By Jim Poole
It seems like the team only just left the Hotel Okura in Amsterdam for Carrier Ethernet World Congress 2011. Yet we’re back again for Capacity Europe 2011.
Well, some of us are back, the less fortunate appear to be still in the airport or lost in the fog somewhere.
In any case, the event kicked off with a ‘fireside’ interview – hosted by Tom Wheadon, Partner at Simmons and Simmons – with Deutsche Telecom ICSS’s Senior Vice President Holger Magnussen.
Magnussen didn’t waste any time – and in contrast to the opaque conditions outside the hotel, jumped straight into his crystal clear view of the three main issues affecting the carrier industry:
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If you didn’t watch the video, here’s a recap of the three points:
- Enormous traffic growth: Deutsche Telekom predicts in the mid-term 30-50% sustainable annual growth in traffic levels over their networks
- Rapidly changing business models and environment: Cloud, virtualization, data growth are all changing the way the entire business works, and the traditional methods of generating revenue need to be reworked to ensure sustainability
- Huge cost pressure and commoditization of basic transport services
The Four Corners of the Carrier Business
In the ensuing conversation, the pair divided the carrier market into four broad areas to look at how the trends applied.
Here’s a summary of that discussion:
“We’ve been hearing the death knell for Voice for a long time, but fortunately its very much alive and kicking,” said Magnussen, but explained that he saw the relentless pressure from regulators to drive end user costs down, will mean that voice traffic will ultimately all be over IP, and that the margins will be so small that the business will consolidate in the hands of a few major players who can exploit their scale to ensure profits
New investment in networks will be needed to cope with the explosion of data. However the financial climate and cost pressure in the industry will make that investment slower. Again this will drive consolidation and M&A activity, as well as more innovative ways for industry players to work together to achieve their goals.
Big players will be investing in fiber access networks, as there is a solid long-term business case. However funding these networks in time to meet customer demand may mean price increases or some new model of sharing revenues from internet traffic – for example Netflix doesn’t pay a carrier directly yet is one of the most significant users of network capacity in the world.
Rapid smartphone adoption is driving up individual data usage, and straining networks just as applications and content are becoming richer. Mobile networks will need to look much more closely at QoS. Magnussen says Mobile operators will have to revamp their “spaghetti'”network model of long low bandwidth connections more suited to voice traffic, to a decentralized network topology that is more suited to data traffic – putting the user close to the content.
Perhaps the most interesting thing about all of the areas above is they all point in the same direction for the carrier industry – more consolidation, co-operation and new business models are on the cards.