Business Models in Telecom

techno-ECOnomics of integrated communication SYStems and
services

Deliverable 03:

Business models in telecommunications

October 2004

Business models in telecommunications Page 2 of 57
Document Information
Contractual Date of Delivery: 31. 10. 2004
Actual Date of Delivery: 31. 10. 2004
Editor(s): Renjish Kumar Kaleelazhicathu (HUT)
Author(s): Renjish Kumar Kaleelazhicathu (HUT), Irena Grgic Gjerde
(Telenor), Timo Smura (HUT), Heikki Hmminen (HUT),
Tom Tesch (JvH)
Participant(s): 5
Workpackage: 2
Workpackage title: Techno-economic methodology development
Workpackage leader: Borgar T. Olsen (Telenor)
Deliverable number: 3
Deliverable title: Business models in telecommunications
Est. Person-months: 8
Security: Public
Nature: Report
Version/Revision: 1.0
Total number of pages:
(including cover)
57
File name: ECOSYS_Del03_v1.0.doc
Abstract This deliverable aims to act as a reference document for
ECOSYS project in the area of business models in telecom-
munications ecosystem. The concept of value network is
adopted for our studies, instead of the traditional company-
specific value chain approach. A reference model con-
sisting of various roles and relationships is developed. The
roles considered in this deliverable include the network and
service operator, content provider, distributor, vendor,
regulatory bodies, etc. A series of example business
models are sketched based on the reference model. Key
players, their revenue streams and cost drivers are identi-
fied for each of the business models. A companys
(players) internal value chains and competitive strategies
are beyond the scope of this deliverable. A qualitative as-
sessment framework for evaluating a business models suc-
cess in a telecommunications market is developed. These
business models will be further studied, implemented and
assessed within the activities of work packages 4 and 5 of
the ECOSYS project. Finally, a series of recommendations
and observations are provided in order to aid the quantita-
tive business case analysis in WP4 and WP5.
Keywords Business model, telecommunication, value, value network,
role, relationship, reference model, qualitative assessment.

Table of Contents
Document Information ....................................................................................................2
Table of Contents............................................................................................................3
Figures ...........................................................................................................................5
Tables ............................................................................................................................6
Executive Summary.........................................................................................................7
1 INTRODUCTION.......................................................................................................9
1.1 Motivation .........................................................................................................9
1.2 Scope.............................................................................................................. 10
1.3 Methodology.................................................................................................... 10
1.4 Organization of the document........................................................................... 11
2 BACKGROUND AND RELATED WORK ....................................................................... 13
2.1 Business models .............................................................................................. 13
2.1.1 Definitions ................................................................................................ 13
2.1.2 Classifications ........................................................................................... 14
2.2 Value .............................................................................................................. 15
2.2.1 Value propositions..................................................................................... 16
2.2.2 Value configurations.................................................................................. 17
2.2.3 Comparing value configurations ................................................................. 22
3 VALUE IN TODAYS TELECOM MARKET.................................................................... 25
3.1 Value elements in todays telecom.................................................................... 25
4 REGULATORY FRAMEWORK: CURRENT AND FUTURE............................................... 28
5 REFERENCE MODEL AND VALUE CONFIGURATION: ECOSYS PERSPECTIVE............... 31
5.1 Definitions....................................................................................................... 31
5.2 Reference model.............................................................................................. 32
5.2.1 Roles........................................................................................................ 32
5.2.2 Relationships ............................................................................................ 34
5.3 Value model .................................................................................................... 37
5.3.1 Value configurations.................................................................................. 37
5.3.2 Value modeling ......................................................................................... 38
6 EXAMPLES OF TELECOM BUSINESS MODELS ........................................................... 39
6.1 BM 1: Basic service provisioning model ............................................................. 39
6.1.1 MODEL DESCRIPTION............................................................................... 39
6.2 BM 2: CPE distribution model............................................................................ 41
6.3 BM 3: Content provisioning............................................................................... 43
6.3.1 Vertical bundling model ............................................................................. 43
6.3.2 Bit-pipe model .......................................................................................... 45
6.3.3 Capacity reseller model for content ............................................................ 46
6.4 BM 4: Peer-to-peer content distribution model ................................................... 48
6.5 BM 5: DVB-H mobile broadcasting .................................................................... 48

7 ASSESSMENT FRAMEWORK .................................................................................... 51
8 CONCLUSIONS AND RECOMMENDATIONS ............................................................... 53
Acknowledgement ......................................................................................................... 54
References ................................................................................................................... 55
Acronyms ..................................................................................................................... 57

Figures
Figure 1: Research approach ......................................................................................... 11
Figure 2 Business model definition ................................................................................ 13
Figure 3 Value chain by Porter, [17] ............................................................................... 18
Figure 4 Value system by Porter, [17] ............................................................................ 19
Figure 5 Value shop configuration by Stabell & Fjeldstad, [18] ......................................... 20
Figure 6 Value network configuration by Stabell & Fjeldstad, [18] .................................... 21
Figure 7: Changes in the proportion of communication in disposable household income, [25]
............................................................................................................................. 25
Figure 8 Current EU regulatory process .......................................................................... 28
Figure 9: Roles in telecom ecosystem............................................................................. 32
Figure 10 Roles and Relationships reference model ......................................................... 35
Figure 11 Basic service provisioning model ..................................................................... 39
Figure 12 CPE bundling by service operator .................................................................... 41
Figure 13 Direct distribution by CPE vendor .................................................................... 42
Figure 14 Vertical bundling model .................................................................................. 44
Figure 15 Bit-pipe model................................................................................................ 45
Figure 16 Capacity reseller model for content ................................................................. 47
Figure 17 DVB-H mobile broadcasting business model ..................................................... 49

Tables
Table 1 Business models classifications (survey by Alt & Zimmermann) ............................ 14
Table 2 Business model classification (by Rappa) ............................................................ 14
Table 3: A comparison of value configurations ................................................................ 22
Table 4: Value hierarchy................................................................................................ 27
Table 5 Role definitions ................................................................................................. 32
Table 6 Relationship interface definitions ........................................................................ 36
Table 7 Value providers ................................................................................................. 38
Table 8 Basic service provisioning : revenue streams and cost drivers ............................. 40
Table 9 CPE bundling: revenue streams and cost drivers ................................................. 41
Table 10 CPE direct distribution: revenue streams and cost drivers .................................. 43
Table 11 Vertical bundling: revenue streams and cost drivers .......................................... 44
Table 12 Bit-pipe: revenue streams and cost drivers........................................................ 46
Table 13 Capacity reseller model for content: revenue streams and cost drivers ............... 46
Table 14 DVB-H mobile broadcasting: revenue streams and cost drivers .......................... 50

Executive Summary
This deliverable Business models in telecommunications is part of work package 2s
(Techno-economic methodology development) activity within the ECOSYS project. The
deliverable aims to act as a reference document for ECOSYS in the area of business models
in telecommunications ecosystem. This exercise is essential for creating a common
understanding among ECOSYS partners and providing assistance in the quantitative techno-
economic analysis of business cases to be executed within WP4 and WP5.

Value creation in telecommunications market is no longer limited only to a few players.
New roles and relationships are becoming an integral part of telecommunications business.
Hence, the traditional paradigms have become obsolete. Every player has to understand its
position in the network of suppliers, customers, buyers and competitors, in order to provide
greater value and maximize the profit potential.
The methodologies adopted in this deliverable are qualitative in nature. These include:
Literature survey
Constructive approach: Analysis based on construction of models, diagram, plans
and organizations.
Hermeneutic approach: Method of interpretation

Business models, in general, have multiple definitions in various literatures. The working
definition of the term business model adopted in the deliverable is as follows:

Business model consists of service and information flows, including a description of various
business players, their roles and relationships, their relative position within a value network,
and description of their cost structure and sources of revenue.

The concept of value network is adopted for our studies, instead of the traditional
company-specific value chain approach.

The deliverable consists of:
An overview of existing theories and perceptions on business models and value.
ECOSYS perception of value in todays telecommunications networks
The reference model constituting various roles and their relationships captures the
complex value networks possible in todays telecommunications ecosystem.
Example business models, based on the reference model. These business models are:
o Basic service provisioning model
o CPE distribution model
o Content provisioning model
Vertical bundling
Bit-pipe
Capacity reseller
o Peer-to-peer content distribution model
o DVB-H mobile broadcasting model

The deliverable provides a qualitative assessment framework for business models. The
framework is based on a top-down approach, starting with a macro-assessment of the
business model followed by a micro-assessment of each of the participating players.

The deliverable also outlines key observations and recommendations beneficial for WP4 and
WP5 activities. A major observation with regards to business models is that power in terms
of control over the value network is distributed among multiple players depending on the
type of business models chosen. Hence, a clear understanding of the key participating
players and measurement of their relative power are primary requirements for realistic
analysis. The qualitative assessment framework developed in this deliverable acts as a basis
for identifying appropriate power sharing equation among the players in a business model.

1 INTRODUCTION
1.1 Motivation
Over a century after the invention of telephones, telecommunications has emerged as one
of the fastest growing industries in the world today, with a growing influence over the
global economy and people. The success of mobile communications and the emergence of
Internet in the last decade have added new dimensions to the telecommunications business
landscape, traditionally dominated by the fixed-lines. With the number of mobile subscribers
overtaking fixed-line subscribers in recent years and the evolution of technologies to
support convergence, the telecommunications industry is witnessing fundamental changes
in the ways it does business. The traditional value chain concept has given way to value
network [1]. Voice service, based on circuit-switched bearer technology, has been a major
source of revenue for telecom service operators in the past. The emergence of technologies
based on packet-switching, such as GPRS and UMTS for mobile and xDSL for fixed-line
access, enables the introduction of new services, and opens up new revenue sources. While
previously the main value of telecom was to realize communication between people,
nowadays several new elements are added including mobility, personalization, portability,
higher quality, etc.

Offering new services such as person-to-person messaging, content, games and other
broadband services, unlike traditional voice, which is vertically bundled, involves a number
of players. These players include not only traditional telecom roles (service operator,
network operator), but also players from other industries content, IT, consumer devices.
New business roles emerge, and their relationships are growing complex. Changes in the
market and the telecom business are also more frequent than before. All these changes
have also raised the significance of the regulatory role.

