Paradoxes in the notion of mobile billing replacing cash or credit cards

I continue to read supposedly-visionary pieces proclaiming the imminent death of either cash or credit cards, proclaiming that mobile operators will run the banks into the ground. As this wise sage points out, "Banks and credit card companies of the world, be very afraid. The operators will come to take your business away".

Apparently, we'll all be waving NFC-enabled phones at retailers' readers or transport systems' ticket barriers, and can kiss good-bye to the mess of credit and store cards lurking in our wallets.

In fact, we can forget about wallets too - the leather industry is destined for an implosion of catastrophic proportions. The coin industry is, similarly, quaking in its boots, seemingly scared of the "truth" as peddled by the all-knowing T Ahonen and others.

We have, of course, all the reference sites we need, with Safaricom's impressive M-Pesa mobile money platform, and NTT DoCoMo's Felica NFC-style functionality. And of course, the rumours suggest that the iPhone 5 will be NFC-enabled.

So this must all be true.

But just for the sake of argument, and being disruptive, let's have a look at some contrarian observations:

• 70%+ of the world's mobile subscribers, and essentially all those who are "unbanked", rely on prepay. The most typical way to top up prepay accounts is with scratch-cards or vouchers. Which are usually paid for with cash.
• There's also quite a lot of prepay credit that's bought with the help of bank cards, at an ATM machine. Probably more, in fact, than we're seeing bank card payments substituted by phone payments.
• The average mobile prepaid credit balance is something like $5 (much lower in developing countries) and is frequently zero. Not idea for doing your shopping, or even buying a coffee.
• Even some of the most enthusiastic NFC-promoting operators don't believe in the idea that customers will charge purchases to their phone bill or prepay accounts. They're providing hooks so that they can funnel payments to the user's choice of credit-card account, Paypal or another source of funds. Few customers want a fridge or airfare appearing on their bills at the end of the month. I had a recent conversation with a senior exec in one of the most NFC-friendly operators, and his view is that the bill is fine for small digital goods, but not major purchases
• Governments rather like cash and seem unlikely to want to permit or encourage its death. It's a bit difficult to do quantitative easing via mobile phone.
• In the SafariCom example, M-Pesa accounts are distinct from the mobile phone airtime account. It's basically a bank with a mobile-phone front end. Which makes a lot of sense, especially for the "unbanked" who would otherwise have cash stuffed under the bed & would be unable to make payments. But it's not the mainstream view of a "mobile wallet" substituting for cards or cash in developed economies.
• There are no "payment portability" or "mobile banking portability" laws yet. Given that most (all?) operator mobile payments linked to an access account, users unlikely to lock themselves in & embrace huge switching costs when they want to churn phone provider. Obviously operators want to reduce churn, but assuming your customers are gullible and stupid is not a longterm winning strategy. Loyalty isn't the same as lock-in.
• DoCoMo has spent rather a lot of money to get its payment solution accepted - including a near-$1bn investment in Sumitomo Mitsui Card in 2005 and the purchase of a stake in Lawson's convenience store chain. I don't see many other telcos stepping up to the plate with that sort of cash or serious intent.
• Central banking stats generally show "currency in circulation" continuing to rise, despite the presence of many alternative large and successful payment mechanisms such as debit cards. The chances that mobile payments will make a dent? Almost zero.

Taken as a whole, my view is that mobile payments have a very important role to play in markets like Kenya, where there are significant numbers "unbanked", big problems in distributing money such as salaries (eg Afghanistan) or Japan where a combination of culture (eg trusting the telcos) and heavy investment by the likes of DoCoMo can make a big impact.

I can also see some payments being facilitated by mobile phones (and in some cases operators) and being directed to existing channels such as cards, bank accounts, Paypal or iTunes.

But this clamour that "cash is dead", "the wallet is dead" or "credit cards are toast" is complete nonsense, now and for the forseeable future. I'd be more willing to believe that retina-scans, DNA authentication, telepathy or a William Gibson style direct neural interface for payments will happen first.

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Is mobile video traffic quite the threat that everyone thinks? Is the so-called "optimisation" approach flawed?

I smell the "Tyranny of Consensus", about mobile video data traffic.

This is a long blog post examining the "optimisation" of video for mobile. It forms part of Disruptive Analysis' ongoing research into policy & traffic management. For more details on custom work, please contact Dean Bubley directly.

Recently I’ve been bombarded with vendor announcements of video optimisation solutions, DPI and charging products, and lots of slides suggesting that operators might try to charge extra for mobile video traffic that is "swamping" 3G and 4G networks. Everyone is gearing up for "personalisation", tiered services and so forth – and even trying to talk up the prospect of video-optimised data plans. Everyone's putting out PR-driven surveys with predictably trite answers to loaded questions, usually ignoring cause-and-effect.

Normally when there's this level of consistency in stance, it's wrong. Or it's hiding something.

Most of the noise is coming from vendors of traffic management solutions sitting in the GGSN or in a box on the Gi interface – the link between the operator’s core and the Internet itself. Typically, these compress, transcode, buffer, block or generally fiddle-about with video traffic, with varying levels of sophistication and subtlety. Vendors in this general area here include Acision, ByteMobile, Cisco, Flash Networks, Mobixell, OpenWave, Vantrix and assorted others.

