 | Issue: | India 2013 |
| Article no.: | 9 | |
| Topic: | Over-the-top with the telecom industry | |
| Author: | Shantigram Jagannath | |
| Title: | VP & Managing Director | |
| Organisation: | Airvana Networks, India | |
| PDF size: | 195KB |
About author
Shantigram Jagannath is the VP and Managing Director of Airvana Networks, India. Dr Jagannath started and built up Airvana’s engineering centre in India and has operational and engineering responsibility for the centre. Prior to Airvana, was a Senior Software Architect at Photonex. In Bay Networks, later Nortel Networks, Dr Jagannath was a senior architect in the software group. Dr Jagannath has eight US Patents in the areas of routing protocols, VPN protocols and algorithms for scheduling in high-speed fabrics. Dr Jagannath started his career researching the areas of congestion control, performance of TCP/IP networks and performance in ATM networks.
Dr Jagannath has authored several papers and has made several presentations and tutorials in the areas of Quality of Service, congestion control and TCP/IP.
Shantigram Jagannath has a B.Tech from the Indian Institute of Technology in Chennai, India, MS from North Carolina State University and a PhD from Columbia University in New York.
Article abstract
Bandwidth, storage capacity, the cloud and the growth of Internet access through mobile devices are changing the nature of cultures around the globe. Yes, the Internet has transformed the world’s businesses, but more important is the fact that anyone with a smartphone (almost everyone given plummeting prices) can access a world of apps and information. Network operators are the key to sustaining this incredible phenomenon, by monetising OTT services in ways that broaden popular access, and keep the revolution growing.
Full Article
The telecom game is changing at a breakneck pace. The industry is re-segmenting and players are working out new strategies to lead or just to cope with the change. The change, driven by technology and innovation, has made a wide range of new services possible. All aspects of the technology have improved enormously – bandwidth, processing capacity, storage capacity and user interfaces. These advances in technology are being further weaved together by innovative services to result in new and improved ways for the consumer to interact and to experience information and entertainment.
Improved storage technology and improved bandwidth has changed the nature of accessibility of information and entertainment. Content is no longer trapped in hard to access physical media. Digitized and indexed content has moved information from bricks and mortar libraries and video stores to computer-based on-demand and remote access. A deeper understanding of consumer needs has helped target the distribution of digitized content using an integrated distribution eco-system with sophisticated user interfaces.
Perhaps the most crucial enablers are the open standards that are the bulwark of the Internet coupled; with secure tunnelling this permits two parties to establish a secure connection over the open Internet. The open interfaces in data networking standards and software communication stacks, enables many different players to innovate and create new value and, with security on top, allows them to sell directly to their end customers and, using electronic payment systems, bill them directly for the services provided.
This broad category of services, known as ‘over-the-top’, or OTT services, now forms a big link in the overall value chain of the telecom industry. In 2011 the OTT service segment claimed about 10 per cent of the overall profit in the mobile industry and accounted for nearly 50 per cent of the overall traffic in both the fixed and the mobile broadband networks. The top OTT services are Netflix and YouTube, both providers of real time entertainment.
OTT is a growing industry segment, but in some markets (US, Japan and Korea) voice, SMS and plain data access services still generate greater revenues. Operators in different markets have different revenue mixes in these categories, however waning/flattening voice and SMS revenues and revenue growth in access and over-the-top applications is a common trend in all markets.
Network as a utility and network as a platform
The operators’ network infrastructure is the primary enabler of this ongoing transformation. The network has been morphing to keep pace with the changes in technology and the applications to go with it. Networks were originally set-up specifically for voice and SMS applications and all the monetization challenges associated with these services, including authenticating customer access, record keeping and billing based on the access privileges. With advent of data and open communications interfaces, the network has become a platform divorced from specific applications. The network is now a standard utility supporting an eco-system of devices and service networks that deliver over-the-top services to subscribers.
As a utility, the network consists of access (wire-line and wireless) the backhaul (electrical and optical, synchronous and asynchronous networks), ultra-long haul inter-continental links, with the peering relationships between service providers and the iNAPs in between. The challenges of this aspect of the operators’ business are:
1. to keep current with the technologies and scale of the networks and provide quality of service (QoS) for the growing usage and the growing number of users;
2. to find a way to monetize the growth so the operator’s earnings scale up with the network, and every additional investment in capital expense is justified with a return on investment.
