How the world of telecommunications has changed How the world of telecommunications has changed

How the world of telecommunications has changed

From the fixed phone rotary to Snapchat

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From entering numbers into a fixed phone rotary to Snapchat, the world of communication has been going through a real revolution.

Today, the digital native world communicates according to a social media model that employs a variety of terminals. This means that telephone calls are only one of a number of ways to communicate, while the immediate dissemination of information has become a priority.

As this revolution took place, OTT (over-the top) providers took off, and quickly rose to the same level as network operators (or ‘telcos’). OTTs are online platforms and applications such as Facebook and Skype, which often don’t have their own network infrastructure, but offer content and services to their users through the Internet, via broadband and ultrabroadband, getting around the complex limitations that regulate telcos.

Regulation – both in Europe and the U.S., albeit with some differences – has mostly been focusing on guaranteeing ‘neutral access’ to the Internet, by defining precise limitations every telco must comply with. Conversely, OTTs were able to develop their business worldwide without being hindered by similar constrictions, as it’s argued in Le regole del gioco: l’evoluzione dello scenario regolamentare [The Rules of the Game: evolution of the regulation scenario]

In short: any Internet operator can offer services to PC, tablet and smartphone owners. However, that hugely popular apps should not be regulated in similar ways as traditional phone companies are is deeply problematic, particularly when we consider that some operators come into contact with huge volumes of private data, and that there is no control over their future use on the customer’s part.

There is a need for in-depth and transparent assessment of the mechanisms that generate search engine results (objective criteria or advertisement? To what extent are customers aware of the difference between the two?), into how social media algorithms work and into the risks presented by the growing power of a selected few operators worldwide, and the asymmetries this may produce.

The revolutionary character of this new scenario pushes us to reconsider the traditional definition of an ‘electronic communication service’ – based on purely transferring information across a network – in favour of a broader concept: a ‘digital communication service’, whose qualifying element is to ‘provide remote services’, and which should be uniformly regulated, across all operators offering services and applications to an end-customer, including those that physically transport the information.

Not only that: regulation should foster principles of transparency, freedom, safety and privacy, making sure that online platforms are not arbitrarily conditioning content dissemination, that users have full access to all their information and content providers directly reach their end-clients.

This would mark an important step forward towards the urgent goal of bringing all operators onto an equal footing, with equal conditions despite their differences – given they all do, after all provide digital communication services. The differences between telcos and OTTs however, remain substantial, under a variety of perspectives, starting from their business model.

Telco VS OTT: business models

Telcos are, (among other things) infrastructure companies, to which they owe many of the characteristic aspects of their business model: local markets, high capital intensity, and priority value attributed to reliability, service quality, safety and customer care. Telcos must comply with precise standards of universal service; boundaries aimed at promoting competition among operators in possession of diverse systems of infrastructure.

Conversely, the success of OTTs relies on the connectivity offered by these networks, which means that their business models are very different from telcos’. Often, OTTs start off by profiling their clients and making revenue through advertisement: that’s why a key initial step in starting up an OTT is to attract millions of users quickly, by offering free services and applications, after which many OTTs offer a ‘freemium’ package (users only pay for extra services) or are sold off to other companies that heavily rely on customer profiling (Facebook’s acquisition of WhatsApp is a good example).

In terms of market dynamics, OTTs teach us that small qualitative differences in terms of offer can easily push a customer towards the top performing service, effectively instituting a monopoly that does not allow room for numbers 2s.

Telco & OTT: frenemies

While on the one hand, the rising popularity of OTT operators has triggered a reduction in the prices and volume of paid services, which could make companies less keen to invest in ultrabroadband or 4G; on the other, online platforms and successful apps are the very reasons why customers are craving ultrabroadband or the quickest mobile network possible. Telcos have also picked up some valuable business advice from the OTT model, leading them to develop an OTN (over-the-network) range of services. While OTTs operate on a global scale, OTNs benefit from telcos’ distinctive qualities: local scale, service quality, safety, reliability and direct contact with the customer. Typically, OTN services are devised to ensure top-notch quality by maximising the use of a telco’s network and its IT resources on a local level, whereas OTT apps are designed to be used across the global Internet.

A classic case study is the way users access video content, either by downloading it for free from a remote website, or by paying to watch it live and in high-definition. In the first instance, the user – a teenager, for instance – has no particular need of a high quality service (it is unlikely that they will contact a customer care service should they encounter any issues…) and probably won’t care much about safety.

The notion of live streaming works in the very opposite way: high quality of service is essential, because the user is accessing content live, and in high-definition. Customer service is just as important, as it is crucial that any streaming issues are resolved quickly; whilst safety makes a difference for the company that holds the rights to that particular live show, and who wishes to avoid the dissemination of pirate copies.

OTN platforms can thus make good use of telcos as platforms, engaging their specific characteristics in order to offer packages that build customer loyalty, are locally based and  of high-quality. This could represent a new leading path into the future of comms, for infrastructure-based operators – not only in the entertainment world, that’s undergoing a process of globalisation, but in other sectors that are rapidly expanding, such as ‘smart’ cities and transport, the health care system, industry 4.0.

Furthermore, the performance requirements needed to operate some OTT services, such as extremely hi-res video or real time remote controlling, are quickly increasing. OTTs often have to turn to the infrastructures and delivery services of Telco's when the global Internet can’t provide the performances they need. This aspect is of paramount importance in seeking a constructive relationship between OTTs and telcos. OTTs’ need to achieve high-quality performance presents an invaluable opportunity for telcos to turn their ultrabroadband and IP network investments into profit.

In this new context, it is evident that telcos and OTTs should cooperate according to a customer/supplier logic – or set partnership – in which telcos provide OTTs with customised network services tailored to their different needs, in terms of traffic and applications. These new models, called ‘two front markets’, enable telcos to make a revenue from both end-customers and OTTs – proportionally to the specific benefits each subject enjoys thanks to network use, and coherently with the regulations recently outlined with regards to the Open Internet.

From the digital life to the digital citizen

OTN platforms are not only useful for entertainment purposes. Key roles could be played by cloud-based services, digital work (industry 4.0, metering and digital public administration) in building the ‘digital citizen’ of the future: an evolution of the ‘digital life’ that we’ve already entered thanks to e-commerce, digital learning and healthcare, smart cities, houses and cars.

Applying the same principles to public administration would mean OTNs could play an even more central role in the foundation of the digital citizen: a citizen equipped with a digital identity, who is able to vote digitally and collects his healthcare information in a digital folder. Though suitable for use by the important players of the digital world, these items are inevitably tied to a local dimension. But if we want this new approach to services to succeed, we must evolve from conceiving each service as an individual element and begin to think of them as components of a larger whole – a platform.

From a network perspective a telco must necessarily find a way to streamline its over-the-net services into a transformative process that encompasses both its business model and the very structure of the network itself. On the one hand, the need to reduce costs and quickly provide a supply to the growing need of the market pushes the telco to simplify and automatize its network. On the other, new networks must provide different qualitative levels to match different types of traffic, and the requirements of each application (voice, data, video…).

Competition between telcos and OTTs should thus evolve towards a model of cooperation, in line with the new Open Internet regulation framework recently approved in Europe, and due to become effective in all member states by 2016.

Telecom Italia has undertaken a transparent partnership strategy, focusing at this stage on the main content operators. This partnership approach is aimed at all the suppliers of the Internet world, in line with ongoing trends that celebrate the role of telcos as technological enablers, as well as the validity of the new Network Services model.