Center for Information and Communication Technologies
Technical University of Denmark
Value Chain and Business Model Analysis of ICT
Services in Context of Next Generation Network
Master Thesis
Ming Xie
(s041460)
Supervisor: Morten Falch
Lyngby Denmark
May 2008
“Prediction is very difficult, especially if it’s about the future”.
--- Nils Bohr
i
Acknowledgement
First of all, I would like to give my great acknowledgement to my project supervisor,
Morten Falch. Without his support, I can not finish this thesis.
Secondly, I appreciate my parents and all the family members. Your love and support
gave me the courage to overcome the difficulties in my life.
Finally, thank you for all my friends and people who had helped me.
ii
Abstract
The old telecom industry is featured as highly regulated and vertical integrated sector.
The value-adding activities were confined in a close value chain. ‘Walled garden’
model is the business model of traditional telecom service. Liberalization campaign
introduced competition which facilitated the vertical specification. The Internet
brought a radical change beyond what is thought as an ordinary technological
evolution. Internet enables the disruption of the old business model and brings the
‘public garden’ model.
The industry got consensus that next generation network is based on the IP technology.
One of the most important characteristics of NGN is the service plane separates from
the network transport plane. This fundamental change of the technology paradigm
profoundly impacts on the network architecture, the service provisioning environment,
the market structure, and the business model of ICT services.
Convergence is recently the most spectacular phenomenon in the ICT service market.
Still, some problems related to the convergence emerged. The deep-seated reason for
those unsustainable broadband services is the absence of a reasonable business model
or a pricing schema. Convergence challenged the existing regulation. Regulators have
to identify the potential control points in NGN and regulate them appropriately. The
backbone network infrastructures may be regulated as public utility. Competition is
encouraged in the access and service/content provisioning market.
The upward value shift happened. Consequently, all the stakeholders need to develop
their capabilities so as to seize the new opportunities. Indeed, NGN technology breaks
up the close value chain and gives the possibilities of joining the value-adding
activities to all market players including the potentials. An open and dynamic business
ecosystem for ICT services come into being. Multiple co-existing business models
rather than the one-size-fits-all model will be the status in future NGN market.
Telecom operators can still play an important role in the business models for the new
converged services at present. But they have the risk to degrade into bit pipe plumber
in NGN market if they do not build up their core competency for instance service
innovation and management capabilities.
The ‘gated garden’ business model could be promising for telecom operators. As
possible transformation directions, telecom operator may evolve into a service
provider, or an incubator manager.
iii
Keywords
Value Chain, Business Model, Next Generation Network (NGN), ICT services,
Telecommunication, Value Shift, Convergence, Telecommunication Transformation.
iv
List of Figures
Figure 2.1 the Generic Value Chain
Figure 2.2 the Value Network
Figure 2.3 General Formulation of SWOT
Figure 3.1 Layers of the Old Telecom Industry
Figure 3.2 Public Switched Telephone Network
Figure 3.3 Hierarchical Telephone Network
Figure 3.4 Value Chain of Old Telecom
Figure 4.1 Typical Representation of the NGN Architecture
Figure 4.2 Inter-connected Networks
Figure 4.3 Multi-services Based on Single Core Network
Figure 4.4Mobility and Data Rate Comparison of Main Wireless Access Technologies
Figure 4.5 Vertical service versus horizontal service implementations
Figure 4.6 the IMS Service Architecture (Simplified)
Figure 4.7 Determinative Factors of a successful new service
Figure 5.1 Convergence in the Value Chain
Figure 5.2 Sectors Involved in Convergence and Their Layers of the Value Chain
Figure 5.3 Today's Networks and Next Generation Networks
Figure 5.4 Market Share of TDC’s fixed voice and broadband services
Figure 6.1 Evolution of Telecommunication Service Value Chain
Figure 6.2 NGN Ecosystem
Figure 7.1 the Four Design Domains of Business Model
Figure 7.2 Telecom Market Segment
Figure 7.3 Three Business Models for Broadband Services
Figure 7.4 System Architecture of MBC Services
Figure 7.5 Typical Business Model of MBC Services
Figure 7.6 Typical Business Model of Triple Play Service
Figure 8.1 SWOT Matrix of Telecom Operator
v
List of Tables
Table 3.1 Layer model of the info-communication industry
Table 6.1 Telecoms R&D in 1999
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TABLE OF CONTENT
Acknowledgement .........................................................................................................ii
Abstract ........................................................................................................................ iii
Keywords ......................................................................................................................iv
List of Figures ................................................................................................................v
List of Tables.................................................................................................................vi
1 Introduction.............................................................................................................1
1.1 Background ..................................................................................................1
1.2 Two Keywords of This Project.....................................................................1
1.2.1 Information and Communication Technology Service ......................2
1.2.2 Next Generation Network ..................................................................2
1.3 Motives of This Project ................................................................................3
1.4 Problem Definition .......................................................................................3
1.5 Structure of This Thesis................................................................................4
2 Basic Theory and Methodology..............................................................................6
2.1 Value Chain Theory......................................................................................6
2.1.1 Value Chain........................................................................................6
2.1.2 Value Network ...................................................................................7
2.2 Disruptive Technology .................................................................................8
2.3 Business Model ............................................................................................8
2.4 SWOT Analysis Methodology ...................................................................10
3 Evolution of the Telecommunication Industry......................................................13
3.1 Layer Model of Traditional Telecom..........................................................13
3.2 Overview of Traditional Telecom...............................................................14
3.2.1 Circuit-switching..............................................................................14
3.2.2 Hierarchical Infrastructure ...............................................................15
3.2.3 Telecom Service Offerings...............................................................15
3.2.4 Operational and Support System .....................................................15
3.3 Market Environment and Regulation .........................................................16
3.4 Liberalization of Telecommunication Industry ..........................................17
3.5 Emergence of the Internet ..........................................................................18
3.5.1 Layer Model of Info-communication Industry ................................18
3.5.2 Impact from IP .................................................................................20
3.6 Vertical Specialization of Telecommunication Industry.............................20
3.7 Value Chain and Business Model of Traditional Telecom .........................21
3.7.1 Value Chain Analysis .......................................................................21
3.7.2 The Driving Force of Old Telecom Industry ...................................22
3.7.3 Business Model of Traditional Telecom ..........................................23
3.8 Summary ....................................................................................................23
4 Technology of Next Generation Network.............................................................25
4.1 Fundamental Technological Changes.........................................................25
4.2 The Architecture of Next Generation Network ..........................................26
4.3 The Cornerstone of Next Generation Backbone Network .........................28
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5
6
4.3.1 Internet Protocol (IP) Network ........................................................28
4.3.2 Multi-Protocol Label Switch (MPLS) .............................................30
4.3.3 Transition Path of Core Network .....................................................30
4.3.4 Summary ..........................................................................................31
4.4 Access Technologies in NGN.....................................................................32
4.4.1 Digital Subscriber Line (DSL) Technologies...................................32
4.4.2 FTTx ................................................................................................33
4.4.3 Cable TV and Digital Broadcasting .................................................33
4.4.4 Mobile Access Network...................................................................34
4.4.5 WLAN..............................................................................................35
4.4.6 WiMAX ...........................................................................................36
4.4.7 Personal Area Access Technologies.................................................38
4.4.8 Summary ..........................................................................................38
4.5 Signaling Protocols of NGN.......................................................................39
4.5.1 H.323................................................................................................40
4.5.2 SIP....................................................................................................40
4.5.3 Centralized Signaling solution.........................................................40
4.6 Service Provisioning in NGN.....................................................................41
4.6.1 Rudiment of Service Separation ......................................................41
4.6.2 NGN Service Environment ..............................................................41
4.6.3 Web services ....................................................................................41
4.7 IP Multimedia Subsystem...........................................................................42
4.8 Standardization ...........................................................................................44
4.8.1 Importance of Standards ..................................................................45
4.8.2 Benefits of Standardization..............................................................46
4.9 Migration to Next Generation Networks and Services ..............................46
Convergence .........................................................................................................48
5.1 Technology Convergence ...........................................................................50
5.1.1 Challenges on Existing Infrastructures ............................................50
5.1.2 Network Convergence .....................................................................51
5.1.3 End-user Terminal Convergence......................................................52
5.2 Service Convergence ..................................................................................53
5.2.1 Integrated Service Proposition.........................................................54
5.2.2 Fix-Mobile Convergence .................................................................56
5.2.3 Mobile-Broadcast Convergence.......................................................56
5.2.4 Service Delivery Platform................................................................57
5.2.5 Summary ..........................................................................................57
5.3 Market Convergence ..................................................................................58
5.4 Regulation Issues........................................................................................59
5.4.1 Challenges on Current Regulation ...................................................59
5.4.2 Control Points in NGN.....................................................................60
5.4.3 Discussion ........................................................................................62
5.4.4 Summary ..........................................................................................62
NGN Value Chain Analysis ..................................................................................63
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6.1
Main Value Chain Stakeholders in NGN....................................................63
6.1.1 Telecom Operator.............................................................................63
6.1.2 System Manufacturer .......................................................................65
6.1.3 Terrestrial Broadcaster/ Cable Operator ..........................................67
6.1.4 Software Vendor/System Integrator .................................................68
6.1.5 Content and Service provider...........................................................68
6.1.6 Service Aggregator...........................................................................70
6.2 Value Shift ..................................................................................................71
6.2.1 First Wave of Value Shift .................................................................71
6.2.2 Second Wave of Value Shift.............................................................72
6.3 NGN Ecosystem .........................................................................................72
6.3.1 Concept of Business Ecosystem ......................................................73
6.3.2 From Value Chain to Value Ecosystem............................................73
6.3.3 The Ecosystem of NGN Services ....................................................76
7 Business Model Analysis of ICT Services in NGN Market .................................79
7.1 Business Model Design ..............................................................................79
7.1.1 Service Design .................................................................................80
7.1.2 Technology Design ..........................................................................80
7.1.3 Organization Design ........................................................................80
7.1.4 Finance Design.................................................................................80
7.2 Market Segment .........................................................................................81
7.3 Value Proposition .......................................................................................82
7.3.1 Concept of Value Proposition ..........................................................82
7.3.2 Value Proposition in NGN Market...................................................82
7.4 Business Model Analysis............................................................................84
7.4.1 Business Model in Individual Segment ...........................................85
7.4.2 Business Model of Managed Network Service................................92
7.4.3 Summary ..........................................................................................93
8 Telecom Transformation .......................................................................................94
8.1 SWOT Analysis for Telecom Operator ......................................................94
8.2 Strategies for Telecom operator..................................................................96
9 Conclusion ............................................................................................................98
References:.................................................................................................................100
Acronyms...................................................................................................................104
Appendix....................................................................................................................107
Appendix 1: Main Standards of IEEE802.11 (Non-exhaustive)........................107
Appendix 2: WiMAX Forum Certification Profiles ..........................................108
Appendix 3: Evolution Path of Different Wireless Access Technologies..........110
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1 Introduction
1.1 Background
Since the 1870s Alexander Graham Bell invented telephone, telecommunication
industry has ever influenced human society deeply. People’s ability of communicating
and acquiring information has greatly been extended.
Telecommunication industry has experienced and now is still experiencing a
significant revolution which leads to intense changes of the market structure and
accelerates the emergence of new services. The liberalization campaign beginning
from the mid-1980s resulted in the first wave evolution of telecom industry. Then the
Internet rose and began to develop rapidly. Eventually, fundamental technology
developments brought forth disruptive applications which challenged the old business
models and existing regulations of this industry.
With the fast technology development, more advanced ICT services keep emerging.
The ICT services are changing people’s life style and the way of business operation.
More and more remarkably, ICT industry plays a pivotal role in globalization. It
brings people more close, provides ever-greater information access, and enables
business to operate more efficiently. The application of Information and
Communication Technology has given rise to a fundamental transformation of global
economy.
IP, optical transmission, broadband access technologies, and software technologies
together make up of the technical groundwork of Next Generation Network (NGN).
The paradigm of IP platform is completely different from circuit-switching which is
the base of Public Switching Telephone Network (PSTN). This radical change along
with other factors led to the occurrence of convergence across sectors. Market roles
especially the traditional network operators face both challenges and opportunities.
They need to re-consider their positions in the NGN ecosystem. In particular, the
business model issue to a large extent determines the perspective of ICT services in
the context of NGN.
1.2 Two Keywords of This Project
As two keywords of this thesis, ICT and NGN are both umbrella terms. This section
gives out basic definitions of these two keywords so as to confine the core study
scope of this project.
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1.2.1
CICT
Information and Communication Technology Service
ICT, meaning information and communication technology, is a combination of
information system, particularly software applications, and telecommunication
networks. ICT has permeated in many sectors. The information and communication
systems make up of the infrastructures supporting a lot of activities in modern society
and will play an important role for the development of our society in the future.
ICT service is an umbrella concept which covers a wide range of activities for
instance telecommunication services, broadcasting services, IT services and etc [1].
This report, in principle, involves telecommunications, broadcasting, software-based
value-added services, and the convergence of these services. ICT service could be
either simply VoIP or a complex combination 1 of information system and network
technology such as E-banking.
1.2.2
Next Generation Network
The other keyword of this paper is Next Generation Network (NGN) which is
characterized by the use of IP, software-based platforms for service delivery, and huge
capacity optical transmission system in the backbone [2]. These three technology
pillars profoundly changed the telecommunication industry.
NGN can be divided into Next Generation Core Network (NGCN) and Next
Generation Access Network (NGAN). The core network mainly performs traffic
routing and forwarding. The service control and application functions are clearly
separated from the transport plane. NGAN includes a wide range of access
technologies from xDSL, Wi-Fi to HFC, FTTx, and etc.
Fiber optics and other broadband technologies guarantee the bandwidth so that
multiple types of traffics – voice, data, and video – can be easily delivered through the
single core infrastructure and ubiquitous access networks. NGN discarded the
circuit-switching paradigm by packet-switching. IP-based NGN can provide a
universal platform to create and deliver new integrated services cheaply and rapidly.
In NGN, the service logics are separated from the network transport plane.
Standardized Application Programming Interfaces (APIs) are open to every
application developer. The community of application developers is enormously
enlarged, and the process of service innovation fundamentally changed. As a result,
the market roles in the traditional telecommunication and other industries including
broadcasting, computer, and media have to evolve their competences, adjust their
strategies in order to face to challenges and seize opportunities in the new
environment.
1
http://icttoolkit.infodev.org/en/Section.1509.html
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1.3 Motives of This Project
IP technology has ever thought as a disruptive technology by telecom operators. In
fact, telecom operators face a future full of opportunities and challenges, depending
on how they look on NGN technology.
This thesis is not a prophecy of the future of ICT services or NGN. It seeks concepts
and models through analysis based on durable principles and classical methodologies
to provide a deep understanding of the fundamental forces in presently so-called
telecommunication industry so as to enable stakeholders to craft their strategies for
tomorrow.
When researching the fast changing telecommunication industry and advanced ICT
services, many people are so focused on the trees of technological development that
fail to see the forest which is composed of market environment, regulation, business
model besides technology. Technology is only one part of a successful business design.
The advantages of new technology do not guarantee a market success. More
importantly, the underneath business model plays a big role in the success of ICT
service provisions. Business model in some sense is even a decisive factor concerning
the ultimate outcome of ICT services under NGN environment.
Underneath the technological changes, the close value chain of end-to-end service
provisioning was broken. Moreover the value-adding process and relationships
between value creators radically transformed. Market players facing with challenges
and opportunities need to adapt themselves to the new dynamic business ecosystem
and evolve together so as to offer customers the required ICT services.
In short, this project focuses on the evolution of telecommunication industry with
regard to technology changes, convergence, market environment, and business model
issue. Based on the analysis of industry changes before NGN and the introduction of
NGN technologies, convergence and the reshaping of value chain will be analyzed.
One objective of this project is to clarify the evolution trend of telecommunication
industry, especially the value shift direction.
1.4 Problem Definition
Telecommunication industry has ever experienced and is still experiencing profound
change. The driving forces of the transformation come from technology development,
progress of users’ requirements, changes of regulation, and etc. As one important
stakeholder within this industry, telecom operator is the main object to be analyzed in
this thesis with respect to issues about its core competency, value-adding activities, its
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position in the value chain, business model of the service offerings. Other key market
players, including cable operator, broadcaster, equipment manufacturer, system
integrator, value-added service provider, and etc. are also discussed in specific
scenarios.
The main part of this thesis commences with the review of the neoteric evolution of
telecommunication industry beginning from the 1980s. During this evolving process,
two events, telecom liberalization, and the emergence of Internet, happened, and the
technological regime and learning regime of telecommunication industry [7] deeply
changed. The main questions need to be answered in this part include:
●How the telecommunication industry was influenced and changed by the Internet?
●What did the liberalization campaign impact on the telecommunication industry?
●Have the business model of telecommunication service changed?
It is also meaningful to have an overview of the Next Generation Network technology
before delving into the study of ICT service value chain and business model. The
main components of NGN will be introduced. Moreover, they will be evaluated from
a market point of view. What are the key technologies in the context of NGN? How
will NGN technology influence the market structure and the value chain? How to
migrate to NGN?
As a hot topic, convergence will be emphatically studied in this project. After the
analysis of convergence from a technical point of view, the service convergence as a
conspicuous phenomenon nowadays will be study. What is the driving force in the
process of convergence? How does the convergence shape the value chain? What are
the regulatory implications of the introduction of NGN and ICT services? How did
those companies position themselves in the value chain? What are the new industrial
structures replacing the traditional telecommunication industry? What changes are
essential for market players, like telecom operators, to survive and prosper in the
volatile info-communications industry? What are the business models?
1.5 Structure of This Thesis
The main part of this thesis beginning from chapter 3 commences with reviewing of
the traditional telecommunication industry. In chapter 3, the layer model is used to
look through the main activities that telecom players involve in. The overview is from
four perspectives: technology, service offerings, market environment, and regulation.
Two important events, telecom liberalization and the Internet, are simply introduced.
Then the main question “How these two events impact telecom industry?” is
answered. And the value chain and business model of traditional telecom industry are
studied and summarized.
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Chapter 4 is the tutorial of NGN technologies. Firstly, the NGN architecture is
introduced, and the most important characteristic of NGN which definitely influences
the value network and business model of NGN services is pointed out. Both the core
network and various access network technologies are included in this chapter. As the
key components of NGN, IMS and the service provisioning environment are studied.
Also, the influence of technology standardization is also involved.
Chapter 5 is about the convergence. Technology convergence is the groundwork of
service convergence and market convergence. Service convergence is a main part of
this chapter. The main types of converged service in current the market are included.
Then several typical regulation issues related to convergence and NGN are discussed.
Chapter 6 is the NGN value chain analysis. Main stakeholders are analyzed firstly.
Then the two waves of value shift are clarified. Last part is the NGN ecosystem
analysis.
Chapter 7 is the business model analysis of ICT services. One business model design
framework is firstly introduced. The market is roughly segmented into three parts.
The value proposition of each segment is given out. By using the framework, typical
business models are described.
Chapter 8 simply involves telecom transformation. Telecom operator, as the research
objective, is analyzed in the NGN scenario. Then basic strategies for operator are
given out.
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2 Basic Theory and Methodology
In this chapter, theories and theoretical models used in this thesis to analyze the value
creation of telecom services, industry competition environment will be synoptically
described. This relatively brief summary of theories aims at helping understand the
change in the telecommunication sector.
2.1 Value Chain Theory
2.1.1
Value Chain
Figure 2.1 the Generic Value Chain 2
As the theoretical basis of this chapter, the concept, value chain, will be firstly
introduced. Michael Porter [4] puts forward that a value chain is made up of a chain
of activities. Figure 2.1 shows a most simple case where a product is produced within
one organization. The product gets some value at each activity along the chain. The
value-adding activities are categorized into primary activities and support activities as
figure 2.1 shows.
The value chain analysis describes those activities a business organization performs
and relates them to the company’s competitive position. In this paper, not all the
activities of the market players including telecom operators, equipment manufacturers,
software vendors, service or content providers, Internet service brand, and etc. are
discussed. Technology development, network operation, and service management
activities of the market players will be stressed in the value chain analysis.
Only if these activities are arranged in a systematic way, it will be possible to produce
2
By Michael E. Porter: “Competitive Advantage – Creating and Sustaining Superior Performance”, 1985;
Available at http://en.wikipedia.org/wiki/Value_chain
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something for which customers would like to pay a price. The ability to perform
specific activities and to manage the linkage amongst these activities determines the
competitive advantage. The organization’s margin depends on its ability to manage
the linkages between activities in the value chain. These linkages include flows of
information, goods and services, and processes for adjusting activities.
2.1.2
Value Network
In most industries, it is not common that a single organization performs all activities
shown in figure 2.1. The value chain concept can be extended beyond individual
organizations, like figure 2.2 showing, so as to make up an industry-wide value chain3
or value network. Organizations are elements of a value system. Therefore, the value
chain analysis should comprise the whole value system where the organization works.
Only a certain value of profit is available within the system. The structure of the value
system determines how this margin spreads across all players. Each player in this
system will use its market position to get a higher proportion of this profit. On the
other hand, members of the value system can cooperate to get a higher total profit
margin.
Figure 2.2 The Value Network (adapted from 4 )
The value chain theory will be used to analyze the value-adding activities of the
traditional telecommunication industry in chapter 3. The value networktheory, or the
industry-wide value chain theory will be used to analyze the value system of NGN
market players.
3
Industry-wide value chain can also be denoted as value network. And in this report, the term ‘value chain’ almost
means ‘value network’ because of the habit in this kind of analysis.
4
Ibid
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2.2 Disruptive Technology
According to Clayton Christensen [5], disruptive technology may originally have a
lower performance than the mainstream technology and target a different market
segment. However, Disruptive technology could eventually overturn the existing
dominant technology in the market. In detail, disruptive technology can only provide
low performance service or low quality product to satisfy those low end market
customers. The disruptive technology can surpass the mainstream technology after the
technology is further developed. As a result, the disruptive innovators are able to
compete with the incumbent in the same market segment. The other kind of disruption
is to serve a new market which does not exist before. In this case, the performance
characteristcs are different from that of the mainstream technology market. NGN
offers both kinds of the disruptive application as described above. On one hand, VoIP
erodes the core business of telecom operators. On the other hand, more innovative
applications, advanced ICT services, create new revenue opportunities.
Mainstream technology of the old telecommunication industry is the circuit-switched
technology which is groundwork of Public Switched Telephone Network (PSTN). At
the infant stage of IP-based communication services, there was no disruptive
application. And Christensen mentions that a disruptive technology should be based
on market possibilities rather than technological 5 . The QoS of VoIP was not good
enough at that time. The quality of service keeps plaguing the best practice6 VoIP
providers. So, it mainly targeted the low-end market segment or new market which
was not strict with the service quality but was sensitive to the price of service. At that
moment IP technology did not shake the dominant position of the Plain Old
Telephone Service (POTS) in the market. IP-based services such as VoIP were still
complementary to the mainstream circuit-switched voice service.
2.3 Business Model
The concept of business model was widely used to validate opportunities opened by
technology changes. It has been thought as the sought-after recipe to built successful
business taking advantage of new technologies. Business model to a large extent is an
enabler for the implementation of technical innovations. People from both academia
and industry have increasing interest in business model because of the Internet,
market convergence, and etc.
The term business model was brought forward during the boom of e-business in the
5
Tan Su-En: Ph.D Thesis: “Heterogeneous Networks and Services”, pp 3, CICT DTU, 2006
Best practice VoIP refers to the service which is provided over the public Internet rather than over the IP-based
private networks belonging to for instance cable operators or even telecom operators.
