Edge computing risks and opportunities for operators and hyperscalers

 Part of a presentation to the World Bank's investment teams regarding institutional investment in ICT for emerging countries.

Edge Computing risks and Opportunities for Telco and hyperscalers from Patrick Lopez

OTT as MVNO… or MNOs

This is an excerpt from my latest report "Video monetization 2015" .

OTT providers on their side might have some slightly different plans and views from mobile network operators. Most of them have built a business predominantly digital, based on internet-based delivery and had had to navigate the intricacies of creating an ecosystem (content creation, aggregation, distribution,…) and a business model (free, freemium, ad sponsored, hybrid, subscription, sponsored…) for the internet. 

This effort has resulted in partnerships and value chains, where content delivery is a little part of the value and when third parties like CDN can’t provide suitable or economical service levels, they are replaced by homegrown solutions, as illustrated by Netflix and Google’s caching strategy.

As a result, I believe that Google’s SVP products Sundar Pichai’s announcement at mobile world congress 2015 is likely to be a sea change. The company has decided to put rumors of becoming an MVNO to bed by integrating vertically the value chain one step further. The company will launch a MVNO service in the US, probably on Sprint and/or T-Mobile networks, blending cellular and wi-fi coverage. It starts to look increasingly like the dystopian future described here.

It is very likely that Google being who they are, will be looking at extending their services to mobile in a very different fashion than a mobile network operator. One can muse that in all likeliness, a Google subscriber (!?) with an Android device on YouTube or G+ is unlikely to pay for minutes of voice or Megabytes of data. It is likely that this first attempt to translate the very basics of mobile network economics into an ad sponsored model will have a very disruptive and durable effect on the whole value chain.

If you remember, this is not the only initiative that Google has with mobile networks. Since 2013, the company has been exploring the possibility to build and operate wireless networks in Southeast Asia and sub-Saharan Africa. If you put this with the recent announcement that Telstra in Australia, Vodafone in New Zealand and Telefonica in South America have all agreed to participate in live trials of the Loon project, it is likely that Google will look at being increasingly involve in cellular networks. The project now supports LTE and balloons can stay up for about 6 months. 

Driving the nail farther in operator’s coffins, Mark Zuckergerg at the same show was advocating for Facebook’s initiative internet.org that is promoting free mobile internet access in emerging countries. The rationale here is that free internet promotes usage, which promotes engagement, which promotes new revenues. Current experiments in Millicom Paraguay or Tanzania, saw increases of data users by the tune of 30% and 10x increase in smartphone sales.

All in all, OTT providers have fundamentally different view of services and value different things than mobile network operators. The reconciliation of these views and the emergence of a new coherent business model will be painful but necessary.

More on the subject, as well as strategies from OTT and mobile network operators to monetize video in "Video monetization 2015". 

What's in store for 2014: wholesaler or value provider?

First, happy new year to all my clients and readers out there in the blogosphere. Thanks for your continuous support, comments and readership.

For those of you who have been reading the news lately, we have seen a couple of events over the last months that, in my mind will amount to a watershed moment in the OTT video market space.

Consider this:

1. Comcast allows HBO to become fully OTT and to offer HBO Go to Comcast broadband subscriber WITHOUT a cable subscription.
2. Verizon buys Edgecast, rumors follow of AT&T in discussions with Akamai.
3. Netflix pilots new price models.
4. Comcast and Nielsen work together to monetize VOD with advertising insertion and audience measurement.

These are just but a few of the headlines that grabbed my attention. The market is changing fast and the quest for viable business models is accelerating.

Content providers, creators, aggregators:

OTT video content providers are reaching a stage of maturity where content creation / acquisition was the key in the first phase, followed by subscriber acquisition. As they reach critical mass, the game will change and they will need to simultaneously maximize monetization options by segmenting their user base into new price plans and find a way to unlock value in the mobile market.

Network operators:

I was recently conducting a workshop with a large tier 1 group of network operators and the problem was acutely perceived. On one hand, current video quality in mobile networks (even LTE) is not sufficient for video monetization, furthermore, the various regulators are enforcing unfair constraints under the cover of net neutrality, fundamentally misunderstanding the balance of forces between network operators, content providers and device vendors. On the other hand, video behaves differently from the rest of the data traffic and must be managed in order to provide a good user experience for most users.
Network operators have failed so far to provide an enticing OTT experience (video or voice or messaging) and are likely to fall into two categories in 2014.

Wholesaler or Value provider?

Our industry, with  its stiff regulations is ill-equipped to protect the value and the jobs provided by network operators worldwide. Companies coming from the web and the broadcast industry are more likely to succeed in mobile nowadays. They have the advantage of a more flexible range of business models, little to no barrier to entry, as the infrastructure is guaranteed and provided by network operators and have the control of the value and delivery chain as long as they control the content.

As a wholesaler, network operators can still offer a variety of services and value to content providers / aggregators (see my cartoon video here). But they have to accept and internalize their role as a network specialist, to provide value by categorizing traffic and consumers and opening up APIs to allow more control over the experience to content providers.Obviously, the game, here is to run the network as efficiently as possible, as close to capacity as possible and to generate margin on volume, rather than services.

For those network operators who want to have a more active role in the value chain, there is a path, but it requires some profound changes in its organization and mindset that I am not sure many can muster. It requires first forging relationship with content providers and aggregators. The mistrust between the entities is not lost on Verizon and it is a large reason why they are buying a CDN. Content providers have no issue letting CDNs package, encode, encrypt, ad insert their content but have huge objections letting network operators do so. Network operators have a fantastic opportunity, though, when it comes to tailoring content and services for their subscribers, according to their subscription, location, device, etc... The second step revolves around advertising. There is much that can be said here and I will expand on these themes in 2014.