The phenomenon of fixed and mobile services convergence is becoming a reality with the
adoption of IP as the de facto network layer protocol. An increasing number of fixed to
mobile substitutions in voice services have caused concerns among the existing fixed-line
service operators to find profitable alternatives. On the other hand, convergence enables
services to be accessed by subscribers irrespective of the underlying access and core
network technologies, thus possibly providing value addition for the service operators and
other participating players. The advent of broadband access technologies has made triple
play - the convergence of voice, video and data communications possible. This is expected
to play a major role in increasing subscribers loyalty, usage and revenue for all the players
involved. The converged market will require new business models to exploit these
opportunities.

Recent initiatives in developing standardized application programming interfaces (APIs) from
organizations such as Parlay/OSA [2] have enabled the opening up of network
functionalities to application developers without requiring an extensive knowledge of
specialized telecom systems. This will add new players to the telecom industry by allowing
third party application providers to roll-out numerous value-added services over multiple
access and core networks.

All these issues make the telecom players face a complex and dynamic environment, and
new business models. Such a complex picture of todays telecom business cannot easily be

analysed in a linear manner of value chains. Hence, a proper understanding of the new
business models in telecom asks for understanding the value networks of the participating
players. Relationships emerging among the participating players in the value network such
as revenue sharing, pricing and other revenue streams need to be identified. Another major
challenge in this regard is to identify a framework to analyse and evaluate these business
models. Convergence of voice, video and data has also contributed to the complexities in
business models, which are not fully addressed in the existing literature.

ECOSYS aims to evaluate various business cases emerging in the fixed and mobile
communications industry. Estimating the return on investments (ROI) and other
performance indicators for successful business requires a firm understanding of the changes
in value networks in the industry and identification of business models suitable for the
future.

This deliverable aims to address all these issues by developing a framework for identification
and analysis of suitable business models to be pursued by work packages 4 and 5 for
business case studies in the fixed and mobile communications industry respectively.
1.2 Scope
The deliverable presents our investigations on business models in telecommunications
ecosystem, taking in to consideration the complex value networks involved. An overview of
the key concepts, namely, business models and value, available in existing literature is
presented. A working definition of business model is presented and the key elements
determining the value in todays telecommunication market are described. The concept of
value network is adopted for our studies, instead of the traditional company-specific
value chain approach. A reference model consisting of various roles and relationships is
developed. The roles considered include the network and service operator, content provider,
distributors, vendors, regulatory bodies, etc. Possible business models are described.
These are considered as the basis for developing business models to be implemented and
assessed in the work packages WP4 and WP5 of the ECOSYS project. Key players, their
revenue streams and cost drivers are identified in each of these models. A companys
(players) internal value chains and competitive strategies are beyond the scope of this
deliverable. A qualitative assessment framework for evaluating a business models success
in the telecommunications market is developed. Finally, a series of recommendations and
observations are provided to aid the business case analysis in WP4 and WP5.
1.3 Methodology
The methodologies adopted in this deliverable are qualitative in nature. These include:
Literature survey
Constructive approach: Analysis based on construction of models, diagram, plans
and organizations.
Hermeneutic approach: Method of interpretation

Figure 1 illustrates the research approach followed in this deliverable

Literature
Survey
Definition of
business models
and value network
Development of
telecom business
models and
corresponding
value networks
Development of
an assessment
framework for
business models
Literature
Survey
Definition of
business models
and value network
Development of
telecom business
models and
corresponding
value networks
Development of
an assessment
framework for
business models

Figure 1: Research approach
.
The research approach followed four main steps:

Literature survey: Research in the past has dealt mainly with the traditional business
models and value chains. While new research is required to understand the
complexities of present day and future business models and value networks, the
existing literature has provided a basis on which our work has been built on.

Business model and value network definitions: A working definition of the business
model and value networks is developed.

Telecom business models and value networks development: A reference model
constituting roles and relationships for the telecom market is described. This model
serves as the basis for the development of our business models.

Assessment framework: An assessment framework is sketched to qualitatively
evaluate the viability of business models.

Following this approach resulted in the reference model and the business models described
in this deliverable. An extensive quantitative techno-economic analysis on the profitability of
these business models will be conducted later within WP4 and WP5s activities.
1.4 Organization of the document
The organization of this deliverable is as follows:

Chapter 2 provides an overview of the concepts of business models and value modeling.

Since value is central to our understanding of the business dynamics in the
telecommunications industry, we elaborate on the value in todays telecom market in
Chapter 3.

Today, regulation is a major influencing factor on the telecommunications industry and
market dynamics. Chapter 4 explains the current and future regulatory framework for
telecommunications from the European Unions perspective.

Chapter 5 describes the ECOSYS reference model that includes the roles and relationships.
It also provides ECOSYS perspective on value in a telecommunications business.

Examples of possible business models in telecommunications are provided in Chapter 6.

Chapter 7 describes a qualitative assessment framework for business models.

Chapter 8 concludes the deliverable with recommendations to assist WP4 and WP5 in their
techno-economic analysis activities.

2 BACKGROUND AND RELATED WORK
In this chapter, we present a literature survey on the two key concepts in this deliverable,
namely, business models and value.
2.1 Business models
The term business model has been described in various literatures, often with different
meanings that lack coherence. Thorough reviews on these differences have been conducted
by many studies such as in [4], [5] and [6]. The following section describes some of the
major definitions on this term that has influenced our understanding.
2.1.1 Definitions
Various researchers in different contexts have provided definitions on business models. One
definition that encompasses most of the other definitions and is relevant in a technology-
based environment such as telecommunications is given by Chesbrough & Rosenbloom in
[7]. Figure 2 depicts the key ideas of this definition.

Technical
Inputs:
e.g.:
feasibility,
performance
Economic
Outputs:
e.g.: value,
price, profit
Business model
Market
Value proposition
Value chain
Cost and profit
Value network
Competitive
strategy
Measured in technical domain Measured in economic domain
Technical
Inputs:
e.g.:
feasibility,
performance
Economic
Outputs:
e.g.: value,
price, profit
Business model
Market
Value proposition
Value chain
Cost and profit
Value network
Competitive
strategy
Technical
Inputs:
e.g.:
feasibility,
performance
Economic
Outputs:
e.g.: value,
price, profit
Business model
Market
Value proposition
Value chain
Cost and profit
Value network
Competitive
strategy
Measured in technical domain Measured in economic domain

Figure 2 Business model definition
Here, a business model for a player consists of the following functions:
Articulate the value proposition
Identify the market segment
Define the internal value chain
Identify the cost structure and the profit potential
Position within the value network
Formulate strategy for competition

According to Chesbrough & Rosenbloom, a successful business model creates a heuristic
logic that connects technical potential with the realization of economic value. In other
words, a technology can be made successful only if it is supported by a successful business
model. This is an issue to be kept in mind when dealing with business models in the
telecommunications market today.

Timmers [8] provides another relevant definition for business model. According to that
definition, a business model is architecture for the product, service, information flows,
including a description of various business actors and their roles, a description of potential
benefits for the various actors, and a description of the sources of revenue.

We consider these two definitions as the basis for our working definition of the term
business model.

2.1.2 Classifications
Much work has been done on classifying business models, mostly in the e-commerce and
Internet domains. The convergence of Internet and telecommunications would mean that
many of these business models are relevant for this deliverable. One such survey on
classification is provided by Alt & Zimmermann in [5]. Table 1 lists the classifications and
example models.

Table 1 Business models classifications (survey by Alt & Zimmermann)
Classification Business model
Business-to-customer models such as
content portals, direct-sell-sites, e-tailers
etc.
Sector and industry
models
Business-to-business models such as two-
way aggregators, information brokerage,
trust and other third-party services
Revenue models subscription-based, fixed-price

Another classification is provided by Rappa in [9]. Table 2 provides an abridged list of his
classification.
Table 2 Business model classification (by Rappa)
Type of model Sub-categories
Marketplace exchange
Business trading community
Demand collection system
Auction broker
Transaction broker
Distributor
Search agent
Brokerage model
Virtual Mall
Advertising model
Portal

Personalised portal
Niche portal
Classifieds
Registered users
Query-based paid placement
contextual advertising
Advertising networks
Audience measurement services
Infomediary model
Incentive marketing
Virtual merchant
Catalog merchant
Click and mortar
Merchant model
Bit vendor
Manufacturer
model Brand Integrated content

Besides these, business models specific to telecommunications domain have been identified
by [10], [11], [12], [13] and [14] mainly from an operators perspective. [10] also provides
an evaluation framework for business models.
2.2 Value
Before thinking about the ways of creating, distributing and consuming value, it is important
to have an unambiguous understanding of the term value itself. The notion of value has
been present since the Ancient Greeks discussed it from the philosophical perspective. It
has been used for a long time and in many different ways. The consequence is that today
there exist a myriad of definitions and understandings describing the meaning of value. The
definitions differ based on the focus, context and the perspective of their originators.
Here, we describe the understanding of the value as used in the ECOSYS project, rather
than having ambitions to (re)define the value or making an overview of the available
definitions.
Websters dictionary of Modern English interprets value in several ways (1) qualitative
the relative worth, merit, or importance, (2) quantitative monetary or material worth, as
in commerce or trade, (3) relative - the worth of something in terms of the amount of other
things for which it can be exchanged or in term of some medium of exchange, (4) economic
return in money, materials, services. Additionally, from the utility aspect the value can be
considered as that quality of anything which renders it useful or desirable.
We are considering the value from the economic perspective. It is a value that a customer is
willing to pay for what a company provides for him. Such value is derived from the
operations, collaboration or cooperation between the actors involved in its creation,
distribution and consumption. Both customers and providers perspectives are taken into
account (consumers value and companies value). From the companys perspective, defining
a customers value is an intrinsic component of a business model. An important ingredient
when designing a business model is to create a value model. The value model consists of:
1. Value proposition includes identification of the key value drivers and elements,
which enable the company to differentiate itself from the competitors, and
2. Value configurations includes network of partners, which describe how the value
is created, who contribute to it (i.e. relationships), and how it is distributed and
finally, consumed. Value configurations reflect different value creation logics.

