Telecom Business Intelligence: The Five Forces of a Highly

Competitive Industry by John Myers

VoIP. VoIP. VoIP. Thanks for Vonages imaginative television commercials and Skypes robust, and free,
desktop client; Voice over Internet Protocol, VoIP, is all the rage for the telecom service providers and
equipment manufacturers. Everyone wants to get on the VoIP bandwagon.
And no wonder. A recent TeleGeograpy Study shows that residential subscriber levels in the United States are
projected to jump from only 150,000 in 2003 toover 4 million by the end of 2005. The same study predicts that
the same residential VoIP market should reach $1 billion in gross revenues this year. Worldwide VoIP usage,
including wholesale, retail consumer and retail business, are projected to top 2.4 trillion minutes. Not too bad
for a concept that was not in a realized form, let alone a denable industry, until 1995.
VoIP represents a great opportunity for telecom service providers to develop exible and responsive offerings.
These services can be developed as premium services by fully using the strengths of the Internet or internal
intranets. These services can also be developed to exploit efciencies that the Internet and intranets offer that
traditional networks and network providers do not. However, it is not all peaches and cream. While current and
potential telecom service providers can build imaginative offerings and business plans; they must stillbe
mindful of the competitive environment surrounding the VoIP market.
Forces and Trends
In a recent TelecomDirect News article, I read about the key trends for VoIP in 2005. As I read through the list,
it brought me back to the star of last months article, Michael Porter. If you remember, Porter is one of the
preeminent experts in the eld of competitive strategies. In 1980, he set out a framework for strategic business
managers to assess the overall competitive environment of, and thus the risks associated with, a particular
industry. This framework has become known as the "ve forces model. The ve forces describe threats to a
companys competitive advantage in an industry. Here is a breakdown of the "ve forces model:
1. Degree of rivalry of existing industry competitors.
2. Degree of barriers to entry by new competitors in the industry.
3. Threat of substitute products/services.
4. Bargaining power of buyers.
5. Bargaining power of suppliers.
Below are ve areas that exemplify the concepts of the ve forces and show how trends can really be
pressures on an organizations competitive nature:
Industry Consolidation: As we have seen in the wireless / cellular service provider market, this can mean
threats from existing companies who consolidate their position and acquire additional market share by
purchasing their competition (Rivalry).
Wireless Local-Area Networks: The Internet and broadband-based VoIP market could soon face
competitors from the wireless / cellular service providers (Substitutes) via wireless local area networks,
WLANs.
Security/Fraud: When you think about using a free VoIP service, like Skype, you do not necessarily think
about fraud. However, when you start looking at the pay VoIP services, fraud becomes a much larger issue.

Carolyn Schuk has written an excellent article on VoIP Fraud detailing these issues (Barriers to Entry).
Pricing: Wireless / cellular and traditional phone service providers have seen demands from consumers
drive their price per minute via lower tiered minute and at rate plans. Pay VoIP providers are entering not
at the top, but closer to the bottom of these pricing levels (Buyers).
Broadband Access: The penetration rate of broadband access in the United States, the lifeblood of pay
VoIP services, is around 55 to 60 percent. This effectively caps the number of customers that have access
to VoIP services and places more power in the hands of the broadband access providers (Suppliers).
These conditions create a highly competitive environment particularly for the pay VoIP market. However, in this
highly lucrative industry; telecom service providers need to create a competitive advantage to become or stay
successful. Last month we talked about the three different strategies to create that competitive advantage as
dened by Porter. This month, we will look at the two primary strategies and how data warehousing and
business intelligence can enable the success of telecom service providers in this market.
Low-Cost Provider
As a low-cost provider, telecom service providers looking to build a business model for the pay VoIP services
market need to focus on lowering their costs relative to the rest of the industry. This can mean everything from
low overheads to open source applications (ex. Asterisk - the Open Source PBX). However, if you read
Carolyn Schuks article on VoIP fraud, the highest potential internal cost is fraud and the costs associated with
fraud. Schuks article brings to mind visions of Tony Soprano guring out from month to month different
avenues to make money from telecom fraud. The threat of monetary, legal and bankruptcy costs all represent
a barrier to entry for rms wishing to enter the pay VoIP services market.
How can data warehouses and business intelligence prevent this type of fraud and thus lower this competitive
threat? With the increasing amounts of VoIP trafc, the key will be effective monitoring and analysis of a
telecom service providers customer usage event information. Unfortunately, with the stateless nature,
literally and guratively, of VoIP trafc; the key will be to migrate the information from the network to an
analytical environment as close to real-time as possible.
Im not going to tell you that real-time, or near real-time, analysis will prevent the Tony Sopranos of the world
from creating new and inventive ways of committing acts of fraud. However, as the time between actual
service usage event, and evidence of that usage event arrives in an analytical environment is lowered; fraud
detection organizations will have a much better chance to minimize the cost associated with that fraud. Also,
the standard processes to determine and report that evidence of fraud should enable legal remedies for
recovery of the costs associated with fraud.
Premium Provider
Telecom service providers looking to position themselves as a premium providerof pay VoIP services must
focus on their quality of service. If a telecom service provider is going to charge similar prices to existing
landline and wireless service providers, those providers need to focus on providing the best quality
connections possible. This is an area where the threat of substitutes creates a competitive pressure on the pay
VoIP service providers. Despite what I heard from the CEO of a Regional Bell Operating Companylast year
about the limited importance of quality of service relating to VoIP calls, it is a critical aspect of being a premium
provider.
If you are using the Skype client for free to contact friends and family to avoid long distance charges, you can
handle a certain amount of echo, delay and downtime. You have lower expectations of a free service.

However, if you are a residential subscriber paying both a VoIP service provider like Vonage AND a broadband
provider like Comcast, you have much higher expectations. You expect the quality of service to be predictable,
because a wireless or landline phone can do the same thing for approximately the same price or less.
VoIP quality of service can be a tricky thing since it relates mostly to the capacity and trafc on a given network
segment or a series of network segments. Most pay VoIP service providers, especially for residential
subscribers, do not own the networks that they pass trafc across. For these organizations, data warehouse
and business intelligencecan enable competitive advantage again via the monitoring of usage event data.
Ensuring that network service level agreements, or SLAs, are met can prevent poor connection experiences
for their business and residential customers.
For the data warehouse and business intelligence environments, data mining and statistical analysis
applications are looking more for areas of poor network performance instead of fraudulent usage. This is a
much more easily dened activity. Despite the relative ease of nding slow or stopped network segments,
the timeliness of the data is just as critical for auditing of network service level agreements for telecom service
providers positioning themselves as premium providers as it is for their low-cost counterparts. This results in
the need to identify those problem areas and make arrangements for other network routes in the short-term
and other network partners in the long run.
Practice Makes Perfect
Both of the above examples of enabling the competitive advantage of telecom service providers can be taken
as one time events by analyzing transactional data. But to get the most out of fraud detection and quality of
service assurance, telecom service providers need to get their data warehouse and business
intelligencegroups involved in creatingrepeatable processes, not just a one time project. And, those data
warehouse and business intelligence groups need to step up and provide timely, if not near real-time, and
accurate information to enable thetelecom service provider to maintain itsposition as either a low-cost or
premium service provider.

John Myers, a senior analyst in the business intelligence (BI) practice at Enterprise Management
Associates (EMA). In this role, John delivers comprehensive coverage of the business intelligence and data
warehouse industry with a focus on database management, data integration, data visualization, and
process management solutions. Prior to joining EMA, John spent over ten years working with business
analytics implementations associated with the telecommunications industry.
John may be contacted by email at JMyers@enterprisemanagement.com.
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