AI on the Smartphone: What telcos should do

Introduction

Following huge advances in machine learning and the falling cost of cloud storage over the last several years, artificial intelligence (AI) technologies are now affordable and accessible to almost any company. The next stage of the AI race is bringing neural networks to mobile devices. This will radically change the way people use smartphones, as voice assistants morph into proactive virtual assistants and augmented reality is integrated into everyday activities, in turn changing the way smartphones use telecoms networks.

Besides implications for data traffic, easy access to machine learning through APIs and software development kits gives telcos an opportunity to improve their smartphone apps, communications services, entertainment and financial services, by customising offers to individual customer preferences.

The leading consumer-facing AI developers – Google, Apple, Facebook and Amazon – are in an arms race to attract developers and partners to their platforms, in order to further refine their algorithms with more data on user behaviours. There may be opportunities for telcos to share their data with one of these players to develop better AI models, but any partnership must be carefully weighed, as all four AI players are eyeing up communications as a valuable addition to their arsenal.

In this report we explore how Google, Apple, Facebook and Amazon are adapting their AI models for smartphones, how this will change usage patterns and consumer expectations, and what this means for telcos. It is the first in a series of reports exploring what AI means for telcos and how they can leverage it to improve their services, network operations and customer experience.

Contents:

  • Executive Summary
  • Smartphones are the key to more personalised services
  • Implications for telcos
  • Introduction
  • Defining artificial intelligence
  • Moving AI from the cloud to smartphones
  • Why move AI to the smartphone?
  • How to move AI to the smartphone?
  • How much machine learning can smartphones really handle?
  • Our smartphones ‘know’ a lot about us
  • Smartphone sensors and the data they mine
  • What services will all this data power?
  • The privacy question – balancing on-device and the cloud
  • SWOT Analysis: Google, Apple, Facebook and Amazon
  • Implications for telcos

Figures:

  • Figure 1: How smartphones can use and improve AI models
  • Figure 2: Explaining artificial intelligence terminology
  • Figure 3: How machine learning algorithms see images
  • Figure 4: How smartphones can use and improve AI models
  • Figure 5: Google Translate works in real-time through smartphone cameras
  • Figure 6: Google Lens in action
  • Figure 7: AR applications of Facebook’s image segmentation technology
  • Figure 8: Comparison of the leading voice assistants
  • Figure 9: Explanation of Federated Learning

Google’s Big, Big Data Battle

The challenges to Google’s core business 

Although Google is the world’s leading search engine by some distance, its pre-eminence is more fragile than its first appears. As Google likes to remind anti-trust authorities, its competitors are just a click away. And its primary competitors are some of the most powerful and well-financed companies in the world – Apple, Amazon, Facebook and Microsoft. As these companies, as well as specialist service providers, accumulate more and more data on consumers, Google’s position as the leading broker of online advertising is under threat in several, inter-related, ways:

  1. Google’s margins are being squeezed, as competition intensifies. Increasingly experienced web users are using specialist search engines, such as Amazon (shopping), Expedia (travel) and moneysupermarket.com (financial services), or going direct to the sites they need, thereby circumventing Google’s search engine and the advertising brokered by Google. This trend is exacerbated by Google’s ongoing lockout from the vast amount of content being generated by Facebook’s social network. As the Internet matures, general-purpose web search may become yesterday’s business.
  2. The rise of the app-based Internet: As consumers increasingly access the Internet via mobile devices, they are making greater use of apps and less use of browsers and, by extension, conventional search engines. Apps are popular on mobile devices because they are designed to take the consumer straight to the content they are looking for, rather than requiring them to navigate around the web using small and fiddly on-screen keyboards. Moreover, Apple, the leading provider of smartphones and tablets to the affluent, is seeking to relegate, and where feasible, remove, Google’s apps and services in its ecosystem.
  3. Android forks: Android, an extraordinarily successful ‘Trojan Horse’ for Google’s apps and services, is the market leading operating system for mobile devices, but Google’s control of Android is patchy. Some device makers are integrating their own apps into a forked variant of this open-source platform. Amazon and Nokia are among those who have stripped Google’s search, maps, mail and store apps from their variants of the Android operating system, reducing the data that Google can gather on their customers. At the same time, Samsung, the world’s largest handset vendor, is straining at Google’s Android leash.
  4. Quality dilution: As Google is the world’s dominant search engine, it is the prime target for so-called content farms that produce large volumes of low quality content in an effort to rank highly in Google’s search results and thereby attract traffic and advertising.
  5. Regulatory scrutiny: Despite a February 2014 settlement with the European Commission concerning its search practices, Google remains in the regulatory spotlight. Competition authorities across the world continue to fret about Google’s market power and its ability to influence what people look at on the Internet.

1. Google’s margin squeeze

Price deflation

Google, the company that facilitated massive deflation across advertising, content, e-commerce, and mobile operating systems, is itself suffering from the deflationary environment of the Internet. Although revenue and net income are still growing, margins are shrinking (see Figure 2). Google is still growing because it is adding volume. However, there is strong evidence that its pricing power is being eroded.

Figure 2: Google margins are steadily falling as volumes continue to rise

Telco 2 Figure 2: Google margins are steadily falling as volumes continue to rise

Source: Google filings

To put this in the context of its Silicon Valley peers, Figure 3 shows the same data for Google, Facebook, and Apple using a trend line covering the 2009 to 2013 period for each company. Note, that we have used a log scale to compare three companies of very different size. Apple saw growth in both revenue and operating margins until 2013, when it hit a difficult patch, although a big product launch might fix that at any time. Facebook has grown revenues enormously, but went through a traumatic 2012 as the shift to mobile hit it. While all this drama went on, Google has grown steadily, while seeing its margins eroded.