Value model is also important for the assessment of different business models. Correctly
designed robust value model enables a company to build its capabilities consistently with
the value creation logic, and, consequently, to gain a competitive advantage. Value is
measured by total profit, which is a reflection of the price a firms product commands
exceeding the cost involved in creating the product. Several value-related measures are
recognised in todays economy company value, economic value, economic profit,
economic value added, and shareholder value.
2.2.1 Value propositions
The first part of the value model design includes the identification of the value ingredients
that are included in products and services. In other words, a value proposition should be
made. Value proposition includes a description of all relevant value elements and drivers
identified as important for the business model under study. In this section we discuss value
elements in general, and present a value hierarchy. Different perspectives of value are also
observed.
2.2.1.1 Value elements and drivers
In order to figure out where is the value, for instance, of innovation, we need to think about
the elements that contribute to it, which we call value elements. Each value configuration
creates value by combining value elements and is enabled by value drivers.
The selection of relevant value elements depends on the given business. Examples relevant
for the telecom business include issues like removing the barriers in time, space, location,
increasing simultaneousness and self-confidence, and assuring secured transactions, trust,
CRM, regret-rights. Chapter 3 elaborates these in detail.
As a result of identifying the value elements, a value proposition is described. It is used as
the input to create a value model, and it is an important input for designing and assessing a
business model.
2.2.1.2 Value hierarchy
In addition to the value elements, it is important to note that different actors involved in the
value creation may have different perspectives on value (analogue with QoS perspectives
[15]) value as seen by the user vs. value as seen by the producer, and with respect to
time value as observed before and after the product has been produced and consumed.
Similar idea is presented in the Albrechts customer value creation hierarchy.
According to Albrecht [16], the customer value can be thought of as forming a four-level
hierarchy:
o Basic the fundamental components of your customer value package required just to be in
business.
o Expected what customers consider normal for you and your competitors.
o Desired added-value features that customers know about and would like to have but dont
necessarily expect because of the current level of performance of your competitors.
o Unanticipated added-value features that go well beyond the learned expectations and
desires the customer brings to the experience of doing business with you.
This value hierarchy is primarily used by individual companies to differentiate their products
by exceeding customer expectations, but the model may also be used when analysing the
value elements of the whole telecommunications industry.

2.2.2 Value configurations
The second part of the value model design and a direct input into the business modeling
process is the description of a value configuration. A value configuration is basically a
formation including/depicting the actors that contribute to the value creation, distribution,
consume, and their relationships. From the companys perspective, it basically describes the
elements of the companys business that are valuable for the customers, and when, where
and how are they created and delivered to the customer. It is also used to analyse the
position of the company in the business it operates in, and to identify the items important to
gain the competitive advantage.
Several configurations are identified and described in the literature and used in the practice
for both business and strategic purposes. These configurations focus on different aspects
like transaction cost, network effects/externalities, strategic relationships, information
asymmetry, branding and marketing, etc. These are not always contradictory, but rather
partially overlapping.
Probably the most used value configuration is a value chain; it originates in the
manufacturing economy (supply chain theory) and essentially encapsulates a set of
interconnected activities that bring a value/product/service to the market. Initially
introduced by Porter in [17], it was used within a company to analyse the production,
identify the activities and linkages between the activities, and determine the transaction
cost. The idea is further generalized and applied to the complete industry, where a linear
combination of several value chains is observed not only companys value chain, but also
value chains for suppliers and customers. Such a combination of value chains constitutes a
value system.
But, while such a linear approach may be perfectly suitable for a manufacturing industry
(associating with an assembly line), it can be quite misleading if used in a complex service
and/or mediator industries [18]. Telecom industry is a mediator industry, where a telecom
operator mediates between different customers by assuring a communication between
them, e.g. end-customers and content provider relation via a mobile subscription provided
by a MNO.
The authors like Normann, Ramirez, Stabell, Fjeldstad, Afuah [19] have recognised the
shortages of the value chains logic when applied in industries that is non-manufacturing,
and where it is not trivial to identify the final product. For example, in the telecom
business a product is not a finished physical good, but rather a bundle of services that
enable two or more customers (who wish to be interdependent) to communicate to each
other. These authors tried to describe the multiple dimensions of the elements that build up
to the value delivered to customers by identifying the configurations and logic used to
create the value. These include value constellations proposed by Normann & Ramirez
in [20], value shops and value networks proposed by Stabell & Fjelstad [18], but also a
value web as introduced by Gordjin in relation to the e-commerce value drivers in [21].
These value configurations are described in short in the following sections, followed by a
comparison table of these approaches.
2.2.2.1 Value chain and value system
Michael Porter introduced the notion of both value chain and value system in relation to the
strategic management decisions for the positioning of a company in a market. The value
chain idea is based on the supply chain theory, where value is exchanged through the chain
instead of the materials/products. It is also based on the McKinseys ideas on an array of
activities that a company goes through to produce the final product to its customers.
Value chain and value system build upon the same genuine idea, but have different scope
value chains scope covers one company and its activities and their linkages, while value

system is an extension of the value chain that captures several chains within an industry,
i.e. its scope covers a focal company but also its partners including both sub-providers and
customers.
2.2.2.2 Value chain
Value chain is a linear formation where the value is produced in a linear and sequential
manner, analogue to the assembly line in a factory. It envelops a set of activities that
company performs in order to deliver the product to its customers. The product means
economic value, since the customers are paying for consuming it. Decomposing the
companys production activities in atomic elements helps to analyse the value of what a
company does and to allocate and control the transaction costs. By doing this exercise, the
ideas of the companys competitive advantages over other similar actors can be extracted.
The focus of Porters argument is that the realization of either lower cost or differentiation
depends on all the discrete activities that a company undertakes. By decomposing these
into strategically relevant groups, managers should be able to understand the behaviour
of costs as well as identify existing or potential sources of differentiation. The granularity of
the decomposition (i.e. Which activity is the atomic one?) follows four considerations
activities are technologically and strategically distinct, have different economics, have a
significant impact on differentiation, or represent a significant proportion of cost. Porter
recognises two generic groups of activities (so-called value activities) in a value chain that a
company performs when producing the value (Figure 3):
Primary activities which are directly involved in a creation of the value to the
customer. They vary depending on the company and its business, but are mainly
concerned with the product assembly, its sale and transfer to the buyer as well as after-
sales service. These include inbound logistics, operations, outbound logistics, marketing
and sale, and service.
Support activities that support primary activities and each other. These include
procurement, technology development, firms infrastructure, and human resources
management.

Third element depicted in Figure 3 is a margin that is defined as the difference between
total value and the collective costs of performing the value activities.
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Figure 3 Value chain by Porter, [17]
Since these activities are interdependent, linkages between them are important in
determining the success of the company. Porter argues that competitive edge often may
emerge from such linkages for instance, how buying high quality, well-prepared raw
material can simplify manufacturing and reduce scrap, or how well designed manufacturing
can assure quality by following the so-called zero-defect paradigm, or how the timing of
promotional campaigns can help capacity utilisation in a fast food chain. By doing the same

things as the competitor only better and more cost-effective, a company gains a competitive
advantage. The question of linkages between the activities is closely related to the issue of
the internal organisation of a company, which is the issue tackled in the organisational
theory. It stresses also the importance of the quality and Total Quality Management (TQM)
that reduces the cost to zero simply by avoiding mistakes at each activity level.
2.2.2.3 Value system
Value system is an extension of the value chain idea that covers the whole industry and not
only one company. It can be considered as a combination of several independently
modelled value chains that interact in the given industry. Value system may be considered
also as a tool used to analyse the companys positions relatively to other companies within
an industry. It makes explicit who are the suppliers and what are the channels of the given
company, and it identifies the relationships between the actors (Figure 4). In addition to the
companys value chain at least three value chains should be observed:
1. Supplier Value Chains which create and deliver the essential inputs to the companys own
chain
2. Channel Value Chains which are the delivery mechanism(s) for the firms products on
their way to the end buyer, customer or consumer
3. Buyers Value Chains which are the ultimate source of differentiation because it is the
products role in this chain that determines buyer needs.

Value system also reveals the nature of the relationship between the actors competition
and/or co-operation. As a consequence, value system may be used by a company to be
benchmarked against its competitors. Value system does not cover the dynamic nature of
the value creation and exchange.
Supplier
VC
Firm VC
Channel
VC
Buyer VC
Supplier
VC
Firm VC
Channel
VC
Buyer VC

VC Value chain
Figure 4 Value system by Porter, [17]
2.2.2.4 Value shop
Value shop is a circular formation that fits best the value created in service industries,
where the resources (e.g. people, knowledge, money) are mobilised and concentrated in
order to solve the customers problems. Value shop configuration was introduced by Stabell
& Fjeldstad in [18]. Service industries include for example consultancy, market research, the
exploration of novel ideas and R&D (new drug development, oil exploration, a new military
aircraft design), health care. The companies operating in these industries offer various
services consultancy services (the delivering of a solution to a business problem by a
consultant), health services (curing a patient), jurisdictional services (a lawyer winning a
customers case in the court) etc.
The shop process is iterative, involving repeatedly performing a generic set of activities until
a solution is reached. The success of this model depends on the people working in the
company and their intelligence. The primary activities in this model are (Figure 5):
1. Problem finding and acquisition, which involves interaction with the customer to
figure out what is the exact problem that needs to be solved. It also assumes
creation of a plan for solving the problem timetable, milestones, methods.
2. Problem solving, which includes the actual generation of ideas and the execution of
the developed plans.

3. Choice, which implies the decision upon the scenario and the path to follow. Several
alternatives are evaluated, stresses the information asymmetry between the provider
and the customer the provider has all relevant knowledge and information; this
activity is a real value to the customer.
4. Execution, which envelops the processes of implementing the above choice/decision.
5. Evaluation, where the actual results of the chosen solution are monitored and
assessed. This is the feedback information to the first activity, and also to the choice
activity, since it contributes to the knowledge creation.

Infrastructure
Human resources
Procurement
Problem search
and acquisition
Treatment Testing
Diagnosis
Choice
Infrastructure
Human resources
Procurement
Problem search
and acquisition
Treatment Testing
Diagnosis
Choice

Figure 5 Value shop configuration by Stabell & Fjeldstad, [18]
2.2.2.5 Value network
Value network configuration (Figure 6) was also proposed in [18] to depict a value
configuration suitable for the mediator industries. Examples of the companies running
such business include telecom operators, banks, insurance companies, travel brokers. These
industries are operating so that single companies configure themselves (and its
infrastructure) to mediate interactions and exchanges across a network of their customers.
The value network configuration helps tracing the value flows relevant for the telecom
industry (both tangible and intangible value elements). Furthermore, the nature of a value
network is such that customers often receive more value as more customers are added to
the network (positive network effects/externalities [22]). Namely, customers of value
networks (in contrast to those of chains and shops) often care who the other customers of
the network are because much of the value they receive is derived from explicit or implicit
exchanges with these other customers. Another feature of value networks is that it captures
the fact that the companies often co-produce value with their competitors for instance,
when airlines link their booking systems to enable travellers to make a single booking that
spans multiple carriers, or when a telecommunications company offers interconnections to
the networks of other, competing, telecommunications companies.
Three primary activities are identified in the value network configuration:
1. Network promoting and contract management includes the promotion,
branding and building the network, acquiring the customers, and managing
contracts/agreements for the service provision. The complexity of the
contracting/negotiation process increases with the increase in the volume of
customers.