Some of them try to second-guess what’s going on in the radio by looking at throughput rates and other indirect indicators and only act when there's a perceived problem. Some can do relatively benign "lossless" compression which doesn't actually change the content. Some try to limit the amount of video that gets downloaded to the player's buffer, in case the user abandons viewing, closes the session and "wastes" the data already transmitted. Some control the numbers of parallel (concurrent) IP connections the device can use.

Conspicuously, the more radio-centric vendors have been comparatively quiet about video – although it’s possible they’re just looking forward to selling upgrades to LTE, rather than reducing traffic.

What's the problem?

So, is mobile video (a) really the problem that everyone suggests, and (b) if it is a problem, are they going about fixing it in the right way?

Obviously, it needs to be acknowledged that there's a ton of published information (and obviously more in private) that talks about the % of traffic volumes attributable to "video". So we know from Bytemobile, for example, that >40% of total global mobile data traffic in 2010 was video - at least from the networks they can measure. But then there's a bit of a "so what" there - as other analysis points out that usually only a few cells in a mobile network are actually congested, and we also know that there are plenty of other weak spots beyond data volume, such as RNC signalling storms, that cause congestion.

(The actual definition of video is that's something that's rarely or poorly defined itself. Is near-photorealistic cloud gaming video? Augmented reality overlays? A flash animation of a cartoon? Discuss)


It's about User Experience. Really?

So should we take at face value the claims of the video-optimisers that it's really about "enhancing user experience" as many people claim? (Everyone hates stalling video streams, don't they?). Or is it more about manufacturing a convenient bogeyman: an excuse to sell boxes to help operators "personalise" their mobile broadband or raise prices?

Video "consumes" lots of bits, so it must be evil, right? Never mind that in most of the world, mobile data is now priced by MB / GB tiers and quotas, so surely 3GB of email is just as evil as 3GB of video? Or more, given the greater signalling load. And doesn't the act of compressing traffic *unnecessarily* reduce the chance of upselling the user to a larger quota? Surely, when there's no real cost impact or congestion risk, doesn't it make sense to let users download as much as they want? Let the user, or app/content provider take the responsibility for reducing volumes if needed.

And never mind that the majority of mobile video still goes to PCs with USB modems, not tablets or smartphones, especially outside the US. Modems that have generally been sold by operators as alternatives or complements to fixed broadband, so it should be neither surprising nor a cause for action when customers use them for that purpose. (Although it’s interesting that T-Mobile UK has recently suggested that you should save your video usage for your proper network at home). It's desktop versions of YouTube or iPlayer, using Flash or HTTP, that are generating the tonnage - typically indoors. And people are tolerant of delays & buffering on PCs, and also know how to use the toggle for 360/480p or SD/HD.

In other words, a sizeable proportion of mobile video traffic is solely generated by operators' mis-selling and mis-pricing of PC dongles as real alternatives to ADSL and cable broadband.

Now obviously here there is a major issue: *when* a given cell or sector is actually congested, or a backhaul link, then one incremental video causes much more of a problem than an extra email. But all the coffee-table stats about "10% of users consuming 90% of the bandwidth" generally fail to state whether they also cause 90% of the problems. It's an anecdote, not a problem statement - especially as most of that 10% are PC users who've been sold a product designed specifically (and knowingly) for high consumption.

There's much less data to suggest that actual congestion is caused by bulky things like video streaming, or just that there are 20,000 people at Kings Cross Station at 9am on a Monday morning checking their email simultaneously. Anecdotally, I've spoken to operators that have agreed that the real busy-hour, busy-cell situation is much more complex than just blaming YouTube.

To give an analogy: I drive my car 4000 miles a year, as I live in central London and mostly use public transport. But I contribute more to road congestion than someone living in the middle of Wales, driving 40,000 miles annually from their cottage to town and back. Data “tonnage”, like mileage, is a lousy predictor of problem causation – yes, there’s probably a positive r-squared, but correlation is weak. But volume is easily measured, and to an uneducated ear it “sounds” fair to penalise volume, especially when prefixed with emotive PR gibberish like “data hogs”.

Forecasts

Everyone's seen the Cisco VNI forecasts for mobile video network traffic... but are they (and others) quite as accurate and meaningful as many seem to think?

I certainly agree that larger screen sizes means that video data will expand for the same duration of viewing. But other mobile applications for smartphones are proliferating too. Yet unless I'm missing something, the biggest growth in usage (minutes / events) is around social networking, gaming and the like. Yes, Facebook friends can embed or link to a video clip... but doesn't the growing amount of time spent messaging and communicating reduce the number of "snacking" opportunities to watch video? If you have 3 minutes waiting for a bus, do you watch YouTube on your phone, or message your friends or send a cleverly-crafted tweet or status update? 

I'm also not convinced that there's going to be a perpetual growth in minutes of video delivered over cellular macro networks to mobile devices *in congested cells*. There's too going to be many ways to offload and cache the content (eg podcasts, or connecting via WiFi or femtocells). Many of the places where people watch video or use 2-way video applications will be those with WiFi available. Those home with both fixed and mobile broadband will also increasingly use femtocells. Both almost completely eliminate congestion - especially if they route traffic promptly to the Internet rather than piping it back through the core. In any case, video will need to be treated differently by charging, optimisation and policy servers if it is delivered by a dedicated indoor solution. All such elements need to be made femto-aware to be useful.

So is the overall "problem" of macro-cellular mobile video going to get worse? Or is it manageable just with normal capacity upgrades and tiered pricing rather than complex control infrastructure, and questionable "optimisation" practices that are perhaps not optimal for user, content owner or operator?