Figure 3: Google’s operating margins are now below those of Apple and Facebook

Telco 2 Figure 3 googles operating mar

Source: SEC filings

What are the factors behind Google’s declining operating margin? We believe the main drivers are:

  • The amount Google can charge per click is falling – buyers get more ads per buck.
  • The cost of acquiring ad inventory is increasing.

Cheaper ads

As Figure 4 shows, Google continues to drive ad volume (paid clicks), but ad rates (cost per click) are falling steadily. The average cost-per-click on Google websites and Google Network Members’ websites decreased approximately 8% from 2012 to 2013.  We think this is primarily due to intensifying competition, particularly from Facebook. However, Google attributes the decline to “various factors, such as the introduction of new products as well as changes in property mix, platform mix and geographical mix, and the general strengthening of the U.S. dollar compared to certain foreign currencies.” The second quarter of 2014 saw paid clicks rise 2% quarter-on-quarter, while the cost per click was flat.

Figure 4: The cost per click is declining in lockstep with rising volume

Telco 2 Figure 4 The cost per click is declining in lockstep with rising volume

Source: Google filings

 

  • Introduction
  • Executive Summary
  • The challenges to Google’s core business
  • 1. Google’s margin squeeze
  • 2. The rising importance of mobile apps
  • 3. Android forks
  • 4. Quality dilution
  • 5. Regulatory scrutiny
  • Google’s strategy – get on the front foot
  • Google Now – turning search on its head
  • Reactive search becomes more proactive
  • Voice input
  • Anticipating wearables, connected cars and the Internet of Things
  • Searching inside apps
  • Evaluating Google Now
  • 1. The marketplace
  • 2. Develop compelling service offerings
  • 3. The value network
  • 4. Technology
  • 5. Finance – the high-level business model

 

  • Figure 1: How Google is neutralising threats and pursuing opportunities
  • Figure 2: Google margins are steadily falling as volumes continue to rise
  • Figure 3: Google’s operating mar gins are now below those of Apple and Facebook
  • Figure 4: The cost per click is declining in lockstep with rising volume
  • Figure 5: Rising distribution costs are driving Google’s TAC upwards
  • Figure 6: Google’s revenues are increasingly coming from in-house sites and apps
  • Figure 7: R&D is the fastest-growing ad-acquisition cost in absolute terms
  • Figure 8: Daily active users of Facebook generating content out of Google’s reach
  • Figure 9: Google is still the most popular destination on the Internet
  • Figure 10: In the U.S., usage of desktop web sites is falling
  • Figure 11: Google’s declining share of mobile search advertising in the U.S.
  • Figure 12: Google’s lead on the mobile web is narrower than on the desktop web
  • Figure 13: Top smartphone apps in the U.S. by average unique monthly users
  • Figure 14: For Google, its removal from the default iOS Maps app is a major blow
  • Figure 15: On Android, Google owns four of the five most used apps in the U.S.
  • Figure 16: The resources Google needs to devote to web spam are rising over time
  • Figure 17: Google, now genuinely global.
  • Figure 18: A gap in the market: Timely proactive recommendations
  • Figure 19: Google’s search engine is becoming proactive
  • Figure 20: The ongoing evolution of Google Search into a proactive, recommendations service
  • Figure 21: The Telco 2.0 Business Model Framework
  • Figure 22: Amazon Local asks you to set preferences
  • Figure 23: Google Now’s cards and the information they use
  • Figure 24: Android dominates the global smartphone market
  • Figure 25: Samsung has about 30% of the global smartphone market
  • Figure 26: Google – not quite the complete Internet company
  • Figure 27: Google’s strategic response

Launchers: a new relevance point for telcos?

Introduction

Improving engagement has many benefits for an operator. It can help change customers’ perceptions which in turn can reduce churn and increase customer acquisition as well as opening up new avenues for telcos to offer additional services.

In this note, we analyse the opportunity for mobile operators within a new control point in the digital ecosystem – the ‘launcher’ application for Android devices. We present an overview of the opportunity, assessing what the product is and what’s at stake as well as providing an overview of the key players in this space. The report then focuses on how telcos may choose to play in this area, analysing the different strategies and their suitability to different types of operators.

The Telco Dilemma

Telcos’ engagement with and knowledge of their customers has been marginalized in the smartphone world. Whilst telcos still understand how customers use the traditional components of their mobile device (voice calls; messaging; data usage), the main digital disruptors now determine how users primarily engage with their devices – they control:

  • App portals (Apple; Android)
  • Search (Google)
  • E/M-commerce (Amazon; eBay; PayPal)
  • Content services (YouTube; Yahoo)
  • OTT comms (Facebook; WhatsApp; Twitter)

For more analysis on how telcos can understand and deal with these disruptors please read Telco 2.0’s analysis on this topic (Digital Commerce 2.0: Disrupting the Californian Giants [Oct 2013]; Dealing with the ‘Disruptors’ [Nov 2011]).

Engagement in the digital ecosystem is clearly worth a significant amount of money, both in terms of direct revenue as well as the indirect revenue associated with additional customer insight and knowledge. The valuations of companies such as Facebook and WhatsApp show the value premium that user engagement attracts. As mobile devices become even more prevalent and important in consumers’ lives, this engagement will become even more valuable.

In order for telcos to capitalize on this, they need to change their engagement strategy and gain more visibility and understanding of their customers. The industry largely understands this concept and a number or attempts have been made by telcos to wrestle back control of the device. Operators with bold ambitions have tried to compete head on, offering competing platforms to the OTT players (e.g. Vodafone 360) whilst others have attempted to position themselves within a segment of the digital ecosystem. Despite best efforts, these initiatives have so far met with mixed success.

One new area of opportunity for those looking to regain relevance on the mobile device (and one that is proving very popular right now) is the Android launcher.

The Opportunity

What is a launcher?

