Yesterday evening I attended the presentation of the DigiWorld Year Book which is an initiative run by IDATE the French based telecoms analyst and consultancy house. There were some interesting issues raised and questions posed during a panel session with speakers from OFCOM, AT&T, Telefonica, Cisco and BNP Paribas. According to IDATE internet traffic growth is occurring at a rate of 40-60% each year.
Huge growth was expressed by other panel members with Mike Corkerry of AT&T stating the carrier had quadrupled capacity on its backbone at great expense, which only satisfied demand for 3 years. Cisco’s Scott Puopollo predicted that by 2013 90% of internet traffic will be video.
The growth in data isn’t limited to the fixed network, in fact it’s much more pronounced on mobile networks. Corkerry has witnessed 5000% growth in mobile data traffic at AT&T and that’s typical across most operators. In the UK O2 has recently moved away from an all you eat mobile data tariff to a tiered pricing model for data. Steve Jordan from Telefonica described the move as necessary for the pricing to remain fair to all O2 customers, for example he said that 01%, or 21,000 customers are responsible for using 27% of network capacity – why should heavy users be subsidised?
So, it seems like we’ve moved from a scenario in the early days of broadband where there was ample capacity and services hadn’t been developed to maximise the use of infrastructure - to the reverse, where bandwidth is scarce and demand is high. This situation seemed to please Geoffrey Krogh from BNP Paribas who suggested that there was more economic balance now than in the early days of 3G / broadband when telcos had taken a leap of faith with network investments.
The challenge for operators appears to be how to make the business case for significant and necessary investments in the network, varying approaches were discussed including telcos entering the CDN market. It was rightly pointed out that CDN services globally only represent €1-2 billion, and from my experience of working with CDN companies margins appear to reduce on almost a daily basis. Another suggestion was the possibility that advertising funded models may emerge more strongly for operators or that they could establish a business model based on a proliferation of services for relatively low value markets – becoming more nimble. Reference was made to the direction some European telcos have taken – focusing on higher margin corporate and managed services.
As one might expect the role of the regulator in determining effective business models was touched upon. The general feeling was that a light touch was necessary in order for telcos and content owners / aggregators such as Facebook & Google to be able to work together to determine an economic model that enables continued investment in infrastructure. Katia Benyon from OFCOM had a clear perspective, that this was all very well, as long as there was no abuse of position by those that control the pipes.
Krogh posed an interesting question from a banker’s perspective: are cable providers now in the strongest position as they have the ability to offer higher bandwidth? [Many cable companies are implementing DOCSIS 3 offering speeds over 100 Mbps and compatibility with IPv6]. With this enhancement Cable companies seem to be a good investment target as they have a differentiator and assets in the ground which can be exploited for years to come. It will be interesting to see if this competition is an adequate driver to push forward FTTH deployments.
To access the comprehensive and interesting DigiWorld Yearbook look here