A formidable transformation

Ahead of his speaking slot at the Broadband World Forum in September, Dr Saad Dhafer Al Qahtani, group CEO for strategic operations at the Saudi Telecom Company (STC) gives an insight into the group’s international operations.

What are the biggest challenges facing the mobile broadband market as a whole right now?

A formidable transformation is taking place in the global telecommunications industry. Global demand for data services has increased massively, especially with the emergence of video streaming and downloading on the Internet. This data tsunami, as it’s been called, has grown in intensity with the proliferation of data-enabled smartphones. Cisco Systems estimates that the total volume of data circulating on mobile networks will grow from 0.09 exabytes (97 million gigabytes) per month in 2009 to 3.6 exabytes (3.9 billion gigabytes) in 2014, roughly doubling every year. Even with new technologies for compressing data, the ability of mobile networks to absorb this traffic remains limited.

Telecommunications companies are finding themselves facing many challenges: finding the capital to build all the networks (HSPA+, LTE) needed to handle this data while remaining profitable and while still maintaining the loyalty of customers and the goodwill of regulators, and fending off new Internet-based competitors such as Google, Skype, and Facebook.

To what extent do you see next generation wireless technologies such as LTE a threat or a complementary opportunity to fixed line?

With FTTH deployment gaining traction mainly in lucrative dense urban and urban areas, LTE will provide the users with high speeds on the go, thus complementing their fibre connection at home. The fast evolution of applications with large content volume like High Definition IPTV and cloud computing will drive users to upgrade to speeds that can only be delivered with a fibre connection, thus making it difficult for LTE to compete with FTTH-like speeds and provide comparable performance to the end users.

LTE will also enable operators to provide broadband services at lower cost in areas where DSL coverage is completely absent. Only in areas where fixed broadband is still on DSL with speeds up to approximately 10 Mbps, can LTE pose a threat and become a substitute for fixed broadband.

What are the challenges and opportunities for operators on the backhaul side?

Backhaul has become a bottleneck for mobile network operators as they are moving towards 3G HSPA+ and LTE to fulfill the increasing demand for high speed data.

Mobile network operators deploy point-to-point microwave for backhaul on 60-80 per cent their sites. Upgrading sites to HSPA+ and LTE will require operators to replace microwave with fibre to support the increased data capacity and provide better performance. This requires an investment of USD 40-50 thousand per site in civil works.

On the other hand integrated operators that are investing in FTTH can benefit from cost synergies on backhaul fibre deployment in areas where HSPA+ and LTE are being deployed.

Is there a genuine demand for faster speeds such as 100Mb and beyond?

If there isn’t today, then the demand will definitely be there in the near future. Applications such as video streaming, HD movies, online file back-ups, telemedicine will necessitate huge bandwidth that only 100MB and beyond can accommodate.

Consumers most interested in the top tiers of speed are typically early adopters. These are generally tech-savvy individuals. Many of these people require higher speed services to share bandwidth-intensive files. Some of these consumers may be gamers. All of them do enough heavy file sharing, play multi-person, real-time games, or watch high-definition video, that they notice the difference in performance when jumping from a 40Mbps service to a 100Mbps service.

Alternatively, will carriers be able to meet demand from businesses and consumers for data over the next five years?

Operators’ awareness of the importance of broadband and the expected surge in its adoption is growing. Broadband revenues are thus expected to grow, while voice revenues are on the decline. As such, in order for operators to remain competitive as well as protect and potentially increase their revenues, they have no choice but to invest in future proof technologies with a guaranteed Quality of Service (QoS).

There’s clearly demand and pressure to continually upgrade a network to keep pace with technology developments. But how does this relate to the business model delivering a strong ROI?

Operators need to continuously upgrade their infrastructure but they need to do it in a smarter way by managing traffic usage efficiently and reducing costs. They can should manage their traffic increase efficiently and reduce capacity upgrades by leveraging smart technology techniques such as DPI (Deep Packet Inspection) and bandwidth throttling that enable service providers to:

In terms of reducing costs and improving efficiency, operators should decommission legacy technologies and deploy newer and more cost efficient technologies such as LTE, and IP based technologies. Operators, especially when part of larger groups should look for ways to improve their position with equipment vendors through negotiations (leveraging group size and consolidating procurement), introducing cheaper vendors such as Huawei and ZTE, moving to different models such as revenue-share and software subscriptions

Is it likely that the days of the unlimited data bandwidth bundle are numbered and how will you deal with the customer fall out?

