The impact of telecommunications technologies on traditional broadcast mediums is revolutionising the industry and providing telco operators with unrivalled commercial opportunities in the sector.
An effective response to current technology, market and regulatory changes requires new approaches to securing sources of revenue.
That is why, after harvesting profits from voice services over the past few decades, the race is now on between telecommunications service providers to find new ways to generate profits and maintain margins as new technologies and market dynamics impact operator strategies. Content services are an increasingly important source for augmenting existing voice revenue streams.
Consider this: European mobile operators are now expecting minimal voice-only subscriber growth, while in the United States, the slowest growth rate in this decade was experienced in 2007 - 9 percent - for the top four operators. These trends stand in stark contrast to developing markets in the Middle East, where voice revenues vastly outstrip those generated by data services.
According to Jason Kowal at Analysys, the rate of growth in the US market will decline to as low as two percent per year by 2012. Worse yet, average revenue per user (ARPU) derived from voice services in most major markets will continue to fall over the next three years, as traditional voice and related applications become increasingly commoditised; price competition becomes more fierce; regulations restrict prices; new players enter the market, and subscribers continue to expect new services at the lowest possible price range.
Analysys researchers expect non-voice services to account for 17 percent of US ARPU in 2008. That figure will grow to nearly 30 percent of ARPU in 2012. As a result, operators must explore new applications as a way to increase revenues, differentiate services from competitors and encourage customer loyalty. As new services are introduced, content - and related offerings - are expected to play a major role in the creation of new revenue streams.
According to Alcatel-Lucent analysis, the upside potential of the content and advertising market is enormous. The size of end-user spend on online digital content (defined as spend on fixed or mobile on-net entertainment services, excluding broadcast TV and off-net entertainment such as DVB-H) is expected to grow to US$48 billion in 2009, representing a 37 percent compound annual growth rate (CAGR). Without counting revenues from advertising, this would represent about 10 percent of total end-user entertainment spending in 2009.
Mobile content distribution, which will represent approximately 27 percent of this total, can take multiple forms. With mobile data usage - including internet browsing, ringtones, gaming, video and music streaming and mobile TV - still in its infancy, mobile content distribution remains largely untapped in its potential.
While there is tremendous opportunity to generate revenue with content, supporting content services requires much higher levels of integration of both service delivery platforms and the back office business systems that track customer usage trends. Stand-alone mobile and wireless networks that deliver dedicated voice and data services cannot fully (or even significantly) deliver on the substantial promise of content-based revenue models. There are significant technical and business hurdles that need to be overcome in order to succeed.
Consumers and businesses alike now take a holistic approach to their communications resources. Voice services should not - in the minds of end users - be completely divorced from the data services they use congruently on a daily basis. The idea of receiving separate bills for different services offered by different operators is viewed with increasing disdain. It represents complexity they can do without.
As music and movies are increasingly digitised, distribution channels are following suit. We are seeing them shift from using business strategies that depend on the sale of physical media to becoming online distribution players leveraging IPTV, VOD and other download technologies. This is creating new opportunities for the same media to be consumed on a variety of platforms: TV sets, PCs, iPods, mobile phones and other portable devices.
Digital media distribution is distinctly different from traditional media distribution, as digital content can potentially flow over any kind of network or device. As a result, new relationships and business models that go far beyond delivery of conventional voice and data services must be explored and adapted.
Many organisations, including telecom carriers, are launching internet portals that leverage the increasing penetration of broadband technologies. As telecom carriers control the digital link to consumers via the last mile (either fixed side or mobile side) they are in a strong position to establish early positions in the new digital content distribution market.
Moreover, there is end-user interest in building tighter links between the technologies that offer connectivity with the content services - news, m-commerce, social networking and so on - that are accounting for a growing percentage of traffic that flows over today's networks. Evidence of this interest is illustrated by the impact that new media players such as Google and Apple are having on the communications industry.
