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Operators struggle to define investment agenda
14 June 2012
The debate at this year’s GTB Innovation Summit raged around whether operators have finally lost the war with OTT providers. How do they support investment in infrastructure?
By George Malim
Hamadoun Touré of the ITU tells the GTB summit: We need to ensure fair
competition and stimulated innovation. Click image above to play video
Matt Yardley of Analysys Mason, Eduardo Müller of GlobeNet, and
Calvin DeLeavey of Bell Aliant discuss rural infrastructure
Ramez Younan of Orga: Over the top players “have killed
telecoms and made it a dumb pipe
Dan Warren of the GSMA and Patrick George of Syniverse
discuss opportunities for operators. Pictures: Steven Hughes
The agenda for the summit was set with a keynote speech from Dr Hamadoun Touré, secretary general of the International Telecommunication Union, who discussed how initiatives such as the UN’s Broadband Commission are working to deliver ubiquitous broadband for all.
“Broadband networks have delivered and will continue to deliver profound and lasting social benefit to our world,” he said. “We’ve created a hyper-connected world and this data deluge is an indication of the world’s boundless data demands. However, data volumes are growing much faster than the data infrastructure to carry it. Global policy needs to be updated.
“How do we ensure investments in broadband infrastructure are of a quantity sufficient to support the demands of the information society are made?” asked Touré. “We need to ensure fair competition and stimulated innovation. The Broadband Commission, established in 2010, is a testament to the industry’s intent to stay at the forefront of innovation.”
Robin Bosworth, senior consultant at Mott MacDonald, explored the challenges of extending broadband to all, with particular focus on defining the roles of public and private investors. Bosworth has been watching the deployment of so-called superfast broadband — which he takes to mean bandwidth in the 25-40 megabits a second range.
“In Scotland, 85% of premises will have 40 megabits by 2015 but what does it mean? Is superfast broadband actually the right thing to focus on?” he said. “There’s a conflict among people in the public sector about those goals. Some might think all the money ought to be focused on the remaining 15%, for example. In the end you’d like to do both, but you can’t. If there wasn’t a funding gap, there wouldn’t be a debate.”
Public funding will have to play a part. “In Aberdeenshire for example, there are 18,000 sites including ones in the Cairngorm hills where you can’t get a one-megabit service,” he added. “Addressing that would take up all the funding available, so a clear view of what public investment is needed is required.”
The question of whether to use public funding and whether it is possible to generate a return in rural and remote areas was further explored in a roundtable hosted by Matt Yardley, a partner at analyst firm Analysys Mason.
Calvin DeLeavey, manager of network investment and access services at Canadian operator Bell Aliant, revealed how his business is making a return in rural and remote areas.
“The rural market is different wherever you go,” he said. “Bell Aliant’s operating territory is across 6 provinces, including Atlantic Canada, and Halifax [Nova Scotia] with a population of 400,000 is our biggest city. We have invested in many broadband deployments and in the rural areas have leveraged government contributions. There are about five million people in our service area and roughly two million homes. We’ve been able to construct a reasonable business case on approximately 1 million homes and are on a path to achieving a positive payback on that.
“A lot of plant is aerial, which really helps control the costs for FTTP deployment. ARPC with fibre is higher than with DSL, and customer feedback makes it clear that people want greater broadband speeds and greater availability. I don’t think you can build too much broadband.”
Eduardo Müller, North American sales director of GlobeNet, who has worked in Brazil and the US, contrasted the two markets. “The US is the field of dreams of build it and they will come,” he said. “In Brazil today, if people get one megabit they are extremely happy and they’ll pay three times what people would pay in the US for it.”
Müller pointed out that much of the population of Brazil is concentrated in specific regions and the government intervenes to incentivise operators to cover low population areas. It won’t invest but it might offer spectrum in densely populated areas if an operator provides coverage in areas of low population.
Kari Tuominen, product group manager at TeliaSonera in Finland, also commented on the rural challenge: “In Finland, the government has taken this initiative of one megabit per household and it is very difficult in those rural areas with few people living there,” he said. “Fibre investment are quite profitable, though, if you can get the people involved in strategic projects. Perhaps a €1,000 connection fee and 50% penetration [makes sense of it].”
