Traditionally lots of services like Voice and Television for example is delivered in a conventional way where Voice was transferred via a PSTN or a Mobile network and similarly TV was delivered via Cable, Satellite, DVB-T kind of technology. With Internet becoming common and Broadband access available to everyone, easily and cheaply, new applications are available to deliver Voice and TV kinds of services. The most popular voice app is for example Skype and Youtube is an example of TV (even though its more like Video On Demand)
These apps cause two main problems. The first problem is that the companies using this traditional medium starts losing customers and their cost per person goes up forcing their profits down. At the same time the amount of data traffic for the ISP increases thereby increasing the number of bits/cent (bits/pence). This forces them to upgrade their infrastructure to provide the same quality of service (QoS).
What this would mean is that in future it would not be possible to get flat rate packages for Mobile broadband or there may be restrictions where certain applications wont run unless you pay extra.
The dilemma for carriers is that LTE’s all-IP architecture will create a more open environment for Over The Top (OTT) applications, including third-party VoIP services, which threaten to further commoditize the network. To overcome this threat and realize revenue gains from LTE, carriers will need to partner with content and application providers, develop application store-fronts such as Apple’s App Store, and perhaps deploy APIs that expose LTE’s value-added network capabilities to third-party application and content developers for a fee.
The only way to ensure profitability in this ‘cost-per-bit’ model is to maximise scale. We have seen this clearly in mobile telephony, where a lack of differentiation has led to intense price pressure, flat rate tariffs and a decoupling of the revenues from the costs. The mobile operator suffers the cost of deploying ever increasing bandwidth while the ‘value’ that this bandwidth enables – the access to over the top (OTT) applications and services benefits the OTT providers.
To avoid this commoditisation, service providers need to add intelligence to the way they deliver these bits. Adopting a ’value-per-bit’ strategy ensures that the value added over and above the simple transport of data is seen and desired by the consumer and by any upstream content or application provider.
This creates a tighter coupling between infrastructure costs and the revenue that infrastructure can attract, thereby ensuring a far more sustainable business model for the service provider. It also benefits consumers and application providers by providing them levels of security, performance and reliability appropriate to the transaction being carried out and the subscribed service.
Most of us wouldn’t dream of paying for a customized Internet experience on a tailor-made device from our broadband service provider. But that is the way we used to buy telephone service, and it continues to be the way we do things for mobile and video services. Over time, all of these businesses will follow a similar pattern, breaking down into their component parts so that the best adapted players win in each piece of the business. The only questions are: “Who are the best adapted?” and “How long will it take?”
Further Reading: Making the Network Relevant in an Over-the-Top World