6
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mid 1990s. The definition of business model is wide in scope and sometimes
resembles business strategy and business plan. According to Paul Timmer [6], a
business model is the organization (or ‘architecture’) of product, service and
information flows, and the sources of revenues and benefits for suppliers and
customers. It describes the business players and their roles. More clearly, Paul
Timmer gave out the definition of business model to encompass 7 :
• An architecture for product, service and information flows, including a
description of the various business actors and their roles;
• A description of the potential benefits for the various business actors;
• A description of the sources of revenue.
The business model is a loose concept. However, it encompasses and correlates many
factors including the environment in which developments take place and the strategies
of market players 8 . Analyzing business model makes it clear to position different
market players in relation to one another in a complex industry environment.
Chesbrough and Rosenbloom 9 complemented the following aspects: articulating a
value proposition for the customers and identifying a market segment and,
furthermore, formulating a competitive strategy. By putting together these elements
from Timmer, Chesbrough, and Rosenbloom, we have a more comprehensive
description of the term “business model” 10 :
• Value proposition for the users and identification of market segments;
• Flows of products/services;
• Flows of information;
• Value creation, cost structure and profit potential;
• Position in the value chain/network.
Value proposition is to find out the latent product offer which is unique compared to
the available products on the market in the new technology. Could the new offering be
served at a lower price? Does it provide new functionality or superior capacity to
customers? Is it a modularized product?
Market segment is to identify the specific customer segment for which the new
service offering is useful. The next issue is the payment model including flat rate,
monthly subscription fee plus service fee, pre-paid, post-paid, and etc.
7
Wiley, Paul Timmers: “Electronic Commerce- Strategies and Models for Business-to-Business Trading”, 1999,
chapter 3
8
A. Henten, H. Olesen, D. Saugstrup, Su-En Tan: “Mobile Communications: Europe, Japan and South Korea in a
Comparative Perspective”, Volume 6. Number 3. 2004. pp 197, Emerald
9
H. Chesbrough, R. Rosenbloom: “The Role of the Business Model in Capturing Value from Innovation”, Harvard
Business School, Boston, 2000
10
A. Henten, H. Olesen, D. Saugstrup, Su-En Tan: “Mobile Communications: Europe, Japan and South Korea in a
Comparative Perspective”, Volume 6. Number 3. 2004. pp 198, Emerald
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Analyzing the cost structure and evaluating the profit potential of the product
offerings are important issues in the business model.
2.4 SWOT Analysis Methodology
SWOT which is an acronym for Strengths, Weaknesses, Opportunities, and Threats is
a general but extremely useful model for understanding the situations of an
organization. It provides a framework for positioning and directing a company,
evaluating competitors, strategic planning, and etc. Figure 2.3 presents the general
formulation of a SWOT analysis.
Figure 2.3 General Formulation of SWOT
SWOT is an assessment of both the internal factors - strengths, weaknesses - of the
organization and the external factors – opportunities, threats – posed by the
environment in which it operates. This methodology will be used to analyze the
situation of telecom operator in NGN environment (See section 8.1).
A SWOT analysis often begins with identifying the main competitors of the company.
Competitors could be in the same line of business as well as from related sectors.
Convergence and disruptive technology application as two important phenomena of
telecom industry bring unprecedented competition pressure. The new competitors
include cable operators, Internet service providers, value-added service providers and
etc.
• Strengths
A company’s strengths are the capabilities and resources which can be used to
develop competitive advantages. It is important for the analysis that the strengths as
well as weaknesses are realistically identified. Generally, strengths of a firm could be
the following:
◊ Good reputation and brand name
◊ Cost efficiency
◊ Innovation ability to differentiate the company from others
◊ Certain expertise knowledge for the business
• Weaknesses
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Weaknesses are the converse aspects to a company’s strengths. The activities which
the firm does not perform at all or perform badly are weaknesses. It is worth to
understand that the flip side of strength may become a weakness in some cases and
vice versa. For instance, the possession of ubiquitous network infrastructure of
incumbent operators is the most powerful weapon to compete against new entrants,
however, the mass of legacy systems becomes the barrier of deploying new systems
especially when disruptive technologies emerge. Weaknesses could be:
◊ Lack of access to some resource
◊ Weak brand name or poor reputation
◊ Lack of innovation ability
◊ Low efficiency of the internal operations
• Opportunities
After evaluating internal factors, opportunities coming from the external environment
are crucial issues for any organization because only the firms which look wider than
their present business have the possibilities to use new resources and gain competitive
advantages. Possible opportunities in telecom industry relates to the following
external factors:
◊ New technologies
◊ The change of regulation and policies
◊ Customers’ new demands
To some extent, it is difficult to sheerly distinguish between opportunities and threats.
New technologies, the change of regulation, and etc. all bring opportunities which can
also turn into threats if they are ignored or not treated correctly.
• Threats
Threats are pervasive in the volatile marketplace. It is vital for firms to recognize
potential threats so that they can evade risks and survive “climate change”. Threats
normally originate from:
◊ New competitors
◊ Substitute products
◊ The change of customers’ need, product obsolete
Traditional telecom operators have been tremendously challenged by various
competitors powered by disruptive technology and innovative business models.
As a high-tech featured industry, it is quite important for firms in telecom sector to
estimate the pace and nature of technological development before making their
decisions. High cost of new technologies conceals ventures and prevents companies
from entering the market. On the other hand, the market adoption of a new technology,
because of the economy of scale, affects the cost. The lower cost can be achieved
when the production volumes rise higher. The mature GSM technology 11 , as a good
11
According to Global mobile Suppliers Association’s report, the GSM family reached 2.844 billion subscriptions
11
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example, is now affordable in a lot of poor countries.
Regulation as an important aspect of the external environment can not be ignored
when companies evaluate the opportunities and threats in the market. In particular to
telecommunication industry, regulation can remarkably shape the competition and the
opportunities or threats firms possibly meet in a specific market. The degree to which
a certain issue, like vertical integration, is regulated determines whether it is an
opportunity or threat for a company.
This sub-section reviewed the straightforward method, SWOT, for business strategic
analysis. As such, it provides the background of the strategy analysis for telecom
operators in NGN environment in later chapters.
which equal to 86.6% of global mobile market by the end of 2007. (Source:
http://www.gsacom.com/gsm_3g/market_update.php4#GSM_3G_Market_Update )
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3 Evolution of the Telecommunication Industry
Martin Fransman [7] divided the evolution of the telecom industry into three stages as
Old Telecom, New Telecom and Info-communications Industry. Before the
info-communication arrival, telecom industry was featured as a regulated and vertical
integrated sector. The inception of Old Telecom discussed in this thesis is 1970s. The
demise of old telecom happened in the liberalization campaign which was launched
by many countries for different political-economic reasons in the mid-1980s.
The telecommunication industry never stopped changing in terms of technology,
service offerings, business model, and regulations. Digitalization and optical
transmission technologies enabled telecommunications a big leap. Fixed telephony
has been a kind of commodity service since the 1990s. Then, civilian mobile
communications took off in the late-1990s all over the world. The demand of
communication mobility was satisfied. The speed of mobile communication
development is miraculous in the industry history.
From a technical point of view, telecommunication industry has experienced the first
wave of technological changes including digitalization, computerization and
packet-based switching. On the basis of these fundamental changes, the industry also
experienced the booms of Internet and the rapid development of mobile
communication which are prelusions of the second wave of technological changes.
Then convergence and next generation network happened in succession. Paving the
way to the information society, the third wave of technical changes goes beyond the
telecommunication industry and combines the information technologies to implement
synthetic ICT services.
This chapter primarily traces the evolution of telecommunication industry. It reviews
the evolving process of telecommunication industry from different points of view
including technology, regulation, market environments, and etc. It sets the scene for
the following chapters about further analysis of ICT services business model in the
context of NGN.
3.1 Layer Model of Traditional Telecom
The telecom industry by and large involves three layers 12 as shown in figure 3.1.
Layer 1 is the equipment layer including all the network elements, for instance
switches, transmission systems, and CPE. Manufacturers of these equipments may be
12
Fransman Martin: “Evolution of the Telecommunications Industry into the Internet Age”, University of
Edinburgh, 2000
13
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either an independent organization or a division of an incumbent telecom operator.
The network layer is the infrastructure for service provisioning. Telecom operators set
up, operate, and maintain circuit-switched telecom networks. Layer 3 shows the main
service offerings, for instance voice, fax, and enhanced services.
Figure 3.1 Layers of the Old Telecom Industry 13
3.2 Overview of Traditional Telecom
Telecommunication industry never stops changing since its birth. In the last several
decades, new technologies greatly enhanced the quality of service and offered more
convenient services to customers with the fast decline of price. These new
technologies, including optical transmission systems, packet-switched networks, the
mobile communication, and the Internet, permeated the industry.
3.2.1
Circuit-switching
In Old Telecom Industry, the network infrastructure was based on circuit-switched
technology. Circuit- switching involves setting up a dedicated end-to-end connection
between the two communicators. And this connection is exclusively occupied by the
two participants during the whole session. Circuit-switching can support real-time
transfer of voice signal with high quality that is critical for telephony service.
PSTN
Figure 3.2 Public Switched Telephone Network
Circuit-switch technology in which network resources are statically allocated to
communicating parties for the duration of the connection was dominant in telecom
networks. And it was well suitable for the transmission of voice calls. Comparing with
packet-switching which is particularly adapted for the transmission of data traffic
13
Ibid
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occurring in short burst, circuit-switching is not a cost-effective solution for data
communication and results in high cost.
3.2.2
Hierarchical Infrastructure
Public Switched Telephone Network is a hierarchical network, as Figure 3.3 shown,
which can be divided into access network connected by local central office switches,
metropolitan network consisting of higher-speed communication lines and tandem
switches, and national or international long-distance backbone network composed
of toll switches and optical transmission systems.
Figure 3.3 Hierarchical Telephone Network
The plain voice service was segmented as local calling and long-distance calling
charged by different tariffs.
3.2.3
Telecom Service Offerings
In the age of Old Telecom, the main services were voice, fax and some enhanced
services for example toll-free 800 services. The main revenue source for Old Telecom
operators was simply fixed Plain Old Telephone Services (POTS). This end-to-end
service requires a full set of network assets that were provided by the monolithic
monopoly operator within one country.
Voice services have existed since the birth of telecommunication industry. The
improvement of voice quality and the availability of long-distance telephony
represented the main advancement of telecom service during this period.
3.2.4
Operational and Support System
The Business & Operational Support System (BOSS) is the underlying resource for
any operator to manage and deliver its services. Generally, BOSS is composed of
network management system, billing & accounting system, customer relation
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management (CRM) system, service management system, and business intelligence
system.
BOSS is a relatively new concept. In the old telecom industry, only some primitive
supportive functions, for instance network management, billing and accounting
system, existed. These isolated systems were separately managed by different
divisions of the telecom company. Moreover, the supportive functions are service
specific so that homogeneous support systems for different services co-exist. This
situation was not a serious issue for operators in the non-competitive market
environment. But with the increasing comprehensive service portfolio, the CAPEX
and OPEX will raise steeply. And the linkages between divisions within one operator
are so complicated that its competitive advantage is impaired.
Management includes two categories, network management and service management.
Network management which involves monitoring and controlling network systems is
the main producing activity of Old Telecom operators. The knowledge and abilities of
network infrastructure operation are the core competences of operators. Traditional
telecom operators have rich experiences of network management, for example,
configuration management, fault management, and etc. On the other hand, most
telecom companies at that time did not have a vigorous function for service
management.
3.3 Market Environment and Regulation
Telecommunication industry was ever definitely considered as an example of ‘natural
monopoly’ which means telecom services can only be offered efficiently by monopoly
providers on account of the increasing returns to scale. In most countries, the PSTN
infrastructures ranging from local area to international level were owned by
incumbent telecom operators. It was not allowed by any others to deploy networks
and provide services.
The other feature of Old Telecom market is vertical integration [8]. The operators
deployed and operated network infrastructures which were made up of equipments
produced either by themselves or by a close supplier. One extreme case of this vertical
integration is AT&T which developed telecommunication architecture, developed and
manufactured equipments, operated PSTN, and offered telephone service until its
voluntary divestiture in 1990s. In other developed countries, such as the UK, and
Japan, there was a close, long-term, obligatory co-operative relationship between the
network operators and technology suppliers. This form of the economic organization
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between Layer 1 and Layer 2 is quasi-vertical integration 14 . Although the
stated-owned operators were not exposed to competition in their markets, they still
had to increase the quality and quantity of services.
As for the market in developing countries, more vigorous competitions existed in the
equipment layer. Those national telecom carriers procured equipments from several
specialist suppliers of industrialized nations who were locked into privileged
relationship with operators in their home countries.
The highly vertical integration of system manufacturing and network operation ended
up in 1980s. Much of the equipment production was divested from service operation
partly as a consequence of the liberalization of the telecom sector 15 .
3.4 Liberalization of Telecommunication Industry
Telecommunication industry has experienced liberalization since the mid-1980s. The
notion of telecom regulation changed largely. The widespread consensus of telecom
liberalization, opposite to natural monopoly idea, had come into being after the EU
members made terms to fully liberalize their telecom markets.
The liberalization opened the door for new entrants with new technologies. Telecom
operators reduced R&D expense and focused on customer relation management and
service provisioning. The knowledge base shifted further to equipment
manufactures 16 .
Those specialist technology suppliers which were formerly close to monopoly
operators in their home countries spun off and operated more independently so that
they can benefit from potential opportunities brought by new entrant operators.
However, many operators, especially those incumbents, maintained R&D department
mainly in software and service development in order to create a competitive edge
through provision of the most advanced and innovative services 17 .
The liberalization campaign led the demise of the Old Telecom Industry 18 which is
characterized as single circuit-switch based telephony service, state monopoly, and
close innovation system, and gave birth to the New Telecom Industry.
14
Fransman Martin: “Evolution of the Telecommunications Industry into the Internet Age”, pp 9, University of
Edinburgh, 2000
15
WDR discussion paper #0202 January 30, 2002, “Some Implications for Regulation of ICT and Media
Convergence” pp 15, by A. Henten, M. Falch, R. Tadayoni at CICT of DTU, LIRNET.NET.
16
Fransman Martin: “Evolution of the Telecommunications Industry into the Internet Age”, University of
Edinburgh, 2000
17
WDR discussion paper #0202 January 30, 2002, “Some Implications for Regulation of ICT and Media
Convergence” pp 15, by A. Henten, M. Falch, R. Tadayoni at CICT of DTU, LIRNET.NET.
18
Martin Fransman divided the evolution of telecom industry into three stages as Old Telecom, New Telecom and
Info-communications Industry in his book “Telecoms in the Internet Age, From Boom to Bust to…?”
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The new entrant operators have a competitive advantage stemming from the legacy
networks owned by the incumbents. They can begin with a clean board and only
deploy the latest technology so as to offer innovative services fast and efficiently
comparing with those lumpish rivals. But new entrant operators can not avoid the
differentiation dilemma 19 too because each of them buy technical solutions from those
common specialist suppliers.
In contrast to the Old telecom, the barriers to enter this market have been greatly
lowered in some market segments by the deregulation and the IP technology.
Consequently, a lot of new operators, either network-based or facilities-less service
providers, were able to enter the market, resulting that network capacity and service
offerings increased and prices fell. The most obvious effects of this falling fence
happened in the market segments of long-distance and international voice and date
services. Anyway, low barriers led intense competition in the information networking
arena resulting in falling revenue growth or even absolute revenue. And it is crucial
for market players to position themselves appropriately to reshape their core
competencies and to take the upcoming industry changes into account. Indeed, this is
exactly the difficulty that most incumbents had to face.
3.5 Emergence of the Internet
Comparing with circuit-switching, packet-switching is a completely different
paradigm which only occupies network resources in the duration of the meaningful
data transmission. Besides the efficient bandwidth usage, packer-switching network
has the capability to carry different types of services.
There have been many kinds of packet-switching technologies including X.25, ATM,
IP, and etc., designed to support different types of services. It is no doubt that IP is the
most important and dominant packet-switching technology which can interconnect
heterogeneous networks so that the Internet is called a “network of networks”. To
those market players, especially incumbent operators, IP brings a radical change
beyond what is thought as an ordinary technological evolution.
3.5.1
Layer Model of Info-communication Industry
Layer models which play a particularly important role have a long history in the
telecommunication and computer industry. In the same measure, the layer model 20
19
See section 6.1.1.1
This layer model is not completely comparable with the Open Systems Interconnection (OSI) reference model
standardized by ISO. This model is built to facilitate the analysis of industry vertical integration and specialization.
20
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introduced by Martin Fransman [7] helps to look through the evolution of
telecommunication industry.
LAYER
ACTIVITY
EXAMPLE
COMPANIES
VI
Consuming/Customers
-
V
Bloomberg,
Reuters,
AOL/
Applications Layer, including contents packaging
(e.g. web design, on-line information services, broadcasting Time
Warner,
services, etc)
MSN, News Corp,
etc
IV
Navigation & Middleware Layer
Yahoo, Netscape,
(e.g. browsers, portals, search engines, directory assistance,
etc
security, electronic payment, etc)
III
End-To-End Connectivity Layer
(e.g. internet access, web hosting)
IAPs and ISPs e.g.
Freeserve, etc
TCP/IP INTERFACE
II
AT&T, BT, NTT,
Network Layer
MCI WorldCom,
(e.g. optical fibre network, DSL local network, radio access
Qwest,
COLT,
network, Ethernet, frame relay, ISDN, ATM, etc)
Energis, etc
I
Equipment & Software Layer
Nortel,
Lucent,
(e.g. switches, transmission equipment, routers, servers, CPE,
Cisco, Nokia, etc
billing software, etc)
Table 3.1 Layer model of the info-communication industry21
Before the emergence of the Internet, the telecom industry only consisted of two
layers, referred as Equipment & Software Layer and Network Layer in table 3.1. With
the advent of IP, the industry was transformed into the Info-communication industry
which includes more layers above the IP interface.
Comparing with the Old telecom industry, the new layers includes Connectivity layer
(layer 3), Navigation & Middleware Layer (layer 4), Application & Content Layer
(layer 5) and Customer Layer (layer 6). The main activities and example companies of
each layer are listed in table 3.1.
21
Source: Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, pp 18, Oxford University
Press, 2002
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3.5.2
CICT
Impact from IP
The profound impact of IP brought two results. First, IP makes the communication
across diverse networks possible. The Internet is able to connect heterogeneous
networks. It works as the network of networks since its birth. Secondly, IP allows
other layers to be separated from the network layer and be independent from the
underlying hardware and software. This facilitates firms to specialize in modules or
sub-modules without being involved in the whole complex system. Furthermore, it
enables the organizationally separated operation of the information systems, which
paves the way for the birth of various relationships among different market players.
IP network provides an open platform of service developing. On the other hand, the
liberalization campaign gave the opportunity to new entrant operators who utilized
packet-switched network and services as edge tools to compete against giant
incumbents.
As a disruptive technology, IP must be regarded by incumbent operators although it
did not overthrow their regalities by the end of first wave of IP revolution which was
symbolized by the burst of the dot com bubble. If mainstream firms do not manage
disruptive technology properly, they will be in peril of failure in the future
competition. And new companies with disruptive innovations have the chance to grow
in size and surpass their former powerful rivals.
3.6 Vertical Specialization of Telecommunication Industry
The process of vertical specialization between layer 1 and layer 2 (figure 3.1) took
place in the age of New Telecom 22 . On account of intense competition and more
commercial pressures, monopoly incumbents decided to leave more and more R&D
roles to specialist suppliers.
On one hand, equipment manufacturers increased their capabilities of research during
the co-operation with operators’ central labs. On the other hand, monopoly operators
were enormously challenged in the liberalized telecommunication service market. The
commercial pressures made CEOs to be reluctant to allocate resources to basic and
long-term research because the benefits are uncertain and only bring accruement in
the future. As the former vice president of Bell Laboratories, Dr Jack A Morton,
argued:
“It is important to separate the R&D function in a centralized research laboratory so
22
According to Martin Fransman, the so-called New Telecoms Industry begins in the early-1990s, signified by the
rise of new new telecom operators such as WorldCom. For more references, see Martin Fransman: “Telecoms in
the Internet Age, From Boom to Bust to…?”, pp 43-54, Oxford University Press, 2002
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that the long-term and more fundamental focus of R&D could be protected from the
vicissitudes and demands of the businesses which had to concentrate more on the task
of meeting current market demands on the basis of current technologies. However,
R&D could become something of an ivory tower with R&D engineers in a separated
central research laboratory losing touch with the demands of businesses 23 .”
As a result, operators reduced their network equipment related R&D budget and
reformed their innovation activities so that they were more business-oriented.
The main reason that network operators left most of the R&D roles is the intensifying
competition in the service market. After the liberalization, former monopoly operators
had to face many new entrants so that the business performance rather than substantial
technology advantages became the first priority. Those research labs of the
incumbents were reorganized in order to be more responsive to the demands of the
business.
In conclusion, the liberalization opened the telecom service market and enabled new
operators to compete against the incumbents. In turn, competition accelerated the
vertical specialization and fostered a number of specialist suppliers which to a large
extent empowered new operators to rival the incumbents successfully.
3.7 Value Chain and Business Model of Traditional Telecom
3.7.1
Value Chain Analysis
As for telecommunication industry, the value chain structure for operators changed
along with the industry development.
Before the liberalization, the value-adding activities of telecommunication industry
can be summed up as the Vertical Value Chain (VCC) 24 that is basically a set of
linked value-creating activities occur within one organization, ranging from technical
R&D, equipment manufacture to network operation and service provisioning.
Stakeholders in the market are vertically integrated over two or there layers25 . The
value chain analysis can be by and large confined within one organization as the
original value chain concept proposed by Porter. Therefore, it becomes analyzing the
internal linkages and activities of a monopoly telecom operator to create and deliver
23
Jack A Morton: “Organizing for Innovation: A Systems Approach to Technical Management”, McGraw-Hill,
New York, 1971
24
Deng Zhiguang: “Benefit for All: A Techno-economic Study on the Mobile TV Value Chain and Business
Models”, pp66, Master Thesis, CICT, DTU, 2007
25
Here, the layer model refers to figure 3.1.
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valued services. Figure 3.3 illustrates the main value-adding roles of the old telecom
industry.
Figure 3.4 Value Chain of Old Telecom
In those big industrialized countries represented by the US, monopoly network
operators were vertically integrated or quasi-vertically integrated with equipment
manufacture. Technology architecture and elements were created and designed by labs
within operators, for instance famous Bell Lab of AT&T. Network equipments were
manufactured by either subsidiary division or affiliated companies of operators 26 .
Service innovations and software R&D were assigned inside telecom companies. And
the operators also monopolized the network infrastructure and service provisioning.
In developing countries such as China, state-owned network operators buy network
equipments from specialist suppliers. Generally, several equipment suppliers compete
each other in the market. Operators fully control the infrastructure operation and
service offering. In developing countries, operators generally did not have the
technology R&D function.
The operators’ ability to perform the above-mentioned activities and to gear them
each other determines their level of production. No matter the degree of vertical
integration, network operation division of operators plays the central role in the old
telecom industry. Service provisioning department was just a sub-division of network
operation because fixed voice service was highly integrated with the circuit-switching
network. At the same time, several advanced operators, for instance AT&T, NTT, and
BT, led the technology development. Initially, their laboratories researched, developed
and tested the prototypes of new technologies, and then handed over mass
manufacture to equipment suppliers. The innovation system was closed and of high
entry barriers.
