Tag: broadband

Optimising Mobile Broadband Economics: Key Issues and Next Steps

Summary: below is the Executive Summary and extract from a report on key issues for operators seeking to optimise mobile broadband network economics which were debated at the recent Telco 2.0 EMEA Brainstorm in London.

(NB: New video presentations exploring these issues in more detail will be broadcast online at Telco 2.0 Best Practice Live! on 28-30 June. Register here – it’s FREE.)

Executive Summary

At the 9th Telco 2.0 Executive Brainstorm, held in London on April 28-30, a dedicated session addressed the technical and business model challenges of mobile broadband, specifically looking at the cost problems and opportunities of the data boom.

The primary points made by the presenters were that:

  • New air interfaces and spectrum will not be enough to on their own to cope with the continued rise in data traffic. Building more cells alone is not a solution, and it will be necessary to address costs and pricing;
  • The challenge needs to be approached both from the network, through policy-based control including tiering and maybe traffic-shaping, backhaul optimisation, and offload through femtocells or WLAN, and from the business side with pricing, potential tiered offers and segmentation;
  • Techniques have to be deployed to manage traffic to deliver customer experiences, particularly for cloud and TV services;
  • The use of DPI for application-based traffic charging isn’t thought to be a practical solution, though device based management may be in some instances;
  • No single method of addressing capacity issues provides a complete solution and therefore a combination of offload, traffic management and segmentation is recommended.

Figure 1 – Key issues in Optimising the Economics of Mobile Broadband Networks

DB%20Conclusion%20slides.png

Source: Telco 2.0, 9th Telco 2.0 Executive Brainstorm, April 2010

Delegates: tiering sounds good but how do we do it?

Charging for providing higher and tiered Quality of Service (QoS) was a major topic of debate, and although this was ultimately voted as the most important potential current strategy, there were also strong disparate views offered by delegates. Other major themes were potential technological approaches, the role of content owners, LTE, and application based pricing.

Figure 2 – Delegate Vote on Near-Term Strategies
Vote%203%20Impact%20of%20business%20models.png

Source: 9th Telco 2.0 Executive Brainstorm, April 2010

[Ratings: 1-5, where 1 = ‘doesn’t move the needle’, and 5 = ‘dramatic positive effect on the economics of mobile broadband provision’]

Telco 2.0 Next Steps: Optimising Mobile Broadband Business Model Economics

Optimising mobile broadband economics is a complex challenge, or might perhaps be more accurately described as a collection of different challenges for different operators. There’s always a temptation to try to solve complex problems with a single ‘silver bullet’ idea, but in this instance this is almost certainly impossible, as there are many different possible solutions and different combinations of solutions will work at different times for different operators.

In our series of Future Broadband Business Models Strategy Reports, Telco 2.0 has previously explored the long term business model and technical architectures in Beyond Bundling: Growth Strategies for Fixed and Mobile Broadband – “Winning the $250Bn delivery game.”, the structure and evolution of the online video distribution market in Online Video Market Study: The impact of video on broadband business models, and most recently updated our analysis on a range of nearer term potential business model strategies in New Mobile, Fixed and Wholesale Broadband Business Models.

We will next create a new report summarizing the main options for optimizing mobile broadband business model economics. In addition, Mobile Broadband will feature in the first Telco 2.0 Best Practice Live! event at the end of June. This will provide a video-based online data bank of some of the most interesting Mobile Broadband case studies from across the world.

– Start of Detailed Report Extract –

Mobile Broadband Network Economics – Invest in Business Models as well as Technology

Moving attention away from the service side of the mobile broadband debate, speakers at the 9th Telco 2.0 Executive Brainstorm concentrated instead on how to move the needle on the cost side of the mobile broadband economics equation.

Stimulated by presentations by Dean Bubley, Senior Associate, Telco 2.0, and Dan Kirk, Director, Value Partners and a panel discussion that also included Johan Wickman, CTO Mobility, TeliaSonera, Eddie Chan, Global Head, Efficiency, NSN Consulting, and Andrew Bud, Chairman, MBlox, delegates came to the conclusion that pricing and segmentation strategies, together with offloading capabilities are more important than LTE in dealing with the data-inspired capacity crunch.

Redefining the Problem

Dean Bubley, Senior Associate, Telco 2.0, laid out the problem facing mobile operators. He displayed the now-iconic chart illustrating the ‘broadband incentive problem’ but argued that this was not a problem in itself – he said it was interesting but not necessarily a problem. It didn’t, for example, follow that the data service was going to be provided at a loss. Indeed, Johan Wickman’s TeliaSonera is one of a number of operators that are experiencing data revenues higher than is commonly believed. The incentive problem also doesn’t say anything about where cost or capacity issues would manifest themselves – in which elements of the network, or indeed what the right strategy would be to deal with them. Indeed, there are complex technology strategy issues present that aren’t addressed by such a statement at all.

Figure 3 – The ‘Broadband Incentive Problem’ Statement

BB%20incentive.png

 
Source: Telco 2.0, 9th Telco 2.0 Executive Brainstorm, April 2010 

Understanding Costs and Technology

Furthermore, he suggested that the industry may be paying more attention to how revenues from mobile broadband might be increased than how its costs could be controlled. Referring to an Agilent Technologies presentation on LTE, he pointed out that the large majority of all current and future wireless capacity was accounted for by the creation of new cells, therefore radio air interface improvements and spectrum release would not be anywhere near enough to support continued traffic growth without much more cell subdivision, with all its associated costs, and more use of “small cells” such as femtocells, WiFi, or pico-cells.

Network Solutions and Limitations

It is inevitable therefore to look at ways to better use the capacity available. However, the options for managing and shaping traffic are not straightforward and, as NSN’s Eddie Chan said, it is necessary to realise that “efficient” is not the same as “cheap” – efficiency is also about service improvements.

Traffic Management Mess

Bubley was particularly critical of traffic management solutions. He pointed to the important subtlety that traffic management could easily become a “mess”, particularly as traffic to and from PCs is difficult to manage. It tends to include many applications and, what is more, many applications and protocols can often be tunnelled within each other. The PC is a powerful open development platform and therefore there is much scope for users to circumvent traffic shaping. The share of PC traffic that consisted of non-voice data is in the order of 90%+ and essentially all of it is going to or from the public Internet, so whatever the operator does would be come at a cost. The complexity of this is illustrated below.

Figure 4 – Traffic Management Options

DB%20traffic%20management.png

Source: Telco 2.0, 9th Telco 2.0 Executive Brainstorm, April 2010

Bubley did point out that smartphone data and featurephone traffic are much more likely to be open to operators “adding value” than PC traffic as they are going to operator-hosted or operator-managed services. The traffic still has to be “managed”, but it’s now “friendly” traffic which is much more predictable. M2M devices, meanwhile, send all their traffic through the operator’s network – which might be a good reason to promote them as a line of business. Given the associated behaviours, it might be wise to segment by device rather than by application, an approach that Bubley feels is even more pertinent given concerns over DPI (Deep Packet Inspection), a technique by which network equipment looks beyond the header used for routing to non-header content (typically the actual payload) for some purpose, in this case to prioritise traffic.

The Doubtful Promise of DPI

Bubley argues that application-layer traffic shaping based on DPI has serious downsides; a major one simply being the definition of an application. For example, which service class would a YouTube video inside a Facebook plug-in have? Users would also adapt to it, use encryption, and tunnel one application in another to get round restrictions. Indeed, much of the file-sharing traffic had already moved to HTTP or HTTPS on ports 80 and 443. This may sound overly ‘techie’ but what it means is that file sharing traffic becomes indistinguishable from, and blends with, generic Web traffic. In addition, there would certainly inaccurate results and ‘false positives’, which could lead to political, regulatory, and reputational issues.

The only uses for deep packet inspection he could see were compliance with law-enforcement demands and gathering data for network optimisation, which might help the industry clear up whether its problems were caused by pirates running P2P, or bad network designs, aggressive data use by smartphones etc., or software updates.

Offload Options

So, if managing and shaping traffic effectively on one network is problematic, does it make more sense to offload it onto another?

The major advantage of the offload concept is that nobody’s data is being de-prioritised – rather than a re-allocation of (supposedly) scarce bandwidth, it represents an actual improvement in the efficiency of the network. It is therefore much less complex from a regulatory, political, and economic standpoint.

Solutions at the Business Layer

There are certainly some valuable options for addressing the data issue from a technical point of view, offload perhaps the most valuable amongst them. However, these are not all the weapons in an operator’s arsenal. They can also look to manage the impact of traffic on their networks and their bottom lines by looking at different business model and pricing options.

On the revenue side, Bubley says the bulk of revenue will be from ‘downstream’ subscription and pre-pay customers, and while helpful, that the near-term growth of new ‘upstream’ or wholesale / carrier services revenues alone would not be enough to cover the costs of capacity increases.

Figure 5 – New Revenue Streams Not Enough to Offset Capacity Requirements

Capacity%20table%20stakes.png

Source: Telco 2.0, 9th Telco 2.0 Executive Brainstorm, April 2010

This view was backed up by a delegate vote (see below) that suggests that while other options are possible, in the short term better tiering and segmentation strategies will be the best answer, followed by device-orientated solutions.

In this vote, the “New device categories” captures M2M (Machine-to-Machine) markets, “device bundled” refers to “comes with data” business models such as the connectivity Sprint provides for the Amazon Kindle, while ‘better tiering and segmentation’ refers to service and tariff packages. ‘Sender party pays’ is where users receive the service free and the sending party, be it an advertiser or other enterprise, pays, and ‘government sponsored’ is the case where the government pays for the connection as a public service.

Figure 6 – Impact of Mobile Broadband Business Models

Vote%201%20MBB%20short%20term%20revenue%20impact.png

Source: 9th Telco 2.0 Executive Brainstorm, April 2010

All Devices Are Not Equal

Returning to Bubley’s earlier claim that device segmentation may be more effective than application management policies, devices are a natural place to start when looking at business segmentation strategies. However, not all devices are created equal.

Smartphones, for example, tend to generate many relatively brief data sessions, they move around constantly and therefore carry out large numbers of register/handoff transactions with the network, and they also generate voice and messaging traffic. Because the signalling overhead for a data call is incurred when setting up and tearing down the session, a given amount of traffic split into 10 brief sessions is dramatically more demanding for the network than the same amount in one continuous session. Also, smartphones often have aggressive power-management routines that cause more signalling as they attempt to migrate to the cell that requires the least transmitter power.

On the other hand, although laptops tend to consume lots of bulk data, they do so in a relatively network-friendly fashion. The cellular dongles are typically operated much like a fixed-line modem, registering with the network and staying on-line throughout the user session. Their use profile tends to be nomadic rather than truly mobile, as the user is typically sitting down to work at the computer for an extended session. And the modems rarely have any serious power management, as they draw power over USB from the computer. These behaviours therefore create natural segments.

To read the rest of the report, covering…

  • Selling QoS/QoE
  • LTE – Build and They Will Come?
  • Four Scenarios for the Future Development of Mobile Broadband Business
  • Concluding Analysis
  • Telco 2.0 Next Steps: Optimising Mobile Broadband Business Model Economics

…and including…

  • Figure 1: Key Options for Cost Management in Mobile Broadband Networks
  • Figure 2: Delegate Vote on Near-Term Strategies
  • Figure 3: The ‘Broadband Incentive Problem’ Statement
  • Figure 4: Traffic Management Options
  • Figure 5: New Revenue Streams Not Enough to Offset Capacity Requirements
  • Figure 6: Impact of Mobile Broadband Business Models
  • Figure 7: More to Customer Experience than the Access Network
  • Figure 8: Upstream Demands for More Bandwidth
  • Figure 9: Predicted Timing of LTE Revenues in Europe
  • Figure 10: Impact of Mobile Broadband Business Models
  • Figure 11: Integrated Traffic and Segmentation Strategies More Important than LTE Alone
  • Figure 12: Key Options for Cost Management in Mobile Broadband Networks

 …Members of the Telco 2.0TM Executive Briefing Subscription Service and Future Networks Stream can download the full 20 page report in PDF format here. Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call
+44 (0) 207 247 5003 for further details.

