Vision on ICT and media industry (from a telecom perspective)

In 2005 the communications industry emerged out of what probably has been its most difficult period in history to find that a number of technologies from the IT world have arrived on the scene that both threaten “business as usual” and open the door for new opportunities. Fixed Mobile Internet convergence is blurring the boundaries between traditionally separated communication and content services and prompting strong competition between many players of different backgrounds in a large “infocom” market. Many business opportunities exist for both existing and new companies. The winners will be those service providers that match the capabilities of new technologies with the specific needs of selected market segments.

The penetration of new technologies is fundamentally changing the competitive landscape: The period after the burst of the bubble around the year 2000 up to 2005 was one of consolidation and bankruptcies. During these years the prime focus of the telecom industry has been on survival, restructuring and cost control. However, the focus has rapidly changed over the last year or so to explore and develop new services and build alliances in order to take advantage of the following market developments:

• The acceptance of SIP as the standard to initiate peer-to-peer communications: The Session Initiation Protocol (SIP) provides the essential capability to deliver communication services and applications over the internet. It has become the dominant protocol for the establishment of voice communications over the internet, known as Voice over IP (VoIP). Beyond VoIP, SIP events and presence enable new context aware communication services and the integration of communications and applications;
• The high penetration of wireless broadband access (WBA): Wireless Ethernet technologies such as WiFi in combination with broadband internet access over cable networks and the copper wires of the PSTN using DSL technology, provide the infrastructure to obtain wireless access to the internet at home, in the office and at public hotspots in airports, train stations, hotels, restaurants, coffee shops and the like. The reach of these Wireless Broadband Access (WBA) technologies is currently extended from Local Area Networks (LANs) to Metropolitan Area Networks (MANs) using meshed WiFi, WiMax and Flash-OFDM networks;
• The roll-out of 3G mobile networks: Third generation (3G) mobile networks provide the Wide Area Networks (WAN) to access the internet from any place and adds capacity to deliver traditional circuit switched voice services. The first large scale real-life commercial UMTS network in the world went live in 2001 in Japan. Today, 3G networks have been deployed in most European and many Asian countries, as well as in the major cities in the US. UMTS networks are currently upgraded to higher data speeds using the High-Speed Downlink Packet Access (HSDPA) protocol. Within the 3G architecture, the call control and signalling function will migrate to SIP;
• The availability of intelligent and versatile end-user devices: Portable end-user devices such as lap-tops, PDAs and mobile phones benefit from the increased processing power at reduced costs brought by the continuing improvements in IC technology. Mobile phones have short range wireless technologies like WiFi and Bluetooth - already common for lap-tops and PDAs - increasingly built-in. SIP based internet telephones and analogue telephone adaptors are brought to the market in a large variety and VoIP ports are becoming standard in multi-media boxes that combine ADSL modem, router, analogue telephone adaptor and WiFi radio functions. SIP phones may be wired to the Ethernet, or use wireless short range radio technologies such as DECT, Bluetooth and WiFi. Hybrid phones, such as Dual mode WiFi / GSM and Bluetooth / GSM phones, capable of conducting both VoIP and standard mobile calls, have been brought on the market. The current WiFi phones and dual mode WiFi/GSM phones are still costly and suffer from short battery life, but this technology is expected to catch up quickly in terms of price and performance with market leading SIP phones that use a direct Ethernet, Bluetooth or DECT connection.

Internet technology is reshaping the telecom industry: Voice telephony over the internet, denoted as Voice over IP (VoIP), has received the most attention as the challenger to traditional telephony services. The term VoIP is often used to denote a broader class of versatile services running on IP based networks, rather than pure voice alone. Such services include messaging, presence, video conferencing, IPTV and various personalisation and control capabilities. The Session Initiation Protocol (SIP) is at the heart of the paradigm shift taking place in the communication industry because it has become the dominant protocol to set-up peer-to-peer multi-media sessions over the internet. There is no difference of opinion that SIP represents a disruptive technology. It enables the replacement of centrally controlled intelligent networks based on proprietary technology by ”stupid” bit-pipes and distributed intelligence at the edge of the network, running on standard computer hardware. These changes in technology have subsequently opened up the possibility for new business models, new competitors and, last but not least, a richer end-user experience. The figure below summarises the disruptive impact of moving from traditional telecom network technology to Internet based technology.

Broadband Internet access is replacing traditional fixed telephony networks and Wireless Broadband Access (WBA) technologies are increasingly competing with mobile networks in private and public buildings as well as municipal regions: Broadband penetration is on the rise in every country. On a worldwide basis, an estimated 203 million households (year-end 2005) use broadband, up from about 10 million in 2000. In combination with short range wireless technologies like WiFi and Bluetooth, which are now commonly built-in in laptops and PDAs and increasingly in mobile phones as well, broadband internet provides the “pipe” through which a range of services can be offered by traditional telecom and media companies such as incumbent fixed line telcos, ISPs, cable companies, non-traditional players from the internet community such as Skype/Ebay, Yahoo!, Google and MSN and a large number of pure IP based communication service providers for which US based Vonage sets the norm. The figure below summarises the main battlefields between the alternative access technologies used for Local Area Networks (LANs), Metropolitan Networks (MANs), and remote areas referred to as Wide Area Networks (WANs)

