pain
tion
points
Store
and
utilize
Usage of feedback
management
No effect without the measurement of success of CEM measures

Unless there is reasonable, objective measurement of success, companies cannot
consistently carry on with their measures for good customer experience in a highly competitive environment. But the effect of customer experience measures on
customer behavior and the related economic effects are complex. Moreover, there
are interdependencies among the various performance areas of a company which
create problems in attributing effects to specific measures.
Therefore a set of performance indicators (KPIs) for measuring the customer
experience activities is needed which is capable to cover the full length of the
chain, starting with the measures and going all the way to their impact on
loyalization effects, revenues, and costs. The prioritization reference is the
overarching customer experience target picture which stakes out the content
and structural bounds for orientation of the measurement. The first step is to
determine the desired parameters and their specific attributes such as improvement of success rates, increased revenues, or reduction of termination rates and
to record them systematically. During the second step, the drivers for behavior
such as appreciation, relief, or gratitude are identified. The impact of the customer experience actions must be measured regularly. A time series analysis of
the drivers enables the alignment of statistical relationships among the actions
and their impact on customer perception and other relevant core variables. The
measurement data also give insights into effective time periods and the required
intensity of the contact. As a supplement to these activities, companies can continuously measure the degree of customer loyalty via a customer loyalty index.
Finally, a customer experience dashboard models statistically valid links among
customer-oriented key performance indicators such as the customer loyalty
index and the financial indicators like revenues, customer value, and the p
rocesses
and products. When it comes to major variables such as the customer loyalty
index, the generation of valid conclusions about the time series demands a high
level of stability in the definitions and data collection method. Consequently
particular diligence is called for when selecting the indicators during the design
of the dashboard.
261
Success factors and risks for profitable customer experience management

A number of success and risk factors during the realization of customer experience
have been distilled during projects and from discussions with experts as being
especially relevant.
The nucleus of all efforts related to customer experience is in the strict observance
of the customer perspective during analysis and creation.
Steering the right course between cross-channel consistency of action and assurance of adequate freedom for employees actions in contact with customers,
paying particular attention to the MoTs, is a constant challenge. It turns out
that instructions which are too restrictive make reasonable actions appropriate
to the situation more difficult when dealing with customers and often do not
appear authentic. However, the provision of a safety net for the identification and
control of complex and crucial cases as well as their clear solution via tailored
service and escalation concepts is decisive for success in critical customer situations and for avoiding customer disasters.
Figure 3: Critical success and risk factors for CEM
Take the Customer Perspective

Analyze the customer experience on the basis of
customer feedback and customer behavior.
Create Flexibility at the CTP
Customer experience is dependent on the situation
ensure flexible (inter-)action of the employees with
contact to customers.
Focus on Moments of Truth
Be convincing when it matters! Create a
safety net for critical customer experiences.
Measure Impact on Profitability
Measure the profitability of the CEM activities
so they can be optimized and assessed.
Secure Consistency
CE builds on the integration and consistency
of all channels and interactions.
Inconsistency ruins the experience.
Source: Detecon
262
Too Little Analysis Empty Actionism

Assumptions about customer needs governed by self-image
are a fundamental source of across the board failure.
CE Design Too Rigid
Customers do not want to be treated like an object
rules which are too rigid prevent response to the needs
of individual customers.
Indiscriminate Distribution of Good Deeds
Delighting customers with small gifts is a fine idea
but they will not compensate for poor service at critical
moments.
Satisfaction as the Top Goal of CEM
Satisfied customers are not necessarily loyal so satisfaction
is only an indicator for the experience, not for the success.
Departmental Thinking
One department by itself is not able to offer convincing
customer service CEM requires holistic thinking.
In a mid-term perspective, the strict measurement of effect and profitability is

indispensable for the confirmation and validity of the measures. A focus on
customer satisfaction as the objective of customer experience management falls
short of what is needed. In addition, general indices do not have sufficient granularity to serve as proof of the effectiveness of specific measures.
Coming to terms with the far-reaching character of the customer experience
measures, which calls for broad organizational involvement, is challenging. Our
experience has shown that the conduct of a pilot project of limited performance
scope, e.g., specific products or specific customer groups, followed by its
gradual transfer to other business areas, is an approach which has proved its
value. Sustained success requires rapid deployment of a cross-departmental
setup e stablishing a mix of communication and control measures based on the
customer experience target picture subsequent to the pilot phase. Sponsorship by
top management is essential.
Depending on the as-is situation of a company, reaching the aspired target level
may require a mid- to long-term transformation. We recommend a multiple-stage
approach so that direct improvement in customer experience can be achieved in
the short and mid-term, whereas enablers decisive for a sustained success but
longer implementation cycles can be identified early, and their realization planned
and initiated.
263
Interview
Employee Pride Is an Important

Element of Customer Experience
264
In times of shortages on the labor market,

employee pride is a much-discussed subject
because of its relevance for employee recruiting
and retention. But surveys reveal that only one
out of two employees in Germany are proud of
their companies. Yet there is undeniable
evidence of a fundamental effect towards
customers. Professor Matthias Gouthier holds
the Chair of Marketing and Electronic
Services and is Director of the Center for
Service Excellence at the University of
Koblenz-Landau. This expert in the fields of
service excellence, customer and employee
delight, employee pride, and service
productivity describes the significance of
employee pride and its relationship
to customer experience.
Employee Pride Is an Important Element of Customer Experience
Question: Is the equation proud and delighted employees = delighted c ustomers

a valid one?
Prof. Gouthier: Let me put it this way: Why would a customer be enthusiastic
about a company and its products and services if the companys own employees
are not? This is where the employees authenticity plays a significant role in
addressing customers. Employees are perceived to be authentic only if they
themselves are convinced of the value of what they are offering. In particular,
this means that they must be enthusiastic about, as well as proud of, their own
products and services.
Many internationally successful and respected companies regarded as examples
of best practices for the performance of excellent services have long since
recognized this relationship. Among them are the luxury hotel chain The RitzCarlton, which operates 85 hotels in 30 countries and employs 35,000 people.
In 2006, The Ritz-Carlton defined employee pride as a primary service value:
I am proud to be Ritz-Carlton. Employee pride has been firmly anchored
as a key element of The Ritz-Carlton corporate culture as a means of ensuring
professionalism in staff conduct, vibrant demonstration of brand delight, and
passion of employees to do their very best.
Question: What exactly should we understand employee pride to mean, and why
is it such an important element for customer experience?
Prof. Gouthier: In its essence, employee pride is the positive emotion a person
experiences when he/she has achieved an above-average level of accomplishment,
exceeding even his/her own expectations. However, pride in achievements need
not be limited to a persons own achievements, but can equally arise from the
performance and results of other relevant reference persons and reference groups.
So we can feel pride in the achievements of our own employees, the achievements
of our own team, and even the achievements of our own company. The latter case
is an example of the so-called organizational pride.
We can demonstrate in various studies we have conducted in many d
ifferent
industries that customer and service orientation in particular are
highly
dependent on the pride felt by the employees who have contact to customers.
The influence exercised by employee pride on customer and service
orientation is several times greater than the effect which results from employee
satisfaction. Obviously, companies that want to promote positive customer
experience can take action aimed specifically at enhancing employee pride.
265
Interview
In another study, we were able to verify that the creativity of employees when it
comes to finding better solutions for the customers can be furthered by employee
pride.
Question: What factors are generally decisive for the generation of employee
pride, and how can companies encourage its development?
Prof. Gouthier: Obviously, every company starts from a different position and
must consequently focus on differing priorities when building and expanding
employee pride. Nevertheless, there are some drivers behind employee pride which
should generally be valued more highly. Recognition of employee a chievements
is an especially important one. Recognition can intensify the feeling of pride
because employees whose performance has been recognized receive reinforcement from feedback about their success. As the Gallup studies document, our
studies also show that the achievements of employees, even the employees themselves, generally do not receive adequate recognition in companies. It includes
the appropriate celebration of successes. Today we rush from one task to the next
without ever taking a moment to pause and allow the sense of success to sink in
or to enjoy the moment.
Challenges are another important prerequisite for being able to experience
employee pride and employee delight. We can hardly expect employees to take
pride in carrying out the same repetitive tasks over and over again. Employees
must repeatedly be confronted with the need to master new and challenging
tasks. The assignment of project responsibilities is one means of accomplishing
this. When the tasks have been successfully completed, employees experience a
sense of pride that can develop into delight.
After all, employees can feel pride only if they turn in successful performances,
whether as individuals, as members of a team, or as part of the company. Their
feeling comes from their demonstration of the relevant skills and the e xperience of
support from the company, direct supervisors, and colleagues. Regular meetings
providing feedback on employees work are another important element. How
are employees supposed to take pride in their work and improve their performance if they dont even know just how good the present level is? Support from
supervisors and colleagues plays an essential role because these people are the
sources of stimulus, feedback, support, and recognition.
266
Question: You have been investigating the concept of employee pride for quite
a while. Have there been any changes over the course of time with regard to its
importance from the corporate perspective and from the perspective of the
employees themselves?
Prof. Gouthier: There are always surging and retreating waves of attention paid
to specific subjects. For instance, a worsening of the economic position causes
the focus of interest in many companies to shift to the need to save money and
cut costs. When the economy begins to grow again, innovations play a weightier
role. But if radical innovations fail to materialize and if the market is characterized by relatively homogeneous products and services, companies attempt to set
themselves apart from the competition by enhancing their customer and service
orientation. We see especially today a greater corporate interest in concepts such
as empathy, delight, and pride.
In view of demographic transformation and the challenge of securing adequate
numbers of motivated and qualified specialists now and in the future, aspects
such as employee pride and delightare gaining significantly in relevance. Potential employees from Generation Y will increasingly look for employers with whom
they can identify. They want jobs that do more than just satisfy them; they want
work which will enable them to develop as individuals, workplaces where they
are enthusiastic about their activities and, ultimately, where they can feel pride in
their performance and their employers.
Question: Studies document that employees in Germany are less likely to feel
proud of their companies. Does the culture here have an impact on employee
pride? Do you have any comparable data from other countries?
Prof. Gouthier: Emotions like employee pride are always shaped by culture
as well. We Germans especially a consequence of our history feel a certain
reserve when there is a question of pride. Based on my personal perception,
this attitude was much more pronounced ten years ago than it is today. This is
especially true of the matter of employee pride. Still, people in other countries,
such as the United States, are much more relaxed and above all assertive in dealing
with this subject. Organizational pride is virtually a part of the DNA in American
companies. However, it is important that a subject of such emotional power and
intensity as employee pride must be in alignment with the national culture and
the specific corporate culture. It does no good, and may even do harm, if attempts
are made to transfer concepts such as the Wal-Mart cheer, used by Wal-Mart in
the USA to generate company loyalty among the companys employees, without
267
Interview
any adaptations. The attempt to introduce the Wal-Mart cheer in German WalMart stores several years ago was a dismal failure.
While on this subject, I would like to point out explicitly a special issue here.
Standard procedures in international studies on employee satisfaction, employee
commitment, and employee pride compare directly and interpret accordingly
the (mean) values from all of the countries. As a rule, however, this undoubtedly
results in substantial misinterpretations because there are differences in the way
people reply to questions among different cultures. Asians tend to give more
neutral answers and have a tendency to check values more toward the middle of
the scale. They avoid extremes in their answers. The consequence is that the mean
values from Asians are on average lower than the answers from Americans,
who have practically zero problems with superlatives. International studies on
employee as well as customer satisfaction indicate that Latin Americans and
Americans have comparatively high values, Europeans range in midfield, and
Asians tend to have below-average values. But this does not automatically mean
that the quality of products and services or objective working conditions are
actually worse. Moreover, evaluators must be aware that the content associated
with a question varies according to the cultural background. These effects must
consequently be given appropriate consideration during the interpretation of
international comparative studies so that misinterpretations and faulty management recommendations can be avoided.
Question: What is required to ensure that customer experience on the outside
and employee pride on the inside become established cultural values rather than
merely temporarily fluctuating, unstable phenomena?
Prof. Gouthier: The fundamental prerequisite is that top management is
convinced of the relevance of this subject. Ideally, this will permanently fix the
aspect of employee pride in the companys fundamental principles. Assuring the
sustained anchoring of employee pride in the corporate culture is impossible
unless this pride is continuously measured. It should be comparatively simple
to realize this because it does not require a special survey; typically, the aspect of
employee pride can be integrated into the regular employee survey. The analysis
should strive to determine the most important drivers and barriers for the
establishment of employee pride in the company. Based on the results, instruments for the enhancement of employee pride can be developed. For e xample,
factors which are a source of employee pride can be the subject of constant
reference. However, the implementation of employee pride as a consistent
cultural value cannot be realized from one day to the next; it requires a longerterm transformation and change process in the company.
268
Question: Can employee pride have any negative effects as well? What are the
limits to the utilization of employee pride as a management instrument.
Prof. Gouthier: Negative effects can occur when pride turns into haughtiness.
This is also known as hubris, arrogance, or negative pride, and it can d
efinitely
have a negative impact on customer perception and the corporate image.
From their perspective, companies must make sure that employees do not
become arrogant and condescending towards customers over the course of time.
One example of a countermeasure would be an advanced training program for
dealing with emotions during which these topics can be addressed and handling
emotions can be trained.
The example of the Shangri-La Hotel Group shows that this is certainly a relevant
subject addressed in real practice. The Group currently operates 80 luxury hotels
around the world and has set itself the mission of generating delightamong its
guests during every stay in one of the hotels. As the corporation says itself, the
achievement of this goal requires highly motivated and innovative employees.
To ensure this achievement, Shangri-La relies on the establishment of Pride
Without Arrogance in its corporate culture. Accordingly, it is important for
Shangri-La that employees conduct themselves modestly with respect to guests
so that any negative effects on customer perception are avoided.
Ultimately, employee pride is not a panacea. Since people normally feel a sense
of pride for extraordinary performance, the generation of employee pride is only
of interest when it is a question of reaching outstanding goals. Logically, pride in
the performance of everyday tasks does not play a special role.
269
Customer Self-Services:
Efficiency and Customer Loyalty
in the Age of Digital Transformation
Andreas Penkert, Patrick Eberwein
> In the age of digital transformation, customer

