The Network as a Profit Center

One of the most interesting profit opportunities of late has been backhaul and network sharing.

As with the traditional, wholesale voice model, optimizing profit from backhaul requires shrewd trading abilities in order to react quickly to dynamic market conditions and effectively broker deals that ensure that end-to-end performance can be guaranteed amid a multitude of complex partner agreements. The wholesale settlement system becomes of paramount importance: automated, accurate and adaptable. 

‘The payback for increasing backhaul capacity to meet user requirements and guarantee end-to-end performance is estimated to be approximately four dollars for every incremental dollar invested,” wrote Sue Rudd of Strategy Analytics back in July. It’s “a significant return on investment,” as she put it, for any carrier that’s prepared with the necessary systems and capacity to capture this profit opportunity, and an indication of the potential profits to be made from existing, and currently underutilized, fixed networks.

Making quality pay

Despite the forces that are driving margins down, new networks are drawing investment because of their attractive combination of capacity and quality. Unlike previous network upgrades and implementations for which quality could not be easily monetized, new 4G networks’ premium costs are justified by the ability they afford carriers to allocate user-specific bandwidth, making it possible to include and guarantee service quality levels as part of the service proposition—a real market differentiator.

LTE and its ilk offer new revenue opportunities for innovative carriers that can create and bill for quality-based offers such as guaranteed line speed and additional bandwidth bursts. SLA compliance will finally come of age, putting further pressure on the accuracy of quality measurement and billing systems to collect or collate quality statistics right when a service is delivered. In its 2013 research report “Evolutionary Trends in the Operations of CSP Networks,”  the consulting firm Accenture proclaimed that 80 percent of communications service providers “agree that the ability to manager service quality has become more important than ever before.”

Since earlier network technologies will coexist with 4G for the foreseeable future, carriers must address the new demands on infrastructure and their business support systems (BSS). In a multinetwork environment, operational and business functions will need to be continually aware of the physical access network in order to optimally align quality of service (QoS) with delivery and network capabilities; services may be routed through all-IP networks, virtual private networks (VPNs) or even competitors’ networks, either separately or in combination with each other. Support systems must be effectively “network independent,” analyzing traffic from all sources, as well as “network aware,” in the sense that they recognize the source network and process the traffic accordingly.

Money in machines?

For many carriers the return on investment (ROI) and the new revenue streams made available by expanding connectivity use cases through M2M applications are a welcome respite from the reality of competitive pressures and revenue declines in their traditional voice and data consumer markets. M2M and “the Internet of Things” have justifiably received ample media coverage as industries such as health, logistics, manufacturing, and energy—even governments—grapple with the opportunity to transform their businesses and unlock previously undiscovered value, cost savings and innovation.

Though carriers will play an integral role in enabling connectivity between machines, understanding how to best serve and monetize this developing opportunity will be critical. Traditional industrial applications such as security monitoring and remote meter reading have relied on fixed lines to monitor fixed assets, but as mobility becomes part of M2M, it adds a new dimension. Carriers may have a new market for older-generation networks as minute data points from sensors generate incremental revenue with minimal impact on their networks. Or they may choose to focus on developing high-value (but bandwidth-intensive) services like video security that can exploit their new networks’ capabilities. The strategic choices and possibilities arising from M2M are vast.

As with the encroachment of over-the-top (OTT) players into the telecommunications arena, carriers face the innovator’s dilemma: Are they blinded by their current ways of doing business and their focus on the needs of their traditional customer base? Or are they able to adopt new technology or business models that will meet this new and very different market’s unstated and hard-to-anticipate needs? Several carriers, recognizing that this opportunity represents a real diversification from their traditional business, are creating completely new units to explore and develop it, including Telefónica via its Telefónica Digital offshoot.


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