Interview with FRANK PILLER Aachen University, Germany / MIT Media Lab, USA
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
Open Innovation 2.0
Co-creating with users
This issue of C&S analyses the thematic of open innovation with a focus on co-creation with end-users
Summary of this issue: Innovation has always been a central element of competition dynamics. During the last decades, globalization, deregulation, internet, new technologies, the digital revolution, and consumers' behavior have radically modified the innovation process and the competition structure. In many areas, the offer is rich and diversified: innovation is a unique opportunity to create competitive advantages necessary for growth. Among the general topic of open innovation, this special issue focuses on users' involvement in the innovation process. It offers a collection of papers providing interesting opinions, experiences, advances and evidence.
Exclusive:
Interview with FRANK PILLER
Aachen University, Germany / MIT Media Lab, USA
Conducted by Anna Maria KOECK
ZBW – German National Library of Economics, Hamburg, Germany
C&S: Why are you interested in open innovation?
Frank PILLER: We today know that the time of the sole Schumpeterian entrepreneur is over. While there still are examples of individuals making great innovations on their own, today successful innovation is a team game.
This is not new per se. But with the internet, a number of new tools and interaction possibilities have been made possible supplement traditional forms of external partnerships in the innovation process. When I refer to open innovation, I am not talking about contract research, supplier innovation, research alliances, or market research. Open innovation in my understanding builds on new, crowdsourcing-based methods that connect an innovating firm with "unobvious" other, people that are not in its regular list of partners or in its own industry.
The core idea of open innovation is to work with an organization or with someone you didn’t know previously. When you have a problem to solve, you make it known, circulate it - whether on a large scale or by going through specialized channels like Innocentive or NineSigma.
And thanks to large network effects, going through this type of channel is not expensive any longer, we are talking about project fees of 20,000$ or less.
Is open innovation more relevant than ever?
Definetly, I’d say yes. Technologies have evolved so much that companies need help if they want to keep up. You know, whether you are a very large or a small company, customers now ask for solutions, not just products. But when you sell solutions, you need more expertise and knowledge. The outsourcing mentality is well established in the manufacturing sector. In Germany, for example, open innovation is becoming popular the moment, as we have a lot of trouble recruiting engineers.
What type of company can open innovation apply to?
Most of the present users are manufacturing companies, particularly multinationals. Companies like Unilever and Procter&Gamble, which constantly have to bring out new products and have been pioneers in open innovation. Similar in the pharmaceutical industry where research is very expensive and highly complex. Car manufacturers have been reluctant for a long time, but I think this is slowly changing. The sector which, in my opinion, would benefit from using open innovation is small and medium enterprises. SMEs have far fewer resources for innovation and often lack the time to tackle it. And I strongly recognize a growing interest from this sector today.
Is open innovation a business imperative yet? What would happen if companies continue to remain closed and locked into the traditional way of generating ideas and products without external collaboration at the society level?
Well, I would say truly closed innovation is not possible anyway. All innovation built on existing knowledge and some form of networking. But the term open innovation suggests that a company build dedicated practices to make the connection with the best external knowledge for a given innovation task better and more efficient. So for me, open innovation is not a business imperative, but a set of practices and organizational capabilities to connect with a firm's periphery for innovation.
Having said this, however, our research finds that companies need a dedicated balance between openness and closeness (Look for more at http://ssrn.com/abstract=2164766). Being too open also comes at a cost, and firms need to build dedicated internal organizational practices to become more open.
Customers are often considered the most important source of external input for innovation. But is this really true? As proven in many idea contests, great ideas come from the "common man" or outsiders. How can a company engage with these users?
Here we have to make an important distinction. Research, originating by the path-breaking work by Eric von Hippel at the MIT, has shown that many commercially important products or processes are initially thought of by innovative users rather than by manufactures. Especially when markets are fast-paced or turbulent, so called lead users face specific needs ahead of the general market participants. Lead users are characterized as users who (1) face needs that will become general in a marketplace much earlier before the bulk of that marketplace encounters them; and (2) are positioned to benefit significantly by obtaining a solution for those needs.
But lead users are NO average customers or users. There are only very few lead users. Average customers are in general neither innovative nor do they want to engage in innovation. Hence, it is the task of a company to identify these lead users by specific search and screening methods. There is not enough space here to describe these methods, but they are very well documented (look at Eric von Hippel's MIT homepage for some examples).
And ideation contests indeed are a great way to engage with "unobvious" users and idea providers. A company broadcasts a task or challenge, calling for ideas, and users self-select to participate. In this way, it are not representative customers like in market research or focus groups who provide input, but people that really have a problem or already a solution.
In a way co-creation can be defined as outsourcing idea generation to the society. What is your exact definition of this concept? And what is the main benefit for companies?
Customer co-creation has been defined by us as an active, creative and social process, based on collaboration between producers (retailers) and customers (users). Customers are actively involved and take part in the design of new products or services. Their co-creation activities are performed in an act of company-to-customer interaction which is facilitated by the company. The objective is to utilize the information and capabilities of customers and users for the innovation process.
The main benefit is to enlarge the base of information about needs, applications, and solution technologies that resides in the domain of the customers and users of a product or service. Examples for methods to achieve this objective include user idea contests, consumer opinion platforms, toolkits for user innovation, mass customization toolkits, and communities for customer co-creation.
The main benefit for companies is to enhance the "fit to market", but also to engage in a more interactive, engaged relationship with their customers and users – with great effects for relationship marketing!
Being open about problems are not yet a norm in the market place, where companies are conversing predominantly about what they know, more than what they do not know. What are your comments?
Good question! This indeed is one of the largest challenges we see in the field today. Many companies know about the tools or methods to co-create that I named previously. But they are not ready to internally exploit the knowledge generated with their customers and users. Here I believe we still need plenty of change management to change this mind-set you mention!
This is a field where I believe we also need more research. Firms need more information and better guidance on how to assess whether their organization and branch is suited for customer co-creation. This information is crucial in order to build specific competences that aid firms in identifying opportunities and ultimately in using the right method. Managers need a clear picture of their own organizational settings and capabilities before being able to answer important questions during the implementation of one’s own customer integration initiative. This could include answers to questions like how innovation projects have to be reorganized, which kinds of projects are suited for customer integration and how the internal development processes have to be adjusted in order to allow optimal customer integration.
The internal readiness of companies – such as having a co-creation team/department, methodology, etc – is often lacking in companies that spend huge sums on co-creation projects, which are mostly managed by corporate communication departments or marketing departments. Do you advocate the formation of a multi-disciplined co-creation team that can do the job of creating, running co-creation projects? Is it not an exclusive, specialized professional/managerial skill – like branding, marketing, finance – by itself?
Yes, you already provided the answer by yourself. The problem, however, is that there are still very few companies that have such a co-creation team in place, many even don't have one functional manager taking care of the initiative. But this will change, and I think that the first organizations are building exactly these interdisciplinary teams you are talking about.
What is the link between the success of a co-creation project and the performance of the base product or initiative?
To answer this interesting question, we only have anecdotal evidence that co-creation provides value. But large scale quantitative research is lacking. However, I know that several researchers are just in the progress of conducting this research, and so I hope that in a few years or so, we will get a better answer on the performance effects of co-creation. A very first study recently has been published by Martin Schreier from WU Vienna, and he found together with a team from Japan, using data from a large Japanese retailer, that indeed user-generated products are much more profitable than internally created products (more at http://tinyurl.com/ae2bu6a). And I personally have seen many companies profiting from co-creation, if it is executed correctly and the results are used internally in the right way.
Biography
Frank PILLER is a professor of management and the director of the Technology & Innovation Management Group at RWTH Aachen University, Germany. He also is a co-director of the MIT Smart Customization Group at the MIT Media Lab, USA. His research focuses on innovation interfaces: How can organizations increase innovation success by designing and managing better interfaces within their organization and with external actors. This stream of research includes topics like value co-creation between businesses and customers/users, strategies to increase the productivity of technical problem solving by open innovation, and models to cope with contingencies of the innovation process. Frank Piller's research is supported by grants from the European Commission, the DFG, BMBF, and other institutions. He has consulted and delivered executive workshops for many Dax30 and Fortune500 companies. As an investor, member of the Board of Directors or as a scientific adviser of several technology companies, he transfers his research into practice.
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
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Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Henri VERDIER Director of Etalab, Services of the French Prime Minister
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
Open Innovation 2.0
Co-creating with users
This issue of C&S analyses the thematic of open innovation with a focus on co-creation with end-users
Summary of this issue: Innovation has always been a central element of competition dynamics. During the last decades, globalization, deregulation, internet, new technologies, the digital revolution, and consumers' behavior have radically modified the innovation process and the competition structure. In many areas, the offer is rich and diversified: innovation is a unique opportunity to create competitive advantages necessary for growth. Among the general topic of open innovation, this special issue focuses on users' involvement in the innovation process. It offers a collection of papers providing interesting opinions, experiences, advances and evidence.
Exclusive:
HENRI VERDIER's Interview
Director of Etalab, Services of the French Prime Minister
Interview conducted by Gilles FONTAINE (IDATE, Montpellier/Paris)
C&S: Henri Verdier, you were co-author of L'âge de la multitude ['The age of the multitude'], which explains how individuals, outside organisations, are now crucial to creation and growth. Do they play a particular role in the process of innovation of products and services?
Henri VERDIER: Certainly.
Their first role, as we often forget, is to choose, from among all the inventions, the ones that they will make true innovations. That is to say, the ones that will be transformed into progress, both because the audience has adopted them and because of the uses it will make of them. It is in this sense that we speak of "use-driven innovations": not because they are driven by the value of use, as marketing sometimes imagines, but because they are driven by "usage patterns and customs", by the manner in which society organises itself with these innovations.
But this isn't something that dates back only to the beginning of the digital age - it is the common law of innovation in Humanity. What has changed of late is the number of individuals who are educated, equipped and connected, who, by virtue of the sum of their creations, or even their small contributions, can support radical innovations as we see on the Internet.
This is rather good news. But at the same time, we must be aware this "free labour" of Internet users, whether they are active (voluntary contributions) or passive (through data or even usage history), can also be monopolised by major platforms. Most of the time, Internet users feel that the service rendered to them by these platforms is only worth the contribution they are able to make. But it is clear that this can raise a few questions, in terms of protection of privacy and international taxation. Thus Nicolas Colin, co-author of L’Age de la multitude, was tasked with reflecting on the tax implications of this new means of creating value.
Are the social networks the nexus of this open innovation, driven by users?
Yes, if you accept a broad definition of "social network". The big social networks are of course major players in digital. But the phenomenon goes far beyond what happens on Facebook or LinkedIn...
It is quite easy to see that most of the major digital applications have a social dimension, even if you wouldn't call them "social networks" per se. Such is the case of Flickr, digital cameras that automatically connect to YouTube, Google searches, etc. The famous online teaching service, Coursera, probably owes its success not to the quality of its courses (other prestigious universities had already launched similar services), but rather to the power of interaction it affords among students. Someone had this say: "People had never seen an educational project that delegates part of the work to the students themselves."
More broadly, one could say that communities are the basic unit of the Internet. The fact that you have friends, belong to a community, share your interests, support a cause, etc. make you a stakeholder in the Internet. There are therefore social networks beyond the realm of Facebook and Twitter. The great experiences of crowdfunding, crowdsourcing, viral communication, etc. do not necessarily go through the social networks. So we mustn’t neglect any of the networks that emerge on the web: massively multiplayer games, virtual campuses, virtual currencies with their user communities, NGO activists – all of these have the potential to greatly empower the individual.
What is your take on the living labs, which hope to bring users together upstream in the innovation process?
It's an excellent approach when it doesn't get caught in the rut of being an overly utilitarian "test bench". Living labs, as with all those third-party spaces that are fond the digital ecosystem (coworking spaces, Fablabs, etc.) are fertile when they are alive. They must leave room for the unexpected, for creative randomness ("serendipity"), develop subtle listening, propose new formats of interaction, find co-creation strategies, etc.