Why optimise in the network anyway?

It's also worth noting that two of the most widely-used and successful mobile applications actually monetised by operators - BlackBerry's email service and Opera's Mini web browsing proxy-based service - are both self-optimised and data-compressed. The special magic is in RIM's or Opera's own servers and clients, not in the operator network in between. So why should video be any different? YouTube, the BBC and others are much more mindful of their users' quality of experience when watching their content than the operators.

The only way to measure real QoE is directly from the device or software client. Trying to decode "user experience" from the Gi interface is like a doctor diagnosing an illness by looking at how red your nose is, through a telescope from a mile away. Maybe the throughput has dropped because the user went to the basement for 30secs? Maybe a window was minimised? Maybe another app on a multitasking device squeezed out the video client with a big download? Maybe there's an OS glitch, or some other user intervention? The network does not - and cannot - know this.

There has even been some talk of network boxes checking that the video size doesn't exceed the phone's screen resolution, and reducing it to fit. This is astonishingly arrogant and apt to create huge user dissatisfaction (and perhaps lawsuits), as it ignores the possibility of the user zooming-in to part of the video, saving it to memory for later use, outputting via the TV port on some phones, or just using the device as a tether or modem.

Yes, some network elements can, in some instances, improve experience, some of the time. But it's inconsistent and unprovable, and may well have hidden side effects elsewhere. But it's like a spark-plug manufacturer claiming it can improve your driving experience with a new type of "optimising" plug. Yes, sometimes it could make the engine smoother and the driver experience better. But it's not much help if the tyres are bald - and it might also mess up the fine calibration and actions of the engine-management chip.

The gating factor is the radio network

The other elephant in the room is radio *coverage*, not capacity. Many 3G networks are still like Swiss cheese, with "not-spots" still common, especially indoors. The woolly survey questions about video user experience generally don't ask respondents if they live in a basement, or a building with metallised windows. Much of the problem is nothing to do with congestion - it's the pesky nature of radio link budgets. You can’t “optimise” video through brickwork.

Not only that, but the risible notion of offering "premium video" mobile data plans with so-called silver/gold/platinum service tiers generally overlooks the realities of physics, and the inter-dependence of shared media. Who’s going to extra pay for “priority” video when often you can’t get 3G at all? I’m writing this on a train – where I might actually want to watch video on my PC via mobile – and I’m lucky if I can get GPRS connection most of the time. I might pay extra for national roaming onto a competing network which can actually supply me with connectivity - but I'd rather just churn outright.

  

And what happens when a platinum user is right at the edge of the cell & wants a video? Do you boot off 70 gold-tier users who've got better radio conditions in the middle of the cell, just to serve them? In fact, even doing this potentially raises issues with consumer protection laws - the only way that HSPA can even theoretically get to 7.2 / 14.4 / 21 Mbit/s is by biasing traffic towards those people who've got the best signal. If you change the algorithm, it potentially makes the advertising claims false.

In conclusion

Overall, Disruptive Analysis believes that there is a good chance that the fears about mobile video traffic are being overstated, and being used as a smoke-screen to permit arbitrary degradation of video content, by unsophisticated boxes placed in the wrong part of the network, ill-equipped to understand the real causes of congestion and poor end user-experience. 

Regulators should scrutinise very carefully whether covert transcoding of video on uncongested links contravenes new views on Net Neutrality that permit only necessary and proportionate management. They should also enforce requirements on transparency stringently – a subtle “we reserve the right to manage traffic” in the terms & conditions is insufficient: there should be detailed and possibly realtime information on any active management / compression of traffic.

Content providers and aggregators should track whether their output is being modified over cellular networks without their permission or awareness, and should consider using encryption to protect against covert manipulation. The should embed agents in the browser or client app to detect unwanted “optimisation” (perhaps through digital watermarks or steganography) and alert the user when the operator is modifying the content in the background.

Operators should aim to work with content providers to enable them to optimise their content in the best fashion – either via rate-adaptive codecs, user alerts about congestion, altering frame rates, editing the video or other mechanisms. Some form of congestion API (ideally real-time but initially less-accurate) will help immensely. They should also pressure all of their core network and so-called "optimisation" vendors to adopt strong measures for radio-awareness and device/user-awareness.

Despite the hype about charging upstream content providers for "premium" QoS, operators should recognise that this will remain a pipe dream owing to the complexities of radio. If it works, it'll happen first in fixed networks, not mobile, where there's much more control and predictability. There's certainly no chance that a video provider, or user, will pay extra for so-called QoS if the network still has poor coverage

For those operators looking at offload, they should reject any policy management or optimisation solution which cannot distinguish between macro and femtocell traffic, or which cannot "optimise" by helping the user to connect to faster/less-congested WiFi if available. They should also be extremely sceptical of so-called personalisation services, pricing different traffic types (not “services”) differently, that look good on paper, but which are completely impractical and don’t reflect the reality of applications and the web, such as mashups.

Remember, video is not “an application”, it’s 10,000 applications, each of which needs individual consideration if personalisation is to be applied usefully. Unless there's someone with the skill and authority to think about this sensibly, there's a huge risk of failures and hidden gotchas.

Overall, I'm increasingly moving to the view that GGSN/Gi-based solutions for video traffic management are OK for urgent firefighting, but need to be very well-integrated with both RAN probes and, crucially, device-side intelligence to have longevity of usefulness. Most of the network vendors (understandably) shy away from working directly with handset OS's, connection managers and other tools - this will need to change.

