 | Issue: | Latin America 2008 |
| Article no.: | 7 | |
| Topic: | Monetizing networks | |
| Author: | Andrew Coward | |
| Title: | VP, Service Provider Marketing & Partnerships | |
| Organisation: | Juniper Networks | |
| PDF size: | 249KB |
About author
Andrew Coward is Juniper Networks’ Vice President for Service Provider Marketing and Partnerships; he previously ran the company’s global service provider and enterprise operations. Prior to Juniper, Mr Coward co-launched the Asia Pacific operation of Unisphere Networks. When Juniper acquired Unisphere, Mr Coward continued to lead the engineering team as regional CTO. Mr Coward has lived in Asia for ten years, working with service providers, enterprises and governments across the region on IP technologies, first with Bay Networks and later with Nortel. He has designed and planned some of the largest IP networks in Asia Pacific. Mr Coward started his career in government as a network engineer and progressed to the role of Network Manager responsible for building-out one of the first United Kingdom nationwide government backbone IP networks. Later, with Xylogics Ltd, he was responsible for delivery of the first dial Internet access services in North Asia.
Article abstract
The voice revenues telecommunications service providers have depended upon for so many years are declining and data revenues are growing. Nevertheless, average revenue per user is declining due to competition and the third party services they carry over the network, but do not profit from. By leveraging their networks, and their ability to provide top-notch quality of service for a particular application, they can work with content and application providers to offer a better experience and share the resulting revenues.
Full Article
For telecommunications service providers the world is changing rapidly. The rapid decline in voice revenues and profits, coupled with growing competition and the huge growth in Web and Internet traffic, clearly show that the services and telecom business models on which service providers once thrived now warrant serious rethinking. Fortunately, their network infrastructure remains an important differentiator even in today’s demanding and hypercompetitive marketplace. This ‘network advantage’ can be leveraged to pursue a number of different business models that add value over and above the bit pipe-based models that have prevailed to date. Armed with the appropriate technological enablers in their network, the changing telecom landscape can actually offer new opportunities for those service providers ready to take the best of their legacy attributes and reinforce them with state-of-the-art technologies. Changing value chains A primary challenge facing service providers today is how to insert themselves into the revenue value chain, which has changed dramatically during the past few years. Not very long ago the value chain was fairly simple; consumers paid the network service provider, which in turn paid the infrastructure vendor, which in turn paid the infrastructure component vendors, and so on. Today, end users have many choices for applications and content. In many cases they deal directly with the third party offering the services and bypassing the service provider altogether. Directly purchased services, commonly called over-the-top (OTT) services, have decoupled revenues from the growth of traffic on the network. Service providers must support the delivery of OTT services, but they are typically bypassed in the revenue chain and therefore do not receive any revenue for delivering the service to customers. This occurs, primarily, because they do not add any value to the delivery of the services; they simply delivered them over their best effort network. Monetizing the network To avoid being commoditized, service providers need to find a way to monetize, or extract maximum value from, their networks. Monetizing the network requires a two-pronged strategy. Service providers must relentlessly pursue economic optimization, and drive average revenue per user (ARPU) growth by aggressively expanding market, service and partner opportunities. A complete business model transformation is required, one that results in an increased range of innovative new services for us as consumers. Ivan Seidenberg, CEO of Verizon Communications, recently said, “We don’t have to own every service. We just have to package a lot of them and help the customer find the things they like.” This is the essence of the distributor model, but with the added feature of delivering the services the way the customer wants, or the way the service requires them to be delivered. This capability will give the service providers the opportunity to extract value from their networks, and gives consumers the choice of services they desire along with the quality and performance they require. Content and application creators might be willing to partner with distributors to ensure that their content and applications are delivered to customers with the appropriate level of quality. Customers are more willing to continue to use an application if their experience meets or exceeds their expectations. Likewise, customers are likely to go elsewhere if an application is not delivered to their satisfaction. Service providers should attempt to identify the OTT services on their network where they can add value – and work with the OTT provider to deliver this value to their customers. One example of how this could work is the Amazon Unbox movie download service. Currently, customers can download movies to TiVo boxes through the Amazon Unbox service. However, due to the size of the movie file, downloads can take an hour or more depending on the speed of a customer’s connection and the status of the network. If a service provider were to work in partnership with Amazon, the provider could offer customers a premium service, where for 50 cents per movie they would be guaranteed to receive the full movie download in ten minutes or less. Beyond triple play In order to move beyond the current service model to a true value-added distributor model, many service providers are rethinking how they view and market their network. Some of the guiding principles include: • Quality of experience – The overall value that can be extracted from the network is directly correlated to the quality of the experience the network can deliver to your customers; • Best effort continues as a best effort – Stop overbuilding the network to support services that do not add value, and let best effort services remain best effort. This ensures that value can still be extracted from the network for premium services; • Applications and the network must interact – Implement a network that lets applications ‘tell’ the network their requirements for delivering the expected experience to the customer. This requires communication between the applications and the underlying network. Frameworks such as Web 2.0, Web Services and IMS can be leveraged to make this happen; and • Service- and customer-specific SLAs (service level agreements) – The service provider must deliver a micro-SLA for the delivery of the application or content to customers. A micro-SLA is an SLA on a service or flow. The above example was time-based for downloads, but it could also be measured by the amount of packet loss or network jitter in a VoIP or video service. A micro-SLA adds significant value – and where there is value, there is revenue. This micro-SLA is critical to making the value-added distributor model successful. Establishing these guidelines will help service providers to drive competitive differentiation and will keep subscribers satisfied by delivering a broader range of applications and content with a high quality and better experience. The overall goal in enabling the value-added distributor model is to build a network that can deliver any application to the customer and either control the experience for the applications where the customer is paying a premium, or provide true best effort delivery for non-premium applications. Premium applications can be either applications that the service provider controls and hosts on its own network (on-net applications) or applications that are hosted by the partner (off-net applications). The key is the service provider’s ability to provide value, and new service opportunities, to the application by delivering it with the appropriate customer experience. In addition, best effort applications are delivered with a true best effort networking experience that is not oversubscribed. As the telecom industry is reinventing itself from a pure telephone services provider to new business models, there will likely be a major shift for service providers in how revenue is generated over the next ten years, and how consumers and businesses see their network service provider. This shift in revenue will challenge service providers to evolve to new business models to ensure they are capable of offering value-added services to their customers. The value-added distributor model is one possible model that provides a path for service providers to become a critical part of the revenue chain – generating new revenues from a variety of applications while driving consumer loyalty and competitive differentiation. Recognizing the shift that is taking place today will help service providers successfully navigate the changing market and ensure the high-quality delivery of a range of services that go beyond a basic triple play offering.
