Google Pays Orange To Carry Video Traffic

Orange’s CEO mentioned during a business show on French TV that Orange is receiving money from Google for transmitting Google’s traffic (most of which stems from YouTube). No details about the financial arrangement of the year-old deal were disclosed.

Given the well-known explosion in data traffic, carriers must invest a significant amount in their network infrastructure to support this traffic. See the Forrester report, “The Future Of Telecom: Strategies To Move Off The Endangered Species List,” for more information. For years, carriers have argued that online service providers (OSPs) like Google should pay for using the carrier network infrastructure.

So, does the Orange-Google deal mean that Orange has won a true victory and that the balance of power between carriers and OSPs is restored? Does the deal really address the challenges of the carrier world? Hardly.

  • Carriers rely on video content that drives demand for high broadband connectivity. Moreover, consumers already pay the carriers for their broadband connectivity. In my opinion, there is a valid argument that those end users who want high-quality video should be able to have it at extra cost. But this extra fee could be paid directly to the carrier in the form of a high-end broadband connection fee. Alternatively, the carrier could offer wholesale connectivity to OSPs, allowing the OSPs to offer content that comes with embedded high-quality connectivity.
Read more

Cisco's message is getting clearer

 

At the Cisco Live EMEAR 2013 event in London, Cisco brought a new down-to-earth dynamism to the table. The vision for how Cisco is intending to empower its clients in an evermore connected world is becoming clearer. In this blog, Forrester analysts Dan Bieler and Peter O’Neill discuss their take-home messages from the event:

Hosted Collaboration Solution is empowering its high-end channel partners.

Dan. HCS, Cisco’s hosted collaboration suite, allows carriers to offer cloud-based as-a-service solutions, comprising unified communications, telepresence, contact centre, as well as a range of communication features under the Jabber brand. In EMEAR, BT, Telefonica, and Vodafone are already selling HCS, primarily aiming it at MNC customers. It remains to be seen whether the HCS pitch is the right one for smaller carriers and SMBs, especially as Cisco remains committed to catering to SMBs.

Peter. They also need to think about being more attractive to the needs of midmarket system integrators and MSPs. That means they must provide different price configurations that are attractive to SMBs. Positioning themselves only to the national telcos is quite restrictive and doesn’t match the increasing demand we are seeing for these solutions across the market. But, of course, if they want to compete in the SMB segment, they’ll compete with Google and Microsoft and their pricing strategies. The best way to run two pricing strategies is to use two brands.

Read more

Life For European Telecom Carriers Will Not Get Any Easier In 2013

with Thomas Husson

At the beginning of this year, I took the time to sit down with my colleague Thomas Husson, vice president and principal analyst on Forrester's consumer product strategy team and a specialist in the telecom space, to discuss the top trends that will affect the European telco landscape this year.

Although we believe that the business/consumer split is increasingly vanishing, we decided to split the top 10 carrier themes that will matter in the European telco market in 2013 by enterprise and consumer perspectives.

In the enterprise segment, we see five main themes:

  • Over-the-top (OTT) and app-based communication services will become part of the IT landscape. OTT voice, social media, and messaging will spread in the enterprise space at the expense of traditional services. Our research shows that professional workers who travel are the most likely to embrace application-based communication services, often irrespective of what their company’s official IT policy is. Still, 2013 will not be the year (yet) that sees rich communication suites (RCSes) becoming a B2B2C communications platform.
  • Cloud-based enterprise services by carriers will see increasing interest from businesses. Communication-as-a-service will receive increased attention by CIOs as they plan unified communications and collaboration (UCC) projects. However, as our research shows, carriers will not be perceived as the top choice of providers for cloud-based services. Mobile device management firms like AirWatch and MobileIron will offer reselling opportunities for carriers but limit the carriers’ ability to add value around device and app store management. Business models for cloud-based data analytics of end user demand will grow in importance in 2013 but will only begin to materialize on a larger scale in 2014.
Read more

Internet Escapes Tighter Governmental Controls — For Now

Dan Bieler, Enza Iannopollo

Boring as it may appear, the World Conference on International Telecommunications (WCIT), which just took place in Dubai under the auspices of the International Telecommunications Union (ITU), matters to all Internet users globally. To us, the three most important questions that were discussed are:

  • Should national governments have greater influence over the global regulation of the Internet?
  • Should over-the-top providers (OTTs) like Google and business networks be governed by international telecom regulations?
  • Should the underlying business model of the Internet change from a free and neutral exchange of data to a “sender pays” model?
Read more

Speed-Based Pricing Points The Way For Carriers To Respond To OTT Attacks On Communication Services

 

This summer Switzerland’s incumbent carrier, Swisscom, launched a simple but revolutionary new mobile tariff, Natel Infinity. Infinity is a speed-based tariff that comes in the versions XS, S, M, L, and XL, which represent download speeds ranging from 200 kbit/s to 100 Mbit/s. Prices range from CHF59 to CHF169 per month (€49 to €139). Significantly, the tariff throws in unlimited national voice, SMS messaging services, and data usage without any additional charge (XL even comes with unlimited international calls to most destinations and SMS).

