|Topic:||IP services: revolution rather than evolution|
Anders Gustafsson is the Chief Executive Officer of Spirent. Prior to joining the company, he was the Senior Executive Vice President – Global Business Operations of Tellabs, a leading US network equipment manufacturer having previously served as President of Tellabs International and President of Global Sales. He first joined Tellabs as Vice President and General Manager of the Tellabs EMEA sales region based in the UK. Prior to joining Tellabs, he spent eight years at Motorola, Inc. in senior sales and management positions within the company’s mobile infrastructure business in Europe and Asia. Anders Gustafsson has an MBA from the Harvard Graduate School of Business and an MSc in electrical engineering from Chalmers University of Technology, Sweden. He was also awarded a Fulbright Scholarship and studied at the University of Massachusetts.
The telcos are just beginning to face the coming IP-driven market and take steps against cable operators competing for their core business. All service providers are working to offer customers a one-stop shop, cable operators are offering data and VoIP, and telcos will soon offer IPTV. Internet Protocol (IP) may enable cheaper services, and let telcos compete with the cable companies, but the market cannot face a price war – the war will be about the quality and variety of services.
Quality becomes crucial as communications converge and providers are forced to mix and match. IP infrastructure has matured to the point where the delivery of compelling, reliable and valuable services has become commercially viable. This has resulted in the beginning of a shift for many in the communications services supply chain, as content owners and network operators begin to mould their business models to make sure they remain competitive. In a world where the time from innovation to public acceptance of new technologies and services is shrinking, traditional communications companies know that to successfully launch services outside their traditional remit it is no longer good enough to fight on cost. Internet Protocol (IP) may enable cheaper services, but the market is not about to face a price war. The quality of IP services is the key. Nowadays the most non-technical of consumers are talking about the benefits of voice and video over IP, as their broadband connections become a gateway to cheap communications and diverse entertainment packages. Sleeping giants This IP revolution has been powered by two factors: the rapid spread of cheaper broadband and the entry of cable companies and of new service providers, some of whom are engaged in an aggressive bout of consolidation. Telcos have been relatively slow to wake-up to the true potential of networks that have carried the UK’s circuit-switched telephone calls for so many years. Now that they have, though, they are determined to give these new entrants a run for their money, and are offering video and other services as quickly as their infrastructure permits. Unsurprisingly, all service providers are falling over themselves to ensure that they are able to offer their customers a one-stop shop. Still, those who think that the IP revolution is a guaranteed meal ticket would be wrong. The battle for customers With the advent of IP, the battle for consumers is likely to intensify rather than abate as more companies offer a wider range of services. Customer churn rates are already high within the telco industry, and these are likely to climb even higher once the home entertainment battle lines have been drawn. As call charges become irrelevant – the Internet takes no account of geographical distance – service providers will look to hook in customers through other services, with IPTV providing the biggest pull. The new order is likely to give rise to a market place of Darwinian ruthlessness where survival will depend upon building up a critical mass along with sustaining profitability as a defence against aggressive predators, both at home and abroad. The battle to attract and retain consumers is unlikely to be fought on price alone. Therefore, telcos will need to improve their financial performance by reducing operating costs while boosting network efficiency. It is here that we will witness a crucial trade off. Service providers will need to evaluate what elements of the network they have to upgrade and what elements are already sufficiently efficient to keep operating costs low. On a positive note, it is also likely that Average Revenue per User (ARPU) will climb, as consumers shell out more money for premium services and operational benefits such as having a single ‘follow-me-anywhere’ telephone number. The readiness of the networks We have already witnessed a number of ambitious schemes to bring networks in line for an IP-based world by rolling-out high bandwidth fibre. BT has already started work on its 21st Century Network, a global IP infrastructure, based upon multi-protocol label switching (MPLS) that carries voice, video, data and Internet services on a single network. While in the USA, SBC Communications has launched Project Lightspeed to drive fibre deeper into its networks in order to provide customers with feature-rich IP services, including IP television, voice over IP and ultra-fast Internet access. Nevertheless, these super-fast networks continue to be some way in the future, and there are few signs that they will offer a wholesale replacement for the existing patchwork of networks. Clearly, the bulk of service providers are likely to retain the last mile as copper, and here it is essential that they avoid oversubscribing the network, which could lead to severe service degradation. In fact, the bulk of today’s infrastructure was designed to handle the more predictable and robust technology of circuit-switched telephony systems, so networks are often poorly equipped to deliver real-time IP applications. The quest for quality of experience The quality of the user experience will establish whether a provider will be able to retain and grow its customer base. All it takes is for the TV picture to degenerate as Beckham is about to score a crucial goal for England, and thousands of angry customers will switch off overnight for good. The significance of this is brought into sharper relief when you realise that it costs about $1,000 to recruit every new customer. Telcos will need to plan carefully how they upgrade their existing infrastructure to ensure that it can handle the demands of real-time applications such as Voice and Video over IP. Some telcos will be looking at reducing the length of the copper local loop by positioning the DSLAM (Digital Subscriber Line Access Multiplexer) closer to the customer to offer higher bandwidth to each subscriber and to be able to alleviate congestion. Others, such as Verizon, have opted to drive fibre to the customer. As these are expensive investments, it is of paramount importance that telcos test their networks to ensure they are ready for the demands of real-time IP services. The transient nature of IP technology means it is extremely difficult to troubleshoot problems and bottlenecks, as it is often not clear whether the customer’s equipment generated the glitch or if the network provider’s system, itself, is responsible. This situation is compounded by the fact that there continues to be a shortage of IP experts as the technology is relatively new and most engineers have honed their skills in the era of circuit rather than package switched networks. In the past, service providers have approached the problem of ensuring excellent quality of service on IP networks by throwing bandwidth at the problem. While this provides a fix, this sort of solution it is both expensive and inefficient – and will clearly eat into profits. The need for diagnostics The extent to which service providers introduce a regimented system of performance benchmarking and diagnostic tools that are able to isolate problems before their customers experience them, will be crucial in determining the success of these new services. The robustness of the network will depend on testing certain elements before deployment to ensure that they conform to required specifications. By peppering the network with diagnostic tools that provide detailed feedback on the passage of traffic, telcos will be able to nip problems in the bud, and ensure they do not occur again. It is worth remembering that IP problem resolution can be particularly difficult as trouble caused by a sudden burst of traffic might disappear after two seconds. Clearer diagnostics will also ensure that telcos are able to keep costs down by responding to a problem with the required level of expertise. In this way, they will be able to ensure that they can talk through minor problems over the phone, and need only send teams of experts to the field to resolve the more involved, technically complex, issues. The huge challenge facing telcos when delivering video over IP will be to ensure that they give the levels of service their customers require and expect, while offering a quality of experience that equals and even exceeds that of the cable companies. It is against this backdrop that telcos need to ensure that they have reduced their operating costs to the bare minimum, so that customer subscriptions revenues generate profit and go right to the bottom line where they belong. This will be a testing year for IP, but provided service providers take the right route, their future looks bright.