Finding Services and Business Models for the Next-Generation Networks

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Finding Services and Business Models for the Next-Generation Networks

Chapter · December 2011
DOI: 10.5772/26760 · Source: InTech

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Carlos Merino
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Finding Services and Business Models for the
Next-Generation Networks
Javier Martín López, Miguel Monforte Nicolás
and Carlos Merino Moreno
Universidad Autónoma de Madrid / Almira Labs S.L.Madrid,
Spain

1. Introduction

The growing demand in the use of mobile devices implies a huge investment by operators and infrastructure providers. However, these players have important questions when it comes to understanding how to finance these investments. ROI seems to be endangered by the new mobile ecosystem that has emerged during the last few years. Many factors threaten the potential of future income over the new infrastructures so there is huge need to find innovative ways of generating customer retention and traction, which in turn will lead to the generation of revenues that can build a profitable and healthy business around the next- generation networks.
This research should be carried out before any investment is planned to have a clear picture of the financial implications of the new deployments. There is a strong need to understand customers’ new ways of technology consumption and plan how to provide this employing adequate services and business models.
As a result of the way that the mobile industry has been developed, investment in advanced networks must be acquired primarily through private companies, for example, the network operators. Other sectors, like health, civil engineering or even fixed telephony have historically enjoyed a stronger intervention from the public sector as governments take on the basic infrastructure for their countries population. However, this was not the case for the mobile telephone industry, which was regarded as a private initiative, in spite of the fact that there were many incumbent players at the beginning of the industries development. Even in those cases, the industry rapidly opened to competition and new entrants from the non-public sector came into this promising new industry.
Therefore, this established the basic condition for network evolution, all mobile industry investments must be aligned with clear business models to make them profitable. This has an immediate consequence; investments will not be forthcoming until there is a clear path to ROI. On the other hand, we are on the verge of a mobile infrastructure usage explosion. Customers demand more and more data services so that the old networks start to reach their limits or even collapse. Paraphrasing Shakespeare’s Hamlet: ‘To invest or not to invest? This is the question.’ A natural response to this question should be a clear “YES” if we are to apply the industry standards from the 80’s where unlimited booming was in place. But… things change.
In the present state-of-the-industry, the “who” that are making money out of the mobile networks has shifted from the operators exclusively to other companies like the device manufacturers and content providers who work outside the operators’ networks, the main companies being Google and Apple. These companies are making huge profits by selling devices and services that rely on the operator’s infrastructure with almost no financial paybacks. This means that the operator in is danger of becoming merely the transportation layer, instead of the value-added services provider, whose status in the industry is described as the “dumb pipes” (Wikipedia, 2011).
The network operators are at a crossroads. On the one hand, they clearly need to invest in the new networks to address the increase in customer needs, and to keep their position in the market. On the other hand, they are uncomfortable with the idea that those investments will be profited by other companies who will get the most out of the revenues generated without incurring any financial risks.
Some solutions are being drafted by the network operators, but they are receiving strong opposition from the rest of the players and even some of their customers.
These ideas revolve around making money directly from the infrastructure usage. One of them is the "tiered pricing" concept, already put in place by some US and European operators. The concept marks the end of the “eat-as-much-as-you-can” policy that has been in place for some years, and means that consumers will only be charged for the volume of data they really consume. (Telwares, 2011)
Other ideas which attempt to reverse the situation described above involve charging the content, software and devices companies for traffic crossing the network originated by them. For example, Telefónica announced their intention of charging Google for the traffic generated by consumers performing searches on their mobile devices. This move attempts to create a revenue sharing scheme between the infrastructure owners and content providers. (Boston, 2010)
All these initiatives are creating huge controversy as they are seen as an attack on the neutrality of the net, and on the freedom of the internet. In addition, companies like Google strongly oppose the idea of having to pay network operators for the volume of data requests sent to them by customers.
In a different approach to the problem, other industry players are trying to capitalise on a basic consensus in the industry. Most future network income will be derived from software. Device manufacturers like Nokia, Apple, Google and others have paved the way for a market of software and applications in the mobile market. The numbers themselves demonstrate the success of these initiatives, with almost 4250,000 applications available, and 15 billion downloads in four years of operation (Apple, 2011). New devices based on strong internet orientation and high usability have taken the market lead, shifting the industry from a hardware-based scheme to a software-based one. This success is based on both a new device concept oriented to the Internet more than to the classical telephony world, and a strong community of third-party developers who find easy ways of creating applications and selling them to the device users.
Operators have made a huge mistake in disregarding this market change. Their reaction has been slow and poor. They overlooked the device manufacturer’s movements, thinking that they would never affect their position in the market until they realized the amount of money people were spending on applications in external App Stores. When they tried to react, they realised that they did not have the culture, development tools or teams needed to challenge the fast pace of new entrants coming from the pure software world. In
addition, the financial crisis which started in 2009 stopped their R&D expenditure capabilities and VAS creation programs, resulting in an even lower innovation pace. Operators will need a whole new paradigm to recover the market initiative and to avoid the risk of just becoming a commodity player who offers infrastructures that will hardly be of any value in the long term. This chapter proposes a strategy that could help operators to regain the market lead.
However, the model of App Stores needs strong revision. Many questions have arisen about whether it really is a healthy market. After the initial hype has faded away, some doubts have been cast over the future of the App Store concept. The main concerns are:

