|Issue:||Europe II 2007|
|Topic:||Triple play first, what next?|
|Title:||VP Global Business Development|
|Organisation:||PacketFront Sweden AB|
Michael Engström is PacketFront Swedenís VP of Global Business Development. Previously, during his years at PacketFront, he has been responsible for marketing and sales to carriers. Mr Engström co-founded two management consulting companies prior to joining PacketFront – Anzur Norway and 42Networks Sweden. At Cisco Systems EMEA, he served as a strategic advisor to EMEA and in-country management. Mr Engström has 20 years in the data communications industry, and has built wide, deep expertise ranging from deep technical design to senior management consulting.
Internet service providers generally do not share in the revenues generated through its services, so they have little financial incentive to upgrade the networks for next-generation needs. Open access providers build and run networks for anyone who needs broadband to do business. Open access providers who offer better quality than the public Internetís best-effort service, provide hosting and operations for servers, quality of service for content providers and an operational solution for home-based devices might become the next killer application.
Open access – the network killer application Greenfield broadband investments during the past five years have been as much politically as commercially motivated. The rationale for the investments, however, varies with the types of players moving into the broadband space. One type of investor is essentially just a financial backer. In this category, you find players such as Swedish B2 (today owned by Norwegian Telco Telenor) and FastWeb Italy. In addition, we find investments in areas such as property development, business parks and hospitality where the investor aims to increase the value of its core business by adding advanced network infrastructures to his offerings. The second category of investor has been the public utility sector. Here, the investments have been very much politically motivated. The argument has been that as a community-owned utility you make so much money that you should give something back to the community. The business cases of each of these players have been based on the assumption that triple play offers the foundation for the business case. TV, ISP and voice services account for the revenue portion of this model, thereby guaranteeing financial success. Over time, it has proven difficult to: a) get TV content on board; and, b) turn the TV content into a significant net margin contributor. The result is that the Internet and good old voice have risen to the stars as the key financial supporters. Open access While the commercial player tends to invest in, develop and operate the services as well as the network, most multi-utilities have taken the path of open access. Open access means commercial and technical separation of the network from the services it delivers. In the telco world this is called ëwholesale at service levelí. The player who builds and operates the network does not take a stake in service delivery, they simply provide tools, business models and processes to allow any service provider to get on to their broadband network. Note that the definition, within the context of this article, applies to services within the broadband domain and not services coming over the Internet transit. The utility sector has gained a significant insight from its efforts. That the local, as well as global, environment is much stronger at devising and developing the right services that users are willing to pay for than, for example, the board of directors at the local telco. This is the very reason that the open access networks provide the user with a vastly superior service offering, both in capability, quality and price, than those of the closed network operator. Open access will be the killer application of the future due to its inherent compliance with the idea that the more people that invent, the more services will arrive. Internet-centric service providers When they look at the future of services, those within the broadband space are worried about the advent of players such as Skype, Apple, Google, MSN and now Joost. These players utilize a wholly Internet-driven model; access to the user is achieved via the Internet. For this model to work efficiently no discrimination between types of content transmitted over the access network can exist; the only commercial agreement is that set between the owner and the buyer – for example between Google and the consumer – of the content. It is easy to see the threat for the network operator: should you combine the capabilities of these players? Imagine a world where we consume all media content on demand. A world where we subscribe to all we wish to pay and that the set-top box, STB, contains the necessary hardware to store everything we subscribe to. In addition, our national broadcast TV is now DTT-based, Digital Terrestrial Television, and every flat screen contains a built in DTT decoder. The implications of this approach are that broadcast services are limited. Since all services will come over the Internet, and all users on the broadband network run Joost, transit will no longer be a bottleneck. The access network is suddenly capable of dealing with all your content because it is on-demand; it is constantly downloading content to your box in the background while you are at work and the need for real-time delivery no longer exists. The main consequence of this would be that the access network provider is completely left out of the revenue stream. The Internet-centric service providers are simply using the strength, working with the basic principles, of the Internet. There are, however, some important things to consider. First of all, of course, we will need more and more bandwidth in the access portion of the network as well as over the public Internet. Network owners will not continue to invest in new technologies and access network capacity, to accommodate more transit capacity, unless there is a reasonable return on investment. Although it may be difficult for the network owner to be part of the revenue stream from current services, it does not mean this must be the case in the future. Secondly, the content required to accommodate local needs is owned and controlled by institutions a lot more conservative in their business approach than that of the telco. It will take time to ensure that all content is available over new technical platforms. Thirdly, even though Skype has millions of users, its application is still limited due to the payment structure, the business model itself, the technical requirements and the lack of guaranteed quality of service. The same goes for YouTube and other ëcoolí offerings on the Internet. These players are nowhere near mass market even though they have millions of users. Market adoption is measured as the level of acceptance and usage across all parts of the society, not only how well tools for geeks with deep pockets are accepted. Last but not least, the market will continue to devise new and fantastic ways of utilizing capacity and bandwidth. Currently, there is much hype about compressed HDTV, but we still see low definition and even un-compressed content coming over the broadband network. People are investing fortunes in new HDTV capable TV sets, and prices are dropping faster than ever at the high-end part of the market. People will scream for content that fully utilizes their new sofa companion. The quality thing of the content will itself prove to be somewhat of a killer application. The networks must accommodate this transition. The next steps It is vital to understand the benefits of the Internet model as well as its flaws. It is also vital to understand that there is an eco-system in place that actually makes the Internet work. The benefits of the Internet model are the ubiquitous access to services and users. The flaw is the fact that Internet is a best effort service only and critical applications such as TV, voice and future video telephony services must be given preferential and intelligent treatment to work. The very definition of an eco-system is the sum of the entities that are required for a community to function as a whole. If one fails, the communityís interests are at stake. The current debate around Internet-centric services vs. access networks shows a fundamental lack of understanding about how closely linked these players are to each otherís survival. When Joost and iTunes really start to address the mass market they will see the challenge of having very complex home devices connected to the central point of social stimuli within the family. If the service as a whole does not provide the quality and ease of use the user expects, millions and millions of users will start calling the first line support of Ö well, whom? Video and TV services over the Internet will require massive investments in Internet capacity as well as in access networks in the foreseeable future. Even Google publicly states that the Internet is not built for video distribution; this is something to think about for those touting Google as the next mass-market video provider. An easy way to solve the Internet-centric service quality issue would be for the broadband provider to commercialise special service packages on their broadband networks. Providing hosting and operations for servers, quality of service for content providers and an operational solution for home devices will bring true added-value to the Internet-centric provider, that can be commercialised – perhaps based on the revenue sharing nature of the open access business model. After all, if the cost for providing bandwidth within the broadband network is lower than that of providing high-quality bandwidth service over the public Internet, why focus the effort on the more expensive solution? Who knows what tomorrow brings? Telcos spent billions of euros on 3G licences, they over-invested in WAP and they did not see SMS coming. We cannot predict the future, but we should do everything within our power to anticipate and accommodate future services over our infrastructure – over the Internet as well as within the broadband network itself. Open access takes care of the eco-system and governs the processes. It provides the technology and, in the end, defines the financial model that will guarantee that the killer applications of the future run on your network. Open access is the killer application of the future.