New Business Models? What New Business Models? Part I

At Comptel we spend a lot of time talking about the ‘new business models’ that telcos are adopting to face a new generation of communications, and how these are likely to affect their OSS and BSS. But listening to the UK business news this morning made me wonder how many of our challenges are actually new, or unique to the telecoms industry.

This two part series will look at some surprising similarities between the business challenges under discussion and some key issues of the day in telecoms.

The first piece concerned Tune hotels, a chain that offers ‘5* hotels at 1* prices’.  Tune has just brought its proposition to London. It consists of a basic room with a shower for a low, low price – averaging around £40 to £50 for a double room. Though you’ll pay more at weekends and other busy times, these prices are pretty good for London, where a single room in a 3* hotel would typically set you back over £100.

The rooms look clean and decent, but for your money, that’s pretty much all you get – a room. Anything extra is, well, extra – and not just breakfast. You want aircon? There’s a charge. TV or WiFi? Ditto. Towels? Toileteries? They don’t come for free either.

So it’s the budget airline model. You can keep it cheap if you’re determined and self-sufficient, but most people won’t and will rack up the bill with those many extras.

Listening to this, I couldn’t help thinking about the very similar issues we face in telecoms – in particular, how to attract and retain the customer in a competitive market, while at the same time turning a profit on our costly investments.

This seemed like a great example of a service that did all that. Customers can genuinely personalise and tailor it to their own needs and preferences, so they feel like they’re getting a good deal, a good service and that they’re in charge of their spending. Most importantly, it allows Tune to offer a great headline price while still turning a profit and to fully exploit the resources at their disposal. So how do they work this magic?

Their business model requires a flexible tariff, with many individually priced components and rates that can be easily changed, in response to shifts in the market. It requires a customisable offering – so that they can easily add or change the items available to the customer. It needs to let the customer self-configure their service and see it fulfilled on demand with minimal human intervention (got to keep those costs down!). It needs to support payment in advance and in real time – and immediate charging for those extras that suddenly seem important when you’re in the room.

As with budget airlines, it also needs to recognise and balance demand for, and availability of, resources – or ‘rooms’ as they call them in the hotel business – and control and exploit those two forces, with charging that maximises return in peak times and occupancy in off-peak times – or what we in telecoms like to call Policy Control.

So Tune seem to be well down the road towards effective control and charging which can balance the often competing forces of supply and demand, availability and price, in a way which attracts customers and turns a tidy profit. Are the legacy chains of established, incumbent hotels looking over their shoulders at Tune? You can bet they are…

In the next post I’ll look at the other item that was covered in that bulletin – what Buzz Lightyear has to tell us about how you hang on to customers and business in recessionary times… Stay tuned.