2. Service provisioning links the people attached to the network, and also collects
the payment from them. It includes the activities of service provision, billing,
accounting, charging (with different charging schemes), etc.
3. Infrastructure operations make the infrastructure capable of supporting the
customers in accordance to the contracts. It includes both physical and information
infrastructure, e.g. network infrastructure maintenance and operation, customers-
database administration, etc.
According to Stabell & Fjelstad the cost and value drivers in this model are the scale, the
capacity utilisation, the linkages and the learning. Furthermore, competitive advantage can
be gained by tuning these aspects, e.g. increased capacity utilisation decreases the cost per
customer, but may also decrease service level. A trade-off/optimisation performed with
capacity and QoS as parameters may be performed to help making decisions in this
example.

Firm infrastructure
Product and process development
Procurement
Network promotion and contract management
Infrastructure operations
Service provisioning
Firm infrastructure
Product and process development
Procurement
Network promotion and contract management
Infrastructure operations
Service provisioning

Figure 6 Value network configuration by Stabell & Fjeldstad, [18]
Sometimes, the value network is confused with the notion of a networked organisation in
the technical terms, or with a social organisation/community. The main difference is that a
value network exists primarily for the purpose of business enterprise and is focused on
commerce and economic value creation.
2.2.2.6 Value constellation
Value constellation is introduced by Norman & Ramirez in [20] as a configuration that is
more appropriate to the modern business than the original value chain concept. The key
idea is that the value is co-produced between the actors, and therefore it is of extreme
importance to recognise the relationships between the actors. The value is created in a
dynamic, iterative and interactive manner.
If one looks at relationships in a co-productive system, the customer is not only passive
buyer of the offering or a target, but also participates in many other ways in consuming it.
Furthermore, as actors participate in ways that vary from one offering to the next and from
one customer / supplier relationship to the next, it is not possible to take given
characteristics for granted: co-producers constantly reassess each other, and reallocate
tasks according to their new views of the comparative advantage they perceived each other
to have. Actors are no longer just buying an item, adding item to it, and selling it to the
next link of the chain. Instead of adding value one after the other, the partners in the
production of an offering create value together through inventing new relationships. This
framework has broader implications to businesses as well. Ramirez [23] argued that the
organizational structures and managerial arrangements must be changed also to meet new
requirements: Value co-produced by two or more actors, with and for each others, with
and for yet other actors, invites us to rethink organizational structures and managerial

arrangements for value creation inherited from the industrial era. As an illustration of the
co-producing view Normann & Ramirez used IKEA as one of the examples. According to
them, one of the IKEAs strengths has been the ability to understand where the firm fits in
its own customers value creation universe, and to fit itself into suppliers and partners
value creation system based on it. Examples of IKEAs ideas on the value creation includes
self-service and self-assembly of the furniture, restaurants, secondary items line (the items
located near to the cashiers, which cost no more than e.g. EUR 10).
In a value co-production view, the actors are playing different roles in relation to different
counterparts (suppliers and customers), but also in relation to a single counterpart. The
actors may hold several roles simultaneously. According to Ramirez [23], actor A may
simultaneously be (i) a supplier to the actor B, (ii) a customer of the actor B, (iii) a
competitor of the actor B, (iv) a partner with the actor B to co-produce value towards the
actor C (alliance, joint ventures), and (v) possibly a competitor with Bs partners, if As own
alliance with others competes with Bs [23].
The major shortage of the value constellations and Normann & Ramirezs theory is that it
focuses exclusively on the buyer/seller relationship, overseeing the issues like the possibility
of competitors co-producing value, and the dynamic nature of the value creation. Also,
value constellation focuses on one industry and is concerned with vertical relationships
ignoring the impact of aggregating companies to value creation. An attempt to extend this
idea to cover these issues was the introduction of the ecosystem theory.
2.2.2.7 Value web
Value web was introduced by Gordijn in [21] in relation to the eCommerce business. The
idea is very similar to the one behind the value network, and illustrates the actors involved
in a web when doing business and creating value. Sometimes, it is confused with the term
of value of the Web, which tackles the intrinsic value of the WWW.
A nice feature of Gordijns work [21] is a tool he developed for depicting value models,
which is based on the Use Case Maps (UCMs). It indicates not only the actors involved in
the value creation, distribution and consumption, but also the reference points/interfaces
where the value is exchanged (in/out points). It is a practical tool that can be used in the
ECOSYS project to trace all three value flows relevant for value models in telecom.
2.2.3 Comparing value configurations
In this section, a comparison table (Table 3) gives an overview of the value configurations
described in chapter 2.2, and relates them to each other with respect to several issues (the
original idea that inspired the authors who introduced it, the associative picture to depict
the configuration, its shape and operational modus, the paradigm behind the configuration,
its focus, and the deficiencies that made us avoid its usage in the ECOSYS project [24].
Note that value web is not included in this overview, since it is rather similar to value
network.
Table 3: A comparison of value configurations
Value chain Value
constellation
Value shop Value network
Origin Industrial
society,
manufacturing
economy,
supply chain
Information
society

Information
society,
service
economy,
knowledge-
driven
Information
society, service
economy, driven
by the wish to
interconnect

Association Assembly line Microprocessor
in a PC
Artificial
intelligence
Distributed
systems/telecom
net
Shape Linear model Multidimensional
model
Ring model Tree model
Modus Linear,
sequence,
unidirectional
production
Complex, a set
of unidirectional
relationships
Iterative,
involving
repeatedly
performing a
generic set of
activities until
a solution is
reached
Parallel, linked
multidirectional
mediating
interactions
Paradigm Value is added
downstream by
each actor in
the chain.
Value means
only goods
delivered to the
customers, that
in return
creates the
revenue
Value is created
by many actors
in the
constellation, no
clear provider or
user distinction.
Relationships
are the key of
making the
competitive
advantage.
Value is
created by
combining
the
knowledge of
experts and
information
processing.
Value is created
by linking two or
more
customers.
Customers are
given the access
to/the possibility
to use services,
and to be
connected.
Focus/characteristics

Physical goods,
finished product
Transaction cost
minimisation

Relationships Problem
solution
Knowledge
and
competence
Information
asymmetry
Customers
Relations both
customers,
partners and
competitors
Inner trade-off Flow vs.
variation
Specialisation
vs.
integration
Economy of
scale vs.
economy of
scope
Outer constraints Capacity
utilisation
Knowledge
leverage
Yield
management
What is missing? Complexity of
the service and
mediator
oriented
industries can
not be
captured.
Too much focus
on the
relationships,
forgetting that
the competitors
can also
contribute with
some value.
Suitable only
for service-
oriented
business.
Suitable only for
mediator-
oriented
business.

To conclude, this chapter has introduced relevant literature related to business models and
value configurations in telecom business. It should be noted that in ECOSYS, none of these
models are directly taken into use. Based on the existing work and our own understanding,
we have created our own definitions for business models and value networks, introduced in
detail in Chapter 5.

3 VALUE IN TODAYS TELECOM MARKET
Before we describe the value elements in todays telecom business (incl. fixed, mobile,
converged business), and the value configuration used to model the value and business in
the ECOSYS project, we give some figures on the economic value of the telecom, and its
relevance.

The telecom market has steadily grown during the last decade, and the money an average
consumer spends on communications has increased. In the OECD countries, the percentage
of consumption that households use on communication increased from an average of 1.6%
to 2.3% (from USD 534 to USD 933 per year) between 1991 and 2000. This increase has
been the most significant among all consumption sectors, as shown in Figure 7 [25].

Figure 7: Changes in the proportion of communication in disposable household income, [25]
Following our definition, these figures indicate also an increase in the value of
telecommunications services to the consumers all over the world. A major part of this
increase results undoubtedly from the success of mobile telephony and increase in the
number of Internet connections among households. In the near future, the adoption of
broadband Internet connections is likely to further increase the consumption of
communication services. Also, new electronic services (eCommerce, eLibrary,
eInvesting/Market), broadcasting to terminals other than TV (mobile handsets, PCs), mobile
gaming and infotainment and their features making content and services available anywhere
at any time, are expected to contribute to this trend.
3.1 Value elements in todays telecom
In this section, the major elements and drivers of value in todays telecom market are
identified and discussed. The idea is not to introduce numerous new services expected to
emerge in the marketplace, but instead to recognize the value generating ingredients of
these.


Connectivity
A core value of telecommunications is connectivity. The essence of telecommunications
services is in connecting people and machines, in order to allow information to be sent
between these. Connectivity is achieved by linking communicating nodes together using
various networking technologies, wired and wireless.
The value of a network connectivity increases together with the number of nodes connected
to the network. According to the famous Metcalfes law, the value of a network grows by
the square of the size of the network.

Mobility and reachability
Mobility increases connectivity, by allowing people to maintain their ability to communicate
and access information regardless of time or place. This anywhere, anytime dimension
increases the value of telecommunications networks considerably, bringing value e.g. in
increased productivity of workers. More importantly, it makes people more reachable: most
people are always carrying mobile phones and rarely turn them off. This increased
reachability increases the value of the whole telecommunications network through network
effects, as the number of on-line nodes in the network increases.

Converged services
Convergence brings users the ability to access the same services regardless of the end-
device or access network. This has an important effect on the value of services experiencing
network effects, as the number of on-line users increases. As an example, instant
messaging services having clients installed on both PCs and mobile phones have a larger
on-line user base and are therefore of higher value for each of the users.

Presence and context-awareness
Presence services give people the ability to choose and inform others when, how, and with
whom they want to communicate. In todays society, the ability to be always connected may
easily turn to a must. Presence services give users value e.g. from the ability to be politely
disconnected. Context-awareness and location based services can provide extra value by
automatically altering the presence states of users.

Personalization
Mobile communications differs from fixed line communications in that the terminals are
clearly owned and used by individual persons instead of e.g. households or firms.
Personalization of the devices by e.g. downloadable ring tones and wallpapers give the
users value in the form of entertainment and fun, as well as a possibility to signal other
people about ones interests and values.
Personal preferences of users can also be informed to providers of services, in order to e.g.
receive filtered and personalized advertisements, information, and content. This brings
value to both the consumers and providers.

Security and QoS
A certain level of security and reliability is always assumed by the user of telecommunication
services, and it might be difficult to charge extra money for these. Value can be added e.g.
by making the required security mechanisms more transparent to the users.