3.7.2
The Driving Force of Old Telecom Industry
It was not market competition to drive the industry ahead before the liberalization.
The dynamics propelling the industry were mainly political incentives and pressures.
Firstly, cooperative competition between national systems boosted the introduction of
26
For detailed account of the relationship between network operators and equipment suppliers in big industrialized
countries, see Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, pp37-39, Oxford
University Press, 2002
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next generation technologies 27 . Secondly, telecom was considered as so important
facilities for industrialization that the national authorities required operators to
improve telecom services for both business and residential users.
After the telecoms deregulation, market competition stimulated the naissance of
different roles including suppliers, competitors, partners, customers which constitute a
value system as Figure 2.2 shown. Specifically, the value systems is made up of
specialist equipment and technology suppliers, incumbent operators, new network
operators and customers.
3.7.3
Business Model of Traditional Telecom
All in all, the origin of this operator-centric circumstance is the strict regulation in the
old telecom age. Only the operator had the opportunity to deploy network, improve
technologies and services.
By the mid-1990s, telecom service market was still a voice dominant market. The
circuit-switching network infrastructure underpinned the ‘walled-garden’ business
model. The fundamental technical paradigm of telecommunication restricted the
service innovation.
3.8 Summary
Traditionally, telecommunication industry featured as a highly regulated sector. Until
the 1980s, the telecommunication industry was highly vertical integrated. Telecom
operators ever involved the technology research and design a lot. Most of the
innovative technologies originated from the famous R&D labs belonging to those
leading operators, for instance AT&T’s Bell Laboratories.
The regulation and the close technology paradigm to a large extent determined the
business model of telecommunication service. As the telecommunication industry
developed into 1980s, the knowledge base shifted to equipment manufactures 28 . The
technology R&D activities became supportive more and more in network operators.
They reduced R&D expense and focused on customer relation management and
service provisioning. Operators became a kind of more service-oriented business
organization which emphasizes service provisioning and marketing aspects.
With the advent of Internet, telecommunication industry is experiencing unparalleled
27
Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, pp40, Oxford University Press,
2002
28
Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, Oxford University Press, 2002
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changes which are blurring the traditional industry boundaries. Internet which is based
on IP technology has highly impacted this industry since it emerged in the mid-1990s
as a mass phenomenon. IP technology has torn down the technical entry barriers of
the telecommunication market which protected those incumbent operators in the past.
Internet enables a lot of disruptive application such as VoIP, and peer to peer
application. The biggest challenge for operator is the risk to become pipeline operator
in the future. IP technology has ever been thought as a devastating technology by
most of the telecom operators because it breaks down their ‘walled garden’ business
model, lowers the threshold of the market entrance, and increases their operational
costs without too much return. On the other hand, some people saw the opportunities
created by IP although Internet led the whole industry into a severe bust around 2001.
It is admitted that the openness of IP technology can create infinite possibilities to
invent and develop omnifarious services which satisfy people’s endless needs. With
the onslaught of IP technology, the Internet has the alleged potential to change the
established value chains of telecommunication.
In conclusion, the Internet and the consensus of de-regulating telecom industry have
deeply impacted telecommunication industry. However, the groundwork of the close
value chain and ‘walled garden’ business model were not broken up by that moment.
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4 Technology of Next Generation Network
ITU defines NGN as: “a packet-based network able to provide telecommunication
services and able to make use of multiple broadband, QoS-enabled transport
technologies and in which service-related functions are independent from underlying
transport related technologies. It enables unfettered access for users to networks and
to competing service providers and/or services of their choice. It supports generalized
mobility which will allow consistent and ubiquitous provision of services to users.” [9]
The definition of NGN from ITU emphasizes the separation of network and service
layers, which is a main feature of IP platforms.
NGN technology is an umbrella concept which includes technologies from physical
layer to application layer. The technical tutorial part of this thesis is not exhaustive
because NGN includes a broad range of technologies. Instead, only those
underpinning components which influence the value proposition and players’
interaction in the ecosystem are included, for instance IP/MPLS, IMS, SIP, Web
service and several standards in the NGN service environment such as JAIN, Parlay.
The industry consensus is that Next Generation Network (NGN) will be composed of
a single IP core network and Generic Access Network enabling ubiquitous access and
seamless mobility.
These technologies provide industry players with the value creation platform. They
are crucial for players to coin their core competences. And these components are to
some extent new business model enablers. In addition, the study of NGN technology
can also help regulators to identify the potential control points in NGN environment.
The aim of this chapter is to give out the technology foundation for the following
chapters.
4.1 Fundamental Technological Changes
Two most important technological changes during the last four decades which
massively revolutionized the communication landscape and laid a foundation for the
forthcoming NGN and convergence are digitalization and computerization.
Digitalization [10] is up to now the most fundamental precondition for any other
technological changes. As a result of digitalization, the development of compression
[11], modulation [12] and Forward Error Correction [13] technologies reduces the
bandwidth requirement of services and enhances the quality of service. The
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integration of different services in the same network and the synergy of service
production, distribution and consumption, for instance the convergence between
telecommunication and broadcast sectors, are both based on digitalization. This
radical technological change also makes it possible to create and develop new services,
like TV on the Internet, beyond the scope of telecom sector. From an economical
point of view, digitalization expands the value of both network resources and content.
The capacity in telecommunication network can be used to transport any kinds of data.
And the content from broadcast sector can be easily reused in the Internet. Anyway,
digitalization gives the possibility that telecom operators make money through
economy of scope.
Computerization is another technological development in telecommunication industry.
It happened on both the service production, consumption side and on the network
infrastructure side. More and more traffics in the telecom network originate from
customers’ computers. Service terminals have more intelligence and processing power
than ever. The Business and Operational Support Systems (BOSS) as a back stage
platform of operators are dependent more and more on advanced computer
technologies like Data Base (DB) and middleware. The network management systems
are also based on complex software implementation. It has had crucial impact on the
effective maintenance and operation of networks. As for the network infrastructure,
increasing numbers of key functionalities, for example the switching logic, are carried
out to a large extent by software. Computer technologies underpin the control and
intelligent parts of network especially in the NGN. Computer technologies have
deeply diffused in the telecom sector.
4.2 The Architecture of Next Generation Network
Next Generation Network is a concept rather than a specific technology. It represents
a range of different technologies, including both Next Generation Core Network
(NGCN) technology and Next Generation Access Network (NGAN) technology.
NGN is composed of several functional planes. As figure 4.1 shows, typical NGN
architecture is divided into access, transport, control, and service planes. Layers are
independent from each other so that they can be upgraded irrespective of other
functional planes. To connect to other operators’ networks or integrate with 3rd parties
applications, each functional plane provides open interfaces. Most importantly, NGN
can provide multiple services by one network. Comparing with the legacy networks,
like PSTN, it is efficient for operators to run their business and develop new services.
On the other hand, users are enabled to enjoy the seamless services by this converged
network solution.
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Figure 4.1 Typical Representation of the NGN Architecture 29
The access plane provides the access methods by different technologies including
wireless and wire-line. Circuit-switched and packet-switched, for instance ADSL,
technologies co-exist at present. Typical access networks may be copper loops, GSM,
UTRAN provided by telecom operators, and cable TV networks provided by
broadcasters. Access plane is responsible for the connection between the transport
network and end-user.
The transport plane handles traffic flows, for example traffic routing and movement
across the network. One key characteristic of NGN is the traffic separation from
service and control planes, enabling service interoperability and seamless access to
multimedia content regardless of access network and device. IP/MPLS technologies
underpin the next generation backbone networks whose links are mainly based on
fiber-optic media. To connect with legacy networks, e.g. PSTN, PLMN, and etc,
gateways are needed at the edge of NGCN.
Service control and network control are both handled by the control plane. NGN
designers separate the control logic from the transport and switching hardware so the
network resource provisioning for specific application is decided by this control plane.
And communication session functions, e.g. voice calls set-up, and subscriber-related
information are also handled by the control plane. The control plane facilitates the
convergence of former divided technology stovepipes.
The service plane supports service orchestration and application logic. Elementary
service functions, for instance creating tunnels in or across networks, providing a
29
Source: Devoteam Siticom, http://www.devoteam.com/
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Virtual Home Environment [14], collecting information about the user’s use of
network resources, and etc, are offered in service plane. These elementary functions
can be used to implement more comprehensive services. The service plane also
provides interfaces for accessing the underlying infrastructures in forms of either
API 30 or open standardized interface 31 which enable the unbundling of services and
underlying networks.
The most remarkable character of NGN is the separation between service 32 and the
transport plane. The NGN standard definitely separates the control and service
functionalities from the network transport plane. Actually, Intelligent Network (IN),
originated from U.S. in the 1980s, as the rudiment of the idea of separating services
from the network infrastructures, had introduced the basic idea of providing
standardized and modular ways of creating services irrespective of the underlying
network. It facilitates the opening up service provision to 3rd parties and strengthens
the market for content and other services. It made telecommunication operators aware
the business opportunities in providing their infrastructures for content or value-added
service providers. But these IN capabilities are mainly utilized internally by telecom
operators by now.
As already described, the implementation of the NGN architecture is a job of fitting
together components on various functional layers. The following sub-sections explore
those key technology components which could, either by themselves or in company
with other components, affect the competition ability of each stakeholder in the next
generation market.
4.3 The Cornerstone of Next Generation Backbone Network
The PSTN, mobile networks, cable TV networks and some data communication
networks use dedicated core and aggregation networks as figure 5.3 (see section 5.1.2)
shows. In the transition to NGN, the core network will be converged into one single
infrastructure. It is also a consensus that IP will be used to establish the Next
Generation Core Network (NGCN).
4.3.1
Internet Protocol (IP) Network
Service-specific networks are inflexible in terms of service delivery and are costly to
maintain. In parallel, increasing number of new access technologies and devices
stimulate the needs for service interoperability. All these appeal for a single IP-based
30
API: for service specific software running on servers within the network.
Open standardized interface: interfaces between the network and application servers.
32
Within telecom terminology, “service” and “application” are not strictly distinguished. In this thesis,
“application” refers to a software application running on a server. This application could support one or several
services.
31
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infrastructure.
The IP layer concerns with the transfer of packets between machines connecting to
different networks. It provides best-effort connectionless packet transfer service. As
an open interconnection technology, Internet Protocol 33 (IP) [16] enables
communications across heterogeneous networks including legacy systems based on
various technologies. IP is a technology based on the concept that different networks
co-exist and inter-work effectively. In this sense it is a layer that creates a network to
interconnect multiple dissimilar networks, showing as figure 4.2. IP offers ubiquitous
connectivity and economies of scale resulting from wide deployment.
Figure 4.2 Inter-connected Networks 34
Although IP networks have shown their abilities of robustness in the failure scenario
and ubiquitous connectivity, it is not enough for a carrier-class network. The
challenge of an IP network for telecom service provisioning is more than building a
network that functions. Furthermore, it requires a network with capabilities which
make it possible to manage, operate and extend it. Carrier-class abilities mainly
include the following abilities: scalability, reliability, manageability, service
measurability and security.
To provide the multi-service, multi-user, carrier-class services by IP, it is a
prerequisite to improve the original architecture so that it can support real-time packet
delivery, differentiated service classes, scalable network capacity. To cope with the
high rate of growth is another big challenge IP network operators are facing to.
Estimated growth rate of individual ISP ranges from doubling to ten times every year.
BT’s UK Internet infrastructure has consistently experienced a 400% per year growth
in terms of bandwidth and customers since its launch in 1994 35 . It is obvious that
scaling and management abilities are the key features of a carrier-class IP network and
directly determine the business performance of telecom service providers. These
33
Internet Protocol (IP) is a suite of protocols on which the Internet and most of the commercial networks run. It is
generally referred to as the TCP/IP protocol suite.
34
Cited from: Alberto Leon-Garcia, Indra Widjaja: “Communication Networks – Fundamental Concepts and Key
Architectures, 1st edition
35
P J Willis:“The Challenges in Building a Carrier-Scale IP network”, BT Technol J Vol 18, No. 3, July 2000
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technical challenges to contemporary networks can be solved by MPLS technology as
introduced in the following section.
4.3.2
Multi-Protocol Label Switch (MPLS)
The convergence of voice, data, and multimedia services is expected to be based on
single IP-based network. MPLS has been recognized as a crucial technology which
offers new capabilities for large-scale carrier-class IP networks.
The challenges of carrier-class IP network come from the service performance
measurability. As the core infrastructure of NGN, it is a must to implement traffic
engineering [17] which is the ability to manage where the traffic flows and reserve
resources along the path to guarantee specific quality of service. The commercial
counterpoint to service measurability is Service Level Agreement (SLA) which
formally defines the service itself, levels of availability, performance measurement,
various attributes of service, disaster recovery, and even penalties in case of SLA
violation. MPLS has the capability of providing traffic engineering to packet-switched
network which ensures the efficient utilization of resources and Quality of Service in
IP-based infrastructure.
4.3.3
Transition Path of Core Network
Most of the telecom operators own both PSTN and IP networks as their core
infrastructures. So the transition path which enables change and growth without
abrupt asset obsolescence of the core networks is a decisive issue influencing
operators’, especially those incumbents’, competitive power and strategy.
The PSTN provides telephone services with guaranteed QoS and enhanced services
supported by Intelligent Network (IN) technologies. Meanwhile, telecom carriers also
built packet-switching data networks, relying on different technologies for instance
ATM, IP, and Frame Relay. Currently, operators deliver different services by using
different technologies and networks, resulting high costs and inflexibilities. However,
migration to NGN requires substantive investment covering network upgrades, labor
training, organizational changes, and etc. Some PSTNs operate very well and provide
excellent voice quality. Therefore, it will be a gradual migration period during which
circuit-switching and packet-switching technology will co-exist. There are two
strategies to deal with the network migration. Operators could choose to replace the
PSTN network equipments in the core to increase the capacity or at the edge of the
network to offer advanced services. In this case, the legacy access network does not
need to be changed. Operators continue to make money from existing access
resources while enjoying the higher efficiency gained from the upgrades of core
30
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networks. The second strategy is to integrate the NGN with current technologies.
Networks are interconnected by various gateways. Telephone service is still based on
PSTN. After the IP-based network finally becomes capable of providing guaranteed
QoS, all traffics will be diverted to the packet-switching NGCN.
4.3.4
Summary
Service-specific networks disabled old telecom operators from delivering innovative
services fast and efficiently. And it is costly to operate several core networks for
various access networks. Comparing with current dedicated voice, TV/radio networks,
NGN is an IP-based infrastructure with a single IP/MPLS core network to carry
various kinds of services. As figure 4.3 shown, the next generation core network
embraces legacy systems by means of gateways. The single core network reduces the
operation and maintenance costs. IP/MPLS provides a high-capacity and reliable
transport pipeline, irrespective of the packets carrying different services. It presents
the main characteristic of NGN that service plane is completely separated from the
transport network. Consequently, new business relationship between infrastructure
operators and service providers will be possible. The openness of IP platform lowers
the barriers so that even small developers and innovators can enter the market. This
open platform enables more intelligence to contribute to value-added application
development. On the other hand, service and technology interoperability requires
single IP-based network infrastructure because new access technologies and services
emerge continuously.
Figure 4.3 Multi-services Based on Single Core Network 36
Next generation network will exist as an incubator for ICT service innovation rather
than a service-dedicated network. On one hand, it still provides traditional
communication functionalities. Meanwhile, NGN offers an environment for constant
application innovations. As a result, an ecosystem of ICT service, loose networks
36
Source: IBM Institute for Business Value: “Services over IP – Delivering New Value Through Next-generation
Networks”, pp5, USA, 2005
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composed by network operators, 3rd party developers, service providers, system
integrators, and etc. comes into being.
IP also changed the innovation system of the telecommunication industry. It provides
an open innovation platform that can be used by anyone who has the common
knowledge of protocols, software languages, and etc. The big innovator base results in
faster rate of innovation than ever. And the innovations could be concurrent with real
operation because of the robustness packet-switching technology supports. These
characteristics lead to a volatile service market so that new core competency rather
than network Operation and Management (OAM) will be imperative for the business
success of telecom operators in the future.
4.4 Access Technologies in NGN
Access network technologies are normally referred as technologies which provide
connectivity between the subscriber and the immediate transport infrastructure. The
development of access technologies is an important driver for the development of
NGN and will impact the development of broadband services and content 37 . The Next
Generation Access technologies are characterized by the IP connectivity and
broadband. Next Generation Access Network (NGAN) includes both fixed and
wireless infrastructures. It is also featured as 'always on' provision model, and flat rate
business model 38 .
4.4.1
Digital Subscriber Line (DSL) Technologies
DSL technologies [18] represent a family of modulation techniques which utilize new
frequency spectrum on the copper lines to provide packet-based broadband services.
DSL enables network operators, in particular those incumbents, to exploit the existing
copper-based access networks. Broadband access service has become the most
important growth pole for fixed network operators. DSL is the incumbent’s first
choice to offer broadband service due to the minimum cost.
Along with DSL deployment, Local Loop Unbundling (LLU) [19] emerged as a
significant issue for competition in local access market. The LLU process makes the
local loop to be equally available for both the incumbent and its competitors.
The following introduces the main DSL technologies non-exhaustively. ADSL is one
of the most common broadband access methods for residential customers provided by
37
DevoTeam Siticom: “Regulatory Implications of the Introduction of Next Generation Networks and Other New
Developments in Electronic Communications (Final v1.0)”, 2003, pp17
38
http://icttoolkit.infodev.org/en/Section.1773.html accessed on February 20, 2008
32
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network operators. ADSL2 provides higher bandwidth and QoS capability. VDSL 39
supports 52Mbps bandwidth which is capable of triple-play 40 provisioning within
1.3Km coverage distance over a single twisted pair of copper wires. The major
limitation of DSL is the bandwidth decreases when the distance between the end-user
and the operator’s equipment increases. Some upgraded solution such as RE-ADSL2
has been designed to extend the coverage so that operators can exploit the potential
market. Anyway, the level of broadband service offered by DSL technologies is quite
dependent on the topology of existing copper access networks.
4.4.2
FTTx
Optic fiber infrastructures can be deployed in different architectures which are
denoted by FTTx. According to the position of optical signal termination, possible
solutions include Fiber-To-The-Home (FTTH), Fiber-To-The-Curb (FTTC),
Fiber-To-The- Area (FTTA), and etc. The advantages of optical access technology are
high capacity on the level of Gbps and long distance of around 10 km from the central
points. These make FTTx to be a future-proof access solution supporting
high-bandwidth real-time multimedia services and service convergence. The
broadband products transferred through optical access method are incomparable with
the traditional broadband in respect of QoS and customer experience. However, the
costs of deploying optical access infrastructures are relatively high although FTTx
dominates in capacity/price. Recently, FTTH is becoming more viable because of the
decreasing costs of optic fiber and terminal equipment, market liberalization, and the
prospect of triple-play. [20]
4.4.3
Cable TV and Digital Broadcasting
Cable TV distribution network used to broadcast television services is another wide
deployed access network. These networks have the potential to provide digital TV,
two-way broadband Internet access and telephony services. Due to the wide network
coverage across countries, Cable network has been thought as the main competitive
solution to DSL access. The basic method to carry Internet service is to allocate a
number of 8MHz channels to broadband traffics. Generally, cable operators also need
to upgrade their networks to implement triple/multi-play services. One weakness of
cable TV network related to broadband is its topology that a number of users share the
capacity in a network segment. A troublesome problem is that existing networks are
not standardized. It is very difficult to open the cable networks to third parties for
competition. More and more cable operators by triple-play invaded the telephone and
broadband access markets traditionally dominated by telecom operators.
Digitalization also influenced the broadcasting sector. A set of standards aiming to
39
40
http://icttoolkit.infodev.org/en/Section.1925.html accessed on February 20, 2008
http://en.wikipedia.org/wiki/Triple_play_%28telecommunications%29 accessed on February 20, 2008
33
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distribute digital signals in a specific way have been put forward. These digital
broadcasting standards including European DAB&DVB, US ATSC, and Japanese
ISDB have created capabilities for data services either stand-alone or program-related
data services. Different standards apply to different infrastructures such as cable,
terrestrial, and satellite (For instance: DVB-C, DVB-T, and DVB-S). The benefits
brought by digital signal for users are higher picture quality, more programs and
services on a given set of frequencies, and interactive services. Digital broadcasting
infrastructure provides a platform of converging services which were separately
offered by telecommunication, computer, and broadcast sectors. As an efficient
solution, digital terrestrial broadcasting is combined with cellular network to provide
mobile TV service. On the other hand, IPTV, TV distributed by the IP-based platform,
competes against broadcasting service offerings. Anyway, technology development
and convergence call for new business models to streamline the process of new
service delivery.
4.4.4
Mobile Access Network
Mobile access technologies are to some extent substitute for fixed access network.
The Fixed-Mobile Substitution (FMS) has happened in the voice service market.
Many new users choose mobile rather than fixed. In EU, about 12% 41 of the
households are ‘mobile only’. And this figure has reached 29% 42 in Finland. Existing
fixed users are making more call through mobile phone and cancel their fixed lines.
Cellular technologies have greatly succeeded in the civilian mobile communication
domain. The GSM standard with the same focus of PSTN for voice service based on
circuit-switching technology added the new functionality of radio access and of
mobility. As the first step towards packet-based mobile network, GPRS enables the
‘always on’ packet-based connection for data services. Further evolutions towards
mobile broadband access are summarized as 3G technologies mainly having three
terrestrial air interface standards recognized by ITU: W-CDMA, CDMA2000, and
TD-SCDMA 43 . 3G includes new frequency bands and on the other hand deploys more
efficient technologies to increase the spectral efficiency comparing with 2G.
The widely deployed 3G technologies by now are W-CDMA and CDMA2000. 3G in
Europe did not succeed as people ever expected. After the crazy license auctions,
operators confronted the lack of profitable applications, the bad throughout
performance on the air interface, and serious financial crisis. Primarily, an appropriate
business model was missing while operators had overconfidence about the
value-added services supported by 3G. Meanwhile, NTT DoCoMo created an
41
This information is gained at http://www.ovum.com/go/content/c,42832 on April 17, 2008
Ibid
43
ITU defined IMT-2000 as the global 3G wireless communication standard. IMT-2000 includes six terrestrial air
interface standards: W-CDMA, CDMA2000, TD-CDMA/TD-SCDMA, EDGE, DECT, and WiMAX.
42
34
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operator-leading service development ecosystem and new business model, resulting in
a remarkable success. Secondly, implementing mobile broadband access in a
cost-effective way is a long evolving process instead of accomplishing in an action
[21]. Some competitive technologies including Wi-Fi, WiMAX, and etc. will co-exist
and converge. Comparing with other wireless broadband access methods, the current
advantages of 3G and 3.5G (UMTS HSPA) mobile technology are the existing
2G/2.5G network infrastructures and the established big customer base. Most of the
telecom operators prefer the gradual migration while new entrants such as WISPs may
be prone to those new aggressive technologies. The competition in the wireless access
market will keep intensifying. As a result, diversiform interrelationships amongst
market players and new business models will emerge.
4.4.5
WLAN
WLAN standards were developed by two standardization bodies, IEEE and ETSI. The
most popular standard is currently the IEEE 802.11b (also denoted as Wi-Fi) enabling
data rate up to 11Mbit/s at the 2.4GHz 44 frequency band which is an unlicensed band.
Several variations of the IEEE802.11 family have also been published. The absence of
licensing barriers and its cost effectiveness made Wi-Fi deploy widely. The fixed
capacity of a WLAN is shared so the performance each user experiencing decreases
when the number of users connecting to this Access Point (AP) increases.