Most industry experts now agree that the key to integrating voice and data networks revolves around taking advantage of the next-generation technologies that bring the functional capabilities of the internet to the communications network.
This involves much more than simply rolling out new IP infrastructures, Multi Protocol Label Switching (MPLS) capabilities and other key wireless technologies. It requires the creation of a service delivery environment that allows operators to manage and manipulate applications and customer information to rapidly create new services in response to new demands in the marketplace.
Even with a next-generation network, however, actually delivering a sufficient quality of service is not without challenges. Successful delivery of packeted video streams is quite complex.
Few doubt that - over the long run - operators who make the investments to have these networks in place will succeed in the marketplace. What is less clear is how today's operators will achieve this future state. In this regard, it seems that most operators have a couple of choices.
They can either invest in a new generation of integrated content applications and provisioning infrastructures that enables content services to be deployed or leverage the resources of a hosted or managed services provider to offer new content-based services to current subscribers on current networks.
Some of the largest global telco operators are pursuing the first option. Many are deploying networks capable of delivering new revenue-generating services. While this makes sense for some operators, it requires significant investment in new technologies, intense focus from the most talented human resources and a substantial capital investment.
Rolling out these new content services also takes time. But for those with the wherewithal to follow through on this type of strategy, the investment - and risk - is well worth it.
For many others, however, the risk, investments, resources and availability of in-house expertise is simply not available. In some markets, operators may also not be able to afford the delays that may be associated with building out content resources on their own.
Integration of the content management platform within the network operator's environment (network, portal, customer care, billing systems) is a complex undertaking.
With these multiple systems, operators are also unable fully to realise the revenue opportunity of new services, because there is no way for them to collect subscriber data across the individual content platforms and use it in their marketing efforts.
Given the technical complexity of developing a content-delivery platform, managed and hosted services options - such as those offered by Alcatel-Lucent - make a great deal of sense, especially for those who see a compelling need to roll out new services rapidly.
This delivery model allows operators to shift their focus from managing core network operations, to developing compelling service bundles and executing successful marketing and sales campaigns.
With this model, operators no longer have to devote significant resources to scaling up or down based on a particular technology. Nor do they have to worry about managing the skills, people and training processes required to take advantage of new technologies.
Operators are able to delegate many day-to-day operational activities to solution partners and manage those partners through service level agreements.
The shift toward managed and hosted services follows an ongoing trend that runs across the entire business spectrum and involves applications related to sales, marketing, human resources, content management, customer relationship management (CRM) and a wide range of other processes.
In addition to enabling low-cost, rapid deployment, these services allow operators to avoid the learning curve associated with implementing and maintaining new technology related to content distribution.
Equally important, they allow operators, content owners and media companies to avoid further technical complexity, which has become a critical issue for many. Instead of adding to complexity, managed and hosted services are implemented rapidly and with relative ease.
Although this new model offers operators, content owners and media companies the same set of benefits - to increase content usage and therefore generate revenue directly from the end user - it enables strategic partnerships that share revenue, with the potential of capturing additional revenue through targeted marketing campaigns.
In a sense, the managed and hosted model allows operators to succeed all the way around. Operators can immediately take advantage of new content services and build revenue streams while remaining focused on their core competencies.
With true partnership and help structured on an application service provider (ASP) model similar to the one presented here, operators can expect faster deployment, offer better services and reduce their operational costs.
The managed and hosted service model - and many of the elements that compose it - can benefit content owners, too, especially as they look for new ways to reach consumers at the end-points of fixed or mobile networks.
New managed and hosted content services are able to provide a significant competitive advantage by easing the complexity associated with network deployment and operations while reducing time-to-market for new and innovative content services with an optimised quality of experience.
With this business model, operators are able to benefit from expert technical and marketing support and at the same time mitigate and share the risk in this very dynamic marketplace.
Régis de Baracé is senior managed and hosted services line manager, Applications Business Division, Carrier Business Group, Alcatel-Lucent.