1. The Rough Road toward Fixed-Mobile ConvergenceThe Impact of an NGN–/IMS–Based Strategy onTelecommunications OperatorsCarlos Ruiz GómezTelecommunications ManagerEverisFixed telephony providers are “Internetizing” their services and differentiating them from thoseof other Internet companies in terms of features and content1, and mobile telephony operators areheading in the same direction2. In turn, Internet access providers are threatening to becometelecommunications operators3, and cable operators are “invading” the competencies of telephonyand wideband access operators and vice versa4. An increasingly growing number of competitorsare driving operators and telecommunications service providers toward a consolidation thatstarted several years ago (i.e., the acquisition of mobile operator C&W HKT, Ltd., by PCCW in2000) and continues to date (i.e., the advertisement of the acquisition this year of BellSouth byAT&T, aimed at controlling mobile operator Cingular Wireless). See Figure 1. Mobile telephony Fixed telephony Internet access TV Telecommunications Access Cable original service area short-term extension of offering medium-term extension of offering Figure 1: Trends in Telecom Player Service Offerings (Source: IDATE)The Strategic Potential of Next-Generation NetworksWithout mentioning content providers and the role they play in this scenario, these operatortrends are one of the reasons for the consolidation that has also been taking place among
2. telecommunications network system manufacturers, thereby consolidating their own offering andclient portfolio5.And there are many reasons for these trends in the telecommunications market. Naturally,operators see their traditional business under threat: revenues from fixed telephony arecontinually falling6, as with voice ARPU in mobile telephony7; the churn between mobileoperators has not declined8. The growing demands of users with regard to service quality andubiquity of access, in addition to the demand for new multimedia experiences (i.e., new types ofservices), make attracting and retaining shop users increasingly difficult and costly, both in termsof maintenance and network operation (insufficient client attention, poor service quality, and slowproblem resolution are the main causes for loss of business clients between mobile operators,with a 34 percent drop in marketing and sales). See Figure 2. 4% 5% 5% 27% 7% 12% 22% 15% Poor coverage Expensive prices / rates Custom er service Dissatisfied w ith service provided Slow problem resolution Have other com petitive offers Invoicing problem s Dont deliver as prom ised Figure 2: Main Reasons Why Spanish SMBs Change Their Mobile Operator (Source: The Telecommunications Market in Spanish SMBs, Everis)This change in demand is no doubt influenced and expedited by new technologies. Faster accessspeeds (i.e., enhanced data rates for Global System for Mobile Communications [EDGE];evolution data optimized [EVDO] Revs. A and B and even C, which are already underdevelopment; high-speed downlink packet access [HSDPA]; the forthcoming high-speed uplinkpacket access [HSUPA] in Universal Mobile Telecommunications System [UMTS], futurestandards such as long-term evolution) enhances the multimedia service offering. But thetraditional “silo” structure of current networks, with each type of service supplied under types ofaccess, transport media, and degree of control, severely hinders their development, maintenance,and universalization; next-generation networks (NGNs) are the best option in this framework.Each type of operator will start from a different technology and market situation, with different
3. types of access methods and different penetration in the user markets. Examples include thefollowing: • Although fixed-access service providers in general will start from a heterogeneous environment that will complicate migration to an all–Internet protocol (IP) architecture as a first step toward NGNs, it must nevertheless be carried out. These providers will focus primarily on developing their current services and enhancing them to combat growing competition from cable operators. They must also consider convergent fixed-mobile services (such as dual-mode services or fixed-mobile continuity, via protocols such as unlicensed mobile access/general access network [UMA/GAN]) would allow their clients to take advantage of fixed-access operators’ increasing presence in the wireless environment, using their own infrastructure or renting it from mobile operators (i.e., mobile virtual network operators [MVNOs]). • Mobile access providers must first adapt their networks to the new wireless wideband standards and start developing a multimedia service catalog that leverages these faster speeds. They should consider launching continuity services in conjunction with fixed operators in regions where they cannot offer clients adequate coverage (e.g., third-world countries). They should also think about systematically migrating all their networks to all–IP so as not to eventually lose market share to the more aggressive fixed-access operators in this aspect. • Cable operators pose an obvious threat to