Tuesday, June 23, 2015

Building a mobile video delivery network? part II

Frequently, in my interactions with vendors and content providers alike, the same questions are brought up. Why aren’t content providers better placed to manage the delivery of the content they own rather than network operators? Why are operators implementing transcoding technologies in their networks, when content providers and CDN have similar capabilities and a better understanding of the content they deliver? Why should operators be involved in controlling the quality of a content or service that is not on their network?

In every case, the answer is the same. It is about control. If you look at the value chain of delivering content over wireless networks, it is clear that technology abounds when it comes to controlling the content, its quality, its delivery and its associated services at the device, in the network, in the CDN and at the content provider. Why are all the actors in the delivery chain seemingly hell-bent on overstepping each other’s boundary and wrestle each other’s capacity to influence content delivery?

To answer this question, you need to understand how content used to be sold in mobile networks. Until fairly recently, the only use case of “successful” content being sold on mobile networks was ringtones. In order to personalize your phone, one use to go to their operator’s portal and buy a ringtone to download to one’s device. The ringtones were sold by the operator, charged on one’s wireless bill, provided by an aggregator, usually white-labelled who would receive a percentage of the sale, and then kick back another percentage of their share to the content provider itself who created the ringtone.
That model was cherished by network operators. They had full control of the experience, selecting themselves the content aggregator, in some case the content providers, negotiating the rates from a position of power, and selling to the customer under their brand, in their branded environment, on their bills.

This is a long way from today’s OTT, where content and services are often free for the user, monetized through advertisement or other transparent scheme, with content selected by the user, purchased or sourced directly on the content provider’s site, with no other involvement from the network operator than the delivery itself. These OTT (Over-The-Top) services threaten the network operator’s business model. Voice and messaging are the traditional revenue makers fro operators and are decreasing year over year in revenue, while increasing on volume due to the fierce competition of OTT providers. These services remain hugely profitable for networks and technology has allowed great scalability with small costs increments, promising healthy margins for a long while. Roaming prices are still in many cases extortionate. While some legislators are trying to get users fairer prices, it will be a long time before they disappear altogether.

Data, in comparison, is still uncharted territory. Until recently, the service was not really monetized, used as an appeal product to entice consumers to sign for longer term contracts. This is why so many operators initially launched unlimited data services. 3G, and more recently LTE have seen the latest examples of operators subsidizing data services for customer acquisition.

The growth of video in mobile networks is upsetting this balance though. The unpredictability and natural propensity of video to expand and monopolize network resources makes it a more visible and urgent threat as an OTT service. Data networks have greatly evolved with LTE with better capacity, speed and latency than 3G.  But the price paid to increase network capacity is still in the order of billions of dollars, when one has to take into account spectrum, licenses, real estate and deployment. Unfortunately, the growth in video in term of users, usage and quality outstrips the progress made in transport technology. As a result, when network operators look at video compounded annual growth rate exceeding 70%, they realize that serving the demand will continue to be a costly proposition if they are not able to control or monetize it. This is the crux of the issue. Video, as part of data is not today charged in a very sophisticated manner. It is either sold as unlimited, as a bucket of usage and/or speed. The price of data delivery today will not cover the cost of upgrading network capacity in the future if network operators cannot control better video traffic.

Additionally, both content providers and device vendors have diametrically opposed attitude in this equation. Device manufacturers, mobile network operators and content providers all want to deliver the best user experience for the consumer. The lack of cooperation between the protagonists in the value chain results paradoxically in an overall reduced user experience.

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