The new telcos: A field guide

Introduction

The traditional industry view is that “telcos” are a well-defined and fairly cohesive group. Industry associations like GSMA, ETNO, CTIA and others have typically been fairly homogeneous collections of fixed or mobile operators, only really varying in size. The third-ranked mobile operator in Bolivia has not really been that different from AT&T or Vodafone in terms of technology, business model or vendor relationships.

Our own company, STL Partners used to have the brand “Telco 2.0”. However, our main baseline assumption then was that the industry was mostly made up the same network operators, but using a new 2.0 set of business models.

This situation is now changing. Telecom service providers – telcos – are starting to emerge in a huge variety of new shapes, sizes and backgrounds. There is fragmentation in technology strategy, target audiences, go-to-market and regional/national/international scope.

This report is not a full explanation of all the different strategies, services and technological architecture. Instead of analysing all of the “metabolic” functions and “evolutionary mechanisms”, this is more of a field-guide to all the new species of telco that the industry is starting to see. More detail on the enablers – such as fibre, 5G and cloud-based infrastructure – and the demand-side (such as vertical industries’ communications needs and applications) can be found in our other output.

The report provides descriptions with broad contours of motivation, service-offerings and implications for incumbents. We are not “taking sides” here. If new telcos push out the older species, that’s just evolution of those “red in tooth and claw”. We’re taking the role of field zoologists, not conservationists.

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Field guides are collections/lists of natural & human phenomena

animal-species-telcos-stl-partners

Source: Amazon, respective publishers’ copyright

The historical landscape

The term “telco” is a little slippery to define, but most observers would likely agree that the “traditional” telecoms industry has mostly been made up of the following groups of CSPs:

  • MNOs: Countries usually have a few major mobile network operators (MNOs) that are typically national, or sometimes regional.
  • Fixed operators: Markets also have infrastructure-based fixed telcos, usually with one (or a small number) that were originally national state-owned monopolies, plus a select number of other licensed providers, often with greenfield FTTX fibre. Some countries have a vibrant array of smaller “AltNets”, or competitive carriers (originally known as CLECs in the US).
  • Converged operators: These combine fixed and mobile operations in the same business or group. Sometimes they are arms-length (or even in different countries), but many try to offer combined or converged service propositions.
  • Wholesale telcos: There is a tier of a few major international operators that provide interconnect services and other capabilities. Often these have been subsidiaries (or joint ventures) of national telcos.

In addition to these, the communications industry in each market has also often had an array of secondary connectivity or telecom service providers as a kind “supporting cast”, which generally have not been viewed as “telecom operators”. This is either because they fall into different regulatory buckets, only target niche markets, or tend to use different technologies. These have included:

  • MVNOs
  • Towercos
  • Internet Exchanges
  • (W)ISPs
  • Satellite operators

Some of these have had a strong overlap with telcos, or have been spun-out or acquired at various times, but they have broadly remained as independent organisations. Importantly, many of these now look much more like “proper telcos” than they did in the past.

Why are “new telcos” emerging now?

To some extent, many of the classes of new telco have been “hiding in plain sight” for some time. MVNOs, towercos and numerous other SPs have been “telcos in all but name”, even if the industry has often ignored them. There has sometimes been a divisive “them and us” categorisation, especially applied when comparing older operators with cloud-based communications companies, or what STL has previously referred to as “under the floor” infrastructure owners. This attitude has been fairly common within governments and regulators, as well as among operator executives and staff.

However, there are now two groups of trends which are leading to the blurring of lines between “proper telcos” and other players:

  • Supply-side trends: The growing availability of the key building blocks of telcos – core networks, spectrum, fibre, equipment, locations and so on – is leading to democratisation. Virtualisation and openness, as well as a push for vendor diversification, is helping make it easier for new entrants, or adjacent players, to build telecom-style networks
  • Demand-side trends: A far richer range of telecom use-cases and customer types is pulling through specialist network builders and operators. These can start with specific geographies, or industry verticals, and then expand from there to other domains. Private 4G/5G networks and remote/underserved locations are good examples which need customisation and specialisation, but there are numerous other demand drivers for new types of service (and service provider), as well as alternative business models.

Taken together, the supply and demand factors are leading to the creation of new types of telcos (sometimes from established SPs, and sometimes greenfield) which are often competing with the incumbents.

While there is a stereotypical lobbying complaint about “level playing fields”, the reality is that there are now a whole range of different telecom “sports” emerging, with competitors arranged on courses, tracks, fields and hills, many of which are inherently not “level”. It’s down to the participants – whether old or new – to train appropriately and use suitable gear for each contest.