self-servcies means for the telecommuncations
industry, which devotes so much time and energy to advising its customers, an important lever
to facilitate positioning and differentiation.
> Customers regard self-services following
price and product features as a significant
factor affecting decisions for or against a carrier,
> Simplicity, security, and speed are most important to customers, but carriers do not fully
implement these customer requirements yet.
> The telecommunications industry with its rate
structures and product and service diversity is
likely to tend toward a recommendation of a
convergent self-service mix with the option of
personal consulting for complicated
customer queries.
270
Customer Self-Services: Efficiency and Customer Loyalty in the Age of Digital Transformation
Strategic lever in care and sales

The large service industries have experienced a profound transformation over
recent years. Revenues and growth are stagnating in largely saturated markets.
The increasing commoditization of products and services as well as the growing
standardization of properties and functions are driving the search for new levers
to facilitate positioning and differentiation on the market. Pressures to reduce
costs are becoming greater in companies, in no small part an effort to counter
the decline in revenues. Major cost drivers arise from innovation pressure and
increased expenditures for customer loyalty and retention measures in the battle
to hold on to current customers while simultaneously acquiring new ones. The
telecommunications industry is a good example of this development.
Digital transformation is the force driving permanent change in the relationship
and communication between companies and their customers. The Internet and
the widespread use of mobile devices with their technological features are behind
the rising inclination of consumers to realize their purchase intentions or service
needs via digital portals autonomously and without any restrictions in terms of
time or location. From the customers point of view, modern customer service
must pass the tests of speed, mobility, flexibility, and individuality.1
When all is said and done, the automation of sales and care in the telecommunications industry, which devotes so much time and energy to advising its c ustomers,
means that the creation, presentation, and utilization of services are being
irreversibly transformed. Web shops, customers-help-customers communities,
and video portals on the Internet or in the form of smartphone applications have
already b ecome standard. Customers of many carriers can access their providers own
YouTube channel for self-explanatory support videos whenever they have q uestions
about operation or installation; in some cases, such as the mobile cell phone help
application at Deutsche Telekom, they can even download the support in app
form. A companys presence in social networks such as Facebook and Twitter also
plays an important role in the communication between companies and customers
today and represents clear sales and service touch points in the channel landscape.2
Deutsche Telekom customers can submit service queries on various social media
platforms: Facebook, Twitter, various subject-related service forums, even their
own feedback community.
1 Simmet (2013): Digitale Transformation im Kundenservice,

http://hsimmet.com/2013/11/02/digitale-transformation-im-kundenservice.
2 Zendesk.com (2013): The Zendesk Benchmark Q3/2013 In Focus: Customer Satisfaction.
271
Benchmarks for innovative business models of strictly e-companies from the

telecommunications industry such as the MVNOs giffgaff (UK) or Solavei (US)
are evidence that the potential for development and utilization of self-services
in the telecommunications industry has not been fully exploited. While giffgaff
customers take over part of the work in service and product development in
return for incentive offers, Solavei customers are fully in charge of the sales work
of the American company. Through their involvement, current customers can
earn back the monthly costs charged by the operatoras well as bonuses of up to
$20,000 by acquiring new subscribers.
Digitalization is accompanied by a shift in customers needs expectations rise
and change more frequently. The many and varied ways to obtain digital access
and information enable customers to find out what they want to know more
quickly and more independently. As they gain in autonomy, their c onsumption
patterns become more dynamic and selective as a consequence of enhanced
opportunities for comparison and evaluation.3 They go to the Internet to compare product features or prices, ask their friends on social networks for advice,
and assess rate schedules or service packages online on the relevant comparison
portals. Ultimately, customers can take advantage of these digital options to make
decisions for or against a provider which are more closely aligned to individual
preferences and, thanks to the improved comprehensiveness of the information,
based more on facts. Their willingness to make a change rises and their loyalty to
specific brands weakens. Since they are also fully aware of the advantages digital
transformation offers to the companies as well, their expectations with regard to
customized address during marketing campaigns and to care requests also rise.
Service markets face the key challenges of satisfying the more complex, more
variable demands of their current customers (despite the downward trend in their
loyalty), coming out a winner in the enormous competition for new customers,
and securing the long-term loyalty of them.
If differentiation in terms of products, price, and core services is no longer
possible because there is virtually no distinction among the various competitors,
success or failure is today determined more than ever before at the immediate
point in time when customers come into contact with a carriers products and
services. Moments of truth can positively reinforce customer relationships,
but they can have a long-lasting negative impact as well. The interaction at the
customer touchpoints is becoming an essential differentiation factor c ritical for
success in competition. Digital transformation has spearheaded the expansion of
3
Wirtz, B.W. (2008): Multi-Channel-Marketing. Grundlagen Instrumente Prozesse, Wiesbaden.
272
the spectrum of customer communications at the touch points where customer

experiences the moments of truth are generated.4
The distinctive element of self-services is not the interaction between customers
and employees, but between customers and company, aided by technology as the
enabler. Customers are no longer merely passive recipients; they begin to play an
active part by becoming directly involved in the actual performance of all services
and in the marketing, sales, and care processes. Enabled by automation, c ustomers
have the opportunity to serve as co-producers, triggering the desired business processes independently and co-determining the design of these processes.
Carriers make portals or applications available as intelligent self-service solutions
utilized by customers to handle sales and care requests such as plan updates for
a current contract or the booking of a music streaming service as an additional
option all on their own. Self-services represent an important chance to secure
in real time a continuous improvement process through feedback management
in chats, blogs, and reviews of products and services and to give customers the
opportunity to participate in improvements. The telecommunications industry
can glean valuable information for product development and service optimization from these processes. Carriers like Deutsche Telekom are even now realizing
this potential through their social media channels and separate feedback communities.
Detecon study confirms the immense importance of customer self-services
Detecon has conducted a study in which the perception and importance of selfservices and the expectations regarding them have been empirically analyzed
from customer and corporate perspectives.5 Approximately 450 consumers and
90 companies from the five core industries telecommunications, energy supply,
e-commerce, banking, and public transportation were surveyed. The results make
one thing clear immediately: customers regard self-services following price
and product features as a significant factor affecting decisions for or against
a carrier. When customer and corporate viewpoints concerning utilization and
design of self-services are compared across a number of industries, we see that
there are significant differences between the various sectors in terms of the assessment of positive customer experience or the importance of data security. Companies have the task of eliminating the existing discrepancies between expectations
and reality. This means nothing less than rigorously analyzing existing channels
and applications through the eyes of customers and focusing on decisive core
4
5
Zendesk.com, The Zendesk Benchmark Q3/2013 In Focus: Customer Satisfaction, 2013.

Penkert/Eberwein/Salma, Customer Self-Services, Detecon Study 2014.
273
demands during realization. If this is successful, self-services can build the strategic bridge which will enable more successful fulfillment of increased customer
expectations while achieving ambitious targets for efficiency.
Self-services meet with a positive response
Self-services meet with a highly positive response in the telecommunications
industry. While it is true that customers recognize corporate goals such as the
reduction of costs, standardization of customer contacts, or self-interests of the
companies to be the primary and decisive drivers behind the carriers decision to
implement the features, about 75% of the customers of all ages in the telecommunications industry respond positively to self-services.
Self-services represent an important element of customers decisions. More than
half (53%) of those surveyed based their decision in favor of a telecommunications provider on the availability of self-services as well as on price and product
features. Customers obviously grasp the advantages of automated sales and care
processes such as availability independently of location and time and are happy
to make use of them.
In view of the basically high approval rating for self-service, there arises the
question concerning the extent to which the significance of personal customer
service in the telecommunications industry (with its highneed for advisory) is
affected by the growing number of automated processes.
Despite the demands from customers for intelligent self-service solutions,
personal customer service will continue to play a role, even in the future, within
the scope of the carriers holistic multi-channel management. Just under 76%
see personal customer service as important in the telecommunications industry, especially when there are more complex issues at the 2nd or 3rd level. So
companies must integrate the interfaces of digital and personal contact channels
within the framework of consistent multi-channel management.6 Best practices
for seamlessly transferring the transaction out of the self-service to personal
contact in the service department by means of click to call back or co-browsing can already be found in many industries.
Cf. Aumann, Sales and Marketing, p. 230 pp. in this volume.
274
Simplicity, security, and speed are most important to customers

In the telecommunications industry, self-services are state-of-the-art, and customers simply expect them as a standard element in todays world. The critical
point for carriers is to align their self-services with the actual demands of their
customers. Essentially in keeping with the recognition that the best service is
no service 7 customers are most interested in having no contact at all with the
service department; they want self-explanatory, high-performance and reliable
products and processes which, in the ideal case, make service superfluous.8
But if there is reason to contact their telecommunications provider, they d
emand
the availability of simple and clearly structured (85% agreement) as well as secure
(69% agreement) self-services. Aspects such as attractiveness and design (2%) of
the applications or diversity of functions (3%), on the other hand, are of lower
priority for most.9 Customers want self-services to include core functions such as
filter and comparison options, customer accounts, or apps which aid in securing a
simple, clearly structured, and flexible self-service process. These findings r emain
constant regardless of frequency of use or age of the customers.
The results can validly be interpreted to demonstrate that a positive customer
experience i.e., the successful moment of truth in self-services is generated
first and foremost by an easily operated, clearly structured, and secure application along with fast process performance.10 This focuses special attention on IT
as an enabler of self-services at the corporate level. Translated into basic technical
requirements, zero touch customer interaction must be self-explanatory and
implemented without any media discontinuity or barriers. Ideally, self-services
should build on processes and systems identical to those used by staff in customer interaction so that customer requests are processed consistently. Customers
expect the handling and processing of their requests to be the same whatever the
touch point is and select the channel they deem to be most efficient for achieving
their objective during their transactions.11
7
8
9

10

11
Price/Jaffe, The Best Service is no Service, 2008.

Cf. Roos, CSS IT Architecture, p. 286 pp. in this volume.
The lower ranking of the aspect design/attractiveness can be explained in part by a statistical correlation between the
top-ranked item simplicity and clarity of operation and the subject of design.
Corporate Executive Board (2010) has determined that simplicity and lean processes have a positive impact on
customer loyalty above all when they give customers the feeling that the required effort has been reduced
(CEB: Shifting the Loyalty Curve. Mitigating Disloyalty by Reducing Customer Effort).
Cf. Roos, CSS IT Architecture, p. 286 pp. in this volume.
275
Carriers do not fully implement customer requirements