1. 
   Mobile device market fragmentation. There is a clear need to overcome the market fragmentation created by the existence of too many different mobile iOS and devices. (Rajapase, 2008))
   
2. 
   The need for advanced, expensive handsets that is widening the digital divide between wealthy and non-wealthy people and countries.
   
3. 
   The fact that services are created for the device, not for the people. The services should be driven towards customer needs more than just a display of technical skills.
   
4. 
   Universal reach. Wireless technology has the potential to be the technology that helps to bridge the digital divide. Therefore, players should be moving in that direction instead of creating more complex systems every day. Technology should be simple and affordable to allow the inclusion into the digital society of those segments that are usually left aside: the disabled, the elderly, and those citizens from emerging countries. “No phone left behind” should be the driver of the industry.
   

The main subject of this chapter is to show how to find a healthy model around software for the telephony industry.
A model that combines the existing R&D needs, with a lower time-to-market of the products so that research investment is better justified. A model that shifts from the actual “Some develop services for some” towards “Millions develop services for everybody”. A model that provides operators and third-parties a way of creating useful services that fit into the new networks, and which helps to monetise investments at the same time as helping to bridge the digital divide and incorporate everyone under the principle of “Universal Design ” (UniversalDesign, 2011).
This model should take into account the different topics that compose the subject:

• 
  Application stores and device stores, current status.
  
• 
  Mobile Apps vs. Mobile Internet (services encapsulated in small code pieces vs. in- browser services replicating the PC/Internet experience)
  
• 
  Sociology of the mobile user and aspirations.
  
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  Limitations of the above models especially due to market and technologies fragmentation which bring a new digital divide.
  
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  The need to search for technologies that bring the world of the mobile internet to the existing 5bn devices worldwide, and future growing numbers.
  
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  Bridging the digital divide.
  
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  Apps and services for everyone: kids, the elderly, the disabled and non technical people etc.
  
• 
  The use of Cloud Computing in the mobile industry. The computing world is shifting towards a cloud-like schema, not centred in the PC, but in remote execution and storage environments. However, in the mobile world this strategy is aimed towards the devices and not a cloud-centred schema. How can this paradox be solved?
  

Finally, we will examine which of the new technologies mentioned in chapters of this book, and others appearing in the industry, have the potential to drive business and revenues.
As happened during the 3G industry-wide deployment, where video and video-calls were thought to be the new killer services which would drive mass-adoption of 3G, the next- generation also needs to find the technologies which will drive its adoption too. And to succeed where 3G failed.
Could plain high-rate data access do it, as many operators would like to think? Is there is a need to rely on new standards for services like RCS or WAC, improved voice technologies like VoLTE or HD-Voice, or again is it the time for video-based technologies?

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