Telecos need a paradigm shift

Business model innovation and revenue modeling are key to sustainable mobile broadband in India

By Cai Liqun

The shift from traditional voice to web based communication is beginning to bite, while India’s internet services continue to mushroom. Telcos must now change their approach and learn to collaborate with OTTs, so as to share the newly emerging revenue streams. Telcos, who can provide cloud services and mobile broadband, possess precious knowledge of end-user behavior, but they cannot produce the innovative apps that will use such information and that consumers will find attractive. By harnessing the innovative power of OTT players, sharing such knowledge can deliver strong business growth to all concerned.

The progress of any society is driven by user’s needs and innovative technologies. India is no different. The impact of mobile over the past decade has been a game-changer. Today, we are living in a connected society, where global mobile penetration has touched 100% and the requirement of ubiquitous mobile connectivity and of reliable and seamless data access are transforming lifestyles of many Indians in an economy that could leapfrog the PC era.

Big Data is improving decision making and is having a great impact on the competitive differentiation of enterprises and their ability to avert business risks. A recent study reveals affirmation from more than 90% of surveyed Indian enterprises that better usage of Big Data technologies will lead to improved decision making, hence Indian companies will continue to look to IT innovation to compete better on the global stage.

The marriage of Internet and Mobile is a key driver for the economic growth of any emerging market and especially for the competitiveness of India, which has a broadband penetration of just over 1%. World Bank research reveals that for every ten percentage-point increase in the penetration of broadband services, developing countries can witness an increase in economic growth of 1.3 percentage points.

Affordable broadband service is critical for India’s slow economic growth, with its trend of economy stagflation. What is encouraging is the strong growth in the consumption pattern of India’s rural markets, which is an important indicator of the country’s long-term economic stability. With proliferation of mobile broadband accompanied by accelerated affordability of smartphones, rural markets will further witness a boost in the spending pattern. All these will have an overall positive impact, and will boost global investor confidence in India.

India presents a significant growth potential for telecom industry, which is currently struggling to overcome challenges related to declining Average Revenue Per User (ARPU), market saturation, hyper-competition, emergence of OTT (Over The Top) players, and stringent regulatory conditions. As we witness slowing growth and declining revenues on connections associated with traditional voice and SMS services, it is technology and business innovation that will drive the new wave of growth in the era of mobile broadband.

Principle of New Business Model

If we look at how broadband applications are used today, we see the innovation emerging from ‘Terminal + Content’ collaboration has grabbed the power from the Pipe (Network) that is provided by telcos (telecom operators).

This collaboration is reshaping the world and has opened up delivery channels leading to improvement of customer experience and value. The shift in value chain is obvious, seeing the telcos’ continuously eroding revenues from traditional voice and text services. With Moore’s law (processing power doubles approximately every 18 months) prevailing over Shannon’s (the rate of information transmitted over bandwidth noise), telcos need to bring in service innovation and drive a multi-sided business model that opens up multiple revenue opportunities, to sustain in this transforming market.

Earlier, in the Telco 1.0 era, downlink content was predominant, and internet was primarily used as a medium to get access to stored content. Today, with social applications and video content driving the next generation user-experience, coupled with affordable smartphones and lower cost of storage, we are entering an age where uplink content from retail video and enterprise storage applications will be significant. Today’s networks architecture is not optimized to such ‘data flood’. We foresee that a three-layer ‘Cloud-Pipe-Devices’ model needs to be adopted, to foster collaboration between operators and Content/OTT providers and drive industry momentum.

Enabling Network Architecture – Openness is the key

In CY 2012, there was a dramatic 22% reduction of voice and SMS revenues compared with the figures of CY 2011. This is due to social networks and OTT applications, which now offer voice services over the internet. This is an alarming percentage, given the fact that these services represent more than 90% of the telcos’ business.

In order to bring back lost minutes into the network, telcos need to cash-in on customer experience and bring in service innovation by building cloud platforms, backed by user analytics and web behavior patterns that are orchestrated by long-tail Web 2.0 services. After all, telcos possess precious information about the end customer. Content and OTT providers are looking to such user-centric data to keep their marketing campaigns focused and be more relevant to end user requirements. By having open access to such information that is gathered by telcos, content players are also able to command more advertisement revenues as they become context-specific. A portion of revenues earned from push advertisements and specific services, could be shared with telcos. This way, telcos have not just satisfied the end user requirements of a superior experience, but also have cashed in on collaboration with content/OTT providers.