Originally, WLAN technologies were used in range of 100 meters. Nevertheless,
Wi-Fi has been developed to associate with wireless metro-access [22]. It can be used
in the last mile scenario as wireless broadband access. Besides the last mile
application, modified IEEE802.11 equipments can also be used in the hot zone case to
cover larger area by a solution called meshed Wi-Fi 45 . Wi-Fi was originally
considered as a complementary technology to mobile access technologies such as 3G
because of its limited coverage. But, the community of 802.11 has begun to address
the mobility issue. It is a potential substitute technology for mobile technologies. The
new kind of operator, probably Wireless Internet Service Provider (WISP) 46 , will
compete against mobile operator. The first killer application could be VoIP over
Wi-Fi 47 which can completely disrupt the main business of traditional operators. It
even has the upper hand of supporting multimedia applications due to the advantage
of bandwidth. There undoubtedly will be new business models involving WISPs, VoIP
service providers, backhaul service providers, content providers, and etc.
44
The other unlicensed frequency band used by IEEE802.11 family is 5GHz.
Refer to: IEEE802.11s
46
http://en.wikipedia.org/wiki/Wireless_internet_service_provider accessed on February 22, 2008
47
Refer to: IEEE802.11r, the amendment to the IEEE802.11 standard to permit connectivity in motion and fast
handoffs between base stations so as to ensure VoIP and other real time applications.
45
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4.4.6
CICT
WiMAX
WiMAX [23] represents the harmonized standard based on both IEEE802.16 and
ETSI HiperMAN standard. It was only a Fixed Wireless Access (FWA) technology
positioned to be a complement to Wi-Fi with larger coverage in the beginning.
Originally, WiMAX was not competitive in the access market due to the lack of open
standard and line-of-sight installation requirement. It was classified into Metropolitan
Area Network (MAN) [22]. The industry also developed a mobile version WiMAX
specified by IEEE802.16e 48 so that the term FWA was changed to Broadband
Wireless Access (BWA).
WiMAX is a simple and cheap technology which can offer at most 70 Mbps
bandwidth in the case of full allocation of 20MHz frequency band and cover a
maximum range of 50 Km 49 . The available capacity decreases while the distance
between the Base Station (BS) and the CPE increases. The typical deployment as an
access technology covers 5 to 10 Km distance 50 . Therefore, WiMAX is becoming
more competitive to other broadband technologies such as DSL, 3G, and etc. It
provides the opportunities for alternative operators to compete against the incumbents
in the local loop market. On the other hand, WiMAX is a good option for operators to
provide obligate services in rural area where the costs of deploying wired
infrastructure for instance fiber and cable are very expensive. It also shows more
flexibility in terms of possible installation sites and deployment time. In some sense,
WiMAX can be considered as a complementary technology to other broadband
access.
The IEEE802.16 specifications apply to a wide radio spectrum whose upper limit
frequency is 66GHz 51 . The WiMAX Forum operates in 2.3 – 2.7, 3.4- 3.6 and 5.8
GHz bands 52 . Initially, the majority of WiMAX products operate in the 3.4-3.6GHz
spectrum range. Two frequency bands are specified for fixed WiMAX: Licensed band
3.5GHz, and the license-exempt band 5.8GHz. For mobile WiMAX, there are
currently three spectrum profiles for 2.3GHz, 2.5GHz, and 5.8GHz 53 . Detailed mobile
WiMAX profiles refer to appendix 2. According to the ISM bands defined by ITU-R 54 ,
both fixed and mobile WiMAX could operate on the license-exempt frequency band.
Without the requirement of frequency license, it is easier for operators to deploy
WiMAX infrastructures and compete in the market although they have to deal with
the interference problem.
48
IEEE802.16d specifies the fixed WiMAX. Sometimes it is also denoted as IEEE802.16-2004.
This figure was cited from: http://icttoolkit.infodev.org/en/Section.2438.html on February 24,2008
50
Ibid
51
This parameter is gained in: “Practical tips on making WiMAX field measurements, Part 1”, accessed at
http://www.rfdesignline.com/197000698;jsessionid=QTVQPMTGVCCPCQSNDLQSKH0CJUNN2JVN?printable
Article=true on March 25, 2008
52
This information is obtained at http://www.wimaxforum.org/technology/faq/ at March 25, 2008
53
Ibid
54
http://en.wikipedia.org/wiki/ISM_band
49
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Currently, the fixed WiMAX is based on OFDM and the mobile version is based on
SOFDMA. Its primary use aims at Internet-related broadband services. On the other
hand, it must be pointed out that initial 3G is still voice-optimized technology. Before
the implementation of HSDPA/HSUPA, bandwidth in the air is still the bottleneck for
data services. Mobile WiMAX relative to 3.5G technology even has some inherent
advantages in terms of throughput performance and IP feature support.
It is worth while to notice that ITU in 2007 approved WiMAX as part of the 3G
standard, IMT-2000. From a long-term point of view, 3G technologies will evolve into
4G 55 featured as high bandwidth, low latency, and all-IP architecture. Both the 3GPP
LTE and the 3GPP2 UMB will eventually discard the existing air interfaces 56 and then
adopt OFDMA for the downlink and various OFDM based solutions for the uplink,
similarly to WiMAX. WiMAX and mobile cellular access technologies in a
perspective of technology will ultimately converge into an Internet-oriented
framework.
However, in the near future mobile WiMAX has to face a number of challenges
including uniform spectrum allocation, the lack of standardized service support
functions such as user authentication and billing, equipment costs, uncertain practical
performance in large-scale commercial operation, immature value chain and business
model. In the evolution process to 4G, there will be a lot of competition between
WiMAX and other BWA technologies especially UMTS-TDD. On the market side,
most of the large telecom operators have been locked in the existing 2G/3G
infrastructures so that they will probably choose HSPA or EV-DO to offer wireless
broadband services. More opportunities for WiMAX exist in the developing markets.
In addition, new operators and market challengers will favor it since this disruptive
technology brings them possibilities to compete against and differentiate from the
incumbents.
Figure 4.4 Mobility and Data Rate Comparison of Main Wireless Access Technologies 57
55
http://en.wikipedia.org/wiki/4G
Here, the existing air interfaces include all the CDMA based 3G air interfaces.
57
Cited from: http://en.wikipedia.org/wiki/WiMAX on April 2, 2008
56
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IEEE802.20 [24], also denoted as Mobile-Fi or Mobile Broadband Wireless Access
(MBWA), is a competing technology to mobile WiMAX, 3G, and etc. It aims at
implementing a packet-based air interface for IP-based services. A draft specification
of MBWA has been approved in January 2006. It supports the following benefits: IP
roaming & handoff, full mobility up to speed of 250Km/h, optimized IP data transport
at more than 1Mbps, and low latency. Mobile-Fi service will operate in the licensed
band below 3.5GHz. It is a potential substitute solution for both operators and
equipment manufacturers involving in 3G or other wireless broadband technologies.
4.4.7
Personal Area Access Technologies
Personal Area Network (PAN) technologies provide short-range connection between
personal devices. Two significant PAN access methods are Bluetooth and Ultra Wide
Band (UWB) [25] technologies.
Bluetooth has been widely used in the computers, mobile phones, PDAs, digital
cameras, and etc. It operates on the 2.4GHz band and supports up to 1Mbps data rate
within 10 meters. A Bluetooth-enabled device can work as an access point to the wire
network if it increases the transmission power to cover a larger area. Bluetooth to
some extent is the de-facto standard for low data-rate wireless PAN application.
The Ultra Wide Band technology is a part of IEEE802.15 [26] standard which mainly
addresses wireless PANs. UWB transmits data with a very low power which is lower
than the usual background noise. As a result, UWB is very good at anti-jamming. It is
able to operate over a wide spectrum of frequency band including 3-10GHz, 26 /
28GHz, and 43GHz. According to IEEE802.15.3a specification, it can provide data
rate in excess of 100Mbps within 10m distance and 480Mbps within 2m 58 . UWB
technology can be used in home multimedia network for supporting multiple devices
in PANs. It can also be integrated with WLAN.
4.4.8
Summary
The access network resource is crucial for telecom business because rich access
resource in some measure means big customer base. And it requires huge investment
and dense manpower to maintain. The ownership of the ‘last mile access network’
could be an advantage to force other companies out of the market. However, there
have been plenty of next generation access technologies available.
Competition has been recognized as one of the main drivers that stimulate the
deployment of broadband services. It seems that competition between different
58
This figure is obtained at http://www.uwbforum.org/
38
on January 10, 2008
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technologies such as an ADSL and cable modem works is more effective in
stimulating broadband than competition between operators using the same
technology 59 . The underlying reason is that the monopoly or dominant control of
access infrastructures. Network operators are business-oriented. They will hold off the
newest technologies to avoid competing with their existing products in the case of
market domination. It has been found that cross ownership of infrastructures has a
negative impact on the broadband development [27]. So pressures from cable
operators may push the deployment of broadband infrastructures. Other access
methods as described in section 4.4 can also boost the development of next generation
services by stimulating competition. In particular, wireless technologies can be used
by new operators.
Anyway, with the technology development, various new access technologies,
especially those wireless technologies as described in section 4.4, can facilitate the
local loop competition which consequently influences the business model in NGN
market.
4.5 Signaling Protocols of NGN
Service convergence which will be analyzed in chapter 5 requires the back-end
control mechanism to evolve simultaneously. Migrating circuit-switched services,
mainly telephony, into a packet-switched platform, there are some challenges with
respect to the signaling systems.
In the traditional circuit-switching networks, the calling sessions are controlled by the
Signaling System #7 (SS7) which controls the setting up, managing, and tearing down
of telephone calls. It also provides support for Intelligent Network (IN) and Integrated
Services Digital Network (ISDN).
Several signaling protocols have been designed by different standardization bodies in
order to implement voice and other multimedia services on packet-switching networks.
Two important protocols among others are H.323 and Session Initiation Protocol (SIP)
developed by ITU and IETF respectively. Both of them have a distributed architecture.
The intelligence controlling the communication session distributes between the
control servers and the end-points.
59
Morten Falch, Reza Tadayoni: “Editorial of Next Generation Broadband---Content and User Perspectives”,
CICT, DTU, 2007
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4.5.1
CICT
H.323
The signaling concepts of H.323 protocol derives from the ISDN access signaling and
therefore from the circuit-switching signaling. It describes the controlling of
multimedia sessions involving telephony in manner of peer-to-peer connections
between end-points. The framework of H.323 is monolithic, which means it defines
all aspects relating to call set-up, capability negotiation, media control, and etc. On
the contrary, SIP standard has a modular framework, only defining basic signaling and
integrating easily with other Internet protocols. This makes SIP more open and
flexible than H.323. H.323 was introduced in the mid-1990s. It was thought as the
best signaling standard for developing VoIP at that moment. However, H.323 is not
very suited to IP platform. And it is expensive to implement due to the involvement of
a lot of related protocols.
4.5.2
SIP
SIP is a signaling protocol which is inspired by and optimized for the Internet. It has
been recognized as the best signaling protocol of call and multimedia service control
over IP networks because it can be easily integrated with other Internet protocols.
Both integration with other protocols and further development of SIP-based service
benefit its Internet ancestry. Implementing SIP on an IP network is simpler and lighter
than the case of H.323. It also supports redirection services leading to better support
of personal mobility, which means users can access subscribed services through
different terminals on different locations. Though SIP offers some advantages, it has
been slowed because the industry had largely invested in H.323.
Nevertheless, both H.323 and SIP are based on a distributed architecture which
enables any services to be treated like a normal IP application. This makes it possible
that services can be established between user and service provider without any
knowledge about the transport operator. The major drawback is that some intelligence
needed to be implemented in the terminal results in the cost issues.
4.5.3
Centralized Signaling solution
However, some telecom operators still favor the centralized architecture where
end-points are controlled by intelligent devices in the network. This centralized
solutions usually associate with media gateway control protocols such as H.248,
MGCP, and MEGACO. Anyway, networks will be heterogeneous in the near future in
terms of signaling architectures and protocols.
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4.6 Service Provisioning in NGN
4.6.1
Rudiment of Service Separation
The core competence of an operator is to maintain and operate a dedicated telephone
network and to provide communication services. Communication services and
network infrastructures were close integrated. However, as the first time, IN
introduced the important idea of providing standardized and modular ways of creating
services irrespective of the underlying network. It was a good opportunity for
operators to increase traffic in their networks by offering their infrastructures to 3rd
party service providers. For service providers, it was also an opportunity to strengthen
their market.
4.6.2
NGN Service Environment
In the service environment of NGN, the service development tools and technologies
are further reinforced. Software technologies show increasing importance for service
provisioning in NGN. Important standards include JAIN, Parlay and OSA, XML [28],
and etc. These technologies offer more opportunities to 3rd party service providers. In
the past, accessible services for end-users are limited by telecom operators. In an
NGN environment, service provisioning is independent from the network. End-users
will have more choice so as to have more bargain power. 3rd parties could play more
importance than before, provided that regulations ensure the fair access to network
and standardized APIs.
4.6.3
Web services
Web Service, normally XML-based APIs, is defined by the W3C 60 as a software
system designed to support interoperable Machine to Machine interaction over a
network 61 . It has been recognized as a revolutionary technology which can change the
way Internet is being used. Generally, software applications can be uploaded to a
server connected to a network, to be accessed by other applications through the
network, and execute requested services. In the same way, basic functionalities of
PSTN and other data networks, for instance messaging, call control, billing, mobility,
and etc. can also be implemented as software applications and be published on the
Internet as Web Services. Such Web Services can be accessed by other applications
through the Internet and compose higher level services. Consequently, such a service
60
61
http://www.w3.org/
http://en.wikipedia.org/wiki/Web_service accessed on March 3, 2008
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provisioning
environment
where
basic
service
capabilities
become
Commercial-off-the-shelf (COTS) components with standardized interfaces and they
can be optionally assembled to create new services comes into being.
From a technical point of view, customized services are better supported due to the
flexible combinations of different basic capabilities. Seamless access to services and
service adaptation can be implemented based on standardized APIs and ubiquitous
Internet. And different services such as Internet access and broadcasting will converge
as unified info-communication services.
In addition, the Web Service technology may influence the market and business
aspects as follows.
· The reusable standardized service components enable more service innovations in
short time to market and with low costs.
· The open development platform makes the developer community much bigger
than ever, resulting in more intense competition.
· Communication and content services can be easily subscribed across formerly
separated industries and national borders, challenging the existing regulations.
· There will be a lot of possible business models constituted by software vendors,
network operators, system integrators, and etc.
· The value network will be dynamic instead of being static. For example, market
roles could change. A software vendor can transform into communication service
provider if it develops telecom-related Web Services.
4.7 IP Multimedia Subsystem
The next generation network and services will be definitely based on the Internet
Protocol. All kinds of user terminals will be like an IP host connected to the Internet.
If the Internet pattern was accepted, the network operator will inevitably degrade to
bit pipeline worker. To avoid this, the industry designed IP Multimedia Subsystem
(IMS) [29] as a service platform which aims at putting the network operator again in
the central role of service provisioning [30].
IMS can facilitate network operators to deliver more attractive multimedia services. It
also provides users with bundled services with the single sign-on and unified billing.
Furthermore, 3rd party developers can use this platform to set up services under the
control of operator.
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Figure 4.5 Vertical service versus horizontal service implementations 62
It is worthy to point out that IMS changes the approach of implementing services. It
replaces the traditional vertical ‘stovepipe’ by a horizontal platform as figure 4.5
shown. The vertical ‘stovepipe’ model in the old telecom system results in several
separate networks providing different services. Operators have to maintain and
operate several parallel service systems, leading to higher operation expenditures. As
for new service, it is very costly and logy to develop new services because of the
vertical implementation structure. The vertical ‘stovepipe’ also disables the direct
interoperability between different services. The core element of this horizontal
platform is the CSCF (Call Service Control Function) which enables the flexible mix
of different applications [30].
The IMS aims to satisfy two categories of services: (1) mass-market, standardized
services; (2) Non-standardized service. The first categories are supported by a wide
spectrum of terminals and interoperable with all other operators. The functional
growth of these services determines the standardization. Non-standardized services
can be offered by individual operator in its local market or within its customer circle.
Typical applications based on IMS at present include Push-to-Talk-over-Cellular, real
time Video telephony, and IMS messaging.
Figure 4.6 the IMS Service Architecture (Simplified) 63
The IMS not only supports development of new services but also a rich business
landscape 64 . Based on the APIs (shown as figure 4.6), both the operator and any 3rd
party can publish new services. The network operator normally has access to
62
Source: Ericsson white paper “Introduction to IMS” March, 2007
Cited from: “Services in the IMS Ecosystem”, pp12, Ericsson White Paper, February 2007
64
Ibid
63
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everything in its IMS and can choose to open part of system to 3rd party developers.
This architecture taps into the creativity and dynamics of the whole IP community.
The standardized interfaces facilitate developers to create new services which
incorporate standardized mass-market capabilities as components. Therefore, IMS
well supports a flexible and dynamic service innovation environment.
The other feature of IMS is that it supports all kinds of access methods ranging from
GSM and UMTS to WLAN and fixed broadband access. This access agnostic ability
can facilitate the competition in the access market. Users can access IMS-based
services from whatever access network without being locked into the service provider.
As a result, it sets up a service development ecosystem incorporating intelligence
from all market players. The main interfaces towards 3rd parties are the Service
Provider Interface (SPI). And 3rd-party services can also be used by users in other
operators’ networks through the Network to Network Interface (NNI). If a
downloadable service uses standardized Java interface (JSR281 and its evolution) [31]
in user’s terminal, this service can extend to a terminal-to-terminal mode. The North
Bound Interface (NBI) is for extending the standardized services with additional
application logic and for communicating with other service execution entities.
Anyway, several development environments, interfaces to the network and so on from
different organizations are needed for successful launching services in the IMS-based
network.
The IMS embodies the service management capabilities and allows operators to be the
leading role in the value chain of new ICT services. It leverages the network resources
and delivers customer values through new business models.
4.8 Standardization
Standards are sets of technical rules or specifications adhered to by producers either
tacitly or as a result of a formal agreement and standards 65 . From a technical point of
view, standards focus on interfaces that specify how equipment is physically
interconnected and what procedures are used to operate across different systems 66 . It
enables the interoperability of equipment from different vendors. Standards also
define some key parameters (minimum quality) to guarantee the QoS of standardized
systems. Both the interoperability and quality of service are important issues for NGN
technology which is the basis of future information infrastructure deployed in a
65
“Heterogeneous Networks and services”, Ph.D Thesis by Su-En Tan, at CICT, Technical University of Denmark,
2006, pp139
66
Alberto Leon-Garcia, Indra Widjaja: “Communication Networks – Fundamental Concepts and Key Architectures,
1st edition, pp34
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worldwide scope.
4.8.1
Importance of Standards
Figure 4.7 Determinative Factors of a successful new service 67
Traditionally, three factors, technology, market, and regulation, jointly determine
whether a new telecommunication service succeeds or fails. The technology is always
the basis to implement the service in a cost-effective way. Indeed, the fourth factor,
standard, plays more and more important role in telecom industry.
Standards are very important for network economics because of the network
externalities, that a technology or product becomes more valuable to users as more
people take advantage of it 68 . According to Metcalfe’s Law, the value of a network
increases as the square of the number of people in the network. That is, value is a
function of N2, where N is the number of people in the network 69&70 . Standardization
technically ensures the interoperability of networks where the value of networks is
mainly determined by the size of communities that are connected. It also ensures the
market size without stifling competition among suppliers. Consequently, sweeping
market decreases the unit cost of technology R&D and equipment manufacture due to
the economies of scale. The success of GSM technology is a good example. A
pan-European or even quasi-world standard created a unified system implementation
and sustainable market competition. For network operators, they prefer to buy
equipments from multiple, competing suppliers rather than being bound by a single
supplier.
67
Alberto Leon-Garcia, Indra Widjaja: “Communication Networks – Fundamental Concepts and Key Architectures,
2nd Edition”, pp 24.
68
“Technology Adoption in the Presence of Network Externalities”, by M.L. Katz & C. Shapiro, in Journal of
Political Economy 94, no.(4) (1986), pp822-41
69
McGraw-Hill Press: “Internet Business Models and Strategies – Text and Cases”, 2nd edition, by Allan Afuah &
Christopher L. Tucci, pp34
70
Some argued the increase in network value from size is exponential. The network value increases as a function
of NN.
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4.8.2
CICT
Benefits of Standardization
Those four factors, technology, market, regulation, and standard, are not mutually
independent. They interact on each other. The liberalization loosened the vertical
integration between layer 1 and layer 2. As a result, it boosted intensive competitions
in the equipment market and telecom services market. Incumbents opened their
procurement to both traditional and new suppliers. More and more new operators
entered the service market and asked for the interconnection between networks. These
screamed for technology standardization.
Further, standards provided a framework which enables various organizations
including industrial, commercial, governmental, and etc. to involve the development
of networks and value-added services. Standardization is also important for
innovation. Open standard means low entry barriers for innovators. By
standardization, a large number of companies, especially small companies, can enter
the large communication market and focus on their key products which are guaranteed
to operate in the overall network. This environment results in more innovation and
evolution first of the technology, and then in the value chain and business model of
ICT services. In succession, the network and service convergence pushed by new
technologies bring forward new issues about regulation.
Open standard of NGN technologies enables the industry-wide supports and
innovations. Technology standardization constitutes the technical groundwork for the
business ecosystem of ICT services in NGN. All players, network operators,
equipment manufacturers, service providers, system integrators, and etc, benefit from
a wide array of high-performance, reusable and Commercial-off-the-shelf (COTS)
solution components.
4.9 Migration to Next Generation Networks and Services
In the long term, single core network characterized as broadband, fast-switch
capability, and service-related function separation from transport plane, represents the
transition trend. Ubiquity and seamless mobility feature the future access network
technologies.
The momentum for migrating to Next Generation Network is to reduce network
infrastructure and maintenance costs, and more importantly, to enable agile service
deployment for advanced services so as to create new revenue sources.
Depending on the operator type and the competitive pressures in their market, the
migration path and speed will be various. Nevertheless, the following principles could
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be directive guidelines 71 :
·Core infrastructure should be based on single IP/MPLS-based network for revenue
and cost optimization.
·All assets including both hardware and software should be based on open standard
technologies for cost efficiency, flexibility and interoperability.
·Reusable, COTS solution components for lower infrastructure cost
·The service innovation should not be carried out in a close system. A service
creation environment is needed to support an ecosystem of application development
and generate more revenues.
·Service delivery platform (See chapter 5) should be standard-based in order to be
easily integrated with existing and 3rd party systems for service delivery.
71
Source: IBM Institute for Business Value: “Services over IP, Delivering New Value through Next-Generation
Networks”, 2005, USA
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5 Convergence
The term, convergence, is often thought as something relatively new. In the realm of
information technology, it refers to the coming together of IT, telecommunication,
broadcasting and other media dealing with information and entertainment 72 . The
European Commissions Green Paper 73 expresses convergence as:
“The ability of different network platforms to carry essentially similar kinds of
services; and the coming together of consumer devices such as the telephone,
television and personal computer.”
The traditional telecommunication and broadcasting industries have evolved into a
new stage in which the fundamental technologies of these two industries share the
same groundwork with the Internet. Consequently, the market convergence happened,
represented by the cross-sectoral service or content provisioning. Substantial
convergence took place on both network infrastructures and end-user terminal
equipments.
