Wag the Dog

By Grant F. Lenahan
I hear lots of discussion about how we “justify IMS” and whether there is a “clear business case for IMS”. That misses the point. When compared to the cost of building out broadband networks, IMS infrastructure is cheap. And when compared to the cost of IMS infrastructure, the Service Delivery Framework (SDF) components are even cheaper. Furthermore, IMS and SDP are the building blocks for differentiated or value-added services. So these components are the lowest cost (relatively) and have the most direct impact on the quality, quantity and uniqueness of services offered. It seems to me that operators would do well to invest in the best SDF they can afford — and reap the most revenues in return.

Roughly speaking, the mobile industry invests about $100B annually in its 3G build out, according to ABI research. Fixed broadband investments are roughly similar. This translates into about $50 per year per subscriber for broadband infrastructure — and ultimately the network investment per subscriber will range from a low of abut $350 to a high of $1,500 — depending on whether it is wireless, copper, optical, and its capacity.

By way of comparison, the cost of IMS and SDF infrastructure is probably 1/10th to 1/25th of that — maybe $25-75 per subscriber, total. Yet these are the very components that let us do things like bill for service, insert targeted advertising, deliver consumer relevant news and information, or securely broker the purchase of digital content.

It’s a basic fact of economics that commodity goods compete on price — driving down margins in the process. Consequently, companies the world over strive to make unique products for which customers will pay a premium — even a slight one — simply because the product suits them and they receive value. The difference need not be in the product itself, incidentally — within our own industry MCI (friends and family), Virgin Mobile (clear and simple) and AT&T Wireless (Digital one rate) all created sustainable differentiation through innovative billing plans. In MCI’s case it was particularly effective because it was not only differentiated, but personalized — my calling circle would be different from yours. Clever.

So our goal, as an industry, should be to deliver as much value, and as much differentiation as possible over our expensive new broadband networks. If done right, it should generate not only higher revenues, but higher margins. Not all these revenues will necessarily come directly from the consumer either — they may come in the form of advertising or sponsorships — both forms that also require significant real-time personalization (performed by real-time SDF components in the network) in order to target the right ad at the right time to the right subscriber in accordance with the right plan.

IMS and its associated SDF components are the implementation choice for these sorts of customized services. Done right, it is a very sound architectural choice — since standards-based versions of both are real-time oriented, and both are modular, encouraging rapid, common re-use of service building blocks. Taken a bit further, this supports the sort of “mash ups” that have become the hallmark of Web 2.0 environments.

The business case for IMS — and the emerging segment called SDF — is essentially the business case for tomorrow’s networks and services. Moreover, they represent only a fraction of the cost of the underlying transport networks being deployed. Operators need to stop asking “how can I do this cheaply”, and start asking “how can I do this right”.

For as long as most of us can remember, new services, and new pricing plans have been limited by technical feasibility. Services have been offered free until billing methods could be created. Pricing has been compromised due to limitations in billing and charging systems. “Promotions” have been limited to handset point-of-sale, ignoring promotion of new services to existing users. If 90%-95% of the total cost of delivery is already sunk in the transport network, how can saving money on the next 5% — the 5% that determined an operator’s competitive position — be a wise decision?

Modularity and the re-use of service components are essential if we are to change both the economics of service creation/deployment, as well as greatly shorten the time-to-market. By re-using charging, session control, user profile and other components, we save development time. But that’s just the beginning of the savings. The much greater savings come over the life cycle of the service. Provisioning interfaces, for example, are largely unchanged. Many user parameters may never even require provisioning, since they are re-used (and therefore already exist). Maintenance costs are lower. Platform proliferation is reduced. Systems integration (and its associated maintenance) is reduced, etc. So not only does a modular approach like IMS / SDF bring services to market faster and cheaper, it also reduces operational and running service maintenance costs.

The real value here is not saving on new service development costs — after all, historically not that many services have been created in the first place — it is to enable innovation, new revenues, differentiation and thus maintain margins on those tremendously expensive broadband network investments. Ultimately the cost is in the “poles and the holes”, while revenue and margins will be decided at the IMS/SDF layer.

The simple answer is that many IMS and SDF business cases assume the status quo in terms of innovation, pricing plans and personalization. They don’t reflect the personalized services, the varied charging plans, the targeted ad insertions and myriad of other innovations that will be table stakes for any operator that wants significant share — and significant margins. By trying to extrapolate from the past, we’re mis-characterizing the competitive environment of the future. All we need really do is look to the Internet.

I’d suggest that we need to think very carefully about how we maximize the revenue generating and product differentiating capabilities of our Service Delivery Frameworks, and the core IMS components that support them, such as network policy, and online charging. I’d also call the industry to change its question from “how do I minimize my deployment expenditures on SDF?” to “How do I cost effectively empower my creative innovators, and thus maximize my market share and margins?”

When our industry fully embraces the absolute necessity of service innovation — as the web players have — the business case will no longer be hampered by too-conservative services development assumptions. We will no longer be planning for failure, and then building Excel spreadsheets that validate our plans. Rather, as an industry we will accept the inevitable, and will build a technology infrastructure — and a cost structure — that allows us to compete, to innovate and to win.

You might observe that I view IMS and SDF as the tail that can wag the entire (network) dog, allegorically. So, appropriately, next issue I’ll talk about that dog’s Long Tail.

Have a great summer everyone!

Grant F. Lenahan is Vice President and Strategist, IMS Service Delivery Solutions at Telcordia Technologies, Inc. For more information, visit www.telcordia.com.

IMS Magazine Table of Contents