[Report] The Netphone: behind the first WAC phone

[The Netphone is a bold attempt by Smart Communications – one of the top 20 MNOs globally – to bring telco services to the mass market But will the Netphone’s blend of WAC and Android succeed?  Research Director Andreas Constantinou goes behind the scenes into the Netphone project to find out, as part of our latest case study, sponsored by Red Bend Software – click here for a free download]

VisionMobile-The Netphone: behind the first WAC phone

Smart Communications: sophisticated services in an unsophisticated market

Smart Communications – the telco behind the first WAC phone – has over 50% market share in the Philippines with 46M wireless subscriptions, which puts them within the top-20 operators globally.

Smart has a record of service innovation that is akin to what operators in North America and Europe have achieved in more developed markets. Smart has one of the widest service portfolios among global mobile operators, including mobile payments, mobile banking, money transfer, mobile streaming TV, maps, push email and propositions for niche segments (e.g. MomsClub). Data services currently make up just over 50% of Smart revenues, as of Q1 2011, with the majority coming from the one billion SMS texts being sent each day. Smart Money, a service that allows users to pay for goods by transferring money from their bank account, was launched in 2001, and counts more than 8.5 million customers.

However, like many operators in developing economies, Smart is in a low-ARPU, pre-paid market. Some 99% of Smart subscriptions are pre-paid, with the blended, pre-paid ARPU reported at just 169 pesos ($3.9 USD) in Q1 2011.

Faced with decreasing ARPU in a competitive market, Smart has embarked on a handset-led strategy to increase its revenues by bringing over-the-top services to the mass market of pre-paid customers.

An Introduction to Netphone: The first WAC phone

The Smart Netphone presents a new series of mobile phones and tablets developed by Smart, aimed at bringing smart devices and services to the mass market.

The first device – expected to launch in July, 2011 – is a rebranded, revamped ZTE Blade. This is the same handset that has been rebranded by Orange UK as the San Francisco and priced at 99 GBP (around $160) without contract, and not dissimilar to the Vodafone Smart handset by Huawei priced at 90 EUR (around $130).


Although Smart has not announced pricing, we expect its Netphones to target image-conscious, affluent Filipinos willing to spend an estimated $120-$140.

The Netphone comes with a suite of widget-like applications on the phone’s home screen that provide access to Smart and partner services:

Balance Check for prepaid users, which comprise 99% of Smart’s subscription base

Unified Chat, allowing users to message their contacts with emoticons and video animations. Chat integrates with Yahoo Messenger and Facebook

Sender Pays Email, which follows the SMS cost paradigm, but adds richer emoticons and video expressions to the messages

Connected Address Book, which integrates the user’s address book with Gmail and Facebook contacts

Global Directory, which integrates local Yellow Pages, and lists all users who use the Netphone (subject to privacy settings)

Social radio, which lets users share an FM station with a friend and tune into it in parallel

Smart Money, a service that allows users to pay for goods directly from their bank account or credit card

Emergency app, which offers one button calling to a doctor or other contact that can be assigned by the user

Partner apps like Jollibee (the number one fast-food chain in the Philippines), which allows users to browse the food menu, check out special offers, and order and pay for food delivery, directly from their phone.

Behind the scenes: the making of Netphone

The Netphone is not just an experiment for Smart. It represents a major effort for the operator, with a team 300 staff developing the phone series over the last 18 months, together with an array of tens of partners across six countries.

As a phone series, the Netphone hits several firsts: it’s the first phone to be based on WAC widget specifications (see next section); it’s the first fully customized handset from a mobile operator in an emerging economy; and, along with the Orange San Francisco and Vodafone Smart, it’s one of the first attempts to sell smartphones to prepaid users.

The Netphone has been designed with tangible revenue goals. Besides increasing own service revenues for Smart, the Netphone generates revenues by enabling partner transactions. For example, Smart gets a percentage of the revenue from every Jollibee fast food delivery transaction.

Smart lined up several partners to realize the Netphone concept, including ZTE and Huawei (handsets), Qualcomm (Android chipset platform), IBM, Oracle, Huawei (back-end integration) and Red Bend Software (software management over the air).

According to Smart, a key design decision has been using a software update technology that allows the Netphone platform and applications to be updated continually over the air (OTA).