You also presided over the "Cap Digital" Centre for Competitiveness. How can companies rethink their innovation processes to take advantage of this new situation? In particular, how do you see the future of R&D in big companies?
Firstly, I think it is essential that the major technology companies pursue and intensify their R&D efforts. The basic materials of innovation come from research and development, and if there is one characteristic of our times, it is that the pace of innovation continues to accelerate.
One should now, however, confuse R&D with innovation. Innovation is not the natural continuation of R&D. There are big innovative companies that do not have R&D, particularly in the fields of service, content publishing and communications. And where innovation is concerned, every company should learn to better harness the strength of the multitude. Such as by involving their own employees in the multitude. The formats of open innovation, listening and working with one's market, and incorporating design into the heart of the decision-making process are starting to become rather well documented methods.
Does this vision of "open innovation" imply a change in the way intellectual property is managed?
This is a complex question.
Since the Internet has become popularised, it is caught between the opposing forces of openness, open source, and being free, on the one hand, and closure, protection and privatisation on the other. This tension is structural. One the one hand, there wouldn't be any progress, perhaps even a company, without information commons (what would science be if the results of research weren't accessible to other researchers?). At the same time, we are well aware that most economic sectors need clearly defined assets to prosper. It is likely that the best answer is to strike a happy medium.
But, personally, I think nowadays there is a tendency to broaden the scope of application of intellectual property too much. Copyright was originally intended for intellectual work which was a creative expression of the author's personality. That is to say, work from his very soul, as it were. I'm not so sure that people have put their soul into all the creation for which this type of copyright protection is being claimed.
You are now the director of Etalab, the agency responsible for promoting open data in Fraance. Could one say that shared data is the prerequisite of open innovation?
Yes, that is what I believe.
This is not the only reason it is good to open up and share public data: citizens also have a right to demand the accountability of authorities, which is the hallmark of democracies. And there are innovation strategies for the administration itself, since creating large open repositories is often a guarantee of improving an organisation's efficacy.
But supporting innovation is clearly a key component of opening up public data. The services developed by citizens, individuals or companies using such data are impressive. We see them at every edition of the Dataconnexion event launched by Etalab, and they are really quite impressive.
The opening of public data will increasingly become a springboard for industrial policy. It will become a strategy for attracting innovation to one's territory (since these creators work in the territories that have published data), even transforming public action into a platform and preventing these innovations from becoming monopolised by other players.
Is the opening of data often associated with public data? Should companies be encouraged to share their data more? How?
In this respect, the State began before the business, which is understandable. The right of citizens to access public information dates back a long time. It is enshrined in the Declaration of the Rights of Man and of the Citizen, and has been part of French legislation since the CADA Law of 1978.
The debate on the opening up of public data has therefore not been too concerned with data held by companies. But I think the question will arise one day.
It will be raised because large companies too will discover the potential to boost efficiency by placing large repositories online and increasing their transparency. It will also be raised since companies will one day likely have to identify the "information commons" that it owns and which must be made accessible to all. This will probably happen when the big data collectors reach such monopolistic proportions that States are forced to require that they open up these new kinds of infrastructures to competition.
Biography
Since January 2013 Henri Verdier has been the director of Etalab (tasked with the opening up of public data), coordinated by the Secretariat-General for the Modernisation of Public Action, itself a part of the Office of the Prime Minister. An alumnus of École normale supérieure, Henri Verdier was the CEO of Odile Jacob Multimédia, where his work included developing a set of teaching materials for the educational programme La main à la pâte along with Georges Charpak. In 2007, he joined Lagardère Active as Director of Innovation. In 2009, he joined Institut Télécom as Director of Foresight, responsible for establishing the think tank "Digital Future". He is also co-founder of MFG-Labs. Founding member of Cap Digital Centre for Competitiveness, where he served as Vice-Chairmen from 2006 to 2008, before acting as Chairman of the Board from 2008 to January 2013. He is a member of the Scientific Council of Institut Mines-Télécom. He is also a member of the ARCEP Foresight Committee and the CNIL Foresight Committee. Henri Verdier is the co-author of L'Age de la multitude (Armand Colin, 2012).
Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013
> For more information about our activities: www.comstrat.org
Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Hal VARIAN, Chief Economist at Google
Published in COMMUNICATIONS & STRATEGIES No. 88, 4th Quarter 2012
Privacy, Openess and Trust
Summary of the issue: Information and Communication Technologies (ICT), and the Internet in particular, offer companies the ability to collect large amounts of data about their users, and to use this information as a key input for value creation. New business models based on gathering and aggregating personal data and leveraging big data technologies, lead to innovative market offerings. To become successful, they depend on disclosure (openness) and trust on the users' side. Though the disclosure of personal information might benefit consumers via, for example, better tailored services, openness also creates risks of abuse of personal data, ranging from increasing market power (e.g., due to price discrimination) to privacy breaches by the data holder, or even cybercrime from initiatives of rogue third parties.
Exclusive:
Interview with HAL VARIAN
Chief Economist at Google
Conducted by Marc BOURREAU (Telecom ParisTech, PARIS)
> Discover also the interview with Isabelle FALQUE-PIERROTIN, President, CNIL
C&S: What are the crucial dilemmas and tradeoffs with respect to privacy, openness and trust for end users but also for service providers, and the potential risks?
Hal VARIAN: I share all sorts of personal information with my doctor, lawyer, accountant, and bank. Why? Because when they are better informed, they will be able to better help me. The same is true of online information service providers: if they know my calendar, they can remind me of meetings; if they know where I am, they can provide better directions; if they know what I like, they can make better recommendations. The important element is trust. If I provide information to these parties, will that information be used to help me, or will it be used in a harmful way? We have established norms for professional services, but the internet is a new environment, so these norms are not fully developed.
How can we explain the apparent naivety of some consumers and the reluctance of others in the disclosure of personal information, despite the stronger awareness of data usage and related risks? To which extent do service characteristics influence consumers' reaction to information disclosure?
Academic studies have shown very wide dispersion in attitudes towards privacy. Some people are very concerned about privacy and others really don't care much at all. This makes it difficult to have a one-size-fits-all model, which means you must offer people choice. I expect that as people become more familiar with the benefits of information technology, this dispersion will be reduced.
How can firms make sure that users have enough trust so that they will provide their personal data in order to obtain innovative services?
A big brand name firm, like Google or Microsoft, has a lot to lose if they make a mistake in this area so they have a strong incentive to be extra careful in managing user information. Smaller firms may lack the incentives and the expertise to take sufficient care.
Can we expect new models empowering end users with their personal information, around for instance vendor relationship management initiatives?
At Google, we build our policy around choice and control. We believe that organizations should offer the user a choice about what data is collected and that the user should be in control when it comes to their data.
Do big data represent a major disruptive innovation as some argue (e.g., Erik Brynjolfsson)?
Yes, I think that the big data will be disruptive. People will come to expect much more efficient online services. Companies that build trust and can offer such services will have a competitive advantage.
What kind of public policy, if any, is needed to ensure that there will be sufficient trust in electronic markets so that data-demanding innovations can flourish, and how does it influence the value of personal information?
As I mentioned earlier, I think that norms will develop in this area. At this time the important thing is to avoid regulation that will inhibit experimentation and innovation.
To what extent should the government protect children and adolescents from behavior that may bring them trouble much later on (imagine a candidate for a high position who gets confronted with an awkward photograph from younger days, decades earlier)?
This is the toughest question you have posed! I think that the best tool is education, so that young people are made to understand clearly that their actions now can come back to haunt them later.
Short Biography
Hal R. VARIAN is the Chief Economist at Google. He started in May 2002 as a consultant and has been involved in many aspects of the company, including auction design, econometric analysis, finance, corporate strategy and public policy. He is also an emeritus professor at the University of California, Berkeley in three departments: business, economics, and information management. He received his SB degree from MIT in 1969 and his MA in mathematics and Ph.D. in economics from UC Berkeley in 1973. He has also taught at MIT, Stanford, Oxford, Michigan and other universities around the world. Dr. Varian is a fellow of the Guggenheim Foundation, the Econometric Society, and the American Academy of Arts and Sciences. He was Co-Editor of the American Economic Review from 1987-1990 and holds honorary doctorates from the University of Oulu, Finland and the University of Karlsruhe, Germany. Professor Varian has published numerous papers in economic theory, industrial organization, financial economics, econometrics and information economics. He is the author of two major economics textbooks which have been translated into 22 languages. He is the co-author of a bestselling book on business strategy, Information Rules: A Strategic Guide to the Network Economy and wrote a monthly column for the New York Times from 2000 to 2007.
> For more information about our activities: www.comstrat.org
Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
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s.nigon@idate.org
Interview with I. FALQUE-PIERROTIN, President CNIL
Published in COMMUNICATIONS & STRATEGIES No. 88, 4th Quarter 2012
Summary of the issue: Information and Communication Technologies (ICT), and the Internet in particular, offer companies the ability to collect large amounts of data about their users, and to use this information as a key input for value creation. New business models based on gathering and aggregating personal data and leveraging big data technologies, lead to innovative market offerings. To become successful, they depend on disclosure (openness) and trust on the users' side. Though the disclosure of personal information might benefit consumers via, for example, better tailored services, openness also creates risks of abuse of personal data, ranging from increasing market power (e.g., due to price discrimination) to privacy breaches by the data holder, or even cybercrime from initiatives of rogue third parties.
Exclusive:
Interview with Isabelle FALQUE-PIERROTIN
President, CNIL, France
Conducted by Vincent BONNEAU (IDATE, Montpellier)
> Discover the interview with Hal VARIAN Chief Economist at Google
C&S: What are the current key topics for CNIL when addressing privacy regulation (mobile, social, cloud, etc.)? Is big data specifically on the radar, or is it analysed like any other development?
Isabelle FALQUE-PIERROTIN:
CNIL, as all the data protection authorities, is addressing a wide array of key topics at the moment. As you have probably seen, we are currently having substantial discussions with some major internet platforms, like the ones we are having with Google, about their new privacy policies and the questions they raise regarding European data protection legislation. Biometrics is a major area of concerns, too. Also, cloud computing services have considerably developed the last few years and their use by companies raises new questions in terms of legal and risk management. Reacting to this trend, CNIL launched a public consultation on Cloud computing at the end of 2011, which resulted in the publication of a number of practical recommendations for companies using these new services [1] in order to ensure compliance with the applicable legal framework.
As for big data, it is a convenient way of tackling the emerging paradigm shift in data sciences and data economy. This is why CNIL approaches it not so much as a new topic of regulation per se, but rather as a way to describe the concept necessary to grasp the new economic and sociologic landscape that currently takes shape. This is why it is one of the major trends we are following within our innovation and foresight program, for example.
Can we consider that users are fully aware of the usage of their personal data by third parties? Do they measure the real risks but still arbitrate in favour or usage and innovation? Have they different reactions depending on type of service or personal data?
It would obviously be wrong to assert that users are fully aware of the whole economy behind personal data combinations and analysis. Surely, there is some kind of a privacy paradox, because people express concerns but still use and plebiscite services and systems that are really "black boxes" for them in terms of personal data processing. Let's take tracking systems, such as cookies for examples: one common browsing day means encountering hundreds of cookies, linked in one way or another with dozens of different third parties, intermediaries, operators... the existence of which you are not even aware of. Those systems are not always threatening privacy, but they are surely not known. It cannot be argued that this attitude is only the sign of an absence of concern for privacy: in fact, the issue is probably more complicated and thinking about security and protection is neither "fun" nor rewarding. And finally, individuals do care more about other sensitive personal information, the categorization of which is changing. Geolocation is clearly considered very sensitive data by all, even if we all like location-based services. For example, in a survey we made in December 2011 about "smartphones and privacy", more than 90% of French smartphone users wanted strong control over their locations data. People want to know what happen to their traces and data, and they want more control on them.
