Dr. Hossein Eslambolchi
Date: January 2012
It is evident that the communications industry is undergoing a massive transformation.If you can get past the jargon, you’ll understand that a fundamental change is taking place in the life of everyone — and every business — on the face of the planet. We are at the beginning of a transformation from legacy services and networks like PSTN into new state-of-the-art services like IP-MPLS driven by mobility and analytics.
Service providers have traditionally assessed themselves through average revenue per user (ARPU).The saturation of voice service via cell phones means that only a minimum amount of new revenue can be developed on the voice side of the network, and that service providers are losing money left and right. However, if you consider current trends in data-driven applications on smart phones, it becomes clear that this area holds enormous opportunity for providers to increase ARPU.It is imperative to think differently about the future of telecommunications. If service providers don’t, they will be unable to compete globally.
For more than a decade, OTT (Over the Top) players have made a fortune off of service providers worldwide. Companies like Google and Amazon have significant market capitalization compared to traditional companies back in the 80s or 90s. Their success has required carriers to support large amounts of bandwidth by spending significant capital to upgrade their networks.
It started with services like DSL and cable Internet as access control.Now mobility is taking center stage, and will remain there for the next two or three decades. Our main concern is that we have not digitized the entire planet — and with IPv6 and digitization, this problem will assume biblical proportions. ARPU will go down for service providers while OTT players’ market capitalization goes up.
I’d like to repeat that last statement, because it something like a new law in telecommunications:The revenue of service providers is inversely proportional to the market capitalization of OTT companies. Lots of people are still getting rich but the main capitaland operating expenses belong to the service providers.
Today, OTT players are even charging developers for the new applications consumers and business need. We need to move from flat- or free-charging to application-based charging as well.
By 2014, 91 percent of worldwide internet traffic will be video.Add HD, 3D and even 4D technologies to the mix – and don’t forget their applications in the healthcare, financial services and airline industries. It’s clear that in a few years, we’ll need to start talking about zetabytes (10 to the power of 21) of information — petabytes will be a thing of the past.
Today, we have over 15million terabytes of traffic per month worldwide.20 percentoriginates in the United States. Traffic from the rest of the world is growing at least 50 percent per year — but my guess is that this will double in next five years due to introduction of many more smart phones and new access technologies such as LTE, LTE-A and cognitive radio.
And finding a needle in this haystack of data is a challenge no service provider is ready to attack in the short term.The problem, particularly as it concerns analytics, is massive. Quantum computing could handle the challenge, but that technology is at least few years away from being able to scale with a high degree of reliability.
We truly need to think about video optimization given a lack of spectrum worldwide. Techniques such as adaptive streaming, trans-rating and transcoding, smart caching and bit throttling must be deployed to help the network of the future handle HD and 3D streaming video.
Let me offer you a comparison between what consumers pay for various services they get from their service providers.
These calculations demonstratethat there is an order of magnitude difference between voice telephony and bit-based technologies.Simply put, OTT players have learned to make tons of cash off of service providers.
So, a couple of suggestions for you:
1) Establish net fairness — not net neutrality — in the data being transported by carriers from Internet-connected devices.
2) Work with OTT companies for revenue share —although this will be a challenge since no-one is willing to give their revenue away in this economy.
3) Do not assume that the network should only providedumb transport.Intelligent transport (with smart devices connected to the network) can make a real difference.
4) Perform deep packet inspection without violating user privacy; use your insights to cache contents closer to the customers and drive more services like cyber security in real time.When scalable quantum computing finally develops, this will be a piece of cake for service providers, given the talent they have recruited in recent years.
It is imperative that service providers should start off-loading data onto the wireless cellular network as soon as possible, or the data generated by iPhones will hit them with the speed and force of a tsunami. I recommend off-loading to Wifi and Femto cells as fast as possible in the next few years. This should be a major initiative for all carriers worldwide.
Mobile traffic is already a major headache for service providers, and it will remain sountil they execute the type of initiatives I’m describing.