David Axam, director of business development at BT Wholesale, agreed: “The equation is pretty straightforward,” he said. “Determine what revenue you can get on one side of the equation and find out about using the right technology for the right instance. An under-explored area is sharing that infrastructure when you can.”
To that end, BT Wholesale is engaged with a pilot network sharing project with UK mobile operator Everything Everywhere using radio technology.
Those types of dynamics have altered how operators are defining business models to address all parts of their markets. Juniper Networks’ James Bristow, vice president of service providers for Europe, the Middle East and Africa, pointed out in his presentation: “It’s clear that if operators continue with current business models based on how they built legacy networks with siloed technologies it is going to be a challenge to scale and make money from them,” he said. “They can look at it completely differently now, they can build new services into the network so the networks are built by degrees to support new services and ultimately profitability.”
Ramez Younan, CEO of Orga Systems, emphasised that it is not just new models that are needed. Operators need to address new markets as well. “Telecoms has lost the first battle,” he said. Over the top players “have killed telecoms and made it a dumb pipe. We either say operators have to fight back, putting their energy in building new services or pick another battlefield where they can win.”
In Younan’s view those potentially successful battlefields are what he calls the connected world and encompass the automotive, energy and healthcare sectors, to name a few. The OTTs aren’t in those markets yet and operators have the opportunity, using their existing skills to insert themselves into these markets.
Younan remains adamant that the telecoms market has been taken by OTTs. “The leaders of the telecoms world tried to get companies like Apple to pay them for the content they carried but they ended up paying Apple for its devices,” he said. “They then tried to charge a premium for calls using policy management but pricing ended up flat rate — and finally, this year at Mobile World Congress, the top operator CEOs pleaded with regulators to give them some bandwidth to protect their position or enable them to fight back.”
Dan Warren, the GSM Association’s director of technology, chaired a panel discussion in which he took up Younan’s theme, asking if operators are really out of the applications game.
Lloyd Switzer, senior vice president of network transformation at Telus, sees plenty to play for: “We certainly don’t think we’re out of the game,” he said. “The IPTV platform and social media and e-health verticals make sense for us to climb up the value chain. There is certainly a lot more competitors and as you move up the stack you’re competing against very nimble technology companies. We come from a world where having four releases a year is doing really well. Agility around systems and the agility to seize new verticals is essential.”
Bob Falconer, chief executive of Gamma Telecom, a mobile virtual aggregator that focuses on SIP-based services and inbound call centre activity, is more closely aligned with Younan’s views regarding operators’ prospects.
“The problem with the industry is not in its ability to innovate, it is absolutely in its execution of ideas,” said Falconer. “The industry has a terrible record of executing concepts. It’s perfectly clear that great stuff goes on that just doesn’t come out. The fundamental problem lies in the underlying systems. Some have hundreds of systems and some don’t even know how many systems they’ve got. We have a policy of having one underlying system: you’ll have to change me before you change that.”
Patrick George, senior vice president of global solutions at Syniverse, was less willing to accept that the operators have been defeated. “I don’t think it’s a lost game around OTT,” he said. “Not all OTTs are called Google or Facebook. There are lots and lots of smaller companies trying to penetrate the market and, for them, partnering with an operator makes sense. We see ourselves as a trusted third party in this ecosystem.”
Jayanta Dey, vice president of Wipro Technologies and head of research and development and consultancy for its telecoms equipment vendor unit, agrees: “It’s too early to write off telecoms operators and vendors,” he said.
“We’re just at the beginning of digital revenue but the industry needs to find a concrete response on how to achieve sustained innovation. That’s not going to be enough to make telecoms operators and vendors continue to be profitable. Operators need to find new revenues from upstream industries.”
The summit was brought to a close by Ben Hirsch, chief marketing officer of IDT Global, who explored the nature of innovation — pointing out it doesn’t always have to be headline-grabbing.
“One needs to be innovative in this environment but not everything is something wow. Not every person can be an agent of innovation,” he said. “Have we won the war? Have we lost the war? Is there a war? Without these people revolutionising our industry, we’d still be pushing text and voice plans, we’d be pushing data, but we wouldn’t really know what’s happening with those products.” GTB