The IT ecosystems are more and more developing around platforms aggregating users and developers. What are the additional challenges coming from platforms in terms of privacy?
First of all, the business model there is generally based on free access, sometimes with freemium offers. But, as it's often said for example about Facebook, if you do not pay, you are not a customer. And if you are not a customer, you are most likely to be a product! So a lot of those platforms are running on data, mostly personal data, like a car is running on oil. Therefore, data-minimization and privacy by default are clearly not the natural tendency of those platforms.
Then, as is emphasized in our cloud recommendations, another issue arises around the balance of responsibility between those platforms, developers, users, etc. The "one-stop shop" for users should not hide the fact that you have plenty of actors participating to the service. The standardization of offers and the use of take-it-or-leave-it contracts by Cloud providers to formalize contractual relationships with their customers leave no space to the negotiation of the terms of use of Cloud services. In addition, it appears that providers generally provide very few information to their clients about the technical and organizational measures implemented to guarantee data security and confidentiality of data processed on behalf of clients. This lack of transparency and control mean that their clients do not have all necessary information to comply with their duties as data controllers.
Should personal data collected by tracking, by acquisition from third parties or by direct collect from the user (like a form) be treated/considered the same way regarding privacy aspects?
We are clearly witnessing a revolution in the way personal data is generated and collected today. While all the major data protection and privacy legislations were designed with a basic economic pattern in mind (i.e. the collection of data through paper forms directly with the concerned individual, and the possible resale of such information to third parties), the situation has thoroughly evolved. A lot of personal material is now put online by the individuals themselves, namely on social networks; mobile devices are used for an increasing variety of purposes, which also generate personal data that can be deemed sensitive (geolocation; payment etc.); our browsing activity is tracked and analyzed… These situations are totally different from those that the law originally aimed to regulate, so that the applicable legal analysis can vary. But whatever the services at stake, a number of fundamental requirements will always apply: the person to whom these different data relate must be able to know how they are processed and how to control their dissemination. His or her rights of objection, deletion, rectification must be strictly complied with, by whichever organization they are detained. Otherwise, the operations carried out on such data may not comply with the essential condition of legitimacy that any data processing must comply with. In short, they may be plainly illegal, because of the imbalance between the company's business interests and the rights of the persons concerned.
If personal data is anonymized by service providers and then used for patterns discovery for instance, does it still imply privacy concerns?
Your question raises the issue whether the application of some form of anonymization process to personal data can be considered sufficient to avoid any negative consequence for the individual concerned – and, behind this, whether data protection rules apply. I believe that the answer to this question is two-fold.
To start with, the rule of principle is that anonymized data may indeed be processed in ways which would have been strictly prohibited under an identifiable format. This faculty opens very interesting possibilities, eg in the field of clinical trials, where very sensitive information is commonly processed.
But as simple as it seems, the rule must be applied with extreme caution. For one must be sure, in those cases, that the data processed definitely cannot be re-linked to specific individuals – which takes more, sometimes, than making it impossible to trace back to the person' precise identity, i.e. its first and last names. More generally, data may not be considered as non-personal data when it can be used to determine or influence the way in which the individual behind the data is treated or evaluated – which can be different from detaining her basic identity features.
These issues were well summed-up by the Article 29 Working Party in 2007, in its very thorough working paper on the definition of personal data. More recently, in a very interesting academic paper, Professor Paul OHM even referred to "the surprising failure of anonymization" (2010), and much literature was published lately, whether in Europe or the United States, that goes along the same lines. Indeed, a number of recent case studies have shown that re-identification of specific persons inside an anonymized data set is possible under circumstances. The development of new technologies makes it constantly easier to combine data from different sources, hence to identify individuals that were supposedly unidentifiable in the first place.
With these factors in mind, professionals should carry out comprehensive risk-based analyses, in order to identify and solve any privacy arguments that may occur on their projects. On its side, CNIL works on the development of incentives to develop systematic privacy impact assessments at all stages of data projects, e.g. by developing specific guidelines. Other data protection authorities are working on this idea of anonymization, too: for example, the UK Information Commissioner's Office conducted a public consultation on its draft Anonymization Code of Practice during summer 2012. In substance, the efficiency of anonymization processes depend on the type and number of data processed, the purpose behind this processing, as much as on the technical features of the anonymization procedure.
The issues at stake are fundamental, namely in the light of open data. The development of open data projects triggers huge expectations in terms of innovation and growth, but these must be combined with equally strong privacy expectations. Efficient anonymization is key to reconciling both lines of expectations.
Can we expect new models empowering end users with their personal information, around for instance vendor relationship management initiatives? Should VRM require some specific regulation?
To me, this is quite an educated guess. I think that a trend towards consumer empowerment could emerge in the near future. Whether vendor relationship management can be the ground for effective new user-centric business models around data is not yet established – but it is a smart and legitimate way to think about balancing between individuals and vendors in the incoming data deluge. What seems obvious to me is that those new business models to be developed will need to be met by innovative and modern regulations. For example, when looking at the first prototypes of VRM-based services, e.g. personal data stores, it is easy to anticipate that those operators will have to focus on consumer trust and really be on the side of the consumers. If these projects develop into variables of Trojan horses, encouraging more data dissemination or more uncontrolled combination of data across services, they will either fail or design a very worrying landscape for privacy and individual freedoms.
Moreover, we shouldn't forget that the scope of this is pretty narrow: empowering individuals is a good thing, but it's a mistake if we end up giving them the whole burden of regulation. People don't spend all their day managing their relations with vendors, that's not their purpose in life to deal with them. They are not going to spend a lot of time negotiating and setting these relations, and so it may actually not be in their best interest to have a 100% market-oriented point of view. We should never forget that privacy isn't solely a consumption and market issue: it's above all a citizen freedoms and rights issue.
How are taken privacy-related initiatives from data protection agencies at the national level?
At the European level? Is it enough when dealing with non-European companies (typically the US-based internet giants)?
The year 2012 provides us with two cases of stronger cooperation between European data protection authorities (DPAs), and between them and other non-EU DPAs. First, the Irish Data Protection Commissioner led a comprehensive audit of Facebook compliance with European Data Protection law, which was instrumental in the decision by Facebook to change the way its face recognition tools are used on its European platform (the photo Tag Suggest feature, for example).
Then, the Article 29 Working Party mandated CNIL to lead the European investigation into the new privacy policy which Google implemented in March 2012. It was really the first time that a national authority was leading a process involving all 27 agencies. The letter sent to Google on October 16th was therefore signed by all the chairpersons of the agencies, not only by CNIL and Article 29 Working party chairs.
Two questionnaires were successively sent to Google to address the numerous implications of by these changes. The analysis of Google's answers and the examination of numerous documents and technical mechanisms by CNIL's IT and legal experts have led all the EU DPAs to draw their conclusions and make substantial recommendations of change to Google. We recommend that clearer information is provided to users. Also, we require Google to offer improved user control over the combination of data across its numerous services, and to modify the tools it uses to avoid an excessive collection of data. The release of this October report clearly is not the end of the process. We shall follow-up on these recommendations over the coming months, together with our EU colleagues as well as with other non-EU DPAs which endorsed our common findings. As you can see, cooperation among DPAs is an efficient lever for regulation and compliance, even when dealing with non-European firms. This is why this point is, to me, a core issue in the debate around the future EU privacy regulation.
Short Biography
Isabelle FALQUE-PIERROTIN graduated in France from the HEC School of Business Management ("Ecole des Hautes Etudes Commerciales"), the National Administration School ("Ecole Nationale d'Administration") and the Multimedia Institute ("Institut Multimédia"). She first held various posts with the French State Council ("Conseil d'Etat"), as an "auditeur" from 1986 to 1989, a "maître des requêtes" (counsel) from 1989 to 2001 and was responsible of the relations with the print and broadcast media from 1988 to 1991. Ms. Falque-Pierrotin also served as Deputy Chair of the French Ministry of Culture and French-Speaking World Matters from 1993 to 1995. She became State Counselor ("Conseiller d'Etat") in November 2001. After serving as Chair of the Interministerial Commission on Internet Affairs in 1996, she was appointed as an expert adviser for the Organization for Economic Cooperation and Development (OECD) in 1997 and as "rapporteur général" of the report of the French State Council on "Internet and Digital Networks" from 1997 to 1998. From 2001 to December 2010, Ms. Falque-Pierrotin was Chair of the Advisory Board and General Delegate ("délegué générale") of the French Internet Rights Forum ("Forum des droits sur l'internet").Isabelle Falque-Pierrotin has been a member of the French Data Protection Authority ("Commission nationale de l'informatique et des libertés") since January 2004. Appointed as Deputy Chair of this authority from February 2009 to September 2011, she became its Chair as of September 21, 2011.
> For more information about our activities: www.comstrat.org
Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
[1] See "Cloud computing: CNIL's recommendations for companies using these new services", 25 June 2012.
Interview with Rudolf van der BERG
COMMUNICATIONS & STRATEGIES No. 87, 3rd quarter 2012
Internet of Things: A new avenue of research
Summary : The Internet of Things (IoT) endows objects with intelligence and ability to communicate, connecting people and machines anywhere, anytime. IoT applications exist in various domains: health, domotics, security and control, the supply chain. IoT exemplifies - and is driven by - major changes in technological convergence, pervasiveness and ubiquity, increases in mobility, traceability, and so on. This special issue aims to develop a better understanding of what the Internet of Things is and what its potential impacts may be. This Dossier includes contributions from different fields of research in order to grasp the various dimensions of IoT in a multidisciplinary perspective (law, economics and management, political science, etc.).
Exclusive:
Interview with Rudolf van der BERG
Economist & Policy Analyst, OECD
Conducted by Martin CAVE (Imperial College Business School, London)
C&S: Could you introduce yourself?
Rudolf van der BERG:
I'm an Economist/Policy Analyst at the Organisation for Economic Co-operation and Development (OECD) working on telecommunications and Internet-related policy. I've been working here for one and a half years and before that in the private and public sector in various roles. My most recent research focuses on machine-to-machine communication (M2M) and specifically the regulatory implications of liberalizing the telecommunications market to better enable M2M*.
As a disclaimer, this interview represents my personal views and not those of the OECD or its member countries.
What is the Internet of Things?
The term 'Internet of Things' (IoT) is a very flexible term and it isn't the only term used. Alternative terms like 'connected devices', 'M2M' and 'smart' are also used interchangeably and mean roughly the same thing. 5 years ago it meant mostly radio-frequency identification (RFID) enabled devices; however, as we're getting more creative, more things fall under the term. According to some, it is any Internet-enabled thing which is not a smartphone, personal computer or server. This distinction is rather moot though, as any connected device will no doubt be controlled through a smartphone, server or PC.
Essentially, it is a term that represents the next era of the Internet. Today there are several billion computers connected to the Internet. The next 20 billion hosts, however, will not be traditional computers but rather a variety of 'things': photo cameras, cars, sports shoes, watches, light bulbs, street lights, electric meters, home appliances, health monitoring equipment and home entertainment devices.
Why is this happening now?
The Computer Science lab of Carnegie Mellon University had a network connected Coke vending machine in 1982, so to some extent what we are seeing isn't new. What is new is the ubiquity of Internet connectivity. There is hardly a place in the developed world where there isn't some form of connectivity available. That connectivity now enables a global market for connected things. That market is now delivering on low-cost connectivity solutions.
For example, light bulb manufacturers are expecting LED light bulbs with Internet capabilities to be available in mass volume in the next 3-5 years. These new light bulbs will allow users to take advantage of dimming and colour display capabilities currently missing from standard lamps, and could easily transform spaces into modern multi-coloured light shows. Add to this that the LED light bulb is assembled like any other piece of electronics and adding connectivity comes at a relatively low extra cost, but does add functionality.
