Telcos without flexible add-ons

Recently, John Nash had a talk in Istanbul Game Theory Society Event where he has been asked if there can be a situation where both parties lose. He stated that this can happen but quite rarely.

Well, I encountered two lose-lose conditions in a week where one of them was about a telco which I am going to mention in this post.

I bought a data package of 500MB. The package was monthly and it was actually “unlimited”. However, according to the fair usage amount policy, the speed of the connection decreases dramatically after 500MB but the package was unlimited until the end of monthly usage period.

After using the first 500MB, my connection got really slow and I called the customer contact centre. I told them that I want to buy an additional 500MB with the same speed and it was quite disappointing to hear that the customer representative told me that it was not possible. Then I told him that he can cancel the package (even though I had at least 10 days until the end of a month of usage) and I’m happy to pay the full monthly package fee one more time so that I can have a proper connection. The response was again no and the reason for that was even though they cancel the package it keeps valid until its end of usage period.

I realised that there was no way to speed up my connection but wait until the package expires! This was a condition where the operator lost easy and significant revenue from a “willing to pay” customer and where the customer was upset because he needs to use a very slow connection for around 10 days without being left with an option.

Flexible add-ons are key features of a telco product and lack of it can cause irritating conditions for customers and loss of potential revenue for the telco. Of course, telcos need to have flexible infrastructure to handle many add-on possibilities however doesn’t it worth investing when you have chances to double – triple sell a product where you planned to sell only once in a period?  

Can we trust open wifi

A new innovation in the wifi market is Anyfi. It's a software-based product that makes every public Wi-Fi network available as a broadband connection.

In the first instance it looks like a great option for operators. It would improve their ability to leverage upon 'home' wifi-networks to improve their data network credentials, essentially creating a more 'open' version of BT's existing 'Cloud' service. And consumers benefit through improved connectivity with seamless movement between wifi and mobile networks. However I'm a little concerned about this type of product and, more generally, the hidden risks created when networks become 'open'. 

Whilst there appears to be plenty of smarts working behind-the-scenes to make sure that the gateway between the home connection and that of the outside world is secure, the robustness of that system and its effectiveness are crucial. 

"Secure" is a very loose term in IT. In reality providers can really only offer a best-efforts defence against malicious activity. If someone wants to get around the gateway, they will. These days it costs less than a bus fare to hire the network capacity needed to crack a 6 digit WPA-PSK password and if that isn't concerning enough, be aware that the job can be done in less than an hour!

Sure it would take more than you're average PC-user to undertake that sort of exercise, but how many consumers truly appreciate that password protection is anything less than bullet-proof?  Survey after survey demonstrate that most consumers don't actually use strong passwords. And the results of public hacks re-enforce this observation. Of the 30 most popular passwords identifed when LinkedIn was hacked, the top 4 were 'link', '1234', 'work' and 'god'.  Far too many consumers have a false sense of security when it comes to using network services.

The world of open computing is going to change the IT landscape and has the potential to bring significant economic growth. At the same time it does create significant risks. It is these such risks that internet users (especially the less experienced) need to be made fully aware of before they sign up. 

Service doesn't always end at the check-out

When we purchase products our relationship with the vendor doesn't end at the check-out. Thanks to consumer protection laws, vendors have a 'duty of care' (that opaque legal term) to ensure their products are fit for purpose, do what they are meant to do and so forth. 

But where does this duty of care extend to? If one was to buy a product and use it for something other than its 'normal' purpose is that the vendors responsibility? What if a customer misuses ceiling paint to cover a scratch on their car? Or, worse, unlawfully paints someone else's property with it?

Sure one action is legal and the other illegal, but in either case could (or should) the vendor be held accountable? Although the vendor's product facilitated both actions, it is fairly clear that duty of care had reasonably ceased. 

However, when consumers purchase and later use the internet, ISPs are meant to provide much more than just the connection. They are responsible for filtering content and managing what we see and do. And in India at the moment the High Court is determining whether Google, Facebook and 19 other companies should be held accountable for managing content on their internet media services. Now this is not region specific, and there have been a host of similar discussions in other jurisdictions (UK, USA, Australia), but I have to question whether it is the IPS's role to play gate-keeper in this way. 

It's a very different kettle of fish to the simple paint example. And in this case the vendors do have a technical capability to manage how their product is used. However, surely it is unreasonable that they they must also determine what is lawful. Taking a wide berth around the free-speech aspect of this topic, government shouldn't be asking vendors to self-regulate to this extreme. It's simply beyond scope. 

If we accept that a government is to proceed down the path of information control then leave the policing to the police - aka a regulatory body - or use a system where the filtering is done via an agreed set of criteria (e.g. blacklist). 

International price discrimination worthy of an enquiry?

Politicians in Australia are trying to put Apple's product pricing before an enquiry as according to research by the SMH Apple is charging consumers here much more than it does elsewhere in the world.

Whilst price discrimination can be a important competition issue, is this particular case worthy of a federal enquiry?

For many years pharmaceuticals have been experts at charging differential prices for drugs across different countries. Typically, but not always, charging higher prices in wealthy nations and lower prices in developing regions. They say it's a way to efficiently recover their high common costs (e.g. R&D) and the means justify the ends.

Economists would describe this as Ramsey pricing in action - a contentious little beast which implies setting prices inversely proportional to demand elasticity.

However the public discontent around this is quite understandable. No one likes to find out they are paying the highest price on the market. But, are these products for which price control intervention is justified?

