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ericsson white paper

284 23-3132 Uen Rev B | June 2010

the future
role of
telecom

Expanding on the
creativity of the
internet world

enterprises and governments. How does one handle the emerging world of internet-inspired services. This was crucial to the quick take-up of mobile services and clearly demonstrates the importance of interoperability. Telecom as an interoperable. and where proprietary systems are competing with standardized solutions. The combination of the internet’s creativity and telecom’s scalability and efficiency has enormous potential. supporting regulations will ensure interoperability and that the industry sticks to the goal of universal services and communications for all users and businesses. interoperable fixed and mobile telecom networks are the result of systematic ways of working with open standards and clear interfaces. On the mobile side. seamless service is taken for granted in most parts of the world. for both new and established players. Building on the experiences gained from telecom’s proven ways of working. But a newcomer – the internet – has changed the rules of the game. operators.In a few words… Open.. The rapidly growing market impact of the internet now presents the telecom industry with great opportunities. the first mobile phone could instantly reach millions of fixed phones.. for which there are numerous open as well as de facto standards. It enables users to call anyone from practically anywhere. which in turn has created a truly global service in terms of reach and accessibility. When GSM was launched. GSM introduced a new level of competition. Another challenge is how to capture both the creativity of the internet world and support the services created in this open environment. The way enterprises and users utilize the internet calls for new roles and business opportunities. In this way. the industry can attain the huge volumes and low prices that will benefit users. but also with some challenges that have to be met. Fees and handsets are affordable for most people around the world. and only in this way. where the rules are different. This is the way the telecom industry has traditionally worked – with great success. THE FUTURE ROLE OF TELECOM • IN A FEW WORDS. 2 .

All of these examples point towards the importance of future communications services that are not “media” in the sense of content provided by other market players. Interoperability at the core When talking about telecom and the future of the telecom industry. there should be no borders. especially in emerging economies. Telecom is essential for individuals. Its impact on economies around the world has been fundamental. high-definition voice. already developed into an indispensable part of our infrastructure. The aim is to create total interoperability between networks. The provision of connectivity will probably be telecom’s base business in the future.Expanding telecom’s reach The history and legacy of telecom is telling. However. for example. but there are some obstacles to taking full advantage of the internet’s potential. To accomplish this transformation. So far. open interfaces that make it easier to ensure access to any communication service. one which allows the telecom world to expand and play an important role in the realization of these new benefits and values. fixed or mobile. That is the only way to provide economies of scale (leading to low prices). e-commerce and e-health. To maximize the value of these connectivity services. energy. redesigned business models and greater efficiency across a broad range of areas in business and society. THE FUTURE ROLE OF TELECOM • EXPANDING TELECOM’S REACH 3 . The integration of the internet and telecom into a broad range of industries and services is set to create a much richer world of communications. It has. It may seem obvious. This is a great opportunity. security. Governments are demanding broadband connections for everyone. let’s have a quick look at telecom’s current foundations. and active address books. such as road traffic. communities and businesses everywhere. but many new useful applications that benefit society. supporting everyday societal functions. part of the value chains for other industries. telecom can definitely be a vital part of extending value and increasing reach for much more than traditional telecom services. for example. using any device. terminals and services. telecom operators also need to further improve basic communications services and address the potential of. Having said that. Rather we need clear. becoming a part of other businesses. including machine-to-machine communication. The telecom industry therefore needs: • Open global standards • Fair competition regulations • New business and service models. fair usage of spectrum and quality of service. and telecom is still crucial to the creation of individual prosperity and economic growth in many countries. virtual videoconferencing. anywhere. interconnection and regulation are essential aspects of future connectivity. These kinds of improvements require interoperability between service providers. But before going deeper into this interesting area. it’s clear that telecom is being redefined: telecom services are proliferating. and vendors are competing to provide new forms of infrastructure. health. or as mentioned earlier. The internet is obviously much more than a service or a distribution channel for content. with any kind of device or operator. Standardization. higher speeds (real-time functionality) and higher-quality connections. The internet does not mean simply media and entertainment. Other examples could be found in the areas of high-security transactions for payments. public services and all kinds of monitoring. in fact. the telecom industry has largely been focused on extending its classic business model and on providing internet access. societal functions. Broadband and high- speed transport networks will connect people and equipment all over the world. The internet provides new opportunities here. two core areas that need to be developed have traditionally been seen as telecom’s strongholds: • The provision of high availability and high-quality connectivity • Offerings of interoperable communication services with clearly defined business models. It’s a bridge that is now beginning to provide improved consumer experiences. high-definition TV.