Quality of service also is a rather important element of the value for any user. Many users
are willing to pay more if they get QoS guarantees/or even experience better quality [26].
All services have some QoS requirements and the value of the services decreases if those
are not met. For many services the charging of QoS should be made invisible and included
in the service charge. Extra value could be added e.g. by offering QoS-capable Internet
subscriptions with a possibility to prioritize different traffic flows in different classes,
enabling e.g. low-delay streaming and conversational services.

E- and m-services
In addition to personal communications and information/content services, the Internet and
mobile networks make it possible to perform many daily tasks and transactions more easily
and conveniently. Networks can be used to transfer orders, invoices, money, and electronic
goods, as well as to fill forms, return election votes, renew library materials etc. The actual
value from these services results from savings in time and energy.

Ease of use
New technologies and services always require some learning from the users. Services that
are easy to use bring value e.g. in time and energy savings and reduced anxiety. Easy
and/or automatic log-on to networked communications services increases the value of the
service through network effects.
Using Albrechts model, the value elements recognized above can be mapped to different
levels of the value hierarchy, as shown in Table 4.
Table 4: Value hierarchy
Unanticipated
Presence
and
context-
awareness
Desired
Converged
services

Expected
Security
and QoS
Personaliza
tion
E- and m-
services

Ease of
use
Basic Connectivity
Mobility
and
reachability

It should be noted that the classification of the value elements to the hierarchy is not static,
but dynamic. In the course of time, as customers get used to the value-adding features, the
value elements move downwards in the hierarchy. Unanticipated features become desired;
desired features become expected, and so on.

4 REGULATORY FRAMEWORK: CURRENT AND
FUTURE
Communication networks have become so important to modern societies that governments
have an increasing interest to guarantee their efficient and fair operation through legal
actions. The first big step was to start a massive global transition from government
monopolies to competitive communications markets in the early 1990s. This transition
including privatization, liberalization, and a single market creation is likely to reach its goals
in Europe in 2010s, assuming no radical changes in EU politics. The next big step in Europe
was the establishment of the New Regulatory Framework [27] in 2003, which defines the
EU legal process for managing the technology-neutral sector-specific regulation for all
communication networks. This European "clean table" regulation represents a major
deviation from the US telecom regulatory scheme which is more heavily bound to the long
legacy of FCC rulings.

Figure 8 shows the current EU regulatory process.

Recommendation
on relevant
markets
Guidelines on market analysis and
assessment of Significant Market
Power
Market analysis and
relevant market
definition
Assessment of effective competition or
significant market power
Cancellation, confirmation or imposition
of obligations
EU Level
National
Level
Results
can
be vetoed
by the
market
players
Remedies
cannot be
vetoed by
the market
players
Recommendation
on relevant
markets
Guidelines on market analysis and
assessment of Significant Market
Power
Market analysis and
relevant market
definition
Assessment of effective competition or
significant market power
Cancellation, confirmation or imposition
of obligations
EU Level
National
Level
Results
can
be vetoed
by the
market
players
Remedies
cannot be
vetoed by
the market
players

Figure 8 Current EU regulatory process

The European commission has identified 7 retail and 11 wholesale markets as relevant
markets in the communications domain. They are as follows:
Retail markets
o Access to PSTN at fixed location for residential and non-residential
o Publicly available local/national PSTN for residential and non-residential
o Publicly available international PSTN for residential and non-residential
o Minimum set of leased lines up to 2Mbps
Wholesale markets
o Call origination and termination in an individual PSTN.
o Transit services in the fixed PSTN
o Wholesale unbundled access to metallic loops for voice and broadband
o Wholesale broadband access (bit stream access)
o Wholesale terminating and trunk segments of leased lines
o Access and call origination in public mobile networks
o Voice call termination in public mobile networks
o Wholesale national market for international roaming on public mobile
o Broadcasting transmission services, to deliver broadcast content to end-
users.

In addition to sector-specific regulation, EU is proceeding in adopting the changes due to
Internet in all necessary bodies of law. We summarize this evolution from the ECOSYS
viewpoint per legal domain as follows.

The New Regulatory Framework includes two major structural intentions:
1. The technology-neutrality which implies the regulatory convergence of telephony,
computer and broadcasting networks. This convergence is now taking place in European
countries, for instance, as merger of national regulatory units of telephony, computer
and broadcasting into a single national body.
2. The separation of network operation from service operation which is in line with, for
instance, the Internet technology that separates the transport services from end-to-end
service provision. This separation appears currently to traditional operators as a
regulatory requirement of separate accounting and ban of cross-subsidies between
network and service units of the operator. It also appears as requirement for the
network unit to offer the wholesale transport service at the same price to internal and
external service operators. This regulatory separation brings up the question of the
evolution of value networks: do the vertical operator conglomerates gradually diverge
into independent network and service operator businesses?

Competition Law serves similar purposes with the sector-specific New Regulatory
Framework, such as promotion of fair and innovative competition in the marketplace. In
theory, the sector-specific competition regulation should gradually diminish and merge into
the general Competition Law. So far this merger is far away in the future and probably
happens in the same timeframe as the above mentioned privatization and liberalization
process. This close linkage between Competition and Communications regulation implies
need for continuous coordination and will cause conflicts because of the rapid evolution of
technology and services.

Intellectual Property Law has been challenged by the Internet phenomenon. Regarding
digital content there are two schools of thought, those who emphasize the efficient creation
of content (hard copyright, media industry) and those who emphasize the efficient
distribution of content (soft copyright, consumer benefit). It seems likely that the hard
copyright school has a stronger case which means that technologies and services for
content protection (e.g. digital rights management) and micro-payments (e.g. prepaid,
digital wallets) will be an important part of evolution.

Media Law is based on constitutional rights such as freedom of speech. Instead of detailed
guidance by authorities, the market behavior of media players is in many countries guided
by industry self-regulation. This is a result of the principle that government should not
exercise significant power over independent media.

Privacy Law has also been challenged by Internet. Law is being enhanced in EU to better
cover items such as location service, spam filtering, and management of user profiles. The
sanctions for violation of Privacy Law are likely to become sufficient for protecting the rights
of individuals as well as the healthy operation of Internet. This is one important aspect to
secure the continuing growth of Internet traffic.

Financial Law is relevant from service operator viewpoint because one of the key strategic
issues is the adoption of efficient mechanisms to support electronic commerce, both for
digital and physical merchandise. The division of tasks between operators and banks is
being tested. For instance, extending the operator's billing and charging to new domains is
limited by the requirement of getting a license for exercising banking business.

5 REFERENCE MODEL AND VALUE
CONFIGURATION: ECOSYS PERSPECTIVE
This section presents the working definitions for business models and value networks,
roles and relationships reference model and value configurations from an ECOSYS [24]
perspective.
5.1 Definitions

The working definition for business model adopted in this deliverable is based on the
definitions provided by Chesbrough and Rosenbloom in [7] and Timmers in [8] (refer
Chapter 2). Our definition is stated as follows:
Business model consists of service and information flows, including a description of
various business players, their roles and relationships, their relative position within a value
network and description of their cost structure and sources of revenue.
We do not specify the company internal value chains and competitive strategies involved.

The concept of value as perceived by various literatures is presented in Chapter 2. In this
deliverable, we have adopted the concept of value network instead of the traditional
company-specific value chain approach. We define value network as a network of
relationships that generates economic and other types of value through dynamic exchanges
between two or more participating players. The exchanges may be tangible or intangible in
nature. This definition is based on [3].

Other terminologies used in this deliverable are defined as follows:

Player: Participating entities in a business model. It can either be 1) a business entity
that provides services or 2) customer that consumes services.

Role: Functionalities of players in a business model. A player can take one or more
different roles.

Relationship: Illustrates the exchange of information between two roles/players/layers in
the system. These information exchanges can be of two types: 1) technical (data flow,
control flow etc), 2) business (monetary flow, contracts etc).

Vertical bundling: This refers to the extent to which a player controls the production and
distribution of services in a value chain. This is also known as vertical integration. For
instance, traditionally, an operator providing voice telephony services had integrated the
service and network operator roles, thus maintaining complete control over the value
chain.

Revenue model: A revenue model describes the revenue streams available for a player
in a business model. Some examples of revenue models are subscription and transaction
fee based models.

5.2 Reference model
The major components of the reference model considered in this deliverable are:
Roles

Relationships: Only the business relationships are presented in this deliverable.
5.2.1 Roles

Figure 9 illustrates the roles that exist in the telecommunications ecosystem from an
ECOSYS perspective.

End-user
Distributor
CPE
Vendor
Third party billing
service provider
Regulator
Service
Operator
Subscriber
Access network
operator
Core network
operator
Network Equipment
Vendor (Network elements
and services)
Service Integrator
Content
Aggregator
Content
provider
Content
producer/owner
Value-added Service
Provider
End-user
Distributor
CPE
Vendor
Third party billing
service provider
Regulator
Service
Operator
Subscriber
Access network
operator
Core network
operator
Network Equipment
Vendor (Network elements
and services)
Service Integrator
Content
Aggregator
Content
provider
Content
producer/owner
Value-added Service
Provider

Figure 9: Roles in telecom ecosystem

Table 5 describes the roles illustrated in Figure 9.

Table 5 Role definitions
Role Description
End-user An entity taking up this role is the ultimate consumer of services and
content provided in the telecom ecosystem.

Subscriber An entity taking up this role pays for the services and content provided
in the telecom ecosystem and has a direct relationship with the provider.
However, this entity may not necessarily be the end-user of these
services and content. A subscriber can be classified as: 1) Post-paid or
pre-paid (based on mode of payment), 2) Consumer or business (based
on type of entity)
Service operator An entity taking up this role provides basic communication services such
as voice and video telephony to subscribers over telecom networks
(fixed-line and mobile). A service operator doesnt own the networks. It
enters into service level agreements (SLAs) with access and core network
operators for network capacity. Other major responsibilities of this role
include: 1) Management of subscriber profiles, subscriber acquisition and
retention 2) providing security services 3) Charging and billing the
subscribers for service usage. The service operator role may resell its
network capacity to third parties such as content aggregators.
Access network
operator
An entity taking up this role owns and administrates the access networks
(local loop) such as DSL or mobile base stations and provides transport
or bearer services to the service operator. In other words, this entity sells
access network capacity to service operators enabling them to reach its
subscribers.
Transmission
network operator
An entity taking up this role owns and administrates the transmission
networks such as optical backbone networks and provides transmission
services to the core network operator.
Core network
operator
An entity taking up this role owns and administrates the core network
elements such as the PSTN and mobile switches, routers and offers core
network capacity to the access network operator.
Network
equipment vendor
An entity taking up this role primarily manufactures either by themselves
or through original equipment manufacturers (OEMs) network elements
and related services and distributes them to network operators (both
access and core) as well as to service operators.
CPE vendor An entity taking up this role provides customer premises equipment
(CPE) such as desktop computers or mobile terminals used by the end-
users. This entity may also provide auxiliary software and hardware such
as operating systems and batteries essential for the proper functioning of
CPE.
Distributor An entity taking up this role acts as the retailer for CPE and/or service
subscriptions. The means of distribution can be through a shop or over
the link/air downloads.
Value-added
service provider
(VASP)
An entity taking up this role provides services that are complementary in
nature or add value to the basic set of services provided by a service
operator. Examples of such services include location-based services and
presence.
Third party billing
service provider
An entity taking up this role provides billing services to the service
operator, VASP or content aggregators. This role acts as a financial
intermediary (or clearing house) between two or more service operators.
In return, it gets a share of the revenue earned by the operators. Credit
card companies and banks fall in this category.