New Strategy Report: Mobile, Fixed and Wholesale Broadband Business Models

Best Practice Innovation, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios

Summary:  a new 249 page Telco 2.0 Strategy Report on the future of broadband, including analysis of the latest new ideas in broadband business model innovation, new ‘Telco 2.0’ Opportunities, global forecasts, four future strategic scenarios, and a detailed ‘Use Case’ describing a new Managed Offload ‘Use Case’.  (March 2010, Future Networks Stream)

The report covers:

  • Best practice innovation, and detailed assessment of ‘Telco 2.0′ opportunities, in Mobile Broadband, Advanced New Wholesale, and Fixed Retail Broadband Business Models
  • Four scenarios for broadband market players: ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’
  • Telco 2.0’s forecasts for the Broadband Access market
  • An advanced and detailed ‘Use Case’ for a specific Telco 2.0 Opportunity, ‘Managed Offload of Mobile Broadband to Fixed Networks’
  • Conclusions and recommendations for Telcos and other Broadband Service providers (BSPs) and their partners

 

  cover%20image%20mfbbm%20mar%202010.png   

The report is a ‘must read’ for CxOs, strategists and broadband product managers seeking to develop their business strategies and position their products, both within Telcos and BSPs and for the community of business partners and vendors.

Read in Full (Members only)   To Subscribe click here

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here. 

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Report Details

  • 249 pages
  • 90 charts, tables and forecasts
  • Manuscript format
  • Detailed outline and contents below
  • Published: 25th March 2010

The rest of this page contains:

  • Overview and Report Content       
  • Who is the report for?
  • Contents, Figures and Forecasts
  • Downloads (Table of Contents, PDF Version of this Page)
  • Fit with other Broadband Reports

Report Overview & Content

Introduction

Broadband continues to grow in both market penetration and sophistication, with the addition of fibre and mobile access as key enablers.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

However, while speeds and mobility are improving, there are complex challenges to the business model for service providers. These include:
  • Maturing products and business models
  • Convergence of fixed and mobile technology and product offerings
  • Greater state intervention in deploying and controlling broadband access
  • A more complex broadband ecosystem
  • New consumer behaviour and higher expectations

See here for an extract from the overview of the report on the main themes and challenges that it addresses. Among these challenges are:

  • What are the realistic prospects for non-subscription models for fixed and mobile broadband, such as prepaid / transactional / free / “comes with data”, bundled with device purchase, “sliced and diced”, etc.?
  • A critical analysis of whether operators can charge content / Internet companies for access to ‘their pipes’, and in what circumstances this may be commercially and operationally feasible.
  • What is the changing role of Government in the broadband marketplace?
  • Is Mobile Broadband substitional or synergistic with Fixed?

Overall, new business models will be necessary to help justify extra infrastructure investment as end-user spending on broadband access reaches market saturation.

Figure 2: Next-generation broadband will need new revenue sources

fbbm%20four%20skittles%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models
The report covers the impact of key factors such as DPI, QoS. Net Neutrality, LTE, Fibre, IPTV, Video demand, mobile broadband, convergence, LLU, MVNOs, Machine-to-Machine, Cloud Computing, and regulation. It explores both developed and developing markets.

Broadband Best Practice Innovation and ‘Telco 2.0′ Opportunities

Following the introduction and market overview, the report contains chapters of detailed analysis of best practice innovation (e.g. pricing, propositions, technologies, etc.) and ‘Telco 2.0′ new business model opportunities in:

  • Fixed Retail Broadband
  • Mobile Retail Broadband
  • Advanced Wholesale Broadband business models.

The ‘Telco 2.0′ propositions are based on the ‘two-sided’ telecoms business model theory that broadband capacity can sold to “upstream” media or application providers. The report examines theoretical use cases and some compelling potential business models.

Figure 3: the Two-Sided Telecoms Business Model
2sbm%20fbbm%20report%20mar%2023%202010.png

Source: Telco 2.0 Analysis

(NB. Further detail on the ‘two-sided’ telecoms business model can be found here.)

‘Managed Mobile Offload’ Use Case

Taking one of the specific opportunities identified, the report details a ‘Use Case’ for offloading excess mobile traffic to fixed operators. This represents a wholesale opportunity for fixed BSPs and an opportunity for Mobile BSPs to manage the rising costs of carrying large volumes of (primarily video) data traffic.

Figure 4: Forms of managed offload from fixed/cable operators

fbbm%20offload%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Future Scenarios

The report describes four possible scenarios for broadband service providers and the benefits and risks of pursuing each strategy.

Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Forecasts and Conclusions

The report is completed by global forecasts for each of the core business models for broadband service providers (detailed below), conclusions, and an overview of the relative attractiveness of the scenarios.

Who is the report for?

Telecoms Operators’ and other Broadband Service Providers’:

  • Strategy departments
  • Central research libraries & market research functions
  • CTO office, Strategic Marketing, Business Development
  • Wholesale Departments
  • Government & Regulatory Affairs depts
  • Network architects & planners
  • Broadband services marketing departments (fixed, cable and mobile)

Vendor audiences:

  • Marketing / business development / strategy functions
  • Fixed broadband access equipment vendors
  • Wireless network radio & transport vendors
  • IP core suppliers
  • Fixed-broadband terminal suppliers
  • Mobile broadband device suppliers
  • Policy management, DPI & control specialists
  • Billing & OSS suppliers
  • Silicon and “enabler” providers

Regulators and other Government departments

Investors

Consultants & integrators

Report Contents

Executive Summary

Part 1: Background to the Broadband Industry

  • Market adoption of broadband and the four scenarios
  • Fibre and next-generation access: the missing business model
  • Video: killer app, or network-killer?
  • Mobile broadband: Hype & realism
  • Convergence of fixed / mobile broadband
  • Evolving regulation: help or hindrance?
  • Government & ‘National Broadband’
  • Broadband in the developing world
  • The vendor landscape

Part 2: Fixed retail broadband business models

  • Retail broadband scenario options
  • Cable vs ADSL vs Fibre – same models, or fundamentally different?
  • Pricing options: capping and tiering, application-specific caps and tiers, specific zero-rated / unmetered sites & services
  • Video: providers: the power-brokers? Triple-play / IPTV.
  • Incremental services, cross-network Internet services, prepay fixed broadband    
  • Fibre
  • Future value-add services? Smart grids, telemedicine and ‘The Cloud’
  • The impact of local-loop unbundling and structural separation

Part 3: Mobile Broadband Retail Business Models

  • Mobile broadband computing
  • Smartphone business models
  • M2M broadband business models
  • Do revenues reflect costs?
  • Wholesale mobile broadband and MVNOs
  • Enablers and technologies

Part 4: Advanced broadband wholesale business models

  • Bulk broadband wholesale models
  • Creating next-gen wholesale
  • Telco-Telco wholesale 2.0
  • Broadband capacity ‘slice and dice’
  • Marketing & selling wholesale

Part 5: Use Case: Managed Offload of Mobile Broadband

Part 6: Forecasts and Conclusions

A full table of contents and figures can be downloaded here.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here. 

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Key Figures and Forecasts

  • Global broadband access lines, 2000-2020
  • Global broadband access lines by technology, 2005-10
  • Global fixed broadband by region, mid-2009
  • Global broadband traffic          
  • Ultra-fast broadband availability in developed markets
  • Global mobile broadband computing users
  • Examples of government broadband-related stimulus plans
  • How uptake of broadband impacts GDP
  • Global fixed broadband lines
  • Wholesale within global fixed broadband, 2010
  • The Global Online Video Market ($Billions)
  • European fibre penetration forecast 2013
  • Mobile broadband active user base
  • Global 3G data traffic by device type, mid-2009
  • Global mobile broadband computing users
  • Vodafone UK mobile broadband pricing trends
  • Traffic volumes for mobile broadband vs. revenues
  • Fixed and mobile broadband wholesale revenues
  • Global mobile broadband computing subscribers
  • Forecast broadband wholesale revenues by category
  • Global retail broadband subscribers 2005-2020
  • Global average retail charges for broadband 2005-2020
  • Broadband Retail Market Value 2005-2020
  • Percentage of broadband lines supplied via bulk wholesale 2005-2020
  • Average global wholesale prices 2005-2020
  • Global bulk wholesale access market 2005-2020
  • Global slice-and-dice revenues per line 2005-2020
  • Global slice-and-dice incremental wholesale access revenues 2005-2020
  • Global active users of broadband without a subscription 2005-2010
  • Active broadband users including ‘comes with data’
  • Global non-subscription upstream revenues per user per year 2005-2020
  • Global ‘comes with data’ broadband access 2005-2020
  • Global wholesale revenues 2005-2020
  • Global broadband access market 2005-2020
  • Breakdown of global wholesale revenues 2005-2020

Downloads

Fit with other Telco 2.0 Broadband Reports

This report is one of the Future Broadband Business Models Report Series of in-depth analyses of the Broadband market.

Companion Reports:

  • “Beyond bundling: winning the new $250Bn delivery game” examines the structural opportunities and potential technical strategies for the next 10 years, including the more infrastructure-oriented aspects of wholesale such as IP data transit, renting-out of fibre/towers and local-loop unbundling, and identifies an overall $250Bn opportunity over this period.
  • “The impact of video on broadband business models” analyses the development of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of Broadband Service Providers is examined, possible threats and opportunities revealed, and strategic options are discussed.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here. 

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Mobile & Fixed Broadband Business Models: Four Strategy Scenarios

Summary: an introduction to the four strategy scenarios we see playing out in the market – ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’ – part of a major new report looking at innovation in mobile and fixed broadband business models. (March 2010, Foundation 2.0, Executive Briefing Service, Future of the Networks Stream).

Introduction

This is an extract from the Overview section of the Telco 2.0 report ‘Mobile and Fixed Broadband Business Models: Best Practice, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios‘.

The extract includes:

  • Overview of the three macroscopic broadband market trends
  • The five recurrent themes
  • Defining Telcos and Broadband Service Providers (BSPs) in the future
  • Market adoption of broadband
  • An Introduction to the four scenarios

A PDF version of this page can be downloaded here.

Overview

This section of the report provides a backdrop to the rest of the study. It highlights the key trends and developments in the evolution of broadband, which fundamentally underpin the other aspects of business model innovation discussed in the subsequent chapters. It also introduces Telco 2.0’s main ‘end-game scenarios’ for broadband service providers (BSPs), and gives a round-up of some of the key background statistics.

There are three main macroscopic trends in the broadband market:

1.   A focus on improving the reach and profitability of existing low/mid-speed broadband in developed countries, especially with the advent of inexpensive mobile data, and new methods of monetising the network through wholesale options, value-added services and better segmentation;

2.   Deployment of next-generation very high-speed broadband, and the building of business models and services to support this investment, typically involving video services and/or state backing for nationally-critical infrastructure projects;

3.   Continued steady rollout of broadband in developing markets, balancing theoretical gains in social and economic utility against the practical constraints of affordability, PC/device penetration and the need for substantial investment.

Cutting across all three trends are five recurrent themes:

Maturing products and business models

  • The global broadband market is maturing fast. In developed countries, baseline penetration rates are starting to level off as saturation approaches. Coupled with price erosion and increasing capacity demands, this deceleration is pressuring margins, especially in the recession;
  • The pivotal role of video in driving both costs and revenues, given its huge requirement for bandwidth, especially in high-definition (HD) format.
  • An awareness of the need for retail and wholesale business model evolution, as revenue growth plateaus and current attempts at bundling voice and/or IPTV (fixed) or content (mobile) show only patchy success.

Convergence of fixed and mobile technology and product offerings

  • The impact of mobile broadband, either as a substitute or a complement to fixed broadband. This goes hand-in-hand with the advent of more powerful personal devices such as smartphones and netbooks.