A launcher is a customizable home screen for your Android device. It allows a user to arrange their apps in more creative ways, resulting in a more personalized, engaging mobile experience.

Launchers can range from sophisticated 3D menus, to themed displays, to simplified app categorization/ grouping. For example, Yahoo’s Aviate launcher changes the apps it displays based on the time of day and the location of the user (e.g. at work, on the go, at home) – meaning that the user can more easily access the right apps to match their current situation.

Figure 1: Popular launchers in the marketplace

Figure 1 Popular launchers - Telco

Left: The Next Launcher’s 3D display – Source: Google Play; Middle: Buzz’s multi-themed launcher – Source: Drippler; Right: Aviate’s app re-categorization launcher – Source: Android Community

 

Launchers are more than just new ‘skins’ for the device. They alter how users interact with their device through app organization as well as through additional tools & services, including:

  • Relevant content on nearby places (e.g. Aviate incorporates Foursquare)
  • Helpful information, including travel & traffic advice (e.g. Google Now)
  • Inbuilt app & content recommendation engines (e.g. EverythingMe)

This combination of customizable app organization and easily accessible additional services is proving to be a compelling proposition for Android users.

Will launchers really take off?

The concept of a customizable home screen is not new but with advancements in smartphone operating systems and device displays this customization is starting to take off. A recent report by Flurry found that there were over 4,500 of these launcher-type apps and that launcher usage in Q1 2014 was greater than the total for all of 2013.

Figure 2: Number of Launcher Application Sessions (Quarterly data)

Number of launcher application sessions

Source: Flurry Analytics

The evidence shows that launchers are beginning to take off. They are offering value to the customer, through customization and additional services, as well as providing a new tool for companies to engage with and understand the behavior of the user.

What’s at stake?

Launchers represent a new control point in the digital ecosystem, shaping how (and potentially what) information is presented to the user. Gaining insight into how a customer uses their phone combined with a contextual understanding of their situation has the potential to create significant value.

Different launcher applications provide different functionality, with some focusing more on themes and customization and others focusing more on developing customer insight to simplify display and discovery on the mobile device. These models have different methods of monetization, including:

  • Freemium models – where a more basic version is free and the premium version is a paid for download
  • App discovery – where apps are recommended to the user (and the recommendation may be paid for)
  • Sponsored search – where the first result(s) are paid for

Of these models and monetization methods we believe contextual search and discovery are the most interesting. Mobile has revolutionized how people find information and use digital services – however, mobile usage is built around apps (86% of time spent on mobile devices is spent inside applications – Source: Techcrunch). The difficulty with (discovering) apps is that they are largely standalone services – they cannot be crawled or indexed easily and there is little cross-app integration. This makes relevant apps (and the content within them) harder to find through search alone.

Launchers can attempt to organize apps in a similar way that search engines organize the web, providing a more user-friendly app discovery mechanism. Launchers can gain significant insight into user behaviour (e.g. the type of apps downloaded and time spent using apps) – this information can be used to recommend apps and other content and services to the user in an integrated way, allowing launchers to circumvent search within app portals and to make recommendations (for apps and content) to a user when they have demonstrated a preference for it. Indeed, EverythingMe, an innovative launcher company, have suggested that “users are searching less and less, but still expect results and discovery. We felt the best solution would be a contextual search product in the form of an Android launcher.”

As the mobile device becomes more important and central to the user’s life, controlling this interface and engagement has the potential to generate very valuable insight. This personalized discovery tool, as long it remains transparent and offers a tangible benefit to the customer, could revolutionize how value is derived from mobile applications.

The Players

This potential opportunity has not gone unnoticed with a number of the big digital players recently entering this space. However, as this technology and engagement strategy is in its infancy, no-one has taken a clear lead in the race.

Facebook

Facebook, in April of last year, released Facebook Home, a launcher dedicated to putting social communication above all other applications on the mobile device (through cover feed, always-on chat heads and improved notifications). Despite a lot of initial fanfare, its performance has not been overly strong (only 0.5% of Facebook’s 1 billion monthly active users have installed it and it has received negative user feedback). Notwithstanding this slow start the company still sees this platform as a critical opportunity, with Facebook’s engineering Director, Jocelyn Goldfein, saying earlier this year in an interview with Venturebeat, “we’re still very bullish on Home…we’re believers in Home; we believe it’s going to be valuable for users”. Facebook’s continued resilience and flexibility when adapting to mobile could lead to a redesigned launcher that (social media) users’ value.

We believe that the relative failure of Facebook Home shows an important lesson for would be Launcher owners: the goal should be to optimize the customer experience and not maximize the placement of services for your own or others’ brands. After all, who wants the first screen on their phone to be in someone else’s control? This represents an opportunity for telcos, who don’t necessarily have the imperative to dominate the home screen with ads or today’s feed, and can therefore entertain a more intuitive and customer-oriented design. [NB It is also important that telcos attempt to learn from their own past errors: the ‘walled garden’ is not a successful model for most.]

For a more detailed assessment of Facebook Home’s service please see Facebook Home: what is the impact? [April 2013]

 

  • Executive Summary
  • Introduction
  • The Telco Dilemma
  • The Opportunity
  • What is a launcher?
  • Will launchers really take off?
  • What’s at stake?
  • The Players
  • Facebook
  • Google
  • Yahoo
  • Twitter
  • Other Popular Launchers
  • The Answer (for Telcos)?
  • Why should Telco’s play?
  • How can Telco’s play?
  • Conclusion

 

  • Figure 1: Popular launchers in the marketplace
  • Figure 2: Number of Launcher Application Sessions (Quarterly data)
  • Figure 3: Assessing Telcos’ options to enter the launcher market

Cloud 2.0: Telco Strategies in the Cloud

Will Telcos be left behind?

