Trends For 2011
Where should carriers focus their efforts? Eira Hayward asks what's likely to disrupt their business, and where the biggest opportunities lie?
Predicting the future in telecoms is easier than it used to be: for a start we can be assured that, for instance, in the future speeds will get faster, products will commoditise, the lines between fixed and mobile will continue to decrease in significance, and that customers will be spoilt for choice. We can also be reasonably comfortable with the assurance that should a disruptive technology appear and scupper everyone’s business plans then many companies will be sufficiently adaptable to be able to adjust and embrace it.
As we look forward to the coming 12 to 18 months there are many certainties: consumers will continue to expect ubiquitous access to the internet, and everyone will expect to be able to do business online. Mobile data traffic can only continue to increase. The issue of who pays will become increasingly political as the mismatch between investment and revenue becomes more marked - France Telecom is already calling for a system of payments by service providers as a function of their use to be put in place, joining Telefonica and Telecom Italia in demands that Google, Facebook et al pay for network use.
Up in the cloud
All analyst eyes are on cloud computing as we move into 2011 and it is predicted to achieve mainstream adoption during the year. Research by the Centre of Economics and Business Research (CEBR) reports that widespread adoption of cloud computing could give the top five EU economies a 763 billion boost over five years and create 2.4 million jobs. The report suggests that the rapid uptake of cloud computing service offerings will make them progressively cheaper as economies of scale take hold and service offerings mature. The findings are backed up by analysts such as Gartner which predicts that by 2012, 20% of companies will not own their own IT assets.
Piers Linney, joint CEO of cloud services and unified communications company Outsourcery, and a founder member of the Cloud Industry Forum (CIF), comments: “The cloud revolution has been likened to the third industrial revolution after the automation of production and the arrival of steam power in the nineteenth century. Cloud services democratise IT as powerful applications are now available to businesses of all sizes. The cloud saves businesses money, increases productivity, reduces risks, increases flexibility and transfers what were fixed costs into variable costs. It is becoming clear that cloud computing is going to achieve mainstream adoption in 2011 as businesses realise the benefits and that cloud service providers can offer security and resilience that even large corporates are unable to afford.”
He continues: “A number of technological, societal and economic developments have aligned at the same time that will ensure that the cloud is absolutely the future home of computing power. The cloud computing revolution will transform the way all businesses interface with technology and communications, and marks the next wave of the fundamental changes that the evolution of the internet has already brought about.”
His comments are echoed by Paolo Gambini, chief marketing officer at Tinet who predicts we will see an increase in products and services designed to support cloud computing: “Ethernet services will keep gaining critical mass in 2011, and will further enable the global high performance connectivity that is demanded by cloud computing and low latency transport solutions.”
Dumb pipes or dumb cloud?
There are some words of caution however. Andy Johnson, SVP sales and business development for PacketExchange comments somewhat enigmatically: “We should be predicting that the world will find out that the utopian ideals of cloud-based services will be somewhat compromised by the unfortunate accidents and misadventures befalling those who failed to heed the warnings about the journey.” And it’s true that there is a real risk that wholesale carriers, in the perceived gold rush to the cloud, may well find themselves merely replacing one problem with another – from dumb pipe to dumb cloud if you like.
Camille Mendler, vice president at Yankee Group counsels wholesale carriers to test the water rather than opt for a headlong dive. She thinks that wholesalers need to think differently and advises that they should partner with a SaaS or IaaS vendor, white-label products and resell them. “I think telcos need to choose their customer segments carefully here,” she says. “They need to think more about a vertical solution or they risk just providing increasingly commoditised services where the only differentiator is that thorny old issue of price.”