Virtualisation & cloudification of networks helps newcomers as well as existing operators

virtualisation-cloudification-networks-STL-Partners

Source: STL Partners

Where are new telcos likeliest to emerge?

Most new telcos tend to focus initially on specific niche markets. Only a handful of recent entrants have raised enough capital to build out entire national networks, either with fixed or mobile networks. Jio, Rakuten Mobile and Dish are all exceptions – and ones which came with a significant industrial heritage and regulatory impetus that enabled them to scale broadly.

Instead, most new service providers have focused on specific domains, with some expanding more broadly at a later point. Examples of the geographic / customer niches for new operators include:

  • Enterprise private 4G/5G networks
  • Rural network services (or other isolated areas like mountains, offshore areas or islands)
  • Municipality / city-level services
  • National backbone fibre networks
  • Critical communications users (e.g. utilities)
  • Wholesale-only / shared infrastructure provision (e.g. neutral host)

This report sets out…

..to through each of the new “species” of telcos in turn. There is a certain level of overlap between the categories, as some organisations are developing networking offers in various domains in parallel (for instance, Cellnex offering towers, private networks, neutral host and RAN outsourcing).

The new telcos have been grouped into categories, based on some broad similarities:

  • “Evolved” traditional telcos: operators, or units of operators, that are recognisable from today’s companies and brands, or are new-entrant “peers” of these.
  • Adjacent wireless providers: these are service provider categories that have been established for many years, but which are now overlapping ever more closely with “traditional” telcos.
  • Enterprise and government telcos: these are other large organisations that are shifting from being “users” of telecoms, or building internal network assets, towards offering public telecom-type services.
  • Others: this is a catch-all category that spans various niche innovation models. One particular group here, decentralised/blockchain-based telcos, is analysed in more detail.

In each case, the category is examined briefly on the basis of:

  • Background and motivation of operators
  • Typical services and infrastructure being deployed
  • Examples (approx. 3-4 of each type)
  • Implications for mainstream telcos

Table of contents

  • Executive Summary
    • Overview
    • New telco categories and service areas
    • Recommendations for traditional fixed/mobile operators
    • Recommendations for vendors and suppliers
    • Recommendations for regulators, governments & advisors
  • Introduction
    • The historical landscape
    • Why are “new telcos” emerging now?
    • Where are new telcos likeliest to emerge?
    • Structure of this document
  • “Evolved” traditional telcos
    • Greenfield national networks
    • Telco systems integration units
    • “Crossover” Mobile, Fixed & cable operators
    • Extra-territorial telcos
  • Adjacent wireless providers
    • Neutral host network providers
    • TowerCos
    • FWA Fixed Wireless Access (WISPs)
    • Satellite players
  • Enterprise & government telcos
    • Industrial / vertical MNOs
    • Utility companies offering commercial telecom services
    • Enterprises’ corporate IT network service groups
    • Governments & public sector
  • New categories
    • Decentralised telcos (blockchain / cryptocurrency-based)
    • Other “new telco” categories
  • Conclusions

Related Research

 

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5G and MVNOs: Slicing up the wholesale market

Introduction

How will 5G MNVO models differ from what’s gone before? MVNOs occupy an important set of market niches in the mobile industry, ranging from low-cost generic consumer propositions by discount retail brands, through to some of the most advanced mobile offers, based on ingenious service-level innovation.

The importance and profile of MVNOs varies widely by country and target market segments.  Worldwide, there are around 250 million consumer subscribers using virtual operators’ branded services. IoT-focused MVNOs add many more. In many developed markets, MVNOs account for around 10-15% of subscribers, although in less-mature markets they are often not present at all, or are below 5%.

In Europe, the most mature region, there are around 100m subscribers, focused particularly on German and UK markets. Globally, MVNO revenues are estimated at around $70bn annually – a figure expected to grow to over $100bn in coming years, as markets such as China – which already has over 60m MVNO subscribers – gain more traction, bolstered by regulatory enthusiasm. IoT-centric and enterprise MVNOs are also growing in importance and sophistication, particularly for cross-border connectivity management.

While many MVNOs are aimed at lower-end consumers, with discounted packages under retail, banking or other brands, plenty more are more sophisticated and higher-ARPU propositions. Some fixed/cable operators want a mobile wholesale offer to expand into quad-play bundles. Increasingly, the MVNO model is going far beyond mass-market consumer offers, towards IoT and enterprise use-cases, that can add extra services and functions in the network or SIM.