The idea is simple: The greater your urge for fast mobile services, the more you pay — irrespective of which apps you use and how you wish to communicate. All that matters is speed. In this respect, Swisscom has replicated for the mobile world a tariff approach that is already fairly common in the fixed-line world. I believe this move by Swisscom is noteworthy in two respects:

  • It effectively pulls the rug from under the OTT voice and messaging services like WhatsApp and Tango by removing the arbitrage potential created by time- or distance-based pricing schemes.
  • It brings in line capital spending on and actual demand for network infrastructure capacity.
Read more

Ericsson's Biggest Challenge Is Complacency

At its recent analyst event, Ericsson outlined its strategy, product, and service ambitions. Ericsson remains the overall benchmark for network infrastructure vendors. The company has a leading market position in the growth segments of mobile broadband and network services and delivers a solid financial performance — despite the disappointing Q3 2012 results. Still, in my view, Ericsson has several challenges that it needs to address:

·         The cloud strategy is built on a questionable assumption.Clearly network infrastructure is becoming more, not less, important for cloud-based solutions. Ericsson therefore assumes that carriers are well positioned to be cloud providers. But CIO perceptions suggest otherwise. CIOs tell us that carriers are far from the preferred choice for cloud-solutions (see Figure 9 in the “Prepare For The Connected Enterprise Now” Forrester report). Carriers therefore need help in addressing the potential of cloud computing. For instance, Ericsson’s cloud solutions ought to help carriers cooperate with cloud partners regarding embedded connectivity in devices and applications.

Read more

Huawei Reaches The Next Stepping Stone In Its European Market Activities

During Huawei’s 2012 EMEA Analyst Event in Amsterdam, Huawei emphasised once again its commitment to Europe and its dedication to innovation. With sales of $3.8bn, 7,300 staff, around 800 of which are in R&D, and 10 R&D centres in Europe, Huawei has positioned itself as a leading provider of network infrastructure in the region. The main themes that we picked up during the event are:

  • Its carrier activities are increasingly dominated by software. Huawei emphasises the role if IT and software as a core focus area of its carrier network infrastructure activities, which still account for 74% of sales, going forward. Softcom, Huawei’s strategy to drive software defined networking and to move towards a flatter network architecture, is central to this transformation. By 2017, Huawei aims to generate around 40% of its network infrastructure revenues from software-related activities. The central goal of Softcom is to decouple applications from hardware in the network infrastructure and to integrate multiple operating systems into one cloud-based operating system. To succeed, Huawei needs to attract top IT expertise. Its partnerships with leading universities and research organisations like Fraunhofer-Gesellschaft go some way.
Read more

T-Systems Ought To Be More Disruptive To Tackle Growth Opportunities

Dan Bieler, Frederic Giron, Brownlee Thomas, Ph.D., Stefan Ried, Christopher Mines, Pascal Matzke, Jennifer Belissent, Ph.D.

T-Systems hosted its 2012 analyst and sourcing advisor event recently. To be sure, T-Systems remains one of the most advanced true ICT providers in the European market. But T-Systems ought to demonstrate more clearly how it can support and enhance business process for its customers and improve the customer experience for its customers’ customers. Of course T-Systems is not alone. The ICT industry needs to emphasize proven capabilities in delivering enterprise-grade ICT solutions ranging from co-management of infrastructure resources to full outsourcing.

T-Systems, like many of its competitors, is busy making sure that it does not bleed too much in what T-Systems calls the red ocean, i.e., the highly competitive market segment of legacy services. That's a good start. At the event, T-Systems communicated very clearly the progress at its internal production factory. This aspect is critical for streamlining and standardizing the portfolio, boosting margins, and developing products and services that the revamped sales team then can actually sell. One tangible outcome of this effort shows through in the high customer satisfaction level and deal wins like BAT, OMG, and Georg Fischer. Importantly, T-Systems also has put in place a rigorous certification framework for ensuring quality of service with suppliers.

However, T-Systems still needs to convince in areas of the blue ocean, i.e., the emerging innovative market segment. Like many of its competitors, T-Systems is not finding this easy. Why? Because T-Systems continues to prop up its legacy business: selling technology solutions.

Read more

Google Becomes More “Tangible” By Building Its Own High-Broadband Network Into The Home

The other day I had an interesting discussion with Google about their Fiber-to-the home (FTTH) infrastructure. Google’s reasoning behind the move into the network infrastructure space stems from the belief that online growth and technology innovation are driven by three main factors:

  • The cost of storage, which has fallen considerably in previous years.
  • Computing power, which has increased in previous years.
  • The price and speed of Internet access, which has been stagnant for a decade. Today, the average Internet user in the US receives 5 Mbit/s download and 1 Mbit/s upload speed.
Read more

Deutsche Telekom in arranged marriage for T-Mobile USA through reverse acquisition by MetroPCS

 

Deutsche Telekom is leading its daughter T-Mobile USA down the aisle for a second time in less than two years after the previous marriage attempt with AT&T collapsed in light of regulatory objections (see http://goo.gl/hgCrm). But T-Mobile USA will not leave the house altogether. Should the deal go through, Deutsche Telekom will own 74% in the NewCo. The NewCo will operate as one company with two brands, similar to how Everything Everywhere was run. MetroPCS Shareholders will own the remaining 26%.

The financial plan is that scale effects will translate into $6-7 billion of cost synergies from enhanced scale and scope. Deutsche Telekom pitches the deal as creating a wireless value leader in the non-contract (pre-paid) segment, with the goal of targeting a growing market segment. The ambition for the NewCo is to generate compound annual growth rates of 3-5% for revenues, 7-10% for EBITDA and 15-20% for free cash flow over the next five years.

The deal raises several issues for me:

  • Targeting a market opportunity requires ongoing investments. In my view, the goal for growth looks ambitious based on the proposed value proposition. Whilst I do see a market opportunity for unlimited data plans (i.e. NewCo’s value proposition), I believe that ongoing investments beyond the existing ones are required to ensure QoS and customer experience. The completed network modernization to the tune of US$4 billion LTE investment including site upgrades and spectrum re-farming provides a good starting point. But more capex is required in the years ahead as data traffic continues to explode. In turn, this could undermine free cash flow growth ambitions.
Read more