Introduction

Cloud services are emerging as a key strategic imperative for Telcos as revenues from traditional services such as voice, messaging and data come under attack from Over The Top Players, regulators and other Telcos. A majority of these new products are delivered from the Cloud on a “pay for consumption” basis and many business customers are increasingly looking to migrate from traditional in house IT systems to Cloud-based or virtualized services to reduce costs, increase agility and decrease deployment times. Gartner recently estimated that the Cloud services market would be worth over $200 billion by 2016, roughly double the value of 2012 and with a CAGR of around 17% whereas traditional IT products and services will see just 3% growth.

It is clear that some Telcos have gained a greater understanding of the Cloud market, and are acting on that understanding, offering increasingly rich Cloud-based products and services, paving the way for Cloud 2.0. But for most Telcos, Cloud services remain secondary to their core business of voice and data delivery. Telcos are wrestling with issues of reduced margin on Cloud and how to stay relevant to their business customers.

This report looks at the development of the Cloud market providing clarity around the different types of cloud products and the impact that they have on business users. Cloud value propositions are examined along with criticisms of cloud products and services. We show that the current risks for Cloud customers represent an opportunity for Telcos and Cloud vendors because….

The report also looks at the development of Cloud 2.0 – a second generation or a more ‘intelligent’ evolution of Cloud products and services. Cloud 2.0 offers key additional benefits/capabilities to consumers, vendors, businesses and Telco/Service providers. These can be typified by cost reductions in the delivery and consumption of cloud services through working with scale players to provide basic compute services, ease of acquisition and most importantly the ability to deliver “mash-up” products and services by using API’s to provide integration between cloud services and products and Telco/service provider products such as Bandwidth, Voice, Management, Support and Billing. Cloud 2.0 is gaining rapid momentum and we show how there is still time for Telcos to play a key role in Cloud 2.0.

Who should read this report?

The report is a ‘must-have’ for all strategy decision makers, Cloud specialists and influencers across the TMT (Telecoms, Media and Technology) sector; in particular, CxOs, strategists, technologists, marketers, product managers, and legal and regulatory leaders in telecoms operators, vendors, consultants, and analyst companies. It will also be invaluable to those managing or considering medium to long-term investment specifically in Telco Cloud services, but also more broadly those involved within telecoms and adjacent industries, and to regulators and legislators.

Contents

Executive Summary

Introduction

  • What is Cloud?
  • What is the Cloud Value Proposition?
  • Types of Cloud
  • Key criticisms of the Cloud
  • What is ‘Cloud 2.0’ and why does it matter?
    • Enterprise vs Consumer cloud, Fit with Telco 2.0 strategies

Market Structure & Opportunity

  • What is the shape and size of the market (revenues and profit)?
    • Total size, definitions of SaaS, PaaS, IaaS, VPC + forecasts
    • Advantages and limitations of XaaS definitions
  • What are the key customer segments and their needs?
    • SMBs vs Enterprise
    • Early adopters vs mass adopters
  • What is the opportunity for Telcos (market size and revenues)?
    • Share forecasts / ranges for Telcos
  • What are the most relevant cloud services for Telcos?
  • What are the key barriers?
    • Overall and by segment
  • Future Scenarios
  • What is the competitive landscape and who are the key players in Cloud Services?
    • Detailed competitor analysis, groupings by type and strategy Strategy review: Analysis of 6-10 key players, covering
      • Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
    • Key strategies of other players
    • Role of the network / operators to Vendor/partner strategies

Telco Strategies

  • Which strategies are Telcos adopting and what else could they do
    • Review of Telco attitudes and approaches based on following analysis
    • Grouping of Telcos by approach (if valid)
  • Which are the leading Telcos and what are they doing?
    • Case studies on 6-10 leading Telcos, covering:
      • Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
  • Outlines of 10 additional Telco strategies
  • What relationships should Telcos establish with other ecosystem players?

Conclusions and recommendations

 

Personal Data 2.0: Industry fails Carrier IQ test

The debacle with Sprint, AT&T and T-Mobile US over Carrier IQ’s phone monitoring software highlights the pitfalls and opportunities of recording user behaviour, controlling mobile broadband networks and working with personal data – a key enabler of the new digital economy and new telco business models. This is our analysis of the issues and key lessons. (December 2011, Executive Briefing Service)

Carrier IQ Smartphone Eye image Dec 2011 Telco 2.0

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Introduction

Telco 2.0 were talking to the World Economic Forum’s Re-thinking Personal Data project team – discussing the new white paper coming out for Davos which is all about putting the user in control of their personal data to unleash a new wave of innovation around this emerging asset – when we heard about the debacle with Carrier IQ.

Carrier IQ is a company which has reportedly been behind “invasive” software installed on some mobile phones, notably Android smartphones supplied by Sprint, AT&T and T-Mobile in the US. A widely-seen video by researcher Travis Eckhart shows the software apparently capturing keystrokes, website details and SMS’s sent and received on his device.

Travis Eckhardt’s YouTube Video of Carrier IQ

NB Please see our User Data and Privacy research category for further analysis.

The story so far

A festival of finger-pointing

Device vendors and operators around the world have been issuing statements of clarification or denial about their use of similar capabilities – although the careful wording of many press releases hints at the complexity of unravelling what is really in today’s smartphone software, who agreed to install it – and exactly how it is configured and used.

After a false start in which Carrier IQ (CIQ) tried to suppress some of Eckhart’s early findings with an injunction, it has belatedly embarked on a PR charm-offensive to salvage its reputation. We have also seen some more measured and probing analysis of the offending software’s capabilities, after a few days of shrill – and somewhat unfair – rhetoric.