This gives a service a bad reputation. several issues have to be addressed. THE FUTURE ROLE OF TELECOM • A CHALLENGING ROAD AHEAD 4 . Traditional operators can gain market share by exploring new business areas. Clear interfaces enable collaboration between operators. provide services to and benefit from the “non-standardized” internet world. industrial processes and public services. devices and systems are often customized using proprietary protocols. such as TV. most respondents rate interoperability between devices and applications as very important. to some degree. Clear interfaces Clear interfaces are a prerequisite for interoperability and for a healthy supply of equipment. These new logical worlds can. This “second wave” of the internet is much more than browsing. service providers. But there are no established frameworks and business practices. So. telecom has great potential. It is being firmly integrated in a variety of different sectors. on the move. clear interfaces should allow access to any broadband service. early mobile users had people to call. one by one. in terms of regulation and fair usage. Interfaces play an important role in technical standards. • The success of mobile telephony was a result of interoperability through the public switched telephone network with fixed-network operators. Let’s look at these challenges. anywhere. Today. requiring business agreements that support the sharing of revenue and information between service providers. For example. on the brink of a large transformation for users. Interoperability There is always a threat that technologies and services will lack interoperability. Metcalfe’s law indicates that the value of a network (or a network service) is proportional to the square of the number of connected users of the system. • The lack of interoperability between service providers creates an equal amount of frustration. when MMS was launched in Europe. The right interfaces will give operators the right level of control so they can interact with. education. application developers and new market entrants. Interoperability is the key to growing the number of users of a service. non-interoperable standards of television and video technologies. Making interoperability a reality is both a political challenge. Mac OS. is crucial. the process of identifying the relevant interfaces gives operators the means to develop value-creation propositions supporting other value chains. A user sending a message to another user could not be sure that the operators had commercial agreements and if the receiving user had the service activated. with clear business and technical interfaces. Just think back to the competing. Linux and so on. using any device. conducted correctly. Instead. the telecom industry is now facing perhaps its greatest challenge yet. Interoperability is an obvious demand from users. however. regulatory confusion and new user demands. and as a consequence they are often incompatible with one another. Interoperability. be turned into new opportunities for telecom. or between Windows. And in the same way. and a business challenge. a reshaping of the competitive landscape with threats from the new “logical worlds” created by certain internet players. • In consumer surveys. And there is. with new technologies. There are regulatory rules and supply of spectrum. Identifying clear interfaces is also crucial when analyzing strategic choices. To realize telecom’s potential. anywhere. they allow backwards compatibility and are equally important in any business architecture that targets a mass market with low-cost devices. Consumers are used to getting access to internet and data services on the home computer and now want them on any device.A challenging road ahead In fact. messaging and looking at video clips. the lack of interoperability between network operators led to unreliable delivery of messages. the delivery of fixed and mobile communication services over IP will require the use of open standards and interoperability.

