Video accounts for over 50% of overall data traffic in mobile networks in 2013 and its compounded annual growth rate is projected at 75% over the next 5 years. Over 85% of the video traffic is generated by OTT properties and mobile network operators are struggling to accommodate the demand in a profitable fashion. New business models are starting to emerge, together with KPIs and technologies such as video optimization to manage, control and monetize OTT video traffic. This is the backdrop for this report.
In September of 2012, Jens
Schulte-Bockum, CEO Vodafone Germany shocked the industry in announcing that the 10% of their customer base
who have elected to shift to their LTE network had a fundamentally different
usage pattern than their 3G counterparts:
“Voice,
text, other messaging and data - everything that makes money for us - uses less
than 15%. The bit that doesn’t make money uses 85% of the capacity. Clearly we
are thinking about how we can monetise that. ”
“The bit that does not make money for us” is
mobile OTT video.
The Bundesnetzagentur (BNetzA) Germany’s telecom
regulator has mandated that the roll out of LTE be first in rural areas, before
covering urban centres, thus ensuring a quasi 100% geographical coverage at
launch. While many point out that the 85% of video transiting through the 4G
network are a manifestation of cord cutting, it is not the exclusive use and remains
a valid LTE use case.
2012 was the first year video was responsible
for over half of global mobile data traffic. Over 85% of that video traffic is
OTT, generating little revenue for mobile network operators.
As 4G deployments roll out across the globe, many
network operators had envisioned that this additional capacity was sufficient
to bridge the video traffic growth, allowing enough headroom for the creation
and roll-out of new services. The exponential growth of video usage, encouraged
by the increasing penetration of large screen devices, the introduction of
higher definition content and the growth in adaptive streaming technology, is
not likely to abate. It looks like by the time LTE has reached mass market
penetration, many networks will find themselves still congested, with an
unbalance cost / revenue structure due to the predominance of OTT video.
In reaction to this threat, many mobile network
operators transitioned generous unlimited data plans to more granular charging
methods, oftentimes implementing throttling and caps to reduce unprofitable
traffic growth. These methods were implemented with various results but little
success in monetizing OTT video traffic without alienating the consumer.
New technologies have made their debut, such as small cells, heterogeneous network management, traffic offload,
edge caching, edge packaging, traffic shaping, cloud-based virtualized network
functions… and new business models are starting to emerge, reinventing
relationships between network operators, content providers, and device
manufacturers.
Video optimization in 2013 is a mature
market segment, deployed in over 150 networks globally, it has generated over $260m
in 2012 and is projected to generate close to $390m in 2013. Video optimization
was, in its first instance sold as a means to reduce video volume, thus
potentially deferring investment costs for network build out. It was a wrong
assumption, as most deployments in congested networks saw no reduction in
volume and little deferment of investment. In most case, the technology allowed
more users to occupy the network in congested areas. A new generation of
products and vendors are starting to emerge, to manage the video experience in
a more nimble, granular fashion.
{Core Analysis} believe that video
optimization will continue to be deployed in most networks as a means to control and manage
the video traffic.