Greater state intervention in deploying and controlling broadband access

  • Intensifying regulation, focusing on areas such as facilities and service-based competition, unbundling and structural separation, Net Neutrality, spectrum policy and consumer advocacy;
  • Increasing government intervention in areas, such as broadband roll-out and strategy, outside the (traditional) scope of the regulatory authorities. This is conducted either through subsidy and stimulus programmes, or broader initiatives relating to national efforts on energy, health, education and the like;
  • A growing belief that broadband networks should also support ‘infrastructure’ services which may not be delivered by the public Internet – for example, remote metering and ‘smart grid’ connectivity, support for healthcare or e-government, or education services. A major battle over the next 10 years will be whether these are delivered as ‘Telco services’, ‘Internet services’ or as distinct and separately-managed network services by providers using wholesale access to a Telco network.

A more complex broadband ecosystem

The increasing role of major equipment vendors in facilitating new business models, either through managed services / outsourcing / transformation, direct engagement with governments on strategic architecture issues, or supply of key ‘platform’ components. However, many vendors are torn between protecting the legacy heavily-centralised models of their existing Telco customers, and exploring new targets within public-sector or Internet domains.

New consumer behaviour and higher expectations

Changing user behaviour as broadband becomes a basic expectation (or a government-mandated right) rather than a premium service, with the mass uptake of new applications and the added benefits of mobility.

Defining Telcos and BSPs in the future

One of the largest challenges in identifying Telco business models for the forthcoming era of next-generation access is the question of what actually defines a Telco, or a Broadband Service Provider (BSP).

In fixed networks, especially with new fibre deployment, the situation is becoming ever more complex because of the number of levels at which wholesaling can take place. If an incumbent ADSL operator buys, packages and rebrands wholesale dark fibre capacity from a municipally-owned fibre network, which one is the BSP? Or are they both BSPs?

The situation is a lot easier in mobile, where there still remains a fairly clear definition of a mobile operator, or a mobile virtual network operator (MVNO) – although in future network-sharing and outsourcing may also blur the boundaries in this market.

It is possible that there isn’t an appropriate strict definition, so a range of proxy definitions will start to apply – membership of bodies like the GSMA, possession of a ‘mobile network code’, access to certain number ranges, ownership of spectrum and so forth. In an era where Google buys dark fibre leases, Ericsson manages cellular networks, investment consortia contract to run a government-sponsored infrastructure and  mobile operators offer ‘over the top’ applications – it all becomes much less clear.

In this report, BSPs are taken as a broad class to include:

  • Owners of physical broadband access network infrastructure – taken as either physical cabling or fibre (wireline) or spectrum and radio cells (mobile). Telco 2.0 does not include rights-of-way owners or third-party cell-tower operators in this definition;
  • Owners of broadband access networks built using wholesale capacity on another provider’s wires or fibres, but with their own active electronics, E.g. basing a network on unbundled loops or dark fibre;
  • Providers of retail broadband access, perhaps bundled with other services, using bitstream, ethernet access or MVNO models based on wholesale from another network operator.

These definitions exclude 2G-only (non-broadband) mobile operators and MVNOs, PSTN or cable TV access provided without broadband connectivity and non-retail access providers, such as microwave backhaul operators and content delivery networks (CDNs) Etc.

Market adoption of broadband


The global broadband access market has grown from fewer than 10 million lines in 1999, to more than half a billion at the end of 2009, predominantly through the growth of DSL-based solutions, as well as cable and other technologies. Although growth has started to slow in percentage terms, there remains significant scope for more homes and businesses to connect, especially in developing economies, such as China. Older fixed broadband services in more industrialised economies will gradually be replaced with fibre.

The other major area of change is in wireless. Since 2007, there has been rapid growth, with the uptake of mobile broadband for ‘personal’ use with either smartphones or laptops, often in addition to users’ existing fixed lines. This category of access will grow faster than fixed connections, reaching more than one billion active individual users and almost two billion devices by 2020 (see Figure 1). Although a strong fixed/mobile overlap will remain, there will also be a growing group of users whose only broadband access is via 3G, 4G or similar technologies.

There are a number of complexities in the data:

  • Almost all fixed broadband connections are ‘actively used’. The statistics do not count copper lines capable of supporting broadband, but where the service is not provisioned;
  • Conversely, many notional ‘mobile broadband’ connections (E.g. 3G SIMs in HSPA-capable devices) are, in fact, not used actively for high-speed data access. The data in this report attempts to estimate ‘real’ users or subscribers, rather than those that are theoretically-capable, but dormant;
  • At present, most broadband usage is based on subscriptions, either through monthly contracts or regular pre-paid plans (mostly on mobile). Going forward, Telco 2.0 expects to see may non-subscription access customers who have either temporary accounts (similar to the WiFi single-use model) or have other forms of subsidised or bundled access as described later in the report;
  • Lastly, the general assumption is that fixed broadband can be shared by multiple people or devices in a home or office, but mobile broadband tends to be personal. This is starting to change with the advent of ‘shared mobile access’ on devices like Novatel’s MiFi, as well as the use of WiMAX and, sometimes, 3G broadband for fixed wireless access.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 analysis  

Breaking the data out further shows the recent growth trends by access type (see Figure 2). Mobile use has exploded with the growth of consumer-oriented 3G modems (dongles) and popular smartphones, such as the Apple iPhone and various other manufacturers’ recent devices. DSL growth has continued in some markets, such as Eastern Europe and China. Conversely, cable modem growth, entrenched in North America, has been slow as there has been limited roll out of new cable TV networks.

Figure 2: Global broadband access lines by technology, 2005-10

fbbm%20bar%20chart%20extract%20mar%2024%202010.png

Source: Telco 2.0 analysis  

It is important to note the importance of Asia in the overall numbers (see Figure 3). Although many examples in this report focus on developed markets in Europe and North America, it is also important to consider the differences elsewhere. Fibre is already well-established in several Asian markets, such as Japan and Singapore, while future growth in markets, such as India, may well turn out to be mobile-driven.

An alternative way of looking at the industry dynamics is through levels of data traffic. This metric is critically important in determining future business models, as often data expands to fill capacity available – but without a direct link between revenue and costs. In future, fixed broadband access will start to become dominated by video traffic. Connecting an HDTV display directly to the Internet could consume 5GB of data per hour, orders of magnitude above even comparatively-intense use of PC-based services, such as YouTube or Facebook.

Figure 3: Global fixed broadband by region, mid-2009
 
fbbm%20extract%20pice%20chart%20mar%2024%202010.png

Source: Broadband Forum

The dynamics of mobile traffic growth (see Figure 4) are somewhat different, and likely to be dominated by a sustained rise in the device/user numbers for the next few years, rather than specific applications. Nevertheless, the huge ramp-up in aggregated data consumption will put pressure on networks, especially given probable downward pressure on pricing and the natural constraints of cellular network architectures and spectrum. The report looks in depth at the options for ‘offloading‘ data traffic from cellular devices onto the fixed network.

Figure 4: Global broadband traffic

fbbm%20traffic%20growth%20chart%20extract%2024%20mar%202010.png

Source: Cisco Systems   

Note: EB = Exabyte. 1 Exabyte = 1,000 Petabytes = 1 million Terabytes

The Four Scenarios

Given the broad diversity of national markets in terms of economic development, regulation, competition and technology adoption, it is difficult to create simplistic categories for the BSPs of the future. Clearly, there is a big distance between an open access, city-owned local fibre deployment in Europe versus a start-up WiMAX provider in Africa, or a cable provider in North America.

Nevertheless, it is worth attempting to set out a few scenarios, at least for BSPs in developed markets for which market maturity might at least be in sight (see Figure 5 below). While recognising the diversity in the real world, these archetypes help to anchor the discussion throughout the rest of the report.  The four we have explored (and which are outlined in summary below) are:

  • Telco 2.0 Broadband Player
  • The Happy Piper
  • Government Department
  • Device specialist

There are also a few others categories that could be considered, but which are outside the scope of this report. Most obvious is ‘Marginalised and unprofitable’, which clearly is not so much a business model as a route towards acquisition or withdrawal. The other obvious group is ‘Greenfield BSP in emerging market’, which is likely to focus on basic retail connectivity offers, although perhaps with some innovative pricing and bundling approaches.

It is also important to recognise that a given operator may be a BSP in either or both mobile and fixed domains, and possibly in multiple geographic markets. Hybrid operators may move towards ‘hybrid end-games’ in their various service areas.


Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

For more details on the scenarios, please see the new Telco 2.0 Strategy Report ‘Mobile and Fixed Broadband Business Models – Best Practice Innovation, ‘Telco 2.0’ Opportunities, Forecasts and Future Scenarios‘, email contact@telco2.net, or call +44 (0) 207 247 5003.

Full Article: Mobile Broadband: Urgent need for new business models

Summary: While the market for mobile broadband services (3G/WiMax/Dongles/Netbooks etc.) is growing explosively, today’s telco propositions are based on out-moded business models which threaten profitability. Telco 2.0 proposes innovative retail and wholesale approaches to improve returns.

This 30+ page article can be downloaded in PDF format here.The Executive Summary is reproduced below.

Executive summary & recommendations

At present, the majority of mobile broadband subscribers are engaged through traditional monthly contracts, typically over 12-24 month periods. This is true for both standalone modems and especially embedded-3G notebooks. There are also some popular prepaid offerings, especially in markets outside North America.

However, further evolution is necessary. Many consumers will not want another monthly commitment, especially if they are infrequent users. Operators will be wary of subsidising generic computing devices for the non-creditworthy.

We expect a variety of new business models to emerge and take a significant share of the overall user base, including:

  • Session-based access, similar to the familiar WiFi hotspot model;
  • Bundling of mobile broadband with other services, for example as an adjunct to fixed broadband or mobile voice services;
  • Free, guest or “sponsored” mobile broadband, paid for by venue owners or event organisers;
  • “Comes-with-data-included” models, where the upfront device purchase price includes connectivity, perhaps for a year;
  • Two-sided business models, with mobile access subsidised by “upstream” parties like advertisers or governments, rather than direct end-user payment.

Transition to these models will not be easy. There are question marks about the convenience of using physical SIM cards, especially for temporary access. Distribution, billing and support models will need re-evaluation. Definitions and metrics will need re-evaluation. Terms like ARPU and “subscription” will have less relevance as conventional “subscribers” drop to perhaps 40% of the overall mobile broadband user base. Operators and vendors need to face up to these challenges as soon as possible.

Figure 3: Mobile broadband can support both subscription & transient models

[Figure]

Source: Telco 2.0

Recommendations for mobile operators & retailers

Business models and business planning

  • Calculate your production cost per GB of data based on the real cost of adding extra new capacity, rather than just using up the “sunk costs” of current radio assets;
  • Reinterpret mobile broadband business plans based on potential capex reductions and delayed capacity upgrades during recession;
  • Develop a broad range of business models / payment options, including long-term contracts, prepaid accounts, session-based services, bundles and mechanisms for enabling “free” or “sponsored” connections. Do not think solely in terms of “subscribers” as most future users will not have “subscriptions”;
  • Examine “two-sided” Telco 2.0 business models as mechanisms for gaining mobile broadband revenue streams, for example through advertisers and governments.

Marketing and distribution

  • Be extremely careful about marketing mobile broadband as a direct alternative to DSL / cable. You may also need those wired broadband lines for future femtocells or WiFi offload;
  • Be realistic about the future mix of dongles vs. embedded modules. Customers (and salespeople) like dongles, so despite the theoretical attractions of embedded, don’t kill the golden goose. Instead, look at ways to add value to the dongle proposition;
  • Partner with large IT services and integration firms to deliver mobile broadband solutions to the enterprise, rather than point products.

Network planning

  • In dense areas, spectrum and network capacity is generally too valuable to waste on those users who are not “truly mobile”;
  • Only use application-specific traffic management if you are prepared to openly publish details of your network policies. Vague terms on “fair usage” are likely to be counter-productive and challenged by law and the Internet community;
  • Consider potential scenarios around new high-bandwidth applications appearing across the user base (e.g. high-definition video, enhanced always-on social networking etc). Put in place strong links between your device, web application and radio network departments to anticipate effects.

Technology planning

  • Look at the evolution of devices and software to understand likely opportunities & threats in the way they use the network (e.g. always-on connection whilst “off”, background applications pulling down traffic in “quiet” periods, new browser types or video codecs etc);
  • Push vendors and standards bodies towards mechanisms for enabling session-based access for mobile broadband. This may need compromises on SIMs or roaming / multi-operator partnerships.