Connected street lights are a similar development, and promise a 70% decrease in energy use. That's up to 70 US dollars per street light per year! With roughly 5-7 million street lights in the UK, and a medium sized city easily managing over 10,000, the savings would be enormous. These new Internet-connected lights will also bring new functionalities: sensors that sense the presence of traffic, radio controls that allow street lights to be brighter at the request of emergency services, the possibility to signal routes through town by changing the colour of the lights, etc. Lower operational cost and more functionality? That's a win-win for every government in the OECD!
RFID was predicted to become really big; how is this different?
The difficulty with RFID was that the prices of tags haven't come down enough and RFID is competing with ink – a very versatile competitor – to deliver basic identification functionality. Add to this some technical difficulties, like reading tags when there is tin foil around, and implementation turned out more difficult than predicted. This doesn't mean there isn't a future for RFID, but it may not be as big and may take awhile longer.
The current trend is different in the respect that it is more high-end than RFID. Internet connectivity is installed in "things" that now already have ICTs on board, or where it is relatively cheap to add. If you now use a remote control to control a device, then in the near future there is likely to be a chipset available that allows Internet connectivity at the price point of a traditional infrared remote control. Furthermore many machines are already equipped with sensors and computing power. A car can have as many as 70 processing units (computers), many of which make the car more efficient, comfortable and safe. Connectivity is then a small step that promises an extra step in efficiency, comfort and safety.
What is the OECD's role in analyzing the Internet of Things?
The OECD performs trend and impact analysis of new technologies for its 34 member countries. Our analysis allows policy makers to understand the drivers behind technology, its impact on business and the role of governments in implementing and regulating these technologies. Several studies have already been specific instances of IoT, like RFID, sensor networks, smart energy grids, electric cars, smart water, eHealth, smart transport, etc. Our most recent work includes a study on machine-to-machine communication, and there are forthcoming studies on smart networks, cloud computing and big data.
What are the main policy topics involved in the Internet of Things?
There is very little that will not be impacted by the Internet of Things in the near future. It is just one application of ICTs and as a result carries with it many of the same policy issues as other ICTs. So the main policy areas for government – innovation, transport, health, environment, energy, and to a lesser extent, education – all are influenced. Governments can be one of the main drivers toward the roll out of connected devices, for instance, by creating policies that require smart meters. The European Union, for example, is now mandating its own location-based service system (eCall) to be built into every car from 2015. Governments will also need to put in place policies that anticipate the impact of the Internet of Things in such general areas as privacy, security, competition, numbering, spectrum, and job creation.
Could you expand a bit on Privacy?
Privacy is obviously an important point because devices are increasingly recording data that can be traced back to individuals. And it doesn't look like there is an opt-out available anymore. You can decide to leave your phone at home, but you can't opt-out of a street light sensing your presence. You can't opt-out of the European eCall system installed in your car, or the mobile networks recording its location. Now add to this the enormity of scale and you can begin to see how everything will communicate, everywhere.
Countries are debating the privacy implications of this new connectivity. For instance, smart meters have been dubbed by some as spying devices because they might instantaneously record what you do in your home. Many countries have responded by scaling back their roll outs and reducing the number of samples taken to once every 15 minutes. However, a consumer may want to share that information with a third party service provider, not being the energy company, because the same data can give important insights into energy savings and allow them to automate their home. Or the data could provide alerts when a freezer needs of de-icing or a fan develops a mechanical failure.
Governments understand the benefits, but still haven't determined how the current rules can effectively be applied to the new privacy concerns. Existing privacy frameworks were developed for a world where small units of data are stored by organizations we interact with. But today's reality is that large amounts of data are stored by a variety of organizations that may not have a relationship with us personally. Furthermore, even anonymously collected data can be increasingly combined with other data sources to become personally identifiable. The concepts of notice and consent that are now central to privacy regulation become more difficult in this context.
Take for instance the data from street lights (I like street lights as examples because they are everywhere and thus easy to relate to). Now if that street light is equipped with a sensor that measures the presence of pedestrians and cars to turn the light brighter, this action can generate data that can be stored. Not only could this provide great data on traffic volume at certain times of the day, it could also be used to verify whether your neighbour left the house at 3am and walked two streets down to the house of his friend and back again. Just follow the street light. Our privacy frameworks weren't designed with these kinds of situations in mind. We're now talking about billions of sensors, cloud-based processing and big data analysis.
With privacy often comes the question of security.
Security and reliability of Internet of Things is vital. It will control many elements of our lives and we will rely on it to work and not to be abused. With everything becoming more interconnected there are more interdependencies. Given the long lifecycle of Internet of Things, devices remain active for up to 30 years, it is difficult to foresee all possible uses. Looking at industrial control systems, used in factories and utilities, the signs aren't good. A recent study showed that almost all commonly used systems were susceptible to many basic attacks. In another case an industrial control system would reactivate the default password, which was "100" even when it had been changed. It is scary to see what will happen in the long run as these systems will remain online for 30 years and it is unclear who has the responsibility for their safe operation for all those years. There is however, room enough for a few scare stories. Could you imagine what happens if the neighbours kid could turn on all the lights in every house in the street (or city)? The solution lies probably in better accountability for these companies, but how this is achieved is still a question.
So what about competition, you've worked quite a lot on this?
Yes, competition – especially in the 2G/3G/4G networks – is affected greatly by the Internet of Things. GSM, CDMA, UMTS and LTE all share the incredible advantage of being available up to high speeds almost anywhere in the world. This is something few other networking technologies can do. So it is great for running applications on geographically-dispersed devices, either mobile or fixed. Another advantage is that the authentication method on 2G/3G/4G networks is via a unique smart card, i.e. a SIM-card.
SIM-cards are great from a machine and usability point of view, because they allow authentication to a network without user interaction. It is a secure, trusted element that allows user friendly operation. It is plug and play. Imagine using this easy type of authentication with a wifi-enabled alarm clock, thermostat, etc.
However, the drawback of the SIM-card is that it is not controlled by the end-user. It is the property of the telecom operator. This can causes problems when, for example, a company may want to switch mobile operators. Under the current system, businesses would have to physically remove every SIM-card in their devices and manually replace it with the SIM-card of another operator. Multiply this by 10,000 to 100 million devices and it is clear this model is economically unrealistic. So unfortunately, for the moment, anyone using a SIM-card for an IoT service is locked in with their mobile operator for as long as the device lives. Manufacturers of IoT devices have little room to make mistakes; even if they're unhappy with a mobile service provider, they can't recall several million cars to change operators.
In total, there are five market failures tied to the control of a SIM-card:
- 20 year lock-in with mobile operator
- Changing SIM is impossible for millions of devices - No competition in roaming fees
- No way to route around network failure
- Research by Simula in Norway shows that 20% of devices are unavailable for more than 10 minutes/day - Mobile networks only cover 80% of connected devices
- It isn't just the countryside with spotty network coverage. As a result of "cell site breathing" (contraction and expansion of cell site based on traffic demand) and radio propagation through and around buildings, networks can't reach all sites all of the time even in densely populated cities. - No innovation, without the prior consent of the mobile operator, for instance to bypass mobile operator.
- There is a solution to this problem. Make the large scale end-user, i.e. the car manufacturer in the above example, the owner of the SIM-card and the associated authentication infrastructure. This would be the same as the way mobile roaming currently works: the car company doesn't own the infrastructure in the area it roams, but it can log on to mobile networks, as long as it can be authenticated and there is a place to send the bill. It's all bog-standard GSM-protocol. We've seen a lot of interest from big energy, car and consumer electronics companies. It would give them a competitive market for both national as well as international connectivity. It would save billions of euros every year.
There's just one problem: it's illegal.
Illegal?
Most national regulations stipulate that only providers of public electronic communications networks and services can have access to the IMSI-numbers that uniquely identify a SIM-card. In some countries the rules are even more stringent and even virtual network operators can't have access to these numbers.
Now a car company can't really claim it is offering (predominantly) an electronic communication service; otherwise it would have to qualify the vehicle as a very feature rich phone (to be fair, it does do more than an iPhone!). An energy company can just forget about trying to make a case. Consumer electronics companies might have a better case to make (an opportunity here for lawyers!), but it's fair to assume in many countries they wouldn't be allowed the numbers to enter the market either.
Now there doesn't really seem to be any technical reason to have this rule. True, there is some worry that there may be too big a market for connected devices and we run out of numbers (IMSI), but I can't really see how that is a problem. Even though countries currently use two digits, they could easily expand to three digits… and the ITU still holds over 500,000 numbers in reserve. But even if the Internet of Things does in fact prove to be really, really popular, what is the problem? That we have a well-functioning market that serves the needs of thousands of businesses? That companies save billions of euro every year? That telecommunication companies can offer their services to thousands of companies and not fear that a potential customer could be lost forever? Don't forget that if many companies would do this there is also a drive to update standards to allow more companies in. And if the opposite is true, that only a few big companies in the current market are going to successfully manage this transition, well, then I will stand corrected, but at least it isn't the government that breaks the market.
What is the impact on spectrum policy that you foresee?
Wireless technology is first and foremost a "last meter" technology. In theory, bits shouldn't travel exclusively in the air because they clog up the airwaves for other bits; they should only travel short distances and then hop on a wire. That being said, people want their devices to be free and unfettered. If our data needed to only travel through a wire, we would lose mobility. So basically any device will have a wireless component that will aim to reach the nearest antenna as quickly as possible, to save energy and to save bandwidth. We will therefore need pervasive wired broadband networks that at their endpoints connect to antennae for the last meter.
The Internet of Things will make spectrum policy even harder than before. It will force spectrum policy to move at the speed of the devices the Internet of Things is built into. A car generally lasts for 15 years; that means all the Internet-connected devices in it should work for that period too. It also means you can't shut down a wireless network in seven years from now, which is half way through the lifetime of a vehicle, because that will mean 75 million vehicles in Europe will not have a working network connection anymore. Many devices have similar lifecycle-related problems. Smart meters should work for 30 years – that means our choices today will be important for a very, very long time.
What is your perspective on jobs and growth and the Internet of Things?
In the M2M paper this wasn't examined. It is also out of my area of expertise. In general the impact of technology on growth and jobs is of great interest to the OECD, but it took years to see the macro-level impact of ICT's on society in general and we have only started with the introduction of the Internet of Things. Of course, the billions saved in the street light example could certainly be put to good use in various parts of the economy. However on a personal note and having just read Brynjolffson's "Race against the machine", I can also foresee a problem with employment growth. One of the prospects of the Internet of things is the autonomous machine, i.e. flying drones or Google's driverless car. Now fast forward 10-20 years and we may see the driverless taxi and the driverless truck. Those are jobs that are often held by lower skilled workers and those jobs may go away. That is potentially a big problem, because I don't know what, if anything will come back.
But there is no sense in being a Luddite and breaking the machines that promise to make our lives more simple and easier. It's just important to note that it will not be all positive and it will not be positive for everyone always.
Are governments currently taking the right role?
Well, I think governments are taking a more forward-looking role than in the past. Of course, I would like them to move a bit quicker with liberalizing the telecommunications market for large scale M2M users. I've been working on this issue for three years now and would like one day to call it done. Governments are however major instigators in Internet of Things, through eCall, smart meters, eHealth etc. They are also potential big users, as governments own and operate billions of machines and devices that will one day be hooked up. Even things that wouldn't be regarded often as machines or even as "things", like dykes in the Netherlands or roads and rivers, will be connected. Privacy regulators seem to be very aware of what is coming. They may not have a full answer yet, but they are forward-looking. On the security side of networks, we will have to improve the government's role in holding companies accountable for what they put in the market and how well it works and performs.
At the OECD we're working with governments on finding those answers and learning from best practices. We're working on the general horizontal policy issues that stem from the current trend towards the Internet of Things, Cloud and Big data. At the same time we work on best practices of using these technologies in specific verticals like transport, healthcare, energy and government.
Thank you very much. This has been an interesting and enlightening conversation.
