A major transformation is underway in the communications industry. “Communication companies” of all flavors, (i.e. traditional telcos, PTTs, cablecos, ISPs, VoIP pureplays, Internet search engine/communication hybrids, entertainment MVNOs) are seeking to embrace and exploit a new customer paradigm. The new industry mantra is to become a “personalized service provider” delivering the telephony/Web/IT/cable worlds to individuals when they want it, where they want it and in the correct format – that is “context sensitive” to the situation they are operating within at that moment.

Each of these previously “monolithic worlds” is moving rapidly to cross the barriers and in turn embrace this new service centric paradigm or risk being relegated to a commodity position in the new value chain -- often referred to as the dumb pipe syndrome.

At the heart of this new paradigm is a gradual transformation from an average-revenue-per-customer metric anchored in a utility consumption model (i.e. minutes of use) to a total-revenue-per-customer revenue metric that is anchored in a blend of consumption (rate charging) as well as value added service utilization. One easy way to think of it is that we are going from a bill predicated solely on transactions to one that captures and monetizes interactions including both direct and indirect revenue streams of each “network resident.”

The first step to reposition a company in such a transformational marketplace is to examine the present day business models and their sustainability in a world where services must be increasingly portable, personalized, seamless and end-user content driven. We, at Lucent, refer to these services as new blended lifestyle services (unified messaging, active phonebook, etc.) that are delivered to you when you want them, where you want them and in the format you are operating within, such as mobile, portable or fixed endpoints. Services that are “context aware.” It requires great courage to embrace this change and many operators around the world have already proactively put themselves on that pathway. The challenge is to run just fast enough so as not to eviscerate your present revenue model too quickly whilst ensuring that you are putting into place the software, systems and work processes that will enable your future business and financial success in the new world.

A week rarely goes by these days without a significant announcement aimed, at least in part, at positioning a service provider for this new services model:

• AT&T is deploying the IP Multimedia Subsystem (IMS) service delivery architecture to help it integrate wireline and wireless services to deliver IP-based wireline and wireless voice, video and data.

• BT has signed deals with a television production company and with a children's programmer to license programming, and is developing interactive content for BT's planned IPTV/VOD service.

• Telecom Italia is collaborating with Microsoft for new telecommunication services and entertainment applications, which will be available from both fixed and mobile terminals.

• Yahoo’s “Go TV” service will enable consumers to link Yahoo contacts and resources directly into their television, thus allowing them to use Yahoo services from the same account they use on their computer or mobile phone.

These are exciting times. The good news is that today it is less about the deployment of the technology – that is here now and more is fast coming on the horizon – and more about adoption of the technology where we have much work ahead to implement the new business model and deliver on the opportunity. Lucent Technologies has been working with carriers around the world, involving key members of its Bells Lab research and development unit who have created “new world” business models for fixed, mobile and converged operators in the new environment. Lucent’s Bell Labs experts have been poring over Lucent primary research on the types of services of interest to various subset segments across both consumer and enterprise markets, and their willingness to pay for it. Based on research results, Lucent estimates total annual gross revenue for blended services in the U.S. will be about $9.75B by five years after the services are introduced with an estimated take rate of 32 percent business users and 23 percent consumers. In Western Europe, according to Lucent research, twice as many consumers and enterprises are willing to pay more for blended services, than those that are willing to pay for bundled services alone. The research found that more than 60 percent of enterprises and consumers across five Western European countries are willing to switch providers to get blended services. The estimated market size for blended services in Western Europe is (euros) 2.193B in the consumer segment and (euros) 2.419 B in the enterprise segment by 2011.

As we said earlier, next generation service providers are moving quickly, especially around deploying the IP Multimedia Subsystem (IMS) service architecture which provides a compelling approach for delivering both here and now bottom-line costs benefit, as well as, the next generation business model top-line revenue.

Network operators recognize the opportunity, as business case discussions have become more of the focus of IMS conversations with vendors. Business modeling and analysis by Lucent Technologies’ Bell Labs unit have shown that, depending on the number of applications and type of applications deployed, IMS can yield up to a 25 percent reduction in time to market for services and up to 25-30 percent reduction in operating expenses. Further Bell Labs’ models have shown that in a competitive situation deploying IMS could provide as much as 5 to 1 NPV (net present value) advantage over deploying a point solution. The actual results will vary, of course, depending on the operator’s specific situation. The business modeling indicates that an IMS service architecture positively impacts operating expenses by simplifying the process required to deploy and run new applications. IMS reduces capital expenditures by employing a single core that supports all applications.

However, that is only half of the IMS benefit. The promise of IMS aimed at the top line revenue is the end-game, and offering services tailored to fit an individual’s lifestyle – whether the person communicates via PC, mobile phone, PDA, fixed VoIP phone, standard telephone, or a combination – can help build revenue, as our research shows. And, most importantly, an IMS-based network generates new revenue by enabling personalized, blended lifestyle services that fit users’ lives.

Personalized services are about more than point solutions traditionally embedded in a softswitch. IMS is about architecture access to voice, video, data, multimedia, IP multimedia TV, time-shifted and space-shifted programming and mobile programming. The services are about freeing individuals to move between fixed and mobile networks without giving it a second thought. The services are about smart, personal networks that can be a butler for individuals, delivering what they need, when they need it, where they need it, and in the way that incorporates the content state they are operating (mobile, at home, on the move or in the office). Likewise, personalized services give the individual utter freedom to determine when and where not to be contacted, if they so choose.

These blended lifestyle services can help communications services providers expand the “communications wallet” and their share of it.

For example, according to Lucent research, UK service providers have a potential market of more than 16 million customers who are highly interested in and would pay for blended lifestyle services that involve location-based technology or another technology that we call Active PhoneBook – an intelligent phonebook that tracks the whereabouts and communications preferences of your contacts.

In the U.S., Lucent measured the potential value of just one set of converged services –for real-time enterprise and consumer communications and collaboration across wireless and wireline networks. Based on survey results and Lucent’s Bell Labs modeling and analysis, this market alone potentially could be worth almost $10B a year, as noted earlier, to service providers. The market estimate is based on price ranges of $10 to $35 a month.

Lucent conducted a similar converged services survey in Western Europe, and the research indicated that a mobile phone is typically the first device users would want to use to access blended services. Allowing users to personalize or customize feature sets dramatically enhances appeal and willingness to purchase.

There’s also demand for converged voice services for enterprises. The overwhelming majority of U.S. business leaders and Information Technology (IT) decision-makers who participated in a survey intend to deploy converged voice services in their company or government enterprise, according to Lucent research. Nearly all (96 percent) of IT decision makers and a vast majority (85 percent) of line of business decision makers said they would deploy one or more of the solutions proposed to them.

The other challenge for all in the communications market is to realize that they no longer can segment their customers into large traditional mass-market segments. The new segments are defined by behavior. Lucent research has determined that the services that will be most successful will be those that are tailored to the behavior of groups of individuals within the consumer, business and prosumer segments. A high school teenager may have different communications requirements than the middle-school teenager, particularly if carriers consider who makes up “the community” for each teenager and how mobile are they. A professional who mixes professional and personal activities throughout their day has different needs than a professional who spends half the day at the office and the other half in the field.

As communication providers take the steps --- whether merging wireline and wireless units, acquiring companies, collaborating on content delivery or incorporating IPTV – to adapt to the opportunities and the challenges in the marketplace, a key to their success will be to have the underlying network architecture in place that also can adapt to the demands of the end user while functioning within the operating and capital expense constraints that are a normal part of business.

It’s a key that requires a new way of thinking.