Organisation

  • Develop a separate, arm-length, wholesale division able to offer mobile broadband to MVNOs, Internet players, device/content vendors or vertical-market specialists on a non-discriminatory basis.

Recommendations for network equipment suppliers

Business models and business planning

  • Better understand the mix of traffic by device type on operator customers’ networks, as this will drive their future upgrade / enhancement plans. A move to PC-dominated networks may need very different architecture to phone-oriented designs;
  • Develop network-upgrade business cases against realistic growth in device types, application consumption and changing usage patterns.

Product Development

  • Look at new managed service opportunities arising around the MID and “mobilised” broadband consumer electronics device ecosystems, for example in content or application management, service and support etc;
  • Look at mechanisms for supporting non-SIM or multi-SIM models for mobile broadband, especially for users with multiple devices;
  • Optimise backhaul and network-offload solutions to cope with expected trends in mobile broadband. Integrate WiFi or femtocells with “split tunnel” architectures to “dump traffic onto the Internet”;
  • Develop data-mining and analytics solutions to help operators better understand the usage models for mobile broadband, and customise their networks and offerings to target end users more effectively.

Marketing and distribution

  • Be wary of over-hyping network peak speeds in marketing material, rather than increasing overall aggregate network capacity;
  • Position WiMAX networks as ideal platforms for innovative end-to-end device, connectivity and application concepts.

Recommendations for device & component vendors

Business models and business planning

  • Consider issues around macro-network offload, specifically the ability to easily recognise and preferentially connect via femtocells or WiFi;
  • Expect the MID, consumer electronics and M2M markets for mobile broadband to be fragmented and possibly delayed by recession. Focus on partner programmes, tools and consulting/integration services to enable the creation of new device types and business models;
  • Do not expect markets with a heavy prepay bias for mobile phones to be enthusiastic about long-term contracts for notebook-based mobile broadband;
  • Be very wary about operator software acting as a “control point” on the notebook, especially in terms of application monitoring / blocking / advertising. As handsets become more open, there are few arguments for PCs to become closed;
  • Anticipate support questions around issues like network coverage, signal strength etc. and have processes in place to deal with these;
  • Consider new business models for WWAN-enabled notebooks supported by advertisers, content or Internet companies, governments etc;
  • Support WiMAX as well as 3G / LTE in new device platforms – it seems likely that some WiMAX operators will be more open to experimentation with new business models, as they have less legacy to protect from cannibalisation.

Product Development

  • Add value to dongles by supporting other functions like GPS, video, memory, WiFi, MP3 etc. Also use physical design to differentiate and make external modems seen as “cool”;
  • Encourage the development of “free” / 3rd-party paid models for mobile broadband to drive modem adoption among users unwilling to pay for access themselves;
  • Consider developing your own portfolio of value-added services that can exploit the WWAN connection – e.g. managed security and backup;
  • Everyone with a WWAN-enabled notebook or MID will have a mobile phone as well. Endeavour to make them work well together and exploit each other’s capabilities;

Marketing and distribution

  • Encourage operator partners to support a broader range of business models to extend the addressable market to customers unwilling to sign 24-month contracts for mobile data;
  • Look at channels for temporary modem rentals / provision to venue or event delegates;
  • Examine non-operator routes to market for “vanilla” modules and modems, and support this usage model. For example, set up a web portal with methods highlighting how to acquire temporary SIM+data plans in different countries;
  • Push OS suppliers towards richer APIs in connection managers that can tell applications various characteristics about the network being used, signal strength, macro vs. femtocell, maybe even measured latencies and packet loss. Maybe also expose details of alternative radio bearers;
  • Push module vendors towards pricing models that are geared into future service uptake / expenditure;
  • Work closely with software vendors to ensure optimised performance of connection managers, browsers and other application environments;
  • Look at bundling opportunities via operators, for example phone + netbook combinations.

© Copyright 2009. STL Partners. All rights reserved.
STL Partners published this content for the sole use of STL Partners’ customers and Telco 2.0™ subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of STL Partners, Elmwood Road, London SE24 9NU (UK). Phone: +44 (0) 20 3239 7530. E-mail: contact@telco2.net. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.

Mobile Broadband: Urgent need for new business models

Summary: While the market for mobile broadband services (3G/WiMax/Dongles/Netbooks etc.) is growing explosively, today’s telco propositions are based on out-moded business models which threaten profitability. Telco 2.0 proposes innovative retail and wholesale approaches to improve returns in a new Briefing report, an edited extract of which is shown below.

[Members of the Telco 2.0TM Executive Briefing Subscription Service and the Future of the Networks Stream, please see here for the full Briefing report. Non-Members, please see here for how to subscribe, here to buy the individual Briefing report, or email contact@telco2.net or call +44 (0) 207 247 5003.]

Mobile broadband – a reason to be cheerful?

The last 18 months have seen a huge upswing in the adoption of mobile broadband (MBB) globally, especially relating to PC connectivity through 3G USB “dongles”, as well as high-end smartphones like the Apple iPhone. For the mobile industry, MBB has been one of the few bright spots, especially in mature markets where the recession (and regulation) has impacted voice and SMS revenues. For many operators, PC-based data revenues have eclipsed lacklustre growth of content and data services on handsets.

Figure 1: Global mobile broadband computing users

[Figure]

Source: Telco 2.0, Disruptive Analysis

Looking forward, many in the mobile industry are now expecting other MBB products and user scenarios to drive revenues further – netbooks (mini-laptops), smaller “mobile Internet devices” (MIDs) and embedded-3G notebooks are all being advocated. Further out, there is the potential for a vast array of other devices from the realm of consumer electronics or M2M (machine-to-machine) sectors.

A victim of its own success?

But there is a dark side of current MBB business models, despite the success. PC users generate so much data traffic that networks that were empty just two years ago are now congested. Originally designed (“dimensioned”) to cope with small-screen devices used occasionally, HSPA networks are having to cope with laptop-sized video downloads, hours-long social networking sessions and rich Web 2.0 sites which download content “in the background”. Extra iPhone usage compounds the problem.

In some cases, the revenues from MBB services are not even covering the costs of delivering data to the users. The current business models are broken – especially if they also need to provide enough cash flow for further network upgrades and expansion. Despite the wishes of marketing departments, it seems like expensive “mobile” broadband capacity is being wasted at giveaway prices, in an attempt to compete head-on with fixed broadband services.

Figure 2: Global 3G data traffic by device type

[Figure]

Source: Telco 2.0, Disruptive Analysis estimates

This report is not going to rehash the basic market forecasts for MBB and devices, which are well-covered elsewhere. Instead, this document looks at the need for a set of new business models around mobile broadband. This partly reflects the cornucopia of new devices, partly the impact of the insatiable demand for more bandwidth – but also methods for operators to innovate and seek out revenue streams beyond the normal monthly contract. MNOs need to squeeze more cash from their network and spectrum investments – but it needs to be profitable traffic.

There is clearly a demand for basic, vanilla, mobile Internet access from laptops or netbooks. But even that can be packaged in many different ways, rather than unimaginative and undifferentiated data plans, that just encourage constant price erosion amongst competing operators.

An overview of the new business models needed

At present, the majority of mobile broadband subscribers are engaged through traditional monthly contracts, typically over 12-24 month periods. This is true for both standalone modems and especially embedded-3G notebooks. There are also some popular prepaid offerings, especially in markets outside North America.

However, further evolution is necessary. Many consumers will not want another monthly commitment, especially if they are infrequent users. Operators will be wary of subsidising generic computing devices for the non-creditworthy.

We expect a variety of new business models to emerge and take a significant share of the overall user base, including:

  • Session-based access, similar to the familiar WiFi hotspot model;
  • Bundling of mobile broadband with other services, for example as an adjunct to fixed broadband or mobile voice services;
  • Free, guest or “sponsored” mobile broadband, paid for by venue owners or event organisers;
  • “Comes-with-data-included” models, where the upfront device purchase price includes connectivity, perhaps for a year;
  • Two-sided business models, with mobile access subsidised by “upstream” parties like advertisers or governments, rather than direct end-user payment.

Transition to these models will not be easy. There are question marks about the convenience of using physical SIM cards, especially for temporary access. Distribution, billing and support models will need re-evaluation. Definitions and metrics will need re-evaluation. Terms like ARPU and “subscription” will have less relevance as conventional “subscribers” drop to perhaps 40% of the overall mobile broadband user base. Operators and vendors need to face up to these challenges as soon as possible.

Figure 3: Mobile broadband can support both subscription & transient models

[Figure]

Source: Telco 2.0

Who is this briefing for?

Strategists, network planners, mobile data marketing executives, radio network vendor strategy & marketing staff, laptop and mobile device suppliers.

Contents

  • Executive summary & recommendations
  • Recommendations for mobile operators & retailers
  • Recommendations for network equipment suppliers
  • Recommendations for device & component vendors
  • What is a business model?
  • Defining the marketplace
  • The past and present – how did we get here?
  • Notebook bundling
  • Rolling contracts
  • Pre-paid / “Pay as you go” subscriptions
  • Do revenues reflect underlying cost per GB?
  • Can WiMAX fill the “capacity gap” & offer new business models?
  • Beyond basic subs: domains of innovation
  • Advanced retail models
  • Broadband bundled into device purchase price
  • Fixed & mobile combined broadband models
  • Multi-device business models
  • Rental models
  • Wholesale mobile broadband and MVNOs
  • Wholesale Beyond MVNOs: slice’n’dice
  • “Two-sided” models in mobile broadband
  • Sponsored / Advertiser-funded / “Free” mobile broadband
  • Future innovative roaming models
  • Enablers of the new MBB models
  • Embedded-3G/WiMAX notebooks – core to a new model?
  • MIDs and new device categories
  • Mobile broadband and APIs
  • Intelligent wireless broadband
  • The role of femtocells
  • The role of LTE
  • The role of WiMAX
  • Conclusion & recommendations
  • Glossary

Members: to access the full report please click here. Non-Members: to subscribe click here or buy the report here.

Full Article: Online Video Usage – YouTube thrashes iPlayer, but for how long?

Online Video consumption is booming. The good news is that clearer demand patterns are beginning to emerge which should help in capacity planning and improving the user experience; the bad news is that an overall economic model which works for all players in the value chain is about as clear as mud.

We previously analysed the leffect of the launch of the BBC iPlayer on the ISP business model, but the truth is that, even in the UK, YouTube traffic still far outweighs the BBC iPlayer in the all important peak hour slot – even though the bitrate is far lower.

Looking at current usage data at a UK ISP we can see that the number of concurrent people using YouTube is roughly seven times that of the iPlayer. However, our analysis suggests that this situation is set to change quite dramatically as traditional broadcasters increase their presence online, with significant impact for all players. Here’s why:

Streaming Traffic Patterns

Our friends at Plusnet, a small UK ISP, have provided Telco 2.0 with their latest data on traffic patterns. The important measurement for ISPs is peak hour load as this determines variable-cost capacity requirements.

iplayer_7_days.PNG

iPlayer accounts for around 7% of total bandwidth at peak hour. The peaks are quite variable and follows the hit shows: the availability of Dr Who episodes or the latest in a long string of British losers at Wimbledon increase traffics.

Included within the iPlayer 7% is the Flash-based streaming traffic. The Kontiki-P2P based free-rental-download iPlayer traffic is included within general streaming volumes. This accounts for 5% of total peak-hour traffic and includes such applications as Real Audio, iChat, Google Video, Joost, Squeezebox, Slingbox, Google Earth, Multicast, DAAP, Kontiki (4OD, SkyPlayer, iPlayer downloads), Quicktime, MS Streaming, Shoutcast, Coral Video, H.323 and IGMP.