Short Biography
Rudolf van der BERG has been an Economist/Policy Analyst at the OECD, since 2011. Here he has worked on topics regarding M2M, Smart networks, telephony and internet interconnection and telecommunications policy. He started his career at the NDIX Internet Exchange Point located in Germany and The Netherlands. He worked five years at the Ministry of Economic Affairs, first with a responsibility towards lawful intercept and he negotiated the EU Data retention directive. Later he wrote the first documents on Net Neutrality for the Dutch government and was seconded to the OECD to write on the future of Broadband networks. As a management consultant for Logica he worked with clients on structural separation of energy companies, smart metering, information exchange in the energy sector and next generation number portability. It was here where the topic of liberalization of the mobile market for M2M first became apparent through a clients question on how to move 10,000 devices from one operator to another. Subsequently he wrote analysis on the impact of liberalizing the market for the Dutch Ministry of Economic Affairs and a discussion paper for the OECD.
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Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
* Machine-to-Machine Communications: Connecting Billions of Device, OECD 2012, DSTI/ICCP/CISP(2011)4/FINAL.
http://www.oecd-ilibrary.org/science-and-technology/machine-to-machine-communications_5k9gsh2gp043-en
Interview with Christian de FARIA
COMMUNICATIONS & STRATEGIES No. 86, 2nd quarter 2012
Development of ICT in Africa
Summary : While the very rapid, although uneven, expansion of mobile telecommunication networks on the African continent is supporting a variety of services including voice, text messaging and Internet access, there is great variety in market structures, regulatory arrangements, and the way applications and services are being rolled out. This special issue is concerned with the way these technologies are contributing to economic and social development and with the barriers that countries in the region face as they seek to reap the benefits of increasing connectivity for their business communities, entrepreneurs and citizens. The papers analyse the challenges and barriers, as well as the opportunities, in the wake of the spread of mobile networks in the region based on experiences at the country level using aggregate data and at the within country level using qualitative data. Several papers show how infrastructure investment and regulation intersect with opportunities provided by voice services and data applications once networks are extended and offer affordable connectivity.
Exclusive:
Interview with Christian de FARIA
Group Chief Commercial Officer, MTN Group, South Africa
Conducted by Didier POUILLOT (Head of Telecom Economics and Business Modelling Practice at IDATE)
C&S: Could you give us a brief history of MTN? How has the group developed over the past 10 years? In which markets is the group active today?
Christian de FARIA:
MTN was created in 1994, just after Apartheid was abolished in South Africa. So it is a relatively young company that now does business in 22 countries, including 16 in Africa and the remaining 6 in the Middle East. The operator manages a network of more than 170 million customers – including over 110 million in Africa. The group gradually expanded its geographical footprint by acquiring licences or taking over existing operators: the high point was the 2006 takeover of the Lebanon-based holding company, Investcom, which gave us a foothold in 10 new countries. Since then, MTN has not expanded geographically but has taken control of ISPs and wireline telcos in its existing markets. So we have only grown internally.
Our biggest market today is Nigeria where we have a base of 46 million mobile customers. Since our initial arrival in the country in 2001, to deploy the first cellular network, the journey there has been very fruitful – enabling us to open up the whole of Nigeria, and the nations of Western and Central Africa in general. We do business in nine countries in that region. MTN is the leading mobile operator in almost all of its markets – Nigeria, Ghana, Cameroun, Benin, Guinea-Conakry, Liberia, Uganda, Rwanda, etc. – except for those markets where we arrived after the incumbents. In South Africa, for instance, we are second to Vodafone which got there before us.
What are the main trends in telecom markets in Africa? Is mobile the only solution for universal access, including for broadband?
Wireline access is very underdeveloped in Africa. If we take Nigeria again as our example, when we arrived in 2001, there were only 400,000 landlines for a population of 140 million people. Today, there are over 95 million mobile subscribers in Nigeria, and nobody is developing the wireline infrastructure. Mobile operators have assumed the role of traditional carriers who are themselves forced to open subsidiaries and market mobile services.
With the technologies and the frequencies we can use today, with 3G licences and beyond, we firmly believe that internet access will be delivered largely over cellular systems. Plus, smartphones are becoming available to increasingly large swathes of the population.
Who are MTN's major competitors in Africa? What are MTN's competitive advantages?
Because it is in the midst of a real boom, Africa's telecom market is attracting a lot of international players, and competition has heated up over the past five or six years. Our direct competitors, who have a very strong presence in Africa, are India's Airtel and French carrier, Orange – along with Vodafone in some countries. There is also a host of small networks, but we will no doubt see the market quickly consolidate around three or four operators in each country who are able to withstand pressure on prices, come from both competition and regulation.
Up until now, MTN has spearheaded the development of mobile telecommunications in Africa –thanks above all to its expertise. Drawing on our experience in South Africa, we initiated intensive human resources development programmes and implemented recruitment policies in the different markets. There are very few expats in our businesses: again, in Nigeria, which is our biggest company, there are only four. At the same time, there is some rotation amongst our executives: the head of operations in Ghana is Nigerian. This is also the case in Cameroon.
One of MTN's main assets is its brand. We devote a great deal of effort to being very active in the markets, and in supporting consumers locally, in particular through social actions. We develop projects, that the company finances through a foundation, in support of health, education and the environment. In each country, the MTN Foundation works closely with national authorities, which in turn develops our image as an operator who is deeply committed to its social role. We have also been associated with the world of football for a great many years – the highlight of which was our sponsorship of the World Cup in South Africa in 2010.
In which adjacent markets can telcos have a specific role? Banking, health, learning…? What about your own experience in m-money notably?
Mobile banking is a very important issue. Over the past three years, we have developed the MTN Mobile Money service which is now available in 15 countries. In Africa we now have 7 million subscribers. We have also rolled out mobile health applications in South Africa, Ghana, Gambia and several other countries.
Lastly, we have major projects in the area of education, in particular via MTN University. We work in tandem with reputed partners for all of these initiatives. We believe that operators have both a social and economic role to
play in sectors that are not traditional for the telecom industry, by making services accessible to a very large section of the population, particularly in rural areas.
What are the main issues to be dealt with for regulation to be more effective in African markets? A more common/pan-African approach? Wholesale pricing?
In addition to the expertise I mentioned earlier, one of the keys to our success has indeed been the efforts we have made with the national regulator authority in each market. We were able to draw on the example of South Africa, which is recognised for its well developed regulatory environment, to assist NRAs in the countries where we operate to devise their own liberalisation policies that serve economic interests and the interests of consumers. We are working with them on universal licences, 3G licences, deregulating internet licences, etc. Of course, there is still the problem of regulatory authorities that may not be independent from political power, which renders decision-making more opaque.
But even if people often say, "it's hard to do business in Africa," I think it's the same everywhere. What matters is the commitment to understanding the terrain, finding out what it the country needs, what the priorities are in each one, and it is through this constant dialogue with authorities – whether economic, political or regulatory – that we are moving ahead.
How can mobile networks expand in rural areas? Through network sharing arrangements as we can see in India? Through government support?
With a penetration rate of 50%-60% in Africa, the challenge is bringing access to rural areas, and this is something we have been working on for the past three or four years.
But the lack of an electrical grid jacks up network operation costs. We are being asked to make certain efforts when deploying our network, such as using solar power, which is of course good for the environment but not very economical. We have also created dedicated companies in recent years that buy our infrastructures and offer to share access with our competitors. We began doing this in Ghana and Uganda, and our about to begin in Côte d'Ivoire: it is going very well. We also outsource/sublet our network to our technical partners, and have thus begun to bring mobile telephony to rural areas across the board. In all of our markets, we have achieved coverage of 85% to 90% of the population and over 70% geographical coverage, on average, and 80% in most instances.
What are the prospects for Internet access and content provision in Africa? Does the liberalisation process in the media domain in Africa create new opportunities for telcos (IPTV, VoD…)?
Data services are making great strides, with traffic doubling every year. Consumers now have access to devices that operate at least on GPRS networks, which is fuelling a demand for mobile broadband .
Having access to content is of course very important. Although our top priority since 1994 has been deploying networks to supply the largest possible number of people with access, our focus now is on delivering high quality services, music, video, games and applications. We have developed an ecosystem around an app store so that our customers can access all of this content, and to ensure that information circulates every day. We have signed contracts with content providers like Universal and Sony for music and online gaming, and with a number of local content providers – especially for music. We will also soon be rolling out a VoD site this year. Telecom operators are no longer isolated entities, and no longer just providers of voice services. They have become providers of solutions ranging from content to financial services, by way of healthcare and educational services.
Thank you very much. This has been an interesting and enlightening conversation.
Short Biography
Christian de FARIA (Degree in Finance Administration - CA) is Group Chief Commercial Officer at MTN Group. He is a member of the MTN Group executive and steering committee. Furthermore, he is a director on the boards of the MTN Group's West and Central Africa, Southern and East Africa operations, MTN Dubai. Prior to joining MTN Group in 2006, Christian was CEO of PT Excelcomindo Pratama, known as XL, the second largest mobile operator in Indonesia. Before joining XL, he was the CEO of Telekom Malaysia International now known as Axiata, responsible for international strategy and involved in the rapid growth of investments in Sri Lanka, Bangladesh, Cambodia, India, Thailand and Indonesia. From June 2006 until May 2010, he was the Vice President for West and Central Africa, responsible for 9 of the 21 countries where MTN has a presence, covering an area from the Republic of Congo till Guinea Bissau. This region represents an important part of MTN's business overall. Since July 2011 he is responsible for all customer facing activities from Innovation, Products and Services, Marketing, CRM, Sales and distribution at Group Level.
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COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Dr. Osei DARKWA
COMMUNICATIONS & STRATEGIES No. 86, 2nd quarter 2012
Development of ICT in Africa
Summary : While the very rapid, although uneven, expansion of mobile telecommunication networks on the African continent is supporting a variety of services including voice, text messaging and Internet access, there is great variety in market structures, regulatory arrangements, and the way applications and services are being rolled out. This special issue is concerned with the way these technologies are contributing to economic and social development and with the barriers that countries in the region face as they seek to reap the benefits of increasing connectivity for their business communities, entrepreneurs and citizens. The papers analyse the challenges and barriers, as well as the opportunities, in the wake of the spread of mobile networks in the region based on experiences at the country level using aggregate data and at the within country level using qualitative data. Several papers show how infrastructure investment and regulation intersect with opportunities provided by voice services and data applications once networks are extended and offer affordable connectivity.
Exclusive:
Interview with Osei DARKWA
President of Ghana Telecom University College (GTUC)
Conducted by Anders HENTEN (Aalborg University, Copenhagen)
C&S: Let's start with the mobile development. How do you see the mobile development in the overall development of ICT and telecoms in Africa?
Osei DARKWA: I obviously think that it's a very positive development that we have seen in mobile communications. This has provided access to communications for much larger parts of society. People do not anymore have to wait for a communication line as they did previously with fixed line communications. One could say that we have leapfrogged fixed line communications.
But is there a need for fixed communications also to develop or is mobile communications the only important avenue? This issue pertains mainly to the development of broadband.
We have to differentiate here: whether we talk about the access or the backbone networks. Fiber is used in the backbones, but access is mainly mobile. But yes, broadband is the only reason for developing fixed line communications in the access network. Apart from this, it's not really necessary. Internet can also be accessed via mobile communications. It's only because of the quality of service of mobile Internet access and because the support system is not always reliable that fixed broadband has a role to play.
How is it then with the development of mobile broadband – for instance in your own country Ghana?
In Ghana there are presently 6 mobile operators and there is stiff competition. We, therefore, see a great many innovations. However, competition is not equally tough in all African countries. In other countries, there are fewer operators. In Ghana, all 6 operators actually offer mobile broadband. However, use of it is not that high yet. I'd say that around 80% only use voice and texting, but there is absolutely progress in the use of mobile broadband – a development which is primarily facilitated by the diffusion of smartphones.