Disruptive Analysis is one of the leading analysts covering mobile broadband business models, policy management and next-generation "holistic" models for controlling traffic and user experience. Please contact information AT disruptive-analysis DOT com for information about workshops and custom research projects.

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Why developers need to take responsibility and create more network-aware applications

In all the brouhaha about traffic management and Net Neutrality, it is startling that one aspect is often completely overlooked - the need for mobile application developers to become much more network-aware, and write their software to take account of the realities of the user's situation.

This is not, primarily, about saving money for the network operators. It is about creating a better all-round experience for the applications' users, whether that is through improved or more consistent performance, less impact on device battery life, easier monitoring and feedback, or saving users time and money.

Ideally, applications should be aware of a broad plethora of network-related variables, and be able to act on them accordingly. An incomplete list includes:

- Real-world end-to-end speed, latency and jitter, for both uplink and down
- Bearer type - WiFi (and SSID and security method), 3G, 2G etc - or combinations of the above
- Which bearers are potentially available, but not being used
- Whether the cellular connection is routed via a macro- or femtocell
- Roaming status
- Variations in network quality, either predicted or real-time measured
- Price plan details - eg per-MB billing, time- or location-variable, proximity of thresholds & caps
- Probable future connection status - eg likelihood of going out of coverage, or switching to another network
- Awareness of current or likely future congestion on the network
- Mechanisms used for offload
- Policies applied by the network, and how these vary by time or bearer
- What types of signalling the application is likely to generate, directly or indirectly
- Handset capabilities & status (eg ability to use multiple radios, battery level, whether WiFi or 3G or roaming are switched on, potential for side-loading via Flash memory or Bluetooth and so on)
- Whether the phone is being used as a tether, or could use another device as a tether / peer

In reality, no application is going to be able to deal with all of these, or pick a comprehensive decision-tree route to decide on how to behave. Instead, there is likely to be a sub-set chosen - based on the nature of the application, the availability of the various input data, and the preferences of the user. A certain proportion of these "network-aware" elements will also be the responsibility of the OS, which might dictate either universal rules ("no updates while roaming") or might bundle some up into a general "network status API" or "bearer-awareness recommendations" accessible by all apps.

Some apps already make use of this type of data, at least in part and on some platforms. VoIP and streaming-video applications are typically the most bearer-sensitive, able to choose different codecs or frame rates based on observed network performance.

But we are still at very early days, especially with regard to the ability of apps to understand or predict mobile broadband congestion, offload dynamics, or cell-edge drop-off effects.

There are three main sources of this data:

- Direct measurement and input by the app itself. For example, Skype clients can measure latency and packet-loss directly.
- From the handset OS, which may expose some of this data centrally - eg WiFi vs. 3G connections, or perhaps in future the aggregate cellular data consumption vs. a user-defined monthly cap.
- From an operator API - perhaps roaming status, or ideally information on the user's data plan. Ultimately, operators will expose "congestion APIs" to applications and devices, although this is still a future-looking concept.

There may also be data that can be gathered from other sources, such as utility applications in the handset or in the cloud, or via direct provision from network elements in the data path.

There is likely to be a considerable amount of push-back from parts of the developer community towards this concept. This stuff is complex, perhaps boring, and will add time and risk to the development process. Some will undoubtedly say "It's not my problem" and attempt to abdicate their part of the decision-making. Nevertheless, mobile application (and mobile web) developers need to take responsibility for their creations' actions and performance.

There are far more variables - and variability - involved in wireless connectivity than is the case on fixed broadband, or a company LAN. On an ADSL line, you're not at risk of suddenly "going out of coverage". On a local gigabit ethernet connection in an office, you don't have to conisder the impact of roaming or the benefits/drawbacks of switching to an alternative connection. Using normal home WiFi you don't have to think about signalling loads.

Mobile *is* different and is much less predictable, and that should be reflected in application design where connectivity is required.

Disruptive Analysis believes that it is incumbent open both device and OS vendors to educate their developer base on the importance of "network-awareness", to a much greater degree than in the past. It may even need some sort of app certification as "network-friendly" to identify which software acts as a good mobile citizen.

Operators also have a role to play - firstly by exposing the right information via APIs or other mechanisms, and secondly by being honest and communicating the limitations of their infrastructure. Whether they are ever going to be able to charge extra for this information is unclear, but it is certainly in their own self-interest to enable network-friendly applications. That said, they also need to be wary of providing tools to those trying to "game the system".

Overall, the next few years will continue to see grudging moves to more network-aware applications, and more application-aware networks that aim to actively help applications rather than just use DPI or PCC to arbitrarily enforce blind network policies.

In fact, all of this is an absolute prerequisite for the success of future mobile cloud applications. Without this bearer/radio-aware knowledge and the development of network-based feedback loops, cloud services are doomed to niche status.

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Uploaded - recent free white papers on mobile data policy management

A month or so ago, I announced that I'd written and published three detailed white papers, plus an introductory document, covering new use cases and concepts for what Disruptive Analysis referes to as "holistic" mobile data policy management. These look beyond the simplistic early 'silo' approaches to DPI, policy, optimisation and offload, many of which have been arbitrary and often user-unfriendly.

These are now available by download via Scribd.