The major technological change as stated in section 4.1, digitalization, enables the
convergence on each node of the value chain, as figure 5.1 shows, ranging from
content/ service, network infrastructure to terminal. Meanwhile, synergy amongst
market players is also a realistic way to provide new services due to large numbers of
legacy systems. Correspondingly the value chain structure and business model will
change.
Convergence
Other media
Content
Infrastructure
Service
Information Technology
Terminal
End User
Telecommunication
Broadcasting
Figure 5.1 Convergence in the Value Chain
72
74
Cited from: WDR discussion paper #0202 January 30, 2002, “Some Implications for Regulation of ICT and
Media Convergence”pp1 & pp3, by A. Henten, M. Falch, R. Tadayoni at CICT of DTU, LIRNET.NET.
73
European Commission: Green Paper on the Convergence of the Telecommunications, Media and Information
Technology Sectors, and the Implications for Regulations. Brussels, December 1997
74
Cited from: WDR discussion paper #0202 January 30, 2002, “Some Implications for Regulation of ICT and
Media Convergence”pp7, by A. Henten, M. Falch, R. Tadayoni at CICT of DTU, LIRNET.NET.
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As presented by Anders Henten et al [32], it is a cross-sectoral convergence which has
many possibilities at the horizontal level. Meanwhile, vertical integration /
disintegration between different layers also take place. An example of disintegration is
the knowledge-base shift in the telecom area which happened from around the 1970s
and resulted in the separation between the network operation and equipment
manufacture. Figure 5.2 clarifies the four sectors relating to convergence and their
layers along the value chain of each industry. The three levels of each sector just have
referential meaning. They are not entirely comparable.
IT
Telecom
Broadcasting
Software based Telecom based Broadcast
content
services
and programs
content
Generic
Network
Transmission
software
services
Other media
Content/
Film, music,
services
newspapers,
etc.
Transport/
Cinemas,
software
video rentals,
etc.
Equipment/
Hardware
Telecom
Broadcast
Reproduction
hardware
equipment
equipment
of
films,
printing, etc.
Figure 5.2 Sectors Involved in Convergence and Their Layers of the Value Chain 75
Convergence is not only an issue about technology but also involves market, policy,
and regulation aspects. On one hand, new technologies give rise to the market
changes including opportunities and challenges. Consequently, it also puts forward
numerous issues about policy and regulation. On the other hand, different regulatory
possibilities can influence the technology and market developments. As a result, the
process of convergence could be either facilitated or impeded. This chapter deals with
the technology and market convergence. The regulation aspect will be dissertated in
section 5.4.
Convergence is one of the main themes in the evolution towards NGN. Main issues
include:
·the convergence of multiple networks onto one single IP-based core infrastructure
·the user-end terminal convergence
·the convergence of services
·Service delivery platform to enable anytime, anywhere, anyhow service
provisioning
75
Ibid: pp4
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5.1 Technology Convergence
Technology convergence means the mixture of different technologies to enhance the
user experiences. Generally, elementary technologies utilized to converge include, but
not limit to IP, fixed broadband, wireless broadband, mobile communication, and
broadcasting technologies. In the control plane of NGN architecture, SIP plays
significant roles to support convergence. And IP Multimedia Subsystem (IMS) is the
most important technology for implementing seamless converged services including
voice, messaging, multimedia and etc. in both fixed and mobile network.
The IP technology, as the fundament of convergence, brought companies from other
industries, for instance software, computer, and broadcast industries, into the so-called
Info-communication industry. This process described as convergence has almost
happened on each layer listed in table 3.1 (See Chapter 3).
5.1.1
Challenges on Existing Infrastructures
Traditionally, different infrastructures were used to offer specific services as the left
part of figure 5.3 shows. For instance, the circuit-switched Public Switched Telephone
Network is dedicated to voice telephony service offering. Other data networks such as
Frame Relay (FR), Asynchronous Transfer Mode (ATM) network, and IP network
support different data communication services respectively. And broadcasting network
is used to cast Plain Old TV Services (POTVS). These infrastructures were designed
and optimized to meet specific requirements of services.
However, it is not efficient to operate service-dedicated networks. According to BT’s
statement, its 21CN 76 can achieve annual OPEX savings of ₤ 1 billion per year from
2009 onwards 77 . On the othe hand, it is costly and inflexible to deploy new services
on such a kind of network architecture. Implementing contend-rich services is a
complex operation process which requires converged network and multimedia service
delivery capabilities. The existing parallel CS and PS networks are based on
completely different protocols so that it is difficult to integrate and inflexible to
deliver new services.
Under the increasing pressures to defend market share and grow revenues, traditional
operators have to reconsider their network stategies.
76
77
21CN is BT's next generation network.
http://findarticles.com/p/articles/mi_m0IUL/is_3_39/ai_n15341465/pg_3 accessed on January 16, 2008
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5.1.2
CICT
Network Convergence
Figure 5.3 Today's Networks and Next Generation Networks 78
The IP core network underpins the NGN architecture. IP is an umbrella concept under
which MPLS implements the traffic transport functionality. It manages the converged
traffics no matter what service the traffic is carrying. The converged services
delivered through any kind of access network or devices are handled by the control
plane protocols.
All the formerly parallel networks will eventually come down to a single IP-based
infrastructure shown as the right part of figure 5.3 as the result of network
convergence. Leading European carriers such as BT and KPN are at the forefront of
the move to all-IP networks 79 . Single IP-based core network will bring the following
benefits:
·Cost saving due to economy of scope
·Enhanced user experience
·improved time to market for new services
·interoperability of different services and user-end terminals
The NGN still enables the legacy services in the access networks such as PSTN. More
importantly, single core network connecting and managing different access networks
provides possibilities to create new value-added services across the boundaries access
networks.
It is more easier and imminent to converge in the core network. Replacing the existing
access infrastructures will take more time due to the huge sunk costs and large amount
of engineering tasks. Still, circuit-switched core network will be replaced by IP-based
network, and eventually evolve into the horizontally converged architecture. The
access networks will gradually become packet-based both through deployment of new
78
Source: Ofcom
Source: IBM Institute for Business Value: “Services over IP, Delivering New Value through Next-Generation
Networks”, pp7, 2005, USA
79
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technologies and through enhancement of the existing local loop.
Considering the legacy systems, it is not practical in the current state that an
integrated network carries all services. The coverall integrated network is technically
feasible but not an economical solution for most market players at present. Even
upgrading existing infrastructures, like cable networks, still requires huge investments.
So the utilization of the synergy between different network infrastructures can be a
more efficient way of providing convergence services 80 . One of the most promising
applications is the mobile broadcasting convergence, a combination of digital
broadcasting and mobile communication network.
5.1.3
End-user Terminal Convergence
In the times of technical convergence, more and more versatile end-user terminals
fuse multiple functionalities such as telephone, television, and computer.
Within telecommunication sector, different services are converging onto single
terminal equipment. Dual-mode mobile phone 81 is essential for Fixed-Mobile
Convergence (See section 5.2.2). As a typical example, mobile phone is collecting
communication, personal information management, multimedia consuming, even
entertainment functions together.
Convergence also brings services from different sectors onto single terminal. TV
which has higher penetration rate than PC has already been capable of providing
Internet services. At the same time, PC as a perfect medium for convergence can
easily implement all the services including communication, broadcasting and Internet
access. There will be a battle between PC and TV for competing for the central
position of digital home 82 .
A real example of terminal convergence is that Sony Computer Entertainment has
enabled its handheld video game machine, the PlayStation Portable (PSP), to connect
to Skype, the popular, free voice-over-Internet service, to download video content
from British Sky Broadcast, and to make video calls through British Telecom’s
network 83 .
Terminal, as the interface to end-users, deeply influences the development of NGN
services. Converged services need to be presented to users by versatile terminal
80
WDR discussion paper #0202 January 30, 2002, “Some Implications for Regulation of ICT and Media
Convergence” pp1, by A. Henten, M. Falch, R. Tadayoni at CICT of DTU, LIRNET.NET.
81
It combines mobile cellular access (GSM, UMTS, etc) and WLAN access (Bluetooth, 802.11, etc)
functionalities.
82
It is also called as smart home in some documents. http://en.wikipedia.org/wiki/Digital_home
83
http://search.ft.com/ftArticle?queryText=skype&y=8&aje=true&x=7&id=080106000066&ct=0 accessed on
March 4, 2008
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equipments. Terminals with built-in services have been widely used as a means of
fostering market. Terminal convergence brings more opportunities to market players
to expand their business and further impacts the value chain. For instance Apple’s
iPhone, “it is more than just a breakthrough mobile phone. It is a strategy that may
expand Apple's sphere of influence, from web browsing to social networking and even
possibly search.” 84 Apple’s innovative terminal has also helped this manufacturer
invade into the garden formerly belonged to network operators. AT&T has to pay
some money to Apple per month for each iPhone subscriber according to their
revenue-sharing agreement. So it’s no doubt that there will be more complex business
models rather than traditional relationship of one dimension amongst operators,
service providers and terminal manufacturers.
Although terminal convergence happens as a remarkable phenomenon, a variety of
different terminals for dedicated services are still developing prosperously.
5.2 Service Convergence
Fundamental technological developments including digitalization, computerization
and packet-switch established the groundwork of service convergence. Digital
contents can be flexibly adapted for different platforms: broadcasting, Internet, and
mobile communication. Computerization enables the convergence of the telecom
network with the IT operating environment which make up of the business and
operational support system of competitive service providers. Open standard IP
protocol ensures the interoperability of services. Broadband infrastructures stimulate
the demand for multimedia services and content. The control plane of NGN enables
the convergence of service “stove pipes”. It handles subscriber-related information
and provides gateway selection and management.
Constantly emerging new technologies brought various kinds of services. Service
portfolio is expanding. But the fragmented communication experience increasingly
fatigues users by multiple services, devices, user names and passwords. On the other
hand, operators are facing unprecedented pressure because of the market saturation
and intense competition. Plain voice communication, the main revenue source of
telecom operators, has become a kind of commodity service with declining price.
Under the circumstances, service providers from different sectors and backgrounds,
including telecom operators, rejuvenated cable operators, ISPs, customer brands and
etc, all regard the integrated service offerings as the promising revenue source.
The integrated services now including voice, broadband access, and broadcasting can
84
http://www.readwriteweb.com/archives/why_iphone_may_really_matter.php accessed on April 20, 2008
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be considered as the rudiment form of advanced home ICT services which will
integrate with new functions like e-Bank, e-Education, etc. in the future.
In the business customer segment, besides the lease line, PBX, and etc, integrated ICT
services are intensively demanded. Corporate customers are not contented with
pipeline-wise communication service anymore. Moreover, they imperatively desire
the integration of network communications, manageable IT services, wireless data and
voice, video conference, security. This kind of advanced ICT service provisioning is
an option for traditional operators’ transformation.
As for operators themselves, offering integrated service efficiently requires powerful
service delivery platform (SDP). SDP is necessary to deliver NGN services rapidly
and flexibly.
5.2.1
5.2.1.1
Integrated Service Proposition
Broadband Access Service
Internet access service has been one of the main revenue sources for network
operators or service providers since the dial-up modem was available. The next
generation access network is characterized as broadband. Based on xDSL and cable
modem, telecom operators and cable network operators have launched broadband
Internet access service on a large scale since the beginning of new Millennium.
The networks develop towards broadband capacity so that content provision
especially multimedia service gained a lot of attention. After the infrastructures had
been upgraded, the absence of applications that customers are willing to pay for
became the crucial issue determining network operator’s revenues and market share.
Based on the broadband access, more and more services such as VoIP, VoD and IPTV
are implemented.
However, the revenues from broadband access more or less replace operator’s
revenues from traditional voice services. After the QoS was enhanced, VoIP becomes
a disruptive application to the POTS ever monopolized by incumbent operators for a
long time. Telecom managers complain that new kinds of VoIP applications,
embedded in games, provided by IM clients, web-based VoIP, Skype, and etc. have
been widely used, squeezing the traditional voice traffic. VoIP has enormously eroded
the revenue of telecom operators’ long-distance voice services.
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5.2.1.2
CICT
Broadband Dilemma
To support the new traffic generated from broadband access network, most operators
invested huge amount of money to deploy new infrastructures and upgrade existing
systems. However, operators definitely meet the dilemma that they support
bandwidth-intensive applications such as peer-to-peer file sharing for other service
providers or users without being well paid. Some operators carry out their data caps
pricing scheme or even throttle user traffic to control the costs.
The reason on the surface resulting in this broadband dilemma is the lack of an
appropriate pricing scheme. The deep-seated issue is the absence of a reasonable
business model for ‘broadband service’. There are arguments on the “flat rate +
always on” business model of NGAN. Some people do not believe the flat rate
scheme is a sustainable business model. The flat rate without traffic cap could to some
extent discourage network operators from deploying bandwidth-intensive applications.
There have been some reflections in the market even as some telecom operators have
added or are considering traffic caps on their broadband access plans 85 .
5.2.1.3
Triple Play
Since the pressure of market share and revenues keeps rising, network operators
widely extend their business to upper layer, service and content providing. The
response network operators have made is to launch integrated service, bundling voice,
Internet access, and TV services.
There are fierce battles in the bundled service market. Cable companies have gained
substantial growth on VoIP, partly accounting for the decline of the copper line
subscription, by means of this triple play, composing of cable TV, broadband data, and
VoIP services. Meanwhile, telecom operators have to offer bundled service, including
telephony, broadband access, and content, in flat rate. Telecom operators are facing
the tough challenge that Voice over Broadband substitutes their PSTN-based voice
service. To reduce the customer churn, telecom operators on one hand offer
preferential service package. On the other hand, they carry out differentiation strategy,
meaning higher bandwidth or quadruple play service utilizing FMC (see section 5.2.2),
to reinforce their position in the market.
The paradox here is that network operator’s service bundle contradicts the
disintegration between network layer and content layer. Owners of infrastructures are
seeking to reinforce the vertical integration with service and content provisioning.
This trend could, if without proper regulation, lead to the network operators’ upper
85
For instance: AT&T wireless data planed on a 5GB quiet cap from 2008.
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hand in the value-added service market. Introducing independent service aggregator
which facilitates free service subscription by users is an effective means to avoid
forming monopoly or oligopoly power.
5.2.2
Fix-Mobile Convergence
A convergence of fixed and mobile telephony has emerged as a remarkable trend in
the market for some time. It enables cellular service to be delivered through fixed
broadband access network or WLAN or even in the future WiMAX. Now FMC 86 [33]
becomes a broad concept aiming at providing seamless services including voice, data,
multimedia, and etc across different types of networks. Therefore bundled services
have evolved from triple play into quadruple play, adding the service mobility. FMC
has been used as a differentiated offering to challenge incumbents by new entrant
operators.
The emergence of FMC service first represents the customers’ requirement. The fact
is that a large number of calls from mobile terminals are made in office or at home.
Secondly, the fixed access method still has advantages in terms of bandwidth and
usability for capacity-intensive applications. One driving application of FMC is VoIP
which combines mobile communication and voice over broadband.
FMC will be an important application in NGN. The substantial deployment of FMC to
a degree depends on the new technologies such as IMS in the backbone network.
5.2.3
Mobile-Broadcast Convergence
Mobile-Broadcast Convergence [34] involves two formerly irrelative sectors: mobile
communication and broadcast. The mobile industry all through seeks for distributing
video, music, and multimedia services to mass users in an efficient way. At the same
time, broadcast industry hankers for personalized content provision together with
Internet access on mobile terminals. The digital terrestrial broadcast technology
inherently can support the nomadic usage. To implement the real mobile broadcast
services, broadcast industry developed new standards: DVB-H, DMB, and
MediaFLO 87 . However, the interactivity is not resolved in these solutions. It is
essential to combine the digital broadcast platform with the mobile network so that
converged services can be offered in an efficient way.
The synergetic solution of mobile and broadcast infrastructures [35] can well satisfy
the customers’ demands for interactive mobile multimedia service. The most
important issue of MBC at present is the relationship between mobile operators,
86
87
FMC is also denoted as UMA or GAN in some documents.
http://www.floforum.org/
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broadcast network operators, content providers, and etc. For instance, the broadcast
network operators can focus on the TV/radio and other one-to-many content delivery;
mobile operators manage the return channel and customer relationship management;
content providers work on programs making and scheduling. There are several
possibilities of business models.
5.2.4
Service Delivery Platform
In the open service provisioning environment, market player who wants to climb up
the value chain so as to keep the leading position needs to perform more actively in
service delivery. The Service Delivery Platform (SDP) is an architecture used to
empower operators to rapidly develop and deploy new converged services. SDP
generally plays the role of service management including service creation, service
orchestration, service execution, and etc.
The benefits SDP bringing to network operators lie in reusing the existing equipment
and enabling the existing services to be gradually migrated to a common platform in
the NGN environment. By integrated with IMS, the new platform can enable both
new and existing services to be delivered across all access networks. SDP can manage
the delivery of services which may be either deployed inside the operator’s network
or hosted in 3rd-party’s environment.
No SDP can be delivered as a prefabricated piece of equipment straight from the
factory 88 . The architecture of one SDP highly depends on the operator organization’s
business process. So the development of an SDP is a consulting and system
integration process [36].
5.2.5
Summary
Convergence makes it possible to deliver ‘anytime, anywhere, anyhow’ services.
Market players from different sectors and layers may benefit from this development.
First, it brings demands for new network equipments, converged terminals, and
software solutions which mean great opportunities for manufacturers and system
integrators. As for operators, the benefits from this service convergence include
enhanced ARPU, reducing the customer churn, and increasing the total revenues. On
the other hand, users can obtain convenient service package with decreased total cost.
Service convergence, as the most spectacular phenomenon in ICT service market at
present, is elaborated in section 5.2. Technology development paves the way for
88
Cited from: Ericsson White Paper: “Service Delivery Platform—Efficient Deployment of Services”, pp 1,
October 2006
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convergence in both vertical and horizontal direction. It is natural that companies seek
for competitive advantages in the form of merge, alliance, or even exclusive supply
contracts in response to the market pressure. Service convergence in a sense results
from intense competition. Different converged service offerings in fact embody
various competitive strategies: overall cost leadership; differentiation; focus; or any
combination of them. However, convergence also imposes challenges on the current
regulations, which will be discussed in section 5.4.
5.3 Market Convergence
Convergence changed the ICT service market structure. The market convergence
across sectors develops dissimilarly on different layers of the value chain.
Convergence in content and service involves all sectors. Convergence in network
infrastructures is more remarkable between telecommunication and broadcasting
sectors. As for the equipment manufacture, IT and telecommunication sectors show
more convergent trend. [32]
In the residential customer segment, the competitors coming from other sectors are
mainly cable network operators and terrestrial broadcast network operators. Based on
the converged technologies, cable operators can offer bundled services package which
directly threats telecom operators’ voice and Internet access services. As a
counterpunch, telecom operators offer triple play service based on their broadband
access network.
The terrestrial broadcast network operators at present have some advantages over
mobile telecom operators in implementing mobile multimedia and datacasting [37]
services, whereas there are still a lot of requirements for cooperating with mobile
operators [38]. Both cable operators and terrestrial broadcasters have more close
relationship with the content (TV and radio) producers. Some of them are even
integrated with content providers. The advantages of telecom operators are rich
network operation experience, big customer base, vigorous billing and customer
caring capabilities. Cooperating with content providers, telecom operators can easily
deliver TV and radio content to customers through their broadband infrastructure. In
addition, wireless broadband technologies such as 3G and WiMAX facilitate telecom
operators to provide mobile multimedia services on their own.
In the business customer segment, the PSTN-based voice service will inevitably
diminish in the long term. Some telecom operators have begun to provide their
corporate customers with integrated service including VoIP, Internet access, and FMC
services. Furthermore, telecom network operators need to evolve their service
offerings from telephony and pipe-wise data communication services to integrated
service and managed network service that means operators take more responsibilities
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on the customer network side.
5.4 Regulation Issues
Regulation is a broad subject including public ownership, legislation, and market
incentives. Generally, there are five objectives of regulation as efficiency, industrial
policy, funding, social welfare, and state security. The regulation of NGN and ICT
services will play an important role in the development of information society. Due to
the time limitation of this project, only requisite regulation issues are included in this
paper.
Telecommunication industry was at one time highly regulated before the liberalization
initiated from the mid-1980s. The industry liberalization enables competitors to enter
the market, resulting in the declining price and customers’ whetting appetite for new
services. The rationale of monopoly provision of end-to-end telecom service has been
undermined by technology development and innovation.
Convergence has imposed challenges on the current regulation. Further, the technical
paradigm of NGN is completely different from traditional telecom network. NGN
provides an open environment for service development and deployment. Apart from
the infrastructure-related ‘bottlenecks’, the software-based service provisioning brings
new potential control points such as the APIs which may cause exclusionary practices.
5.4.1
Challenges on Current Regulation
Convergence has brought benefits for customers, operators, service providers, and etc,
whereas it also imposed challenges on the current regulation. At present, main
regulation issues, among others, caused by convergence include regulation
convergence, technology neutrality, and network neutrality.
5.4.1.1
Regulation Convergence
In the past, telecommunication and broadcast were separately regulated. Due to the
horizontal convergence, the foundation for different treatment of information and
communication infrastructures drifted away. There have been conflicts between
telecom regulator and broadcast regulator when launching new services for example
IPTV and mobile TV. These conflicts may block the delivery of new services to the
market. Therefore, it is reasonable that the rules and regulation procedures of different
infrastructures converge.
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5.4.1.2
CICT
Technology Neutrality
Since the service convergence happened, the principle of technology neutrality has
been oppugned. VoIP is the substitute product for circuit-switching voice service.
However, there are some requirements and user protection rules such as emergency
calling service imposed on traditional voice service. These compulsive functions of
basic communication service are not supported by VoIP. Meanwhile, it is not subject
to the same regulation as traditional telephone service. As another converged service,
IPTV also faces with similar problems. Traditionally, broadcast service is divided into
commercial and non-commercial broadcasting. The latter undertakes the
responsibility of public interest or so-called public service provisions. It influences the
business model of broadcast service in terms of financial design. In the same way,
many questions need to be answered by the regulation authorities, for instance
“Should the TV over Internet also provide public services?” and “Should it be a new
obligation for the public service broadcasters to extend its offerings to the Internet?”
5.4.1.3
Network neutrality
One argument on the triple play is with respect to the network neutrality [39].
Network neutrality here means that broadband users should be able to subscribe to
any service or content without any intervention from the broadband providers.
Without proper regulation on this issue, facility-based providers, either telecom
operators or cable companies, would possess a big competitive advantage over the
facility-less service providers by means of charging additional fees from them.
5.4.2
Control Points in NGN
The potential control points indicate that there will be battles for market power
because all companies keep searching for advantages over their competitors. The
3rd-party developers can technically play an important role in the service provisioning
in NGN. But exclusionary practices on the access of APIs and other interfaces of the
service plane must be avoided. It should be prevented that telecom operators or other
market players have content providers or 3rd-party service providers on toast.
There are large numbers of ‘control points’ the NGN, whereas only the most related
are included in this section. It is not an exhaustive enumeration.
5.4.2.1
Infrastructure-related ‘bottlenecks’
The infrastructure-related ‘bottlenecks’ do still exist in the next generation network.
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Access network infrastructures are prone to be control points which are similar to the
case in PSTN. The case in local access tele-network is a typical example. The
incumbent operators all the while keep the dominant marketplace of fixed-line voice
subscription, whereas the market share of xDSL decreases rapidly after the practice of
local loop unbundling. As one example, the market share of the Danish incumbent’s
fixed-line and xDSL subscription from 2002 to 2005 is illustrated in figure 5.4.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
87%
81%
84%
79%
82%
74%
80%
54%
2002
2003
2004
Fixed voice
xDSL
2005
Figure 5.4 Market Share of TDC’s fixed voice and broadband services 89
The Unbundling Local Loop (ULL) [19] regulation is crucial for competition in the
access network market. In the next generation access network, more wireless
technologies will be applied. The same principle should be applied to frequency
allocation and assignment, access to masts, right to mount masts. And the incumbents
should be regulated in terms of fairly providing wireless access operators with
backhaul resources.