A look at reality in the telecommunications industry from the customer
perspective reveals that there is still room for improvement in the realization
of self-services in terms of these fundamental requirements. Customers rate the
operation of self-services as no more than conditionally simple (rating = 2.73)
and convenient (rating = 2.74) while data protection (rating = 3.47) and transparency/control (rating = 3.17) are merely satisfactory.
There is room for improvement in the aspects customers tend to regard as
secondary rather than important as well. The example of customization of selfservices can be taken as representative of this group: customers do not classify it
as a primary requirement and its implementation is rated only at 3.64.
The effects of this incomplete implementation quickly become apparent: less than
half (42%) of the customers currently report distinctly positive e xperiences when
using the self-services of their telecommunications providers. Although c ustomers
who use self-services several times a week tend to have positive e xperiences more
frequently, they are not representative of the average user. An analysis of current self-services strictly aligned to the customer perspective appears useful and
a source of added value, especially with regard to the potential for development
which carriers could exploit.
Figure 1: Fundamental requirements of self-services and ratings of self-service features from the customer perspective
Speed &
Convenience
46%
Stability of the
application
26%
Source: Detecon
276
2,74
3,64
3,19
3,02
Interactive
participation
46%
2,74
3,58
Attractiveness/
Design
Transparency
& Control
2,73
Data protection
69%
Simplicity
& Clarity
Data Protection
3,17
Customization
of Services
3,47
Multiple
functions
Rating based on school grading system

from 1 (excellent) to 5 (poor).
Stability of the
Application
85%
= Functional
= Emotional
= Security
Speed &
Convenience
Simplicity
& Clarity
Customers rate the realization of

self-service features as no better
than average!
Transparency
& Control
From the customers perspective,

self-services should be simple and
secure!
The benchmarks of the MVNOs giffgaff and Solavei mentioned earlier indicate
that digital transformation has latent opportunities going far beyond mere selfadministration and independent performance of purchase and service transactions. Customers are fundamentally prepared to take care of almost all of
their concerns along the customer buying cycles by utilizing self-services. This
willingness extends even to involvement in more complex processes such as
claims (57%) or complaints (46%) as part of the feedback management which
go well beyond the simpler tasks of availability checks (84%), ordering and
activation (72%), or payment (72%). An important factor (in addition to simple
and more secure processes) for the exploitation of this potential is related to the
end devices customers can use for self-services.
While desktops or notebooks are highly favored (96%), smartphones (88%)
and tablets (50%) are preferred devices as well. The significance of mobile
devices has a positive correlation to frequency of use: the more often customers
utilize carriers automated sales or care features, the greater their willingness
or the greater their desire to utilize self-services on smartphones and tablets.
One sensitive aspect during mobile utilization is the issue of data security.
Customers see substantial need for improvement in the security of mobile
applications. According to the market research company Juniper Research12,
only 15% of the surveyed customers have complete trust in their mobile devices
and enter their personal data in apps.
Corporate perspective: customer satisfaction and cost reduction
Telecommunications companies have essentially recognized the critical significance of self-services for success. So it will come as no surprise to learn that
carriers are almost unanimous in their positive acceptance of self-services and
clearly confirm (61%) customers opinions that these services are an important
factor when deciding for or against a provider (53%). But unlike their customers, telecommunications companies believe the motivation for their self-service
activities comes more from the customer side. Enhancing customer satisfaction
(100% agreement) is mentioned ahead of cost reductions (95% agreement) as
the most common goal of self-service investments. In other words, customer
orientation represents a major driver from the corporate perspective.
12 Juniper Research, Trusted-Mobility-Index, 2012.
277
The question remains open whether carriers have the right ideas when it comes to
a customer-centric design of self-services. Both sides companies and customers
agree on the priorities: functional aspects such as simplicity, clarity, and speed
are emphasized. Although at first glance there appears to be fundamental agreement, a comparison of customer and company perspectives reveals differences
which can prove to be critical. Whereas customers complain first and foremost
about the lack of data protection and rank this concern as the second-most important basic requirement, less than half of the surveyed carriers (40%) attach so
much significance to this issue.
Even though security-related features may be factors which play out in the background, their role is all the more important in these times of data protection scandals. This indicates that it would be important for carriers to pay more attention
to security aspects and emphasize the fact of their implementation rather than to
concentrate solely on simple and logically structured self-service processes. The
divergence of opinion is also reflected in the different ways customer experiences
are appraised. While in customers opinion (42% agreement) self-services do not
(yet) provide the expected support, telecommunications companies believe the
customer experience to be substantially more positive (82% agreement).
Self-services help to strengthen customer loyalty and enhance efficiency
Provided that they are focused strictly on the customers and meet essential
requirements such as simplicity and clarity, security, and speed, self-services can
generate positive customer experiences and effectively promote customer loyalty.
But what effects can carriers incorporate into their economic calculations?
The chance to relieve the burden on traditional touch points which tie up
resources through the use of digitalized services has an important e conomic
impact for carriers. Calculations in the telecommunications industry for
the next one to two years are based on cost reductions of up to 15% in
sales and care and the potential transfer of existing customer c ontacts of
up to 20%. On the other hand, carriers expect additional revenue stimulus
of up to 10% from the self-service channels. In view of the expected
cannibalization effects among the various channels, logic would seem to
mandate caution in the forecasts.
278
One strategic overall objective in self-services for carriers along this line of
thought could be the achievement of constant revenues accompanied by a rise in
customer satisfaction and the simultaneous reduction of costs through automation of customer processes.
Convincing customers digitally
In the meantime, one target group of more than passing relevance has sprung
up: customers who prefer digital to personal contact. The consequence is that the
quantitative and qualitative modeling of self-services plays a significant role in
customers decision-making process for or against a carrier. In terms of the What?
of self-service, companies in the telecommunications industry already cover the
multi-channel requirements common on the market, so the foundation has been
laid.
But if a configuration focusing sharply on the customer is to result in noticeably positive customer loyalty effects, it is important to go beyond this and
optimize the How? to a greater extent as well. The first priority for self-services
is to function without any glitches and to provide for simple and secure use.
This is e xpected of the user interface as well as the underlying IT processes. The
empirical results of the study reveal that these demands are not being consistently
satisfied. Customers still rate the companies realization of simplicity of operation,
speed, and data protection as less than fully satisfactory. If telecommunications
providers want to counter actively this perception and present a long-lasting,
convincing line of self-services to customers, they will have to close completely
the gap between the expectations of how self-services should be realized and the
reality of what is now on offer service components, the perception of customer
experience, or a combination of self-services and personal customer services.
Recommendations for action:
analyze, eliminate, automate, expand
Detecon has drawn up a set of recommendations for action based on empirical
findings. The necessary focus on a customer-centric, effective self-service portfolio is not a detached building block which companies can view as an isolated
strategic or technical measure. Customers are happiest when communicating
simply and quickly, but they want a variable entry as well a multi-channel view
is indispensable. Customer contacts of varying types occur at the most widely
divergent touch points.
279
The recommended approach to resolving in part the dichotomy between securing

the satisfaction and loyalty of customers on the one hand and achieving a mbitious
cost targets on the other is to set up customer contact management on a value
basis. Business incidents involving customers are highly diversified and individual and their value, for the company and the customers themselves, varies, so
value-oriented managements must expressly incorporate both perspectives. The
customer contact management approach developed by Detecon on the basis of
the intrinsic value principle breaks down into four implementation phases and
focuses on digital transformation as an important guide rail within the concept.
Phase 1:
Analysis and value-based classification of contact (business incidents)
The essential element of any value-oriented structure of customer service is an
analysis and classification differentiating between valuable and valueless c ustomer
contacts. A distinction must also be made between valuable from the customer
perspective and from the corporate perspective. We recommend a specific, strategic procedure for dealing with the business incidents in each category. The most
Figure 2: Contact management strategy
Phase 1:
Analysis
Phase 2:
Reduction
Phase 3:
Automation
Analysis and
classification of all
customer contacts
Elimination
of valueless
contacts
Redirection of
customer contacts
to the self-service
channels
Source: Detecon
280
Phase 4:
Expansion
Expansion of
customer traffic in
the e-channel
important target dimensions in dealing with contacts are customer experience/

customer satisfaction and cost efficiency. Maintaining a balance between the two
factors is the overriding premise of value-oriented contact management. Business
incidents must be classified according to four value categories:
1. Valueless for company and customer: Customer concerns which do not result
in any value whatsoever for either customer or company mean an expenditure
without ROI. They lead to annoyance and dissatisfaction for customers, e.g.,
because of the excessive expenditure of time required for the solution. This
category includes repeated contacts related to a previously communicated service
request or the repeated occurrence of product malfunctions or disruptions of
services and processes.
2. Valuable for the customer, valueless for the company: A contact is valuable for
customers if they obtain an immediate benefit from it without excessive expenditure of time and effort. This value may be the result of immediate help for a
functional issue with a service process or a product. But it may also be a learning
effect which permanently simplifies certain process steps or reduces effort for
customers. If the contact is related to frequently recurring standard questions, it
offers virtually no potential value to the company because it concerns the fulfillment and securing of a fundamental service which has neither significant positive
influence on loyalty nor noteworthy upselling options.
3. Valuable for the company and valueless for the customer: Contacts with u
nilateral
value potential for the company are more complicated operating processes which
customers do not understand and therefore lead to a detriment in the service
or other complaints about more extensive, specific circumstances. One example
of such a contact is the failure of an Internet router to function when a new
connection is installed. The value potential for the company is found in the opportunity to resolve the issue fully and convincingly to the customers satisfaction; it can also produce valuable customer feedback which the company can use
for continuous improvement and indirectly to cost optimization.
4. Valuable for customer and company: Contacts which are valuable for both
customer and company are a stroke of good fortune because they create a win-win
situation. These are cases in which customers ask for detailed advice about new
products or additions to products they have previously purchased. The customer
281
has the intention, either direct or indirect, to purchase a product or service. The
company has an opportunity to realize revenue as well as to enhance customer
value. The customer benefits from especially close attentiveness and personal
attention which the company devotes to the situation. The company profits from
concrete sales opportunities and the chance to generate customer experiences in
an exclusive contact which is highly personal. The primary values obtained in this
contact category from the customer perspective are the rewards for the customers
loyalty, personal appreciation, and money saved thanks to special offers.
We recommend acting according to the motto preserve, cultivate, and expand in
personal communication when dealing with contacts in this category. Contact
Category 3 is strongly leveraged by means of business process re-engineering
and business incident optimization. As the focus of this article is on automation
and digital transformation, the following remarks will concentrate on Contact
Categories 1 and 2 owing to their relevance in this context.
Phase 2: Identification and elimination of valueless contacts
The goal of this phase is the implementation of an analysis procedure which can
identify the valueless contacts of Category 1 and either eliminate them c ompletely
or substantially reduce the frequency of occurrence. Once the major types of
Corporate perspective
Figure 3: Value-oriented customer contact matrix
Valuable
(learning, reduce costs,
increase revenues)
Valueless
(undesirable interaction)
Simplify,
Improve
basic
procedures
Utilize,
Exploit
and invest
more time
Eliminate
by analyzing
and eliminating
causes
Automate
eChannel,
IVR, etc.
Valueless
(undesirable
interaction)
Valuable
(saves money, obtains
help and advice)
Customer perspective
Source: Detecon
282
v alueless contacts have been identified, the elimination process immediately starts
with the initial solution competence and quota in customer service: What are
the reasons and causes preventing the resolution of certain concerns d
uring the
initial contact, leading to follow-up contacts? During the second step, the causes
at the level of the underlying core service processes and functions are e liminated.
Achieving long-term success in the reduction of valueless customer contacts
often requires process re-engineering of a fundamental scope, but sometimes
minor modifications such as the change in a misleading name of invoice items
suffice.
Phase 3: Automation and redirection of contacts into self-service channels
The second phase is directed at the form taken by the customer contact
redirection into self-service channels. Processing queries in a self-service c hannel
is an especially useful solution approach for Contact Category 2. Customers
resolve the issue themselves with a minimum expenditure of time while the
companies do not have to tie up any service resources and save money. However,
this must be followed up by the stabilization of the redirection through trust and
feedback management activities:
1. Definition of procedure scenarios for potential redirection of customer
contacts (use case, e.g., text message or IVR referring to self-services).
2. Development of a migration plan: What campaigns do we launch? How can
we create an incentive for customers to transfer? What solutions do we offer?
3. Compensation for possible losses of inbound revenues, e.g., by focusing
more sharply on outbound campaigns during the redirection phase.
4. Utilization of certificates for data security and transparency in data collection.
5. Development of intelligent and linked customer data management.
6. Integration of customers into the business processes and active utilization of
feedback for the improvement and development of products and services.
283
The Detecon study reveals that customers expect regarding self-services simple
and clearly structured operations, strict compliance with data protection and
security requirements, and high speed. In addition, a number of channels must
be available simultaneously for various customer segments. An all-encompassing
view cannot be assured without maintenance of standardized information and
transparent processes in the background. It must also take into account the
possibility that customers may begin to channel hop, as it is known, during
the digital interaction. Applications can support such actions across multiple
channels by employing crossover session handling and user management. All of
the a pplications must, without exception, meet the basic requirement of being
extraordinarily impervious to error and robust.13
Phase 4: Increase in traffic in the e-Channel
During the third phase, carriers focus on increasing customer traffic in the
e-channel by developing and enhancing positive customer experiences:
1. Identification and analysis of needs and wishes of the target group.
2. Customization of products, services, and information.
3. Application support using filter or comparison functions.
4. Improvement in usability through intuitive and self-explanatory navigation.
5. Involvement of peer-to-peer communities and matching incentive plans to
promote customer integration.
The path of the transformation into a self-service company is one for the middle
to long term. The process of heightening customers awareness for the use of
the services must be especially well thought out and systematically carried out.
Whether the target is a 100% e-company or a multi-channel concept oriented
to self-service depends on more than just the industry; target group, competitive
environment, and the companys own philosophy must be given consideration.
The telecommunications industry with its rate structures and product and service
diversity, which can at times become very complex, is likely to tend toward the
13 Cf. Roos, CSS IT Architecture, p. 286 pp. in this volume.
284
recommendation of a convergent self-service mix with the option of personal

