indepth
THE CONVERGENCE LANDSCAPE

From the time the first humans noticed that the stone they’d been using to bash rivals over the head with had a nice sharp edge that could be used for scraping shellfish off rocks if you strapped a handle to it, people have been looking for ways to combine the best qualities of our most useful technologies into one all encompassing tool. It’s simply human nature to want two for the price of one – or three, four, five, six... even the ubiquitous Swiss Army knife has spawned a broad-range of rival-but-similar products, many of them sporting features you never knew you wanted until you needed them. Convergence pre-dates information technology by millennia; you could say it’s human nature.

HUMAN NATURE

Debate regarding bandwidth, costs, spectrum, capacity – and the regulatory ding-dong that seems to follow in its wake – continues to dog South Africa’s convergence journey (as it does everywhere else on the planet). While it remains to be seen whether or not developments such as the recent landing of the Seacom cable or the enforced cutting of interconnect fees will at last steer convergence into the reach of the consumer and business markets alike, the reality is that convergence is well and truly here, ready or not. Africa continues to be the fastest-growing mobile market in the world – a fact that, in itself, will surely drive the roll out of the kinds of services and technologies that consumers in Asia, Europe and the Americas are today taking for granted.

The centrality of cellphone technology to South Africa’s convergence roadmap was perhaps best illustrated by the Department of Communications DG Mamodupi Mohlala’s announcement of the imminent establishment of a tariff advisory council in order to, among other things, ensure that services such as mobile TV be affordable for South African citizens ahead of the 2010 World Cup. Cynics may well cast a jaundiced eye over the irony of driving down cellular costs while seemingly dragging feet on the issue of local-loop unbundling (LLU) – seen by many as a key culprit in South Africa’s high Internet access costs.

Be that as it may, it is apparent that although costs have been slow to come to the South African convergence party, the technology has been whooping it up for some time. According to Accenture research, convergence has now been enabled by the existence of a co-ordinated marketplace and “a critical mass of enabled devices and broadband networks on which to distribute content and services.” Most importantly, says Accenture, a climate now exists in which intellectual property owners are embracing mobile and online distribution as “a feasible and lucrative channel.”

Bringing IP all together

The proliferation of smart devices and services might be the popular face of converging communications, but as with all good things, there’s a significant back room making it all happen. In this case, the happy dovetailing of the digitisation of information and the advent of Internet Protocol are the secret sauce that brings everything together. TCP/IP is the standard that allows technology to recognise and address the digitised data, video or voice information we send. Thanks to TCP/IP, communications data is packaged in such a way that, regardless of the device used, messaged can be encoded, transmitted, received and de-coded as quickly as possible.

Combining voice and data networks to open up new service opportunities and innovations has not been as easy ride, however. Technological hurdles such as quality of service, prioritisation, interoperability and infrastructural capacity have all had to be overcome. Next-generation networks have, to a large extent, surmounted these challenges but regulatory factors such as spectrum allocation, last-mile ownership and service provision have joined with a proliferation of standards to bring no small amount of complexity to the convergence environment. At time of writing, South African communications operators are battling it out with ICASA on the spectrum allocation front, with many of those jockeying for a slice of the action feeling aggrieved that a seemingly select few are being allowed to “sit” on spectrum that is not being used to its full potential.

The issue of local loop unbundling continues to exercise the minds of service providers claiming that it is only when Telkom is forced to give up its privileged position as the owner of last mile access to South African homes that a genuinely competitive communications environment can be brought to bear. Meanwhile, some local cellular providers are claiming that revenue losses arising from the interconnection fees reduction will have a serious impact on their ability to roll out the improved infrastructure necessary to make convergence an everyday reality.

CONVERGING AT THE CELLULAR LEVEL

With cellphones clearly poised to play the dominant role in Africa’s convergence landscape, it’s interesting to note Deloitte’s observations regarding how converged cellphone technologies could be turned into viable revenue streams. The ever-present issue of affordability aside, Deloitte points out that, while handset manufacturers are “getting better at convergence... they should not assume that the mere addition of more features guarantees success.”

According to Deloitte, “deeper integration with the objective of enhancing products’ practical benefits” to justify any price premium will be necessary. Consequently, it makes sense for manufacturers to work closely with operators to ensure converged functionality can be monetised – “operators are likely to be reluctant to subsidize features that offer no route to revenues.” If, as Deloitte suggests, “the mobile phone may soon come to be regarded as the most successful converged product of all time,” forward-thinking, visionary solutions and services will be the bedrock of sustained growth and profitability for all those acting in the space.

The onus is now on operators to pay close attention to the way in which customers use converged products. Technologies such as Call Data Records and the more recent developments in Social Networks Analysis (SNA), which allow operators to utilise customer data and social networking behaviour to map usage trends and engage in viral marketing strategies look set to revolutionise the way in which operators can capitalise on converged services and functionality.