The introduction is available here:
http://www.scribd.com/doc/45784870/Mobile-Policy-Management-White-Paper-Series-Intro

• Device-aware: not just what brand and model, but over time much more granular detail about OS version, firmware, connection managers, security, power management and the ability to communicate about network status and policy with the user. Increasingly, network vendors and operators will need to link network infrastructure boxes to on-device clients. This also ties in with application awareness - particularly around dealing with mashups, VPNs and so forth. See & download from here
• Bearer-aware: the policy infrastructure will need to be much more informed about the status of the radio connections(s) - what technology, femto vs. macro cells, whether Wifi is available and suitable, what is happening with signalling load, whether congestion is actually occurring at a given time/cell and so on. See & download from here
• Offload-aware: whether data is being (or should be) routed via WiFi, femtocells, RAN offload and so on - and whether this should be managed or unmanaged. There are many variables here, and many use cases, such as the ability to use multiple networks simultaneously, "selective offload" (SIPTO / LIPA) and so on. See & download from here

Given that regulators such as the FCC and Ofcom seem to be moving towards policies on traffic management & Net Neutrality along the lines of "minimum necessary" or "reasonable" control of traffic by operators. This means that any policy enforcement will need to be reasonable, proportionate and context-specific. Arguably, there is no justification for unnecessary throttling or compression at quiet times / cells, unless you live on a Pacific island and IP transit is expensive. There is certainly not likely to be justification for much arbitrary discrimination between websites or applications, especially if this is not done with full transparency.

Each of these issues is covered in a separate white paper, plus there is an overview introduction.

This is an area I cover in a lot of depth. If you are interested in an internal workshop, advisory consulting project, or need an external speaker for an event, please get in touch at information AT disruptive-analysis DOT com

(Note: The papers have been kindly sponsored by the folks at Continuous Computing, who have given me a completely free rein to write about topics that are interesting, and which hopefully push forward the industry thinking about how better to control & monetise mobile data). 

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Why application-specific policy and charging will (almost) always fail

Over the last couple of days, the technology blog and Twitter world has reacted with righteous anger to this slide and the underlying sentiments around Net Neutrality, especially given the FCC's announcements recently.

I don't think Openet and Allot have done themselves any favours with that webinar chart. Not only was it guaranteed to cause a storm of controversy, it's all made 100x worse by the fact that that sort of app-centric policy / charging mechanism simply will not work, either technically, commercially or (probably) legally. There are so many workarounds, pitfalls, gotchas and risks that any carrier would be crazy to even try it, especially in developed countries.

On the other hand, it's the sort of slide that will make some mobile operator marketing people salivate, especially the more gullible and technically-ignorant among them, so I guess I can cut the two vendors some slack. In all probability, there are some operators which will try to do this sort of thing anyway, so if they're going to waste their money, then I can understand the vendors thinking "well, they might as well waste it with us rather than the other guys".

[Sidenote - if you work for an operator and want to get a detailed view of why this is a *really bad* idea, please get in touch with me to arrange a workshop]

I'm supposed to be on holiday & am waiting for a rebooked flight, so I'm not going to give the long list of problems. But just to get the debate going, let's start with:

• Customer dissatisfaction & churn
• Likely regulator disapproval & censure
• Stuff inside VPNs
• Mashups (what happens to the YouTube video embedded in a Facebook page?)
• Who pays for *uploads*?
• Acceptable level of "false positives" and the legal liability associated with that
• Need for network ops guys to *really* understand applications & how they evolve on a daily basis
• Lack of anybody with the job title "policy manager" who grasps and has authority over all the necessary bits of the puzzle - radio, core network, app trends, devices, user behaviour, legal issues, PR, partnership etc
• Multiple fraud possibilities
• Fit with CDN architecture & difficulty of charging Akamai
• Probability of key Internet companies turning the tables on the operator and say "no, you pay *us* or else we're going to block access to your subscribers, suggest they churn, and give free adverts to your competitors"
• It gives implicit permission for fixed operators to charge your customers to use your femtocells on their DSL/cable
• Doesn't reflect signalling load in the RAN
• Difficulty in predicting future direction of applications. Is Facebook's new email service going to be classified as Facebook, or email? What happens if Facebook buys Skype?
• Tons of arbitrage opportunities
• Lack of decently flexible upstream billing & reconciliation systems
• Need to have perfect coverage before charging for incremental services

And plenty more.

Now most of the anger is around the general philosophy of Net Neutrality and whether operators should be "allowed" to do this sort of thing. I'm actually fairly, er, neutral on that. It's simply that this sort of approach is woefully flawed, and in any half-competitive market will lead to immense customer dissatisfaction and churn.

It's not wrong or evil. It's just naive.

Now... that doesn't mean that *all* application-based policy use cases are going to fail. There are some which I can see having value, or which are less prone to outright failure. I can see "zero-rating" of specific partner apps being valuable, because that will encourage the provider to collaborate with the telco. Although it's probably easier to just put those in a separate APN rather than sift through the main data-stream. I can also see the arguments of rate-limiting of P2P traffic for congested cells, especially uplink. In the fixed world, I can certainly see the role of this for specialised services which are use the broadband, but which are not Internet-based (eg IPTV or home security or specific cloud apps).

But the idea that an end-user will pay extra per-application, for major Internet services like Skype or Facebook, on their broadband access? Utter nonsense. As I wrote yesterday in my 2011 predictions earlier this week, there's a huge opportunity on the horizon for Policy and DPI. But the slide on Engadget is 100% the wrong way to attempt to monetise it.