consulting for complicated customer queries. Regardless of the depth and form
in which a carrier decides to realize the aforementioned recommendations for
action the more complex and difficult to understand the business is, the more
cautious the company should be as it carries its customers along during the transformation process and leads them into the new, digitalized service world.
285
Customer Self-Services:
IT Architecture as Enabler for
Digital Self-Service
Steffen Roos
> If a self-services architecture is to be future-proof,

it must be constructed as a service-based, multi-layer
architecture in which every single layer is characterized
by specific capabilities. The architecture must be built as
a modular system comprising reusable
services with open interfaces.
> Provision and distribution of self-services among the
channels must be abstracted via a separate layer.
> Specific crossover functions must be kept separate as
own services which gather all of the centrally used
services and requirements for the self-services
infrastructure into a single group of core services.
> Access to the data must be organized via a
coherent integration layer.
> Crossover, consistent, and coherent
data management is a mandatory prerequisite
for the proper functioning of a crossover
self-services architecture.
286
Customer Self-Services: IT Architecture as Enabler for Digital Self-Service
Requirements for seamless self-service

Customer self-service is a megatrend, continuously being driven forward along
the value chain by digitalization, in all industries. Digitalized self-services have
found their way into both business customer and private customer telecommunications systems.1 The implementation of integrated and consistent selfservices across all digital channels and their accessibility for brick-and-mortar
stores, d
irect sales, call centers, or technical service requires some adaptations in
the classic BSS and OSS architecture on the road to an architecture which makes
zero touch customer interaction possible on various channels.
Zero touch customer interaction must be self-explanatory and implemented
without any media disruptions or barriers. Self-services must build on processes
and systems identical to those used by staff in customer interaction so that
customer requests are processed consistently. Customers expect the handling and
processing of their requests to be the same whatever the touch point and select the
channel they deem to be most efficient for achieving their objective during their
transactions. A Detecon study2 reveals that customers using self-services expect
simple and clearly structured operation, strict compliance with data protection
and security requirements, and high speed. In addition, a number of channels
must be available simultaneously for various customer segments.
Companies cannot assure an all-encompassing view without maintenance of
standardized information and transparent processes in the background. Their
design must ensure simple and secure use for every single customer, creating
a customer experience in conformity with the customers expectations for the
selected self-service and device. Applications can enable channel hopping by
incorporating session handling and user management across all channels. But the
most fundamental requirement is that they be extremely forgiving of error and
highly stable. Should any uncertainties arise during the handling process, companies must have personal help (e.g., click-to-chat or call-back options) available
for their customers at any and every point of the procedures. The representatives
must have the technological means to access the same data records, process steps,
and application as the customers. Corporate communications should go beyond
specific applications and answer additional follow-up questions within social networks. As the level of technical complexity involved in entering social networks
1

2
Although the requirements vary with respect to the nature of their application, they must essentially be satisfied by
the provision of the same self-service infrastructure.
Penkert/Eberwein/Salma, Customer Self-Services, Detecon Study 2014.
287
is low, companies can be empowered to respond to a high volume of customer

interaction from a very early stage of the customers concerns.
Resolving the tensions between business and IT
At the moment, self-services have been implemented primarily in the form of
classic Web applications and in optimized versions for mobile devices. In r esponse
to the demand for more extensive opportunities for mobile use, however, the
number of native apps for smartphones and tablets will increase in the future.
Call routing via interactive voice response (IVR), a well-established procedure, is
frequently used as well. Still, many companies continue to operate each of their
customer interaction channels as separate entities and dedicate them to specific
products or customer segments. But self-services should be consistent and integrated across all channels and cover all products. The integration of the various
hardware variations is obviously a fundamental condition. Self-services, when
understood to mean assuring access to all of the relevant customer services from
anywhere, is a tremendous challenge for the IT department. Two other factors
make the realization even more difficult.
As more and more suitable use cases for self-services are found at a rapid pace
and the IT requirements for their implementation are drafted and just as quickly
revised, pressure on the IT department increases; the diversity and fast changes in
requirements leave its developers tilting at windmills and constantly struggling to
catch up with the demands of the time. User interfaces for self-services must be
up to date and modern, offer a specific, recognizable user experience, and quickly
serve the needs of users at any time. But this can be in conflict with governance
principles, which establish crystal-clear requirements for every type of interaction
with customers and partners as well as the information technology on which it is
based, impeding fast response on the part of the IT department because it must
satisfy the technical requirements for the consistent provision and governance of
the communicative contents, product information, prices, and processes. Transaction security must be assured, the most highly diversified business and legacy
applications must be integrated, data security and protection must be guaranteed. The IT department must demonstrate prudence and awareness of the need
for long-term usability when planning investments despite being faced with
constant change and new developments in the technical requirements for user
interfaces, rich Internet applications, mobile apps, and the tremendous leap in
consumer- and user-driven computing within telecommunications companies.
288
Flat Client
Customer management
Master Data,
Subscriptions,
Loyalty Programs
Social Media
Blogs, Customer Ratings,
Customer Forum, Community
DATA
Sales Data
Calculation System,
Distribution System
Analysis data
Analytical CRM
Product Data
Product Inventory
System
Workflows
Definitionen, Roles,
Tracking, Persistence
...
Search
Indices, Key Words,
Best Bets
...
Services
Catalog integrated
Systems (Services)
Metadata
unambigiguos IDs
Analysis and Reporting

Website Traffic,
Conversions,
Social Interactions,
Analyses
Customer Services
Self Services, Exchange,
Returns, Configuration
Users/Profiles
Identity Management
Inventory
Allocation,
Returns Management,
Pre-Orders
Payment
Processing
Umstructured Data
Web Content, Graphics,
Documents, Videos
Orders
Verification,
Tracking,
Tracing
Shopping
Shopping Cart,
Checkout
Master Data
Customer Relationship
Management System,
Contract Maintenance
System
Integration (Aggregation, Access, Transfer Integration)
Administration und Management
Catalog
Product details, Prices,
Promotions, Bundles
-> Excerpt(s) from
full catalog
Content Management
Content Lifecycle
Management, Search/
Cataloguing, Integration
External Content Sources
Smart Appliances
Configurators
TV
Management Apps
Customer Service platform
Mobile Browser
Interactive TV
Browser
Native Mobile App
Smart Home
Service Community
Service Apps
Subjects/Microsites
Sales Information
Provision and Distribution (deploy, distribute, prepare)
Prosumers
User Interface
Unified Experience
Customer Portals (Information, Sales, Services)

Social Media
Partner Sites
Figure: Components of a self-services architecture model of an ideal target architecture

Prozess Orchestration
Scheduling, Queuing, Routing, Collaboration
Connectivity and Interoperability
Information Security and Privacy

Authentication, Authorization, Encryption, Roles, SSO
User management and Personalization
Source: Detecon
289
The resolution of the tension between the extreme agility of the business
requirements and the reputed sluggishness of the IT department is the major
challenge to the development of a self-services architecture for carriers.
Recommendations and design parameters for a self-services architecture
As a fundamental principle, self-services must be conceived and developed as one
infrastructure component within the overall application landscape. The specific
architecture components must be maintained in the central application architecture. An additional requirement is a high level of flexibility in the development
of new applications and customer touch points.
If a self-services architecture is to be future-proof, it must be designed as a
service-based, multi-layer architecture in which every single layer is characterized
by specific capabilities.
User Interface
Business user interfaces (internal/external) must be modeled for various technical prosumers and have their roots in a standard infrastructure. A successful self-services architecture must provide a presentation layer of high flexibility
built on a relatively stable and static core. This presentation layer must have the
capability of realizing current user interfaces (joy of use). It must serve various
mobile channels as well as the Web channel while also extending coverage to
other multi-channel scenarios such as print-to-PDF, RSS/atom feeds, and data
transport formats like XML. User interfaces must be viewed as prosumers which,
besides consuming content, send back content and information for further
processing.
Guidelines and specifications for a consistent user experience are important for
the design of the user interfaces. Ideally, customers will immediately feel at home
in the interface because the important and relevant functions are displayed in a
standard look and feel of designations and color schemes across all channels.
One requirement for self-services which is unfortunately often neglected is the
accessibility in the sense of a presentation of electronic contents and information
in a form easily usable by people with handicaps. Government services have been
required to comply with the provisions of the German Barrier-free Information
290
Technology Code (BITV) since 2005; compliance by private businesses is voluntary. Although barrier-free implementation is often requested, it is frequently not
realized in full. Yet there are definitely strategies which assure implementation
which is at least partially barrier-free, e.g., by using special versions of simplified
design.
Provision and distribution
The answer to the question as to how flexibly and quickly new customer selfservices can be rolled out across various channels without necessitating in-depth
modifications of the fundamental infrastructure is important for the investment
security of the self-services architecture.
The provision and distribution of the self-services among the channels must be
abstracted via a separate layer which allows both Web formats and the native
development of mobile apps (native platforms or on a mobile enterprise application platform (MEAP)). This layer must be very specific in its distribution
of the back-end technical services supplying non-channel-specific content to
ensure that the special technical requirements such as format specifications of the
various recipient channels are satisfied.
In terms of the dynamics briefly described above, a self-services architecture
is confronted with the challenge of providing performance and avoidance of
overload at the right place by utilizing caches as buffer storage. There must be
clear definitions, right from the creation of the concept, of the points at which
information can be stored in the cache and where dynamic or static content is to
be supplied.
Administration and management
Self-services should be created, configured, and organized within a management
layer which fills the self-services architecture with life, with content and s ervices.
Cockpits are needed to support various user groups such as special authors from
the editorial staff for products and shop. One fundamental challenge for these
cockpits is to compile contents and applications from a broad range of delivery
systems and allocate them to the appropriate channels.
291
The linking of an identity management system or even of several systems to

