Thinking about networks

Despite stiff competition from OTT providers for subscribers’ spend, operators are uniquely positioned to tailor services to customers’ needs. They can capitalise on this opportunity by introducing network flexibility to become digital lifestyle providers.

It is an oft-made observation that mobile operators have seen revenues from voice and SMS services decline in recent years, particularly in developed markets. It is a phenomenon that owes much to the adoption of service bundles and the emergence of over-the-top (OTT) service providers.

Research firm Ovum forecasts that in 2016, mobile operators will lose $54bn in SMS revenue to social messaging (SM) services on smartphones. This is more than double the $23bn they were expected to have lost by the end of 2012. Ovum notes the rapid increase in the number of OTT players on the market, and says that this demonstrates that social messaging is not a short-term trend, but a shift in communication patterns.

Statistics from UK regulator Ofcom also show that 2009 marked the first year in the UK that voice revenue growth stalled. Revenue from mobile services declined sharply that year, the first decrease since mobile telephony became a mass-market service in the late 1990s, falling by 3.5 per cent to £14.9bn.

The attractiveness of OTT offerings to consumers stems from the fact that many of those services have been offered free of charge. However, many providers of these services are now looking to monetise what they once offered for free.

In October 2012, video streaming site YouTube introduced a policy of charging users to access premium content. The world’s largest social network Facebook, meanwhile, has stepped up its efforts in generating revenue from mobile services by carrying adverts on its mobile site and smartphone apps.

Doug Suriano, CTO at mobile broadband solutions provider Tekelec, believes that here sits an opportunity for mobile operators. Now that OTT players are beginning to charge for services, or find some other way of generating revenue from them, the playing field is becoming more level. Operators are now in a position to not only compete more effectively with OTT players but also to cooperate with them.

This is due to the fact that mobile operators have one key asset that OTT players do not: very detailed data on their subscribers. From the services they use, the retailers they prefer and the locations they travel to, this data is operators’ trump card, according to Suriano. It enables operators to offer ‘digital lifestyle services.’

“Operators have a database with access to Big Data and analytics about customers,” he says. “They can marry that data with advertising sources to generate revenue for providing personalised advertising services.”

He adds that operators are starting to put a “digital lifestyle story” together, where they provide subscriber-aware services using each subscriber’s preferences and data. Suriano is optimistic that subscribers could be willing to pay a premium for a more personalised service from their operators, or alternatively generate advertising revenue or strike revenue sharing deals with OTT providers.

He says he is not sure that OTT players would be keen to share their revenue with operators, but stresses that these players depend on the mobile network to deliver their services—and for some services, the quality of that network delivery is very important.

“Because the OTT players don’t own the network, they can’t guarantee quality of service, so it’s really a best effort case. There have been some specific examples of revenue sharing recently though, where Google is paying operators in France and the Philippines to provide better network access for their subscribers. I think that this is a model that is well underway and it is only going to expand and grow.”

In order to collect, analyse and act on data on subscribers to target promotions and services to them, the network needs to evolve to what Tekelec calls “ThinkingNetworks.” Suriano explains that truly intelligent, highly adaptable and flexible networks are the key to unlocking digital lifestyle services and giving operators renewed relevance among OTT providers.

This is naturally an evolutionary process, but one that is already underway with operators This is why Suriano advocates setting up New Diameter Networks (NDNs). There are three components to NDNs. The first is the signalling infrastructure—Diameter, in the case of LTE networks—which acts as the nervous system of broadband mobile networks, Suriano explains. This provides the scalability, reliability and flexibility in the core network to manage mobile data and signalling growth.

Then there is the policy management, PCRF, which acts as the brain of the network; the real-time logic and rules that enable new business models and revenue streams. The third component is subscriber data, stored in the Subscriber Profile Repository (SPR). This is the network’s memory and personalises rules based on a subscriber’s profile, state and usage data. These three components together provide the core of the data repository operators can use to generate revenue from their subscriber bases.