The barrier to entry for this part of the business is high; it requires a huge investment to build a network with new technologies that keep operating expenses low, permit lower pricing, and provide better QoS than the competition.
LTE, with its flat architecture and higher access bandwidth, provides the lowest cost per bit, so it is the upgrade of choice. There are many choices, though, that impact LTE deployment and network topology. Unlike early 3G deployments, there are now choices for in-building coverage using small cells. The major infrastructure vendors have invested in building small cells for both enterprise and residential use to complement the macro network. Nonetheless, depending on the situation, operators must choose when and whether to upgrade to a new network or leverage the existing infrastructure.
The operator’s big challenge is to monetise their growth; they need to strike a delicate balance between costs and services to profitably bring more users to the network and boost revenues so they can invest more and grow more. If high pricing discourages users this could flip into a vicious cycle and stunt growth. Subscribers pay for value they perceive they are getting from the services provided, so good, ubiquitous, service is essential.
In India, for example, the average 3G user consumes nearly 400MB per month; 3G usage accounts for is about 21 per cent of the traffic – the rest is 2G. The access and pricing of 3G are the major factors in 3G usage. Operators have cautiously reduced the pricing of 3G and this has had a profound impact on until now accessed the Internet at Internet cafés and the like.
India’s broadband penetration, around 12 per cent, is still low. Wireless Internet access is growing faster than wired access. As the number of users grows, and broadband access becomes more common, content creation and the commercial delivery of such content as entertainment and services have grown apace.
Over-the-top: networks, content creation and delivery
Operators control voice and SMS applications and their delivery; they generate revenue every time subscribers use the network. Even with changes in the US market, such as unbundling and ‘fair sharing’ of infrastructure rules, there was no change in the operators’100 per cent ownership of both the transaction revenue and the customer relationship. Operators controlled the distribution of value to the customer – and all the links of the value chain. The Web is changing that permanently – take Amazon or Apple – both provide devices, content, applications and services directly to their customers. They deliver value straight to their customers, via customized devices they produce and sell.
With over-the-top content delivery there are new links in the value chain. There is the network as a utility; service platforms sit on top of the network, utilizing its open data networking interfaces. The subscribers for OTT services have a direct relationship with the service provider, independent of the network provider. There is no exclusive tie up with either the operator or the type of network – wired or wireless; consumers receive services over any data network to which they connect.
Which way forward?
OTT is growing so operators must choose how they engage in this segment. Many analysts believe operators need to reinvent themselves as significant players in the OTT segment or risk losing a growth opportunity and become mere bandwidth providers. The success of OTT players depends on the richness of the content/service they provide and on the ability to reach the maximum number of consumers. Network providers, on the other hand, benefit most when there are many OTT players providing content and services to its own subscribers or, through its network, to other peering networks. The success factors for the two segments do not overlap significantly – hence it will be hard to find synergies that add up to advantage by combining the businesses. Yet the success of either segment is an enabler for growth and success of the other and they need to grow together.
The ideal way for an operator to engage in the OTT segment is to encourage its growth and participate in building the infrastructure for hosting and delivery; this lowers the entry barrier for new, imaginative, content creation. This infrastructure layer is adjacent to, and between, the content/service providers and the network providers. Amazon, Google, Apple and Microsoft each have a presence in the cloud infrastructure, while Verizon, ATT, T-Mobile and others each have plans to build and provide cloud infrastructure for their customers. Hence, there is room for both partnerships and competition – partnerships for the public infrastructure for the retail subscribers and competition for the private infrastructure that provides enterprise customers with cloud services.
In developed telecom markets, like the US, both the OTT players and the network providers are mature in their own right. Operators can focus on providing secure and customized cloud infrastructure for their enterprise customers and not replicate the infrastructure built up by Amazon et al. for the public and retail customers.
In developing telecom markets, such as India, the OTT segment is still emerging and both content and services are fairly limited. In these conditions operators have an advantage; they can become the infrastructure providers with the greatest reach and economies of scale. They can chose to grandfather the OTT segment to encourage the growth content and services, offer more value to subscribers, to build their user base, increase usage, and drive more value for content providers.
It is exciting to be in the middle of this transformation in the way we interact and consume information – and the telecom industry is at the heart of the change.