With the OTA update technology, Smart can minimize the runtime age of the WAC-based platform runtime, ensuring that its Netphone applications run on the latest version of the platform. This addresses a common challenge faced by mobile application developers, who must port new applications to older runtimes. For example, about 25% of active Android handsets run on platform versions that are more than 18 months out of date, according to Google data released in May 2011. Similarly, 20% of existing Apple 3GS devices had not yet been upgraded to the latest platform version two months after the introduction of iOS4, according to app analytics firm Localytics.

Building on WAC technology

The Netphone series includes the first phones based on specifications defined by the Wholesale Applications Community (WAC). Launched in February 2010, WAC is a cross-operator initiative aiming to develop a cross-device platform and app store framework to drive operator services. Since its foundation, WAC has amassed 34 operator members and 39 other partners, bringing in a total of over $10 million in annual funding. Smart has a seat on the board of directors of WAC, alongside Vodafone, AT&T, China Mobile, NTT DoCoMo and other major telcos. The Netphone represents an important breakthrough for an industry initiative that has been criticized for its slow device rollout.

For Smart, WAC represents an industry-endorsed software platform on top of which its partners can build HTML-based applications (also known as widgets). Moreover, widgets are familiar to a broad base of web developers, who are accustomed to HTML or JavaScript development.

On top of the WAC widget specifications, Smart has layered its Looking Glass, a device and network technology umbrella that implements the array of Smart services on the Netphone.

On the device side, Looking Glass includes technology that WAC does not yet cover, such as over-the-air software updating (based on OMA DM SCOMO standard) and additional access into device capabilities like FM radio. On the network side, the Looking Glass technology umbrella provides access into Smart’s services, such as connected address book, advanced messaging, email integration, location-based services and Smart Money. Smart’s network APIs extend the GSMA One API specifications by adding XMPP for advanced messaging, billing & payment, and SIM-encrypted (DUKPT) transactions.

The agile telco: What other operators can learn from Smart

Many telcos have ventured into the world of handset software to deliver their own services and differentiated user experience. The most well-known examples are Vodafone (Live!, VFX, VSCL, 360), Orange, Verizon and, of course, DoCoMo. Smart also has had a tradition of developing services in-house, including Smart Money and its own airtime pre-loading solution.

Yet, Smart has taken a different approach from most operators. That approach offers three important lessons for the operator community.

Short tail. First, rather than deploying own-brand services exclusively, the operator has focused squarely on business partners with established consumer brands. It has allowed brands to deliver local consumer differentiation, and to share revenue on transactions. In so doing, it has provided brands with an additional channel to consumers.

Agile development. Second, the operator has used an agile development process. Rather than set specifications in stone at the beginning of the project, Smart’s featured Netphone applications have been iterating continually through a cycle of development, testing and user feedback. Moreover, rather than use the traditional RFI/RFQ ‘waterfall’ software procurement process, Smart has established joint operational and R&D teams with its many suppliers for Netphone, and has adapted the software specifications during the course of the Netphone project.

The project has already cycled through four iterations, averaging once every 3 months. Another iteration is planned before launch. “An RFP or waterfall development process clearly wouldn’t work here,” comments Ibasco, who has been a key proponent of the Netphone project since its inception.

Ongoing updates. Third, the over-the-air software update mechanism allows Smart to deploy new features and updates throughout the lifetime of the device. It also allows Smart to extend its addressable market for new services to the entire base of deployed Netphones, not just the most recent line-up of handsets shipped.

The future of the Netphone

Initial rollout goals are modest, with Smart planning to sell 200,000 Netphones by the end of 2011. Assuming Smart can hit sub-$100 price points in early 2012, it has a chance to rapidly ramp up these volumes, and address a substantial portion of its 46M subscriptions base.

For now, the operator community is looking at the Smart initiative with anticipation; Netphone marks the latest telco attempt at innovating in the era of software, by building on both the telco (WAC) and software (Android) worlds.

Read the full case study and tell us what you think.

– Andreas

Business model polarity: a win-win proposition for telcos and developers

[There’s 10s of telco programs targeting developers. But they all lack commercial traction. Isn’t it about time for telcos to question their approach? Guest author Jose Valles argues for a ‘polarity change’ in the telco business model and discusses the need to rethink the telcos’ relationship with developers.]

VM blog - Business model polarity

In life, we tend to take many things for granted; the Sun will rise and set every day and a compass will always point North. But we mustn’t forget that things do not, and in some cases should not, remain constant. The Earth’s magnetic poles are known to reverse their polarity every few hundred thousand years and then, the compass no longer points North, but South.

In business, we also need to question assumptions and remember that things do change. In the mobile industry, telcos (mobile network operators) have been around for over 20 years – many many generations in telco speak – but their relationship with developers has always been lukewarm at best ; telco APIs haven’t seen any significant take-up by developers.