Some 4G-only mobile operators have 3G MVNO arrangements for customers moving beyond their infrastructure footprint. Google has its pioneering Fi MVNO service, which switches users between multiple telcos’ infrastructures – and which is perhaps a testbed for its broader core/NFV ambitions. A variety of frequent-travellers or enterprise users seek customised plans with extra features, that mass-market MNOs cannot provide. In addition, many IoT connections are also provided by third parties that repackage MNOs’ network connectivity, often to provide global coverage across multiple underlying networks, tailored to specific segments or verticals. For example, Cubic Telecom, an automotive-focused CSP, is part-owned by Audi.

Operating with a variety of different business models and technical architectures, MVNOs are also relevant to mobile markets’ competitive functioning, especially as larger networks consolidate. Regulators vary in the degree to which they encourage virtual operators’ establishment and operation.

Some MVNOs, described as “full” or “thick” operate their own core networks, while other “light” or “thin” providers are essentially resellers, usually with their own billing platform but little more. Confusingly, some avoid the use of the term MVNO, especially in the IoT arena, often just describing themselves as offering “managed connectivity” or similar phrases.

Figure 1: Thick vs thin MVNOs and resellers

Thick vs. thin MVNOs and resellers

Source: Mobilise Consulting

This all presents a challenge for normal mobile operators – at one level, they want the extra reach and scale, using MVNOs as channels into extra customer groups they cannot easily reach themselves. They may even want their own MVNO operations in countries outside their licensed footprint – TurkCell and China Mobile are examples of this. But they also worry that as MVNOs go beyond resale, they start to capture additional value in certain lucrative niches, or worse, become an “abstraction layer”, aggregating and commoditising multiple underlying networks, facilitating arbitrage – especially by using eSIM or multi-IMSI approaches. Google Fi has raised eyebrows in this regard, and Apple has long been feared for wanting to create an MVNO/AppStore hybrid to resell network capacity.

That said, even simple MVNO operations are not that simple. Setting up billing systems, legal agreements, network integrations and other tasks is still complex for a non-telecoms firm like a retailer or sports/entertainment brand. A parallel ecosystem of specialised software vendors, systems-integrators and “MVNO platforms” has evolved, with subtly-different types of organisation called MVNA (mobile virtual network aggregator) and MVNE (mobile virtual network enabler) doing the technical heavy-lifting for brands or other marketing organisations to develop specialised – and often tiny – MVNOs.

What is uncertain is how much of this changes with 5G – either because of innate technical challenges of the new architecture, or because of parallel evolutions like network virtualisation. These could prove to be both enablers and inhibitors for different types of MVNO, as well as changing the competitive / cannibalisation dynamics for their host providers.

This briefing document describes the current state-of-play of the MVNO landscape, and the shifts in both business model and technology that are ongoing. It considers the different types of MVNO, and how they are likely to intersect with the new 5G world that is set to emerge over the next decade.

Contents:

  • Executive Summary
  • Introduction
  • Why (and where) are MVNOs important?
  • Different types of MVNO
  • Full and “Thick” MVNOs, MVNEs and MVNAs
  • MVNO opportunities: what changes with 5G?
  • Consumer MVNOs – more of the same, just faster?
  • The rise of enterprise, verticals and IoT – catalysed by 5G?
  • MVNOs and network slicing
  • 5G challenges for MVNOs: network and business
  • Technology: It’s not just 5G New Radio
  • 5G New Radio
  • 5G New Core and network slicing
  • Devices, 5G and MVNOs
  • Other technology components
  • What happened with 4G’s and MVNOs?
  • VoLTE was a surprising obstacle for MVNOs
  • Growing interest in full MVNO models
  • 5G MVNOs: Business and regulatory issues
  • Cannibalisation: The elephant in the room?
  • Can MNOs’ wholesale departments handle 5G?
  • Can MVNOs operate network slices?
  • Regulatory impacts on MVNOs with 5G
  • What do enterprises and IoT players want from 5G and MVNOs?
  • Hybrid MNOs / MVNOs
  • Conclusions 

Figures:

  • Figure 1: Thick vs. thin MVNOs and resellers
  • Figure 2: MVNO segments and examples
  • Figure 3: 5G predicted timeline, 2018-2026
  • Figure 4: 5G New Core network architecture
  • Figure 5: Do MNOs need to reinvent the wholesale function?
  • Figure 6: MVNO relationships are part of the future B2B/vertical service spectrum

‘Under-The-Floor’ (UTF) Players: threat or opportunity?