Regulator Regulators primary role is to maximise social welfare by laying down
rules and guidelines essential for sustaining a competitive market and
technological environment and acting as a facilitator or mediator
between service operators, subscribers and network operator. Regulator
plays a neutral role in the telecom ecosystem and acts as a
representative of the government.
Service Integrator An entity taking up this role provides service platform functionality that
enables roles, offering services and application access to subscribers,
without requiring an extensive knowledge of the underlying telecom
system. Some examples of these functionalities include Parlay/OSA
Gateway that provides APIs for charging and billing service, QoS etc.
Content
producer/owner
An entity (business or individual) that takes up this role would develop
and maintain content applications such as games, music etc. It may own
the content (owner) or act as developers for an owner.
Content provider An entity taking up this role publishes and sells the content developed by
itself or by other content producers. Other activities include marketing
the content, conducting market research etc. Sega, a game publisher is
one such content provider.
Content
Aggregator
An entity taking up this role acts as an intermediary between service
operators and content providers for offering a portfolio of content (such
as games, music or ringtones). It takes the content produced by Content
providers, and converts it into a suitable format depending on the
context (terminal capabilities, location, personal indications/preferences,
etc.). it usually offers several types of content at a single stop (e.g. a
content portal) combining music, videos, films, books, etc.

5.2.2 Relationships
Understanding the relationships that exist among the business entities taking up one or
more roles is crucial for designing business models. After identifying the user-provider
relationships between the roles described in previous section, we comprised the result into
the reference model illustrated in Figure 10.

TPB_Ser
Transmission
network
operator
Cap_Whl
End user
Subscriber
Service
operator
Access
network
operator
Core
network
operator
Distributor
CPE Vendor
Network
equipment
vendor
Service
Integrator
Regulator
Third party
billing service
provider
VAS
provider
Content
aggregator
Content
provider
Content
producer/
owner
VA_Ser
CPE_Whl
CPE_Ret
Mkt_Rg
Nwk_Rg
Nwk_Rg
Cont_Ret
Billing
NES_Ven
NES_Ven
Ser_Int
Ser_Int
NES_Ven
Sbs_Dstr
Cust_
TPB_Ser
TPB_Ser Cont_Whl
Cont_Whl
VA_Ser
Com_Ret
Cap_Ret
Cap_Whl
Cap_Whl
Cap_Whl
TPB_Ser
Transmission
network
operator
Cap_Whl
End user
Subscriber
Service
operator
Access
network
operator
Core
network
operator
Distributor
CPE Vendor
Network
equipment
vendor
Service
Integrator
Regulator
Third party
billing service
provider
VAS
provider
Content
aggregator
Content
provider
Content
producer/
owner
VA_Ser
CPE_Whl
CPE_Ret
Mkt_Rg
Nwk_Rg
Nwk_Rg
Cont_Ret
Billing
NES_Ven
NES_Ven
Ser_Int
Ser_Int
NES_Ven
Sbs_Dstr
Cust_
TPB_Ser
TPB_Ser Cont_Whl
Cont_Whl
VA_Ser
Com_Ret
Cap_Ret
Cap_Whl
Cap_Whl
Cap_Whl
TPB_Ser
Transmission
network
operator
Cap_Whl
End user
Subscriber
Service
operator
Access
network
operator
Core
network
operator
Distributor
CPE Vendor
Network
equipment
vendor
Service
Integrator
Regulator
Third party
billing service
provider
VAS
provider
Content
aggregator
Content
provider
Content
producer/
owner
VA_Ser
CPE_Whl
CPE_Ret
Mkt_Rg
Nwk_Rg
Nwk_Rg
Cont_Ret
Billing
NES_Ven
NES_Ven
Ser_Int
Ser_Int
NES_Ven
Sbs_Dstr
Cust_
TPB_Ser
TPB_Ser Cont_Whl
Cont_Whl
VA_Ser
Com_Ret
Cap_Ret
Cap_Whl
Cap_Whl
Cap_Whl
Transmission
network
operator
Cap_Whl
End user
Subscriber
Service
operator
Access
network
operator
Core
network
operator
Distributor
CPE Vendor
Network
equipment
vendor
Service
Integrator
Regulator
Third party
billing service
provider
VAS
provider
Content
aggregator
Content
provider
Content
producer/
owner
VA_Ser
CPE_Whl
CPE_Ret
Mkt_Rg
Nwk_Rg
Nwk_Rg
Cont_Ret
Billing
NES_Ven
NES_Ven
Ser_Int
Ser_Int
NES_Ven
Sbs_Dstr
Cust_
TPB_Ser
TPB_Ser Cont_Whl
Cont_Whl
VA_Ser
Com_Ret
Cap_Ret
Cap_Whl
Cap_Whl
Cap_Whl
Cap_Whl
End user
Subscriber
Service
operator
Access
network
operator
Core
network
operator
Distributor
CPE Vendor
Network
equipment
vendor
Service
Integrator
Regulator
Third party
billing service
provider
VAS
provider
Content
aggregator
Content
provider
Content
producer/
owner
VA_Ser
CPE_Whl
CPE_Ret
Mkt_Rg Mkt_Rg
Nwk_Rg
Nwk_Rg Nwk_Rg
Cont_Ret
Billing
NES_Ven NES_Ven
NES_Ven
Ser_Int
Ser_Int
NES_Ven
Sbs_Dstr
Cust_
TPB_Ser
TPB_Ser Cont_Whl
Cont_Whl
VA_Ser VA_Ser
Com_Ret
Cap_Ret
Cap_Whl
Cap_Whl
Cap_Whl

Figure 10 Roles and Relationships reference model

The figure depicts the roles and relationships among them. The direction of arrows indicates
the value flow.

Table 6 describes each of the business relationship interfaces.

Table 6 Relationship interface definitions
Interface Description
Cust_ This interface represents the relationship between the end-user and the
subscriber roles.
CPE_Ret This interface represents the retail relationship developed between the
distributor and end-user roles for the distribution of CPE and related
services.
CPE_Whl This interface represents the relationship developed between roles for
the wholesale distribution of CPE and related services. This relationship
exists between the CPE vendor and distributor.
Sbs_Dstr This interface represents the relationship developed between the
subscriber and distributor roles.
Com_Ret This interface represents the relationship developed between roles for
the retail provisioning of communication services such as voice, video
telephony, email etc. This relationship exists between service operator
and subscriber
Cont_Ret This interface represents the relationship between roles for the retail
provisioning of content. This relationship exists between: 1) Content
aggregator and subscriber 2) Content provider and subscriber
Cont_Whl This interface represents the relationship between roles for the
wholesale provisioning of content. This relationship exists between: 1)
content aggregator and service operator 2) content provider and service
operator 3) content provider and content aggregator 4) content
producer and content provider
Cap_Ret This interface represents the relationship between roles for the retail
provisioning of access network capacity services. This relationship exists
between the service operator and subscriber.
Cap_Whl This interface represents the relationship between roles for the
wholesale provisioning of network capacity services. This relationship
exists between: 1) Access network operator and service operator 2)
Core network operator and access network operator 3) Core network
operator and service operator
TPB_Ser This interface represents the relationship between roles for the
provisioning of third party billing services. This relationship exists
between a third party billing provider and the following roles: 1) Service
operator 2) VASP 3) Content aggregator/provider/producer
Mkt_Rg This interface represents the relationship developed between the
regulator and service operator roles for the implementation of market
regulations in order to provide market fairness. Pricing regulation is one
example of such market regulation.
Nwk_Rg This interface represents the relationship that exists between regulator
and the network operator roles (both access and core) for the
implementation of network regulations such as mobile spectrum
distribution, wholesale pricing and interconnection.

Ser_Int This interface represents the relationship that exists between the service
integrator and network operator (both access and core) roles for the
implementation of service platforms that enable network independent
services and applications.
VA_Ser This interface represents the relationship between a value-added
service provider and the following roles: 1) Service operator 2)
Subscriber
NES_Ven This interface represents network equipment vendors relationship with
the following roles: 1) Core network operator 2) Access network
operator 3) Service operator
5.3 Value model
5.3.1 Value configurations
Porters work meant a lot for the strategy theory, but, having telecom business in mind, it is
necessary to mention that a point of criticism has been that Porters value chain model was
codified in a way that made it more suited to manufacturing than service industries. More
recently, it has been criticised for being modelled too closely on the assembly line analogy
being too linear, too unidirectional and too sequential.
Stabell and Fjeldstad showed in [18] the limitations of the value-chain models usage in
service and mediating industries (e.g. insurance, banking, hospitals, telecom). In their view,
the value chain logic does not sufficiently capture the value-creation logic of the telecom
business. They suggest using the networked value creation logic. In practice, one should
think of a value network configuration when modelling the value in the telecom business.
We adopt this view in the ECOSYS project, and consider the value network as the basis for
creating example business models described in the Chapter 6. Change in perceptions
regarding value analysis has already been discussed in detail in Chapter 2.
A value network generates economic value through complex dynamic exchanges between
an enterprise, its customers, suppliers, strategic partners and stakeholders. These networks
operate on the principle of exchange where three different value flows need to be traced.
Each of value flows follows the migration of the items of value exchanged among the actors
involved in the value network. In other words, we need to trace:
1. Value chains A flow of goods, services, revenue, which involves direct exchanges for
paid services, delivery of goods, services, contracts and invoices and the return receipt of
orders, request for proposals, confirmations or payment.
2. Knowledge value flow a (logical) value flow denoting the exchange of strategic
information, planning knowledge, process knowledge, collaborative design, policy
development, etc.
3. Intangibles value flow a value flow of intangible value and benefits. These are value that
cannot be assigned a monetary sign, and benefits that go beyond actual service such as a
sense of community, customer loyalty, image enhancement or branding.
Value flows are not unidirectional, but rather multipoint-to-multipoint and interdependent.
They run around and loop back again in complex exchanges that encompass many threads
or chains of value. In order to create a robust business model that will lead to a competitive
advantage, all flows should be captured and analysed.

