Interview with John Aalbers, CEO of Volubill

Timon Singh

4G networks are operators' best chance to cure the numerous problems resulting from the mobile data explosion and begin the move away from ‘all you can eat' data bundles that have led to spiralling network capacity costs, dwindling profit margins and increasing customer complaints. But operators are flying blind here - this is new territory for them, and they can't afford to make errors with something so critical to their bottom line.

“How are we going to deal with this situation which is kind of bad today but looks like it's only going to get worse tomorrow?”
-John Aalbers

At Management World 2010 in Nice last month, John Aalbers CEO of Volubill was the sounding board and expert on these issues for executives from companies like BT, China Mobile, Vodafone, Telecom Italia and others in his role as provocateur during the Managing and Monetizing the 4G Environment executive panel.

After the conference, Business Management EU spoke with Aalbers about the future of networks, data bundles and what Apple brings to the market.

BM EU: So what was decided at the round-table meeting?

I don't know if anything was decided, but there was certainly lots of debate and lots of discussion going on. There were about 14 or 15 attendees. Of those, about five or six were operators, a couple of those were tier one players, and there were some smaller guys.

BM EU: Including BT, China Mobile, Vodafone and I think, Telecom Italia were meant to be there?

Yeah, that's right, and also Rogers from Canada who was there as well.

BM EU: In terms of the 4G network growth in the market, especially with devices such as the iPhone and the iPad that are dominating a certain extension of that sector, how are these companies managing the development of these networks? Are they going to cope with the sudden increase in traffic that is no doubt affecting their services?

It's quite interesting really, because you get different views from many people depending on where in their organizations they came from. We had a couple of CTOs there, who were effectively responsible for the network, some CIOs in IT, and a couple of delegates from the marketing side of the organizations, so you get quite disparate views from these folks.

We had a couple of CFOs there, as well. These are the guys that were looking holistically at the whole business model really. What we found is that the CTOs tend to be really focused on just pouring more money into the networks, buying more network equipment, getting the capacity to a level where the quality of the experience for the end users was going to be right. This is the typical sort of view that we’ve been seeing from AT&T the last few months, where they were spending so much money to just try and deal with the iPhone.

That takes more of a network view. But the CFOs were saying "Hang on a minute. We're putting all this money in to the networks, however we're struggling to get the quid pro quo on the cost. Where's the revenue coming to justify that cost?" Then the debate started taking more of a turn towards "What's the business model that the current business model doesn't support? What's going on?"

The fact that bandwidth, the demand for bandwidth, has just continued to grow and grow and grow and yet we've got these flat rate charging models for $29.99 a month - after that, where's your incremental revenue coming from? There's this sort of nervousness out there that for the moment the problem is kind of masked because there are still many, many new subscribers signing up for data services. Each new subscriber brings an increase in revenue because everybody's spending $29.99 a month. But what happens when saturation is reached and everyone on the network is paying their $29.99 a month? No more subscribers are being added, but the operator is still in a situation where there's this astronomical growth in the consumption of bandwidth and its costs to deliver all that data.

That was really where the debate started focusing on “How are we going to deal with this situation which is kind of bad today, but looks like it's only going to get worse tomorrow?” A lot were lamenting that they have no control over what gets put on the internet, talking about things like how YouTube can launch a high definition service without having any conversation with them, and all of the sudden the burden on the network is dramatically increased.

BM EU: There was something I read a year ago that telecom firms wanted YouTube to start subsidizing in terms of bandwidth use, is that something they still want to push or is that essentially unrealistic?

I think there was a bit of pipe dreaming about what they were referring to as a Google tax. Where I think the discussion around that has started to get a bit more sensible is the idea that operators can have some control over things in the network that are valuable to users. So, for example, priority of packets for certain service classes. Not in the kind of punitive sense where the aim was almost always about "we're going to split it down, get the torrents and all that stuff", but a much more positive management practice that says "we could offer a higher priority for certain classes of service and charge a premium for that."

There was a discussion that went on about "maybe it is an opportunity to partner with somebody like Google or YouTube and say 'Together we offer a package that offers a really quality, high definition, high performing delivery of their content,'" which then either the operator or YouTube charges a slight premium for. Some operators are already working in partnership rather than against them, and there's a quid pro quo for the user because they're getting better quality. There are those sorts of creative or maybe “far-fetched” kind of business models that their considering.

The most far-fetched conversation that was had was a surprise actually because of the number of operators that were saying the government should be contributing towards the cost of bandwidth, and they should be paying for a large portion of the network roll out.

BM EU: They want to increase the number of people with broadband, therefore they should subsidize broadband providers? Is that the reasoning?

Absolutely. Not just subsidizing broadband users, but also for the quality of experience, as well. Not just to reach more people, but to make sure that there's a reasonable level of quality out there. Then the debate turns in to, "Who's going to own that network? Who gets to share access?" and that sort of thing.

BM EU: So what does the explosion of mobile data mean for your company, Volubill, who provides real-time monitoring? Are more companies coming to you?

Absolutely. The thing that's really hot for us at the moment is policy management and policy enforcement. There was this whole debate about how we can move away from flat-rate charging models and there was kind of a nervousness around doing that because the first operator to do that is thinking that they'll wake up the next morning and all their subscribers are on to the next operator.