Such a model where telcos emerge out of a traditional walled-garden approach and build on collaboration and shared content with OTT industry will encourage mobile broadband to flourish in the Indian sense. In fact, telcos could have the potential to generate additional revenues directly from retail and enterprise users, due to the added value that they bring, as this has direct impact on business efficiency and profitability of organizations. This is in contrast with the drive to hike voice tariffs in an effort to retain profitability, which may not be a sustainable strategy, especially in the upcoming voice over IP. Content providers have also echoed sentiments of collaboration and revenue sharing, in cases where operators can enable such open architectures, coupled with convergent billing. Rich user experience can be delivered only in a collaborative atmosphere.

This openness leads to faster time to market, and improved service agility and also faster applications’ development for seasonal ‘push’ campaigns. A broader sense of a ‘pull’ effect is created, which will make it compelling for users to demand better data speeds and rich content from telcos. This model will ultimately drive a rich new wave of consumption, termed “India 2.0”. Further, the country with its large pool of IT and software development resources would do better than other nations and take leadership in service innovation. It will also have a positive spin-off for IT industry development.

Software Defined Networking (SDN)

As traditional network architectures are ill-suited to meet requirements of today’s enterprises, carriers, and users, the broad industry effort spearheaded by the Open Networking Foundation (ONF), called Software-Defined Networking (SDN) is transforming networking architecture, leading to a sustainable service delivery model. In SDN architecture, control and data planes are decoupled, network intelligence and state are logically centralized, and the underlying network infrastructure is abstracted from the applications. Consequently, enterprises and carriers gain unprecedented programmability, automation, and network control, enabling them to build highly scalable, flexible networks that readily adapt to changing business needs.

The ONF is a non-profit industry consortium that is leading the advancement of SDN and standardizing critical elements of the SDN architecture such as the OpenFlow protocol, which structures communication between the control and data planes of supported network devices. OpenFlow is the first standard interface designed specifically for SDN, providing high performance, granular traffic control across multiple vendors’ network devices.

Open Flow-based SDN is currently rolled out in a variety of networking devices and software, delivering substantial benefits to both enterprises and carriers, including:

• Centralized management and control of networking devices from multiple vendors;
• Improved automation and management by using common API’s (Application Programming Interface) to abstract underlying networking details from orchestration and provisioning systems and applications;
• Rapid innovation through the ability to deliver new network capabilities and services without the need to configure individual devices or wait for vendor releases;
• Programmability by operators, enterprises, independent software vendors, and users (not just equipment manufacturers) using common programming environments, which gives all parties new opportunities to drive revenue and differentiation;
• Increased network reliability and security as a result of centralized and automated management of network devices, uniform policy enforcement, and fewer configuration errors;
• More granular network control with the ability to apply comprehensive and wide ranging policies at the session, user, device, and application levels;
• Better end-user experience as applications exploit centralized network state information to seamlessly adapt network behavior to user needs.

SDN is a dynamic and flexible network architecture that protects existing investments while future-proofing the network. With SDN, today’s static network can evolve into an extensible service delivery platform capable of responding rapidly to changing business, enduser, and market needs.

Looking ahead

As Einstein would have summed it “Imagination is more important than knowledge”. The time is ripe for a fresh new thinking on modernizing the service delivery in the mobile broadband context, as broadband business is not akin to giving dial-tones as used to be in a voice-centric era. The explosion of mobile devices and content, server virtualization, and advent of cloud services are among the trends driving the industry to relook at traditional hierarchic telecom network architectures and client server IT architectures. With convergence of internet and mobile, telecom and IT, services need to converge on single platforms, based on hosted and virtualized service model.

Telecom architectures are evolving towards All-IP and IT architectures with Cloud and Virtualization integrated seamlessly into carrier grade networks.

Telcos in India need to embrace Carrier Cloud, as IT is under pressure to accommodate numerous personal devices in a fine-grained manner while protecting corporate data and intellectual property and meeting compliance mandates. A collaborative approach will enhance user experience, revenue and the profitability potential for the industry, leading to a stronger economy.

(Cai Liqun is CEO at Huawei India)