integration of telecom services. which tends to paralyze the market. The net neutrality lobby’s main arguments are that this would endanger the freedom of the internet. THE FUTURE ROLE OF TELECOM • A CHALLENGING ROAD AHEAD 5 . The uncertainty that still lingers around net neutrality is a problem for network investors. government regulations determine the extent to which new broadband technologies are or are not adopted. This means lower costs for both enterprises and consumers. The supply of spectrum is a key enabler for choice and competition. if a certain service is judged to be a telephony service or not. ambiguity on the part of regulators is a sure-fire way to stifle investments or market growth. They also align and harmonize the telecom channel. mobile roaming charges and access-network unbundling. Instead the issue becomes a shortage of rights to use the spectrum. but combined with telecom features. independent of how it is perceived by the user.g. As technology advances. and must also be applied on a global scale. Many countries are now adopting a technology-neutral approach for new spectrum auctions. which are imposing their own brands and services on entire network ecosystems. let us now clarify what opportunities we see ahead. Apple and Microsoft. allowing more and more spectrum to become usable. to regulatory indecision. and spectrum decisions have a major impact on the evolution of the communications sector. The marriage between the internet and telecom means golden opportunities for synergies. they could be even better.” which started in the US and spread to other markets. Open standards – which are set by standardization bodies. Clear regulatory rules in a competition-friendly environment are some of the most important criteria when operators consider investing in. Spectrum Spectrum is a critical building block in any new regulatory framework. Internet players are pressuring legislators to limit network companies’ freedom to differentiate in terms of internet usage and charging. the result can lead to an imbalance in the cost of providing services e. and transaction capabilities. Clear regulatory rules Regulatory confusion in some markets compounds the situation. This suggests that operators prefer any decision. Open standards promote competition by setting up a level playing field for all market players. for instance. On the other hand. In many parts of the world. Regulation has been applied differently in different countries or regions. giving the position of an emergency call. Spectrum allocation goes hand-in-hand with global standardization and business development. discriminate against certain users and raise the threshold to new market entrants. They already offer interesting services. Logical worlds A new challenge to the industry is the creation of “logical worlds” by the likes of Google. such as interoperability. user context-related information. and subsequently verified and tested – are therefore vitally important because they help operators create interoperable and affordable solutions. Depending on the classification. But worse still is regulatory indecision. resulting in added value for both and increased network data traffic. say.g. The European Union provides other examples of regulatory uncertainty as the European Commission intervenes on. the issue ceases to be whether there is a shortage of spectrum. Bearing all of these challenges in mind. One example is the ongoing debate over “net neutrality. These logical worlds are extremely innovative and are attractive for telecom players. however unpopular. Another area of regulation involves the service obligations that depend on judgments of classification of a service e. Alignment of spectrum is a decisive factor for the price of handsets – fragmentation makes handsets more costly because they must be manufactured in smaller volumes. deploying deep fiber or mobile broadband access. allowing simpler and faster value creation across other industries.

With connectivity to multiple devices and machines.  Telecom traditionally bundled access with the service. Service providers usually try to reach the largest possible audience. It took many years for this basic mobile feature to develop in the US. ringtones. We see basically four groups of services delivered by an operator to consumers and enterprises: • Connectivity such as fixed and mobile broadband access delivering internet connectivity. and may still do so for commercial reasons. Scale is crucial and all innovation involving the internet seeks to reach the broadest possible market. People simply want communications to be as Figure 1: SMS growth in North America due to interoperable as possible. in a relatively short time. coverage and quality will be vital aspects of the connectivity service. but services will technically be kept separated from access. service provisioning and service performance will have to be met. These interoperable services. which lagged far behind markets in Asia and Europe. As a first step. We want to note here that the internet world is rapidly outgrowing its original technology platform and will benefit greatly from the ability to incorporate the values of the telecom world as it develops further. This is a pessimistic and unjustified view. As soon as interoperability was introduced in 2001. one needs to acknowledge the split between user access and user service implied by the move to IP. which will increase in importance. For enterprises. leading in the end to a more or less monopolistic situation for a particular service. the core telecom value of interoperability is essential in order to serve the public with a choice of service providers. For many services. This implies that capacity. are built on standards. The simple reason was that US operators initially tried to market it as an operator- exclusive service. • Value-added services that complement communication and connectivity services and are normally charged through regular billing. as well as the integration of connectivity into processes across all industries and sectors. gradually losing their traditional close relationships with subscribers and spiraling downwards in the value chain. “friend-finders” and positioning. Opportunities beyond access In discussions on the future of traditional telecom network operators. Currently. The key to these possibilities is interoperability and clear interfaces. The history of SMS in the US market is a good case in point. Keeping clear interfaces between different kinds of services with different characteristics – some are standardized. SMS took off and became a tremendous success. such as telephony. There is a range of new service possibilities opening up for operators. for some vital communication services. However. non-interoperable services emerging from the internet world. • Person-to-person communication running across different service providers. music. such as on-screen advertising and search engines. to achieve economies of scale. which we have described above. It offers enterprises services like site interconnect and machine-to-machine connectivity. this is potentially acceptable. Standardized interfaces open the way for mass-market devices and truly global services because they can be used across different service and network providers. interoperability and pricing So the internet world and the telecom world rely equally on interoperability for their future. Operators did not cooperate to allow customers to exchange messages with others across different networks. new requirements for business models. Examples of these are TV. others are not – will facilitate the formation of new business alliances and enable network operators to benefit from the dramatic growth in non-standardized.new opportunities The internet has created several different businesses. it has largely been taken for granted that they are under threat from the internet world and will be reduced to bit-pipe providers. this service is mainly differentiated by speed and/or volume. naturally positioned beyond the pure access service. these services are THE FUTURE ROLE OF TELECOM • NEW OPPORTUNITIES 6 . while still maintaining the right level of control. and they are often retailed directly to consumers. messaging and presence.

