Home Latin America II 2003 Convergence–The day before

Convergence–The day before

by david.nunes
Antonio Augusto FirmatoIssue:Latin America II 2003
Article no.:3
Topic:Convergence–The day before
Author:Antonio Augusto Firmato
Title:Executive Director Fixed Networking
Organisation:Alcatel Telecomunicações, Brazil
PDF size:128KB

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Article abstract

Broadband, which can offer multiple services through a single provider, is a driver of convergence. This is transforming the traditional roles of the telecommunications sector’s operators and manufacturers and re-distributing the market amongst players. Vendors will no longer be factory-centric organisations; they will outsource fabrication to specialised manufacturers. The operator’s access and transport businesses, now commodities, will shrink. Broadband will transform networks into distribution channels for multimedia content, applications, and direct sales, whilst content providers and aggregators will become major players.

Full Article

The telecom industry has been talking about network convergence since the nineties. A superficial observation would be that a lot has been said and discussed, but nothing has happened. Nothing could be further from the truth. An old riddle gives us some hint of what is really happening: “A noble occupied his time raising water lilies and exotic fish. While preparing to depart on a long trip he cautioned his gardener to keep an eye on his favorite pond. “The pond contains lilies that double in area each day. If left untended, they will cover the entire pond in 30 days and cut off the exchange of gases with the atmosphere that my fish require.” The gardener carefully watched the pond for days, but observed little growth. He decided to wait until the pond was half covered before cutting back the lilies. On what day did that occur?” Like the gardener, the telecom industry watched the “pond” for days, but observed little convergence. Imagine what would happen if the gardener after checking the pond and finding it only ¼ covered, decided to spend a few days visiting a friend. After all, it took 28 days to cover ¼ of the pond, what difference could a few days make? The telecom industry’s pond is at the 29th day, the pond is half covered. Convergence is only one day ahead. Half of the pond was covered in 29 days, now the other half will be covered in only one day. Let’s take a closer look at some of the changes that happened during the last few “days” and were not noted. In the beginning of the nineties, when the first mobile phone networks were deployed in Brazil, a subscriber paid twenty thousand American dollars for a phone. A mobile phone was a status symbol for a small number of people. Today, a cell phone is a mass product; it is essential for a large number of people. The number of mobile users now surpasses the number of fixed phones and many people do not know how they ever lived without a mobile phone. Changes become part of our daily lives and we do not notice them. Words like Internet, intranet and email that less than ten years ago were used only in the academic world, suddenly became a vital part of our lives – “The network is down, I can’t work.” 56 kbit/s dial up, an impossible dream of the past, is already known as low speed access. ADSL use is growing and soon many people will be asking: “How we were able to live without ADSL?” The 29th day is the day before – what is happening today? DSL Growth According to the latest Point Topic report, issued in June, the number of DSL lines worldwide reached 41.4 million lines on March 31, 2003, an increase of 15.2% for the quarter. In the United States, broadband is likely to reach the 25% penetration mark more quickly than PCs or mobile telephones did. European operators are already activating ten thousand new DSL users per day! Reports show that 30% to 50% of their new broadband subscriber had not previously used Internet at home. DSL is reaching critical mass. DSL is one of the big drivers and enablers of convergence. Broadband can offer multiple services through a single provider, as well as unique services and service bundles not available elsewhere. New, compelling, services are rapidly being deployed. Personalized services are demanded and created. Information, communication and entertainment are the name of the game. Together with broadband entertainment, broadband TV and video, music and gaming services are moving from niche to mass markets. Consumer electronics vendors are already selling new product lines based on broadband. From stereos to TV, from set-top-boxes to home network devices these new products all use DSL, WiFi or a mix of both. DSL, together with consumer electronics, is enabling convergence at home. On the other hand, broadband connected homes are becoming a business per se, pushing DSL use, since there is an ADSL router in every connected home . Changes in the Value Chain of the Telecommunication Business Like other sectors, the crisis also struck the telecom industry. Even though the industry is emerging from it, there is a tendency to think it will never end and to credit everything that is not understood to the crisis. In fact, structural changes, quite separate from the crisis, are occurring which affect the telecommunications sector in ways never seen before. These