“NDNs can help operators offer premium services that the subscribers are willing to purchase. There is also the revenue sharing opportunity with OTTs, and a lot of that will be around ensuring quality of service. Also, advertising revenues could also be a potential revenue source, just like the cable operators enjoy today,” Suriano explains. “There are other OTT revenue sharing models as well that have yet to be imagined. The sky is the limit.”

Step two of setting up a Thinking Network is enabling virtualisation and cloud-based network infrastructure. Tekelec calls this stage Cloud XG and, according to Suriano,  the firm’s customers are already planning to moving towards the cloud.

“Operators want to get to a place where they actually have commodity hardware; it’s really a software play on commodity hardware,” he says. “They also are moving towards this idea of elasticity. Rather than buying fixed infrastructure that is based on the largest capacity you’ll need—such as on special occasions such as Mother’s Day—they instead want to have the ability to expand and contract their core infrastructure as their needs dictate.”

Suriano explains that operators are also taking different approaches to setting up cloud-based networks. Some of Tekelec’s customers have undertaken trials with traditional evolved packet core (EPC) and are now moving to deploy in scale with a cloud based EPC. Suriano admits that operators looking to launch a green field network in cloud architecture is rare, but believes that this will become more common in the coming years. As a result, some of the laggards in LTE rollouts may become the innovators by using cloud based EPC, he adds.

He adds that operators looking at network elements in more of an “elastic” role,  using network function virtualisation, means that hardware infrastructure becomes more commodity-based, more like the web services models that have been adopted by the likes of Google, Yahoo and Amazon. There has been resistance from network equipment manufacturers though, as these concepts threaten the traditional margins that the large vendors have been are getting on their hardware. Suriano says that some of the more traditional vendors are being badgered into providing equipment as a service due to the demand from their customers.

The third step is what Tekelec calls the “Mobile Social” phase, where operators can unite network and subscriber intelligence to enhance OTT applications with opt-in offers and mobile advertising content. The keys to this are two-fold, says Suriano: a new database combining network analytics with Big Data insights and network policy that extends to the handset.

“Operator influence of the full subscriber experience means that network rules need to extend everywhere, down to the millions of smartphones, tablets and other connected devices on the network,” says Suriano.

The fourth and final phase is the Thinking Network nirvana, where operators have the network and service flexibility and innovation to call themselves digital lifestyle providers. Armed with that level of subscriber knowledge, operators are able to craft a highly personalised and relevant subscriber experience that matches each subscriber’s needs. Moreover, operators can apply that data to new services and content in real time. “At this stage,” says Suriano, “networks think for themselves and automatically respond to network variables and new subscriber usage patterns.”

Suriano believes that operators that do not look to provide digital lifestyle services, and set up Thinking Networks, risk being limited to providing access services, although he acknowledges that there is a business model for network operators that do want to be utility providers. Some of the lower cost networks in the US and France do restrict themselves to basic services and access, he points out.

“But will they be the digital lifestyle providers of the future? Probably not,” he says. “Do you want to be the place that the subscriber actually perceives as their digital home—the central point for their digital lifestyle? The OTTs want to be that—Google would love to be your digital lifestyle provider but they don’t own the network—they are putting in their own Wi-Fi and fibre networks but they don’t own the mobile networks.”

Suriano stresses that for Thinking Networks to take off in the industry, EPC vendors need to buy into the vision, but not all of them have committed wholeheartedly.

“So the question is how much of the EPC can you virtualise? Do you virtualise the gateways, policy, Diameter, infrastructure, subscriber data? There are different maturities in different vendors’ implementation—so that might be thing that slows it,” he explains. “Certainly the components in the NDN are great candidates. The technology is well enough along that they can actually go out in a cloud-based EPC for those elements.”

He concludes that there needs to be cooperation between operators and OTT players and it is the businesses and high end subscribers that successful operators should look to target with sophisticated services.

“Especially with the kinds of devices out there right now—there are very capable smartphones, and they are going to demand higher network capabilities, which they will be willing to pay for.”