support the system of rights and roles is an indispensable characteristic of the
cockpits; moreover, it is a fundamental prerequisite for the implementation of
AAA concepts (authentication, authorization, accounting) as a key requirement
for single sign-on (SSO) and personalization.
Another key role within this concept is played by a search engine, which must
have the capability of modeling the front-end search for self-service users as well
as linking to third-party systems. A large majority of the cockpit functions for
administrators and business users are steered by the submitted queries. In the
future, more and more applications will be implemented on the basis of search
queries. Company-wide searches and identity management can definitely not
be conducted reliably with the onboard means of self-services; such activities
require integration and alignment with the search and identity management
strategy of a company. One highly relevant aspect concerns requirements related
to the analysis of user behavior and the opportunities to respond directly to this
behavior. Both internal sources and external data from the social Web (which
are generally extensive) must be analyzed and correlated with one another (social
media analytics). The analyses are of critical importance for customer experience
management. Where have users beaten a path through the system? Where did
they leave the service or cancel the process? User retention concepts are s upported
by means of various functions such as heat maps, click path analyses, and
recommendation engines which can carry out complex shopping cart analyses.
In any case, every self-services architecture must provide functions which make it
possible to analyze user behavior or which provide interfaces for specialized tools
to take over this function.
Customer feedback such as classic opportunities for evaluation (ratings) or
recommendation and comment functions are fundamental features of user
retention. Generally speaking, users should be able to generate content with little effort (user-generated content). Excellent use can be made of user-generated
content for retention measures, e.g., by influencing search rankings.
Integration
Access to the data of both generic systems (e.g., CRM system) and specific selfservices systems (e.g., Web content) must be organized via a standard integration
layer. One of the most important premises for the development of the self-
292
services architecture must be to avoid whenever possible the reconstruction or

parallel implementation of business logic in self-services, but instead to choose a
path of abstract and standardized integration of logic-guided back-end and l egacy
systems. One major requirement for self-services is the provision of back-end
information, processes, and functions of specialized software tools in consolidated views. A company must face the following key question from the viewpoints of the architecture: How do we want to integrate applications into the selfservices architecture? All of the more detailed concepts regarding connectivity of
applications, messaging, and routing of information are rooted in the answer
to this question. In any case, the architecture should be modularized through
reusable services with open interfaces and the support of data federation technologies. Ideally, the self-services architecture can build on a standardized, servicebased integration landscape which is already in place.
The linking of a CRM system is an absolutely indispensable prerequisite for
providing specific content and products to specific customers and customer
segments. The linking of product information management tools (PIM) is a
similar requirement. These tools are often integrated deeply within the product
development and master data processes while self-services merely consume
finished catalogs and master data maintained at a central location. The same is
true of commerce applications; although such applications are often marketed
in combination with supplemental self-services functions, these functions are
usually inadequate for inclusion in a holistic corporate scenario.
Data
Crossover, consistent, and coherent data management is also a mandatory
prerequisite for the proper functioning of a crossover self-services architecture.
Overcoming an organizational hurdle is the greatest issue in this case. Data are
distributed, maintained, and stored for access. Complex consolidation steps
are required to store data in an accessible central location and simultaneously
to ensure the required maintenance quality. General master data management
initiatives must be implemented or securely established within the organization.
Much like integration, the self-services architecture should always make use of
existing data sources and take its place in existing data maintenance processes.
293
One important parameter for cross-channel utilization and re-use of content and
data is the uniform use of metadata which make an unequivocal identification
of the document possible (identifier). Supplementary technical information such
as format, type, and language, a summarized description imparting structure to
the content (title, subject, description), information about the author and rights
as well as the life cycle (time stamp, period of validity) must be defined and used
as standard. Metadata offer opportunities, previously never imagined, for giving
unstructured content a quasi-structural character, making it re-usable and locatable. Source, relation, and audience have a special function and role as meta-information for networking. These components can be used to organize the allocation
of the services to channels and to link separate services. A general metadata
management structure is the key prerequisite for a crossover self-services architecture which makes use of various repositories and differing back-end systems and
which can also make a crossover search function available to users. Moreover, metadata offer tremendous flexibility in the creation of taxonomies and alternative
navigation trees for use as administrative mechanisms in a classic hierarchy. But
metadata management cannot develop its potential to the full unless the metadata model is developed in correlation and coordination with the general master
data management initiatives described above and remains expandable.
Another important aspect for self-services architecture is the secure and dependable support of transactions. Use cases with a major focus on commerce, for
example, do not define complex products on the basis of a master product data
process; such products are viewed rather as a sequence of process steps, each
contingent on the preceding one, featuring specific offers and calculators for
customers. Examples include general agreements for specific products, availability checks such as product in stock or product available regionally, complex
product dependencies for orders of replacement parts and service upgrades, and
the linking to the back-end systems in production, logistics, and billing where the
orders are processed. Transactions of this nature should never be reconstructed
in their complexity and degree of specialization in the self-services infrastructure,
but should always be consumed and delivered via interfaces. This is undoubtedly
one of the fundamental challenges for a self-services architecture: the seamless
guarantee of the required transaction security.
294
Core Services
Specific crossover functions such as the orchestration of the processes, the handling of security, or personalization must be externalized. These are the core s ervices
which bring together all of the centrally utilized services and requirements for
the self-services infrastructure. These fundamental services represent and make
available a set of basic technical functions. After initial implementation, the core
services must be viewed as relatively stable. Special diligence is necessary during
the definition and development of the core services because minor modifications
of the core can always have tremendous impact on the peripheral services and
functions.
Personalized contents are a given within the context of self-services. But what
are the technical and functional paradigms underlying personalization? How
flexibly can content and applications be controlled with respect to user behavior?
Are self-service rights transferred to linked content from third-party systems, or
do these systems themselves remain responsible for the management of rights?
During the development of a self-services architecture, there is a need to clarify
whether personalization is to be realized with the rules engines such as a portal
software or a third-party personalization framework. As it is a leading system, the
linking of the CRM system is absolutely essential so that the necessary master
customer data can be personalized.
Self-services in a multi-channel architecture provide many different ways to
access personalized information, services, and processes. At the same time, these entry gateways are potential positions of risk for data security. Data security
and protection are among the most customer demands when it comes to selfservices.3 The publicity about the NSA affair has pushed this subject right to the
forefront of public awareness in Germany as well as in other countries. The most
important objective is the integrity of the self-services. Once customer trust has
been lost because of inadequate security precautions, restoring it requires enormous effort.
A self-services architecture must make use of comprehensive mechanisms for
entry security and access control such as secure SSO, encrypt the connection
between end-device and servers, and manage and store data in compliance
with the principles of data protection. Security requirements must be defined
and evaluated with regard to processes as well as to software and hardware.
3
Cf. Penkert/Eberwein, Customer Self-Services, p. 270 pp. in this volume.
295
It goes without saying that penetration and security audits must be conducted
regularly and by impartial authorities. Fundamental rules about connectivity and
interoperability must be managed by a central position so that the overall system
comprising separate services maintains its coherency. Rules about file formats,
protocols, and interfaces must be cataloged.
One important component of a service-based architecture is process orchestration describing the flexible combining of a number of services into a services
composition, an executable business process. This orchestration must contain
a description of the services, the conditions under which they may be called
up, and their interdependencies. General transaction security cannot be guaranteed without overall process orchestration. Session handling has an important
function in this situation; it serves to pinpoint users and their activities in the
system. Session handling must satisfy the requirement of being able to start sessions on one channel and continue them on another. In other words, session
handling must function abstractly from its actual channel and is an indispensable
prerequisite for transaction security. Orchestration requires a central repository
where the services are registered and which can be used to manage the services.
One might say that the services repository is a kind of central telephone directory
for the self-services architecture and that it is used for orchestration of the various
services and the related presentation channels. All of the channels must be linked
via reference points such as metadata to a standard information repository and
to the processes.
Clear responsibilities and roles clear the way to re-use and investment
protection
A holistic approach to the development of application architecture for a selfservices infrastructure requires a clear definition of the tasks expected of the
actual front-end applications and the delimitation of specialized support and
back-end systems.
Defined rules for its evolvement at various levels must be documented in
advance during this process. Standardized, stable, and documented APIs and
interfaces are an important prerequisite for investment security of the selfservices architecture. Customizing and further development must build on these
APIs. Ideally, the self-services architecture can build on an integration frame-
296
work of standardized APIs which has already been established. Support for developers and development through software development accelerates the learning
curve and reduces the level of risk during implementation. Besides encapsulating
development on the basis of APIs, a modern infrastructure must be able to provide
light-weight and abstract development of applications at the p
resentation level
using templates and scripting. Requirements, especially those related to the user
interface, can be satisfied only if modifications at the presentation layer such as
the development of new channels can be made both easily and quickly and can
be implemented without any downtime of the systems.
The modules underlying a self-services architecture must be modeled as reusable
services and designed with a distinct emphasis on technology. The services act as
a central and expandable library of functions within the IT landscape and can be
used as toolkits for implementation projects such as the shortening of time-tomarket cycles, the exploitation of synergies from the recycling of previously used
applications, and the securing of previous investments.
297
From
Telecommunications
Company to
Process Factory
Dr. Ralf Helbig
> Old ways of thinking obstruct agility

and innovation strength.
> Process design and responsibility
back into the hands of the actors;
collective process knowledge
becomes a decisive resource.
> Modular processes (subjects)
transform organizations into
smart business networks.
> S-BPM drives change process in organizations forward in the direction
of smart business networks.
298
From Telecommunications Company to Process Factory
Collaborative process world requires paradigm shift

