CDNs and the content revolution
The content revolution in telecoms is taking shape and there is a new segment of companies ready to make an impact on a telecoms business model in place for over a decade. How do the well-established operators deal with the exciting influx of new technology innovations?
Content on telecoms networks is essentially the driving force behind the evolution of an otherwise maturing industry. The dreaded ‘dumb pipe’ phrase is now commonplace in the industry to describe an operator’s traditional services, because it is the content publishers that are producing the real value-added services for the consumer.
This is what proves to be the main force behind consumer demand – it is quality of service, low latency and fast downloads speeds that subscribers want. In a nutshell, telecoms has evolved, and content delivery networks (CDNs) are firmly in the centre of this ecosystem.
The value of content
The rapid evolution of this model over the past five years, and the way carriers must now think about their business, has been as significant as any technological advancement over the last decade. Telecoms now means data, data means content, content means high-bandwidth applications like video, gaming, security and e-commerce, and the delivery of this means CDN.
The technological innovators – Akamai, Limelight Networks and EdgeCast – are companies that well-established telcos have had to recognise as investment or partnership targets, because of the significant capability they have to add value to their networks and offer an innovative platform to consumers.
It is no longer the case that telecoms serves as a communications utility for simple voice or SMS solutions – the business case for telcos, and an entire ethos and mindset, has had to change significantly. “Content, which we see as applications and software as well as information and media, is the main component of a consumer’s telecoms spend that is rising,” says Liz Kerton, president of the Telecom Council of Silicon Valley. “As voice prices and network transport will continue to drop in price over time, content is seen as the element that can increase service revenue and drive demand for larger data packages.”
Claiming to “provide the network, tools, framework and meetings to bring together the industry’s local critical mass of wireless and fixed telecoms companies,” the Telecom Council’s role is essential to bridge the divide between telco and CDN. With over 25 telco members, there is constant interest from the well-established players in any start-up CDN offering, particularly to ease the strain on networks due to video content.
Kerton says, considering video and audio content is particularly bandwidth sensitive and has the potential to generate a high level of network lag, “it necessitates significant investment in infrastructure upgrades and other capital expenditures. The telcos certainly want to play a role in the content market, but thus far have largely failed.”
Failure of the telco
The difficulties telcos have faced in the content space stems back to over five years ago, according to Dimitri Repinec, product manager of mobile data at BICS. While he honestly states that BICS is significantly underdeveloped in the space and has no clear strategy, he believes operators have already missed the chance to really capitalise in content because “mobile operators were too reluctant to change business models”. He said: “While data was out there for free for over two years, operators insisted on basing tariffs by charging per message, per minute of voice, meaning consumers now do not believe they should pay for bandwidth.”
This mindset for operators is slowly, but surely starting to shift. Repinec states that BICS is yet to establish whether investment in content delivery networks would add any value in its mobile segment. This strategy for telcos is “a path that is crossed with peril”, according to James Segil, president and co-founder of EdgeCast networks.
“To be honest, I spend a lot of time putting the fear of god into these types of telcos,” he says. “They need to understand that if you don’t get this technology deployed quickly you are about to go away from this industry. There is no possible way the operators can scale at the rate of demand in content. There is no doubt the amount of investment needed is daunting, but by building technology that reduces the cost of delivery by a magnitude of 50%, the minimum advantage is that they remain competitive by deploying a relevant network.”
The success of CDN players
EdgeCast can be considered as one of the real success stories in the content delivery space. Founded in 2006, the company has grown substantially to provide content solutions to telcos around the world and enable storage caches for delivering content on websites to improve performance.
Essentially this is done by reducing the amount of traffic that goes back and forth on the network and keeping the content close to the end-user in a storage cache. CDNs like EdgeCast cash in on this by providing the network to a content company and providing the functionality and performance to enable the content to get onto the caches, thus enabling cost savings for the telecoms operators.
“In my opinion, we have dominated the wholesale CDN category since we started because, compared to our competitors, we have an easy to provision, multi-level control panel which can allow anyone to resell and white label our service,” says Segil. “We have 10 telcos around the world that resell our service; we have 25 web hosting companies and 15 online video platforms – a total of 60 resellers that drives over 25% of our business.”
Market rumours persist that EdgeCast is powering AT&T’s entire global network, but Segil does not confirm or deny the speculation. Controversially, Segil does claim that: “EdgeCast is the only CDN out there that is strategically focussed on aiding a telco to enter the CDN market and be successful.” He continues: “In the case of Limelight or Akamai, it hurts their business to do this because it will mean this strategy will take market share away from them.”
Paul Alfieri, senior director of corporate communication at Limelight Networks, rubbishes this suggestion, stating: “EdgeCast is just a smaller CDN out to make bold claims to make headlines.” Limelight Networks is one of the largest CDN providers, second only to Akamai in this space, and describes itself as the middle-mile provider in the ecosystem. Conversely to Segil’s claims, Alfieri states that the telecoms operators are the last-mile providers that serve as partners to Limelight and the content owners are its customers.