changes, unlike the crisis, are here to stay, and will transform at least three aspects of the telecommunications business: the players; the perimeter of the business; and the distribution of activities and markets amongst players. Re-Defining the Player The number of players in the sector is increasing and the share of each type of player is changing with time. The pre-crisis telecommunications sector had two major players: the operator, or telephone company, and the manufacturer of the network gear. The operator created 90% of the value in the chain, from traditional access and transport services provided in a standardised manner to all end users. The manufacturer designed and supplied standard products to these operators and organised itself around factories, and sought to maximise manufacturing efficiencies. The telecommunications sector will be quite different in the years ahead. By and large, vendors will no longer be factory-centric organisations. Manufacturers specialised in products with short life cycles, enhanced manufacturing quality and dedication to the production of a specific type of product, will tend to replace vendors in this part of value chain. Traditional access and transport business, now commodities, will shrink in value and in importance within the value chain by as much as 25% by 2006. Broadband technology will transform the telecommunication networks into distribution channels for multimedia content, applications and direct sales. Broadcasters will soon provide video, games, multimedia communications, and a variety of secure monetary transactions. New players are increasingly important in the telecommunications value chain. They are forcing a re-distribution of the market among five players. Content providers, content aggregators, and specialised manufacturers are the three new players. The industry should grow 50% between now and 2006, and the distribution of the market among the players will change considerably. (See figure 1) Operators, partnering with content players and vendors, will be well positioned to increase their participation in the market. Shrinking Perimeters Technology is adding intelligence, bandwidth and storage to the networks. Intelligence, storage, bandwidth handling capabilities and wireless capabilities are being deployed in customer premises equipment (CPE) and, as well, in hand held devices. These broadband, wireless and IP enabled termination devices give the end-user new options, including that of using the operator only as a transmission “”pipe”” or bandwidth provider and not as a telecommunications service provider. Service-rich applications might be handled outside of the network. The migration of services from the network to customer premise equipment changes the perimeter of the telecommunications domain. Voice over IP (VoIP) is today’s most evident manifestation of this migration. As the multimedia environment grows, service migration from the network to the customer threatens operators who must fight to defend the perimeter of their business. Re-Distribution of Value Chain Activities The detailed analysis of all activities of the value chain and the distribution amongst the five new players is quite complex. However, by examining a few of the activities performed by the operator, still the most important player in the sector, we can derive some important conclusions. Operators are becoming service-centric organisations as opposed to the network-centric organisations we know. Many activities, once considered core business – installation, commissioning, operations, network asset management, etc. – are now being outsourced, usually with no decrease in quality and increased productivity. The operator’s service structure is being outsourced much as the vendor’s factory was. Other activities are also changing their nature. Operators can no longer do all of their technology and network planning for multimedia alone. Partnerships with preferred vendors have helped operators rise to the challenge. During the service creation cycle, once again, partnering with vendors and content providers is the trend. Operators even have to share end-user control and contact with their content provider partners. This, not very long ago, was unthinkable. Operators need to provide personalised service for each and every identifiable market segment. Each segment needs different service bundles, has its own cost and price structure, and its own credit risk profile. In the future, we might well see customised packages for each individual customer. Partnerships with preferred vendors, and with large numbers of content aggregators and providers, will require full-time professional management and will be critical to the operator’s success. Conclusion Like the water lilies, growth is geometrical. Full convergence is only one “day” away. Change and innovation will be faster and more drastic. New services and concepts will appear and others will fade away. Convergence will change the way telecom companies do business. The value chain will be completely different. Partnerships, personalized services flexibility, adaptability, and the ability to anticipate opportunities will make the difference. Operators can reap benefits of change if they are prepared, but there is no time to waste. There is only one “day” left.

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