The BBC are planning to introduce a “bookmarking��? feature to the iPlayer which will allow pre-ordering of content and hopefully time-of-day based delivery options. This is a win-win-win enhancement and we can’t see any serious objections to the implementation: for the consumers it is great because they can view higher-quality video and allow the download when traffic is not counted towards their allowance; for ISPs it is great because it encourages non-peak hour downloads; and for the BBC it is great as it will potentially reduce their CDN costs.

youtube_7_days.PNG

YouTube traffic accounts for 17% of peak-hour usage – this is despite YouTube streaming at around 200kbps compared to the iPlayer 500kbps. There are about seven times the amount of concurrent users using YouTube compared to the iPlayer at peak hour. Concurrent is important here: YouTubers watch short-length clips whereas iPlayers watch longer shows of broadcast length.

P2P is declining in importance

The real interesting part of the PlusNet data is that peak-hour streaming at around 30% far outweighs p2p and usenet traffic at around 10%. Admittedly the peakhour p2p/usenet traffic at Plusnet is probably far lower than at other ISPs, but it goes to show how ISPs can control their destiny and manage consumption through the use of open and transparent traffic shaping policies. Overall, p2p consumption is 26% of Plusnet traffic across a 24-hour window – the policies are obviously working and people are p2p and usenet downloading when the network is not busy.

Quality and therefore bandwidth bound to increase

Both YouTube and the iPlayer are relatively low-bandwidth solutions compared to broadcast quality shows either in SD (standard definition) or HD (high-definition), however applications are emerging which are real headache material for the ISPs.

The most interesting emerging application is the Move Networks media player. This player is already in use by Fox, ABC, ESPN, Discovery and Televisa — amongst others. In the UK, it is currently only used by ChannelBee, which is a new online channel launched by Tim Lovejoy of Soccer AM fame.

The interesting part of the Move Networks technology is dynamic adjustment of the bit-rate according to the quality of the connection. Also, it does not seem to suffer from the buffering “feature��? that unfortunately seems to be part of the YouTube experience. Move Networks achieve this by installing a client in the form of a browser plug-in which switches the video stream according to the connection much in the same way as the TCP protocol works. We have regularly streamed content at 1.5Mbps which is good enough to view on a big widescreen TV and is indistinguishable to the naked eye from broadcast TV.

Unlike Akamai there is no secret sauce in the Move Networks technology and we expect other Media Players to start to use similar features — after all every content owner wants the best possible experience for viewers.

Clearing the rights

The amount of iPlayer content is also increasing: Wimbledon coverage was available for the first time and upcoming is the Beijing Olympics and the British Golf Open. We also expect that the BBC will eventually get permission to make available content outside of the iPlayer 7-day window. The clearing of rights for the BBC’s vast archive will take many years, but slowly but surely more and more content will be available. This is true for all major broadcasters in the UK and the rest of the world.

YouTube to shrink in importance

It will be extremely interesting to see how YouTube responds to the challenge of the traditional broadcasters — personally we can’t see a future where YouTube market share is anywhere near its current level. We believe watching User Generated Content, free of copyright, will always be a niche market.

Online Video Distribution and the associated economics is a key area of study for the Telco 2.0 team. 

Beyond Bundling: Growth Strategies for Fixed and Mobile Broadband – “Winning the $250Bn delivery game”

Summary: This report examines future retail and wholesale business models for fixed and mobile operators offering high speed packet data services. This includes – but is not limited to – providing Internet access.

The report charts the next 10 years for fixed and mobile telecoms network operators as the viability of the current broadband business model is threatened by intense competition and falling prices in maturing markets, changing usage patterns, and the adaptation of new technologies. The report identifies and profiles a new $250Bn content delivery market opportunity. (April 2008)


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This report is now availalable to members of our Telco 2.0 Research Executive Briefing Service. Below is an introductory extract and list of contents from this strategy Report that can be downloaded in full in PDF format by members of the executive Briefing Service here. 

For more on any of these services, please email contact@telco2.net/ call +44 (0) 207 247 5003 

Future Broadband Business Models Series

This report examines future retail and wholesale business models for fixed and mobile operators offering high speed packet data services. This includes – but is not limited to – providing Internet access.

The report charts the next 10 years for fixed and mobile telecoms network operators as the viability of the current broadband business model is threatened by intense competition and falling prices in maturing markets, changing usage patterns, and the adaptation of new technologies. The report identifies and profiles a new $250Bn content delivery market opportunity.

  • Report Summary
  • Key Points
  • Who is this report for?
  • Business Context – The Changing Face of Broadband Distribution
  • Key Questions Answered
  • Case Studies, Companies, Services, Technologies & Applications Covered
  • Forecasts Included
  • Summary of Contents
  • Pricing and User Licenses
  • Customer Workshops
  • Team Biographies
  • Fit with other Broadband Reports
  • Other Reports

This study is supported by BT, GSM Association, the Broadband Stakeholder Group, the TeleManagement Forum, and Telecom TV.

Report Abstract

Intense competition and falling prices in maturing markets coupled with the challenges presented by changing usage patterns and the adaptation of new technologies are all starting to threaten the viability of the current broadband business model.

This report reviews the pain points in current operational scenarios, case studies of successful strategies and emerging new entrants, and profiles the key threats and future opportunities to the industry. It outlines a number of key steps to develop business models that can be viable in the evolving marketplace, and touches on the future of core Voice & Messaging revenues, Video Distribution, P2P technologies, the Next Generation Network, E-commerce Value Added Services, and more. The report identifies and profiles a new $250Bn market opportunity.

Key Points

  • Pain points in current operational scenarios.
  • Case studies of successful strategies and emerging new entrants.
  • Threats and future opportunities to the industry.
  • Steps to develop business models that can be viable in the evolving marketplace.
  • The future of Voice, Video Distribution, P2P technologies, the Next Generation Network, E-commerce Value Added Services, and more.
  • New propositions, channels and partners for telco operators, cablecos, ISPs, NEPs, Device Manufacturers, Investors, and Public Policy bodies.
  • Scopes an attractive new $250Bn market opportunity.
  • Short, medium and long term actions required.

 

Who is this report for?

The report is for senior (CxO) decision-makers and business strategists setting business strategy, and for product managers, technologists, and strategic sales, business development and marketing professionals acting in the broadband arena in the following types of organisations:

  • Fixed & Mobile Broadband Operators – to set and drive strategy.
  • Vendors & Business Partners – to understand customer need and develop winning customer propositions.
  • Regulators & Industry Standards bodies – to inform policy making and strategy.

 

Strategists and CxOs in Media and Investment Companies may also find this report useful to understand the future landscape of the broadband industry, and to help to spot likely winning and losing investment and operational strategies in the market.

Business Context – The Changing Face of Broadband Distribution

The chart below shows how the telecoms industry today offers two dominant types of distribution systems for content and services.

  1. Vertically integrated networks, like the Public Switched Telephony Network, its mobile equivalent, Next Generation Network replacements for these, and SMS messaging (“PSTN & SMSC”). Here, a dedicated network integrates connectivity, service and payment.

  2. Internet access, where connectivity, services and payment are all separate (“Broadband Internet”).

  3. In the future there will be a wide range of new business and payment models which assemble devices, applications, content and connectivity in new technical and economic ways (“Other”). Wholesale markets will evolve greatly to support this. This original hypothesis, affirmed by our proprietary market research, is explored in depth in this report.

This study looks at the impact of this significant change on the business models of those in the broadband value chain.

Key Questions Answered

This report uniquely answers 3 key questions:

  1. “What are the business models for fixed and mobile broadband voice, video and data access over the next 5-10 years” – how will these revenue streams evolve for telcos and cablecos?

  2. “What are the future wholesale and retail business models” – managing costs and revenues by learning from outside the telecoms industry.

  3. “How to rejuvenate broadband growth strategies” – what are the new propositions, channels and partners for telco operators, cablecos, ISPs, NEPs, Device Manufacturers, Investors, and Public Policy bodies.

In addition, to help operators and vendors maximise future opportunities from broadband-based services the following questions are also addressed:

  • What are the key pain points and problems in the current Broadband Service Provider (BSP) business model?

  • What are the limitations of reliance on voice and video cross-subsidy?

  • What are new potential upstream and downstream revenue models?

  • Who puts money into BSPs today, and how does it gets re-allocated?

  • Who makes the margins today and why?

  • What are the drivers of economic activity inside and outside the network?

  • What are the competing fixed and mobile distribution systems and their relationship to services?

  • What lessons about wholesale/network business models can we learn from outside of telecoms?

  • How long are vertically-integrated service models likely to survive? What are the opportunities for new entrants?

  • What are the most successful players doing to combine multiple distribution systems to support the customer experience?

  • What are the lessons from dead or dying distribution systems (ATM, ISDN, MMS)

  • How much value will flow through new broadband distribution channels?

  • How to improve core Voice and Video services?

  • Which network ownership models will be most effective?

  • What are the economics of QoS, and how to create better alternatives?

  • What are the trends in traffic shaping and throttling?

  • What is the potential for new wholesale intermediaries to grow beyond providing backbone and interconnect peering for access networks?

What are the practical issues in taking new business models to market in a highly regulated and politicised industry?

Case Studies, Companies and Services, and Technologies & Applications Covered

Case Studies: Akamai, BT 21CN, BT Vision, e-TopUps, Illiad, Janet(UK), Joost, Kontiki, Limelight, LINX, Sky Anytime.

Companies and Services Covered: 3 UK, Akamai, Amazon, Amazon Kindle, Apple, Apple iPhone, Apple iTV, ASUS, AT&T, AT&T/Bell Labs, BBC, Blackberry, Blockbuster, Blyk, BSkyB, Carphone Warehouse, Cinema Paradiso, Cisco, Dell, Deutsche Telekom, Direct Connect, Disney, DoCoMo, DoCoMo iMode, Easyjet, Ericsson, France Telecom, Freebox, Gillette, Google, Google Phone, Hutchison 3, Intel, Liberty Global, Link, Livebox, Lovefilm, Lucasfilms, Maxjet, Microsoft, Motorola, Motorola Tetra, Moviebank, MSN, My Moviestream, Myspace, Netflix, News Corp, Nextel, Nokia Ovi, Pixar, Qualcomm, Ryanair, Scientific Atlanta, Setanta, Sky+, Skype, Slingbox, Sprint PCS, Swedish Metro, Swisscom Hotspots, Tandberg, Tesco Mobile, The Economist, Tracfone, TV Perso, Verizon FIOS, Verizon Wireless, Virgin, Wall Street Journal, Walmart, Yahoo!, YouTube.

Technologies & Applications Covered: Broadband, Broadband Video, Broadband Voice, Cable, CDMA, CDNs, Deep Packet Inspection, DSL, Edge-Caching, Ethernet/ATM unbundling, Fax, Femtocell, FON, GSM, HDD, IMS, Internet Video, IP, IP Multicast, IP Stream, IPTV, ISDN, Linksys, Linux, MMS, Mobile TV, Muni Nets, MVNO, Mxit, Netgear, OpenID, OPLANs, P2P, PAN, Peak Shaving, PSMN, PSMs, PSTN, Telex, Traffic Shaping, VoD, VOIP, VPN, Wifi, WiMax, WLAN.

Forecasts Included

For 2006-2017: Wholesale and Retail BSP revenues by Fixed and Mobile Access, TV, Data, Voice & Messaging across 12 Western European and North American markets.

Summary of Contents

Introduction

Executive summary

Background to this Telco 2.0 research project

Part 1: The business model

  • A framework for business model innovation
  • Business model change in the airline industry
  • Applying the framework to telecoms business models


Part 2: Broadband service provider industry review

  • ISP industry
  • Entertainment market
  • Voice and messaging
  • Business model issues


Part 3: Wholesale and network business models beyond telecoms

  • Container shipping
  • Automatic teller machines in the UK
  • Power and energy distribution


Part 4: Competing distribution systems – theory and practice

  • Broadband as a distribution system
  • Drivers of vertical integration

Part 5: Emerging and declining distribution systems

  • CDNs: A freight service for the digital world
  • Vertical distribution systems
  • Hybrid distribution system case studies
  • Lessons from other delivery systems
  • Conclusions


Part 6: Survey results

  • Broadband video – is internet video a threat or an opportunity?
  • Broadband voice – which companies will prevail?
  • The network – what does the internet carry today?
  • E-Commerce value-added services
  • The wholesale market
  • The retail market
  • Case studies
  • Winners and losers

Part 7: Future broadband revenue models and scenarios

  • BSP market sizing
  • Wholesale market opportunity


Part 8: Conclusions

  • Beyond bundling: the quest for a new business model
  • Respondent views
  • Recommendations


Appendices

  • Research methodology and respondent profile
  • Glossary

This report is now availalable to members of our Telco 2.0 Research Executive Briefing Service. Below is an introductory extract and list of contents from this strategy Report that can be downloaded in full in PDF format by members of the executive Briefing Service here.  To order or find out more please email contact@telco2.net, call +44 (0) 207 247 5003.