There are potentially some big questions for the industry here, if it is not to repeat the mistakes of previous years. Telcos could perhaps consider whether they can differentiate their cloud services on quality – is there an opportunity to charge a premium for a better service level agreement for instance? Is there an opportunity to package up cloud services with content delivery networks, as content players look to deliver more of their business through the cloud. Some of the Tier 1 carriers could be ready to help here – AT&T for instance has its Synaptic Hosting cloud platform: it will complement carriers’ own cloud strategies by providing hosting facilities in geographies beyond their footprints and it will offer Synaptic Hosting as a hosting platform for app stores so that service providers can implement these quickly and cost-effectively, without having to invest in their own infrastructure. Similarly Deutsche Telekom International Carrier Sales & Solution (ICSS) has created a content exchange, CONX - this a global and secure market for professional content trading.
Says Mendler: “There are lots of opportunities in national wholesale, especially at a small and medium enterprise level, as these are businesses that no one ‘owns’. In Germany we found that 70% of mid-market SMEs had some international connectivity needs. A wholesale telco could resolve its connectivity and access problems and local resellers might well want to partner with a national cloud provider.”
At researcher Ovum, senior analyst for wholesale telecoms, Paris Burstyn expects to see wholesale take off in developing markets in the course of the next 12 months. Players in the emerging regions of Africa, south east Asia, Latin America and eastern Europe will need to buy and sell wholesale services to overcome their inability to meet their customers’ growing needs.
Burstyn says: “Many emerging telecoms markets around the globe are still dominated by incumbent and former incumbent telcos, a large proportion of which remain majority-owned by governments and subject to relatively little competition. We anticipate that as more and more emerging markets permit, the wholesale markets in these countries will also start to develop.” He says that incumbents across the world will begin to realise that offering wholesale service can recover some of the retail revenues lost to competitors, and is “sure that 2011 with be the year when real wholesale markets start to grow in many emerging countries”.
In developed markets Ovum also expects to see several significant developments. Burstyn says that carriers are going to need to respond with more complex services than they currently supply. Some have set themselves up for this already, he says, pointing to Verizon as an example: it reorganised in late 2009 and has unified its brand and realigned its operations. “Pressure to move beyond commodity services will only intensify in 2011 as more and more voice traffic migrates from TDM to VoIP, and as fixed and wireless access networks are opened up to competitors. During 2011 wholesalers must act to survive,” Burstyn says. Ovum advises carriers to concentrate on devising ways of attracting longer term contracts and customer loyalty. These might include aiming at specific niches with tailored service packages and developing new value-added services and managed network service offers. “It’s very important that carriers start moving up. Having wholesale capacity is just table stakes. Standing still is not an option in the developed markets in 2011,” says Burstyn.
But it is in the mobile space that the most significant changes are likely to occur, thinks Brian Fitzpatrick, managing director at BT Wholesale Markets, and these changes in turn will present growth opportunities for the fixed-line wholesale market. Speaking about the UK market, he says: “I believe we’re going to witness further consolidation among the five mobile operators. Orange, T-Mobile and Three are already sharing their networks through their MBNL joint venture, having successfully delivered more than 12,000 consolidated 3G sites in November this year. With Vodafone and O2 also in the process of network sharing through their Cornerstone agreement, we may well see the UK mobile market consolidating down to two networks within the next year or so.” Driving this trend is the realisation among mobile operators that owning the network is no longer a differentiator, rather it is the delivery of innovative services, service quality and value for money that will mean they attract new customers and reduce churn.
And in these capital constrained times, says Fitzpatrick, the cost efficiencies generated by sharing infrastructure offer another compelling reason for mobile operators to pool their network resources. IDC predicts the number of mobile data connections in western Europe will rise by an average of 15% a year to 270 million in 2014, while overall end-user revenue will fall about 1% a year. At the same time, operators’ annual spending on network gear in the period will surge 28% from 2009 to about $3.7 billion, according to researcher Canalys.