Do you see Internet in Africa developing as mobile communications have done?
Internet is the next great wave of communication developments in Africa. It will, as I have already emphasized, mostly take place based on mobile networks. There are, however, pricing and reliability issues that need to be solved. But fixed network elements are also very important for Internet developments. We have in Ghana a national fiber backbone, and almost all mobile operators have their own fiber ring. This helps offering Internet at a sufficiently high quality also on mobile connections.
One of the characteristics of the mobile development in Africa is that it has quickly been coupled with broader societal needs and developments such as education and health. How do you see this development unfolding?
There is certainly a great interest in the applications of e-services in many different fields, especially e-health, e-learning and, of course, also e-commerce. And, as mobile is the preferred mode of communication, m-health, m-learning, etc. are important areas to be developed. Indeed, a large number of initiatives have been taken especially in the banking and money transfer area. But development in most African countries is still relatively slow – although some countries have taken a fast leap forward. The basic reason for the relatively slow development is the low take-up of broadband. When accessing Internet, most people will still do it from their workplace or at an Internet café. In Ghana, only a small percentage of people accessing Internet will do it from home. The many different potential societal applications of mobile Internet are, therefore, mostly at the planning stage. But the potential is there, and there is also a potential for leaping quickly forward to develop the many useful applications of mobile communications.
In spite of the impressive development of mobile communications, there are still segments of the population which are not yet connected. What needs to be done to reach these parts of the population?
Most African societies are predominantly rural societies. Some 60% of populations live in small communities doing farming in the countryside. This is a difficulty as the spread of populations raises the investment costs and as the ability to pay is rather low. This is, however, an issue which has been on the policy agenda for quite some time in the individual countries as well as internationally with initiatives from World Bank, ITU, the Economic Commission for Africa, etc. In Ghana, one percent of mobile operators' revenues are collected bi-annually to support the provision of infrastructure in rural areas. But I also think that creating awareness is important. Mobile phones are mostly used for voice communications, and there is also need to create awareness that mobile communications can be used for data as well. Another issue is related to the costs. Using mobile broadband services is costly for rural families. Also, the infrastructure needs to be in place. But mobile broadband is advancing – as mentioned. People moreover need terminals. But actually, mobile phones are often not bought by those who use them. For rural users, phones will often be bought by relatives in the cities and then sent to villages in the countryside. But to sum this up: awareness, costs, and infrastructure are crucial elements to look at when aiming at extending communications to remote rural areas.
A much debated topic has been the role of telecenters. How do you see the role of telecenters in reaching the poorest segments of society?
This is a notion that has been around for a long time and it has also been funded by international organizations in different countries. In Ghana, the Ministry of Communications has taken the initiative to construct more than 200 Community Information Centers. And, in for example Senegal and Uganda, there are significant telecenter developments. But I don't think this is the main avenue for the development of communications in Africa in general. The main avenue is the still wider diffusion of mobile communications and telecenters are only a supplement to this main development in reaching those that are still not connected.
Returning to the infrastructure issues: How has the international economic crisis affected the investments of operators in the infrastructural roll-out?
There may have been some effect, but it's not significant. African countries are to different extents linked to the international economy, but the crisis has not really affected the investment side of communication developments. One could say that the effects are more indirect in the sense that Africans living in other parts of the world send remittances to their relatives back home. Here, the crisis has affected the situation as far less money is being sent home. One could say that it's more on the demand side that the international economic crisis has impacted on the telecoms development. In other areas, in Ghana especially the oil area, there has been a great influx of foreign investments, and Chinese investments are all over. But in the telecoms area, the implications have mostly been indirect.
If we look at the regulatory framework, where do you see the greatest challenges for a continued development of the telecoms infrastructure? Are there any regulatory issues that must be addressed?
The situation of course varies in different countries. But yes, there are regulatory questions that need to be addressed. In my country Ghana, many of the telecommunication policies are obsolete. This applies to frequencies as well as infrastructure policies in general. They need to be reviewed. We have, for example, seen the development of VoIP, where there are regulatory obstacles, which set the country back. Technology developments have in different cases gone past the regulatory framework, and this needs to be looked into. The problem is that there is not sufficient pressure from advocacy groups. They are not strong enough and the pace of regulatory development is too slow.
How effective are the regulatory institutions?
For the regulatory institution that I know best, namely the one in Ghana, I'd say that it is relatively effective. But there are challenges regarding the general policy development related to fast changing technologies. The implementation of number portability has, as an example, worked well, and if we take the broadcast area, the transition to digital broadcast has also been successful. But the challenge is the general policy development in following up on new technology trends.
Is there a necessity for public investments in the infrastructure or are private investors/operators sufficient for a continued development?
Yes, I think that there is a need for public investments in the sector. The technologies are changing very quickly, and there is a need for countries to be on top of this development – so to say. In Ghana, a national fiber backbone was built from public money provided via a loan from China. There is also public money in the building of a national data center. In general terms, there needs to be a co-operation between the private sector and the public sector in this area. Most of the infrastructure will be built with private money, but there are specific fields where public investments are necessary.
How do you see the prospects in regional cooperation, for instance in the Ecowas area? Does such regional cooperation have any effect on ICT development?
There is a movement in that direction and there have also been initiatives to that effect for many years, for instance the ideas about creating a common currency in the West-African area. Ecowas is a good example of this. But one has to admit that this has often been more of a 'taking shop'. Many issues – also in the area of communications and IT – have been taken up. But it's more on the conceptualization level than the implementation level. But then again, there are common backbone initiatives, and the Economic Commission for Africa has also been pushing for regional initiatives.
When looking 10 years ahead, which will be the most important issues on the ICT and telecoms agenda?
The most important issue for the coming period will be the development of broadband. The access part of this will mainly be mobile, but the development of fixed backbones is part of it. So, mobile is the important development avenue, and here the crucial elements are the lowering of costs for the operators as well as the users. Quality of service is also a central issue. And then, there is the whole discussion concerning the many applications in health, education, banking, etc. I must say that I'm rather optimistic taking the last 10 years into account. It's been an impressive development in many ways.
Short Biography
Osei Kofi DARKWA was appointed first Principal of Ghana Telecom University College (GTUC) on November 16, 2004. He assumed this leadership position after more than two decades of higher education, administrative, consultative and managerial experience in Norway, the United States, and his home country, Ghana. Dr. Darkwa is an accomplished leader, an effective speaker, a writer par excellence, a true visionary and a holder of an impressive record of academic and research accomplishment. Notably he has written well over 120 articles on various ICT topics which have been published in the Ghanaian Times between May, 2006 and July, 2008. Dr Darkwa has published numerous papers and articles on the Internet and in peer-reviewed journals on ICT development in Africa. He has written on topics such as distance education, telematics, multipurpose community telecenters, and virtual institution building. He has participated in various television and radio programmes and delivered lectures on ICT that cut across various topics across the country and beyond. Dr Darkwa has played a leadership and pioneering role in the community informatics movement as well as a key role in ICT capacity building, education and training. He has membership with key ICT-oriented organization.
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COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Anne BOUVEROT
COMMUNICATIONS & STRATEGIES No. 85, 1st quarter 2012
Cloud ecosystem and platforms competition
Summary : Cloud computing is substantially changing the way computing is performed. Indeed, it allows for on demand self-services, resources pooling to serve multiple users using multi-tenant models, elastic provision of capacity, better control and use of resources through measured services. Content in the cloud is opening the way for a vast array of content and innovative applications. However, the benefits of cloud computing, come along with additional challenges in the area of privacy, security, consumer protection, … The papers selected for this special issue develop various thoughts on these issues. They provide original analysis of the platforms competition, and flexible and adaptable approach on the policy side as well as innovative technical and market solutions.
Exclusive:
Interview with Anne BOUVEROT
Director general GSMA
Conducted by Yves Gassot (IDATE-DigiWorld Institute)
C&S: Do we need to accept migration to the cloud as key to the mobile sector's development? Is there any element that is specific to the mobile cloud?
Anne BOUVEROT: I think that the cloud is certainly going to be associated with and have a significant impact on mobile telecoms in the years ahead, but we will use the term in many contexts to describe a number of different things. Defining the cloud is the hardest piece. I like to think of it as having the power of a million computers in the palm of your hand but it does not weigh anything and you do not have to worry about the IT. I like this definition as it helps you understand that the processing power and storage possibilities are almost endless.
Today in the mobile world, the cloud is typically seen as a place for remote storage, and for more advanced customers a source of remote processing power. Many of us have used consumer services like Apple's iCloud and business-oriented services like Google Docs already. These services will continue to develop and can offer users many benefits in a multi-screen world, with the automatic syncing of your content, documents and applications.
Our mobile operator members are also using cloud type architectures for their own internal services and platforms. A great example is NTT DOCOMO in Japan who are providing real time language translation services to their customers using the cloud infrastructure.
But I think that we are just at the beginning of an exciting development cycle. I don't believe we need to think of the cloud differently in the context of mobile versus fixed networks, but we do need to remember that the vast majority of the worlds population will access cloud type services only through mobile, so we should always think of the cloud through a mobile lens first.
C&S: In what ways would the ubiquitous use of cloud architectures alter the mobile internet as we know it? Is it likely to undermine the app store and download model for smartphones? Will HTML 5 play a major part in opening up the mobile internet ecosystem? Do you think this will do anything to shake up the current duopoly in the smartphone OS market?
A. B.: I am not sure I would say that the cloud will alter the mobile internet as we know it - I think its better to think of it as enhancing an already compelling proposition. Certainly mobile apps will continue to flourish, with billions already downloaded today. HTML 5 will not significantly change the nature or user experience of applications. It merely provides an alternative delivery technology that I think will become very popular.
The emergence of HTML5 has the potential to provide more competition in the OS space in the future, and this is always a welcome development for consumers. That said, there are a lot of trends that could develop out of the move to HTML5. For example how closely are the browser and OS integrated, and actually does the browser become the OS?
There is a possibility that in the HTML5 world, influence may balance out between the current application ecosystem providers, the handset makers and the mobile operators which I believe would be a welcome development, but the key as always will be to see who can provide the best user experience for the consumer. That is where the GSMA and its operator members are focused.
C&S: To what extent are mobile operators concerned by the spread of cloudoriented architectures, in terms of the evolution of their network infrastructure? What consequences might users storing data and hosting applications in the cloud have on traffic and signalling? On security and quality of service? What issues might arise around cellular operators' interconnection with the internet giants' infrastructures? Will cellular telcos be forced to invest in the cloud and, if so, for which functions or services?
A. B.: Mobile operators are not concerned about cloud services per se, as long as they are implemented in a responsible fashion. What is clear is that the proliferation of smartphones and tablets, and the rise of applications are driving massive increases in data traffic on networks. They are also driving a huge increase in application signalling traffic, in many ways as troubling as the data traffic. Our mobile operator community, through the GSMA, recently published a set of Application Efficiency Guidelines that aim to educate developers on how best to build applications that respect and conservatively use the network resources.
I believe that Security and Quality of Service (QoS) are certainly great strengths for the mobile operator community, and are areas that they can leverage in the future as competitive advantages. A consumer value proposition that says that an operator can provide you services with a guaranteed QoS in a secure fashion while protecting your privacy is a very strong offer.
In terms of the interconnection between the operators networks and the internet giants, it is fair to say that mobile operators will continue to push for a set of business terms that aligns the investment required to support new services, with the revenues that the services generate. Network traffic continues to grow at an exponential rate, and it seems impossible to me that we will not find a mechanism to share the costs of infrastructure investment with the over the top players that are offering the services. By doing this I believe we will have a sustainable industry and continue to invest in the network capabilities of the future..
C&S: Do you think the cloud will play a role in furthering the convergence between wireline and wireless broadband?
