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By Liu Quansheng

Faced with decreasing revenues from traditional voice services, can ''Internet service operation'' be the new cheese that telecom carriers are looking for to revive their vitality?

As new technologies and IP broadband networks continuously develop, voice services will be provided in diversified modes and by multiple providers. The previous integrated market is currently being fractionalized and divided on a regular basis. Hence, Internet service operators providing similar services have been trying to expand user groups by promotions. In the face of such stiff competition, voice services are increasingly having to lower their prices in order to stay competitive, and thus, are seeing their profits shrink significantly.

In terms of Internet service operation, the major profit of telecom carriers comes from providing broadband access channel, and only come from providing the channels. Profits generated from value-added services on the Internet are mostly owned by Internet service operators such as SPs and CPs, which means, at present, that it is virtually impossible for telecom carriers to grab a share of these profits. Hence, as the broadband access market gradually becomes more and more saturated, how can telecom carriers expect to see a continuous increase in profits?


Who's Consuming Carriers' Cheese?

According to Global Internet Trends, a research report released by Morgan Stanley in April 2006, the market value of Internet companies operating in the United States represents 82% of the value of the overall Internet market. Companies with leading market values include such well-known names as, Microsoft, Google, AOL Time Warner, eBay and Yahoo!. Other companies with a lesser value share of the market should not be ignored: Tencent, Apple, Real Networks, Amazon and MySpace.

Marked by enormous developments and successes, the Internet service operation industry is having a tremendous impact on traditional telecom business. Moreover, in the coming years, it is expected that the industry will continue to rapidly development. It is forecasted that over the next 3-5 years, the Internet service operation industry will see a 10-15% increase in subscribers, 20-30% application increase and experience a profit increase of over 30% each year. Impacts that are already being felt, or that will possibly be felt by telecom services, which originate from Internet service operations, are as follows:

In basic services: Lower priced Internet voice and video communication services, like those carried by Skype, will quickly gain popularity and will be distributed and finally replace fixed voice services. These services will have an impact on the mobile voice market in a similar way. In terms of internet access services, in the short term, the popularity of such services as, metrowide, nationwide WiFi and WiMAX networks, will erode the traditional Internet access service incomes of telecom carriers. In the long run, wireless networks under civil engineering constructions will make Internet access available to every citizen. Once this occurs, then traditional telecom carriers will lose basic connection providing incomes in hotspots.

In value-added services: Many Internet service operators such as, Apple, Microsoft, Sony, Newwise, Tencent, Netease and Shanda, are now entering the traditional telecom field, bringing with them a rich variety of advanced Internet services and fashionable terminals. Some Internet service operators, including Google, Yahoo!, Microsoft and Intel, are expanding their business and are now entering the integrated marketing field. Hence, the marketing services of telecom carriers might be gradually replaced and integrated in the near future.

In operation modes: The Internet has subverted telecom carriers' traffic operation mode. Monthly rent or free services supported by advertisements will gradually become the mainstream. The correlations between subscriber increase and equipment investment, operation costs and service revenues (as the costs for subscriber increase in Internet services are very low) will also change. Even in terms of charging, which was previously an advantage that telecom carriers and traditional mobile carriers exclusively enjoyed, will now face sever challenges from Internet services such as, eBay and Paypal online payment services, as they begin entering the mobile operation field and offer their charging services at bigger discounts.


Defense and Breakthrough

Faced with challenges coming from Internet services and digitized industry integration, telecom carriers need to transform themselves into overall service operations, build up their public images and become more proactive in terms of providing users, including personal users, as well as small and medium enterprise users, with one-stop communication, media entertainment and lifestyle information.


What should fixed carriers act?

• Service strategies
  
  First of all, fixed carriers need to gradually change their major profit supports and shift these supports from voice, to broadband services. They should also change the narrow operation mode of broadband services, which limited to provide broadband access channels, and implement intensive operations. Taking advantage of their brands, capital, technical platform, value integration capability, subscriber resources and access network resources, carriers should strive to integrate technologies, software, platform (terminals and network), services and operations, and make selected opening and cooperation agreements. They also should focus more of their attention on integrated operations of various industries, to form a digitized ecosystem. Some of the major measures they could take would be: To strengthen cooperation with consumption electronics and traditional media industries, and weaken cooperation with Internet service operators. Try to reduce independent partners for pure value-added services, but attract value-added service partners transferred from other industries. Provide terminals that are compatible with most services. For high-end users, they need to provide terminals with more powerful functions and emotional appeal in terms of design; and for low-end and medium-end users, they need to provide a rich variety of cost-effective terminals. In terms of infrastructure services, they should provide differentiated services to different users.
  