Fundamental patterns of thought found in the telecommunications industry
have been borrowed from industrialization and developed from the principles of
Taylorism and Fordism. These two principles of process management have been
major forces influencing the development of familiar and applied management
styles, learning systems, and our concept of man. In the course of the mechanization of production, work processes were subdivided in line with top-down
methods into small partial processes and functions, each strictly oriented to the
procedural demands of the next-higher production level. People were integrated
as human resources into this largely rigid production process, and their labor
was employed exclusively in the fulfillment of the demands of this process. This
approach secured a smoothly flowing general process which was largely free
of disruption. The aforementioned principles are especially suitable for highfrequency mass production of standardized products of substantial production
depth and a high degree of automation. Industrial process methods of this type
were transferred to the operation and related services in the telecommunications
industry. Their application results in rigid systems which model and support
collaborative processes.
But the modern working worlds in telecommunications companies demand
the greatest possible flexibility in response to the extremely volatile demands of
markets and customers which have arisen as a consequence of digitalization. In
the future, it will very rarely be possible to define a linear chain of repetitive work
steps. Instead, employees will themselves become role-defining actors who communicate and search for alternative ways, means, and methods so that the specific
demands and needs of their customers can be fulfilled.
Highly qualified employees, so-called knowledge workers, act autonomously in
these complex environments and cannot be tied to closely meshed top-down
process environments developed by a central agency. Process descriptions which
link tasks and objects sequentially with one another are no longer appropriate to
the modern age of telecommunications because they cannot provide the flexibility required for fulfillment of the order. Companies are challenged to redesign
the current rigid process environments from the ground up. They must bundle
the process knowledge of all involved parties and then make it accessible and
usable, enabling collaborative redesign and evolvement and optimal exploitation
of synergies.
The once normal separation of definition and design of processes, on the one
hand, and their implementation under conditions of the involved parties
299
remoteness from process changes that this causes, on the other hand, entails
many different disadvantages which prevent the fast adaptation of processes. A
protracted procedure requiring complex steering logic significantly restricts the
required agility and individuality. But the dynamic environment is causing these
latter elements to advance to the status of critical factors for success. So the people
involved in the process must think and work in terms of processes and determine the processes themselves. Moreover, the traditionally complete coverage of
the value chain in the telecommunications industry blocks the agility required
in the digital world. Close collaboration with a large, dynamic, and frequently
cross-company partner environment in so-called smart business networks is
the road to follow into the future, and telecommunications companies wishing
to operate successfully will have no choice but to take it. New digital business
models such as the provision of platforms for the operation of two-sided m
arket
models or service broker models for the build-up of cloud-based, industryspecific ecosystems require innovative cooperation concepts enabling the flexible
coupling and decoupling of partners.
Ant colonies as the model of perfect organization
Every organization regardless of whether companies, religious communities, or
sports clubs is founded on the assumption that its members can achieve more
by working together than each individual can accomplish when acting alone.
The primary function of organizations is to evolve on the basis of the resources
available to them by joining forces to master challenges and solve problems. The
ability to do so can generally be defined as the intelligence of the organization
and its components. But the intelligence of the components is frequently not
exploited to the benefit of the organization because exclusively the intelligence of
the leadership levels, and not that of the collective, is utilized.
Proof of the tremendous accomplishments possible in a social organization
which utilizes its collective intelligence to the full is found in the structures of
ant colonies, which have been steadily optimized over the course of evolution.
Their social organization can be used as a benchmark to identify the weaknesses
of business process management (BPM) as currently practiced.
Just like companies in the modern working world today, ant colonies are constantly confronted with changing events requiring an individual response. If
additional food sources suddenly appear, more collectors are required; if the nest
is damaged, immediate and fast repair is necessary. These external challenges demand internal coordination of the workers with respect to assignments, types,
300
and places of performance of the tasks; as a rule, all of this takes place autonomously and without centralized or hierarchical control.
The individuals, acting as part of a complete organism, can achieve cognitive
levels which exceed the capabilities of every single insect many times over. The
intelligence of the ant colony is disseminated as decentralized collective intelligence among its members.
Since the ant queen is responsible solely for propagation and does not exercise
authority of any kind, the organization manages itself and optimizes its functions
during a continuous process of adaptation to the environment. The collaboration
of the workers in the performance of their tasks is carried out in constantly changing formations and is much the same as a modern smart business network in
which in-house employees and external partners with the skills required by the
specific need and task come together and cooperate ad hoc to complete the work.
Every member of the ant colony acts for a single purpose and toward a specific
goal: the development and maintenance of the community. It is essential for the
paradigm of autonomous responsibility and networking presented here that the
meaning and purpose of the company as well as its strategic objectives have been
unambiguously defined and that all of the employees accept these elements as
definitive for their actions and identify with them.
The networking of employees and partners creates an important factor influencing the companys success in highly developed organizations. Recognizing this,
many companies utilize various approaches to promote communication within
the organization and, as a consequence, to enhance their performance.
Organization is communication
The first step taken to improve the communication culture in a company locally
and to promote exchange among colleagues in business affairs has frequently
been the creation of open working conditions. The (re-)introduction of openplan offices with flexible workplaces and the provision of team areas offering a
broad choice of exercise and leisure-time activities as practiced at Google and
other companies are among the initial course headings in this direction. But
the actual added value for the company is very difficult to measure. While the
measures undoubtedly lead to an increase in exchanges among employees, their
interaction does not take place at a specific process level in most cases and is limited to a narrow scope. The exchange is rarely followed by direct implementation
301
of the achieved results. The knowledge generated among the colleagues is not
utilized to enhance value, nor does it find its way to the management levels with
decision-making authority owing to the hierarchical barriers which continue to
exist.
Innovation systems which provide employees with opportunities to submit their
own suggestions for innovations and process improvements are only partially
successful in remedying such failures. They do no more than enable a unilateral
bottom-up monolog, isolated from other knowledge carriers, which management can either accept or reject.
Many companies regard in-house social networks as viable alternatives to counter
these disadvantages. In addition to breaking down local constraints, they provide
a virtualization of employee exchanges which serves as documentation, enabling
the involved parties to trace the line of events and ideas at a later time. Results
are saved as they are achieved and can be retrieved by the pertinent group of
people at any time. However, such networks are still far from realization because
of the systemic separation of concept planning and implementation. Moreover,
organizational concepts, generally being hierarchical in nature, are contrary to
the functional operation of social networks. Telecommunications corporations,
which by their nature are providers of communications solutions, have of course
introduced social media platforms for sharing information, finding and getting in touch with the right contacts, and forming interest groups. They have
even linked such platforms with the archiving of documents and messages. But
utilization and acceptance almost always fall short of expectations owing to the
reasons mentioned above.
However, companies have recognized that the growing complexity and volatility
of global relationships demand a focus on dynamic knowledge transfer within
the organization. Moreover, there is a growing understanding that the agility and
innovation strength required of telecommunications companies on the market
cannot be adequately achieved within the dominant corporate structures and
organizational forms tied to a central hierarchy. If business process management
is to function properly, it must take additional requirements into consideration.
302
Process knowledge as a decisive resource

In contrast to our working world, the process knowledge found in ant colonies has optimized itself over the course of evolution. Companies do not have
a comparable amount of time. Ant colonies can function as they do because
all of their members have exactly the same process knowledge at their disposal
and can consequently take over any role as required by circumstances. In our
modern working world, the sheer numbers and complexity of processes exceed
the capabilities of any individual many times over. The process knowledge of a
single p
erson, although more restricted, is simultaneously more individual and
therefore more valuable for the organization as a whole.
The hierarchies which have been established in todays organizations only
rarely allow the utilization of this individual knowledge, however, and lead
to a situation in which the process knowledge of the organization as a whole
represents merely a reflection of the knowledge and intelligence of the management levels. The formalized, protracted planning and top-down implementation
of processes make the corporate levels virtually impenetrable for bottom-up
reactions and innovations. These structures inhibit the companies own agility
which their employees need to respond to changing market conditions and
individual customer requirements.
By making existing process knowledge transparent and available, the company
can motivate its staff to participate and simultaneously secure a common understanding of process structure and execution among its employees.
The foundation for this achievement is a simple language which is u
nderstandable
for employees at all levels of the hierarchy and yet at the same time has the ability
to describe complex process relationships. Communication among ants is based
on a simple system of pheromones and ensures that the sender and recipient understand each other with absolute clarity. The simplicity of the communication
does not result in any disadvantages for the ant colony; on the contrary, it helps
them to share knowledge about the specific jobs with others and to perform the
required tasks efficiently. System architects and IT experts know as well that the
components of a system should not be too complicated because the degree of
complexity will rise by itself and generate a broad range of differentiation.
303
In other words, the simple availability of process knowledge is not enough; there
must be a generally understandable language for its description. In view of these
two premises, it is obvious that process modeling languages which have been
used previously cannot contribute to this type of self-organization because they
are not understandable to anyone but experts and are generally not available to
everyone.
Subject-oriented business process management utilizes collective intelligence
Subject-oriented business process management (S-BPM) offers a radical further
development of the approaches described above from a process-specific perspective. S-BPM turns the modeling of processes into an activity of networks comprising knowledge workers. Process re-engineering, harmonization, and expansion
are transformed into the results of collaborative knowledge. In a virtualized
system of this type, every employee is reachable without regard for hierarchies
and locations and can participate in process development thanks to the simple
modeling technology and the natural language understood equally by humans
and computers. Despite these opportunities, personal meetings of the participating people are expressly intended.
Success factors: accessible process knowledge and simple language
Companies can make use of S-BPM to democratize process management. The
IT systems no longer limit the nature of the collaboration and processes. Instead,
the local intelligence is exploited by continuous collaboration on processes, and
the process knowledge acquired by this means and made available in the private
cloud can be systematically utilized for crossover process re-engineering by means
of intelligent central analyses.
A decentralized-centralized S-BPM approach replaces the centralized management approach taken in the past. Even low up-front investments are enough to
assure viral network-based dissemination and to achieve availability of process
knowledge which is always up to date. In view of the benefits which are g enerated
immediately, S-BPM promises to find broad acceptance in the organization
quickly. The combination of top-down and bottom-up approaches enables management to draw on the knowledge pool of its staff and to recognize potential
for harmonization and synergy while nevertheless maintaining centralized control wherever necessary and expedient. At the same time, the employees can take
advantage of the high process transparency and availability to realize effective
improvements themselves in cooperation with facilitating process experts.
304
The future premise will no longer state that everything is uniformly standardized
and controlled by a single process, but that individual subjects can unambiguously
communicate by understandable messages. This is where currently existing
systems and standard software prove to be much too inflexible and hamper the
necessary agility at important points.
The available process knowledge leads to greater intelligence of the organizations
components in the long term. A collective, multilayered swarm intelligence
arises which goes even one step beyond the swarm intelligence of the ant colony
because its members actively strive to develop processes further. The result for
the organization as a whole is significantly greater agility. Simultaneously, overall
efficiency and the capability of adapting new business models and of realizing
rapid improvements in quality through the initiatives of individual knowledge
workers rise. This can immediately lead to enhancements in process efficiency in
all positions in telecommunications companies and even to process innovations
because the central bottleneck, which must otherwise be concerned with the
complex, time-consuming, and expensive path of modeling, system specifications, and system implementation and its uncertain end results, is eliminated. It
is not at all unusual to discover that requirements have already changed when,
after such a long time, the previously required functions can be made available.
This change induced by S-BPM shifts process responsibility to the business
side and relieves the burden on the IT department, which can concentrate on
its facilitating role, the management of data and their redundancy-free organization, and the seamless provision of the data. The IT infrastructure is made
available in the cloud as needed, offering maximum efficiency and standardization. There is no longer a need for a shadow IT department which technologyminded employees in telecommunications companies are so quick to create. It is
no longer needed by the business departments themselves, a situation which not
only leads to substantial savings, but also eliminates risks.
S-BPM utilizes a structure derived from the syntax of natural language for
modeling processes, a sequence of subject, predicate, and object. The subject
corresponds to the role of the actor, the predicate determines the action, and the
object stands for the element which is to be processed. Subject-oriented business
process modeling was created on the basis of this logic.
The subjects can be people as well as IT systems or machines. In contrast to
traditional BPM approaches, the S-BPM approach focuses on the subjects.
305
Communication among subjects is based on the exchange of messages. Following

identification of the subjects participating in the process, the interaction relationship can be modeled on the basis of the exchanged messages. This focus on
subjects and their exchange of messages is especially useful for dynamic processes
involving large quantities of information; such processes are typically found in
service companies. The impact of the subjects actions and their interactions on
parameters such as quality of process results and speed of process execution is
substantial.
The exchanged messages may be simple data types such as character strings,
figures, characters, or business objects. Business objects describe complex data
structures with components consisting of simple data elements. An application
for a business trip, for example, is made up of data about the applicant and the
trip itself.
The nature of the message exchange is classified as synchronous, asynchronous,
and message exchange via an input pool. During a synchronous exchange, s ender
and recipient wait for each other. This means there is a tight chronological c oupling
which, especially in cross-company communication, can lead to p
roblems such
as inactive waiting times. An asynchronous message exchange, on the other hand,
Figure 1: S-BPM is oriented to the structure of natural language
Subject
Verb
Object
Question
Who acts?
What shall be done?
What has to be changed?
Essential
details
Who acts actively in that

process? Who must communicate with whom?
With whom does the subject communicate? Which

activities does the subject
perform for itself?
Are documents generated

processed or forwarded?
Which IT support is given?
Examples
Employees, Superiors,
Travel Management
Produce, book, send
Business trip proposal,

hotel, ticket
Source: Detecon
306
is characterized by the recipients retrieving the messages sent to them from a

buffer, acting on them accordingly, and then answering the sender, who does
not have to remain inactive while waiting for the answer. Message exchange via
an input pool is a modification of the asynchronous message e xchange and can
additionally be controlled by type, size of the message, maximum number of
messages, or other criteria. With the aid of the subjects participating in a process
and of the message exchange between the subjects, the process can subsequently
be developed by designing and restricting it from two directions.
S-BPM offers an opportunity to model the behavior of all employees, enabling
interactive process re-engineering rooted in reality because employees themselves
negotiate the required incoming and outgoing messages, the nature of their
interaction in the process. The separation between concept and implementation
which appeared insurmountable for all other approaches developed in the past
disappears so that it is even possible to move back and forth constantly between
concept and implementation and create an ad hoc iterative procedure. Release
cycles are no longer required, and employees can immediately validate the results
of their modeling in the implementation.
Moreover, the realization of S-BPM promises improved exploitation of intraorganizational synergies as well as savings in IT and personnel expenses, all
Figure 2: Overview of subject-oriented process modeling
communication
receive and send
news
subject
(= role) > customer
letter of
resignation
subject
(= role) > callcenter employees
news
players
letter of
resignation
internal subject behavior