A. B.: The important thing to remember about cloud based services and applications is that it is not so much about the convergence of fixed and mobile networks - it's about the decoupling of applications from specific access methods and devices. As an example I want to be able to watch my TV at home, pause it, continue watching on my mobile device, and then maybe when I get to my end location watch the end of a program on my computer. These types of scenarios are attainable through the cloud. So I would say that the cloud is about agnostic access rather than convergence.
C&S: Is there anything that can be learned from telecoms that could improve the consumer's cloud services as a whole?
A. B.: A core pillar of the mobile industry is the interoperability of services across operators and countries. This is the foundation that made GSM technology the success that it is today. As we embark into a world of cloud services, the ability to provide services that are interoperable across different clouds will be equally key. These capabilities will come to the fore when customers want to leave one cloud service and move to another. For example, if you have mission critical content, some business applications and maybe other forms of data stored in one provider's cloud, you should have the capability to move it to another providers cloud. Or if as a consumer you have your music and pictures with one provider and you want to move to a phone with a different OS and cloud, you should be able to do so. Under the current vertically integrated and technically separated market for cloud services, it is not clear how this could take place and how the cost of the migration would be covered. I believe that in the future we will see a consumer push for a greater degree of interoperability and compatibility between cloud providers to enable consumer portability.
In the mobile world, this kind of commonality and portability of service has been in place for some time. Mobile operators realised the benefit of an interoperable ecosystem and have actively maintained and guarded this capability. SMS is a great example of the power of a globally interoperable service. Applying this in the cloud world, there could be distinct benefits at layers such as authentication, security and portability that would make your cloud service a much more dynamic offering, and perhaps more importantly, drive some good service based competition.
Short biography:
Anne BOUVEROT is Director General and Member of the Board of the GSMA. Before joining the GSMA, Anne was Executive Vice President for Mobile Services for France Telecom Orange, where she defined the strategic priorities and led transformation programmes for the mobile business and was also responsible for the selection of mobile devices sold to customers with mobile offers. She previously was responsible for international business development at France Telecom Orange, and her achievements include the privatisation of Telkom Kenya, new mobile licences in Armenia and Tunisia, and partnerships in Portugal and UAE. Prior to France Telecom Orange, Anne led a business unit of Equant and was responsible for developing IT services for Equant's multinational business customers. She began her career in telecommunications as project manager for Telmex in Mexico in 1991. Anne holds M.S. and Ph.D. degrees in mathematics and computer science from the Ecole Normale Supérieure in Paris and an M.S. degree from Telecom Paris.
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COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Jean-Bernard LÉVY
COMMUNICATIONS & STRATEGIES No. 84, 4th Quarter 2011
Net Neutrality : Act II
Summary : What are the minimum regulatory tools needed to ensure an acceptable level of net neutrality while giving network operators flexibility to innovate and manage their networks? Act I of the debate resembled a war of religion, each side rejecting out of hand the other's philosophy. In Act II, market actors have understood that neutrality is not a binary topic and that the subject must be addressed in a collective and collaborative way for the sake of achieving economic and social efficiency. The debate has progressively shifted and focused on several key issues that are essential to the design of a well-functioning neutrality: (i) traffic management, (ii) IP interconnection arrangements, (iii) transparency, (iv) price differentiation and markets for enhanced quality, and (v) the setting up a suitable regulatory framework. Such are the main stakes of "Net Neutrality: Act II" and the focus of this special issue of COMMUNICATIONS & STRATEGIES.
Exclusive:
Interview with Jean-Bernard LÉVY
CEO, Vivendi
Conducted by Yves Gassot (Idate)
C&S: Does the fact that your company is involved in the telecoms sector (SFR, Maroc Telecom, GVT) as well as the TV (Canal Plus), movies (Studiocanal), music (Universal Music) and gaming industries (Activision Blizzard) give you a unique perspective and position on the Net neutrality debate?
Jean-Bernard LÉVY: Vivendi is involved in numerous parts of the digital value chain: we create and publish content, we run service platforms that we make available to our customers and we deploy and operate infrastructure networks.
Every year, Vivendi invests over €5 billion (distributed equally) in content creation and acquisition, in platforms and network technologies.
Vivendi has a balanced approach to the net neutrality debate as we advocate both for the most diversified and innovative legal content offers and a robust and reliable network to provide a strong basis for content creation and interactive services.
C&S: You were personally involved, along with the CEOs of Alcatel-Lucent and Deutsche Telekom, in organising widespread discussions between ICT sector players, and in presenting recommendations for improving Europe's role in digital industries to Neelie Kroes in July. What part did the Net neutrality issue play in these discussions and the resulting recommendations?
J.-B. L.: Vice-President Neelie Kroes took the initiative to ask Ben Verwaayen, René Obermann and myself whether we would accept a mission on behalf of the Industry to come forward with concrete proposals on how to address broadband investment.
As you know, the Digital Agenda for Europe aims to ensure that very fast internet access will be available to all European citizens thanks to the deployment of next generation networks. This Agenda sets very ambitious and specific targets in infrastructure deployment. One of the objectives is to provide basic broadband coverage for all EU citizens and businesses by 2013 and Internet coverage of 30 Mbps or above for all Europeans by 2020.
Nevertheless, Europe is far behind schedule on this target. As stated in the Commission Digital Agenda Scoreboard (published 31-05-2011):
"The deployment and take-up of ultra-fast broadband is still low, and only 5% of all fixed lines deliver speeds of 30 Mbps and above, although 28.7% of households could have access to such speeds if they wanted to".
To come forward with concrete proposals to achieve the Digital Agenda targets required intensive work during 4 months between more than 40 companies. The discussions focused around three main topics:
• Possible new business models for Internet development;
• Interoperability and standardization issues for next generation access and networks;
• Investment framework/models and financing sources to foster NGA roll-out.
In early July, we converged on 11 points, of which some touch on net neutrality discussions directly. In proposing a new ecosystem between over-the-top players and ISPs, we achieved a big step forward.
C&S: Vivendi has a great deal of experience in the American market. Do you think that the Net neutrality debate is being approached on the same terms on both sides of the Atlantic?
J.-B. L.: It is indeed relevant to compare Europe and the US on this issue, although there are significant differences.
On our side, we have seen the net neutrality issue being built and developed in the United States over the last three years by a coalition of Internet players, including Google. Until autumn 2009, the Federal Communications Commission (FCC) limited itself to setting out four open-Internet principles listed in the 2005 Internet Policy Statement, according to which consumers:
- can access the lawful Internet content of their choice,
- can run applications and use services of their choice,
- can connect their choice of legal devices that do not harm the network,
- are entitled to competition among network providers, application and service providers, and content providers.
Since 2009, only 2 new principles have been introduced by the FCC, according to which broadband providers:
- cannot discriminate against particular Internet content or applications (non discrimination),
- must be transparent about their network management practices.
The FCC approach to the net neutrality issue echoes a situation in the United States where the broadband market has structured itself into a duopoly. Consumers can access the services of either a cable or ADSL operator. The relatively limited competition results in a comparatively high subscription fee of above 100 dollars monthly for the equivalent of a triple-play offer.
In France, contrary to the United States, there has been significant investment from alternative operators over the past ten years. This competitive situation translated into monthly triple-play fees of only 30 euros. Therefore the economic balance is very delicate for the handful of players who have been able to survive.
C&S: Although the intensity of Net neutrality discussions has not abated for several years now, we do get the impression of having moved past the staunchly ideological stage of conflict between the "libertarian" stance and the position taken by telcos. Discussions today seem to be structured more around specific points, such as the role and potential place of managed services vs. Best effort. What, for you, are the crucial points that need to be considered?
J.-B. L.: The main challenge ahead is to define how networks are able to handle the explosion of traffic on the internet and to design a framework that will create incentives for investment in networks and infrastructure.
In the short term, optimizing the use of bandwidth appears increasingly essential to manage networks effectively and avoid congestion, especially during peak hours. Traffic management techniques allow a better end-user experience regarding applications, content and services, notably through guaranteed quality of service and a more efficient use of the telecom operators' network resource.
Access to Best effort Internet is a service valued by the customers. Best effort internet is and should continue to be the "by default" option for all players, which means that consumers will continue to access all the content and applications they want. However there is a general desire for the market to explore other alternatives where all players might create more value out of content, applications and services.
That is why, at the July CEO Roundtable, the Industry recommended the creation of two-sided business models in the broadband market.
Two sided markets applied to telecoms would mean that, downstream, there is a relationship between ISPs and consumers, and, upstream, possibly but optionally, contractual relations between ISPs and content or online service providers to offer enhanced managed services.
The opportunity to develop upstream wholesale offers in the telecom market will enable very positive effect in leveraging the R&D of telecom operators to the benefit of content & service editors and, basically, allow some very specific services to keep working on the internet. It will also give ISPs stronger incentives to invest in next generation networks such as fibre, and thus ensure a better service for consumers.
C&S: Universal Music became a pioneer in bundling access and services when it rolled out a music service for SFR subscribers, while Canal+ has increased its presence on the open web by launching innovative new services. What lessons have you drawn from these innovations? From your experience, does the Net neutrality debate result in operational cooperation between telcos and the top content aggregators, in particular to improve the quality of over-the-top services delivered to internet users?
J.-B. L.: Yes, absolutely. One of the key ideas that came out of the CEO Roundtable was to develop new commercial relationships between ISPs and over the top / content / service providers.
In online music, SFR and Universal Music Group (UMG) have both been pioneers in launching innovative services. SFR was the first telecom operator in France to launch an online store to download music on mobile devices and to allow ADSL customers to stream music on a large catalogue of titles. UMG is the world leader for digital music and has signed, in France, over 40 partnerships with online music platforms.
What we see as a general trend is that the market is moving progressively from download to subscription offers. SFR recently signed a deal with Spotify and all record companies (including, of course, UMG) to integrate its unlimited streaming music service to SFR subscription offerings.
Spotify is an interesting example since it has built its service on a very low bandwidth consumption profile. In fact, the service has been designed to allow people to store their playlists locally so they are able to play their music even if the connection is low or not available. This partnership is an example among many others of the trend towards more sophisticated relationships between over-the-top players and ISPs.
In the audiovisual and movie industries, we are also witnessing significant changes under the influence of Internet and particularly connected TV. This is why, in addition to regular broadcasting, Group Canal+ has been developing IP-related offers for several years now. These provide multi-screen viewing experiences allowing customers to watch their favourite programs anywhere and on any device (smartphones, tablets, PC, game consoles, etc.). They also include new on-demand services such as catch up TV and transactional VOD, as well as enhanced viewing experience with customized Electronic Program Guides or streaming stats during live sport events.
Even more recently, Group Canal+ announced the launch of CANALPLAY Infinity, an ambitious subscription VOD (sVOD) offer that will be available over all managed networks, as well as over-the-top on XBOX and connected Samsung TV. At SFR, the service will be integrated directly in the box interface so that subscribers will have the easiest access to it.
This example shows that both best effort and managed services can coexist and serve various objectives.
C&S: Presuming that distributing services in the cloud is inevitable, how do you see the future of the home box? Is it a crucial asset for providers?
J.-B. L.: Network and customer relationship are both essential assets for ISPs. The box bridges these two components: it is the network termination point and it materializes the ISP presence at the customer's home.
The box is progressively enhanced and improved to reflect the technology shifts and to meet consumer demand. The NeufBox Evolution for example is compatible with Fiber, Femto, 3G and ADSL. Moreover, the NeufBox Evolution is "green": it has an economy-mode function, it is the smallest box on the market and has many functions that provide enhanced Quality of Service and problems diagnosis.
The future versions of the box will integrate new functions to adjust to cloud services and to satisfy the multi-device expectations both at home and when out and about.
C&S: France stands out as a special case when it comes to fibre rollouts, thanks to its system that combines a desire to promote private investment and infrastructure-based competition wherever feasible, with co-investment between operators in medium-density areas and public financing where necessary. What are your views on this system? Do you think it contains elements that could help accelerate the switch from copper to fibre-based access?