5.3.2 Value modeling
For the purpose of value modelling it is important to relate the identified value elements and
the value producers. Different actors and players in the value network provide different
value elements. For example, connectivity and mobility are clearly provided by the network
operators, whereas security must be taken care of in many different levels. Table 7
illustrates this, by mapping the value elements to the value configuration.

Table 7 Value providers
End-user
CPE Vendor
Service
operator
Personaliza
tion
E- and m-
services
Access
Network
operator
Mobility
and
reachability

Core Network
Operator
Connectivity

Value-Added
Service
Provider

Third party
billing service
provider

Content
aggregator/
provider

Personaliza
tion
Converged
services
Presence
and
context-
awareness
Ease of
use
Content
producer/
owner

Security
and QoS

E- and m-
services

6 EXAMPLES OF TELECOM BUSINESS MODELS
This chapter describes the telecommunications business models in detail. A series of
business models applicable for telecommunications services are described. The participating
players, relationship interfaces, revenue streams and cost drivers are listed for respective
models. We do not specify the company internal value chains and competitive strategies
involved.
The direction of arrows in all the business models represents the direction of service flow.
Revenue flow is considered to be in the opposite direction. In some cases revenue sharing
exists between two players, which is bidirectional. The ellipse in all the figures represents a
player. A player may take up one or more roles. The rectangular boxes within the ellipse
represent the roles.
6.1 BM 1: Basic service provisioning model
6.1.1 MODEL DESCRIPTION
Com_Ret
Cap_Ret
Cap_Whl
Subscriber
Service
Operator
Access Network
Operator
Transmission
Network Operator
Core Network
Operator
Com_Ret
Cap_Ret
Cap_Whl
Subscriber
Service
Operator
Access Network
Operator
Transmission
Network Operator
Core Network
Operator

Figure 11 Basic service provisioning model

This business model describes a basic service provisioning scenario, where the user buys
services from the Service Operator and thus subscribes for telecommunication services. The
subscriber can either be an individual or a business organisation. Service operator acts as
the main responsible player towards the Subscriber. It provides telecom services like voice
and video telephony, Internet access, value-added services etc. In order to reach its
customers, and provide them with services, service operator needs to buy network access
and transport services from the network operator. Network operator is a player who
operates both access and core portions of a network infrastructure.
In this scenario, two types of service level agreements exist.
1. A subscriber enters into a contract or service level agreement (SLA) with the service
operator for the usage of services. The contract can be of two types: post-paid or
pre-paid, based on the mode of subscription payment. In the case of post-paid
contract, the subscriber is billed by the service operator for basic connectivity and
communication services on a monthly basis. A service operator may adopt different
pricing models to charge for the services provided. The billing service is taken care
of by the service operator, thus incurring OPEX.
2. A SLA exists between the service and the network operator for the provisioning of
core and access network services. SLA includes monitoring and maintenance of
network QoS, reliability and fault-tolerance, charging etc.

Figure 11 illustrates this model. In this figure, the network operator player takes up the
roles of access, transmission and core network operators. Table 8 lists the revenue streams
and cost drivers for the key players in this model.

Table 8 Basic service provisioning : revenue streams and cost drivers
Player Roles Revenue Cost
Interface Streams Interface Drivers
Cap_Ret
Monthly fee from
the subscriber for
connectivity Com_Ret
Subscriber
management cost
(includes subscriber
acquisition and
retention), Billing
cost
Service
operator
Service
operator
Com_Ret
A variable fee for
communication
services Cap_Whl SLA cost
Network
operator
Access
network
operator,
transmission
network
operator,
core network
operator Cap_Whl
SLA revenue from
service operator Internal
Network equipment
purchase and
maintenance cost

6.2 BM 2: CPE distribution model
This business model is used for the retail distribution of CPE to the end-user. The CPE can
be distributed in two different ways.
6.2.1.1 CPE bundling by service operator
This method is mostly seen in the case of mobile services where the CPE vendor directly
sells the equipments to the service operator who in turn distributes them (mobile terminals
in this case) directly to the end-user and the cost of CPE is included in the basic subscription
fee. The service operator takes up the additional role of distributor and hence is the key
player. The service operator may provide subsidies to the subscriber in this scenario.
Figure 12 illustrates the model.
Table 9 lists the revenue streams and cost drivers for the key players.
CPE_Ret
Cust_
End-user
Distributor
CPE Vendor
Com_Ret
Cap_Ret
Service
Operator
CPE_Whl
Subscriber
CPE_Ret
Cust_
End-user
Distributor
CPE Vendor
Com_Ret
Cap_Ret
Service
Operator
CPE_Whl
Subscriber

Figure 12 CPE bundling by service operator

Table 9 CPE bundling: revenue streams and cost drivers
Interface Streams Interface Streams
Cap_Ret
Monthly fee
from the
subscriber for
connectivity Internal
Distribution
channel setup
cost
Service
operator
Service operator,
Distributor
Com_Ret
Variable fee for
communication
services CPE_Whl
CPE
purchasing
cost

CPE_Ret
CPE revenue
from end-user CPE_Ret
CPE subsidy
cost, Device
management
cost
CPE
Vendor CPE_Whl
CPE revenue
from service
operator Internal
CPE
manufacturing
cost (includes
OEM
outsourcing)

6.2.1.2 Direct distribution by CPE vendor
In this case, the CPE distribution is directly taken care of by the CPE vendor as shown in
Figure 13. This is the usual method of distribution followed in fixed-line service business.
Here, CPE vendor and service operator may have equal or higher power with respect to
each other based on the control over the CPE distribution network and the subscriber base
respectively. Revenue sharing deals may exist between the distributor and Service operator
(for subscription distribution).

Sbs_Dstr
Cust_
Com_Ret
Cap_Ret
Revenue
Sharing
CPE_Ret
End-user
Subscriber
Service Operator
Distributor
CPE Vendor
CPE_Whl
Sbs_Dstr
Cust_
Com_Ret
Cap_Ret
Revenue
Sharing
CPE_Ret
End-user
Subscriber
Service Operator
Distributor
CPE Vendor
CPE_Whl

Figure 13 Direct distribution by CPE vendor

Table 10 lists the revenue streams and cost drivers for key players in this model.

Table 10 CPE direct distribution: revenue streams and cost drivers

Service
operator Service operator
Cap_Ret,
Com_Ret
Connectivity and
service fee from
subscribers Internal
Subscriber
management
and
acquisition
cost, SLA
cost
CPE Vendor CPE vendor CPE_Whl
CPE revenue
from distributor Internal
CPE
manufacturin
g cost
(includes
OEM
outsourcing)
CPE_Ret
CPE revenue
from end-users Internal
Distribution
channel
setup cost
Distributor Distributor
Sbs_Dstr
Revenue from
subscription
distribution CPE_Whl
CPE
purchasing
cost

6.3 BM 3: Content provisioning
6.3.1 Vertical bundling model
6.3.1.1 MODEL DESCRIPTION
This model is used for the provisioning of content by a service operator. The service
operator purchases wholesale content from various content players (such as content
providers and producers) and thus takes up the additional role of a content aggregator.
Service operator is the key player in this model having a direct relationship with the
subscriber base, providing content through a portal and billing the subscriber for the
services. By assuming the role of content aggregator, a service operator can gain greater
control of the value network. This is also known as vertical bundling.

Figure 14 illustrates the model. Table 11 lists the revenue streams and cost drivers for key
players.

Cont_Whl
Cont_Whl
Cont_Ret
Cap_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator
Cont_Whl
Cont_Whl
Cont_Ret
Cap_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator

Figure 14 Vertical bundling model

Table 11 Vertical bundling: revenue streams and cost drivers
Cont_Ret
Content
subscription
revenue Cont_Whl
Content
purchase
and
aggregation
cost
Service
operator
Service
operator,
Content
aggregator
Cap_Ret Connectivity fee Internal
Capacity
provisioning
cost

6.3.2 Bit-pipe model
This model is used for content provisioning by third parties such as content aggregators.
Here, the third party offers content to the subscribers over service operators network
capacity. The third party has a direct relationship with the subscriber and hence is a key
player. A third party billing service operator (such as credit card agency or banks) will
provide billing services on behalf of the content aggregator. The content distribution is
considered to be over the link/air. Here, the service operator bills its subscribers only for the
transport data usage, hence the bit-pipe model. Content aggregator and third party
billing service provider are the key players in this model. Figure 15 illustrates the
model.
Cont_Whl
Cont_Whl
Cap_Ret
Billing
TPB_Ser
Cont_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator
Third party billing
service provider
Cont_Whl
Cont_Whl
Cap_Ret
Billing
TPB_Ser
Cont_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator
Third party billing
service provider

Figure 15 Bit-pipe model

Table 12 lists the revenue streams and cost drivers for key players.

Table 12 Bit-pipe: revenue streams and cost drivers
Content
aggregator
Content
aggregator Cont_Ret
Content usage
revenue Cont_Whl
Content
purchase
and
aggregation
cost
Third party
billing service
provider
Third party billing
service provider TPB_Ser
Billing service
revenue from
content
aggregator Billing
Billing
provisioning
cost
Service
operator Service operator Cap_Ret
Data usage
revenue from
subscribers Internal
Capacity
provisioning
cost

6.3.3 Capacity reseller model for content
In this model, the third party such as the content aggregator provides content to the
subscribers using a service operators network capacity. Here, the service operator resells a
part of its capacity and also provides billing services on behalf of the content aggregator.
The content aggregator in turn has to pay for the billing service and capacity usage to the
service operator. A revenue sharing model can also exist between these players for content
usage. These revenue models may differ depending on the type of content provided. Figure
16 illustrates the model. Table 13 lists the revenue streams and cost drivers for key players.

