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1. Horizontalization Is Not for Everyone: A Wider Perspective on Telco/OTT
Paradigm (Disponible en Español)
Posted by jormarguo on May 31, 2012 1:53:26 PM
I ended up being a victim of my own written words, and although I’m still convinced that the Telco/OTT
discussion is wearing out, the recent launch of VoIP, messaging and file transfer app “Tu Me” by
Telefonica plus the incisive opinion of industry analysts about how Telco strategies must mimic OTT
innovation business models in order to stay relevant, made me think if that’s really the only option
Telcos have. In the current state of the industry one might conclude that the evolution of wireless
technology has impacted the business model that used to support such evolution; is also clear that
when the Internet experience started to mesh with the use of mobile devices a door opened for services
from new providers with high potential of engagement among users on the move to enter the scene,
that potential became reality which in turn transformed into revenue for those providers in detriment of
the Telcos own profit, ergo an strategy must be formulated but I doubt that “one size fits all” (sorry on
the cliché) will do the trick.
Media and Analysts Opinion Tends to Be Simplistic
I don’t want to fall on the same mistake myself, thus I refuse to generalize, but the big majority of
articles that I encountered on the matter, describe the challenge as a trivial problem with an obvious
solution; “Telcos should do what OTT do” or sometimes they mention the “Best of both worlds”
approach, but the issue is far from trivial, not only the Telcos would have to adopt the same perspective
that OTT employ to innovate on services for the users (facing all the related challenges as well) but they
still have to take care of the engineering, administrative and financial challenge of delivering a
competent cellular network, challenge that is not easy, not static, not patient and not forgiving; just the
engineering behind a wireless channel is huge, plus investigation and evolution hasn’t stop so far, on the
contrary, new and more complex technological paradigms emerge on the mobile field today more than
ever. Besides you’ll find that among those Telcos that have embraced an early strategy facing the OTT
threat there is hardly a common concept applied, and I don’t think is only because it’s early but because
horizontalization is not for everyone within the Telco business.
How wide can we go?
Among the various approaches that can be identified, I’d like to mention just a few that represent the
pulse of the industry. The first and most common in the beginning of the threat countermeasure plan is
the lowering of the price for bundled services and the associated but insipid blockage of OTT services
ranging from exclusion to higher tariffs for such usage. Another one consist on elaborated and carefully
planned company restructurations like the ongoing effort on Verizon that aims to offer solutions for its
customers instead of just network access. Another strategy is a complete resignation to user centric
services; this position can be inferred from LightSquared statement on becoming the dumbest pipe in
the world which I understand as a strategy to provide the best infrastructure so apps can be delivered

2. effectively to the users. There are strategies that lean on new technologies and alliances with OTTs
and/or Banks to offer new services like the mobile payment services through NFC technology
announced in many countries. The standardized one that aims to take advantage of the already open
interfaces of cellular networks and a close collaboration with OEMs within the familiar environment for
Telcos to offer services like RCS-e based joynTM, this road leaves all OTT collaboration out of the
question. The acquisition based strategy, which aims to absorb small OTT companies to better
understand the user centric service approach; was there any doubt that Jajah was related to the subject
at hand? Lastly and maybe the less relevant or arguably the one that seems out place, is the offering of
MVNO service in countries without presence of the Telco; move done by China Mobile in the UK, but if
you take a closer look, this move can be interpreted as another way to reach beyond the limitations of
traditional service.
A Wider Perspective Should Lead To a Different Approach
Image taken from http://enquirerdemocrat.net/pages/?p=3906
I’ve been using the word “horizontalization” indiscriminately so far, I’d like to give it some attention
now, what the concept means for the industry, as I like to explain it, is to open the network
infrastructure that has been used to deliver traditional services and that are totally controlled by the
Telco, to other companies, networks and/or interested parties so they can deliver several services not
necessarily controlled by the former and addressed to differentiated targets. Now let’s take a look at
what’s happening; revenues from voice and SMS are falling due to innovation from other industries,
wireless technology investigation and evolution seems not to slow down the pace it has been displaying
so far, making the product cycles shorter, the challenges bigger and the threats more common and
recurrent; if we simplify the panorama we’ll end up with an innovation compromise on one side and a
technological compromise on the other, both with business potential and several options to configure
an organization, Telcos can devote entirely or partially to one compromise, they can mix components of

3. both compromises and just for the sake of making my point in this blog entry I’m considering the
Horizontal Telco as the brave one which tries to commit to both at the same time.
I think there will be three stages the industry will have to face; the early stage will be characterized by
many options and strategies leading to disparate results. The mid stage will display the surviving Telcos
devoting efforts only to those strategies that produced the stronger results from the first stage, and
finally a later stage that will display the new threats that will shape the industry once again.
Who can accomplish Horizontalization?
Is really hard for me to identify any current Telco organization capable of conquering alone the action to
“horizontalize” completely its business operation; (hope to be wrong here). Telco companies have many
limitations and the current situation of the industry demands flexibility among other things that Telcos
seem to lack of; I’m willing to expose some of those limitations:
 Telcos are bounded to local country regulations which hinders quick respond to market changes
 Telcos must commit to the increasing tendency of green network deployments injuring their
CAPEX
 CAPEX and OPEX to deliver an OSS/BSS capable of dealing with Horizontalization can be
prohibitive
 Telcos are slow to set up agreements with third parties, due to mistrust and lack of genuine
spirit of collaboration
 Telcos don’t have R&D groups within the organization focused on innovation of the service
 Telcos don’t have engineering groups within the organization focused on planning the network
infrastructure that can support innovation
If any Telco can leap over these and other limitations, well then I think Horizontalization can be
accomplished by them.
From the Smart Pipe to the Ultimate Wireless Service Provider
So we have a wider view, we have review some limitations, we can now set two ideal reference points in
the Telco strategies action line; companies in the field should fall in between this two references; the
Smart Pipe and the Ultimate Service Provider. The first one will have a segmented infrastructure capable
of dealing with the key technical aspects that will allow not only the effective delivery of services but
also many interested parties will ride on top of this infrastructure without hurting the business model of
the Smart Pipe Telco, because its revenue scheme has shifted, its network infrastructure will be
composed of three main layers: The Service Layer houses the application servers, it could include an
IMS network, billing systems, QoS control, business intelligent solutions, subscriber databases and new
border network control functions to interact with other providers of service layer capabilities. The IP
Transport Layer will provide the capabilities to ensure the fulfillment of service level agreements with
not just one but several providers of service layer, it will own edge network equipment that’ll allow the
interaction of several access networks between them and towards the upper service layers, it should

4. provide IP services like DPI, filtering, security, etc. The Access Layer will be as heterogeneous as it can
get, this layer will manage all the resources of wireless channels across many types of wireless access
and will provide the appropriate interface to handle the SLAs with the IP transport layer.
The second reference point; the Ultimate Service Provider will display the same features of the Smart
Pipe, plus the organizational functional units that a service innovation Internet company uses to engage
the user, R&D groups focused on inventing and researching to take advantage not only of the user tastes
and needs but also of every piece of its Smart Pipe infrastructure to enhance its services, let’s not forget
the massive customer service area, such Telco would have a reach that could be so impressive … I
cannot clearly picture it. Many will argue that a Telco can do it without the smart pipe infrastructure,
but if so, can it really be called a Telco?
Follow me, @jomaguo.
For more discussion on everything mobile, visit the Service Provider Mobility Community at
www.cisco.com/go/mobilitycommunity.