What telcos need to do is to fundamentally question their assumptions about the software world and change their business model towards developers – in other words change the ‘polarity’ of their business model. Here’s why:

Some historical context

It is widely accepted that telcos desperately need developers; in today’s app economy, developers are a key source of innovation. If telcos want to capture value and innovation, they need to capture developer mindshare.

In the past 5 years, we have seen 10s of telco developer programs launch with different end-goals and flavours but with the same result: lack of commercial traction. Why have so many telco investments failed to see significant developer adoption? Failure is not such a bad thing, provided we can understand what went wrong and how we should fix it.

I would argue that most telco API programs have lacked two key ingredients; the lack of web mentality and a developer-centric business model.

The Web mentality

If you go to www.programmableweb.com, you can find thousands of APIs that allow developers to enhance their software and mobile apps with functionality coming from third party businesses. Functionality ranging from Google maps and eBay purchases to Tesco grocery lists, New York Times articles and pizza ordering can be accessed through cloud APIs. For a developer, this is an unprecedented source of content for their apps.

How do businesses like eBay, Tesco or NYT make it appealing to developers to use their APIs? How does the web world attract developers?

It’s the business model; in the web world APIs are often free (or freemium) so that developers don’t need to worry about upfront costs. It’s about ease-of-use; they’re also plug-and-play so that developers can experiment with functionality and see how it works. It’s also about adaptability; web businesses also adapt and change their APIs based on how developers use them.

That sounds easy. But what about telcos?

The telco mentality: the developer pays

If you go to any of the telco API programs that are out there and check their SMS API specifications, the first thing you will come across is the PRICE LIST.

Well, that may work if you have a strong developer brand or if the attractiveness of your APIs are top-notch but, honestly, that’s not the case with telcos. Developers dislike telcos – and I can say that working for a telco.

We telcos don’t have a good reputation in the developer space. And what do we telcos do?  We charge developers!

That’s not a developer proposition; it’s a wholesale mentality. And how do telcos think we are going to be able to compete in this space when much more agile voice application platforms like Twilio, Teleku, Jaduka or Vivox get fremium pricing and technology right?

The business model polarity change


If telcos are to grab developer attention, we need to see developers not as wholesalers – that is not a source of revenue but as the missing link between customers and telco services. When developers drive traffic or service usage we need not charge them, we need to thank them. And we need to charge not developers but end customers. We need to let developers focus on finding new ways to innovate with apps using telco capacities, not to worry about whether they have enough cash flow.

In other words, we telcos need to change our business model polarity; rather than using a “developer-pays” model, we need to move to a “customer-pays” model. If developers create apps that use telco APIs, they drive traffic or usage which benefit both the user and the telco. It’s not the developer that needs to pay – it’s the user.

VisionMobile blog - Business model polarity

Consider this; a developer builds an SMS-to-Twitter service; the user sends a new tweet by as a text to a shortcode. The reply, an SMS back to the user, is then paid by the developer. The developer is penalised for generating traffic to the network. This is the “developer pays” model and it doesn’t work.

In the “consumer pays” model, a single API allows the user to pay for both outgoing and return SMSes in one shot and the developer gets to use the API for free. The developer can focus on building a viral service and won’t have to worry about success costs.

This is a fundamental polarity change; instead of the developer paying for access to network resources, the consumer pays, and the network benefits from increased messaging revenues.

APIs like SMS or voice can also be exposed under both polarities. In this case, the developer can choose if they want to use SMS or voice APIs in a developer-pays or customer-pays polarity, depending on the nature of their app or service.

Winning with developers

We telcos need to experiment with business models. We need to learn from how developers adopt and use APIs and pivot our business model until we get to a proposition that’s truly win-win for both developers and telcos.

As the Earth’s magnetic poles shift naturally, telcos also need to question assumptions. We need to reverse the business model polarity for telco APIs in tune with the web and look for new ways to attract developer talent and new ways to satisfy customer needs. We need to fundamentally change the developer perception towards telcos if we are to succeed in helping telcos capture a share of the innovation out there.

– Jose Valles
Head of BlueVia

[Jose has been working for over 10 years in different parts of Telefonica. Since 2009, Jose has been building a concept under the working name “Open Telefonica”, which ended up bringing BlueVia to life. The BlueVia business model does not just make APIs free, but it also pays the developer. “If developers use our APIs, we pay them back for the usage”. Check it out.]