Monday, March 25, 2013

Video optimization 2013: Executive summary

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.