Mobile broadband adoption continues to grow in popularity in different parts of the world, fuelled by smart devices – whether smartphones, notebook/netbook and since last year also tablets. This has led to an exponential rise in data traffic, which has not generated a proportional increase in revenue for most mobile network operators. These companies are more than ever in need of finding new mobile data pricing models that will fund the future development of their networks in order to sustain further growth. In North America and Western Europe there is already a shift by major operators to tiered or data-capped service plans, instead of the all-you can eat/ unlimited data plans, first with smartphones and now also with notebook, netbooks and tablets. In that sense, yes the days of unlimited bundles are numbered. In the MENA region, we haven’t reached the explosion of data traffic to the extent that networks are becoming congested, but we’re getting there very fast.

Customer fall out will not have a big effect on operators, as tiered plans will be their only option in the market. As it is with any discontinued service, customers on unlimited plans will keep them, and only new subscribers will be affected by the transition to tired pricing. The message we will communicate will stress on the fact that tiered pricing will enable operators to offer better quality of service since they will be in a better position to limit network congestion in high traffic areas.

What challenges do you foresee the move to IPv6 will bring?

Both IPv4 and IPv6 will have to coexist for many years to come. The transition will not happen overnight – not because the operator network is not ready, but mainly because not all end user devices do support IPv6 and interoperability with other networks and applications that are still on IPv4

As such, one main challenge is to ensure that all existing and new elements within the network support both IPv4 and IPv6 simultaneously. Another challenge is security within the network. So far, all implemented security measures like firewalls and intrusion prevention systems have proven to protect the operator’s network. IPv6 will require reassessment of the security measures to make sure they keep on providing the same level of security with IPv6.

In Finland a broadband connection is a legal right. To what extent do you think the state should be involved in the roll-out of mobile broadband, and what’s your view of the need to reach remote areas?

Private operators will not cover most rural areas with mobile broadband in the short to medium term. Investment is not justified economically given the demand and initial focus of private operators should be urban areas where demand is the strongest. In some countries, rural areas could remain uncovered in the long term. Deploying mobile broadband in rural areas is critical for national socio-economic development. Broadband has demonstrated effects on GDP growth and employment creation as well as a major role to play in social development. Some rural areas may durably not be covered by fixed broadband and in this case, mobile broadband is the only alternative for those areas to benefit from digitisation.

Government intervention is critical at three key levels to enable coverage of rural areas with mobile. Firstly, the allocation of frequencies for mobile broadband in the very short term (LTE). This will require issuing new licenses. Mechanisms to grant licenses should be driven by the long-term socio-economic impacts for the countries, not by the short term benefits for the government.

Secondly, Digital Dividend Frequencies (790-862 MHz) will not be available for telecom services before end 2015 in the Middle East region. However, releasing digital dividend frequencies requires the switch-off of analog broadcast TV which might take several years. Government’s intervention will be key at two levels: first in setting a framework that enables analog switch-off in a timely manner and also to allocate in identifying to which services; second in ensuring that frequencies of the digital dividend are allocated to the right services (i.e. those with maximum benefits for the economy).

Lastly, in some areas government funding might be required to complete private investments. This government support might happen through various ways such as universal service fund or public-private partnerships

How should large companies that drive huge amounts of traffic, Google, Facebook etc. contribute to the costs of the network?

The IT/Telco boundary has disappeared with the IT players are offering telco services (and moving up the value chain) and telcos increasingly getting in on the content and apps game. Carriers need to find their niche and focus on their core business – “do what you do best and partner for the rest”.

Google and Apple have changed the game. For example, Apple takes a 30 per cent margin but has no distribution costs; the telcos carry the costs but it’s the content and media players that are driving demand and increasingly owning the customer. This creates a “grumpy triangle”: the end-user wants cheap broadband and free content, the content providers refuse to pay the carrier and the carrier throttles back speed.

A Cisco white paper in June 1998 stated that, “Mobile is doubling capacity every quarter and soon you will need 100G to every base station”. It’s estimated that 70 per cent of traffic will be video by 2013 and networks are going to creek. So, many operators are looking to leverage CDNs to create localized payment points. This enables them to create value in the delivery of content by focusing on, speed, authentication, and Quality of Service.

Ultimately then, maybe the content producers will start to pay for the pipe.

Could you provide an overview of the key challenges you particularly expect to face in the next 12-18 months?

A key challenge will be introducing Quality of Service (QoS) to enable the carrier to become a smart pipe and offer differentiated services tailored to the user’s needs. The other areas will be the vast deployment of FTTH and the fact that we will be need spectrum clearance to embarking on a journey with LTE.

Saad Dhafer Al Qahtani will be speaking at the Broadband World Forum, to be held on 27-29 September 2011 at the CNIT, La Defense, Paris, France. Please click here to register.

Dr. Alkahtani Saad.

Group CEO- For Strategic Operations – STC, Saudi Arabia