(= acts)
handling of
letter of resignation
players
Source: Detecon
307
concomitant with improved efficiency. S-BPM could in this way become the
next stage of evolution for the previous way business process management was
understood.
Four roles for steering and optimizing the process factory
The approach of subject-oriented process management defines four roles which
largely incorporate the range of tasks of todays BPM players. The role of governor has responsibility for stipulation of the strategic goals which determine the
orientation of action and of the processes. Governors can be members of top
management who, at the normative management level, define the corporate and
business field strategy from which functional and IT strategies are later d
eveloped
by middle management and IT directors. The organization department supports
the aforementioned units by stipulating methods, tools, and conventions. The
process owners, also assigned to the governors, bear responsibility for communication of the strategic goals to the staff members involved in the process (actors),
the optimal orientation of the processes, and their performance efficiency as
verified by the tracking of appropriate process performance indicators and target
values.
The process developers of the past in traditional BPM appear in the S-BPM
model as so-called experts and are recruited primarily from among in-house
and outside process consultants and IT architects. In contrast to today, they do
not develop processes on the drawing board, but instead make use of their process intelligence for the analysis of the processes documented and carried out in
the central knowledge base by the actors. They are consequently in a position
to recognize top-down synergies as well as process efficiencies and to carry out
company-wide process re-engineering in accordance with the framework conditions and target values set down by the governors.
Their counterparts are the actors, the real agents, who are responsible for the
actual execution of the work processes. They represent both the point of reference
and the agents, above all within the framework of the local analysis, modeling,
re-engineering, and implementation of business process models in accordance
with the objectives of the S-BPM. They are themselves responsible for the design
of their processes. They define their process in the S-BPM process model and,
in doing so, contribute to the build-up and continuous updating of the process
knowledge base.
308
Facilitators act as go-betweens and help to coordinate the practical experience

of the actors, who are new to process design, and the ideas of the experts. They
assure the exchange with the relevant stakeholders in addition to their function
of supporting communications among the agents as well as between agents and
specialists. The role of the facilitator can be assumed by executives from middle
management, project managers, organization developers, and/or consultants.
The common objective for all of the roles is the modeling of processes in c lose
cooperation and, on the basis of a uniform understanding of processes, the
developing of the processes further from both the acting perspective and the
overall perspective of the company. A process is understood as a structure in
which actors carry out activities bundled in a materially logical and chronological
sequence into tasks, utilizing the relevant resources and information, to process a
business object. This process always features defined input and generates a result
which has value for the customer.
Finally, communication among the subjects is set down within the framework of
the top-down analysis while a modeling of the activities of the subject takes place
within the framework of the bottom-up analysis. Communication behavior and
internal behavior come together to create the subject behavior which defines the
sequence of the actions. A complete S-BPM model which can be understood
by all of the participating roles emerges from the communication and internal
behavior of all subjects. The interaction of formal and content validation subsequently generates a correct image of the process. This image can be translated
directly into executable software via the underlying formal characteristics of a
finite state machine.
Objective of the change process: agile smart business networks
The subject-oriented concept of S-BPM thus paves the way to an automated and
in many areas autonomous orchestration of business services which can comprise
both human and machine or IT services. Telecommunications companies are
given the opportunity to reuse or expand business services, specifically to develop
new services which are missing, or to integrate services provided by partners, and
to generate newly required or modified process and products at a speed never
previously experienced. This capability not only supports heightened agility, but
also significantly reduces process and IT expenses.
In a further stage of evolution, the consistent use of subjects as facilitators of communication in processes could make direct communication among a pplications
superfluous. The standardized provision of data which does not require any
309
knowledge about the physical data structure (data as a service) would be considered yet another step to reduce the heterogeneity and complexity of the IT
system landscape and the diversity of the required connectors in companies. The
enterprise service bus (ESB), presently admired as so advanced and which at least
has led to the avoidance of innumerable point-to-point connections between IT
systems, would be obsolete. With the help of so-called behavioral interfaces,
subjects would be in a position to identify the receiving subjects independently
and to send the messages to the identified subject for further action. This opens
the door for telecommunications companies to realize completely new concepts
for partner identification and integration, ad hoc and in an automated process.
Behavioral interfaces and data as a service entail a fundamental change in the
architectures of todays IT landscape and in entire telecommunications
companies. Agility and autonomy in conjunction with intelligent interoperability are developing into inherent characteristics of the entire IT and process
architecture of companies.
The complete implementation of an S-BPM approach augmented by this idea
causes substantial upheaval in organizations. However, the static organizational
structures, responsibilities of employees and systems, their ways of working, and
the sequence of business procedures such as budgeting do not yet appear mature
enough in many companies to permit them to strike out on the road to an agile
organization in short order. The transformation required to turn the vision of
agile telecommunications into reality must be carried out with specific goals and
one step at a time. S-BPM in its basic framework is already contributing to the
initiation of this transformation process in companies. It creates the prerequisites
for doing away with the compulsion toward central control of the full complexity because it regards subjects such as employees, cloud services, or external
partners as autonomous with regard to internal behavior and unambiguously
defines its interaction with the subjects of the environment. Networks, including
smart business networks, could at any time be reconfigured as well as coupled
and decoupled on short notice with the aid of such a mechanism. The difference
between internal and external subject, employee and partner, is of rather subordinate importance in the configuration of the performance networks because both
align with the same principles of the subject.
The laying of the path to this new process world can be viral. Certain critical
processes are modeled optimally in accordance with strategically stipulated goals
and implemented. The neighboring subjects are then modeled in their environment with their internal behavior until this methodology has spread throughout
the company. The models can be developed in a cloud as process as a service
310
and made available to every part of the organization. The result is an essential
knowledge base for the identification of synergies and further development of
central guidelines. The prerequisite is that employees understand the meaning
and purpose of the company along with its major strategic objectives and can
draw conclusions about the consequences for their process. This viral approach
must be induced properly and carefully observed, however, so that understanding
and awareness of benefits are created among the staff and the correct conclusions
regarding communication and dissemination of the methods are drawn. Moreover, top management must support this type of approach because a majority of
todays functions such as the IT or the process modeling departments will discern
a threat to their activities. These fears must be alleviated by the anchoring of the
aforementioned new roles in the organization at an appropriate point in time.
An approach of this kind will cause the parties involved in the processes to change
their ways of thinking and begin to consider their own role in the process which
they can design autonomously or by and large independently of the IT department. The boundaries between internal and external, between automated service
and manual labor dissolve because the interaction among the subjects is defined
using S-BPM. Ad hoc partners such as startups or smaller OTT players which
assume a part of the value creation in a new telecommunications product can
be integrated and then decoupled again easily. The result is agile smart business
networks which can rapidly link internal and external capabilities as subjects
with one another and generate added value from dynamically changing customer
requirements.
The parties involved in the processes design their processes themselves, and
they can directly realize their ideas for process improvement and immediately incorporate customer feedback into their process. Such a capability ensures
iterative, goal-oriented process re-engineering and speedy adaptation to new situations. Best practices and stable standards which crystallize over the course of
time can implement the behavior of individual subjects automatically as service.
Telecommunications companies gain new opportunities to develop agilely to
meet market demands, quickly and successfully.
311
Outlook
Setting the Course for

Digital Transformation
Dr. Peter Krssel, Dr. Stefan Schnitter
312
Setting the Course for Digital Transformation
Megatrends such as dramatically accelerated innovation rates and networking of