5.4.2.2
Control Points on Higher Layers
As same as the value shift direction, competitions also shift from the transport
network layer to higher service and application layers in NGN. The separation
between service provisioning and network infrastructure has been feasible in the
framework of NGN. It aims at providing an open and more competitive service
environment. There are a wide range of facilities and functions which have open
interfaces in NGN environment. Comparing with the circuit-switching network in
which the control points are relatively easy to be identified, NGN has more intangible
key points which have less predictable consequences no matter regulated or not. Some
control points in this service provisioning environment could also lead to overmuch
concentration of market power. In the circumstances, the task for regulators is to
ensure a fair and healthy market operation.
As the fundamental technology, IP introduces new control points such as the domain
name system, interconnection of signaling systems, and etc [40]. In addition, the
89
Adapted from Morten Falch’s slides of course 34842, 2006, CICT, DTU
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customer information, for example location data and customer identity information,
plays roles in the NGN service competition. There are arguments about how to
regulate the control and access of these kinds of information. The other kind of
potential control points are the APIs on the service plane in NGN.
5.4.3
Discussion
The next generation transmission technologies provide huge network capacity. And
the main role of backbone network is to fast route and forward traffics. Considering
these two aspects, the natural monopoly hypothesis is in some sense still correct that
the fundamental transport service on the backbone can only be offered efficiently by
monopoly providers. Also, the backbone networks relate to national security and
social welfare issues. The backbone infrastructures resemble the highway in the
information society. It possessed the features that: 1) important for the economy; 2)
natural monopolies; 3) the market can not always work properly. The backbone
infrastructures kind of become public utility in the future. So, some people believe
that the backbone network should be regulated as normal public utility. In some
countries such as Sweden, the backbone transport infrastructures have been separated
from the commercial-oriented organizations. However, other people argue that the
backbone carrier should offer different levels of service in stead of best efforts. In fact,
the future IP-based backbone will definitely support the differentiated service. Here,
the suggestion is to re-organize the full-scale network operators by separating their
backbone network divisions and then regulate them by a different manner [41]. This
may be a gradual process.
5.4.4
Summary
The market competition has been approved as an effective way for stimulating new
infrastructure deployment and accelerating new services. Regulation plays an
important role in facilitating the healthy competition and boosting the development of
ICT industry.
The society rapidly got access to new and more advanced information and
communication technologies. Telecom operators, value-added service providers, cable
operators, and etc, all focus on the ICT service opportunities. However, the regulators
have another point of view to consider these issues: “Broadband infrastructure and
services are more than just economic factors and have a far wider impact on the
society 90 .” So the regulation needs to get a balance between the efficiency and social
welfare. In particular, the policy for minimizing digital divide in NGN is requisite.
90
Morten Falch: “Penetration of Broadband Services—The Role of Policies”, pp256, CICT, DTU, 2007
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6 NGN Value Chain Analysis
In this thesis, the value chain analysis is an industry-wide analysis. In contrast with
the original value chain concept which only describes value-adding activities and the
production process within a single organization, industry-wide value chain consists of
all the stakeholders cooperating to deliver products or services to customers.
The authorities deregulated the telecom market from the 1980s, introducing the power
of competition. However, it is the Internet, ‘Pandora's box’ for traditional network
operator, gives rise to the fundamental change which will result in reshaping the value
chain inside out. Correspondingly, the business models of telecommunication industry
have metamorphosed along with network and service evolution.
6.1 Main Value Chain Stakeholders in NGN
The jumping-off point of delving into the business model in NGN market is to look
through the existing market roles and potential entrants. In the past, most of the
elements for creating services were controlled by a single player, the telecom network
operator, although each market role was in control of some parts of the value chain.
This case will change by NGN environment which enables these elements to be
provided competitively. As a result, the bargain power of each player will be more
balanced so the catenulate value system will evolve into discrete value ecosystem.
There will be battles between these players of the ICT service market, whereas
consolidation or other kinds of cooperative relations will also exist in the ecosystem.
The main stakeholders in the value network of ICT industry under NGN environment
include telecom operators, cable network operators, terrestrial broadcasters, system
manufacturers, system integrators, Internet service providers, 3rd-party application or
content providers, software vendors, content/service aggregators, and etc.
6.1.1
Telecom Operator
Telecom operators are generally those organizations who operate communication
networks and offer telephony, data communication, and some simple value-added
services. All telecom operators excluding Mobile Virtual Network Operators (MVNO)
have their own network infrastructures. Operator is heretofore the dominant role of
the value chain in the telecom industry. Their main value-adding activities in the
industry-wide value chain are as following:
·Deploying network infrastructures
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·Operating and maintaining networks
·Communication service development
·Network supporting software development
·Customer caring
·Marketing
Telecom operators can by and large be sorted into the incumbents and new entrant
operators. Comparing with the new entrants, the incumbent operators had the
advantages of market domination, economies of scale and scope, and brand
recognition. Whereas, they were constrained by the legacy systems which could give
a window of opportunity to new entrants for deploying the latest technologies and
offering most advanced services. Meanwhile, the incumbents were facing to
asymmetric regulation and obligated to provide universal services. The new entrants
usually focus on the high-usage parts of the major cities like central business district.
This strategy enables them to address the most profitable market segment (e.g.
corporate data services) with relatively small investment. By the coverage range of
network infrastructures, some operators only provide the access services, whereas
others, mainly the incumbents, operate the whole infrastructure set.
6.1.1.1
Differentiation Dilemma
Currently, a concise value chain of telecom service is made up of equipment
manufacturers, network operators, and customers. As being analyzed in section 3.6,
most of the R&D activities are carried out by manufacturers. As a result, telecom
operators get into a differentiation dilemma.
The vertical specialization gives operators benefits of state-of-the-art technology
provisioning with lower price. However, network operators had to face the downside
of this change that specialist suppliers offer homogenous solutions to anyone who can
afford them. As a result, telecom operators can not differentiate from their competitors
by improved services or radical technology change. This is referred as differentiation
dilemma 91 . The differentiation dilemma is on one hand due to the absence of
operators’ R&D capabilities. On the other hand, low entry barriers on account of
industry deregulation and technology development result in substantial new entry.
6.1.1.2
Innovation Issue
Innovation creates values. It leads to competitive advantage and high profitability.
After the first wave value shift (see section 6.2.1), telecom operators generally
91
Martin Fransman: “ Evolution of The Telecommunications Industry into The Internet Age”, pp18
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confronted with difficulties in innovation because the R&D intensive activities
decisively moved to system manufacturers.
However, innovation does not only include technology innovation such as new
technology R&D, but also means any form of innovation. One example is that MCI
firstly offered preferential tariffs on several frequently called numbers through its
billing mechanism innovation. It gave MCI a remarkable advantage over its
competitors for a while. But, the advantage was not sustainable because it is basically
not a substantial innovation based on the core competency which is not easy to be
imitated by competitors. The rivals can easily and cheaply copy this kind of
innovation. Anyway, it still inspires network operators that the service innovation
creates new values. Furthermore, the urgent affairs that telecom operators need to
seriously consider are how to build their core competency in the open NGN
environment and what competency it is.
On the other hand, the space of service innovation is quite limited under the PSTN
paradigm due to its service-dedicated ingrain. And the innovation system of old
telecom is a close system with high entry barriers. Innovators are limited to few
market players who can get access to the fragmented knowledge base. The innovation
process is slow and sequential. The NGN technology completely changes the
innovation system of ICT industry. Besides the openness, low entry barriers, and
much larger innovator community, the process of innovation is also changed to a rapid,
concurrent and cooperative process. [7] In the NGN environment, service innovations
will intensify the competition. Leading market players could be challenged by
revolutionary services at any moment.
6.1.2
System Manufacturer
System manufacturers discussed in this section indicate those network equipment and
user terminal producers. Traditionally, they mainly involve hardware manufacture as
well as related software components for their products.
6.1.2.1
Network Equipment Manufacturer
Before the telecom liberalization, system manufacture function was integrated with
network operation in some developed countries. Then, specialist technology suppliers
take on the main part of R&D activities and manufacture equipments. System
manufacturers act as the technology and equipment suppliers in the existing value
chain. The system production market is open. The competition in the market of
network equipment manufacturing became increasingly intense, and profit margin
kept declining in recent years, directly resulting in several merges of the network
equipment divisions involving Nokia, Siemens, Alcatel, and Lucent.
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Next Generation Network means both opportunities and challenges for system
manufacturers. On one hand, the migration to carrier-class IP infrastructures
stimulated network operators to invest on the system upgrade. For instance, the
expected cost of BT’s 21st Century Network, the first all-IP network, is more than
US$17 billion 92 . Besides equipment sales, some manufacturers also involve in
operator’s day-to-day network operation by managed services bundled with their
equipments [42]. On the other hand, the value-added service enabling platforms are
regarded as by far the most urgent demand from telecom operators and other SPs
because they benefit from that investment immediately. Service Delivery Platform 93
(SDP) [43] which enables operators to rapid deploy new services by collecting and
aggregating transactions from exiting CRM, ordering, billing systems and other
content providers has become a new hotspot, so has IMS product. The worldwide
IMS revenues are expected to grow to US$14.1 billion by 2010, and the bulk of
revenues are expected to come from the service plane 94 . Traditional manufacturers for
instance Nokia have offered the holistic solutions including both the network
equipments and service enabling platform. This can be seen as their involvement into
the system integration consultancy market. Software vendors and system integrators
are the competitors in this realm. The advantage system manufacturers have rests on
their familiarity with network plane and the network layer R&D capabilities as well as
their brand image in operators mind. But it is also clear that these manufacturers are
lack of the experience of developing large-scale complex software applications in
NGN’s service plane. And it has to be admitted that software-based service
development rather than ordinary equipment production contains more opportunities
in the context of NGN.
6.1.2.2
Terminal Manufacturer
The other segment is user-end terminals. New access technologies create mass market
potential. This can be well demonstrated by the mobile phone market. Each time the
industry evolves the mobile communication network, from 1G to 2G, 2.5G and 3G,
new terminal demand comes forth. And the service convergence requires more
functions to be implemented on the terminal so that new revenue source comes into
being. More importantly, the terminal is becoming ‘smart’. More and more
intelligence, for instance the embedded Operation System (OS) Windows CE, move to
the user-end so that various value-added services can be implemented on the terminal.
So the terminal has become one strategic node by which SPs can control the user
interface and push their services to customers directly. Traditional terminal
92
This figure was obtained in IBM’s report: “Services over IP—Delivering New Value through Next-Generation
Networks”, USA, 2005
93
Service delivery platform refers to the architecture that is needed to deliver services. In particular to telecom
industry, SDP is an IT architecture required to manage the service environment and to provide the underlying
networks with interfaces and delivery machinery.
94
Source: IBM White Paper: “Services over IP – Delivering New Value Through Next-generation Networks”,
USA, 2005
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manufacturers one after another upgraded their products from plain mobile phones to
intelligent terminals which integrates diversified service options. Mobile operators
also order customized terminals to build their brand image and customer relationship.
To sum up, the changes brought by NGN likewise impacts the system manufacturers.
Their existing core competency is the R&D capabilities. On one hand, manufacturers
ought to invest resources on the development of next generation technologies. On the
other hand, they need to notice that it will be a service-oriented market in the NGN
environment. Therefore, it is wise for system manufacturers to build and develop their
abilities for service provisioning in terms of managed services, system integration
consultancy, and even value-added service offerings.
6.1.3
Terrestrial Broadcaster/ Cable Operator
Terrestrial broadcasters and cable operators focus on the distribution of TV/radio
programs. Mostly, their infrastructures are one-way distribution networks. Along with
the technology convergence, roles from broadcasting sectors obtain the opportunities
to join the ICT service market in NGN.
Both these two players are good at content aggregation and management. They
cooperate with content owners, bale their content into different service packages and
transfer them to users through the broadcasting infrastructures. Some of them also
involve the content production. In some countries, the penetration of broadcasting
service is higher than the telecom broadband access. This gives some advantage to
broadcasting service providers in the competition.
In the converged market, cable network operators get involved into the
communication services by means of ‘triple play’. They have to upgrade their existing
infrastructures so as to support the two-way communication. Cable networks are not
well standardized, resulting in the intricacies and cost rising in the system upgrade
project. And the bandwidth in the segment of residential networks is a potential
bottle-neck due to the shared topology.
As for the terrestrial broadcasters, they make threats to mobile telecom operators in
the market of mobile multimedia service. The digital terrestrial network operators
have begun to offer mobile TV service which is thought as an attractive revenue
source by the industry. The terrestrial network operators at present own several
advantages in the mobile multimedia segment. Firstly, the technical solution they used,
for instance DVB-H 95 and T-DMB 96 , is optimized to broadcasting. It enables low cost
when getting good service performance even in a heavy traffic scenario. Secondly,
95
96
http://www.dvb-h.org/
http://eng.t-dmb.org/
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they are holding the broadcasting frequency license which is a must to enter this
market. Terrestrial broadcaster is one of the driving forces to develop and deploy the
digital broadcasting technology because it brings new revenues by partly making use
of their existing infrastructures. However, an inherent limitation of the digital
terrestrial broadcasting solution is the lack of a return channel which is necessary for
supporting interactive services. Therefore, the synergy between mobile network and
broadcasting network is a practical choice for mobile multimedia service. Then, the
business model becomes an important issue.
6.1.4
Software Vendor/System Integrator
Traditionally, software vendors did not involve telecommunication service too much.
They develop software products for personal and enterprise information systems.
Their products related to telecom are management platforms and operators’ back-end
IT systems. Even though, most of these back-end systems are implemented by system
integrators.
The basic idea of NGN is to open up the service provisions to 3rd-parties. The NGN
services are software-based. A number of software technologies have been recognized
as tools to implement value-added services: Java, JAIN (Java APIs for Integrated
Networks), Parlay and OSA, XML, and etc. In the NGN service environment based
on the above technologies, software developers and system integrators can play a
more important role in the service provisioning. Users will also have more service
choices which offer advanced functions such as personalization.
The APIs enable any developer besides telecom operators to develop and deploy
services. It brings a lot of opportunities to the software development communities for
instance .NET and Java. The vendors of these development platforms have obvious
advantages in services developing by using their products. They may even impose
limitation on the service interoperability with other platforms.
6.1.5
Content and Service provider
After the first phase of broadband development which focused on the rolling out of
network infrastructures, content and available services rather than network technology
are thought as the key drivers of the further growth of broadband [44].
6.1.5.1
Content Provider
Content providers in some measure relate to the media producing entities such as
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TV/radio program makers, film and music companies, news agencies, and etc. They
mainly produce information good for entertainment or public welfare. The content
providers locate at the upper end of the value chain.
Traditionally, content providers have more relationship with broadcast network
operators which are the main channels for distributing their products to customers.
With the advent of broadband technologies, Internet has become a fast distribution
channel of multimedia content. The convergence across sectors brings other market
roles’ attention to content providers. Telecom operators become the new channel
competing against broadcast network operators. As a result, the bargain power of
content provider increases. Broadband access channel is a double-edge sword. On one
hand, content providers have new opportunities for distributing traditional services
and deploying new multimedia services. For small or individual content producers,
the Internet enables rapid, large-scale, and cheap content publication without building
their own distribution channel. On the other hand, illegal content on-line sharing has
damaged content providers’ interests, crowding out legitimate sales. Some content
providers pointed out that producing contents has become a risky business with huge
budgets and limited guarantees on the return on investment 97 due to the piracy and
peer-to-peer file sharing. So the Intellectual Property Rights (IPR) is the first thing
cared by content providers when collaborating with distribution channels.
Still, content providers have their particular competency, media producing. Their
brand image is one advantage that can help channels to sell the bundled services. As
information good is a kind of experience good whose value can be realized only when
consumer experiences it, customers commonly have their reluctance to pay for
experience good. Branding and reputation are the best way to overcome this
experience good problem. For instance, people prefer to buy music branded by EMI
rather than Vodafone.
In the fierce competition environment, network operators seek for vertical extension
so as to be more attractive. They aggregate contents and services and sell bundled
services to users. In this area, content providers may build cooperative relationship or
joint ventures with new channel providers.
6.1.5.2
Service Provider
As for service providers, they produce value-added services, for instance VoIP, VoD,
and etc. Service providers are adept in developing innovative services. But they do
not own network infrastructures. On one hand, network operators welcome these
services because of the traffic increases in their networks. However, network
operators are more and more against new 3rd-party services implemented on their
97
DevoTeam Siticom: “Regulatory Implications of the Introduction of Next Generation Networks and Other New
Developments in Electronic Communications (Final v1.0)”, 2003, pp85
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network with the network independent charging mechanism. The underlying
contradiction is the lack of appropriate business models for ICT services, an
inevitable issue which has to be solved in NGN environment.
More and more attention has been attracted to the upper layers of the OSI model. And
more value will spring up at the service layer. During the rise of the Internet, some
famous Internet service brands such as Google and eBay came into being. There are
several types of Internet service brand: on-line news portal, searching engine, on-line
B2C web-site, and on-line community. Some service providers tend to integrate basic
communication functions such as web-based VoIP and IM to support their core
services. These brands have built up big customer base. The strongpoint of these
Internet service brand lies in the good understanding of users’ demand and service
innovation capability.
Anyway, the NGN market will be driven by the availabilities of contents and new
value-added services. Both the content providers and 3rd-party service providers are
attractive partners for network operators. Some content and service providers also try
to gain more control of the network infrastructures.
6.1.6
Service Aggregator
Aggregator plays the role of collecting and coordinating information and service
offerings. Service aggregator is an important role in terms of market competition.
Aggregator is not a new role, as it has existed in ICT sectors for years. In the
broadcast sector, the role of content aggregator normally locates in the broadcasters.
During the development of the Internet, portal websites, either an extension of
traditional media or new brand, as an aggregator emerged. And they are integrating
more categories of services such as messaging and video. In telecom sector, network
operators one after another establish their services aggregation websites integrating
more content and providing customer self service agent. These agents enable users to
subscribe services not only from operators, for instance different communication
service packages, but also from any 3rd-party service providers.
The advantage of network operators over others rests on the billing and accounting
systems they have built. But, customers’ consumption habit and patterns, such as
worrying about personal information abuse, may stunt the development of new
service aggregator. On the other hand, broadcasters and other media brands are still in
the ascendant with respect to the aggregation of entertainment contents.
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6.2 Value Shift
The market of telecommunication or ICT service has greatly changed, which may
affect the business performance of each stakeholder. Behind the fast changing market
landscape, the value customer would like to pay for has shifted. There have been two
waves of value migration since the liberalization campaign.
6.2.1
First Wave of Value Shift
In the age of Old Telecom, the R&D is an in-house activity which was largely carried
out by labs of monopoly operators. Over time, this value-adding activity shifted to
specialist suppliers more and more.
Suppliers accumulated experiences and increased their research and development
capabilities during the outsourced mass production and finally took over many
innovative assignments from the telecom operators. As a result, the equipment
suppliers involved R&D activities more and more and definitely moved into the
upstream parts of the innovation process 98 . Eventually, the majority of R&D was
outsourced to telecom equipment suppliers. Some incumbents only kept
business-oriented research and innovation. Those new entrant operators, for instance
WorldCom and Qwest, did not involve any R&D. In this way, they kept the entry cost
low and made themselves organizationally simpler than the incumbents.
Table 6.1 illustrates the proportion of R&D to sales in 1999 which indicates network
operators were not R&D-intensive after the vertical specification and the R&D
activities related to the network equipments had moved into specialist suppliers.
1
2
3
4
5
6
7
Telecom Operators
AT&T
BT
Deutsche Telekom
FT
NTT
WorldCom
Qwest
R&D % Sales Specialist Suppliers
0,90
Lucent
1,80
Ericsson
2,00
Nokia
2,20
Cisco
3,90
NEC
0
Nortel
0
Fujitsu
Table 6.1 Telecoms R&D in 1999 99
R&D % Sales
11,80
15,40
10,20
13,10
7,30
13,1
7,5
The value chain structure of the old telecom changed slowly over time. The
98
Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, pp42, Oxford University Press,
2002
99
Cited from: Martin Fransman: “Telecoms in the Internet Age, From Boom to Bust to…?”, pp49 & 218, Oxford
University Press, 2002
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knowledge base shifted towards the specialist technology suppliers. This role shift
laid a foundation of competition in the telecom equipment market and eventually
changed the structure of telecommunication industry [8]. However, the fundamental
technology paradigm featured as high integration of network infrastructure and
service did not change during this process so the groundwork of the ‘walled garden’
business model was not shaken.
6.2.2
Second Wave of Value Shift
The business value of ICT services indwells the transfer and exchange of information.
In the age of traditional telecom, voice is the main form of communicating through
network due to the technical limitation. And this service is tightly integrated with the
infrastructure. The core competency of operator at that time is the capability to deploy,
operate, and maintain the service-dedicated PSTN. Therefore, network operation is
the main value-adding activity and makes high profit.
With the technology development, NGN enables the service functionality to separate
from network infrastructure. This separation transforms the network into ‘bit pipe’. At
the same time, modern optical technologies greatly reduced the cost of transmission
capacity so that the ‘pipeline’ resources are not scarce any longer.
On the other hand, customers do not settle for separated, simple services any more. IP
provides an open service provisioning platform by which software vendors, 3rd-party
developers, system integrators, and etc. can develop advanced ICT services,
substituting POTS.
As a result, the value customers would like to pay for does not adhere to the network
infrastructures which are becoming cheaper and cheaper. And the backbone
infrastructure could gradually turn into an analogue of public utility. On the contrary,
innovative services become the main source of margins.
In conclusion, the value moves from transferring voice traffic to delivering various
value-added services based on software technologies and providing managed network
services.
6.3 NGN Ecosystem
Information and communication systems are very complex so that it is not realistic
that one firm can offer all the components of one system. The dependence of system’s
different components on each other determines the need of firms to collaborate. The
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fate of one company is to some extent interdependent with other companies.
Comparing with the traditional rules of competitive strategy which focus on
competitors, suppliers, and customers, it is equally important for any firm to focus on
other companies providing complementary components, or complementors, in the
environment of ICT industry [45]. Other than competition, Brandenburger and
Nalebuff [46] believe that cooperation can also make business more competitive.
Therefore, they introduced the brand new idea called as co-opetition 100 . In sum,
companies develop together in the competition cooperation interaction.
6.3.1
Concept of Business Ecosystem
The term “business ecosystem” refers to intentional community of economic actors
whose individual business activities share in some large measure the fate of the whole
community 101 . Business ecosystem firstly introduced by James F. Moore in 1993
describes a number of organizations, including suppliers, lead producers, competitors,
and other stakeholders, align their development directions, cooperate to produce
goods or services, and co-evolve their capabilities and roles over time.
Companies involving in a business ecosystem which influences the success of all
member companies should look beyond their boundaries and make holistic strategies.
The leader company should even more manage the health of the ecosystem as its
crucial activity.
The ecosystem form of economic coordination has become pervasive on the business
landscape 102 .
6.3.2
From Value Chain to Value Ecosystem
It should be noticed that Porter’s value chain theory merely presents a static view of
the current competitive situation of the industry. Business ecosystem framework is
better for decision makers, especially in the fast-changing ICT realm, to analyze
co-operation and competition landscape from a dynamic point of view, for instance
the co-evolution of the roles in the ecology.
