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Norway's Telenor seeks salvation in the cloud

By Douglas Busvine

BARCELONA (Reuters) - Picture an old telephone exchange with operators connecting calls manually, add vast computing power by putting it on the Amazon cloud, and you have Working Group Two -- a new platform for hosting 'virtual' mobile networks.

Spun out of, and backed by, Norway's Telenor in collaboration with U.S. network gear giant Cisco Systems, the project amounts to a radical bet on reinventing the mobile operator model in order to save it.

Mobile operators are under pressure as people switch to free messaging apps including Facebook's WhatsApp and regulators crack down on revenue earners such as roaming fees.

Achieving economies of scale by merging to spread the heavy cost of network investments is difficult too, because in most markets there is just a handful of players and anti-trust regulators would block further consolidation.

"This really is us trying to disrupt ourselves," Telenor CEO Sigve Brekke told Reuters in Barcelona, where the Working Group Two (WG2) project was unveiled at the Mobile World Congress this week.

Telenor is stepping out of its comfort zone of hardware and networks, and into software development. Its goal: to beat Silicon Valley to the punch in creating a 'platform' capable of hosting multiple virtual mobile networks.

The platform model - on which social network Facebook and e-commerce giant Amazon are based - can be quickly ramped up, and once such a business achieves scale its ubiquity can soon drive competitors to the wall.

"Let's hope for Telenor they get a business case out of it," said Danish industry analyst John Strand. "It may be better that Telenor cannibalizes itself than someone else doing it."

The move comes as Norway's second-largest company, active in 12 countries across Europe and Asia, plans to cut 6,000 jobs and streamline operations in order to stay competitive.

FROM FRUSTRATION TO INSPIRATION

The idea emerged four years ago when the development team at Telenor figured out a way to send and receive mobile text messages from a computer, rather than a phone, on its Norwegian network.

But when they found it impossible to adapt the solution to Telenor's other networks, they realized they needed to solve a bigger problem, WG2's chief technology officer, Werner Eriksen, told Reuters.

They decided to tackle the issue of how applications 'talk' to the network and within six months had built a first version of the solution that went on to became WG2.

Telenor span out the project last September, bringing in a Cisco-backed investment fund. This week it announced that its own mobile virtual network operator (MVNO) in Sweden, Vimla, had become the first client of WG2.

PAY AS YOU GROW

Breaking with Telenor's hardware-centric legacy, the cloud-based approach has two big advantages, said WG2's Chief Executive Officer Erlend Prestgard.

First, the platform can be developed to run on top of multiple mobile virtual networks. Second, no up-front investment is needed to set up a new MVNO - an attraction for potential market entrants.

"It's 'pay as you grow'," Prestgard, the only member of WG2's dozen-strong team who isn't an engineer, told Reuters in a demonstration at the Cisco stand in Barcelona.

The platform's standardized protocols make it easy to deploy customer-facing apps. WG2 features, for example, a product called Cisco Spark that allows users to switch between making a mobile phone call and full-scale online collaboration.

Asked about prospects for follow-on sales for WG2, Telenor CEO Brekke was candid: "The short answer to that is I don't know."

But, he said, Telenor considered it vital to challenge its own business model before others do so.

"It's test and fail," he told Reuters. "The biggest news is our willingness to try out concepts that may disrupt our current legacy."

(Reporting by Douglas Busvine; Editing by Keith Weir)