customers, enterprises, and products within the scope of global value creation to
an extent which has never been seen before have their roots in digital technologies.
Industry 4.0 and the Internet of Things are just two buzzwords illustrative of
such developments. These trends are experienced tangibly in products such as
M2M or cloud services and industry-specific solutions, including smart grids or
intelligent mobility concepts which turn cars into Internet nodes. ICT is itself
being transformed, metamorphosing from the enabler of these developments
into the essential core of every business model. Society is in the midst of a digital
transformation which will fundamentally or sustainably change the basis of every
companys business.
The impact of this development on telecommunications companies has a particular twist. On the one hand, they must master the challenges arising from digital
transformation in their own operations in the sense of adaptation of structures,
processes, and business models. At the same time, they are expected to establish
the platform for the digital transformation of society and their customers. What
does this mean for telecommunications companies?
Network is king! Networks are the indispensable foundation for carriers production and will in the future, even more than today, become the nucleus around
which corporate decisions revolve. In view of the immense investments in the
necessary expansion of capacities and the synergetic merger of fixed and mobile
networks, only the integrated heavy-asset carriers among the (multi-)national
carriers will remain on the market. Reselling is the second-best option for the
rest, but sooner or later, this position could probably be filled by OTT p
roviders
equally well, perhaps even better. Competitive networks are the guarantee for
carriers survival: as an elementary differentiation factor setting them apart from
other carriers, as the basis for negotiations and establishment of a power p
osition
with respect to OTT providers, as a platform for partners, and as a key component
of the profile presented to wholesale, business, and private customers.
Comparative competitive advantages of networks are created by lowering costs
per transmitted bit while maintaining a comparable level of quality. Ultimately,
the lowest possible operating and investment costs for the infrastructure coupled
with simultaneously high utilization of network capacities will tip the scales in
one direction or the other. But many overlook the fact that network efficiency
is more than just a technical challenge; the optimization of organization and
processes is critical for success. The pressure to achieve broad reach and high
utilization of capacity pushes the size factor to the forefront. The size of a carrier as measured by revenue, number of customers, global presence, or supply
313
Outlook
c apability will strongly determine the attractiveness of the offered services from
the perspective of partners and customers.
The circumstances described above will in the near future drive forward the
consolidation process among carriers, whether through M&A or cooperation
among carriers.
But this trend towards size does not by any means automatically translate into a
trend to uniform services, uniform prices, or uniform networks. On the contrary:
Regionalization will in the future be an even more important field for carriers
activities, both with respect to retail or wholesale services offered regionally and
capacity extensions driven regionally by customer demand.. The carriers who
standardize services and technologies as far as possible and implement them as
regionalized as necessary will be the ones who are successful.
Besides the reduction of costs per bit, the increase, or at least stabilization, of the
revenues per bit is a key task for operators.
Both of these requirements can be met by the carriers wholesale business,
although this demands rigorous wholesale empowerment. The classic conflicts
between wholesale and retail which arise must be strictly balanced according to
the economic contribution to profit in each case.
The retail sector is under no less pressure to contribute to the monetization of
the networks. Buzzwords such as quality differentiation, a balanced mix of own
innovations and offerings organized within partnerships, as well as customer
experience which generates enthusiasm describe the fields of action most urgently
calling for attention.
The differences in network quality are noticeable already today, especially in the
mobile networks sector, and will be increasingly perceptible to customers in the
future. Matching differing levels of quality to corresponding price models, either
temporarily or permanently, is the goal for certain services or applications,
for private, business, or wholesale customers, for segments, regions, partners, or
different brands. The same is true for the accessibility to different distribution
channels and differentiation with regard to access to technical services.
Even beyond this, the technological, infrastructural, and procedural innovations such as SDN, virtualization, and S-BPM open up new and promising
opportunities to marketing departments to create product innovations both
as their own developments and in partnership with third-party providers to
314
Setting the Course for Digital Transformation
place them on the market, and, as appropriate, withdraw them again significantly
faster and more flexibly than in the past. Carriers marketing departments must
recognize and exploit these opportunities.
In the future, carriers will be forced to devote substantially greater attention to
the subject of partnering, an area which has until now been rather neglected as
a kind of stepchild. In this case, the key points are the definition of a companys
own role in so-called smart business networks and the competition for attractive
partnerships. Lucrative opportunities for differentiation can be found here as
well.
When operating in mature markets where price competition is severe and customer growth limited, carriers will prioritize careful management of existing
customer relationships, cross- and upselling activities, and loyalty aspects. While
objective product features are of importance for customer loyalty, emotional attributes of the products, the brands, or the company ultimately tend to make the
difference. Carriers would do well to obtain clarity about the major rational and
emotional elements of outstanding customer experience and to use them to transform mere customer satisfaction into genuine customer enthusiasm. Enthusiastic
employees are an absolute prerequisite for this accomplishment.
The challenges and recommendations for action described here are as a whole of
far-reaching transformational significance for carriers. They have structural and
procedural implications, e.g., in the form of closer integration of technology
and IT, of business units such as marketing and sales, and beyond this cultural
consequences. The latter arise from opening up to partnerships, flexibility and
agility in innovations, and from the value of employee pride as an indispensable
prerequisite for customer experience which generates enthusiasm.
One key pillar for the success of this transformation and the securing of longterm profitability for carriers rests on a balanced regulatory framework, perhaps
even comprehensive industrial policies, which must offer telecommunications
providers incentives for network expansion and innovations at the service level
while allowing them sufficient freedom to set prices. Under such conditions,
carriers would be in a position to convince capital markets that investments will
yield valuable returns.
315
The Authors
Clemens Aumann has been working as a Managing Consultant to drive the
development and marketing of telecommunications services for 20 years. His
latest studies investigate the future consequences of IT-telco convergence for
market-oriented processes and the organizational forms of telecommunications
providers.
Dr. Uli Alexander Bornhauser is a Senior Consultant at Detecon International.
He focuses on strategic, technical, and financial advisory services for the telecommunications industry. In the last years, Uli was involved in the development of
new, cost-efficient network and service production architectures. He has worked
primarily for service providers and regulators in Germany and across Asia.
Dr. Arne Chrestin is a Managing Consultant with 15 years of experience as
expert, executive advisor, and team leader in international telecommunication
projects. He has developed network modernization strategies for fixed and
mobile operators and acquired extensive experience regarding migration to
all-IP networks. In his most recent project, he supports the development and
implementation of the SDN and virtualization strategy of a major operator.
Ulrike Eberhard is a Managing Partner with a focus on business process modeling,
marketing strategies in different market phases, marketing performance programs,
portfolio planning and pricing. She has developed and successfully implemented
all these strategies as an interim manager or project manager for telco carriers and
Internet service providers in Europe, Middle East, Asia, and Africa.
Patrick Eberwein is active as a Senior Consultant in the Knowledge C
ommunity
CRM Sales and Service. His work as an author has included the presentation
of studies on customer experience management and customer self-services. His
activities focus on the fields of channel and customer contact management,
cross- and upselling strategies for long-term value, and digital services.
Lutz Fritzsche is Managing Consultant in the International Telco Cluster.
The focus of his consulting activities is on the planning and optimization of
telecommunications networks, especially the transmission networks. Moreover,
he actively participates in the advanced development and sale of Detecons own
planning tool NETWORKS and is the contact consultant for numerous clients
using the program.
316
Future Telco
Dr. Osvaldo Gonsa, Senior Consultant, is active in the LTE Core Network and
the NFV&SDN Knowledge Community. His experience in the field of virtualization has been gained in the course of his project activities, and it serves him
well as the foundation for his work as an author. His primary interests are in the
subjects of architecture and services for telecommunications networks and strategies for the implementation of virtual services via the current LTE networks.
Joachim Hauk is Managing Consultant and knowledge leader for CRM, sales,
and service. He advises in particular companies in the service industry with
regard to these subjects. His special focus is on issues of channel management,
customer experience management, and customer loyalty.
Dr. Ralf Helbig, Managing Partner, is in charge of the units IT Strategy and
Architecture, Travel, Transport and Logistics and has been working as a consultant for more than ten years. He is a researcher and lecturer at the University of
Bonn and is involved in various startups.
Dr. Arnulf Heuermann, Managing Partner, has held various positions as a group
leader for regulatory consulting, practice leader for strategy and marketing, and
director for international sales over the course of his career. He has had project
manager experience in management consulting projects in the telecommunications sector in more than 40 countries of Europe, Asia, and Africa. His core
competencies are found in the fields of strategy consulting, telecommunications
regulation, privatization, and M&A business.
Daniel Kellmereit has a wealth of experience in the areas of innovation management, marketing, corporate development and growth strategies. He has spent
more than a decade enabling large global companies to develop business strategies, innovate and shape markets, adopt emerging technologies, design strategic
alliances, and launch new products and services. He also guides early-stage companies. In his current position as CEO of Detecon, Inc., he is responsible for the
North America and Latin America region and leads the Strategy and Innovation
group. He works with clients in the telecom, Internet, hardware, software and
services industries as well as investors.
Dr. Christian Krmer, Managing Consultant, has been the manager for a broad
range of cooperation projects. He does research in the field of business collaboration and serves as an EFQM assessor for the improvement of companies from
the perspective of top performers.
317
The Authors
Dr. Peter Krssel, Managing Partner, is the account manager for T-Deutschland.
He advises telecommunications companies on strategic issues in the retail and
wholesale sectors. His focus is on the interrelationships between network infrastructure and marketing, product policy, need-oriented grid expansion strategies,
differentiation of strategies for the development of markets, social media, competition and market analyses and scenarios, and regulatory issues.
Martin Lundborg (M.Sc.) has been a corporate consultant in the telecommunications industry for almost 15 years, where he has focused on strategy projects,
broadband investments, wholesale markets, network costs, and regulation.
Yasmin Narielvala is a future telecoms enthusiast and Director of Detecons Strategy and Innovation Practice in San Francisco.With nearly 20 years of industry
experience, Yasmin leads strategic technology assessments for clients, assessing
emerging technologies, products and services and developing measures to apply
innovation to drive growth and counter disruption.
Dr. Olaf Nielinger, Managing Consultant, works in the wholesale and regulation
sector. He has had more than 14 years of profound experience on international
telecommunications and ICT markets. His focus is on the areas of national and
international wholesale, business strategy development, and business planning,
while on the regulatory side he concentrates on commercial and social regulation
and on ICT guidelines and strategy development.
Andreas Penkert is Managing Consultant and advises clients in organization
und processes, service management, customer experience, and innovative sales
management in the digital age. He is author of the Customer Self-Services
study.
Dr. Hans-Peter Petry followed his industrial career at leading manufacturers in
the telecommunications industry by working as a Managing Partner at Detecon.
Until his retirement, he was the head of the unit Telecommunications Technologies. He currently serves as Senior Advisor for D
etecon and does volunteer
work for the DLR (German Aerospace Center) and DeSK (German Center for
Satellite Communications).
Lothar Reith, Senior Consultant, devotes his special attention to communications technology. He has had 30 years of experience in packet-switching technology and network-related IT and works on client projects for SDN on behalf of
carrier networks and data centers. He is a member of standardization committees
such as IETF, ONF, MEF, and TMF where he contributes his expertise on the
subjects of network virtualization and overlay techniques.
318
Future Telco
Steffen Roos, Managing Consultant, advises clients on social media business,

multi-channel management, mobile enterprise, CRM, and Enterprise 2.0. He
has had many years of experience in the drafting of concepts, development, and
roll-out of complex IT architectures in various industries.
Manfred Schmitz is Partner and focuses his work on managed services and
operational efficiency. During his more than fifteen years of experience in the
mobile and fixed network telecommunications business, he has worked for
various manufacturers and mobile operators. He has completed multiple international assignments in the area of global technology strategy and planning and is
the author of numerous publications on telecommunications strategy and planning, network operations management, and managed services.
Dr. Stefan Schnitter, Partner, is in the unit International Telco. He has had years
of international experience in the field of IP-based networks and services as a
result of his activities as consultant and of the management positions he has
held for network operators. He currently focuses his consulting activities on
strategies for broadband expansion for fixed and mobile network operators and
on architecture, planning, and implementation of networks for telecommunications companies worldwide.
Dr. Mathias Schweigel works as a managing consultant specialized on tool-based
network planning and joined Detecon after earning his PhD in telecommunications in 2004. In addition to the specification of functions and the training of
users in Detecons network planning and optimization software NetWorks, he
has supported many Detecon projects that required the application of planning
software for operational as well as strategic questions.
Dr. Markus Steingrver, Managing Partner, is in the unit International Telecommunications and is the team leader for Global Wholesale and Regulatory
Knowledge. He advises mobile and fixed network operators as well as regulatory
authorities around the world on the subjects of business models, wholesale and
regulatory strategies, and cost planning. Dr. Steingrvers primary fields of work
encompass business development strategies for broadband and wholesale.
Dr. Rong Zhao, Managing Consultant, has been studying the topics of planning, optimization, migration, and implementation of access and transmission
networks for 14 years. He is a member of the VDE/ITG specialist group Access
and Home Networks (FG 5.2.5) and an author and speaker with numerous
publications and talks to his credit.
319
Who we are!
About Detecon International GmbH

Detecon is one of the worlds leading consulting companies for ICT management consulting. Our services focus on consulting and implementation solutions
which are derived from the use of information and communications technology
(ICT). They encompass classic strategy and organization consulting as well as
the planning and implementation of complex, technological ICT architectures
and applications. Detecons expertise bundles the knowledge from the successful
conclusion of management and ICT consulting projects in more than 160 countries. Detecon is a subsidiary of T-Systems International, the business customer
brand of Deutsche Telekom.
320
Knowledge@Detecon
DETECON
Consulting
Knowledge@Detecon
Future Telco
The growth in data transmission traffic is unstoppable, the

revenue per user is declining. Carriers have no choice but
to modernize their network infrastructures and create new
capacities. This will not be possible unless lawmakers c reate
a regulatory framework which enables telcos to develop
new sources of revenue. Ultimately, only integrated carriers
offering attractive services they have organized themselves
and in partnerships to their customers will be successful in the

competition for end customers.
Consulting
DETECON
Future Telco
Detecon Experts have identified seven levers to support

carriers: modern network concepts, integrated deployment
of network capacities, innovation, partnering, wholesale, a

differentiated market approach and agile processes and IT.
Consulting
DETECON

Future Telco 2014 en

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Future Telco 2014 en

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Knowledge@Detecon

The growth in data transmission traffic is unstoppable, the

and in partnerships to their customers will be successful in the

Detecon Experts have identified seven levers to support

of network capacities, innovation, partnering, wholesale, a

Copyright by Detecon International GmbH

2. Interview: The Capital Market Perspective

Modern Network Concepts

4. Interview: At the Forefront: Network

5. Virtualization Is Transforming the Telecommunications Industry

Integrated Deployment of Network Capacities

9. New Network Strategies Keep Telecommunications Business Profitable 100

Detecon International GmbH

12. Interview: The Importance of Innovation Can Not Be Overestimated 144

14. Interview: Partnering as Strategic Growth Weapon

16. Wholesale Under Pressure and with New Chances

17. Regionalization of the Markets Challenges

National Wholesale and Retail Operators

Differentiated Market Approach

19. Transformation to Value Orientation

20. Interview: Successful Long-term Positioning on the

Detecon International GmbH

21. Marketing and Sales: Total Turnaround

22. Interview: Brand Strategy Is More Important than Ever Before

23. Winning Hearts and Minds Loyalizing Customers

24. Interview: Employee Pride Is an Important Element

25. Customer Self-Services: Efficiency and Customer Loyalty

26. Customer Self-Services: IT Architecture as Enabler

27. From Telecommunications Company to Process Factory

About Detecon International GmbH

Agile Processes and IT

Detecon International GmbH

Detecon International GmbH

Keen Competition Among Carriers and OTTs

successful in realizing immense growth in revenues by offering attractive end

Detecon International GmbH

The relationship of the carriers to these competitors is ambivalent. On the one

Detecon International GmbH

Detecon International GmbH

Cf. Petry, Future Broadband Communication, p. 78 pp. in this volume.

Detecon International GmbH

Cf. Schnitter/Bornhauser, Future Network Architectures, p. 34 pp.;

Detecon International GmbH

Cf. Petry, Future Broadband Communication, p. 78 pp. in this volume.

Detecon International GmbH

Monetarization potential of the networks in wholesale and retail

Cf. Nielinger/Steingrver, Wholesale, p. 174 pp. in this volume.

Detecon International GmbH

Detecon International GmbH

everything is free mentality dominant on the Internet; at most, it will appeal

Detecon International GmbH

Innovation and Partnering

Detecon International GmbH

are supported by digitalization.16 Moreover, their own development of innovative

Cf. Krmer, Successful Partnering, p. 148 pp. in this volume.

Detecon International GmbH

competitive situation, information about existing customers, and technological

Detecon International GmbH

Cf. Penkert/Eberwein, Customer Self-Services, p. 270 pp. in this volume.

Detecon International GmbH

Detecon International GmbH

Short to medium term challenges & solutions for telcos:

Seven keys to success for integrated heavy asset carriers