Taking advantage of the new digital value chain

BRIC web user growth, China, India, Brazil, Russia, Indonesia, US, Japan, Boston Consulting GroupIP networks are clearly best positioned to handle the booming demand for digital content, and new markets including utility and health issues, right?

Well, not necessarily, with Nokia Siemens Networks last month joining a growing list of vendors trialing Phantom DSL - a technology the firm claims can boost the bandwidth of copper lines by up to 75%. In September Huawei tested a solution combining SuperMIMO technology with four twisted pairs of copper, achieving 700 Mbps.

The key selling point is that these offer a cheaper way for carriers to upgrade subscriber access speeds than fiber networks. That could have implications for next-generation network projects in countries including Australia and the UK, where the burden of network rollout costs has been placed firmly at the door of incumbents Telstra and BT.

However, the problem is that these copper upgrade technologies are a couple of years away from becoming a commercial reality.

IP networks are here, now, and also offer cost efficiencies, Jayesh Easwaramony, vice president of Frost & Sullivan, ICT practice says.

He noted that IP networks are more flexible and offer the ability to embed intelligence at the edge of the network key elements in delivering content like video.

"With over 60% of the network traffic moving to video and also video having its own viral effect on consumers, the video traffic and hence content is only expected to explode as broadband growth permeates emerging and developed markets," Easwaramony says.

The key for operators, though, is how to make money from delivering video over their IP network. 

Easwaramony believes there is little in the way of direct revenue opportunities for carriers from video content, but said there are indirect opportunities "through partnerships and offering downstream services like CDNs and microbilling to other players who can monetize better through advertising." 

His view is echoed by Paolo Pellegrineschi, head of sales for voice and IP transformation at Nokia Siemens Networks.

He told Telecom Asia that operators can use the IP cloud to offer combined services in a multimedia ecosystem as the technology offers flexibility that brings "the telco to the web environment."

IP networks enable carriers to offer a "converged experience," Pellegrineschi said.

"The beauty of entering the IP cloud is that it will create a seamless opportunity to consolidate and converge access and services by enhancing the overall value for the end-user. " 

In turn, operators gain the opportunity to grow ARPU by providing innovative services, he said.

Nokia Siemens concedes that switching to IP is a challenging procedure, with Bernd Hildebrandt, head of strategic marketing for network systems, noting that it requires more than just modernizing networks. "Processes and IT landscape also change.  

Hildebrandt says that makes it vital that carriers protect their voice revenues while migrating to IP to "keep paying the bills," but notes that the long-term benefits will make any short-term pain worthwhile.

"IP provides an incredible amount of new opportunities," he said.

Global demand

A raft of recent research suggests the bulk of future demand will come from emerging markets (see Asia Pacific tops charts) as connections improve bad news for European carriers that are already estimated to lag Asia Pacific counterparts by around seven years in fiber deployment, according to Arthur D. Little.

The ability to quickly deploy converged services using mobile broadband could buy them time, and generate extra revenues that could be put toward fiber rollouts.

Time is definitely of the essence for Europe's carriers, with the research firm noting they already face competition from cable operators and utility companies, which are rolling out their own IP networks.

It estimates 65% of fiber connections in the region have been deployed by non-telecom firms, including utility providers, alternative operators and housing associations, and notes that cable operators have updated networks to DOCSIS 3.0, which provides data speeds of 50 to 100 Mbps in non-fiber areas.

"Incumbent telecom operators have to react now to the double-squeeze from cable operators and from the deployments by utilities and alternative operators. If they do not act, they risk the erosion of their core business," the firm stated in a recent report.

Some telcos, however, are already competing for new business. Deutsche Telekom's T-Systems division recently went head-to-head with HP to win a multi-billion euro contract to manage German utility firm E.ON's IT infrastructure.

Vendors are also exploring the possibilities presented by non-telecoms markets.

Cisco has bolstered its range of smart grid routers and switches with the acquisition of Arch Rock, a provider of IP-based wireless technology to utility firms. Before buying Arch Rock, Cisco teamed up with smart grid provider Itron to develop an IPv6-based communications network for utility companies.