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The inevitable 2011 predictions - successes and failures

It's the time of the year for snow-induced travel chaos and long lists of predictions. So before I chance my luck at Heathrow later today, I thought I'd put my stake in the ground with an assessment of winners and losers for 2011.

I'm focusing here on my main research themes at the moment:

• Mobile broadband and 3G/4G, technology and business models
• Mobile data traffic management and the network core
• New telco strategies and revenue opportunities
• Next-gen communications services
• Devices and smartphones

 

HSPA/+ and smartphones for data - Really, the big story in 2011 is going to be "more of the same". More smartphones at both low and high ends, more dongles, and slow but certain growth in new device categories. Despite the fervour over LTE, it's going to be the growing maturity of "normal" 3.5G which is going to be driving the industry, if not the headlines. This will have a number of knock-on effects for both infrastructure and device vendors. Increasing densification of 3G networks in urban areas, along with network-sharing deals, will be top of the list for many operations and strategy departments. Policy (discussed below) will continue to be an issue.

Shifting demographics and usage patterns (eg cheap Android phones, new & unpredictable app adoption) will drive the need for coverage and capacity in unexpected places. A growing volume of prepay data users in Europe, Latin America and Asia will start using 3G, and rapidly ramp up their data consumption both via smartphones and featurephones. Many of those incremental users will be using "vanilla" unsubsidised devices, which are more difficult for operators to control.

Infrastructure vendors will continue pitching both HSPA equipment and managed services, while talking-up LTE. However, operators in developed markets will start considering whether fully-outsourced networks - while offering predictable Opex - might actually reduce their strategic flexibility. Disruptive Analysis believes that "under the floor" players have the potential to be even greater threats to telcos than the much-maligned so-called OTT providers, hollowing out operators' core skillsets, source of value and key differentiator - the network itself. 2011 success rating: 10/10


Evolved policy management - Linked to the growth of mobile data, and the shifting revenue/cost equations of mobile broadband networks, Disruptive Analysis expects to see a continued intense focus on traffic and policy management solutions. A particular theme will be a move towards more "holistic" approaches, shifting from the easy-but-crude approaches to managing content at the GGSN towards much more RAN-centric and device-centric approaches. Using an optimisation server stuck in the core of the network to squash down video content will be viewed as a primitive solution - not least by regulators, who will likely flex their stance on Net Neutrality to allow greater levels of active traffic management, but only when it is actually essential. Applying blanket policies in the network core, irrespective of actual or predicted congestion levels in the radio, and without a user's-eye view of QoE (no, not QoS) will start to become a competitive disadvantage.

As part of this, expect to see more refined pricing / charging strategies. New ways of tiering charges by volume, or by speed / time / device are very likely. However, we are still unlikely to see successful deployment of the mythical gold/silver/bronze tiers of service beyond speed caps. Ultimately, the largest gating factor on QoE is the radio network, and no amount of QoS-twiddling is going to make a big difference if your house is on the edge of the cell. Device-specific pricing will have far more success than attempts to charge differentially for certain Internet applications. Despite DPI vendor hype, the network does not really understand applications, just traffic types. Some broad categories might be applied (eg P2P), but attempts to try to charge differentially for VoIP or social networking or even video are doomed to failure. There will also be growing recognition that the "tonnage" way of metering mobile data by GB is not really a useful or appropriate way to align usage with actual costs of running the network. 2011 success rating: 9/10


Own-brand operator OTT services: This is going to be the big surprise of 2011. I've been talking about access-independent services for some time, but it's still been a taboo among many operators. The idea of Operator #1 launching services targetting Operator #2 and #3's access customers has sat very uneasily with the clubby, collaborative, "we're all in this together against Google and Facebook" interoperability mentality of the telcos. This ethos is now fraying. Various collaborative efforts (think RCS....) have ended in failure as coalitions of the losers. Most operators, either publicly or privately, through major efforts or skunkworks, are now thinking about decoupling access and service, and attempting to play the Internet companies at their own game. This is absolutely the right approach, and one which is currently underestimated by many - who will find out to their costs when they lose first-mover advantage.

Now the devil here is in the detail - Vodafone 360 had great vision but has suffered from poor execution. Going forward, there should be some serious innovation around VoIP (both telephony and other voice applications), social network, OTT-style social TV for fixed broadband, and various enterprise / cloud offerings. There will be out-of-region expansion (perhaps AT&T in Europe, or Orange in the US) via smartphone apps, or on-PC clients. Third-party hardware is also an option - femtocells already work over other telcos' networks, and that model is likely to extend to set-top boxes and maybe tablets as well. - 2011 success rating 8/10  [Note: this one is success relative to general expectations & consensus (ie none) - clearly it's not going to change the industry overnight, but it will point the inevitable way to the future]

Femtocells - Various people have been asking me if 2010 was the "year of the femto", which I've been hesitant to agree to, as I see market evolution more as a steady progression. Nevertheless, the femto concept has been hugely validated by a number of high-profile launches, and we are likely to see continued growth in 2011. In particular, we will see a move from a coverage-led proposition to one more based around capacity and offload. There will also be an early move towards use of femtos in public spaces or "macro femtos" for capacity enhancement in the street, perhaps attached to street furniture or cable plant. However, obstacles still exist - not least the femto model for prepaid users who are using mobile broadband as a substitute for DSL or cable contracts (a lack of prepaid deals for fixed broadband is an ongoing omission of the industry, leaving money on the table). We will also see some early interest in LTE femtos, although the concept of building a completely "inside-out" network does not seem to have legs immediately. Disruptive Analysis also remains skeptical of the market for enterprise femtocells, except simple installations for SMEs. 2011 success rating: 7/10