Introduction

The ‘smart pipe’ imperative

In some quarters of the telecoms industry, the received wisdom is that the network itself is merely an undifferentiated “pipe”, providing commodity connectivity, especially for data services. The value, many assert, is in providing higher-tier services, content and applications, either to end-users, or as value-added B2B services to other parties. The Telco 2.0 view is subtly different. We maintain that:

  1. Increasingly valuable services will be provided by third-parties but that operators can provide a few end-user services themselves. They will, for example, continue to offer voice and messaging services for the foreseeable future.
  2. Operators still have an opportunity to offer enabling services to ‘upstream’ service providers such as personalisation and targeting (of marketing and services) via use of their customer data, payments, identity and authentication and customer care.
  3. Even if operators fail (or choose not to pursue) options 1 and 2 above, the network must be ‘smart’ and all operators will pursue at least a ‘smart network’ or ‘Happy Pipe’ strategy. This will enable operators to achieve three things.
  • To ensure that data is transported efficiently so that capital and operating costs are minimised and the Internet and other networks remain cheap methods of distribution.
  • To improve user experience by matching the performance of the network to the nature of the application or service being used – or indeed vice versa, adapting the application to the actual constraints of the network. ‘Best efforts’ is fine for asynchronous communication, such as email or text, but unacceptable for traditional voice telephony. A video call or streamed movie could exploit guaranteed bandwidth if possible / available, or else they could self-optimise to conditions of network congestion or poor coverage, if well-understood. Other services have different criteria – for example, real-time gaming demands ultra-low latency, while corporate applications may demand the most secure and reliable path through the network.
  • To charge appropriately for access to and/or use of the network. It is becoming increasingly clear that the Telco 1.0 business model – that of charging the end-user per minute or per Megabyte – is under pressure as new business models for the distribution of content and transportation of data are being developed. Operators will need to be capable of charging different players – end-users, service providers, third-parties (such as advertisers) – on a real-time basis for provision of broadband and maybe various types or tiers of quality of service (QoS). They may also need to offer SLAs (service level agreements), monitor and report actual “as-experienced” quality metrics or expose information about network congestion and availability.

Under the floor players threaten control (and smartness)

Either through deliberate actions such as outsourcing, or through external agency (Government, greenfield competition etc), we see the network-part of the telco universe suffering from a creeping loss of control and ownership. There is a steady move towards outsourced networks, as they are shared, or built around the concept of open-access and wholesale. While this would be fine if the telcos themselves remained in control of this trend (we see significant opportunities in wholesale and infrastructure services), in many cases the opposite is occurring. Telcos are losing control, and in our view losing influence over their core asset – the network. They are worrying so much about competing with so-called OTT providers that they are missing the threat from below.

At the point at which many operators, at least in Europe and North America, are seeing the services opportunity ebb away, and ever-greater dependency on new models of data connectivity provision, they are potentially cutting off (or being cut off from) one of their real differentiators.
Given the uncertainties around both fixed and mobile broadband business models, it is sensible for operators to retain as many business model options as possible. Operators are battling with significant commercial and technical questions such as:

  • Can upstream monetisation really work?
  • Will regulators permit priority services under Net Neutrality regulations?
  • What forms of network policy and traffic management are practical, realistic and responsive?

Answers to these and other questions remain opaque. However, it is clear that many of the potential future business models will require networks to be physically or logically re-engineered, as well as flexible back-office functions, like billing and OSS, to be closely integrated with the network.
Outsourcing networks to third-party vendors, particularly when such a network is shared with other operators is dangerous in these circumstances. Partners that today agree on the principles for network-sharing may have very different strategic views and goals in two years’ time, especially given the unknown use-cases for new technologies like LTE.

This report considers all these issues and gives guidance to operators who may not have considered all the various ways in which network control is being eroded, from Government-run networks through to outsourcing services from the larger equipment providers.

Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators Under The Floor Players Fig 1 Defending Network Capabilities

Source: STL Partners

Industry structure is being reshaped

Over the last year, Telco 2.0 has updated its overall map of the telecom industry, to reflect ongoing dynamics seen in both fixed and mobile arenas. In our strategic research reports on Broadband Business Models, and the Roadmap for Telco 2.0 Operators, we have explored the emergence of various new “buckets” of opportunity, such as verticalised service offerings, two-sided opportunities and enhanced variants of traditional retail propositions.
In parallel to this, we’ve also looked again at some changes in the traditional wholesale and infrastructure layers of the telecoms industry. Historically, this has largely comprised basic capacity resale and some “behind the scenes” use of carriers-carrier services (roaming hubs, satellite / sub-oceanic transit etc).

