You’ve heard the story before – how over-the-top (OTT) service providers are the biggest threat to the wholesale telecoms industry, and the telecommunications industry in general, currently out there. It makes sense – carriers have traditionally made money from voice and messaging services but IP voice calling and OTT messaging services have put untold pressures on this model.
According to a report from Research and Markets released earlier this year, the global OTT services market is set to grow at a compound annual growth rate of 17.1% over the next decade to reach approximately $3.49 billion by 2025.
This has led to some notable responses from the industry. We’re already seeing the likes of Verizon expand its offering into OTT streaming content, while AT&T’s mega-deal to buy Time Warner will no doubt see the media giant’s traffic patterns change.
According to a McKinsey report, there are around 2.5 bilion digital users globally aged 25-and-under. “What characterises this group is the fact that they are “always on” and that they show a different usage behaviour compared to that of the traditional “analog” consumer,” the report said. “On average, these young digital users spend 315 minutes online each day (versus 126 minutes for customers over 25 years).”
OTT players such as Skype, WhatsApp, Google Hangouts or Tencent’s WeChat are eating into the conventional operators’ traditional sources of revenue by offering attractive communication services coupled with diversified ancillary add-ons, which often rely on content enhancement, for free. According to some of McKinsey’s estimates, by 2018 the OTT players’ share of messaging, fixed voice and mobile voice delivered in an all-Internet Protocol (IP) environment could be as high as 60, 50 and 25% respectively.
Market researcher Statista’s figures show us that the cumulated annual revenues of the six large OTTs – Google, Apple, Microsoft, Amazon, Facebook, Netflix – are growing at a rate of 14% per year, while the three largest European operators have shrunk their revenue by 2% over the same time frame.
The most common OTT use-case from this market is video services, such as YouTube and Snapchat. And for the wholesale carrier community, that is still where the biggest opportunity lies.
Stephan Schröder, VP of internet and transport at Deutsche Telekom ICSS, recently told Capacity that the answer is for operators to find creative ways to work in a more integrated fashion with the video community, presenting fresh solutions that meet real needs.“Carriers must become more effective enablers for content delivery,” he warns.
“As carriers we must work to optimise the delivery chain. We must do this with efficiency but also with visibility and quality. We must do this in different ways, for example caching.”
Cisco’s Visual Networking Index forecast predicts of all IP traffic that will pass over networks in 2022, 82% of it will be video content. Given the same report estimates annual global IP traffic will hit 3.3ZB in the same year, that means around 2.7ZB will be video – more than double current traffic of any kind (1.2ZB).
Future of bits
It would take more than 5 million years to watch the amount of video that will cross global IP networks each month in 2021. Every second, a million minutes of video content will cross the network by 2021, Cisco claims.
It’s a trend that existing OTT service providers, such as Google and Facebook, have been on for a while. Google owns the world’s biggest video platform YouTube, while Facebook launched services for video uploading, and live broadcasting over the last few years.
“The future of bits is video and if you’re in the business of carrying bits then you need to have a strategy around how you do that well,” claims Level 3 communications product manager, CDN EMEA Rory McVicar. “It places different considerations around the network – video is often real time, it is often driven by interaction, so latency is a big problem with video and you need a solution that delivers quality of service.
“From a monetisation perspective you can’t discount video because of the volume of data it will bring your business. If, as a wholesale carrier, you take video out of your model, it will affect you greatly.
“The opportunities for carriers is to become central to that use case, which will become the core use-case for telecommunications networks – media.”
If video content is really going to make up 82% of all IP services, then having the right infrastructure to support it should be a key concern of the carrier community. But what does that look like?
Level 3 breaks it down into two parts, according to McVicar – a dedicated content delivery network (CDN) and a service called Vyvx, an end-to-end digital video transmission platform.It uses Level 3’s IP backbone to “acquire, transmit and aggregate broadcast video content using encoded transport streams to push over the backbone, replicate and push out to different end points”, he explains. “With OTT being a network-driven distribution path we are addressing content acquisition and distribution using Vyvx. For content owners, more and more in the world of OTT, we are seeing one channel or one programme ending up on multiple outlets.”
Level 3’s numbers are impressive. It has seen more than 50% growth on volume of video content delivered year-on-year, with that trend expected to continue, McVicar adds.
Level 3 isn’t the only company realising the potential of OTT and video services. NTT Communications recently said that it has also found a surging demand for over-the-top (OTT) video services from providers such as Netflix, Hulu and Amazon Prime is driving the need for point of presence (PoP) instalments in smaller markets.
To avoid delays, many global corporations – especially Internet-centric businesses in areas such as e-commerce, gaming, social media and OTT – and even large-scale government agencies are setting-up installations closer to the edge.
NTT Com EVP Michael Wheeler says: “If data only resides in big Tier-1 markets, there are hundreds of millions of users around the world that are far away from that data.
“This is particularly important in Latin America, Asia and Africa. If all the data in Asia was stored in Japan, Hong Kong and Singapore, the negative impact on accessibility, latency and efficiency for consumers would be significant.”
CDN
The demands from the OTT content providers and the need for strong relationships with the wholesale industry is also clear – without international carriers providing reliable pipes with strong international links, the key considerations for the ed-user – quality of service – will never be achieved.
This was outlined recently in a conversation I had with the CEO of Kwese Play, an African content service that was recently launched by Zimbabwe’s Econet Wireless, the parent company of Liquid Telecom.
Speaking to Capacity at the Capacity Africa even, Ryan Solovei said: “It’s a tough business and there are many aspects to putting together a successful service. From a technology side, you need to have a reliable network that delivers this content. This is not the US or a European market where you have lots of choices of CDNs at your finger-tips.
“So we’ve had to go out and build our own content delivery network to support this. We were able to do this through our partnership with Liquid, and that means we have a reliable CDN that all of our content is delivered on. We have a number of nodes across Africa – West Africa, East Africa, and in the south – those are three key points of presence that allow us to reliably deliver this content to our customers.”
The opportunity is made clearest by examples. Take Hutchison Global Communications. OTTs are providing an increasing share of the company’s business, says CEO Andrew Kwok.
At the end of 2015 there were 30 OTT providers on HGC’s network. By May 2017, there were over 70. Of those 70 or so, “more than half are from Asia,” says Kwok. “You can say around 60% on a revenue point of view are from Asia. The remaining are from the other parts of the world.”
“In 2015, based on revenue, 88% of my business came from traditional carrier business and only 12% was evolving business, including OTTs,” he recently told Capacity.
Just a year later, a year when the overall business had expanded, OTTs and the rest of the evolving sector increased its share to 19% while the rest of the business continued to expand.
Level 3’s McVicar concludes: “There will be a tsunami of data hitting consumer networks, with higher bit rates and different device types to support. Different variables that haven’t really existed on a fixed network architecture in the past.
“The key thing is the quality of service needs to be transparent and entirely consistent with the fixed architecture that we’ve experienced in the past. You’ve got all this flux, all this opportunity and all the technical challenges brought by such a seismic shift.”