LTE for data - Although HSPA will continue to go from strength to strength, there is a groundswell of both optimism and activity on LTE. Not only that, but a stream of spectrum auctions - especially 800MHz digital dividens - is coming through, which will almost inevitably be used for LTE deployment. Disruptive Analysis does not expect to see a wholesale switch to LTE, even in markets where it is deployed, but certain operators will be very aggressive, especially CDMA operators that are struggling to evolve their EVDO networks to match the reality of HSPA+. Other markets will use early LTE deployments as flagships and testbeds, especially for PC users. LTE smartphones will start to emerge during 2011, but will gain likely minimal uptake outside of the US and Japan. There will lots of noise about LTE M2M, but remarkably little action. 2011 success rating: 6/10

Tablets - I've been somewhat surprised by the iPad's success, but I still don't see tablets as a major game-changing trend, beyond the "Apple Effect". I still think that the iPad is primarily a nice (and for some groups of people also very useful) gadget which complements their PC/Mac and smartphone usage. I don't see massmarket Android platforms fulfilling the same roles and I certainly don't see tablets heralding some sort of mythical "post-PC" era. I do seem them as becoming important for "social TV" use cases in the home, though. I expect to see a declining % of tablets with embedded/activated 3G radios going forward - the bulk will be WiFi-only. 2011 success rating: 5/10



Two-sided operator business models - I spend a lot of my time examining realistic ways that operators might monetise "non-user" sources of revenue. At the moment, I'm seeing something of a mixed bag. Certain niches such as M2M are showing signs of growth. Others such as (some) operator app-stores have potential. Mobile advertising is growing but still small at an absolute level. There is growing interest in the "personal information economy" around identity and authentication, but it is early days and operators have various commercial, technical and regulatory challenges.

The willingness of telcos to enable "comes with data" models for new devices has been slow, largely because of the constraints of the legacy "subscription mindset". The SIM/subscription model is extremely ill-suited to most consumer electronics products, for example. Telcos have also been very slow at releasing and marketing developer-centric APIs on a commercial basis, focusing too much on capabilities well-served by alternative solutions, such as SMS or location. Instead, they should focus on more useful & unique information sets for developers, such as network congestion APIs, or mechanisms for communicating device capabilities, status and customer tariff plan.  

Another area that operators are in danger of failing on is around broadband prioritisation and attempts to derive revenue from "upstream" players such as Netflix or Google. The wrong way to do this is via confrontation or trying to enforce some sort of "pay per GB" toll. The ridiculous operator appeals to the EU for a Google tax earlier in 2010 are classic examples of what not to do "They're clever, we're dumb, please punish them". Frankly, Google and Netflix have more of a moral (and perhaps legal) argument to charge telcos, not vice versa. Instead, MNOs need to focus on "success-based" broadband value-adds, with measurable SLAs, not just vague promises of QoS. Cableco's pay for good TV content for their access customers - telcos may be prepared to pay for good Internet services for their broadband subs, as they have more to lose in a "switching war". Another option would be a Google-style affiliate model, where clear telco-enabled uplifts to advertising (by QoS, customer data targetting etc) would be rev-shared. However, I'm doubtful that we'll see a switch from aggression to pragmatism in many cases. 2011 success rating: 4/10

NFC - I've been a long-term critic of NFC, especially for mobile payments. The noise around the technology has risen to a crescendo recently, with Orange launching a major initiatives in 2011, and a three-way project by AT&T, Verizon and T-Mobile. Apple and Google are also rumoured to be joining the fray. I'm still very skeptical, especially when it comes to the more ridiculous notions of "bill this to my phone account", or attempts to integrate Oyster-style travel passes or hotel room keys onto handsets. None of these make obvious sense as operator business models. However, I wouldn't discount the chance of Apple of Google in particular doing something clever, such as an NFC-based way of authorising music purchases, or perhaps acessing specific services in particular locations. 2011 success rating: 3/10

LTE for voice - Despite talks of trials of VoLTE, Disruptive Analysis does not expect to see successful massmarket voice services launched on LTE for several years, with the possible exception of NTT DoCoMo. There are huge barriers to getting any form of LTE voice working well, especially to the levels that can be experienced with a $20 GSM phone. There are likely to be many, many challenges in getting primary telephony working well - we'll probably have to go back to the drawing board in terms of voice quality as well as the network side of things. Echo cancellation, packet loss concealment, all the clever stuff the Internet VoIP guys have been doing for years will need to be replicated in LTE mobile. It is conspicuous that the GSMA VoLTE initiative focuses on the middle of the network (interoperability) and much less the factors that drive customer experience (battery life, on-device call quality and so forth). In many ways, VoLTE is mis-named - it's really just ToLTE (telephony over LTE), and not a generic multi-app voice architecture, starting from first principles of "what are the use cases for voice in future, and how should these be supported?"