Figure 2 – Telco 1.0 Wholesale & Infrastructure structure

Under The Floor (UTF) Players Fig 2 Telco 1.0 Scenario

Source: STL Partners

Content

  • Revising & extending the industry map
  • ‘Network Infrastructure Services’ or UTF?
  • UTF market drivers
  • Implications of the growing trend in ‘under-the-floor’ network service providers
  • Networks must be smart and controlling them is smart too
  • No such thing as a dumb network
  • Controlling the network will remain a key competitive advantage
  • UTF enablers: LTE, WiFi & carrier ethernet
  • UTF players could reduce network flexibility and control for operators
  • The dangers of ceding control to third-parties
  • No single answer for all operators but ‘outsourcer beware’
  • Network outsourcing & the changing face of major vendors
  • Why become an under-the-floor player?
  • Categorising under-the-floor services
  • Pure under-the-floor: the outsourced network
  • Under-the-floor ‘lite’: bilateral or multilateral network-sharing
  • Selective under-the-floor: Commercial open-access/wholesale networks
  • Mandated under-the-floor: Government networks
  • Summary categorisation of under-the-floor services
  • Next steps for operators
  • Build scale and a more sophisticated partnership approach
  • Final thoughts
  • Index

 

  • Figure 1 – Competition in the services layer means defending network capabilities is increasingly important for operators
  • Figure 2 – Telco 1.0 Wholesale & Infrastructure structure
  • Figure 3 – The battle over infrastructure services is intensifying
  • Figure 4 – Examples of network-sharing arrangements
  • Figure 5 – Examples of Government-run/influenced networks
  • Figure 6 – Four under-the-floor service categories
  • Figure 7: The need for operator collaboration & co-opetition strategies

Full Article: Voice 2.0: Beyond ‘Unified Communications’

4 Enterprise Voice 2.0 Platform Business Models

Many, many different companies are pushing into the key Telco 2.0 field of communications-enabled business processes, or CEBP, which unites both the Voice & Messaging 2.0 and Enterprise VAS elements of our thinking. It’s one of the undemarcated frontiers, or creative tension zones, where most of the value is going to be created. In this note, we’re going to examine four leading CEBP platforms, all of which have been featured on the Telco 2.0 blog before, and try to identify some key trends and commonalities that explain something about how to succeed with CEBP and Voice 2.0.

No-one is quite sure where the roles of telcos, Web2.0 players, ISVs, and systems integrators begin or end, or what distinguishes the VAS and voice & messaging elements. But it’s precisely this combination of complexity and openness that gives the scope for differentiation through business model innovation.

Fundamentally, this field is attractive to telcos and others because of the extreme disjuncture between the volume of bits involved – which drives cost – and the social and economic value attached to them, which drives the potential revenue from them. This makes it possible to achieve SMS-like “fascinating margins” and to actively substitute for the falling price of the core consumer voice and SMS products. You might remember that ten years ago, it would be worth employing someone to save an hour of phone calls, and that we calculated that a few text messages at the right place and time could save the UK transport industry £218 million a year.

No wonder operators we surveyed for the Voice & Messaging 2.0 report were so keen on APIs and commerce, although we still think they are worryingly unengaged with voice… The following chart represents the relative priorities a sample of operators assigned to different issues in the survey.

Source: STL

Four examples from the CEBP world

The products and companies we’re going to look at are Ribbit, IfByPhone, Intelepeer, and VoiceSage. (NB We’ve written about all four in the past; on Ribbit, we’ve done Ribbit: the amphibian of telco platforms, why Ribbit is worth $105 million to BT, Ribbit and BT’s evolving platform strategy, and trying to fix BT Global Services with open source. We interviewed IfByPhone CEO Irv Shapiro, and the CEO of Intelepeer, and VoiceSage have been to every Telco 2.0 event we can remember.) We’ve also done a Q&A with Thomas Howe, CEO of their rival, Jaduka.

In case those are too many links for one paragraph, let’s recap exactly what these four companies do.

Ribbit is a platform for voice and messaging-based applications, usually CEBP but not necessarily, which provides a software toolkit for the user-interface front end and a hosted softswitch with extensive APIs for the back end. Being part of BT, it has access to BT’s global network, peering/interconnection, and datacentre resources. It is marketed to developers, and its monetisation model is that the developers who use it pay for their use of network resources and adjacent products like hosting and bulk voice service, whereas the software-development kit is given away free to encourage user recruitment. This is a telco version of the now-classic IT model introduced by Microsoft at the end of the 1980s.