And Moore proposed to abandon the “industry” concept while making strategies for
modern enterprises in his business ecosystem theory because of the fast development
of technology which results in convergence. In reality, most of the modern companies
100
Co-opetition: A neologism coming from the words ‘competition’ and ‘cooperation’, introduced by Adam
M.Brandenburger and Barry J. Nalebuff in their book “Co-opetition” in 1996
101
James F. Moore: “Business Ecosystems and the View from the Firms”, the Antitrust Bulletin, 2005, pp3
102
James F. Moore: “Business Ecosystems and the View from the Firms”, the Antitrust Bulletin, 2005, pp2
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inhabit ecosystems which span over the traditional boundaries of their industries. [47]
So it is quite suitable for players in the ICT realm, undergoing intense convergence, to
analyze their ecosystem, position themselves, and develop strategies matching their
roles.
The relationship between the players in the ecosystem is complex and various. Not a
single role can satisfy the diversified customer demands in a fast changing
circumstance. It is worth emphasizing, among others, the co-opetition relationship
between ecosystem roles.
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Figure 6.1 Evolution of Telecommunication Service Value Chain
It was common to analyze the operation of telecommunication industry by using the
value chain theory before. The precondition that value chain theory is feasible to
decompose the process of telecom services offering rests with the voice service
domination and the tight integration of network and service. The process of
value-adding presented a simple chain shape. This circumstance did not
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fundamentally change after the market deregulation because the close value-adding
system was not broken.
As left part of figure 6.1 shown, the whole value chain was controlled by the
state-owned telecom operators in the Old Telecom era. There was no competition on
each node of the value-adding chain. After the telecom liberalization, competition to a
degree came forth on each node along the chain including equipment supply and
network operation. Eventually, the NGN technology overthrew the walled-garden
regime and brought the value-creating opportunities to all market players including
software vendors, system integrators, 3rd-party service developer, and etc.
The value ecosystem is an open and dynamic system, implying any market role that
was irrelevant with telecommunication industry before can enter the circle. For
instance, mobile Internet is recognized as the next ‘big thing’ by the industry. Some
market players far from traditional mobile operators also covet the opportunities from
the mobile Internet. They design their own terminals implementing the client of their
value-added services and eventually hold an advantaged position in the value chain.
These new entrants could be PC manufacturer like Apple or Internet service brand
such as Google or any others. They compete against terminal manufacturers. As a
counter-action, some terminal manufacturers also extend their business scope to
content or service domain. For instance, Nokia has launched its new brand ‘Ovi’ as an
umbrella term for its digital content services in the mobile internet, music and gaming
sectors 103 . On the other hand, the strategic objective of those new entrants is to invade
the future mobile ICT service market and seize hold of a leading position in the
ecosystem. The advantages of these players are their service innovation and
development capabilities.
6.3.3
6.3.3.1
The Ecosystem of NGN Services
Overview
The ecosystem of NGN service is made up of telecom network operators, broadcast
network operators, system manufacturers, terminal manufacturers, service providers,
content providers, system integrators, and etc. It is an open and dynamic system
which means any potential market role that has resource can join the circle and
contribute to the ICT service provision. More importantly, the successful output of
this ecosystem relies on the co-evolving of all the actors. Only if the development
level of each main role matches each other, the ICT service can be offered with flying
colors. 3G service of the mobile communication is a good example to demonstrate
103
This information was gained at
http://www.independent.co.uk/news/business/news/nokia-aims-to-take-bite-out-of-apple-with-online-music-launch
-463552.html on April 30, 2008
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this point. 3G did not live up to the expectation from the industry. One of the main
reasons among others, as hindsight, is that market players did not evolve
harmoniously. The main driving force at the beginning was the system manufacturer.
Then network operators went overboard for the 3G license with sky-high price.
However, favorable contents and services were absent from the market. On the
contrary, 3G in Japan and South Korea grew fast, benefiting from the well established
business ecosystem.
Figure 6.2 NGN Ecosystem
The descriptions of some roles in the NGN ecosystem (figure 6.2) have been given
out in section 6.1. The following part focuses on the possibilities of the main roles’
evolution and the interrelationship between them. Before that, the roles not included
in section 6.1 will be first introduced.
6.3.3.2
Complementary Description of Ecosystem Roles
Customer’s requirement is always the central issue of the NGN ecosystem. There
were two sources of dynamics impelling the industry forward: technology driving
force and user requirement pulling force as shown in figure 6.1. Along with the
intensification of market competition, user requirement plays more and more role in
service development. NGN market is a customer-centric market. Good understanding
of customer’s demand and the ability of converting the requirement into feasible
services are the keys for success in NGN market.
The regulator should exert an influence on the establishment of fair competition
environment. Regulation will be an important means to facilitate the development of
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ICT services in the context of NGN although there are a lot of new challenges.
Comparing with regulation in traditional telecommunication, regulator should pay
more attention on the ‘soft’ control points in NGN such as APIs, domain name
systems, customer identity information, and etc. Fair access to these resources will
facilitate competitions in the ICT service market.
6.3.3.3
Interrelationship and Evolution of Main Roles
The relationship between network operators, value-added service providers, system
integrators, service aggregators, and other players will be determined by the bargain
power of each player. The bargain power could be the network infrastructure,
customer base, brand image, service innovation capabilities, and etc. The capabilities
of service innovation and development are the most competitive momentum because
NGN is a service incubator rather than a network platform. Main roles including
telecom operators, service providers, system integrators, and aggregators, will
co-opetite with each other in the NGN ecosystem.
The telecom operators own ubiquitous network infrastructures and rich experience of
customer relationship management. But they have to face to the pressure of
transformation. In fact, operators are not adept at software development which is the
main form of NGN service producing. One possible transformation path is to upgrade
its core network, especially the control plane and the application plane, so as to set up
the service enabling platform. By cooperating with 3rd-party developers, service
providers, telecom operator can fast develop and deploy new services. In this way,
telecom operator may evolve into service incubator manager. Meanwhile, operators
can accumulate the knowledge and experience about application development by
cooperation with 3rd-party developers. Eventually, they will possess of the capability
as service providers.
As for the leader role which has more influence on setting the development directions
in the NGN service ecosystem, it should have strong competencies of service
management including innovative service creation, rapid service deployment and
efficient service lifecycle management.
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7 Business Model Analysis of ICT Services in NGN Market
Business model is a relative young term which emerged along with the boom of
e-business. However, it has been regarded as a more crucial factor rather than
technology per se for successful implementation of ICT services. With the
deployment of the broadband infrastructures, multifarious applications appeared but
few of them are sustainable. As telecom operators have confronted the broadband
dilemma (see section 5.2.1), the deep-seated issue is the lack of the appropriate
business models.
The business model discussed in this thesis is on the industry-wide level. It describes
the relationships between the stakeholders in the value system and the processes
taking place between them.
According to the descriptions of business model from Timmer, Chesbrough, and
Rosenbloom (see section 2.3), basic elements of business model include target market
segment, value proposition, products/services, value creation, cost structure and profit
potential, and position in the value network. Chesbrough and Rosenbloom [48] argued
business model focuses more on the customers and the process of value delivery.
7.1 Business Model Design
In this section, one framework from Faber et al is selected to systematically articulate
the main issues and the linkages between them for designing business models.
According to Faber et al [49], business model has four interrelated design domains: 1)
service design; 2) organization design; 3) technology design; 4) finance design.
Figure 7.1 the Four Design Domains of Business Model 104
104
Cited from: Faver et al: “Designing Business Models for Mobile ICT Services”, Proceedings of the 16th
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7.1.1
CICT
Service Design
Service design, as one domain of a business model, describes the service which is
offered by a group of companies to target users. Service design solves the problem
how to present value to customers by implementing certain service. One important
issue of service design is innovation. New services can be categorized into two types:
new version service which is an enhanced version of existing service, and completely
new service which is a revolutionary service new in all aspects [49].
7.1.2
Technology Design
Technology design [49] represents the fundamental organization of the systems and
the technical architecture which is needed to deliver the service. Technical resources
and capabilities are the basic components of the technical architecture 105 . More
importantly, the technical resources of the stakeholders in the value chain impose
requirements on the technical architecture and it has to work with those resources 106 .
The architecture also includes the delivery of services and the linkages between
different stakeholders.
7.1.3
Organization Design
Organization design [49] solves the issues how different market players, each of
which has certain resources or capabilities, co-operate to deliver valuable service to
customers and what roles each participant having their own strategies and goals plays
in the process of service realization. According to Tan Su-En [50], there are different
types of partner in terms of their resources and capabilities, structural partner,
contributing partner, and supporting partner, in the value network. Meanwhile,
company’s internal organization design describes flow of routines inside the firm in
delivering services to customers. Structural partner who provides vital and
non-substitutable assets plays the leading role in the business model operation.
7.1.4
Finance Design
Finance design [49] is about the description of how financial arrangements including
profit, investments, cost, risks and revenue division among different actors in the
value network are made 107 . Briefly, any financial transaction between the members of
the value network belongs to the finance design domain of specific business model.
The structure of financial exchange, the way that charges, and the amount of charges
e-Commerce Conference, Bled, Slovenia, 2003
105
Tan Su-En: “Heterogeneous Networks and Services”, pp 182, Ph.D Thesis, CICT, DTU, 2006
106
Ibid
107
Ibid
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are all important considerations for stakeholders. Typical tariffs of telecom services
are fixed monthly subscription, service charge by time, service charge by traffic,
pre-paid, post-paid, and any combination of them. Different tariff packages for
different segments are commonly used market tools nowadays. In addition to revenue,
investments and costs are more related to the technology design and license fees.
Other contributions of the finance design may come from government allowances.
The finance domain is considered as the bottom line of the business model where
decisions made in the other domains will affect the finance domain and its revenue
streams and cost structures 108 .
7.2 Market Segment
Traditionally, customers of telecommunication services are roughly classified into
three groups as figure 7.2 shown: individual customers (including dense and sparse
population area), big corporate customers (including government customer), and
Small & Medium Enterprise 109 (SME) customers. In the past, the communication
demands of these three segments are more or less similar. They mainly consume voice
communication service and basic data communication services.
Along with the development of broadband, Internet, and convergence of information
and communication technology, the demands of residential segment varies from the
big corporate segment. Residential customers prefer to bundled services including
voice, broadband access, and TV, whereas big corporate customers require managed
network services to carry their distributed information systems. SME is a segment
includes diversified demands. The demand of micro enterprises like SOHO resembles
the residential customers’. Those medium-size enterprises have more advanced ICT
service requirements such as CPE management, ERP and Supply Chain Management
(SCM) applications and etc, whereas they normally are lack of ICT literacy and
financial support.
Generally, corporate customers have three options in ICT services to choose: an
in-house deployment, a whole outsourced solution, and a managed service 110 .
108
Ibid
The definition of SME refer to http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/index_en.htm
110
Managed service is a mixture of in-house deployment and outsourced solution. It is the practice of transferring
routine management responsibilities for improving efficiency and cost saving. In particular, managed service in
this report means the owner of the ICT systems does not hand over the complete control of his system to a 3rd party,
instead, the owner and the experienced Managed Service Provider (MSP) works together to design, deploy, and
manage the ICT systems.
109
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Residential
Dense Population Area
Sparse Population Area
CICT
Business
Small
&
Enterprise
Big Corporate
Medium
Figure 7.2 Telecom Market Segment
7.3 Value Proposition
7.3.1
Concept of Value Proposition
Value proposition consists of the sum total of benefits which a vendor promises that a
customer will receive in return for the customer's associated payment or other
value-transfer 111 . Briefly, value proposition is delivery of values for what the customer
pays. Value proposition includes the following elements: 1) target customer segment;
2) current situation including problems and causes; 3) customer’s demand; 4) target
situation such as what product or service the vendor will produce; 5) the benefits the
products or services bring about.
The value proposition of ICT services in NGN is intricate because users’ requirements
are diversifying and NGN technology brings infinite possibilities that market players
can implement. Due to the business model analysis aims at industry-wide level, the
value proposition in this report is accordingly a macro analysis of the potential values.
7.3.2
7.3.2.1
Value Proposition in NGN Market
Individual / Residential Customer Segment
In the individual customer segment, users are fatigued by fragmented service
experiences although they are enjoying multiform services. Customers in the
convergent era expect seamless experiences including single sign-on, one bill,
multi-service, real-time charging and etc. At the same time, more contents and
value-added services are still required.
Triple or quadruple play as an instance has been one prevailing service offering in the
market. Network operators could combine their distribution channel with contents
such as music, software, and etc. offered by service and content providers. But there
111
http://en.wikipedia.org/wiki/Value_proposition accessed on April 4th, 2008
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are also disputations on vertical service integration because it may cause exclusivity
in the content delivery and bring up new superpower in the market. For telecom
operators’ integrated service offerings, main risk may come from regulations. Besides
the regulation risks, telecom operators have to face the pressures from cable network
operators and other Multiple System Operators (MSO).
Triple/quadruple play service package is still the rudimental form of ICT services for
individual customers. In the long term, more business potential, other than
entertainment, are contained within more advanced services such as e-Learning,
e-Health Care, and etc.
7.3.2.2
Big Corporate Segment
For big enterprise customers, they normally own large-scale distributed information
systems. In a globalized economy environment, corporations all seek for simple and
agile business process, facilitated by information technology and communication
systems, to maintain and enhance their competitive edge. The success of highly
distributed businesses ultimately hinges on the capacity and efficiency of the globle
networks over which they run -- and on the skill and competence of how they are
managed 112 .
Outsourcing and managed service have already been the popular solutions for
traditional companies to deal with their ICT systems. This market is mainly occupied
by software vendors and system integrators. Those information systems have been
entrenched by platforms from traditional software vendors such as Microsoft and IBM.
Telecom operators normally provide the communication channels in forms of 2M,
ATM or FR lease line. Still, operators have farther opportunities to deliver values
these corporate customers would like to buy. According to Forrester Research 113 , the
IT applications within each site do not provide companies with competitive
advantages anymore. New advantages lie in the quality and management of the
network infrastructures. For example, well managed network can improve the
availability of applications distributed overseas so as to achieve quicker response time
that in return translates into competitive advantages. Some traditional telecom
operators such as BT have begun the strategic transformation aiming at being the role
of Managed Service Provider (MSP).
7.3.2.3
SME Segment
SME segment is a big ICT services market being full of challenges and opportunities
112
113
BT’s report: “Converged Networks”, 2004, pp1
This information is obtained in BT’s report: “Converged Networks”, 2004
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[51]. The market scale is very big. For example, more than 99% of European
businesses are SME, and they contribute half of the European GDP 114 . But there are a
lot of obstacles for SME adoption of ICT for instance limited ICT literacy of SME
employees and lack of financial support. SME without the relevant experience will
have a lot of questions related to their information and communication applications,
such as: which kind of network should I use? How to maintain and upgrade my CPE,
like LAN switch, and servers? Normally, it is a costly and daunting task for SMEs to
reliably deploy and manage their ICT applications by themselves. Therefore, it gives
telecom operators the chance to outsource SME’s basic ICT services including voice,
Internet access, CPE and network management.
Furthermore, telecom operators may, as the first step to move towards the upper hand
of the value chain, involve in the integration of SME’s information system and
operators’ own networks. Although it is a big challenge to offer complex ICT services
to a mass of SMEs, the market potential in SME segment is promising. As the case
stands, most of the advanced ICT products such as SAP’s ERP package are designed
for large companies and very expensive. SMEs can not afford this kind of solution.
On the other hand, it is not easy for those software vendors to offer those products for
SME cost-effectively. In this situation, telecom operators may have capabilities to
remedy the gap by their ubiquitous network connections and existing Internet Data
Centre (IDC). One possible solution could be building up servers in operator’s IDC
and rent the information service functions to SMEs. As a result, the integrated service
increases ARPU, meanwhile large numbers of SMEs can use advanced ICT
applications by a low price due to the economy of scale. However, implementing this
kind of service needs smooth cooperation involving network operator, software
vendor, integrator, and etc.
In conclusion, SME’s local network management and rented IT functions integrated
with network services are the market opportunities in SME segment.
7.4 Business Model Analysis
It is the fact that stable business models for ICT services in next generation network
environment have not yet matured. Or the business models for ICT services will be of
diversification because of the diversified requirements, the dynamic market
environment, and ever-changing technologies.
Based on the previous section, business models are discussed. Specifically, business
models for triple play service and for mobile broadcast service are analyzed according
to Faber’s framework introduced in section 7.1. Constructing these business models is
114
These figures are obtained at http://www.digital-eu.org/uploadstore/Business%20-%20Scheftlein.ppt
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based on, besides the substance of the customer’s requirements, the strength and
weakness of each stakeholder as analyzed in section 6.1. As for the other two market
segments, only the business model of managed network service is roughly described.
7.4.1
Business Model in Individual Segment
Figure 7.3 Three Business Models for Broadband Services115
Generally, there are basic business models 116 for telecom operators: public garden,
walled garden, and gated garden, as figure 7.3 shown.
The ‘walled garden’ is the classical business model of traditional telecom service
where the services are completely integrated with network infrastructures. The
technical paradigm of circuit-switching to a large extent determines the walled garden
business model of telephony service. Only a small group of innovators from operators
and specialist suppliers can access the service enabling platform. The bundling of
network and services gives the monopolistic advantage to telecom operators. And they
can easily lock in customers. Howbeit, this model requires costly in-house
implementation and results in low level of service innovation. ‘Walled garden’ is the
dominant business model in the old telecom time.
The current fixed broadband service is the ‘public garden’ model. The application
layer is out of network operator’s control. Services are independent of the transport
layer. This model enlarges the innovators base and incurs flourishing service
developments. Customers benefit from the competition of service provisioning. But, it
enormously challenges telecom operators, resulting in heavy traffic load and
squeezing voice income. The ‘public garden’ model is the concomitant of the Internet
115
Cited from: Reza Tadayoni, Halldo´ r Matthı´as Sigurðsson: “Development of Alternative Broadband
Infrastructures – Case Studies from Denmark”, pp338, CICT, DTU, 2007
116
These three basic models were identified by Alcatel’ strategic white paper: “A Guide Approach to Broadband
Entertainment Services”, 2004 May
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service.
The business success of NTT DoCoMo’s i-mode in Japan inspires network operators
with hope. A new business model, ‘gated garden’, can be abstracted from it. Under the
‘gated garden’ model, telecom operator controls the access of service enabling
platform. It grants some 3rd-party service providers permission to develop applications
and deliver services through operator’s networks. In return, operator benefits by
means of fixed fees or revenue-sharing from service providers. As a service
gatekeeper 117 , operators can focus on their core business. The relationship between
telecom operators and service providers is co-opetition. One of the key technical
components which enable market player to control the “garden gate’ is the IMS (see
section 4.7).
As ICT services in NGN is too broad and there is big uncertainty as for the potential
service offerings, the following business model analysis focuses on the recently
emerging services.
7.4.1.1
Business Model of Mobile Broadcast Convergence Service
In the mobile telecommunication domain, mobile operators see multimedia services
as the next ‘golden mine’. The compelling candidates can be delivered to user
terminals include video, audio, datacasting service. On the other hand, digital
terrestrial broadcast technology promoted by broadcasting industry led up in this field
by its cost-effective broadcasting solution. However, mobile networks support
interactivity which is the shortcoming of broadcasting infrastructures (Technology
introduction see section 4.4). As stated in chapter 5, synergy between different
networks is to some extent a practical solution for offering converged services.
Therefore, there will be a lot of possible cooperation involving stakeholders from both
sectors. As a result, business model of converged mobile broadcast service becomes a
crucial issue. In this subsection, business model of MBC service will be studied from
four aspects. One typical business model will be given out.
A) Service design:
The service design is the product or service that will be presented to customer [49].
The MBC service will include the following: mobile voice service, messaging, mobile
TV/radio, datacasting service, and etc. The additional value, comparing with
traditional mobile communication, mainly consists of mobile multimedia
entertainment. It is a big enhancement that live TV services are transplanted onto
pocket-size mobile terminals. News service will be the popular service among adults.
117
Reza Tadayoni, Halldo´ r Matthı´as Sigurðsson: “Development of Alternative Broadband Infrastructures – Case
Studies from Denmark”, pp338, CICT, DTU, 2007
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Typical using scenario could be when waiting for something, when people normally
read newspaper. According to the research of VTT 118 , a large number of users would
like to par for the mobile TV services by a fixed monthly subscription fee or
pay-per-view system [52].
B) Technology design:
The technology solution is also included in the business model because it determines
not only the price and quality of the service but also the relationship of different
market players.
The systems essential for the MBC service provisioning on the whole include the
mobile communication network, the broadcast network, end-user terminal, content
management platform, Internet service system, and etc. As an example, figure 7.4
roughly illustrates the architecture for MBC service provisioning.
Figure 7.4 System Architecture of MBC Services 119
These technical resources are provided by mobile operator, broadcast network
operator, content provider, content aggregator, system and terminal manufacturers,
Internet service providers, and etc. It should be pointed out the technical resources of
each stakeholder also impose requirements on the holistic technical architecture. And
it is vital that technical resources from different stakeholders can work together
smoothly. In figure 7.4, the cooperation platform is such an element that coordinates
the flow of services.
C) Organization design:
The value network of MBC service consists of mobile operator, broadcast network
operator, content provider, content aggregator, system manufacturers, terminal
118
http://www.vtt.fi/?lang=en
Cited from www.dvb-h.org; In the figure, DVB-T, as one candidate, is used to transmit broadcast signal. In fact,
other digital terrestrial broadcast technology can also be used.
119
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manufacturer, service provider, and etc. Each of them has different resources and
capabilities which determine the position of each stakeholder in the business model.
The outstanding capabilities of mobile operators are the two-way communication
channel, their big customer base, rich experience of CRM, and the vigorous billing
and accounting systems. Broadcast network operators own the frequency resource of
broadcast service. And their infrastructure can cost-effectively support the
one-to-many content distribution. Content providers create values which is
non-substitutable in the value chain. Content aggregators are good at content
collection and management. In reality, content aggregator, part role of content
provider, and sometimes broadcast network operation are combined as the broadcaster
role. Terminal manufacturers provide the versatile end-user equipments.
All market players involving in MBC service have their own strategies and goals.
Content providers are eager for the new distribution channels. Manufacturers are
active to advocate MBC because it brings them a lot of market opportunities ranging
from the network infrastructure to end-user terminal. The main strategic goal of
mobile operator is to attract more users and promote the ARPU by mobile multimedia
services. At present, 3G technology is still a bit expensive to distribute TV-wise
service to mass customers due to technical limitations. On the other hand,
broadcasters want to enlarge their market scope but are lack of the interactive
channels.
From an industry-wide point of view, mobile operator and broadcaster are the
structural partners. Most of the network infrastructures are provided by operators.
Mobile operators can update their existing customers with converged services and
easily implement the billing and accounting mechanism based on their existing
systems. Broadcasters can manage all TV/radio related services ranging from content
making and aggregating to signal transmitting. Content providers, system and
terminal manufacturers are contributing partners. Other roles such as Internet service
providers are supportive partners. As for the leading role of MBC service business
model, some people argue for mobile operator whereas others support broadcaster.
Generally, both of them own non-substitutable assets for the service provisioning. The
practice in real business model depends on the comprehensive bargain power of each
of them, the regulation in local market, their strategies, and etc.
D) Finance design:
The finance design of business model involves all aspects such as investment, cost,
revenue and risk. However, the finance design of MBC business model in this section
only describes the payment flows among the entities in the value network and
possible tariff schema.