What is known is that the company has embedded its products on around 150m shipped devices, although with wide variations in actual implementation and usage. It seems that most but not all of these devices have been smartphones, sold through operator channels as tailored variants rather than “vanilla” open-retail versions. In general, the software is intended to “improve the customer experience”, by reporting to the operator on various parameters, such as network coverage, failed connections and – most controversially – the user’s behaviour and application usage. Theoretically, this type of monitoring should help the operators fix holes in their networks, or diagnose other problems when the customer calls in for support. Other benefits are possible too – watching which applications are active can help identify which are hogging battery power, for example.

(It should be noted that this on-device monitoring concept is not new – a now-defunct company called IntuWave had a broadly similar solution for Symbian handsets as far back as 2003, while Nokia’s own “360” function also monitors user behaviour of its phones, but with permission. Apple has various reporting functions on its devices, but typically with user opt-out. It is also widely suspected that various security agencies have some smartphone surveillance capabilities).

The problem is that there is a fine line between “monitoring”, “diagnosis” and “surveillance”. The semantics tend to reflect the knowledge and permission of the user, as to what data is being collected and when, and for whom. There is also a distinction between collecting information, transmitting it, storing it and actually “mining” it – and whether it is anonymised or not.

In general, the installation of CIQ has been at the behest of specific operators customising phones sold to their subscribers – typically part of the software “stack” that might also include various additional apps or functionalities. The telcos tell their device suppliers to install the software either at the factory or further down the distribution chain and define “profiles” about what information they want to receive and when. A good analysis of the architecture is given by security analyst Dan Rosenberg .

A selection of previous industry data gaffes

Monitoring of user data is not an issue confined to handsets either – use of Deep Packet Inspection (DPI) capabilities for various use-cases in telco networks has been so controversial that some vendors now use euphemisms instead. The 3GPP standards body has now re-grouped and re-branded various policy and control technologies as the more benign-sounding “traffic detection function” (TDF). Various analytic solutions also exist for operators’ BSS/OSS systems – Telco 2.0 has long discussed the valuable information on subscribers collected by telcos, as well as the huge privacy issues surrounding its exploitation.

The recent Dutch implementation of some of the most draconian Net Neutrality laws in the world stemmed not from fears about the “purity” of the Internet, or even competition issues – but instead because the Dutch people resented the use of DPI to watch (and charge for) different applications in their Internet access data stream. It was the perceived invasion of privacy by KPN – perpetrated on one of the world’s most libertarian-minded populations – that was the trigger for discord. Previously telcos have fallen foul of similar concerns with the use of the notorious Phorm platform, used to deliver advertising based on an ISPs’ observations of their users’ web browsing behaviour.

What does Carrier IQ technically do that’s worrying?

It’s important to understand what people are actually objecting to about CIQ. No-one’s demonstrated that it sends back key-logger information. But they have demonstrated that it keeps everything it collects in a plain text file on the device in user-space. This means that any other application on the device can both read and write to it – and this is potentially very worrying, as explained in Appendix 1: An explanation of the technical risks.

Why the Carrier IQ issue has ‘blown up’

Although arguably exaggerated, several unfortunate issues have compounded each other in this case, to raise the current CIQ debate to public prominence and outrage:

Carrier IQ’s mistakes

While it is possible to feel a degree of sympathy with the embattled people at Carrier IQ, who were ostensibly just providing a service the operators had asked for, we believe they have made two key errors:

  • Carrier IQ’s initial response to their accuser was unnecessarily litigious – and Eckhart’s involvement of the Electronic Frontier Foundation guaranteed a much wider audience than might have otherwise occurred. Too many techno-illiterate lawyers under-estimate the power of blogs, Twitter and social media to bring issues such as this to wide awareness in a matter of hours.
  • The implementation of the software (on the Android phone in the now-infamous video) seems to be collecting far too much data for the purpose the operator seems to need. Even if the unnecessary data is just collected and then discarded, its initial all-encompassing capture looks both suspicious and poorly-conceived in terms of software security best-practice. (For instance, a cache of the logged data could be a goldmine for a handset thief, even if it doesn’t get sent to the operator).

Operators’ mistakes

  • Various operators have been using Carrier IQ (or equivalents) without clearly telling their customers what they were doing. A vague mention of “collecting data” in the fine-print of the terms and conditions is not enough.

Paranoia feeds the Media

  • Various journalists and bloggers seem to have sensationalised the story without full understanding of what the CIQ software was actually doing.
  • In these days of editorial and journalistic cut-backs, the mainstream media can be tempted to run with ‘scary’ tech stories based on stories getting attention online and via Twitter, and in timescales which make it hard to verify or unravel the technical twists and turns of complex stories.
  • Many consumers don’t read past the headline, and those that do may only read the first paragraph of an article, so any caveats or explanations that are actually carried in the detail are often lost.

The “fog of war”, industry panic and opportunism

  • The “fog of war” in terms of Carrier IQ rumours over the last few days has brought many operators and device vendors to deny publicly any involvement in using the technology. This can be seen as both a defensive response about a perceived risk to Xmas-season sales – but also as an opportunistic offensive move against some operators / vendors that are more directly embroiled in the “scandal”.
  • Android devices have software from multiple sources and in multiple layers – from Google, the handset vendor (e.g. Samsung, HTC) adding their own tweaks, operators adding customisations such as Carrier IQ or other elements and so forth. It can be difficult to work out exactly who is responsible for what functionality – hence some public statements from Carrier IQ executives expressing bemusement about the extent of data collected in this instance. (There is a suggestion that the “debug mode” of the software was the problem, not the normal usage mode). Generally, Apple and BlackBerry devices are more homogenous, although both companies do slightly-altered variants for favoured operator customers.

Result = Industry Failure

The net result is that the Carrier IQ brand is now seen as “toxic” in the eyes of many in the industry, irrespective of the benefits that some of its capabilities bring.

More worrying perhaps has been the inability of the industry as a whole to deal with these issues without panicking and resorting to a playground farce of finger-pointing.

