lorenzo pupillio presentation

The State of Telecom 2012 September 24, 2012 – Columbia University – New York

Lorenzo Maria Pupillo Gianfranco Ciccarella Telecom Italia Group

Financial implications in the OTTs-Telcos relation A win-win perspective

State of Telecom 2012

2

* It includes the cost for the LTE spectrum

Fonti: TI’s elaboration based on Forecasts of Investment Banks (Morgan Stanley, Hsbc, Citi, Credit Suisse, JP Morgan, Bernstein, Nomura, Barclays, Deutsche Bank) – Mar/Apr 2012.

Sustainability issue


Disconnect between source of revenue and sources of cost in the Internet today

3

Huge Investment for LTE and NGAN

AT Kearney (2011): If networks were upgraded to address the forecast capacity needs in 2014 (+35% p.a. fixed net; +100% p.a. mobile net) with no new price signals or increase in revenues, network operators would see their returns on capital decline by 3% to around 9% and potentially as low as 7%. (Below their cost of capital)

Arthur D. Little - BNP Paribas (2012): In Europe core Telco revenues will continue to decline by 1.8% p.a.until 2015 (including a CAGR – 2.4% in mobile and – 3.4% in fixed line; potentially offset by 5.8% in pay-tv.


IP Interconnection: peering & transit (1/3)

4

Concentration of Host/ Content in some Carriers who become Tier1 and sell IP Transit

1995: NSFNet closes down and gives ISP Tier1 a clear run Global Internet Traffic: 0,18 PB/month

Telco C

Telco E

Telco B

Telco A

Telco D

peering

transit

transit peering

Host/ Content

Host/ Content Tier1

Tier1 Host/Content

Host/Content

transit

€

€

€

Typical delivery is based on Best Effort



5

Telco/ Carrier

Telco/ Carrier

Telco B

Telco A

Telco D

peering

transit

transit peering

Host/ Content

Host/ Content

Host/Content

Host/Content

transit

Free riding !

2004: Google is listed in the S.E. Global Internet Traffic: 1477 PB/month

Growing importance of contents and Carriers/ Aggregators

Arrival of OTT/CP with steady concentration in big players (Google, Yahoo,...)

OTT

OTT

Best Effort - Big volume growth Performance improvement for selected traffic





6

Growth of CDN Providers for content global quality delivery (buffering, caching, web acceleration), and "Carriers" who deliver IP Transit (Level3, Global Crossing, Sparkle)

2010: Akamai’s revenues exceed 1B$ Global Internet Traffic: 20197 PB/m

Telco/ Carrier

Telco/ Carrier

Telco B

Telco A

Telco D

peering

transit

transit peering

Host/ Content

Host/ Content

Host/Content

Host/Content

transit

OTT

OTT CDN Node

CDN Node

CDN Node

Best Effort - Continuous volume growth CDN to improve delivery performance


Growing importance of contents and Carriers/ Aggregators Arrival of OTT/CP with steady concentration in big players (Google, Yahoo,...)


2004: Google is listed in the S.E. Global Internet Traffic: 1477 PB/month


IP interconnection: a sustainable model

WHO PAYS? A SUSTAINABLE TWO-SIDED MARKET MODEL

“Guaranteed delivery” Network

OTT

CP

ЄЄ Є

ADV ЄЄ

Access fee

QoS

Є

Source: Telecom Italia

Who owes who money. Players: end-users, network operators, OTTs.

Striving for a win-win solution

+ QoS à ▪ Expanded End-Users Market and improved QoE

▪ OTT/CP business increased

▪ Telco get additional revenues offering guaranteed delivery

▪ Traffic growth causes eco-system growth

No QoS à ▪ Limited End-Users Market

▪ No Telco compensation for OTT/CP Network use

▪ Traffic growth causes QoE degradation

▪ OTT/CP business narrowed by limited network growth


The value of QoS…

(*) conversion rate: ratio of visitors who convert casual content views or website visits into desired actions (e.g. product sale, info or SW download, surfing on a specific page…)

* seconds of delay

milliseconds of delay

Reduction in revenue per client

Less search on their web

8 (#) DSA: Dynamic Site Accelerator

Akamai 2010 Investor Summit

Improvement of performances with

Akamai’s DSA#


Sizing the QoS market

9

Source: TI’s Elaboration based on Forecasts from Cisco VNI 2011-2016 (worldwide)

Revenues are mainly from Advertising and Video on Demand

One can estimate that more than half of the overall traffic

can benefit from a Quality of Service Delivery (this percentage could grow)

Source: Ti’s Elaboration based on Forecasts from Cisco VNI 2011-2016 (worldwide)

In a differentiated delivery scenario, we think that Telcos could address 10-15% of the OTT turnover

- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

PB/M

onth

Voice over IP (VoIP)

Online gaming

Web, email, and data

Internet video

File sharing

CAGR 29%

10%

60%

10% 10%

5% 4% 1%

2012

Short form

Long form

Internet video to TV


Today’s demand for QoS

Licensed Caching & Fully

Licensed CDN

Only interconnection

10 Source: Akamai 2012


New Internet ecosystem

A win-win perspective by means of new commercial agreements END-TO-END QUALITY OF SERVICE ►  Improved Internet environment both for OTTs and End-Users ►  Better End-Users Market and improved perfomances ►  OTT/CP business increased ► Telcos get additional revenues offering guaranteed delivery

lorenzo pupillio presentation

Documents

ip transit level3

pbmonth state of telecom

isp tier1

europe core telco revenues

best effort state of

ip interconnection

perspective state of

global crossing