As for the tariff of mobile broadcast service, it is recommended that both monthly
payment and pay-per-view should be offered as the way to pay although some people
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prefer steady price per month 120 . The mobile operators have already made various
tariffs for their traditional services. However, it is better to charge customers by single
account rather than fragmented bills. Single bill gives users convenience. On the other
hand, users are only accustomed to pay a bill for ‘mobile service’ rather than TV or
Internet-based services.
As an illustrated business model 121 , figure 7.5 shows the payment flows among the
partners cooperatively delivering MBC services. This is a mobile-operator-lead
business model. The mobile operator manages the customer relationship and carries
out the billing issues. It collects the service revenues from customers and then shares
the money with digital terrestrial network operator and broadcaster. System and
terminal providers get income by selling equipments to operators and end-users. The
converged terminal could also implement a value-added service supported by service
providers-- for example, when people buy a film ticket and enter the cinema, the
theme music of the movie will be delivered onto customers’ terminal. Behind the
amusing service, there is subtle finance design. The payment flow between mobile
operator and broadcaster is two-way because broadcaster needs to use mobile network
as the return channel for its interactive services.
Figure 7.5 Typical Business Model of MBC Services
7.4.1.2
Business Model of Triple Play Services
In fixed communication domain, both telecom operators and cable operators seek for
service bundling in order to increase their revenues and attract more customers. In this
120
VTT: “Mobile Television—Technology and User Experiences, Report on the Mobile-TV Project”, VTT
Publications 506, pp 61 & 88, Espoo 2003
121
Possible business models are not limited to this one, but the most typical model is given out in this paper.
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subsection, only the business model for telecom operator’s triple play service is
studied. The focus is to figure out the flaws and potential variable in the typical
business model.
A) Service Design:
The triple play service is based on broadband access infrastructures. Different access
technologies have been introduced in section 4.4. Incumbent telecom operators prefer
xDSL solution because it makes the most of their existing access resources, whereas
FTTx will be used in the new residential areas because optical access network is
future-proof. Various wireless access solutions give new entrant operators
opportunities for fast offering services so as to compete against the incumbents. In
some countries, the regulation of ULL enables new operators to implement xDSL
access services by using incumbent’s copper lines.
The broadband access service was originally pipeline-wise service which charges
users by using-time or even flat rate. With the fast developments of broadband
services and contents, telecom operators met big challenges as described in section
5.2.1. The triple play service offered by telecom operators generally is a combination
of preferential circuit-based voice package and broadband access plus IPTV services.
The strategic goal of telecom operators is to reduce customer churn and promote
ARPU. The value customers would like to pay rests on the high bandwidth and rich
contents aggregated by operators or third parties.
B) Technology design:
Essential access infrastructures for broadband access service have been deployed by
telecom operators or other access network providers. In the backbone network, the
capacity has also been upgraded. So there are few problems in the transport and
access planes. The main challenge of technology design is the lack of mature and
standardized solutions for implementing the value-added services in a ‘gated garden’
manner. In the figure 7.6, flows between service provider and access network
operator 122 , enclosed by the blue dashed rectangle, are not established appropriately
by now. Therefore, telecom operators still do not build up the ‘gated garden’ for
value-added services from the 3rd party. To deliver content from 3rd party, specific
Service Delivery Platform needs to be implemented. In the long term, IMS is a
promising candidate, among others, to enable the ‘gated garden’ in NGN.
C) Organization design:
122
In figure 7.6, aggregator and access network operator are enclosed in a dashed rectangle (black) because real
aggregator independent from network provider is quite few at present. However, independent aggregator is a
candidate to facilitate the vertical separation in the access market.
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In the triple play value network, access network operator 123 is structural partner as
well as value-added service provider. Backbone network operator and content
provider are contributing partners. One argument is whether the service bundling will
cause the practice of content/service exclusion or not. Appropriate regulation may be
the way to prohibit the exclusionary practice. However, independent aggregator is
another option by which customer can freely choose service and content through the
neutral platform. In figure 7.6 the aggregator role is still within the orbit of access
network operator. Some telecom operators in reality have begun to implement their
service/content aggregating functions. It is also possible that aggregator is divested
from the network provider and becomes an independent role in the future. The
potential flows between aggregator and access network operator are depicted by red
arrows in figure 7.6.
Figure 7.6 Typical Business Model of Triple Play Service
D) Finance design:
Generally, the payment flows of triple play service provided by telecom operators are
depicted in figure 7.6. Flat rate is the popular tariff of triple play service. The telecom
operator acts as the revenue re-distributing role. It is worthy of being aware that the
implementation of finance design is quite dependent on the smart accounting
technologies which compose an important part of the core competency of telecom
operator in NGN. Since the finance issue is the bottom line, so many challenges
confronted by market players in the value network of broadband services relate to the
absence of reasonable finance design or the lack of capabilities for accounting the
123
Here, the access network operator does not mean the owner of the infrastructures. It could be the new entrant
operator who rents the raw copper from the owner.
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services.
7.4.2
Business Model of Managed Network Service
SME segment is such a complicated segment where customers’ requirements are of
diversification that the detailed analysis of business models of service offerings for
SME is beyond the study scope of this thesis. As for the big corporate customers
segment, managed network service may be the only possible service extension for
telecom operators to implement according to their current competencies. Anyway,
both big corporate customers and some SME customers have the demands for
managed network service according to the value proposition analysis in section 7.3.
So the business model of managed network service is roughly described in this
section.
A) Service and Technology Design:
Along with the development of Ethernet and IP technologies, managed network
service which is based on layer 2 or layer 3 VPN has been seen as the next main
revenue source for telecom operators. The main technologies include IP, MPLS,
Ethernet over MPLS, and etc. But the challenges lie in operators’ legacy network
infrastructures which are lack of the capabilities for carrying carrier-class services and
the functionalities supporting efficient carrier-class management.
On the other hand, the existing equipments in customers’ local networks differ in
thousands ways. To launch the managed network service, operators need to carefully
select a group of equipment manufacturers and then establish long-term cooperation
relationship with them. Manufacturers which can provide full series of equipments
with end-to-end management solutions, ranging from the carrier’s backbone network
to customer’s internal network, are preferred.
B) Organization Design:
Customers’ internal IT systems including network infrastructures and software
applications are normally provided by system integrators. System integrator offers the
IT management service after the system integration. The wide-area network
connection is provided by telecom network operators. Therefore, system integrator is
the structural partner, whereas telecom operator is a contributing partner at present.
Software vendor and equipment manufacturer are supportive partners.
However, telecom operator could evolve into the structural partner by enhancing its
capability of system integration. The potential value for operators rests on the
integration of their managed network and the customers’ IT systems. Telecom
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operators should reinforce the cooperation with software vendors. In this case,
telecom operator directly offer managed ICT service to customers. Software vendor
and equipment manufacturer are supportive partners. There will be some battles in
this area between telecom operators and system integrators.
7.4.3
Summary
Telecom operator can still play an important role in the business models of integrated
services at present although other market players such as service providers,
broadcasters, and etc. began to challenge its leading position in the value system. One
reason, among others, is that the network and service provisioning environment still
do not live up to the NGN level. Telecom operator to some extent still has competitive
advantages such as the ubiquitous access network resource and vigorous billing
systems. However, telecom operator has to build up its new core competencies for the
real NGN environment.
According to the value proposition and market segment analysis (see section 7.2
&7.3), the ICT services market in the future will fractionize. The
residential/individual customer’s demand will be quite different from the business
customer’s. This diversification trend brings both opportunities and challenges to
traditional network operators. Telecom operators need to resolve issues related to both
the technology aspect and the internal organization aspect.
The “walled gardens” have to give way to the service-incubatory platform. As a result,
the industry will shift from single and one-size-fits-all business model to multiple
co-exiting models in an ecosystem.
Furthermore, the business model in a dynamic value system is complicated. More
partners than in the old telecom fulfill more functions in the NGN. Those new
members of the value system contribute new expertise so that the gaps between the
subsistent players can be filled.
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8 Telecom Transformation
The industry has been talking about transformation for several years. Along with the
evolution of technology, most of the telecom operators realized that they have to
transform the fundamental understanding about the value creation of their business in
the future.
In detail, operators should first realize the underlying change of the technical
paradigm that is a transition from circuit-switching technology to packet-switching
technology, from a service-dedicated network to a service-incubator platform. The
technical evolution then leads to the change of market structure. Eventually, the value
system of ICT services reshapes, changing from a simple chain to an open and
dynamic ecosystem. Telecom operator is losing its dominant position in the
value-adding activities. The old ‘walled garden’ business model will inevitably
demise. Therefore, operator needs to re-position itself in the new value system.
Conforming to the value-shift trend of ICT industry, they should constitute new core
competencies so as to play the leading role in the new business models.
8.1 SWOT Analysis for Telecom Operator
SWOT is a strategic analysis framework assisting organizations to evaluate the
situations they are in. Here, the case is to help telecom operators analyze their internal
factors, their strengths and weaknesses, and the external environment, the
opportunities and threats in the scope of the whole industry when facing the NGN
environment.
The first step is to identify competitors in NGN. Main competitors include 3rd party
service providers, cable operators, and etc.
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Strengths
·Reputation in communication market
·Full range of network infrastructures
·Big customer base
·Rich experience of network operation
·Vigorous billing systems
·Skilled customer-caring teams
Weaknesses
·Lacking service innovation capability
·Legacy systems
·Lacking ability of differentiation
·Lacking experience of upper layer
service provisioning
Opportunities
·Vertical extension
·New technologies
·Integrated service offering
·Service convergence
·Cost-saving by network convergence
·flourishing customer demands
Threats
·Public garden business model
·Disruptive application
·New entrant competitors
·Divesture of backbone infrastructures
Figure 8.1 SWOT Matrix of Telecom Operator
As figure 8.1 shows, the prominent strengths of telecom operators are the reputation
in the market, experience of customer-caring and network operation, and skilled
human resource. The full range network infrastructures give operators competitive
advantages, whereas these legacy systems may delay the deployments of some new
services. The most fatal weakness of telecom operators is the lack of innovation and
differentiation capabilities. They are familiar with telephone service and simple data
services, but not good at upper layers service provisioning which represents the
future-proof business.
NGN also brings opportunities to operators. New technologies enable service
convergence which leads to new revenue source although market players from
broadcast sector and others also invade into telecom market. Telecom operators have
to notice the upward value shift as analyzed in section 6.2.2 so as to seize the vertical
extension opportunities instead of degrading into traffic carriers. In the NGN
environment, customers’ demands are of diversification and flourishing, which in turn
mean a lot of service opportunities. On the other hand, the NGN platform lowers the
entrance barriers, resulting in many new competitors. More dangerous threats are
disruption applications such as VoIP and the public garden business model of
broadband services.
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8.2 Strategies for Telecom operator
In the process of converging and transiting towards NGN, telecom operators are
facing unprecedented challenges and huge opportunities with respect to transforming
their business models.
The telecommunication industry has evolved into a complex adaptive business
environment since the liberalization campaign and the Internet booms. Telecom
operators are facing the big risks of being marginalized although they were
traditionally the keystone player.
To master new technologies and to develop new services are essential to survive in the
fierce NGN competition. It is more important for operators to think over the trend of
value migration and design their strategies under the framework of a dynamic
business ecosystem. The aim of operators’ transformation is to cultivate the
capabilities of inventing new values and configuring relationships amongst players in
the ecosystem and to keep their leading position in the community of information
service offering. Since the value shifts upwards to upper layer, telecom operators have
to vertially extend their business to the service layer. At the same time, they should
also get hold of the opportunities brought by horizontal convergence on the service
layer.
It is no doubt that telecom operators can not expect to keep the walled-garden model
by which they integrate infrastructure operation and service provisioning in the age of
NGN. Instead, it has to be admitted that an open and dynamic ecosystem will be the
form in which stakeholders co-operate and compete. All the members in this business
ecosystem share the fate of the system as a whole, irrespective of the role each actor
plays.
Telecom operators need to evolve into a more advanced role than a network operator.
Their business opportunities in NGN rest on the vertical extension, based on their
existing customer base. NTT DoCoMo’s experience may inspire network operators to
become a service garden gatekeeper. In this way, telecom operator could deploy and
manage the service enabling platforms and operate the legacy networks at the same
time. This is a smooth transformation path because one of the main functions of Next
Generation Network is to incubate innovative services. So operator can gradually
build up the capabilities of service management during the process of phasing out the
legacy systems and service. Finally, the network operator will evolve into a
service-incubator platform manager. It share service revenues from the service
provider under the ‘gated garden’ business model.
In conclusion, telecom operator should form the new core competency adaptive for
NGN environment. Service management, including service creation and delivery,
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service lifecycle management, and service performance measurement and report, is
the pivotal competence of market players in context of NGN. As a service-incubator
platform manager, operator can play a leading role in the ‘gated garden’ business
model.
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9 Conclusion
The main part of this thesis commences with reviewing the evolution of
telecommunication industry. The industry experienced two milestones, liberalization
and the emergence of Internet, in a period of about twenty years, resulting in
fundamental changes in terms of market environment and technology paradigm.
The old telecom industry is featured as highly regulated and vertical integrated sector.
State-owned telecom operator operated circuit-switching PSTN and monopolized the
market by end-to-end service provisioning. Liberalization campaign introduced
competition which facilitated the vertical specification. Most of the R&D activities
moved to the specialist technology suppliers. The equipment manufacture division
spun off from the incumbent operators. Part of the value was divested of by the
equipment manufacturers. However, the technology paradigm where network and
service are integrated was not changed. The ‘walled garden’ business model held the
line stably. The value-adding activities were confined in a close value chain.
Definitely, the Internet brought a radical change beyond what is thought as an
ordinary technological evolution. It blurred the traditional boundaries of different
industries. More importantly, the Internet enables the disruption of the old business
model and brings the ‘public garden’ model. Therefore, it is the Internet overthrew
groundwork of the traditional telecom industry.
The industry got consensus that next generation network is based on the IP technology.
One of the most important characteristics of NGN is the service plane separates from
the network transport plane. This fundamental change of the technology paradigm
profoundly impacts on the network architecture, the service provisioning environment,
the market structure, and the business model of ICT services. Diversiform access
technologies can facilitate the competition. In the control and service planes of next
generation network, some components such as IMS and etc. enable flexible business
models.
Convergence is recently the most spectacular phenomenon in the ICT service market.
Service convergence gives new opportunities to market players from different sectors.
On the other hand, customers benefit from service convergence, obtaining convenient
service packages with low average price. Still, some problems related to the
convergence emerged. The deep-seated reason for those unsustainable broadband
services is the absence of a reasonable business model or a pricing schema. However,
convergence represents the mainstream of the ICT services in the future. The main
converged service offerings at present are the triple/quadruple play service and
converged mobile broadcast service.
Competition has been demonstrated as an effective way to stimulate broadband
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infrastructure deployment and accelerate new service development. To ensure fair and
healthy competition circumstances, regulation plays an important role. Convergence
challenged the existing regulation. Regulators have to identify the potential control
points in NGN and regulate them appropriately. Dissimilarly, the backbone network
infrastructures kind of become public utility. There is possibility that the backbone
infrastructures of NGN will be regulated as public utility. In reality, there have been
cases that the backbone transport infrastructures were separated from the
commercial-oriented telecom organizations.
The NGN technology paradigm facilitates the vertical specialization above the
network layer. Technology development combining with the evolution of customers’
requirements leads to the second wave of value shift in ICT industry. Consequently,
all the stakeholders need to develop their capabilities so as to seize the new
opportunities.
Indeed, NGN technology breaks up the close value chain and gives the possibilities of
joining the value-adding activities to all market players including the potentials. The
complexity of advanced ICT services and the diversity of customers’ requirements ask
the stakeholders to cooperate although competition between them still exists. As a
result, an open and dynamic business ecosystem for ICT services come into being.
Multiple co-existing business models rather than the one-size-fits-all model will be
the status in future NGN market. As for the business models for the new converged
services, telecom operator can still play an important role in the business models at
present although other market players such as service providers, broadcasters, and etc.
began to challenge its leading position in the value system.
According to the analysis of NGN technology and convergence, traditional telecom
operators have the risk to degrade into bit pipe plumber in NGN market if they do not
build up their core competency for instance service innovation and management
capabilities. For telecom network operators, their business opportunities in NGN rest
on the vertical extension, based on their existing customer base. In nature, operators
need to tackle the trend of value shift in this industry. The first wave of value shift
happened during the separation of layer 1 124 from network operation and service
provisioning. Telecom operators could still grow well in market share and revenues
after that shift because the tight network service integration regime which is the basis
of walled garden model was not broken up. However, the NGN regime completely
discards the old system and releases service values from network infrastructures. In
other words, the value-adding activities related to service innovation, development
and maintenance can be carried out by any market roles without any network assets.
The ‘gated garden’ business model could be promising, or it is a smooth transform
path for telecom operator. As possible transformation directions, telecom operator
may evolve into a service provider, or an incubator manager.
124
Refer to: Figure 3.1
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2006
[51]http://en.wikibooks.org/wiki/Small_and_Medium_Enterprises_and_ICT/SME_Ad
option_of_ICT
[52] VTT: “Mobile Television—Technology and User Experiences, Report on the
Mobile-TV Project”, VTT Publications 506, Espoo 2003
103
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Acronyms
3GPP
3GPP2
ADSL
API
ARPU
BOSS
BS
BT
BWA
CAPEX
COTS
CPE
CS
CSCF
DAB
DVB
EoMPLS
ERP
EU
EV-DO
FEC
FDD
FMC
FMS
FTTx
FTTH
FTTA
FTTC
FWA
Gbps
HTTP
HSDPA
HSPA
HSOPA
HSUPA
ICT
IDC
IETF
IM
IMS
3rd Generation Partnership Project
3rd Generation Partnership Project 2
Asymmetric Digital Subscriber Line
Application Programming Interface
Average Revenue per User
Business and Operational Support System
Base Station
British Telecom
Broadband Wireless Access
Capital Expenditure
Commercial-Off-The-Shelf
Customer Premises Equipment
Circuit-Switching
Call Service Control Function
Digital Audio Broadcast
Digital Video Broadcst
Ethernet over MPLS
Enterprise Resource Planning
European Union
EVolution-Data Optimized
Forward Error Correction
Frequency Division Duplex
Fix Mobile Convergence
Fixed-Mobile Substitution
Fiber-To-The-x
Fiber-To-The-Home
Fiber-To-The-Area
Fiber-To-The-Curb
Fixed Wireless Access
Giga-bit-per-second
HyperText Transfer Protocol
High-Speed Downlink Packet Access
High-Speed Packet Access
High Speed OFDM Packet Access
High-Speed Uplink Packet Access
Information and Communication Technology
Internet Data Centre
Internet Engineering Task Force
Instant Messaging
IP Multimedia Subsystem
104
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IN
IP
ISDN
ISM band
ISO
ISP
ITU
JAIN
LAN
LTE
MAN
MBC
Mbps
MBWA
MEGACO
MGCP
MIMO
MPLS
MSO
MSP
NBI
NGN
NGAN
NGCN
NNI
OFDM
OFDMA
OSA
OSI
OPEX
PAN
PBX
PDA
PoP
POTS
POTVS
PS
PSTN
QoS
RTSP
SDP
SIP
SLA
SME
CICT
Intelligent Network
Internet Protocol
Integrated Services Digital Network
Industrial, Scientific and Medical band
International Organization for Standardization
Internet Service Provider
International Telecommunication Union
Java APIs for Integrated Networks
Local Area Network
Long Term Evolution
Metropolitan Area Network
Mobile Broadcast Convergence
Mega-bit-per-second
Mobile Broadband Wireless Access
Media Gateway Control
Media Gateway Control Protocol
Multiple Input Multiple Output
Multi-Protocol Label Switch
Multiple System Operator
Managed Service Provider
North Bound Interface
Next Generation Network
Next Generation Access Network
Next Generation Core Network
Network to Network Interface
Orthogonal Frequency-Division Multiplexing
Orthogonal Frequency-Division Multiple Access
Open Service Architecture
Open System Interconnection
Operational Expenditure
Personal Area Network
Private Branch eXchange
Personal Digital Assistant
Points of Presence
Plain Old Telephone Services
Plain Old TV Services
Packet-Switching
Public Switched Telephone Network
Quality of Service
Real Time Streaming Protocol
Service Delivery Platform
Session Initiation Protocol
Service Level Agreement
Small & Medium-sized Enterprise
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SOFDMA
SOHO
SP
SPI
SS7
SWOT
TDD
UMB
UMTS
UNI
UTRAN
UWB
VoIP
VPN
WAN
WiMAX
WISP
WLAN
xDSL
XML
Scalable OFDM Multi-Access
Small Office Home Office
Service Provider
Service Provider Interface
Signaling System #7
Strengths, Weaknesses, Opportunities, Threats
Time Division Duplex
Ultra Mobile Broadband
Universal Mobile Telecommunications System
User to Network Interface
UMTS Terrestrial Radio Access Network
Ultra Wide Band
Voice over Internet Protocol
Virtual Private Network
Wide Area Network
Worldwide Interoperability for Microwave Access
Wireless Internet Service Provider
Wireless Local Area Network
x Digital Subscriber Line
Extensible Markup Language
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Appendix
Appendix 1: Main Standards of IEEE802.11 (Non-exhaustive) 125
Standard
Name
Simple Description
802.11a
802.11b
802.11g
802.11n
802.11r
802.11s
High Speed WLAN Standard
Normal WLAN Standard
With OFDM Modulation
High Throughput Standard
Fast Handoff Support
Meshed WLAN Standard
Typical Max Data
Data Rate
Rate
23Mbps
4.3Mbps
19Mbps
74Mbps
54Mbps
11Mbps
54Mbps
248Mbps
Frequency
Band
5GHz
2.4GHz
2.4GHz
2.4GHz;5GHz
Source: http://en.wikipedia.org/wiki/IEEE_802.11
125
Exhaustive list of IEEE802.11 family refers to http://en.wikipedia.org/wiki/IEEE_802.11
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Appendix 2: WiMAX Forum Certification Profiles
1. WiMAX Forum Profile 126 :
WiMAX is a set of profiles based on IEEE 802.16 developed by the WiMAX Forum
and its members. While 802.16 supports a wide range of frequencies (up to 66 GHz),
channel sizes (1.25 MHz to 20 MHz) and applications (LOS and NLOS; PTP and
PMT), the WiMAX profiles narrow the scope of 802.16 to focus on specific
configurations.
The selection of a limited number of profiles is essential to ensure interoperability
across vendors and to generate the economies of scale that lead to lower prices and a
more appealing technology. The choice of profiles is driven by market demand,
spectrum availability, regulatory constraints, the services to be offered, and vendor
interest.
WiMAX Forum profiles are defined by the following parameters: spectrum band,
duplexing, channel bandwidth, IEEE standard.
2. WiMAX Forum Certification Profiles of 802.16d 127 :
3. WiMAX Forum Certification Profiles of 802.16e (Release-1) 128
126
Cited from: “Fixed, nomadic, portable and mobile applications for 802.16-2004 and 802.16e WiMAX
networks” by WiMAX Forum, November 2005
127
Ibid
128
Cited from: “Mobile WiMAX: A Performanceand Comparative Summary”, by WiMAX Forum, September
2006
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109
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Appendix
3:
Evolution
CICT
Path
of
Different
Wireless
Technologies 129
129
Cited from: “Heterogeneous Networks and Services”, Ph.D Thesis Tan Su-En, CICT, DTU, 2006
110
Access