It is at best careless, and in some cases illegal to treat personal data without appropriate care, protection and respect. But it is downright irresponsible to collectively risk the chance to develop a useful, legitimate and valuable ‘Personal Information Economy’ (PIE), which would benefit consumers, telcos, and other players alike, for the sake of some relatively minor corporate tit-for-tat in the media.

This is why we think our research on this topic, and the work we’ve been contributing to at the World Economic Forum on ‘Rethinking Personal Data’ is so important, and why consumer groups, telcos and other industry players need to get fully engaged to develop and adopt workable principles and practices on personal data.

Winners and Losers

In terms of losers, the obvious one is Carrier IQ itself, which seems to have made several poor decisions and has been overwhelmed by events – even if it has been unfortunate in the manner that everything has blown up, perhaps beyond the level which is truly proportionate.

Certain operators (notably Sprint) are likely to be doing some serious back-pedalling here. Samsung and HTC, as leading Android vendors have some questions to answer, but are likely to pass the buck to the operators and Carrier IQ itself. Huawei is also an (announced) user of Carrier IQ, notably for its mobile broadband devices such as USB dongles. The press release from February 2011 shows a strong awareness of privacy issues, as well as the notion of opt-in from individual users. Given the company’s troubles in getting its network products accepted by security authorities in the US in particular, this association might be problematic.

One beneficiary of this is likely to be Apple. Apple knows that it “owns” the whole software stack, so does not need to get embroiled in ‘finger pointing’ such as is going on between operators, Samsung, HTC and Carrier IQ. Apple is also not keen on customising the software stack for operators, and his episode will give it another excuse to push back against operators which want to be able to perform customisation.

BlackBerry is perhaps in the same situation, while Nokia/Microsoft are in a good position to take the moral high ground as well. (All this assumes, of course, that they don’t also have privacy skeletons in their closets – although both Apple and Google have dealt with such issues – much better – in the past).

To read the note in full, including the following additional analysis…

  • What should Telcos and others do?
  • Putting the user in control of their data – the World Economic Forum (WEF) guidelines
  • Dos and Don’ts of implementing software that use personal data
  • How to address and respect privacy concerns
  • Managing personal data across the business
  • Using ‘Intelligent Software’
  • An explanation of the technical risks

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 15 page report in PDF format here. Non-Members, please subscribe here or please email contact@telco2.net / call +44 (0) 207 247 5003.

Organisations, people and products referenced: 3GPP, Android, Apple, AT&T, BlackBerry, Carrier IQ, Electronic Frontier Foundation, Facebook, Google, HTC, Huawei, IntuWave, KPN, Microsoft, New Digital Economics, Nokia, Onavo, Openet, Phorm, Samsung, Sprint, Symbian, T-Mobile, Travis Eckhart, World Economic Forum (WEF).

Technologies and industry terms referenced: analytics, Deep Packet Inspection (DPI), Net Neutrality, personal data, smartphones, SMS, traffic detection function (TDF), WiFi.

Broadband 2.0: Mobile CDNs and video distribution

Summary: Content Delivery Networks (CDNs) are becoming familiar in the fixed broadband world as a means to improve the experience and reduce the costs of delivering bulky data like online video to end-users. Is there now a compelling need for their mobile equivalents, and if so, should operators partner with existing players or build / buy their own? (August 2011, Executive Briefing Service, Future of the Networks Stream).

Telco 2.0 Mobile CDN Schematic Small

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Below is an extract from this 25 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and Future Networks Stream here. Non-members can buy a Single User license for this report online here for £595 (+VAT) or subscribe here. For multiple user licenses, or to find out about interactive strategy workshops on this topic, please email contact@telco2.net or call +44 (0) 207 247 5003.

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Introduction

As is widely documented, mobile networks are witnessing huge growth in the volumes of 3G/4G data traffic, primarily from laptops, smartphones and tablets. While Telco 2.0 is wary of some of the headline shock-statistics about forecast “exponential” growth, or “data tsunamis” driven by ravenous consumption of video applications, there is certainly a fast-growing appetite for use of mobile broadband.

That said, many of the actual problems of congestion today can be pinpointed either to a handful of busy cells at peak hour – or, often, the inability of the network to deal with the signalling load from chatty applications or “aggressive” devices, rather than the “tonnage” of traffic. Another large trend in mobile data is the use of transient, individual-centric flows from specific apps or communications tools such as social networking and messaging.

But “tonnage” is not completely irrelevant. Despite the diversity, there is still an inexorable rise in the use of mobile devices for “big chunks” of data, especially the special class of software commonly known as “content” – typically popular/curated standalone video clips or programmes, or streamed music. Images (especially those in web pages) and application files such as software updates fit into a similar group – sizeable lumps of data downloaded by many individuals across the operator’s network.

This one-to-many nature of most types of bulk content highlights inefficiencies in the way mobile networks operate. The same data chunks are downloaded time and again by users, typically going all the way from the public Internet, through the operator’s core network, eventually to the end user. Everyone loses in this scenario – the content publisher needs huge servers to dish up each download individually. The operator has to deal with transport and backhaul load from repeatedly sending the same content across its network (and IP transit from shipping it in from outside, especially over international links). Finally, the user has to deal with all the unpredictability and performance compromises involved in accessing the traffic across multiple intervening points – and ends up paying extra to support the operator’s heavier cost base.

In the fixed broadband world, many content companies have availed themselves of a group of specialist intermediaries called CDNs (content delivery networks). These firms on-board large volumes of the most important content served across the Internet, before dropping it “locally” as near to the end user as possible – if possible, served up from cached (pre-saved) copies. Often, the CDN operating companies have struck deals with the end-user facing ISPs, which have often been keen to host their servers in-house, as they have been able to reduce their IP interconnection costs and deliver better user experience to their customers.