IfByPhone provides a Web-based interface for setting up voice – and messaging-enabled CRM applications, which run on a hosted cluster of Asterisk servers. It’s marketed to small and medium businesses, and also to small US telcos who peer with their SIP network. Users pay for service.

Intelepeer is a full-service virtual telco, which provides a hosted switching system with an extensive API (AppWorx), a private ENUM registry for mapping e164 telephone numbers and URIs, and widespread VoIP peering. Users – essentially developers, niche service providers, or enterprises – pay to host their voice applications on their systems.

VoiceSage is a Web-based environment for creating basic CEBP applications. It’s a single box solution from the end user’s point of view, providing relatively few options compared to one of the all-purpose developer platforms, but it offers quick deployment with a minimal technical overhead.

More specialisation = less technical investment

Looking at these, there’s clearly a spectrum of specialisation here; VoiceSage does just a few things – sending messages during business processes. IfByPhone is considerably broader; Ribbit is a general purpose developer platform for voice & messaging, and Intelepeer is a whole telco with hosting and APIs. On the other hand, as you move along that, the minimum buy-in in terms of technical investment also changes; the more you have to configure and engineer yourself, obviously, the more commitment you need to make.

If you’re building something using Intelepeer or Ribbit’s platforms, you’ll need to undertake non-trivial software development; IfByPhone has a graphical user interface, but still offers quite extensive scope for customisation and development. VoiceSage requires the least engineering investment to get something up and running.

…but fewer possibilities

Of course, the cost of having a “noddy” user interface is that it restricts the possibilities of further development and customisation, at least if you don’t have access to the underlying systems it abstracts. This, of course, has consequences for the business model; creating a user interface involves a vision of the user, and therefore also of the customer. If you’re building a highly specialised and supposedly user-friendly GUI, your product is going to be end-user focused. The more general-purpose the product, and the greater the technical buy-in required, the more likely you are to be offering it to developers and enterprises with their own development capability rather than to end users, whether organisations or individuals.

And this is what we see: Ribbit and Intelepeer are targeted at developers, IfByPhone is targeted at technical corporate users (and service providers as a white-label), and VoiceSage at non-technical users.

Understanding the retail/wholesale divide

In our post on BT Osmosoft (and Ribbit, come to think of it), we quoted J. P. Rangaswami as saying that the dividing line between open-source and proprietary software depends on how generalised or specific the application is; as your product becomes applicable to more things, it becomes more appropriate to go open source, because otherwise it just gets too difficult to keep track of all the things that need maintaining. However, it’s rare that anyone will have solved a highly specific business process problem unless they expect to make money from it, so the more specific and specialised you get, the more likely you are to be proprietary.

This can be applied here as well. If your product has relevance to a very wide range of applications – like Asterisk, or perhaps like the Telco 2.0 VAS platform – or if it’s a commodity, like traditional voice, it’s most likely that the appropriate business model will be driven by wholesale, and success will hinge on finding the best possible partners to get it into their own specific markets. If it’s software or content, you should seriously consider making it open-source and perhaps free.

The%20Zone%20of%20Value.png

This chart shows these ideas as a 2×2 matrix; towards the top right, we’ve got hyper-specialised and still highly technical tools for very specific jobs, and towards the bottom left, commodities. The interesting bits are in the zone of value, shown in gold (of course), which incorporates both retail-ready, specialised, ready to use products, at the bottom right, and also the highly technical general purpose platforms that make them possible, up at the top left.

Conclusions and recommendations

Essentially, the crucial markers are whether the product has a very large range of possible applications, whether it can be incorporated into another product, and whether an upstream customer is needed to market it to the end user. Of course, the ultimate possible range of applications is being useful across the whole economy; another reason to forget “content”.

Value is not just migrating to the network edge; it’s migrating to the edge of your business, where it makes contact with others.

So, it’s crucial to identify and develop the right partnerships to bring your valuable general-purpose platform capabilities to the people whose highly specific business process problems need them. And it’s important to be aware of what opportunities to profit from a specific niche product there might be. But given the highly generic nature of many telco platform capabilities, wholesale is going to dominate. The aim of Telco 2.0 is to facilitate getting from highly generic data transport and big IT capabilities to specific user value. That’s how you get into the zone of value.

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: 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.]