Table 13 Capacity reseller model for content: revenue streams and cost drivers
Billing
Billing service
revenue from
Content
aggregator Billing
Billing
provisioning
cost
Service
operator Service operator
Cap_Whl
Resell capacity
revenue from
content aggregator Internal
Capacity
provisioning
cost
Content
aggregator
Content
aggregator Cont_Ret
Content
subscription
revenue( revenue
may be shared
between service
operator and
content
aggregator) Cont_Whl
Content
purchase
and
aggregation
cost

Cont_Whl
Cont_Whl
Cap_Whl
Cap_Ret
Billing
Revenue
Sharing
Cont_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator
Cont_Whl
Cont_Whl
Cap_Whl
Cap_Ret
Billing
Revenue
Sharing
Cont_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator
Cont_Whl
Cap_Whl
Cap_Ret
Billing
Revenue
Sharing
Cont_Ret
Service
Operator
Subscriber
End-user
Content
producer/owner
Content
provider
Content
Aggregator

Figure 16 Capacity reseller model for content

The content provided using the business models mentioned in this section are of different
types. Examples of content include news, entertainment, games etc. Two or more content
can be provided using the same business model. However, they may be vary in the type of
technology related functionalities and relationships. Examples of value-added services
include location-based content, presence services etc.
Some of the revenue models used by the key players in content provisioning are as follows:
o Transaction-based fee
o Fixed subscription fee
o Usage-based fee such as time or traffic

o License fee
o Value-based fee such as for location-specific content
6.4 BM 4: Peer-to-peer content distribution model
Peer-to-peer (P2P) traffic has risen in recent years taking up a major part of the access and
core network capacity. Currently, peer-to-peer content is distributed in two different ways.

6.4.1.1 With Digital Rights Management (DRM)

The business model would follow either of the ones described in section 6.3 depending on
who provides the content. The additional role introduced in this model is the DRM [28]
provider (rights issuer). This role can be taken up by the service operator or by a third party
such as VASP, content aggregator or billing service provider with appropriate revenue-
sharing models among the players.
6.4.1.2 Without DRM
No clear business model exists for this scenario. Typically, the peer-to-peer content would
appear as transport data for the service operator, in which case, it can charge the
subscriber based on revenue models such as usage-based fee.

Content owners have so far considered P2P as a threat, but this situation may change.
Some observations indicate that P2P can be an efficient marketing channel for commercial
content. For instance, movie producers can increase DVD sales by distributing lower quality
or short versions of full movies via P2P without DRM. As DRM becomes more popular, P2P is
likely to become an important channel for the full commercial content distribution.
6.5 BM 5: DVB-H mobile broadcasting
The business model structure in the mobile broadcasting case is the same as in the
Reference Model, but the players taking the roles are often different. For example, the
network is no longer the cellular network, but a DVB-H based broadcasting network. For
the return channel, the mobile networks can be used. Content can be same that is
broadcasted in traditional television networks or different, e.g. data services such as
weather info, software packages, anti-virus updates etc. Broadcasting services are most
economic when there is a large demand for the same data stream from many people at the
same time.

Cont_Whl
Cap_Whl
Com_Ret
Cont_Whl
Cont_Ret
End-user
Subscriber
Core network
operator
Content
producer/owner
Access network
operator
Content
Aggregator
Content
provider
Value-added
service provider
VA_Ser
Service operator

Figure 17 DVB-H mobile broadcasting business model

Figure 17 illustrates the model. The figure illustrates only the content delivery part of the
business model. The return channel uses the mobile networks according to the business
models treated earlier in this deliverable.
Typically, the broadcast service operators act also as content aggregators, aggregating
multiple TV programs or data streams to the broadcasted channel. The actual broadcasting
network can be operated by another player, who sells wholesale capacity to the service
operator. Table 14 lists the revenue streams and cost drivers for the key players.

Table 14 DVB-H mobile broadcasting: revenue streams and cost drivers
Revenues Costs
Players Roles
Interfaces Streams Interfaces Drivers
Service
operator
Service
operator+
Content
aggregator
Com_ret
Monthly tariff for
content
subscriptions
Cap_whl
Monthly/annual
or usage-based
tariff for
broadcasting
capacity
Cont_ret
Usage-based
tariffs for
content sold
directly to
consumers
Cont_whl
Costs of rights
to broadcasted
content
VA_Ser
Costs of value-
added services
Internal
Customer
acquisition,
marketing,
provisioning,
billing etc.
related
Network
operator
Access network
operator +
Core network
operator
Cap_whl
Monthly/annual
or usage-based
tariffs for
broadcasting
capacity
Cap_whl
Tariffs for core
network
capacity

Internal (and
with network
vendors)
Build-up,
operation and
maintenance
costs of DVB-H
access network
and core
network
Content
provider (e.g.
TV production
company)
Content
provider
Cont_whl
Wholesale
tariffs for
content
Cont_whl
Buying rights
from content
providers
Content
producer /
owner (e.g.
advertiser, TV
format owner)
Content
producer /
owner
Cont_whl
Selling rights to
content
providers
Internal
Investments
(time and
money) on
creating new
content
Value-added
service provider
Value-added
service
provider
VA_Ser
Selling value
added services
to service
operators
Internal
Investments
(time and
money) on
creating new
services

7 ASSESSMENT FRAMEWORK
Assessment of a business models viability prior to its implementation is often difficult and
ambiguous. Assessment of business model can be done both qualitatively and
quantitatively. Quantitative methodologies such as the one adopted by ECOSYS for business
case analysis can be considered as a concrete approach towards assessing the viability of
business models involved. However, qualitative assessment of the value network, as the
first step would enable identifying the fundamental flaws inherent in the business model
under consideration and thus help in eliminating the faults before any implementation is
actually undertaken. In this chapter, we describe a qualitative framework, based on a top-
down approach, starting with a macro-assessment of the business model followed by a
micro-assessment of each of the participating players.

The following set of parameters can act as a preliminary list for comparing two or more
business models aiming to provide similar value to a customer.

o Value to the end-user: Providing value to the end-user or customer is the ultimate motive for
any business model. Hence, a business model should be able to meet all the requirements for
providing value to a customer that includes quality, quantity, pricing and ease of access.
o Complexity and coordination level: This refers to the level of complexity in terms of the
number of players and associated roles in a business models and coordination among them
which may have an impact on the overall efficiency. Some of the efficiency metrics to be
considered are the operational or transaction cost and pricing. An appropriate balance
between efficiency and the number of players has to be struck for a successful business
model.
o Power dynamics: Players participating in a business model have varying degrees of
bargaining power. Hence, an appropriate agreement (which includes revenue sharing) has to
be struck according to the strength of each player in a relationship. It should be noted that the
relative power of each player may change according to the type of roles it takes from time to
time thus changing the power equation.
o Choice of technologies: Technology plays a key role in telecommunications ecosystem
which has been a hotbed of innovative and disruptive technologies. Choice of technology in
terms of the following also directs the success of a business model:
Architectural complexity: This may lead to a longer time-to-market or
interoperability issues.
Evolution path: Technologies with clear evolution path enable greater benefits to
both the producers as well as the customers.
Scalability: Scalable technologies can support the varying needs of customers.
Substitutes: Substitute technologies may render the business model based on older
technologies worthless.
o Regulation: Regulation has become a major factor of influence in todays
telecommunications market and industry. Every relationship in a business model has to be
checked with respect to regulatory rules in order to avoid any hindrances that could create
bias against the participating players.


In order to assess the relative bargaining power of a player in a relationship, the following
parameters should be considered. Here, the unit of analysis is a player.

o Nature of roles taken by player: The nature of the role can be a deciding factor in
determining the power of a player. A player may take up a key role that allows it to have a
greater control over the value network.
o Number of roles: More number of roles taken by player would result in greater control of the
value network. This can be a major factor in cases where no single role has maximum
influence over the value network.
o Number of customers: Larger the number of customers, greater is the power of the player.
o Number of suppliers: Larger the number of suppliers, greater is the power of the player.
o Number of substitutes: Larger the number of substitutes, greater is the competition and
weaker is the bargaining power of the player.

The above mentioned framework can be adopted to evaluate mobile, fixed or convergent
business models by introducing metrics specific to these markets.

8 CONCLUSIONS AND RECOMMENDATIONS

Our effort in this deliverable has been primarily to identify possible business models in the
telecommunications ecosystem. This exercise is essential for ECOSYS in order to conduct
meaningful analysis of business cases, since the traditional paradigms have become
obsolete. Value creation is no longer limited only to a few players. New roles and
relationships are becoming an integral part of telecommunications business. Every player
has to understand its position in the network of suppliers, customers, buyers and
competitors, in order to provide greater value and maximize the profit potential.

The deliverable provides an overview of existing theories and perceptions on business
models and value. Business models, in general, have multiple definitions in various
literatures. Through this deliverable, we have provided a working definition of the business
model that can act as a basis for further discussions in ECOSYS. The meaning of value in
telecommunications business has seen rapid changes in recent years. Our understanding of
this value is also described. The concept of value network is adopted for our studies,
instead of the traditional company-specific value chain approach.

The reference model constituting various roles and their relationships captures the complex
value networks possible in todays telecommunications ecosystem. The nature of each
relationship is identified. All our business models are based on this reference model. A
player can have one or more of these roles and relationships in a business model.

A major observation with regards to business models is that power in terms of control over
the value network is distributed among multiple players depending on the type of business
models chosen. Hence, a clear understanding of the key participating players and
measurement of their relative power are primary requirements for realistic analysis. We
identify the key players in each of the business models.

It should be noted that there is no single business model that can enable all the telecom
services that we see today or expect in the future. Different services will require different
business models adding to the overall complexity. We provide a qualitative assessment
framework for business models by identifying the key indicators to be considered, as a first
step, before actual implementation. The qualitative assessment framework developed in this
deliverable should act as a starting point for business case analysis in WP4 and WP5. This
should enable the identification of appropriate power sharing equation among the players in
a business model.

Acknowledgement

We express our sincere gratitude to all the ECOSYS participants for their invaluable
feedback and active participation in discussions related to this deliverable.

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Acronyms
Acronym Term Description
2.5G 2G Systems + Advanced Data Services (ie GPRS)
3G Third Generation Mobile Systems (as defined by IMT-2000)
API Application Programming Interface
ASP Application Service Provider
B3G Beyond 3G
BSP Backbone Service Provider
C&B Charging and Billing
DRM Digital Rights Management
DSL Digital Subscriber Line
EU European Union
GRX GPRS Roaming eXchange
GSM Global System for Mobile communications
IP Internet Protocol
ISP Internet Service Provider
IX Internet eXchange
LBS Location-based Service
MVNO Mobile Virtual Network Operator
NAP Network Access Point
OSA Open Systems Architecture
ROI Return on Investment
SO Service Operator
UMTS Universal Mobile Telecommunications System (as defined by 3GPP)
VASP Value Added Service Provider
WAN Wide Area Network
WLAN Wireless Local Area Network
WWW World Wide Web

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