In the mobile industry, the use of CDNs is much less mature. Until relatively recently, the overall volumes of data didn’t really move the needle from the point of view of content firms, while operators’ radio-centric cost bases were also relatively immune from those issues as well. Optimising the “middle mile” for mobile data transport efficiency seemed far less of a concern than getting networks built out and handsets and apps perfected, or setting up policy and charging systems to parcel up broadband into tiered plans. Arguably, better-flowing data paths and video streams would only load the radio more heavily, just at a time when operators were having to compress video to limit congestion.

This is now changing significantly. With the rise in smartphone usage – and the expectations around tablets – Internet-based CDNs are pushing much more heavily to have their servers placed inside mobile networks. This is leading to a certain amount of introspection among the operators – do they really want to have Internet companies’ infrastructure inside their own networks, or could this be seen more as a Trojan Horse of some sort, simply accelerating the shift of content sales and delivery towards OTT-style models? Might it not be easier for operators to build internal CDN-type functions instead?

Some of the earlier approaches to video traffic management – especially so-called “optimisation” without the content companies’ permission of involvement – are becoming trickier with new video formats and more scrutiny from a Net Neutrality standpoint. But CDNs by definition involve the publishers, so potentially any necessary compression or other processing can be collaboratively, rather than “transparently” without cooperation or willingness.

At the same time, many of the operators’ usual vendors are seeing this transition point as a chance to differentiate their new IP core network offerings, typically combining CDN capability into their routing/switching platforms, often alongside the optimisation functions as well. In common with other recent innovations from network equipment suppliers, there is a dangled promise of Telco 2.0-style revenues that could be derived from “upstream” players. In this case, there is a bit more easily-proved potential, since this would involve direct substitution of the existing revenues already derived from content companies, by the Internet CDN players such as Akamai and Limelight. This also holds the possibility of setting up a two-sided, content-charging business model that fits OK with rules on Net Neutrality – there are few complaints about existing CDNs except from ultra-purist Neutralists.

On the other hand, telco-owned CDNs have existed in the fixed broadband world for some time, with largely indifferent levels of success and adoption. There needs to be a very good reason for content companies to choose to deal with multiple national telcos, rather than simply take the easy route and choose a single global CDN provider.

So, the big question for telcos around CDNs at the moment is “should I build my own, or should I just permit Akamai and others to continue deploying servers into my network?” Linked to that question is what type of CDN operation an operator might choose to run in-house.

There are four main reasons why a mobile operator might want to build its own CDN:

  • To lower costs of network operation or upgrade, especially in radio network and backhaul, but also through the core and in IP transit.
  • To improve the user experience of video, web or applications, either in terms of data throughput or latency.
  • To derive incremental revenue from content or application providers.
  • For wider strategic or philosophical reasons about “keeping control over the content/apps value chain”

This Analyst Note explores these issues in more details, first giving some relevant contextual information on how CDNs work, especially in mobile.

What is a CDN?

The traditional model for Internet-based content access is straightforward – the user’s browser requests a piece of data (image, video, file or whatever) from a server, which then sends it back across the network, via a series of “hops” between different network nodes. The content typically crosses the boundaries between multiple service providers’ domains, before finally arriving at the user’s access provider’s network, flowing down over the fixed or mobile “last mile” to their device. In a mobile network, that also typically involves transiting the operator’s core network first, which has a variety of infrastructure (network elements) to control and charge for it.

A Content Delivery Network (CDN) is a system for serving Internet content from servers which are located “closer” to the end user either physically, or in terms of the network topology (number of hops). This can result in faster response times, higher overall performance, and potentially lower costs to all concerned.

In most cases in the past, CDNs have been run by specialist third-party providers, such as Akamai and Limelight. This document also considers the role of telcos running their own “on-net” CDNs.

CDNs can be thought of as analogous to the distribution of bulky physical goods – it would be inefficient for a manufacturer to ship all products to customers individually from a single huge central warehouse. Instead, it will set up regional logistics centres that can be more responsive – and, if appropriate, tailor the products or packaging to the needs of specific local markets.

As an example, there might be a million requests for a particular video stream from the BBC. Without using a CDN, the BBC would have to provide sufficient server capacity and bandwidth to handle them all. The company’s immediate downstream ISPs would have to carry this traffic to the Internet backbone, the backbone itself has to carry it, and finally the requesters’ ISPs’ access networks have to deliver it to the end-points. From a media-industry viewpoint, the source network (in this case the BBC) is generally called the “content network” or “hosting network”; the destination is termed an “eyeball network”.

In a CDN scenario, all the data for the video stream has to be transferred across the Internet just once for each participating network, when it is deployed to the downstream CDN servers and stored. After this point, it is only carried over the user-facing eyeball networks, not any others via the public Internet. This also means that the CDN servers may be located strategically within the eyeball networks, in order to use its resources more efficiently. For example, the eyeball network could place the CDN server on the downstream side of its most expensive link, so as to avoid carrying the video over it multiple times. In a mobile context, CDN servers could be used to avoid pushing large volumes of data through expensive core-network nodes repeatedly.

When the video or other content is loaded into the CDN, other optimisations such as compression or transcoding into other formats can be applied if desired. There may also be various treatments relating to new forms of delivery such as HTTP streaming, where the video is broken up into “chunks” with several different sizes/resolutions. Collectively, these upfront processes are called “ingestion”.