  
• Service development
  
  Deploy a broadband service terminal with strong functions (focusing on multi-mode access). This type of terminal should support a plug-and-play function and operate with lower power consumption. It can be conveniently used together with other terminals such as, PC, mobile phone, or TV set, and it would most likely be located in the living room or bedroom, rather than the reading room. The terminal is able to provide customer-centered integrated services, and prevents Internet service operators from entering this field. As matter of fact, Microsoft, Cisco and Shanda have already started exploring the broadband service terminal field.
  
  Deploy a terminal platform as the penetration and extension of the service platform (focusing on service). The objective of providing the platform is to break through service ''barriers'', formed by Internet service operators, which they constructed to avoid attacks coming from other Internet service operators that provide similar services.
  
  Provide software and hardware suites. Carriers can provide users with voice, messaging, or customized service suites. By pre-setting a customized, high-quality and comprehensive ''integrated service operating system'' in PCs, carriers can form a service extension platform that is not completely open.
  
  Provide multi-mode operation terminals. Make sure that hardware has two optional operation modes, compact and normal. Using the compact mode, a user can interact with the terminal by way of another terminal to complete relatively simple operations such as, basic voice communications, information transmission, blog release, information access, and information synchronization. In the normal mode, the terminal can be used as a PC.
  Enhance user loyalty, and expand user groups. The user can subscribe to this suite by pre-paying for some expenses and binding a few services. When the time, effort and money spent by a user reaches a certain point and meets certain requirements and conditions, then the user will be able to enjoy network access service and related value-added services, free of charge. This can promote fixed network services and help to form loyal value-added service user groups, which can lead to the formation of a digitized ecosystem, guided by carriers. For low-end user groups and potential user groups (such as students), compact hardware can be configured, and service rates can be reduced, to reduce the threshold for user groups, and to expand the digitized ecological community relation network.
  
  Extend the scope of services. In the terminal platform, carriers can provide integrated CT and IT services, including communication and cooperation, digitized media and interactive entertainment, information exchange and processing, e-business and online payment, and integrated propagation marketing. Through the extended terminal platform, extended services can be provided such as, online virus killing, online upgrade, software support, and hardware upgrade.
  
  
• Customer strategies
  
  For enterprise users, the primary focus should be user access and cooperative platform constructions. For home users, the major focus should be to enrich services and applications, to construct service and experience environments for families, or social networks and services for individuals. The final aim is to form a compact communication and information service network system, based on social network extension, which not only improves service utilization, but also enhances user adhesiveness and loyalty, hence, forming a digitized ecosystem featuring fixed broadband Internet access service.

What should mobile carriers act?

• Service strategies
  
  Mobile carriers should take advantage of their brands, customers, channels and services. While keeping the interactivity and continuity of basic core services providing, such as voice and SMS, carriers should avail themselves of any opportunities that come their way in the ''mobile network + broadband Internet'', by way of bi-directional integration, so that they can finally develop into integrated product and service providers, serving personal consumers and enterprise consumers.
  
  
• Bi-directional integration
  
  Carriers should search for multi-level and multi-dimensional strategic partners in different fields, so that they can more readily enter a new service field, at a more reasonable and controllable cost. In the forward integration of bi-directional integration, mobile carriers need to enhance controls on hardware terminals and terminal applications. They should also try to cultivate manufacturers of cost-effective and high-quality hard terminals, in order to enhance control of consuming electronics and related industries. By customizing and pre-setting terminal software, carriers can provide continuous platform supports for future service and other industry service expansions.
  
  
• Service development
  
  Carriers can choose five service development directions, including integrated communication and cooperation service; digitized media and interactive entertainment service; dabble at the advertisement media application field and further to be the integrated marketing service vender. Carriers also can adopt e-business and online payment services, as well as virtual BBS and social network services.
  
  
• Customer strategies
  
  Carriers should explore the possibility of garnering new users by taking a closer look at other family members and friends of independent personal users, and once they have acquired enough users they should fractionize the market to develop objective family users, as well as objective enterprise users and club users. The final aim is to form a compact communication and information service network system, based on a social network extension, which not only helps improve service utilization, but also enhances user adhesiveness and loyalty.

Telecom carriers should take strict preventive measures against the negative influences and impacts caused by external environments. However, they cannot afford to remain passive, but instead, must become more proactive. To do this, they should strive toward making breakthroughs and expansions in order to gain more development opportunities, on which their survival depends.