The network might be good at minimising packet loss and jitter, but the real difficult stuff in mobile VoIP is what to do with the data stream when packets are lost. Cure is actually more important than prevention, especially where RAN coverage will inevitably introduce problems. As for CSFB (circuit-switched fallback), it's a disaster in the making. Call setup times, breaking LTE data connections and so on. VoLGA? Maybe, but it needs either handset vendor support or perhaps a good OTT-style client implementation. Disruptive Analysis maintains that the best short-term solution for voice with LTE is one of the afore-mentioned $20 phones, and a strip of Velcro.   2011 success rating: 2/10

I'm struggling to pick out a single outright loser for the 1/10 spot (or even zero/10), so instead a quick list of next year's biggest turkeys:

• IMS RCS. 'Nuff said.
• Any new operator-specified handset OS.
• Federated operator-run cloud services (although single-operator clouds have good potential). Likely to get hyped as a triumph for interoperability, and therefore the best candidate for a new losers' coalition.
• Subscription-based Mobile TV (as always). Yes, there's a handful of iPad video addicts. And yes Japan uses terrestrial TV-to-the-phone. But massmarket TV on massmarket phones? No, just as unlikely as in 2006 when it was last hyped.
• It's about time for the FourSquare-style "check in" model to implode under its own preposteroussness. The only good thing about FourSquare & peers is that it's a great way to know where not to go, if you want to avoid meeting dull social-media people.
• Paid apps for Android, Symbian and BlackBerry. There's a strong correlation between a willingness to spend $$$ on apps and willingness to give Steve Jobs $300 gross margin per device. Everyone else counts their pennies & will go for cheap/free wherever possible.

And I know I'm normally opinionated about everything, but I also have a few questionmarks, where I'm really not sure at the moment:

• Operator-run appstores or app-malls. Might work out in certain contexts, but I can't see them worrying Apple. 
• Large-scale M2M. I'm still unconvinced that a zillion sensors and fridges are going to get networked up. And if they do, they also guarantee that GSM/GPRS will be around for the next 30 years, and we won't be refarming much 2G spectrum any time soon.
• New variations of the SIM card (eg OTA IMSI-updating, multi-IMSI, wholesale & switching etc)
• Augmented reality
• Whether Nokia can stage a return to its glory days with MeeGo
• Will a major Internet / IT company buy into cellular, either via acquisition or as an MVNO
• Satellite-based mobility

I'm going to be away for the next couple of weeks, so probably won't have a chance to review and respond to many comments - but I will try to get online at various points to review any feedback.

Happy New Year to all....

Now, let's see if I'm one of the favoured few to get out of LHR this afternoon.

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Falling smartphone prices = problems for operator control?

Conventional wisdom has it that operators are looking forward to smartphone prices dropping, and it means they will need to spend less on subsidy to acquire and retain customers.

Leaving aside the likelihood of iPhones continuing to stay at the top of the range, it's certainly becoming true that the lower end of the Android device range, as well as Symbian, Bada and BlackBerry, are falling precipitously, already in some cases to below $150-200.

Now while there will always be the tech enthusiasts wanting the ultimate 2GHz, super high-res screen, OS version 9 smartphones, it's possible that Joe or Joanne Average will be happy with something with a decent browser, fairly responsive screen, OK camera, good Facebook client and a screen big enough to watch kittens doing backflips on YouTube. Some will want a QWERTY

That price point is likely to reach $100 in the not-too-distant future. At that point, the world changes a bit. It's a discretionary purchase, like a new shirt or a pair of mid-range trainers, or a nice meal. It becomes subsidisable down to zero by a whole host of companies, not just mobile operators who want to pad out their ARPU with repayments from a thinly-disguised consumer credit loan.

And this will bring some interesting issues - especially whether  people continue to opt to buy the "operator-ised" version of phones, or end up getting them "vanilla" via Amazon or (almost) free with their breakfast cereal. You'll certainly get smartphones given away free with other purchases - maybe "Buy a new Samsung TV and get a Samsung Android Remote Control Smartphone free!!!".

At the moment, about 50% of the world's phones go through mobile operator-controlled channels. But a higher % of smartphones take that path, because they tend to be predominantly bought by post-paid customers, often bundled with a subsidy or a fixed "plan".

As smartphones become more accessible to prepaid users or basic SIM-only conract customers (who usually buy phones for "full retail" price, or re-use an old handset), there becomes less incentive to get them through the operator channels.

This then means less incentive to get the operator software-load (own-brand apps, appstores, connection manager / offload client etc). Coupled with Apple's reluctance to let operators customise iPhones, this is likely to mean that operator "control points" will, in a growing % of smartphones, be relegated to the SIM card or the network, unless the telco can persuade users to download their branded clients and install/configure them.

As I'm writing this, I just received a  press release from ST-Ericsson about hardware platforms for the growing demand for dual-SIM phones. They will *obviously* be sold as vanilla devices as well.

At the moment, most of the world's unlocked phones are low-end devices for voice/SMS customers.

What's unclear is what happens when there's a large enough population of unlocked smartphones as well, with 3G and WiFi and lots of memory. What applications and user experiences go viral? Will we see auto-tethering and connection-sharing emerge? Wide use of a cool new VoIP service? Content-sharing? Applications which work out how many minutes / GB you've got left at the end of the month, so they can resell them or share them with your friends?

The bottom line is that lower phone prices might lead to a reduction in subsidy expenditure by operators. But ultimately this may just further erode control over the user as well. If a phone only costs $100, why would you buy it from someone who takes a strict line in telling you how you may use it?

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