These may involve user information. they can be extended to benefit from “interoperable communications services” as defined above. The producing enterprise area represents the ever-growing and greatly diversified world of web-service providers. and some communication services and access enablers. is providing pure connectivity (mobile broadband. These services are provided by operators on their own portals to their own subscribers and are often supported by access enablers.” so they benefit from being access aware and supported by quality of service (guaranteeing a certain service level). They are typically offered globally by one provider and have limited cross-service interoperability. and to prevent network overload – all Figure 2: Service categories traditional telecom virtues based on a long tradition of standardization. such as telephony. Based on this classification. and closest to the traditional telecom operator role. an interoperable communication service must be deployed across service providers. for example for targeted advertising. The most basic. adapted to company-specific needs and processes such as supporting work-group collaboration. THE FUTURE ROLE OF TELECOM • NEW OPPORTUNITIES 7 . that they get the interoperability required to scale up and reach mass-market levels. When a service becomes a success. position and other features. a connectivity service must be able to support mass-market devices. even if at different paces and potentially driven by different needs. It is important to bear in mind the basic characteristic of the service as such: for example. we see how new operator opportunities can be defined by choosing one service or a combination of several. and an enabling service must be easy to access and use. security and service assurance. by which we mean everyone who uses the internet to reach customers or citizens. device identity. which can be characterized as the basic content of the connectivity. Wal-Mart. be it Google. to maintain network and basic service integrity. All these services must be able to continue to evolve over time. Enterprises that are “non-operators” offer services that are essentially “unaware” of the access form. which are to be run in cooperation with other operators in order to be valuable to as many users as possible. However. SMS and other messaging. IP-VPN) together with the communications services. messaging. a value-added service must have competitive characteristics in comparison with over-the-top services. it is important to have short time to market and to bring innovative service ideas to end users quickly as the situation and the “market window” demand. These are sometimes referred to as “over-the-top” or internet services. This is an opportunity not only to help enterprises to rationalize their internal processes but also to help them improve services for their own customers. payment and position. again. CNN. it will gradually face the same requirements as the standardized services. such as quality of service. fixed broadband. These new service opportunities have resulted from network operators leveraging their connectivity and communication assets in support of other companies’ value chains. For non-standardized services. Value-added services dedicated to its own customers give an operator the opportunity for differentiation from other network operators. If the service has reused standardized and interoperable communication services as its basis. to control the use of resources. The attraction for web-service providers is. Internet services can also be extended by incorporating “access enablers. it can easily grow and be offered to all users globally. This is in contrast to communication services. Figure 2 exemplifies some services. • Enablers helping other enterprises improve services for their customers. the local dentist or governments. Another fundamental building block for this collaboration is to deliver quality of service. YouTube. This means a huge competitive advantage for any internet-driven business idea.

CONCLUSION As traditional telecom merges with the internet world. there are numerous viable positions beyond becoming only an access provider. it is crucial that we recognize the importance of building on the proven success of the following formula: cooperation on standardization leads to interoperability. with telecom companies offering classic services such as voice and little more – are not true. not least. with a dumb bit-pipe. The growing communication between machines and the need for rationalizing enterprise processes will provide many opportunities. the comments sometimes heard from the internet industry – that traditional telecom ways of working will lead to a dead end. and clearly laid out regulatory rules – are the only long-term solution as the traditional telecom business integrates with the internet world. In summary. “next-generation” internet. telecom values and principles – with open standards and interfaces. there is also growing evidence that the role of a pure access provider may have a strong business case. reaching important societal goals For a telecom provider. mass-market growth and. The real issue is positioning oneself in a new game in which telecom players have a strong hand in terms of basic interoperable services. On the contrary. As a result of the discussion over a more advanced. THE FUTURE ROLE OF TELECOM • CONCLUSION 8 .