“We see ourselves as partners of the last-mile networks and we always have,” he says. “They own the subscribers and our customers are the publishers on the other end. It is essential to partner with each segment of both businesses to provide a seamless end-to-end experience, whether that is in the browser or in another form of a connected device.” His admission that Limelight is working with carriers, including Bharti airtel and Bell Canada, to provide licences of its content capabilities to these customers and enable them to run a CDN under its brand strengthens Limelight’s claims of commitment to the telco-CDN confluence.
“Operators are not being marginalised as a simple pipe anymore,” he says. “We are seeing a lot of them actively working with subscribers in advanced services, investing in these services, and it is a very good for the ecosystem around IP.”
Both Akamai and Limelight are publicly traded companies, unlike EdgeCast, and Limelight claims to generate over $100 million in revenue a year. Its portfolio of content publishers is impressive, with Netflix, EA Sports, Blizzard and Zynga on its application delivery side, and internet discount site Groupon on its application services side. “Netflix drives 30% of US internet traffic on a nightly basis, and represents 15% of overall internet traffic – that’s just one example of the amount of data generated, “adds Alfieri.
Three different strategies
The competitive stance between the CDN players is clear, as these relatively new businesses attempt to secure increasing market share. For the well-established telcos, it is ultimately an evolving business model that requires investment. This investment can be made organically, when a telco hires a new team of technologists and engineers to build out its content delivery infrastructure following years of R&D – a strategy that Verizon has adopted. Telcos also have the option of M&A and acquiring a CDN, a strategy taken by Level 3 Communications years ago when it acquired Savvis’s CDN business and tapped into CDN’s potential before most.
Verizon claims it has been open to content innovation for four years; it has spent billions of dollars investing and is committed to providing over-the-top services to its subscribers. “It is the new generation,” says Kathleen Sullivan, chief marketing officer at Verizon Digital Media services. “This development is firmly within Verizon’s DNA – the development or creation of a utility for a specific generation. First it was voice, then data, then IP and now it is content.”
Its end-to-end digital media utility service is focussed on providing a media content platform that accommodates carriers as well as end users. According to Doug Pasko, director of online media technology, the platform is not necessarily a replicated CDN because it aims to create up to 200 variations of a piece of content to accommodate that content for each different device it serves, enabling the end-user to have the best possible experience. A CDN, he believes “serves to package content and attempts to deliver this content to as many users as possible, oblivious to customer quality of service”.
What is most interesting about Verizon’s offering is its commitment to allow carriers into the content space through its platform. “There are a lot of really large players and dominant delivery infrastructures – we at Verizon are large enough to step into the market on our own and make this investment, but there are a lot of small carriers that can’t,” says Sullivan. “Having this multi-service platform helps us open doors for carriers and enables them to access content through Verizon’s network, meaning millions of dollars of investment on their part is not necessary.”
As ‘traditional’ telco competition in content goes, Verizon does not have to look too far to find a different business model. Interestingly, between the three major players involved in content in the US, it is AT&T that has leveraged an existing CDN to partner in the space. Pasko states, “Verizon does not see AT&T as a competitor in the market”, and perhaps can justify the claim considering it has not built a dedicated network to this technology.
Sam Farraj, assistant VP at AT&T digital media solutions, did not go so far as to state that EdgeCast is powering AT&T’s global network but did confirm that “companies like EdgeCast and Cotendo” are bringing technology to its network and adding a value proposition to enable hosting and security.
“We have licensed EdgeCast’s code and deployed it on our assets deep in our networks,” he said. “CDN is a big part of our business and has been gradually developing for over three years now. The aim from our perspective is to reduce cost, shape traffic better and enable a higher performance. It is now not only appropriate but imperative that ISPs get into the CDN business.”
It could be claimed that the communications company most equipped to deal with the upsurge in content and data services is Level 3 Communications. While many operators still seem unable to comprehend the need for investment in content, it appears much of Level 3’s offering has been geared towards this new gold rush in telecoms.
Level 3’s commitment to Layer 3 IP services to accommodate all types of media is essentially the basis of its entire business model, and the biggest upsurge in content and pressures on networks comes from high-bandwidth video streaming, for which it has a well-established delivery platform. Its acquisition and investment in Savvis’s CDN business in 2007 is now showing benefits, as CDN begins to prove the most efficient way to deliver content over IP.
“While we wouldn’t say we are a CDN, it constitutes a major part of our portfolio,” said Rob Houghton, VP of Level 3’s Europe group. “The potential in online video is insurmountable. 90% of all video is still viewed through terrestrial or cable links, but with increasing capability to watch video across numerous platforms this will reduce. The entire model is really starting to evolve. Although our CDN has locations across thousands of servers over the world, there are clearly more and more efficient ways to deliver content.”
The smart pipe
How this model will evolve largely depends on the strategic decisions telecoms operators make, or will continue to make. It appears that the fears that telcos will simply turn into dumb pipes are largely being overplayed in the industry, and it is important to note that with telcos having to reassess tariff strategies for data it is likely there will be complex metres installed on the network pipes, making these access networks anything but dumb.
“It is important for carriers to learn what they are good at, to see how they can offer better content services and to compete in these segments,” says Kerton. “This is their best strategy to claim a long-lasting role in the content industry.”