Figure 1 – Content delivery with and without a CDN

Mobile CDN Schematic, Fig 1 Telco 2.0 Report

Source: STL Partners / Telco 2.0

Value-added CDN services

It is important to recognise that the fixed-centric CDN business has increased massively in richness and competition over time. Although some of the players have very clever architectures and IPR in the forms of their algorithms and software techniques, the flexibility of modern IP networks has tended to erode away some of the early advantages and margins. Shipping large volumes of content is now starting to become secondary to the provision of associated value-added functions and capabilities around that data. Additional services include:

  • Analytics and reporting
  • Advert insertion
  • Content ingestion and management
  • Application acceleration
  • Website security management
  • Software delivery
  • Consulting and professional services

It is no coincidence that the market leader, Akamai, now refers to itself as “provider of cloud optimisation services” in its financial statements, rather than a CDN, with its business being driven by “trends in cloud computing, Internet security, mobile connectivity, and the proliferation of online video”. In particular, it has started refocusing away from dealing with “video tonnage”, and towards application acceleration – for example, speeding up the load times of e-commerce sites, which has a measurable impact on abandonment of purchasing visits. Akamai’s total revenues in 2010 were around $1bn, less than half of which came from “media and entertainment” – the traditional “content industries”. Its H1 2011 revenues were relatively disappointing, with growth coming from non-traditional markets such as enterprise and high-tech (eg software update delivery) rather than media.

This is a critically important consideration for operators that are looking to CDNs to provide them with sizeable uplifts in revenue from upstream customers. Telcos – especially in mobile – will need to invest in various additional capabilities as well as the “headline” video traffic management aspects of the system. They will need to optimise for network latency as well as throughput, for example – which will probably not have the cost-saving impacts expected from managing “data tonnage” more effectively.

Although in theory telcos’ other assets should help – for example mapping download analytics to more generalised customer data – this is likely to involve extra complexity with the IT side of the business. There will also be additional efforts around sales and marketing that go significantly beyond most mobile operators’ normal footprint into B2B business areas. There is also a risk that an analysis of bottlenecks for application delivery / acceleration ends up simply pointing the finger of blame at the network’s inadequacies in terms of coverage. Improving delivery speed, cost or latency is only valuable to an upstream customer if there is a reasonable likelihood of the end-user actually having connectivity in the first place.

Figure 2: Value-added CDN capabilities

Mobile CDN Schematic - Functionality Chart - Telco 2.0 Report

Source: Alcatel-Lucent

Application acceleration

An increasingly important aspect of CDNs is their move beyond content/media distribution into a much wider area of “acceleration” and “cloud enablement”. As well as delivering large pieces of data efficiently (e.g. video), there is arguably more tangible value in delivering small pieces of data fast.

There are various manifestations of this, but a couple of good examples illustrate the general principles:

  • Many web transactions are abandoned because websites (or apps) seem “slow”. Few people would trust an airline’s e-commerce site, or a bank’s online interface, if they’ve had to wait impatiently for images and page elements to load, perhaps repeatedly hitting “refresh” on their browsers. Abandoned transactions can be directly linked to slow or unreliable response times – typically a function of congestion either at the server or various mid-way points in the connection. CDN-style hosting can accelerate the service measurably, leading to increased customer satisfaction and lower levels of abandonment.
  • Enterprise adoption of cloud computing is becoming exceptionally important, with both cost savings and performance enhancements promised by vendors. Sometimes, such platforms will involve hybrid clouds – a mixture of private (Internal) and public (Internet) resources and connectivity. Where corporates are reliant on public Internet connectivity, they may well want to ensure as fast and reliable service as possible, especially in terms of round-trip latency. Many IT applications are designed to be run on ultra-fast company private networks, with a lot of “hand-shaking” between the user’s PC and the server. This process is very latency-dependent, and especially as companies also mobilise their applications the additional overhead time in cellular networks may otherwise cause significant problems.

Hosting applications at CDN-type cloud acceleration providers achieves much the same effect as for video – they can bring the application “closer”, with fewer hops between the origin server and the consumer. Additionally, the CDN is well-placed to offer additional value-adds such as firewalling and protection against denial-of-service attacks.

To read the 25 note in full, including the following additional content…

  • How do CDNs fit with mobile networks?
  • Internet CDNs vs. operator CDNs
  • Why use an operator CDN?
  • Should delivery mean delivery?
  • Lessons from fixed operator CDNs
  • Mobile video: CDNs, offload & optimisation
  • CDNs, optimisation, proxies and DPI
  • The role of OVPs
  • Implementation and planning issues
  • Conclusion & recommendations

… and the following additional charts…

  • Figure 3 – Potential locations for CDN caches and nodes
  • Figure 4 – Distributed on-net CDNs can offer significant data transport savings
  • Figure 5 – The role of OVPs for different types of CDN player
  • Figure 6 – Summary of Risk / Benefits of Centralised vs. Distributed and ‘Off Net’ vs. ‘On-Net’ CDN Strategies

……Members of the Telco 2.0 Executive Briefing Subscription Service and Future Networks Stream can download the full 25 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for £595 (+VAT), or for multi-user licenses and any other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

Organisations and products referenced: 3GPP, Acision, Akamai, Alcatel-Lucent, Allot, Amazon Cloudfront, Apple’s Time Capsule, BBC, BrightCove, BT, Bytemobile, Cisco, Ericsson, Flash Networks, Huawei, iCloud, ISPs, iTunes, Juniper, Limelight, Netflix, Nokia Siemens Networks, Ooyala, OpenWave, Ortiva, Skype, smartphone, Stoke, tablets, TiVo, Vantrix, Velocix, Wholesale Content Connect, Yospace, YouTube.

Technologies and industry terms referenced: acceleration, advertising, APIs, backhaul, caching, CDN, cloud, distributed caches, DNS, Evolved Packet Core, eyeball network, femtocell, fixed broadband, GGSNs, HLS, HTTP streaming, ingestion, IP network, IPR, laptops, LIPA, LTE, macro-CDN, micro-CDN, middle mile, mobile, Net Neutrality, offload, optimisation, OTT, OVP, peering proxy, QoE, QoS, RNCs, SIPTO, video, video traffic management, WiFi, wireless.