Focus on Content, Not Connected Devices
It is evident that the communications industry is undergoing a massive transformation. If you can get past the jargon, you'll understand that a fundamental change is taking place in the life of everyone -- and every business -- on the planet. We are at the beginning of a transformation from legacy services and networks, such as PSTN, into new state-of-the-art services, such as IP-MPLS, driven by mobility and analytics.
Service providers have traditionally assessed themselves through average revenue per user (ARPU). The saturation of voice service via cellphones means that only a minimum amount of new revenue can be developed on the voice side of the network, and that service providers are losing money left and right. However, if you consider current trends in data-driven applications on smartphones, it becomes clear that this area holds enormous opportunity for providers to increase ARPU. It is imperative to think differently about the future of telecommunications. If service providers don't, they will be unable to compete globally.
For more than a decade, over-the-top (OTT) players have made a fortune off service providers worldwide. Companies such as Google (Nasdaq: GOOG) and Amazon.com Inc. (Nasdaq: AMZN) have significant market capitalization compared to traditional technology companies back in the '80s or '90s. Their success has required carriers to support large amounts of bandwidth by spending significant capital to upgrade their networks.
It started with services like DSL and cable Internet as access control. Now mobility is taking center stage, and will remain there for the next two or three decades. Our main concern is that, as the entire planet's content is digitized and shared and the Internet moves toward IPv6, the service provider networks are supporting everyone else's businesses. ARPU will go down for service providers while OTT players’ market capitalization goes up.
I'd like to reiterate that last statement, because it something like a new law in telecommunications: The revenue of service providers is inversely proportional to the market capitalization of OTT companies. Lots of people are still getting rich but the main capital and operating expenses belong to the service providers.
Today, OTT players are even charging developers for the new applications consumers and business need. We need to move from flat- or free-charging to application-based charging as well.
By 2014, we think 91 percent of worldwide Internet traffic will be video. Add HD, 3-D and even 4-D technologies to the mix -- and don't forget their applications in the healthcare, financial services and airline industries. It's clear that in a few years, we'll need to start talking about zetabytes of information. Petabytes will be a thing of the past. Today, we have over 15 million terabytes of traffic per month worldwide. Of this, 20 percent originates in the U.S. Traffic from the rest of the world is growing at least 50 percent per year -- but my guess is that this will double in the next five years due to the introduction of many more smartphones and new access technologies such as LTE, LTE-A and cognitive radio.
And finding a needle in this haystack of data is a challenge no service provider is ready to tackle in the short term. The problem, particularly as it concerns analytics, is massive. Quantum computing could handle the challenge, but that technology is at least few years away from being able to scale with a high degree of reliability.
We truly need to think about video optimization, given a lack of spectrum and bandwidth worldwide. Techniques such as adaptive streaming, trans-rating and transcoding, smart caching and bit throttling must be deployed to help the network of the future handle HD and 3-D streaming video.
Click here for a PDF where I offer a comparison between what consumers pay for various services they get from their service providers.
These calculations demonstrate that there is an order of magnitude difference between voice telephony and bit-based technologies. OTT players have learned to make tons of cash from service providers.