 

Full Article: Mobile NGN, a Real Telco 2.0 Opportunity?

The sixty page document “Next-Generation Mobile Networks (NGMN): Beyond HSPA and EVDO? is the latest white paper of NGMN.org, an initiative by the CTO’s of China Mobile, KPN Mobile, NTT DoCoMo, Orange, Sprint Nextel, T-Mobile International and Vodafone Group. It provides a technical requirements framework to vendors for the next iteration of mobile networks.

To be clear, what’s defined is just a technology toolkit. Different carriers may deploy it in different ways with varying business models and services. Until we see the business models, jubilation or damnation is premature. Nonetheless, this is an extremely important document. The “walled gardens? of 3G are starting to look like weed patches, and this is a rare chance to define a truly new Telco 2.0 approach that takes the best of the Internet and traditional telecoms models.

The document avoids wild flights of fancy about sophisticated combinatorial services, and focuses on practical implementation concerns of mobile broadband. It rightly sees the mobile ecosystem as a co-evolution of devices, access and services. This offers a valid and viable parallel/alternative path to the fragmented and sometimes chaotic Internet approach. It’s clear about what generic classes of service are to be offered, and what tradeoffs are likely to be acceptable. The document also outlines a very much evolutionary approach: business-as-usual, only faster and cheaper.

And therein lie the big questions:
* Does it go far enough in addressing the forces tugging apart network access, services and devices?
* Does it react to the counter-forces that would push them back together in order to address deep architectural issues of IP and the Internet (such as weak security and low efficiency)?

Our answer based on our reading is “maybe, if deployed right? — but you need to be a bit of a Kremlinologist to read between the lines and think about what’s left unsaid.

We’ll start with the easy bit: things in the document that make sense about Making Money in an IP world. Then we can delve into the more philosophical and practical limits of that IP world and how a next-generation architecture might address them.

Plenty to praise

There are many positive improvements proposed. Some highlights might include:

  • Self-configuring networks that cost less to run.
  • Improved scheduling algorithms that focus on user “quality of experience? at the periphery of a cell site, rather than RFP-friendly numbers for maximum burst throughput standing under the cell tower at 3am on Christmas morning.
  • Flexible and modular service-oriented architecture to accommodate future change.

Put simply, whatever NGMN turns out to be, operators want OSS and BSS thought through in advance, and for vendors to take responsibility for the operator and user experience post-installation. So far, so good.

Aligned with several Telco 2.0 trends

There are also some features which come with the “Telco 2.0 Approved��? stamp because of their reflection of the business trends we see:

  • The ability to share equipment and do more slice-and-dice of the infrastructure similar to MVNOs, but better. We believe infrastructure sharing and new modes of financing/ownership as being a key Telco 2.0 trend (as we will discuss at our forthcoming Digital Town event workstream).
  • Stronger device and end-to-end security to enable transactions of money or sensitive data. As telcos are already diversifying into the payments and identity business, this can only grow — and depends on such enabling infrastructure. DoCoMo are part of the consortium, and given their trailblazing in payments services, we’re hopeful of seeing diversification successes of operators elsewhere based on their learnings.
  • Detection and mitigation of network traffic resulting from malware or attack. This we feel will be a growth area as the services become less controlled. A limitation of the “intelligence at the edge? concept is the ability of those edges to collaborate to detect and eliminate abuse. The experience of email spam and phishing tells us that not all is wonderful in Internetland.

Moving on, there are several things conspicuous by their absence.

The Internet elephant in the corner

Apart from some in-passing references in a few tables and diagrams, the word “Internet? is wholly absent from the document. It’s a bit like Skype, YouTube and BitTorrent never happened. In fact, you can only conclude this absence is deliberate.

It could very well be that the technology defined can be deployed in very different manners, and operators may take radically different approaches — such as the contrast between 3 and T-Mobile in the UK embracing open Internet access, O2 trying to keep people on-portal, and Vodafone outright banning many popular Internet services such as IM, VoIP and streaming. Will operators want to continue to ride the “Telco 1.0? command-and-control horse, or switch to a more open “Telco 2.0? Internet-centric approach? Will the point of a future mobile network to channel bits back at all costs to a cell tower where they can contend for expensive backhaul to be deep-packet-inspected. metered and accounted for? Or will it complement the other infrastructure that exists?

The IMS mouse in the cupboard

Equally conspicuous by its general absence is reference to IMS. Our take is that there could be a polarisation here between “service-centric? operators trying to define interoperable new services and compete against Internet players; and “connectivity-centric? operators who create “smart dumb pipes? and enabling platforms for a wide ecosystem of players. You could deploy NGMN and completely ignore IMS if you chose to do so.

Local connectivity, globally interoperable

At the other extreme of connectivity, another thing not given much ink is the explosion of highly local connectivity. For example, we’ve just passed the billionth Bluetooth-enabled device. Motorola’s Chief Software Architect, John Waclawsky, described this at the last Telco 2.0 event in October in his presentation “From POTS [telephony] to PANS [Personal Area Networks]?. The mobile network itself can still play a part in this, such as offering directories of resources. If you’re sat in Starbucks today and want to print out a document, you’re out of luck — the network can’t help you locate or pay for such services.

Given that this is an integrated vision of handset, network and service evolution, we think it may be gold-plating the longhaul connectivity vision, and underspecified the local connectivity one. The business model will also need to evolve, since there may be no billable event. It has to anyway: products like Truphone will make it ever easier for users to bypass or arbitrage network access.

What’s the commercial vision?

Naturally, the operators can’t write down a collective commercial vision (because of anti-trust), nor an individual one (due to commercial confidentiality). So you have to impute the commercial vision from the technology roadmap.

The stated requirement is for a network that’s low-latency, efficient, high-throughput, more symmetrical, good at unicast, multicast and broadcast, cheap, and interoperates seamlessly with everything that went before it. It’s a bit like low-calorie cream-topped chocolate cake. Sounds like a good idea, until you try making one.

The inevitable billion-dollar question is what are the services and the business model that will pay for all this? The experience from 3G was that “faster? isn’t itself a user benefit of significance (particularly when it doesn’t work indoors!) In fact, given that battery technology follows a curve well below that of Moore’s Law (or its transmission equivalent), there’s the “oven mitt? problem of early 3G handsets still lurking: how to create hand-held devices that are physically capable of sourcing and sinking data at such speeds and over such distances (and high power) — and that create services users care about in the process.

Or, to put in another way, why sync my iPod over the air slowly when I can plug this USB cable into my laptop and do it at 400Mbps for free?

What is a mobile network for, exactly?

There’s a significant difference of expert opinion here that’s worth noting. There isn’t universal agreement on what wireless networks are best used for compared to wireline. For example, Peter Cochrane, the former CTO and head of research at BT has long been keen on forgetting DSL and copper and going all-wireless. NGMN’s ambitions to match and exceed the technical and cost capabilities of DSL suggest a commercial vision of competing against fixed access.

Our take is that success is most likely to come from intelligently blending the best of fixed, mobile and media-based delivery of data, rather than an absolutist approach to any one of these. Furthermore, the unsolved user problems are more to do with identity, provisioning, security and “seamlessness? than speed or even price. Finally, users don’t generally see the up-front value in metered or fixed buckets of IP connectivity, particularly given the anxiety it causes over cost or overage. True unlimited use isn’t technically possible, so the network has to allow connectivity to be bundled into the sale of specific device or application types, where traffic is more predictable.

Stop looking for the platinum bit

The hypothesis seems to be that some bits will be blessed with “End-to-end QoS? and continue to gather super-premium pricing (by many orders of magnitude). The need for this QoS capability is repeatedly stated. At the same time as the network capacity, latency and cost improve to near-wireline levels. I think you can spot the problem. I’ve made a successful Skype call to someone 35,000 feet up on a 747 somewhere over central Asia, and there wasn’t any QoS involved.

Our post on Paris Metro Pricing attempts to challenge some of the assumptions that drive this requirement. It sounds esoteric to those from the commercial side of the business, but ignoring this small technical detail is telecom’s equivalent of the frozen O-ring. Set the price high, and at some point all the valuable bits flow around the “premium pipe? and not through it, and the commercial model fails.

NGMN could be part of the solution here, not the problem. If operators can switch to a congestion-based mode of pricing, rather than pure capacity, they could offer users a far better deal.

What are the real sources value?

Here are some examples of requirements in the document, and how NGMN provides opportunities for product and business innovation:

  • Making user data more seamlessly accessible, blurring the line between online and offline. The specification includes
    Standardised APIs (i.e. not operator or handset-specific) to sync online and offline data like address books, so the user doesn’t have to care so much about network connection state. This whole process could be taken much further to cover all content. This lecture video by Van Jacobson, former Chief Scientist at Cisco, points to a very different future network architecture based around diffusion of data rather than today’s packet-only networks where you have to know where every pieve of data is located to find it. (Hat tip: Gordon Cook.) This isn’t a theoretical concern: wireless networks readily become congested. Maybe it’s time to reward your neighbours for delivery you the content, rather than backhauling everything across the globe. The Internet’s address space is flat, but its cost structure is not.
  • Deeper coverage, richer business models. The document talks about hub terminals (e.g. femtocells). Deep in-building and local coverage is a clear user desire. The first step is outlined, but there’s no corresponding economic model being included. Companies like FON and Iliad are doing innovative things with user-premises equipment and roaming. We nope NGMN doesn’t repeat the experience of Wi-Fi, where hooks for payment weren’t included (causing a mess of splash screens), and the social aspects neglected (am I sharing this access point deliberately?). The existence of bottom-up network deployment is an interesting possibility. You need to create new security and payment mechanisms so that local entrepreneurs can extend networks based on local knowledge and marketing. Top-down is becoming top-heavy.
  • Support for a diverse array of charging models. It’s in there, but could get lost in the deep-packet-inspection swamps. The genius of telephony and SMS is to sell connectivity bundled with service in little incremental slices. We’d like to see richer, better and simpler ways of device makers and service providers bundling in connectivity. (See out earlier artlce on this for more details.) For example, the manifest of a download application could say that Acme Corp. is going to pay for the resulting traffic — and the secure handset will ensure it’s not abused to tunnel unrelated data at Acme’s expense. NGMN could enable this.
  • Uplinks vs. downlinks. Users create as much content as they consume. Devices are equipped with multi-megapixel cameras and video capture, which will be uploaded for online storage and sharing. That media is then often down-sized for viewing (if it is ever viewed at all). Yet the standards continue to emphasise downlink performance. We’ll acknowledge that from a technology perspective uplink engineering is like trying to fire bullets back into the gun barrel from a distance. Somehow this issue needs to be looked at. NGMN takes us closer, at least.
  • Peer-to-peer. A great requirement in the specification is “better support for ‘always on’ devices, with improved battery performance and network resource usage.?. We’d second that. But given this requirement, where’s the peer-to-peer specification of the services those devices should host? Or do operators still believe that the purpose of the network remains distribution of professionally authored media entertainment from “central them to “edge us?
  • Building an identity-centric business. Another good requirement is for more advanced modes of device authentication, such as sharing a SIM among multiple devices. In some ways it defines an “identity network that is independent of the NGMN, and potentially fixes some serious problems with the Internet. Mobile networks may happen to use those identities, but they’re equals with other uses. We’d encourage more creative thinking in this area.

Summary thoughts

Overall, it’s a good piece of work. Change doesn’t happen overnight, and given a 3-5 year time horizon, the world will not be beyond recognition. Nonetheless, without a parallel vision of business model evolution, much of the investment in NGMN could become as equally stranded as that in 3G. With the right vision, it could make the “mobile Internet really work, since the “real Internet continues to be a polluted, expensive and frustrating experience for users.

