Russian carriers lead CDN charge

The recent announcement that Russian carrier VimpelCom is looking for an equipment supplier for a content delivery network (CDN) provides yet another indication of how the growth of over-the-top (OTT) video is contributing to a new phase in operator strategy vis-à-vis CDNs.
As reported by Russian news agencies, AKTR and comnews, VimpelCom expects to finalize a tender to select a CDN vendor in the first half of 2012. The announcement is interesting because it comes relatively soon after the October 2011 revelation that VimpelCom’s mobile market rival MegaFon had formed a strategic partnership with the South Korean CDN provider CDNetworks. Under the terms of their agreement, MegaFon will deploy CDNetwork’s cloud-based infrastructure in its data centers, creating what it calls the “first local CDN in Russia”. MegaFon will use its CDN to offer a higher level of service to content providers and companies which want to offer an improved website performance to Russian audiences. MegaFon’s CDN should help it deliver content at faster speeds and with improved levels of quality.
The MegaFon-CDNetworks partnership, together with the revelation of VimpelCom’s CDN plans, highlight three key characteristics of Russia’s rapidly-evolving market for CDN services.
The first characteristic is the importance the country’s telecoms operators appear to be attributing to local CDNs. Local CDNs consist of caching servers which are positioned much closer to end users than traditional CDN topographies. By deploying their own local CDNs (in MegaFon’s case, this involves using a ready-made CDN service from CDNetworks), telcos are able to gain greater control over the delivery of content right up to their customers’ homes, offices and devices. This is particularly important in markets such as Russia, which are witnessing impressive growth in the consumption of OTT video (see Informa’s Russia, OTT-content update, November 2011).
The second characteristic of Russia’s emerging CDN market is the leadership role mobile operators are taking in developing CDNs. Although MegaFon claims to have been the first to market with a local CDN, VimpelCom appears poised to follow suit and may even announce a commercial launch of CDN services by the end of 2012. Meanwhile, Russian mobile market leader MTS also reportedly plans to build its own CDN.
Russia has a significantly higher number of mobile customers than it does fixed-broadband subscribers. Furthermore, the consumption of video and other forms of multimedia content via mobile devices is growing rapidly. Although only 18% of the population owned a smartphone in 1H11, that figure is fast increasing, and the development coincides with growing consumption of OTT services via mobile handsets. Russia’s mobile operators recognize this trend and have been busy investing in all manner of optimization and delivery solutions for mobile video. The deployment of their own CDNs should be seen as the next logical step for Russia’s mobile operators, which are eager to manage the growing volume of OTT content on their networks and explore new opportunities for monetizing that content.
Opportunities for local CDN providers
The third characteristic of the Russian market for CDN services centers on the opportunities it offers to alternative CDN providers that understand the local market. Most traditional CDN providers have recognized the growing demand among telcos to have their own CDN service. Responding to this demand, companies such as EdgeCast, Limelight Networks, Level 3 and Akamai have been rolling out a range of new services that are aimed at helping telcos flourish in the CDN business. However, many of these traditional CDN players have focused their businesses on the advanced markets of Western Europe, North America and some parts of Asia. For the most part, they have only recently begun the process of expanding into so-called emerging market regions.
Meanwhile, the Russian market already has a number of local companies which offer Akamai-style CDN services to content providers (they include NGENIX and CDNvideo). These companies install their CDN servers on network operator points of presence (PoPs), helping them with online traffic management. One future scenario that we may see emerging is the introduction by one of these local CDN providers of a reseller CDN, similar to the one that CDNetworks is providing for MegaFon.
Companies such as CDNetworks are taking the Russian CDN market to the next level, by offering ready-made CDN solutions to operators looking to manage the CDN infrastructure themselves. It is notable that CDNetworks has established a CDN business in mainland China, where it helps Asian, European and US customers extend their websites and web applications to local customers. In addition to helping MegaFon manage content on its own network, the operator’s decision to partner with CDNetworks could create future opportunities for both companies to deliver online traffic to Chinese audiences and vice-versa.
Informa believes that operators from emerging markets are in a particularly strong position to deploy their own regional and national CDNs. This is because the embryonic state of many emerging-market broadband sectors means that even largest traditional CDN providers are likely to have a limited network presence there. However, the development of successful CDN businesses in Russia will not happen overnight. Specific hurdles to be crossed include the country’s vast territory, as well as bandwidth limitations and a range of network and peering challenges. Nevertheless, Informa has predicted that video traffic will grow almost ten-fold between 2010 and 2015. Russia’s mobile operators appear to be well aware of the rising demand for video and other types of online content. Some, such as MTS, are developing their own OTT content portfolios as part of a wider customer retention strategy.
The exponential growth of online content is already alerting Russia’s operators to the need for effective CDNs. This should ensure that we see more interesting and innovative developments in Russia’s CDN market in the coming months.

Chris Drake is a senior research analyst at Informa Telecoms & Media