We also need to change “all you can eat” to “all you really need”. Almost a decade ago, I predicted that IP will eat everything, like Pac-Man. It did, and today we have a worldwide IP network.But this network — amazing as it is — cannot meet the data needs of the 21st century. The current Internet Protocol is almost 40 years old! We need a modified protocol along the lines of the IPV6 model.More generally, we need to mobilize the Internet. My prediction is that this will occur in this decade. PSTN networks will be as important as Morse Code.
Service providers must make customers the center of their universe, instead of the network itself. If that transformation happens in this decade, service providers can multiply their market capitalization five times over. Needless to say, shareholders and customers will be very happy, and revenue will increase in step with innovative user-oriented applications.
Additional revenue growth can be generated by the following methods, enriched by activity at the edge of the network:
1. Policy-Driven Clients
2. Smart Radio Management
3. Intelligent Network Selection
4. Transparent Authentication
5. Seamless Mobility
6. Closed-Loop Analytics
Another solution: Launch a variety of data services based on the PCRF system, which enables service providers to generate more revenues from new and current customers. Consider:
1. Quality of Service (QoS) packages
2. Dedicated packages for specific sites like Facebook
3. QoS for specific web sites
4. Content provider prioritization
5. On-line tools to enlarge packages (particularly billing and management tools such as Tethering billing, Turbo button and IMEI ID management)
Most important: Service providers must realize that their attention must no be directed solely to the “Data Plane”(1,000 transactions per second at the packet level). Providers need to conceptualizeopportunities on the “Control Plane” (50-100 thousand transactions per second) and, eventually, exploit the“Management Plane” (1-10million transactions per second). It is the activity on the higher planes of deliverythat will increase revenue for service providers.
Additionally, telecommunications carriers must change their pricing model to increase ARPU. Here are some suggestions:
1. Real time Upgrades
2. Service Passes (e.g., purchasing temporary bandwidth)
3. Price Tiers (enabling different rates for services based on volume, quality, and/or time)
4. Hybrid Pre/Post-Paid Plans (mobile data access is pre-paid while voice service is post-paid)
5. Flexible Bundles (enabling operators to offer innovative service bundles)
I hope this paper helps service providerCxOstransform their companies and become more dominant playersin thetelecommunications industry. CxOscan use my suggestions to establish significant market capitalization, ARPU, revenue per employee, expense per employee and EBIDTDA per employee. These productivity measures will set them apart from everyone else.
Before we finish, let me also say a word or two about customers.
Customers do not buy data plans — they buy data experience.It is this experience that helps minimize or eliminate churn. It lowers the cost to the customer, improves the quality of their experience, lowers cycle time and costs and ultimately increases revenue. For instance, providers could develop family plansthat are tailored to specific households — first for the number of family members, but also for their specific interests and enthusiasms. Imagine data packages tailored to deliver business information, sports entertainment, or social networking.This sort of end-to-end ecosystem will satisfy the customerof the 21st century. And it can be accomplished with the right business and consumer policy management solutions.
I propose that we move from the QoS model of the last decade to a new Quality of Experience model for the next decade.
So, what should change to increase ARPU? Above all, it is about changing one’s attitude and approach toward the IP-Wireless world. Here are some change paradigms to consider:
1. Step away from Silo pricing and toward convergent pricing
2. Encompass the end-to-end customer experience, from mobile Internet stand-alone to convergent fixed-mobile Internet
3. Move from single device subscription to multiple device subscription
4. In B2Bservices, move from single employee subscription to multiple employee subscription (reconsider the per-seat model)
5. Expand opportunities from connectivity selling to application and cloud selling
6. Make every hertz of spectrum countby understanding the revenue that is associated with it. Hertz that delivers SMS may offer a higher profit margin than hertz that delivers video. Would a moving comp
7. Move from an “all-you-can-eat” model to an “everything-available-anywhere-on-this-planet” model.
Is our industry prepared to effectively manage the bandwidth, revenue and scarce bits per hertz of the wireless world?In order to do so, service providers in the 21st century must be ready to directeach bit of traffic across their network in a manner that is appropriate (cost-effective) for that bit.
Only by doing thiscan we reverse the gloomy forecast for our networks, and raise our market capitalization and ARPU.
Dr. Hossein Eslambolchi