Pooling resources is particularly crucial at a time when mobile operators need to invest in new 3G, 4G and LTE technologies in order to manage the growing tide of mobile data. At the end of 2010, France Telecom et al had already started publicly to question the business model of mobile data, with Telecom Italia CEO Franco Bernabe commenting the requirement to service mobile data requirements “is set to compromise the economic sustainability of the current business model for telecoms companies”. Says Fitzpatrick: “Mobile operators are therefore tasked with a huge dual challenge next year – that of rationalising their networks and the introduction of these new technologies to help them overcome the growing network capacity issues they face as a result of the mobile data deluge.” BT Wholesale has chosen to position itself as the neutral wholesale partner of choice, who can provide the high-capacity Ethernet backhaul links that mobile operators need between their mobile cell sites and their core network. Effective management of bandwidth and optimal network configuration remains a further challenge. Effective management and shaping of network traffic presents an opportunity for mobile operators to differentiate their service for premium customers who demand or require a superior quality of service.
The big changes to telecoms infrastructure of recent years will continue, according to Hunter Newby, CEO of Allied Fiber, which is building a dark fibre network in the US. 2011 will bring with it significant change in the network landscape. “Many proper steps will be taken to build the infrastructure necessary to support the digital world and its present and future demands. The investment in physical layer assets ranging from dark fibre in the metro, regional and long-haul portions of the network will enable more efficient use of power and new designs for data centre development and more access points for fibre laterals to data centres, wireless towers and rural networks,” he says.
John Donaldson, managing director of Abovenet UK expects 2011 will be the year that we see 100Gb services start to be adopted: “We believe some organisations may be waiting for 100Gb as their next step up from 10Gb,” he says. Donaldson adds that low latency will also be key. “There are growing requirements for low latency between sites to allow servers to virtualise more efficiently, as well as rising demand for high bandwidth connectivity to move large amounts of data around more efficiently. Always on connectivity is needed to allow for redundant pathways between server locations,” he says. Optics also have a part to play here. As optical technology becomes more sophisticated over the coming year, optical gear can light fibre more efficiently, which “meets the growing requirements of companies seeking low latency solutions” according to Len Bosack, CEO at optical network developer XKL.
At Ovum, Burstyn thinks that while further terrestrial and submarine cables will be deployed, most effort will be concentrated on increasing the resilience and diversity of existing systems. He also points to an impending crisis in IP interconnection: “The proliferation of variants of IP-based services necessitates hub-based solutions for their interconnection – bilaterals are no longer practical or adequate,” he says “There are simply too many different standards, variants and services. We believe that 2011 will be the year in which solutions to interconnect IP-based services will take off. The slow migration to IPv6 will intensify; enterprises and consumers will no longer be satisfied with closed user-group communications services. Interconnection solutions must be rolled out quickly, efficiently and cost-effectively.” He also expects the trend to outsource will continue: “We expect alert carriers will deploy new optical infrastructure to improve the reach, quality, capacity, and resilience of their telecoms networks. These investments will enable them to provide the wholesale backhaul and connectivity necessary for the next generation of mobile networks and the bandwidth-hungry applications and services they will carry.”
But with LTE currently the biggest buzzword in the industry, the LTE network challenge requires a solution that can deliver an effective LTE roll-out whilst reducing the associated costs. The first beneficiaries of LTE mobile broadband networks will be business users based in developed countries, led by the US and Japan, according to Juniper Research, which forecasts that global service revenues will exceed $200 billion by 2015, from a standing start in 2011. These high traffic enterprise subscribers using web, email and video services will be the early adopters of LTE and are the key segment to be targeted, says Juniper, whereas revenues from consumer users will remain under half of total revenues until at least 2015. Juniper also finds that while there is overwhelming agreement that pricing models will have to change, there is no consensus about what their structure should be. LTE roll-out will vary around the world however, says Juniper, as the spectrum auction timetables in some European countries such as the UK where bidding does not start until 2012, will cause delay. Says BT’s Fitzpatrick: “Perhaps the most important thing for the mobile operators to consider is that as the mobile data explosion continues apace, network capacity will only need to continue to expand and adapt to the increased demands, with mobile operators needing to add extra capacity to their mobile cell sites very rapidly. We hope to support their safe passage through that mobile data minefield.”