The content delivery opportunity

While it is well and good for vendors to dally in new markets, operators are busying themselves with the matter of content delivery networks, to meet an expected spike in demand for digital content.

Frost & Sullivan estimates the market for video CDN will be worth $1.5 billion in 2013, as the number of broadband connections soars beyond 1.2 billion globally.

Giles Wilson, head of technology at Ericsson's TV division, recently told IPTV news that demand for high-quality, on-demand, TV services will result in a significant increase in over-the-top video traffic.

He predicted relentless consumer demand for video, fuelled by growth in the number of IP-connected devices.

UK ISP TalkTalk has signed up Alcatel-Lucent to supply it with a CDN, as part of its commitment to the UK YouView scheme a project to combine terrestrial freeview channels with on-demand content via a single box.

However, some CDN providers are now acquiring or building their own IP networks to circumvent one of their biggest costs in delivering content, Ovum chief telecom analyst Jan Dawson notes.

She points to acquisitions by Limelight, Highwinds and Level 3, which bought the CDN assets of Savvis, turning itself into a supplier of combined services in the process.

"These players believe they are able to operate at a significant cost advantage because they can leverage their ownership of IP networks to essentially take much of the costs out of the equation by owning the network and paying nothing for peering relationships with many other networks," Dawson explains.

Carriers entering the CDN space "feel they can offer differentiated services by combining their network assets with CDN capabilities," in a bid to stand out from CDN providers that don't have networks.

Why such interest in CDNs? "They allow carriers to reduce the amount of traffic that crosses their networks and that they have to hand off to other networks, which saves them money," Dawson says.

Operators making moves in CDN directly or through partnerships - include AT&T, Global Crossing, Deutsche Telekom, Telefonica and Telstra, she added.

Some carriers, though, would rather maintain their direct link to subscribers, believing it to be an important part of their value proposition, says Elisabeth Rainge, director of NGN operations at IDC.

"Operators that are working to deliver digital content should be thinking about what business they want to be in," Rainge told Telecom Asia

She said operators must understand what's important to their customers in order to add value. "The key is to step away from technology and look at the market - or subscriber - requirements. This is a bit about understanding the trade offs and designing the service and its SLAs - in keeping with that business context."

A recent Alcatel-Lucent study of 4,500 consumers and 950 enterprise customers in France, Germany and the UK shows that what customers want is LTE networks.

It said operators that meet the demand could see consumer revenues grow 10% and enterprise revenue by 30% as LTE technology matures, and suggested the best method of monetizing the digital content boom is through cleverly wrapped and keenly priced apps.

"With the right end-to-end infrastructure, bundled offer and market approach, service providers can capitalize on the pent up demand for mobile broadband services," Rati Thanawala, vice-president of Alcatel-Lucent subsidiary Bell Labs network planning division stated. 

"They could optimize revenues with a migration strategy focused first on offering carefully chosen applications and pricing strategies toward enterprises, and then with creative offers for consumers."  

Regardless of the services they choose to offer, IP is essential to operator success in the digital value chain at least, according to the vendors.

Ericsson's Wilson said the ability to push content to the edge of the network will be a crucial element in meeting growing consumer demand without significant investment in core network expansion.

Asia Pacific tops charts

Recent research suggests Asia-Pacific carriers are well-placed to tap growing demand for digital content, with emerging markets widely tipped for success.

Boston Consulting group expects the number of web users in BRICI countries Brazil, Russia, India, China and Indonesia to almost double from 610 million users in 2009 to 1.2 billion by 2015.

Higher PC penetration - tipped to double to 880 million units by 2015 will fuel part of the growth, however, Boston consulting expects more users to access the web via a mobile phone in five years, as the lower price of the device makes it an attractive option.

Ovum forecasts China, India and Indonesia will account for 38% of the 7.4 billion global mobile subs by that time.

Carriers in the region should also benefit from a generally higher use of online information in the market, relative to the rest of the world.

Research by TNS found that 54% of Chinese consumers regularly access web information ?more than twice the number in Finland.

Chinese users can't get enough of blogs either - with 88% revealing they had posted comments online, compared to 32% of US citizens.

The study of 50,000 users in 46 markets also found that users in emerging markets typically bypass email in favour of instant messaging applications and social networking sites.