But what we saw from AT&T yesterday says that somebody has been quite brave already. It'll be a nice test case. What we were talking about in the roundtable beyond that is how you can move subscribers away from flat-rate if you offer them something in return. This again comes back to the idea of the higher priority service and better quality of service as a guarantee.

We have a customer who specifically segmented the market very tightly, and one of the groups they targeted was mobile gamers. They recognize these guys and their need to have high performance on packets through the network that relate to games. They offer them a package to come off of the flat-rate charging scheme, pay a lower entry level - $29.99 a month, then pay $15.99 a month, plus with that they get guarantee of priority - not quality of service, but priority because the TRS's still have the guarantee.

They also put restrictions on how much bandwidth can be consumed, what the speed is for other kinds of traffic, the time of day those restrictions are valid and when they stop, so the user can do other kinds of downloads on off-peak hours and not clog up the network. The quid pro quo for the user was that they would get this higher priority, and we found that it actually will attract a pretty significant portion of the serious gamers on to this new package.

BM EU: So that actually played well with the gaming demographic? Restricting them at certain times and peak hours? You'd have thought they would have preferred unlimited, 24/7 access.

It didn't attract all of them across - around 55 to 60 percent of what they considered the target market. That's pretty good going.

The roundtable yielded lots of case examples of those kinds of things that either operators have already tried, or things that they were considering trying. There's certainly a lot of creative thinking going on about what they can do there.

Vodafone’s role in all this was they said they’d basically taken the PCRS standard out of 3GPP.

My response to that was that PCRS is kind of a nice standard, but if you just look at it from a network perspective it's sort of a boring network tool. What we're saying is if you could pull all that capability of policy management together with rich subscriber data and the real time charging aspects, then you've actually created a very powerful marketing tool which is that you know all the subscriber stuff. You know what the market segments could be. You can now establish new market segments. You can offer these segments as packages and you can both charge for them in real time and you can enforce them in real time. We've gone down this track where we've tried to position this much more as a marketing cap

ability to help them reinvent the business model that they're using for those kinds of services. That's where our business has just really taken off in the last 18 months. We had a nice glowing charge in business previously.

BM EU: In terms of the explosion of mobile data with all the growth of mobile devices, how much of a role do you reckon Apple has played or is responsible for all these companies having to shift to 4G markets? Are they leading the market, or are they just merely someone who's dominating the headlines?

I think they're massively changing the market. They're massively responsible for that but none of these things are really new ideas. I mean, let's take the iPad for example. The template's been out there since probably 1980-something and launched at various points in time but has never really taken off.

But here comes Apple and they're doing exactly what they did with the iPhone, just slapping the industry in the face and saying "This is how you can make this massive idea really take off.” I think that’s a wakeup call for the industry. I think you have to go back to where the industry's come from. It's been a very comfortable: easy telephone revenue, basic voice calls, nice profit margins. It takes a lot to wake up a base like that that has been sleeping very comfortably for a long time.

BM EU: I think they just have shaken up Microsoft. They've now overtaken them as the most profitable technology company in the world, and that is a position Microsoft has seemingly held forever...

Exactly. And they've talked about themselves as a mobile company right? That's what they are and they are just absolutely leading the way. I think whatever they do, there are people that want to copy it or do something similar. I think we'll see a whole range of iPad type things come out now that will try to capture portions of the market, but I think Apple will do something else next. God knows what it is. I pick up my iPad - I bought it a week ago now - and I feel like I've moved forward two decades suddenly.

I've got the Times newspaper and I've got some Bloomberg stuff on there. I'm 42 years old. I've grown up with turning paper. I'm not saying I feel the need that I need to try and do this, but it feels very natural.

BM EU: You mentioned some of the telecom companies have been resting on their laurels and the system's evolving. With 4G networks, do you see this signifying the death of landlines in the near future and everything going wireless, or are landlines always going to be needed?

I think we have to take the lead from what's going on in some of the emerging markets where landlines have almost become irrelevant because a) the infrastructure was always way behind and never rolled out fully, and b) mobile guys are able to get in there and really steal a march on them. A great customer of ours is Mobinil down in Egypt, a division of Orange, essentially.

Their strategy is all around data because they feel that they're not competing with other mobile companies. They're competing with the fixed line infrastructure for the internet experience. I don't have a fixed line phone at home, but I still have to pay for one just to have the television service.

I just use my mobile, and if I'm not using it, I just use Skype. I guess I'm more of a sophisticated user, but I think more mass market stuff is going to head that way. I guess 80 year old grannies are not going to get rid of their fixed line handsets, but I think the next generation that is coming through now will find the mobile-only route very native and natural. This is all new stuff to people our age, but we've got nephews and nieces that are maybe nine, 10 years old. They don't even get excited about this stuff. They've always had it.

Ultimately, fixed line is going to be massively challenged. Their best bet is to partner up with people that can provide the mobile aspect to make use of it anyway. I guess there's always going to be a need for that, but basically just fixed line phones at this point really.

Volubill provides real-time monitoring, policy control and charging software to communication providers around the world. This enables competitive differentiation and rapid time to revenue for data, content, VoIP and messaging services, leading to decreased customer churn and increased customer acquisition.

www.volubill.com

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