According to Apple's 2011 annual report, sales were particularly strong in Australia with large increases in year-over-year growth. And the Asia-Pacific segment (which is the aggregated level that they report to) represented 13% of their global sales portfolio. So despite the higher prices Australian consumers have been quite willing to pay for Apple's products, and a lot of them.

Moving to the supply side, consumers are able to purchase a variety of lower cost substitutes across the whole of Apple's range. Computers, music and handsets hardly single point-source markets in this region.

So whilst it's important that consumers are protected from price gauging and there are national interests at stake, all things considered, high-end products from a single supplier (all be it a large one) is probably not an issue that needs to be front and centre of the federal regulatory agenda.

In my view the theory of harm is weak, but it's a nice straw man to win favour with some of the voting population all the same...

Why Facebook is doing poorly in the Japanese market?

According to Facebook's IPO Roadshow Presentation, Turkey and Chile are the top penetrated countries with more than 85% user penetration. Same presentation indicates that the user penetration is less than 20% in developed markets such as Japan and South Korea. What does this mean?


Turkey and Chile are both emerging markets with significant grow rates. Especially Turkey currently has a massive boom in its internet market. Tens of new e-businesses are being established every day and everybody is curious about internet. This makes a clear case for user penetration to be high in these markets.


But how about Japan and South Korea? These two countries are almost the most technologically developed countries in the world. However, Facebook is doing quite poorly in these markets. I am taking Japan as an example and I think there might be couple of factors for these numbers;


1) Lack of local knowledge and language capabilities might put Facebook behind the competition. Japanese market has Gree and Mixi which are labeled by some as "more comprehensive Facebook". Gree has reported 21M customer in July 2010.


2) The percentage of population above 65 is ~6% in Turkey while this is around 23% in Japan. Older people are not likely to use Facebook and new technologies.


3) Culturally, Japanese people are less open about themselves and more sensitive about distracting someone. Since Facebook is an open environment for "disturbing" each other and disclose private information easily, Japanese people might be reluctant to use it.

4) And hard working maybe?They work so hard that they don't have time for "Facebooking"? :) 


What else do you think can be the reason?

Do you need to retain that customer?

Most of the operators have rules to remove their prepaid customers from their customer base (ie.HLR) if the customer is not "active" for a couple of months(usually 6) They want the subscribers top-up or make at least one call so that they can be qualified as active.

But, wait a minute.. A subscriber can still be very profitable even he is not topping up a penny. The subscribers getting calls from other operators can generate a fair amount of revenue from the termination rates. Therefore, I totally disagree with this deactivating process of operators.

The retention and churn strategy should be bound with profitability, not activity.

Bundling up revenue and missing an opportunity?

Pay TV operators have access to a fairly exhaustive amount of content. There something to float everyone's boat - news, entertainment, leisure, drama. comedy, sport and plenty of different options in-between.

Yet despite this mass of content consumers are only offered a select number of channel bundles to choose from. Virgin has 3 products and Sky has 4.  In both cases the add-ons which differentiate each bundle are basically the same. If you want to watch sport, movies or drama then you have to pay extra, with all the other channels essentially thrown in for free.

Now I love watching movies and so I'm very happy to fork out a little bit more to include these in my package. But surely there is potential to extract some revenue from me for the 'other channels' as well?

Of course the marginal cost of providing the 'other channels' almost zero and they have traditionally been viewed as space-fillers. I'm just not so sure that the benefits need to be equally low for both broadcaster and consumer.

In the UK it's crystal clear what viewers want most. Pure and simple, sports broadcasting is king. And, it leads the field by large margin. In 2011 sport was worth a total of around £1800 million of revenue to UK broadcasters. But for every pound made from sports, broadcasters only got back....

• 3 p from leisure broadcasting, 
• 4 p from the news, 
• 6 p from music, and
• 11 p from factual programs.

Sure the revenue splits reflect consumer preferences to a degree, and consumers are budget constrained, but I get the feeling that sport is over-weight and some of these other genres are not being fully capitalised.

I think there is a case to be made for providing more bespoke channel products, moving away from "all you can eat" TV. It's had success in other sectors and the time could be right for broadcasters.

Let's take news media as an example. As for a basic price-point estimate we can apply what happens in online pay-per-view news as a proxy. Here a premium provider like the New York Times charges £10 per month to allow readers get around the pay-walls. And, it's probably fair to assume that such a figure would be a price-ceiling as there are plenty of other sites charging much less. So for £10 or less a broadcaster would have to feed through 10 or so news channels - that is, all the freeview (BBC, ITV, 4 etc) plus the full suite of 4 or 5 paid channels (ESPN, CNN, Sky, etc).

Now is this a value proposition for anyone?

If you're high-flying corporate viewer who really values being on top of all the news you probably already have the triple-platinum HD package, or are someone who it less price-sensitive and happy to pay for channels that you don't watch that often. There could be some slack in the middle market, but, moving to the bottom-end  we potentially have a segment here who would be willing to engage at a low price point for specific content, and perhaps a group who may be persuaded climb the value chain over time. But returning to the high-flyer for a second, is there any reason why they shouldn't pay for each channel they watch. Why leave consumer surplus on the table?

The broadcasters do have to deal with a mighty competitor in the BBC and its world-class selection of free content (after license fee), but is there be a new business model that supports more granular packages without cannibalising value from the current offering?

New entrants using IP systems would seem to have the right cost base to make it work (at least while there is network neutrality).