The convergence of the telecom, IT and media industries is creating a large “infocom” market: Fixed Mobile Internet convergence is blurring the boundaries between traditionally separated communication and content services. Cable operators, ISPs and traditional telecom firms are increasingly in direct competition to provide “multi play” packages of fixed-line telephone service, broadband internet, television and mobile telephony. Furthermore, SIP lets anyone build voice and data applications to run over a broadband internet connection and new players are emerging that compete with existing telcos and cable companies without owning a thread of fibre. The figure below highlights the key technological developments in the telecom, IT and media industries over the past decades, now accumulating to a full convergence of these industries. In a nutshell one may describe the Information and Communication Technology (ICT) World as the marriage between networks and computers and the so-called Infocom World as the marriage between TV broadcasting and the networked intelligent devices of the ICT world.

... with strong competition between many players of different backgrounds: The convergence of the telecom, IT and media industries has resulted into severe competition between traditionally separated players, various mergers and acquisitions, the rise of new entrants and the formation of entirely new value chains. Current focal points (as indicated in the figure by the blue ellipses) are for the consumer markets the roll-out of VoIP, IPTV, Mobile TV, FMIC, home automation and other IP based media services such as video on demand and narrow casting. Within enterprises and government, the emphasis is on enterprise integration, advanced planning systems, business intelligence and collaborative computing using distributed web-based services. FMIC helps employees to have full access to the organisation’s systems and applications at any place and through any device. Cable operators in many parts of the world have offered “triple play”, telephone, internet access and television, for some time, but only recently made successful inroads into the traditional PSTN market with the introduction of VoIP. This has prompted telecom firms, wary of losing customers, to start upgrading their networks so that they can deliver TV. Since telecom firms typically offer mobile phone services too, by adding TV they could leapfrog the cable operators and offer a bundle of four services. In response, cable operators are now moving into mobile. The race is on between cable operators, ISPs and traditional telecom firms to provide a “quadruple play” package of fixed-line telephone services, broadband internet, television and mobile telephony.

Many business opportunities exist for both existing and new companies to build and extend their position: The figure below summarises the current position of the various companies battling for a position in the emerging infocom value chain:

The key challenges and opportunities for the different service providers from the communications industry are the following:

• Local incumbent telcos - generally still dominating the market with their integrated fixed and mobile operations - have an excellent starting position, but also stand to lose the most, with the trend towards FMIC;
• Pure mobile operators run the risk of losing a substantial share of their in-building and metropolitan area minutes, but have many options to turn this threat into an opportunity;
• Fixed-line and (Pre)Select operators have strong negative exposure to fixed to mobile and PSTN to VoIP substitution, but have a real opportunity to develop in mobility;
• ISPs, cable operators and MVNOs have an opportunity to team-up and deliver converged fixed, mobile and internet access services;
• Wireless ISPs and pure VoIP service providers have a natural fit to resell each others services;
• There are many outsiders to watch, such as the internet service specialists, office software providers and new players like VoIP/Wireless Service Enablers (VWSEs): Internet service specialists, such as Microsoft MSN, Yahoo! and Google, are expanding into mobile and metropolitan area network access services. Microsoft MSN, Yahoo! and Google are well positioned to provide integrated services over both fixed and mobile networks. Office software providers like Microsoft and Oracle are integrating SIP based collaborative computing capabilities with their existing office productivity, content management and business process support tools. The MVNO/MVNE model will be extended from mobile to converged VoIP and mobile services by a new breed of VoIP/Wireless Service Providers and Enablers (VWSPs/VWSEs).

The winners will be those service providers that match the capabilities of new technologies with the specific needs of selected market segments: With the increasing number of players competing on the market of fixed, mobile and internet converged services, existing service providers should shift their focus from introducing new products and technologies to new ways of serving the specific needs of selected market segments:

• Corporates require flexible working and real time collaboration, as well as a reduction of their mobile bill. Operators should team up with advanced application providers and system integrators to deliver converged fixed and mobile communication services that support flexible working and real time collaboration and to provide improved cost effectiveness through WiFi or picocellular GSM access technologies;
• Small and Medium Enterprises (SME) represent a significant market for standard SIP based collaborative computing capabilities deployed in-house or provided by Application Service Providers (ASPs);
• Call centre operations of consumer oriented businesses, governments and distributed professional communities - e.g. in health care, transport, agriculture and sport - would strongly benefit from web-based and SIP-enabled CRM solutions;
• Families, living communities such as student houses and small offices / home offices (SoHo) will be strongly attracted to the concept of a universal personal phone - which can be provided by dual mode WiFi / mobile as well as pure GSM home-zoning propositions - in particular when combined with private virtual networks that offer preferential rates for calls within the community;
• Younger users will be the early adopters of converged IM, e-mail and content services such as those provided by MSN, Yahoo!, Google and AOL in co-operation with handset equipment suppliers and mobile operators.

Further information

Read our report "Fixed Mobile Internet Convergence: Technology Trends and Market Dynamics." Published in May 2006 by Telecompaper. Click here to view the brochure (PDF document)