J.-B. L.: As a general standpoint, we are obviously willing to invest in fibre infrastructure. SFR is already investing and this investment is going to increase to become massive. However each decision must be driven by a strong sense of pragmatism.
That is why we believe the best way to achieve fibre-roll out in France and, more generally in Europe, is via co-investment. We strongly advocate this model since this is the only way for European actors (both private firms and public authorities) to pool their capital in the most efficient manner possible and share the investment risk.
We are about to take some important decisions in this field, so I guess it is not the best time to have a look at what has been done yet: we have to look forward and focus on how to give a boost to fibre rollout objectives.
Short biography:
Jean-Bernard LÉVY was appointed Chairman of the Management Board of Vivendi on April 28, 2005. He previously served as Chief Operating Officer. From 1998 to 2002, Mr. Lévy was Managing Partner, Corporate Finance, at Oddo Pinatton. He was also Chairman and Chief Executive Officer of Matra Communication from 1995 to 1998. From 1993 to 1994, he was Chief of Staff to Gérard Longuet, the French Minister for Industry, and Foreign Trade. From 1988 to 1993, he was General Manager, Communication Satellites, of Matra Marconi Space. From 1986 to 1988, Mr. Lévy acted as Technical Adviser to Gérard Lonquet, the French Minister for Postal and Telecommunications services and from 1978 to 1986, he was an engineer with France Telecom. Mr. Lévy is a graduate of École Polytechnique and Telecom ParisTech. He is a Board Director of Vinci, Société Générale and Institut Pasteur.
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Contact
COMMUNICATIONS & STRATEGIES
Sophie NIGON
Managing Editor
s.nigon@idate.org
Interview with Hervé BARGE
COMMUNICATIONS & STRATEGIES No. 83, 3rd Quarter 2011
ICTs and health
Summary : The papers presented in this issue shadow the diversity of approaches related to ICT implementation within the health system. The particular position of health within our economies, the weight of public financing, the role of public authorities in the decision process to launch a new product and change health delivery systems, the vital issue of improved outcomes for users of health services, and the specific relationship between them and healthcare professionals: all of these issues help to explain why the health sector is often “late” in terms of ICT penetration.
The two interviews illustrate these challenges from an international and institutional perspective, with Fredrik LINDEN, Project Coordinator, Smart Open Services for European Patients, epSOS, and from a regional and operational perspective with Hervé BARGE, Chief Information Officer of the French regional health agency.
Exclusive:
Interview with Hervé BARGE,
Chief Information Officer of the French regional health agency
Conducted by Robert PICARD (CGIET)
C&S: The French region of Franche-Comté is regularly cited as being on the cutting edge of the modernization of health information systems. How did this come about?
Hervé BARGE: Since 2000 there has been a great deal of willingness to modernize the health information system in the Franche-Comté, first on the part of the Agence Régionale de l'Hospitalisation [ARH, regional hospital care agency] and then the Agence Régionale de Santé [ARS, regional health agency]. Senior public servants at the head of these administrations did not simply guess what they should do, but listened to a majority of health professionals who regularly condemned the lack of resources invested in information systems and tools for telemedicine.
The recruitment of a Chief Information Officer (CIO) specifically for information systems was a good first sign. In a number of regions, it has often been observed that individuals in similar positions were required to perform many other tasks and were unable to devote themselves completely to this specific job. In my opinion, this point is one of the keys to success. The hierarchical position of the CIO, attached to senior management or the agency director, underlined the strategic importance of the information system to governance.
All regional stakeholders quickly understood the potential benefits of modernizing the information system and it has become a new source of power. Physicians quickly recognized that besides better case management for the patient, the information obtained by a global information system could be a gold mine. This "gold mine" would not only benefit the pharmaceutical industry, as some hinted; it would also benefit the quality of case management, ability to benchmark, statistics on actual activity, epidemiology and especially the evaluation of professional practices.
For some, Franche-Comté has some disadvantages due to its size and remote location, but in fact it is precisely its size and remoteness that made it possible to build on the regional traditions of co-operation well-developed in the traditional agricultural sector: communal cheese dairies is one demonstration of our ability to join forces. Franche-Comté has a population of only 1.2 million inhabitants; if we hoped to be able to invest in our entire region, we needed to pool our strengths and resources in order to develop the strategy wisely and show that this strategy could be efficient.
C&S: What specific difficulties did you overcome in order to move forward?
H. B.: The problems in Franche-Comte may seem smaller but are nonetheless the same as in all regions; the competition between certain personalities and structures is just as intense. Thus, certain engineers or information department managers did not understand that the profession of Information System Director in hospitals was destined to evolve just like the other professions of the field, e.g. towards more outsourcing, more skills and increasing specialization. After attempting to explain what could be accomplished by pooling our strengths, decisions occasionally had to be made bypassing entrenched stakeholders so as to maintain our momentum and not to drain our energy in unproductive infighting.
You can lead a horse to water but you can't make him drink… So, in 2004 after four years of collaborative work with two working groups (one technical, the other medical), initially without any legal framework, together with all the directors of private and public institutions in Franche-Comté and health network coordinators, one of the first Groupement de Coopération Sanitaire [GCS, health cooperation group] health information systems in France was created. This GCS was one of the first groups in the health information systems to benefit from shared resources.
Another stumbling block projects encounter is that a strategy is announced, but the financial means aren't there. The ARS has often funded between 50 and 100% of certain projects or services managed by the GCS Ensemble pour la modernisation des systèmes d'information de santé et le développement de la télémédecine [EMOSIST, Group for the modernization of health information systems and development of telemedicine]. ARS's choice to fund operating budget up to a total of 50% of the GCS EMOSIST was also carefully thought out. This solution has the advantage of striking a balance between oversight by the ARS and the GCS members, i.e. health networks as well as public and private hospitals. Even though the tensions inherent to all complex structures might occasionally arise, it appears that after five years a balance seems to have been struck. I also believe that a project approach made it possible to develop a real dynamic. It didn't take long when payroll costs were increasing, for some people to think that there were too many "projects" and that they should be prioritized, even if this meant cancelling some. In the end, the GCS was a structure that enabled some "projects" to be brought together under a single heading of "SERVICE" and that overall the remaining projects were strongly demanded by members who provided ample funding. The evolution of this structure therefore has a life of its own, with periods of growth and periods of doubt; this is as it should be given that this is a new GCS. This concept of service is also an indicator of the value this structure creates.
C&S: Exactly how can we measure the value added by this innovative approach?
H. B.: This shared approach made it possible to quickly address the issue of value. Some institution directors and computer specialists were occasionally negative, along the lines of "nothing works on the regional level, the only thing that works is what I do at my place." It took the support of numerous medical teams as well as time for a certain number of projects to contradict the Solow paradox. In fact, everything takes time: it takes time for a system with a global approach to become efficient after it's set up (many applications are not designed to communicate with each other), time is needed for deployment, and time is needed for users to take ownership of them. When users hardly ever mention problems, other than to ask for upgrades, it can be said that things are working. We can only regret many early evaluations conducted with no respect for logic and within timeframes that do not take into account how long it takes for users to take ownership of the practices. What goes for the economy also goes for health; new evaluations and publications were needed to prove that the Solow paradox was wrong.
We can always add up the material and immaterial value of investments in our information systems, but I think that it is much more meaningful to look at the loss of value due to malfunctions in the health system to better understand the contribution of technology. We need to ask the question of what is the cost to society of a health care system, a shared patient record, and a medication system that comes to a halt and from which information is no longer available. How much would it cost if a tool for managing CVA (stroke) cases failed, even if for only one hour? Health professionals who have experienced breakdowns lasting a number of hours are staunch allies when talk turns to security and accessibility of data. The word "investment" in secure access to medical information no longer sounds like unproductive expenses and costs as it did prior to such breakdowns.
C&S: What have you developed in your region in order to have the right information at the right time?
H. B.: In Franche-Comté, certain patient cases are 100% computerized. In other words, the identities of the patient and health professional are closely linked, thus allowing complete patient-centred traceability. Subsequent to the heat wave of 2003, and under the impetus of the Direction Générale de l'Offre de Soins [DGOS, general directorate of health care supply], all Service d'Aide Médicale Urgente [SAMU, emergency medical services] are completely computerized and able to electronically bring up thousands of items of useful information every day. In our region, we went further by incorporating the deaths from the region's admitting departments for all public and private institutions, and we have an infocentre where information is sent in to us every 15 minutes on the region's emergency activities, hence avoiding numerous entries and reprocessing. This query approach has been generalized to apply to all applications so that there would be no more guesstimates of the type "does it work or doesn't it; is someone there or not?" The query tools enable analysis what is going on in the system.
C&S: What progress is being made in Franche-Comté on the patient's medical record?
H. B.: Since 2000, our region has been working on a shared medical record that complies with international interoperability standards. All the work on the Dossier de Coordination Régionale [DCR, regional coordination record] enabled us to easily get the national Dossier Médical Personnel [DMP, personal medical record] and to work with the DMP Groupement d'Intérêt Public [GIP, public interest group] and then the Agence des Systèmes d'Information Partagés de santé [ASIP, shared healthcare information systems agency] to give them the benefit of our experience.
Beyond the national project, regionally coordinated records make it possible to improve sharing of information between medical applications and health professionals in the interest of both patient and health professional. The regional information system allows the various health professions to share the greatest possible amount of important information. The objective is to be as secure as possible while permitting better traceability and sharing of medical information. There is no competition between these records and the national DMP. The DMP is well defined; the legislative system wanted it and it is the patient's personal record. The DCRs are instruments that can supplement the national DMP as needed, but above all they are instruments to allow exchanges between the numerous health software programs. A few applications in the region operate perfectly and some manage 100% of patients' cases such as Bonnes Pratiques en Chimiothérapie [BPC, good practices in chemotherapy], a software package thought up and designed by the Besançon Centre Hospitalier Universitaire [CHU, university hospital] and developed by the SQLI database management software. This regional tool makes it possible to prescribe, make, and dispense all of the region's chemotherapy. This enables the region's patients and professionals to move between health structures without interruption in case management, by using national and international repositories. This software also makes possible exchanges between applications that manage the multidisciplinary meetings and the cancerology communication record without having to enter data twice. The atypical antibody screens (transfusions) sent by transfusion centre-specific programs to those specific to the blood bank also allow greater security for caregivers by preventing transfusion-related accidents.
C&S: Let's go back to the strategy in Franche-Comté. How did you go about developing it?
H. B.: This high degree of interoperability permits implementations that are interconnected like the pieces of a puzzle. As long as the final target is known, a project can be implemented if it is centred on common practices and the components (patient identities, health professional identities, directories, patient records, etc.) defined in detail in the Integrating the Healthcare Enterprise (IHE) approach. We have implemented our entire strategy using two techniques: The Proof of Concept (POC) to quickly show what works to gain the support of health professionals; and the "siphon technique", meaning going ahead and initiating the POC and the following phases before everything is in place. This speeds up production without committing total funding. Even though it is necessary to have some idea of what the project will ultimately cost, funds are committed gradually and indicators defined to track what is being funded and for which results. On the payer's side, such as the ARHs, there is less risk. If the phase 1 commitment is not successful, there is no point in committing further funds, and it is easier to accept losing a small amount of money. I have often observed that in the case of failed projects, the entire budget envelope had been released and there is no room to manoeuvre, and in numerous other undertakings, project leaders wait for all the lights (and there may be many) to turn green.
C&S: What are you are working on now?
H. B.: After ten years of work in the region, we are currently setting up new knowledge and technology transfer structures in a Living Lab approach with an institute specifically created for this purpose. The Institut Edouard Belin is setting up industry/user partnerships centred on the theme of seniors' independence. Numerous projects are underway and we are implementing an R&D program with an information system that goes to where the patients live. In addition to the educational aspects, this Living Lab aims to provide a framework in which to reflect on and implement prototypes created by industry partners. Health professionals are not the only ones participating and giving feedback; the users and potential patients do as well.
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