Full Article: BBC’s iPlayer nukes “all you can eat” ISP business model

The UK’s largest broadcaster finally launched its online video streaming and download service on Christmas Day. Plusnet, a small ISP owned by BT,  has provided a preliminary analysis of the traffic and the results should send shivers down the spine of any ISP currently offering an unlimited “all-you-eat” service.

The iPlayer service is basically a 7-day catch-up service which enables people who missed and didn’t record a broadcast to watch the programme at their leisure on a PC connected to the internet. The iPlayer differs from any other internet-based video service in certain key respects:

It is funded by the £135.50 annual licence fee which pays for the majority of BBC activities.

  1. The BBC collected 25.1m licence fees in 2006/7. No advertising is required for the iPlayer business model to work.
  2. It is heavily promoted on the BBC broadcast TV channels. The BBC had a 42.6% share of overall UK viewing in 2006/7 and therefore a lot of people already know about the existence of the iPlayer after one month of launch.
  3. it is a high quality service and is designed for watching whole programmes rather than consumption of small vignettes.

This is sharp contrast to the current #1 streaming site, YouTube.

A massive rise in costs

The key outputs from the Plusnet data is that in January:

  1. more customers are streaming;
  2. streamers are using more; and most importantly
  3. peak usage is being pushed up

This equates for Plusnet to streaming cost increasing in total to £51.7k/month from £17.2k, or an increase of 18.3p/user from 6.1p/user. This is a 200% cost increase in just the first MONTH of the service. If we assume that the Plusnet base of 282k customers is a representative sample of the whole UK internet universe than we can draw some interesting conclusions about the overall impact of the iPlayer on the UK internet. On the whole UK IPstream base of 8.5m the introduction of the iPlayer would equate to an increase in costs to £1.5m in January from 500k.

Despite access unbundling, ‘middle mile’ costs remain a key bottleneck

IPstream is a wholesale product from BT, with BT being being responsible for the transit of the data from the customer’s home to an interconnect point of the ISP’s choice. The ISP pays for bandwidth capacity at the point of interconnect. BT Retail acts like an external ISP in the structurally separated model. The overall effect of the iPlayer for the BT’s IPstream-based customers is roughly neutral, with the increase in revenues at wholesale (external base of 4.2m customers) being offset by the increase in costs at BT Retail (total base of 4.2m customers). Of course, this assumes no bandwidth overages at BT Retail, which probably is not the case as both BT and Plusnet have bandwidth caps. In effect, incremental cost for ISPs using the IPstream product is determined by ordering extra BT IPstream pipes which come in 155-meg bit size chunks. The option for the ISP is either to allow a degradation in performance or order more capacity.

Time to buy more pipes

We tested the bandwidth profile using Wireshark watching a 59mins documentary celebrating the 50 year anniversary of Sputnik with both streaming and P2P. The streaming traffic is easy to analyse as it comes through on port 1935, which is the port used by Flash for streaming. Basically a jitter-free screening ran on average at around 0.5Mbit/sec. Using the 155-meg ordering slice this means only around 300 people need to be watching the iPlayer at the same time (peak = 8pm-10pm) to fill a pipe. Seeing that IPstream customers are aggregated across the UK to a single point, a lot of ISPs will be thinking of the need to order extra capacity. The BBC also offers a P2P download which is of higher quality than the streaming. We managed to download the 500Mb file in just over 20 minutes at an average speed of 3.5Mbit/sec. The total traffic (including overhead) for the streaming was 231MB and for the P2P delivery was 544Mb.

Full unbundling still leaves ISPs at the mercy of backhaul costs

The story for facility-based LLU(Local Loop Unbundling) players, which account for another 3.7m UK broadband customers, is slightly different as it depends completely on network design and distribution of the base across the exchanges. Telco 2.0 market intelligence says that some unbundlers have ordered 1-gig links for the backhaul and should be unaffected least in the short term. However, some unbundlers have only ordered 100-meg links and could be in deep trouble with peak hour people really noticing the difference in experience. The only real option for these unbundlers is to order extra capacity on their backhaul links which could be extremely expensive. The average speed for someone just browsing and doing emails is quite low compared to someone sat back watching videos stream.

Cable companies understand sending telly over wires

The story for Virgin Media, which is the main UK cable operator with 3.3m broadband subscribers, is again is dependent on network design. This time it depends upon the load on the UBR(Universal Broadband Router) within the network segment. Virgin Media have a special angle to this as the iPlayer will be coming to their Video-on-Demand service in the spring, and therefore we assume this will take a lot of load off their IP network. The Virgin VoD service runs on dedicated bandwidth within their network and allows for the content to be watched on TV rather than PC. A big bonus for the Virgin Media subscribers.

Modelling the cost impact

For both cable and LLU players the cost profile is radically different to IPstream players, and it is not a trivial task to calculate the impact. However, we can extrapolate the Plusnet traffic figures to note the effect in volumes of data. We have modelled four scenarios: usage the same as in Jan 2008 (i.e. an average of 19min/month/user) rising to 1 hour/month, 1 hour/week and 1 hour/day. These would give an increase in cost of £1,035k/month, £3,243k/month, £14,053k/month and £98,638k/month respectively for the IPstream industry, only based upon Plusnet cost assumptions. Of course this is assuming the IPstream base stays the same (and they don’t just all go bust straight away!). Across the whole of the UK ISP industry, the increase in traffic (Gb/month) is 1,166, 3,655, 15,837 and 111,161 respectively. That’s a lot of data. The obvious conclusion is that ISP pricing will need to be raised and extra capacity will needed to be added. The data reinforces our belief expressed in our recent Broadband Report that “Video will kill the ISP star”. The problem with the current ISP model is it is like an all you can eat buffet, where one in ten customers eats all the food, one in a hundred takes his chair home too, and one in a thousand unscrews all the fixtures and fittings and loads them into a van as well.

A trigger for industry structural change?

An interesting corollary to the increase in costs for the ISPs is that we believe that the iPlayer will actually speed up consolidation across the industry and make the life of smaller ISPs even more difficult than it is today. Additionally because of the high bandwidth needs of the iPlayer, the long copper lengths in rural England and the lack of cable or LLU competition to the IPstream product, we believe that the iPlayer will increase the digital divide between rural and suburban UK. The iPlayer also poses an interesting question for the legion of UK small businesses who rely on broadband and yet don’t have a full set of telecommunications skills. What do they do about the employee who wants to eat their lunch at their desk whilst simultaneously watching last nights episode of top soap EastEnders?

Time to stop the game of ‘pass the distribution cost parcel’

The BBC is actually in quite a difficult situation, especially as publicity starts to mount over the coming months with users breaking their bandwidth limits and more or more start to get charged for overages. The UK licence payers expect they paid for both content and distribution when they handed over £133.50. In 2006/7, the BBC paid £99.7m for distributing its broadcast TV signal, £42.6m for its radio signal and only £8.8m for its online content. This is out of a total of £3.2bn licence fee income. I would suggest that the easiest way for the BBC to escape the iPlayer conundrum is for them to pay an equitable fee to the ISPs for distributing their content and the ISP plan comes with unlimited BBC content, possibly with a small retail mark-up. The alternative of traffic-shaping your users to death doesn’t seem like a great way of creating high customer satisfaction. The old media saying sums up the situation quite nicely:

“If content is King, then distribution is King Kong”

[Ed – to participate in the debate on sustainable business models in the telecoms-media-tech space, do come to the Telco 2.0 ‘Executive Brainstorm’ on 16-17 April in London.]

Full Article: Beyond bundling, the future of broadband

This is an edited version of the keynote presentation of Martin Geddes, Chief Analyst at STL Partners, at the October 2007 Telco 2.0 Executive Brainstorm in London. It provides some initial findings from our research into future business models for broadband service providers (BSPs), including our online survey. (The summary results will be mailed out to respondents in the next few days.) Those wishing to find out more may want to take a look at our forthcoming report, Broadband Business Models 2.0.

To save you the suspense, here’s the headlines for what’s upcoming for the telecoms industry, based on what insiders are saying through our survey and research:

  1. Operators are going to face a slew of non-traditional voice service competition. To corrupt the words of Yogi Berra, “The phone network? Nobody goes there anymore, it’s too crowded.? The volume may linger on, but the margins in personal communication will move elsewhere.
  2. Content delivery is a logistics problem that spans many distribution systems. Those who can solve the delivery problem by sewing together many delivery services, rather than those focused on owning and controlling one channel, will win.
  3. Wholesale markets in telecoms are immature and need to evolve to support new business models.
  4. Investors aren’t up for more “loser takes nothing? facilities-based competition capex splurges. Time to look hard at network sharing models.

So, read on for the background and evidence:

Background to the survey and research

Our ingoing hypothesis is that telecoms – fixed or mobile — is a freight business for valuable bits. This could be via traditional voice networks. Broadband is another means of delivering those bits. It includes Internet ISP access, as well as other services such as private VPNs and IPTV.

Broadband competes with and complements other delivery systems like broadcast TV, circuit-switched phone calls and physical media.

Just as with physical goods, there are lots of delivery systems for information goods. These are based on the bulk, value and urgency of the product – from bicycle couriers to container lorries for atoms; phone calls to broadcast TV for bits.

As part of our research we’ve also been looking at how other communications and delivery systems have evolved commercially, and what the lessons are for the telecoms industry. After all, broadband as a mass-market business is barely a decade old, so we can expect considerable future change. In particular, the container industry has some strong parallels that may hold important lessons.

Physical goods and the telephone system have developed a wide range of payment methods and business models.

With physical goods we have “collect it yourself?, cash-on-delivery, pre-paid envelopes and packages, as well as express parcels, first and second class postage.

The phone system offers freephone, national, non-geographic and various premium-rate billing features. It offers the user a simple, packaged service that includes connectivity, value-added features, interoperability, support and a wide choice of devices.

Likewise, SMS packages together the service and its transport. It’s wildly popular, bringing in more money globally than games software, music and movies combined.

The problem is that this has come within closed systems that don’t enjoy the rich innovation that the open Internet brings.

Internet access, by contrast, offers an abundance of goods but is relatively immature in the commercial models on offer. Broadband service providers typically offer just one product: Internet access. And they generally only offers one payment mechanism for delivery of those online applications: one-size-fits-all metered or unlimited, paid independently of services used. (There are some important exceptions — you can read more here.)

As a small example of how the Internet under-serves its users, when a small non-commercial website suddenly gets a surge of traffic it typically falls over and is swamped. That is because there’s no commercial incentive for everyone to pay for a massively scalable hosting plan just in case of unexpected demand. The telephony system doesn’t suffer this because the termination fee for every call is designed to at least cover the technical cost of carrying the call.

Oh, and don’t expect Google to host it all for free for you either – the error message in the slide above is cut and pasted from a bandwidth-exceeded Google Blogger account.

There is also a lack of incentive for access providers to invest in capacity on behalf of Google to deliver richer, heavier content (where Google collects the revenues).

The question therefore is: How can BSPs find new business models inspired by more mature distribution systems?… whilst at the same time not killing off the innovation commons that is the Internet. BSPs must both create and capture new value in the delivery of online applications and content. Being an NGN or IPTV gatekeeper is not enough.

Fixed voice revenues are declining; mobile voice is peaking; and SMS is slowing down. The theory has always been that broadband ISP services will take up the slack, but in practise margins are thin.

Our research is testing out a wide variety of alternative commercial models. For example, would an advertiser like Google pay for not just the hosting of content (via YouTube, Picassa or Blogger), but also the end-user usage on a fixed or mobile device for receiving that content?

We believe that whilst these alternative models may individually be much smaller than traditional broadband Internet access, collectively they may add up to a larger amount of value.

Survey supporters and respondents

The research would not be possible without the active support of the above sponsoring and supporting organisations, and we thank them all.