PARTNERING FOR CHANGE

As Accenture research indicates, it is not only the complexity of convergence itself but the “host of inherent challenges that a company must face during any form of diversification and new market entry” that add to the challenging times ahead. Accenture points to IPTV as a case in point for this. While IPTV is widely perceived as capable of transforming the television-viewing experience, opening up new revenue channels in the process, it also poses significant technical hurdles.

Accenture says such challenges are replicated (albeit with some variation) across the spectrum of convergence offerings, identifying key themes such as the importance of analysing current market conditions, company assets and partnerships, products and business models, brand and going-tomarket strategy, drivers of adoption and usage and the end-to-end user experience. “

No single company has all the capabilities to deliver the complex offerings that a convergence player requires; therefore, many are reaching out to partners for joint ventures or building expertise through acquisition.”

Establishing capacity

Accenture states that before partnerships are investigated, convergence enterprises should first take an internal inventory of competencies, assets and capabilities, allowing them to establish capacity for expansion into new areas. Enterprises must honestly evaluate their strengths along the entire value chain, selecting a “few strategic points of control where they will commit to win.” Accenture adds that, as the convergence value chain runs from content and service creation through distribution channel and device/platform or customer ownership, market control and investment returns vary significantly at each juncture, with some areas falling victim to commoditisation, for example.

Once a “sober and pragmatic” audit of the enterprise’s capabilities has been carried out and potential market entry scenarios identified, Accenture says that areas where partnering is necessary will become more obvious. “These areas will chiefly be where a convergence company currently has limited assets...where scale or local knowledge is necessary...or where cost is too high a barrier to entry.”

Of course, as more organisations seek to partner in a converged services environment, there is a danger of cannibalising each sector’s core value in the quest for higher margins and revenues streams. According to Accenture, the possibility of too many businesses chasing a

decreasing number of convergence crumbs can be offset by a commitment to be selective about where a company invests and also to collaborate strategically with partners.

Growing into the future

Accenture has identified “lessons” from which organisations intending to succeed in the converged space can learn, among them:

• Create a seamless user experience: The potential complexity of convergent products and services means that those companies that focus on reducing that complexity in fulfilling consumer need will win. They should enable the end user to consume, pay for and receive customer support across software and hardware interfaces. Apple clearly achieved this in music and video, taking responsibility for every component of the music buying and listening experience. Wireless operators are adopting similar strategies in their wireless portals, integrating the experience with the handset interface.
• Provide a compelling and relevant proposition: Place the consumer front and centre of the equation. By providing convergence content and service offerings that are localised or personalised (such as Google Local and Yahoo! Local), users will have a reason to switch and stick to a service. This means giving them what they really want, not just what is technically feasible, by leveraging real differentiators and idiosyncrasies on each platform, such as interactivity on IPTV or mobisodes for wireless handsets.
• Test new business models: Given the breadth of new products, services and channels that convergence offers, companies will need to iterate new pricing structures that move beyond traditional business models. For example, research by Points North Group suggests that consumers prefer watching commercials to paying for TV shows on-demand. (In the coveted demographic of consumers aged 18-34, 68% chose free, ad-supported versus 26% favouring pay and 5% undecided.) This demonstrates that in the new landscape, business models will include both standalone and hybrid combinations of subscription, a la carte and ad-supported.
• Integrate networks and ecosystems: This will allow porting of content across platforms, from cellphone to DVR to cable, truly giving users the freedom to experience their digital assets any time and anywhere.
• Develop flexible partnerships: As no single player is positioned to control the complexity that convergence requires, companies must move to create agile, adaptive partnerships that enable them to extend their capabilities at scale and speed.
• Become more open technically: Interoperability makes it easy for external parties to make a company’s platform more valuable by building on it. Proprietary formats and walled gardens have low appeal for consumers and partners, as well as limited shelf-life.

KICKING OFF FOR THE FUTURE

With the infrastructural requirements of a World Cup looming and increasing business and consumer demand for high-speed services, South Africa’s high rate of cellphone penetration looks poised to push us inexorably into a converged digital society.

Whether or not government policy and inter-business jockeying will continue to create roadblocks on the path by which we get there remains to be seen. In any case, there can be no doubting that local players already have a very clear vision of our destination – the arguments today are largely based around getting out of second gear and into the fast lane.

That local telecommunications providers would much rather position themselves in the driving seat than sit waiting for the state-sponsored taxi service to arrive is abundantly clear. It’s time for those charged with laying down the legal and regulatory frameworks to crack on with things and lay to rest issues that continue to impede us on our journey. After all, the benefits of convergence know no hurdles and can be extended to all of us.