We’ve had over 800 respondents, with roughly one third from operators & ISPs; a quarter from vendors; and the rest consultants, analysts, etc. The geographic split is Europe 40%, N America 30%, Emerging 20%, Developed Asia 10%. There is a ratio of around 60:40 fixed:mobile respondents, and mostly people from commercial (rather than technical) functions.

We asked about four main areas:

  • Today’s ISP model — is it sustainable.
  • Future of voice service in a broadband world
  • Future of video service, as the other leg of the “triple play? stool
  • Future business and distribution models

Rather than assault you with dozens of charts and statistical analyses, what follows is the gist of what we’ve discovered.

Furthermore, we’re looking 5-10 years out at macro trends. You might not be able to predict Google, Skype or Facebook; but you can foretell the rise of search, VoIP and socially-enhanced online services. Even in our own industry, there can be large structural changes, such as the creation of Openreach by BT. You could probably have foretold that as vertical integration weakens there would be such organisational upheavals, even if not who and when.

Sustainability of ISP business model

What’s the future business model for broadband?

Around 20% see the current stand-alone ISP business model as sustainable long-term. This includes many senior industry figures, who cite better segmentation, tiered price plans, cost-cutting and reduced competition in more consolidated markets. It may be a minority view, but cannot be dismissed out of hand.

Around a quarter of respondents thought that broadband works as part of a triple or quad-play bundle of voice, video and data – cross-subsidised by its higher-margin cousins. This is the current received wisdom.

However, a majority of respondents say that a new business model is required. These results hold broadly true across fixed and mobile; geographies and sectors.

Which brings us to our first lesson from the container industry. Old product and pricing structures die hard. The equivalent efforts at maintaining a “voice premium��? all failed. Trying to price traffic according to the value of what’s inside the container or packet doesn’t scale.

For BSPs, that means technologies like deep packet inspection might be used:

  • for law enforcement (“x-ray the containers?), or
  • to improve user experience (at the user’s request), for example by prioritising latency-sensitive traffic (“perishable goods?)

However, traffic shaping can’t be your only or main tool for the long-term; you can’t reverse-engineer a new business model onto the old structures. It doesn’t, ultimately, contain your costs or generate significant new revenues.

Broadband voice

One of the big surprises of the survey was how quickly respondents see alternative voice networks getting traction. We asked what proportion of voice minutes (volume – not value) will go over four different kinds of telephony in 5 and 10 years from now. Looking at just the growth areas of IP (i.e. non-circuit) voice, you get the following result.

It seems those WiFi phones we laugh at now are more dangerous than previously thought – maybe when 90% of your young customers are communicating via social networking sites, you’ve got some unexpected competition? (Indeed, we note that social network traffic is just overtaking the traditional email portals.)

We were also given a surprise in that respondents saw most of these changes happening over the next 5 years.

Insiders see the growth in voice traffic as being anchored on best-effort Internet delivery, which gets around 1/3 of the IP voice traffic. Using traffic shaping, offering tiered levels of priority, and using traditional end-to-end quality of service guarantees all got roughly equal share.

There are some small differences between fixed and mobile, and mobile operators might like to seriously consider offering tiered “fast dumb pipe? and “slow dumb pipe? that applications can intelligently choose between.

This all suggests that operators may be over-investing in complex NGN voice networks and services. They need to urgently work out how they can partner with Internet application providers to offer “voice ready? IP connectivity without the costly telco-specific baggage of telco protocols and platforms.

So what’s the lesson from container shipping for the broadband voice community?

At the same time as containers where being adopted, some ports doubled-down on the old business model and built better breakbulk facilities – and lost. Manhattan’s quays are gone, Newark has replaced it.

Others waited to become “fast followers?, and lost too. London went from being one of the world’s busiest ports, to zero activity. Dubai did the reverse by investing exclusively in the new model, with a low cost base and high volume. (Shades of Iliad’s approach in France.)

The winners were those who staked out the key nodes of the new value chain.

There are some clear lessons here for telcos and their NGN voice networks. The cost of broadband access technology is dropping, capacity is rising, and the voice component’s value is decaying towards zero. Furthermore, session control (the software part of the voice application) is just another IT function that runs inside a big server, and isn’t something you can charge for above hosting costs. It has the economics of email, and that’s mostly given away for free. So IP voice isn’t adding anything to your triple/quad play bundle, and can only be justified on the basis of reducing cost in the old business model. An IP NGN voice service that’s still selling metered minutes does not constitute a new business model.

Broadband video

The survey results for video are a little less dramatic than for voice and follows received wisdom more closely. Overall respondents endorsed Internet video as far more of an opportunity than a threat. (Only in telecoms can a significant proportion see more demand for their product as a problem! The potential issue is that video could drive up costs without sufficient compensating revenue.) A long slow decline for broadcast TV and DVDs is matched to a slow ramp-up in various forms of on-line delivery. Every form of Internet delivery, from multicast IP to peer-to-peer file sharing gets a roughly equal cut. There were some things to watch out for though…

The opportunity is to become as supplier of advertising, e-commerce, caching and delivery services for a variety of video portals, not just tied to your own. This isn’t surprising; can you imagine a Web where there were only two portals to choose from, both owned by the network owners? The same applies to video.

Economic migration, cultural fragmentation and user-created content ensure that we’ll need a diversity of aggregation, recommendation, filtering and presentation technologies.

Given a choice between building a closed IPTV solution, or an open content platform, the response was well in favour of the latter as the more profitable to run. (The slow ramp up of BT’s Vision service suggests its success is more likely to be based on the “push? of analogue switch-off than the “pull? of the telco brand as a TV provider. Why do no telco TV plans centre around external entrepreneurial talent and innovation?)

Both options beat the alternative of disinvestment in video delivery technology. So fixed and mobile operators are well positioned to help enable and market video, just not “TV over IP?. That’s the steam-hauled canal boat, when you’re supposed to be using IP to build a railroad. It seems telcos are over-investing in emulating broadcast TV and under-investing in the unique nature of the online medium.

P2P and “over the top? are here to stay. You deal with the costs by offering more profitable alternatives, not by punishing your most voracious customers. (See our article on Playlouder as an example of how to do it right.)

In music, Apple’s iTunes captured the key bottleneck in the distribution chain. Could the same happen for online video?

We gave respondents a choice of four scenarios:

  • Direct to user from the content author or publisher
  • A single dominant player
  • A fragmented market dominated by telecoms companies
  • A fragmented market dominated by non-telcos

Our respondents say that the market is likely to be fragmented with many aggregators and non-carriers will dominate. Again, “triple play? doesn’t capture the richness of the business-to-business model required with many partners in the distribution and retail value chain. How will Telco TV satisfy my wife’s taste in Lithuanian current affairs and my interest in gadgets and economics lectures? It can’t.

Our take-away from the shipping industry is that when it comes to shifting bulky stuff around, big is good and bigger is, err, gooder. Networked infrastructure businesses have strong increasing returns to scale. There’s no point in building a new port anywhere near Rotterdam because that’s not where the other ships go. There’s a good reason why Akamai takes the bulk of the profit pool from content delivery networks — their one is the biggest.

Network ownership models

Compared to today’s dominant models (facilities-based competition and structural separation), respondents rated a third ownership model – co-operatives of telcos – surprisingly highly. The two currently dominant models remain on top.

The issue is how to structure the vehicles for mutual or co-operative asset ownership. The financial industry has already created structures that allow shared operational businesses, either mutually owned or as private special entities. Furthermore, they’ve managed to preserve barriers to entry. To become a member of the VISA network, you need a banking license. That costs a lot of money.

Telecoms and the Internet business have some common structures around numbering and interconnect, but could emulate these other models from other industries.

The arrival of containers shifted the balance of profit away from the shipping lines and towards the ports.

In terms of telecoms, it’s where the content is originated or goes between delivery systems that matters – from CDN to broadband access, from broadcast to DVR. That means every Googleplex and content delivery network that gets built puts Google or Akamai at a massive advantage, since everyone wants to peer with them.

Traditionally it has been long distance and access networks that have dominated telecoms economics. AT&T’s early years found it the only owner of a long-distance network and thus able to negotiate very advantageous terms in buying up local carriers into the Bell system. It mistakenly help onto the long distance network just as the bottleneck shifted to the access network. At the moment the US sees a duopoly in access networks, and supernormal profits. Wireless carriers enjoy an oligopoly in most markets as a by-product of spectrum licensing.

However, Europe is moving towards structural separation or open access of fixed networks. Homes and offices offer WiFi or femtocell bypass options for cellular. Over time, local access ceases to be such a bottleneck. Furthermore, there are many physical paths and proliferating technologies and suppliers hauling data between the distant points that want to be connected up — be it transoceanic cables or competing wireless backhaul technologies. So the owners of the transmission networks don’t enjoy the benefits. It’s the owners of the places where traffic is exchanged between delivery systems that do, since those feature increasing returns to scale and dominant suppliers.

What is the product we are selling?

Today operators expect you to go out and buy yet another access plan for every device you touch or place you make your temporary home. They sell “lines��?, either physical, or virtual (via a SIM card). Is this really the right way for the future?

All I want to do is connect my phone and laptop to the Internet wherever I am – but I get different prices and plans depending on which combination of device and access technologies I use – yet all from a single vendor. (The first is using my phone as a 3G modem over a USB cable; second is a separate 3G USB modem; third is WiFi.) This creates the perverse incentive when I’m sat in Starbucks to use my phone as a modem for my laptop over the expensive 3G network.

Also, I might be a peer-to-peer download lover, and hopelessly unprofitable. Or I might just want to check my email and surf the web a little on my mobile. How can you rationally price this product? What are the alternatives?

We gave users a choice of 3 alternatives (above) as to how broadband connectivity is provisioned. Should we sell you “unlimited browsing?, but listening to Internet radio is a separate charge? Or should we price access according to the device, but not make the plan portable between devices? A data plan on a basic featurephone would differ in price from a smartphone, Internet tablet or laptop. Or should we just give the user a set of credentials that activates any device or network they touch and bills that usage back to them?

The preferred one was to offer users a connected lifestyle, regardless of devices, applications or prices.

BT’s deal with FON is an example of a step towards this goal. Picocells too have the potential to upend the access line model. In terms of immediate actions, mobile operators should recognise the trend towards divergence and users with multiple handsets. Don’t make me swap SIMs around when I go from my “day phone? to “out on the town phone?. Give them a common number and interface.

New, more liquid, ways of combining together devices and networks for sale would require wholesale markets to evolve.

We asked what impact it would have on BSP revenues if all the friction were taken out of the wholesale market. Anyone who wants to come along and build an application with connectivity included in the price would be able to source their wholesale data from any carrier. You don’t have to be Yahoo!, Google or RIM to negotiate a deal with every carrier in the world, or make one-off special billing integration.

The effect? A 50%+ boost in revenues, which has a commensurately greater effect on profit. How much value is the broadband industry leaving on the table because of its inability to package up and sell its product via multiple channels?

Even more profitable than the ports are the agents who arrange the end-to-end logistics and supply chains for their customers. In telecoms terms, it’s the operator who can assemble a multitude of fixed and mobile networks, content delivery systems and B2B parterships with the application providers that wins.

For telcos, the critical development to enable personalised packaging of connectivity, applications and devices is to build richer wholesale models. The hot activity will be in the B2B markets, not direct-to-user. The failure of most MVNOs has shown that you don’t just want to create “mini me? telcos, but to enable more granular offerings.

Conclusions and summary

Telecoms is going to move to a multi-sided business model. Google are as likely to be paying for the full delivery of the ad-supported YouTube video as the user is. The telco will also feed Google usage and relationship data to help target advertising. Google might use credit data from the operator to manage its own fraud and chargeback risk on its checkout product. Telcos are logistics companies for data, helping the right data to be at the right place at the right time. This is completely different from being a “dumb pipe��?, wannabe media company or end-user services provider.

When you buy a new electronic gizmo, it typically comes with batteries included. The battery makers have learnt to supply batteries wholesale to consumer electronics makers, as well as to end users. Broadband needs to evolve to add “connectivity included?, with the right quality and quantity packaged up with the application or content in ways that the user finds easy to buy. Today’s product is selling users a raw unprocessed commodity, which is serving neither the interests of the users, merchants or operators.