fixed-access providers (in fact, there is a growing number of agreements/joint ventures in the United States between mobile and cable operators, in addition to these wanting to become MVNOs). These types of providers can leverage and build on their multimedia and television services, in addition to adopting the standard PacketCable that will allow them to launch services that compete with the traditional services offered by telephony and fixed wideband access operators.Therefore, by scaling the speed of adaptation of the types of operators to this new environmentand the launching of multimedia services, the question of whether the adoption of an NGNarchitecture based on all–IP is based on a tactical (cost savings, due to the adoption of an IP–based architecture) or strategic line of action (an attempt to increase the competitiveness ofoperators based on a new source of income) quickly comes to mind. But the heavy initialinvestment required (in view of which the effect of cost savings will by no means be feltimmediately) combined with the need for differentiation between convergent operators will makean NGN a strategic option, capable of reducing the churn and driving revenues from newservices.IP Multimedia Subsystems as Strategy DriversIP multimedia subsystems (IMS) form the cornerstone of NGNs, freeing the degree of controlover transport and application, unifying and freeing access type services, and defining a moredynamic and collaborative multimedia service development framework (see Figure 3).
4. “Silo” architecture IMS architecture Applicatio Applicatio Applicatio Service Level – Application and content Applicatio Applicatio Applicatio servers Control Level – Control Control Control Control Network, security, invoicing and network interconnection control Internet Mobile PSTN Internet Network Level – Mobile PSTN Routers, switches and gateways Figure 3: IMS Frees Control and Transport (Source: Everis)While convergent services do not necessarily have to be based on IMS, they help speed fixed-mobile convergence while operators migrate to IMS architecture (i.e., BT’s agreement withVodafone in the United Kingdom, or France Telecom’s Unik service). DMS’s pre–IMScontinuity services have become a trial-and-error method for service providers to measure thedemand and acceptance of fixed-mobile convergent services. But this method has its limitations,such as it does not allow the user to evaluate the advantages of inter-service collaboration. Forthis reason, service providers must have clear ideas of their evolution to a full–IMS environmentthat will increase their competitive edge.In fact, a closed network model severely hinders the development of services accessed by users.Depending on the type of access, the services are deployed through a specialized and specificset of network elements for that service and through a network access: the “silo” concept. Apartfrom a specific network infrastructure, communication interfaces, and support applications,each service requires its own “silo” and specific network elements and network management.This silo may include a unique charging functionality, presence, list group management,routing, and supply, which makes the construction and maintenance of this structure veryexpensive.IMS architecture emerges as a model that will unify the control layer between types of accessnetworks, standardizing the relationship between the network and services, thereby expeditingthe development of the latter. IMS offers a network architecture whereby the softwareinfrastructure, due to the use of standards, allows network functionalities to be reused andshared between multiple access networks, thus enabling the creation of services.As a standard that expedites migration to NGN architecture, IMS should drive revenues fromnew convergent services. This blurs the boundaries of current segmentation between cableoperators, wideband Internet access, and fixed and mobile (voice and data) services, thereby
5. intensifying competition between these and defining the new business relationships between theplayers that cover different parts of the convergent service provider’s value chain. In this way,the operator must relate to content providers in a different way and must depend increasinglyon third parties for external development and integration services.Generation of New RevenuesIMS defines not the applications or services that can be offered to the end user, but rather anetwork architecture that operators can use to generate an increasingly rich service offering.However, IMS must ultimately expedite the development of multimedia and collaborativeservices independent of the access network. IMS must expedite the following: • IP multimedia sessions composed of diverse multimedia flows and content, with an adequate level of service quality for video, audio, sound, text, application data, etc. • Dynamic integration of media in the course of a communication (text, voice, video, etc.) • Identification of users, services, and nodes through universal identifiers, which increases usability of services for subscribers • Information on user availability and communication capacity (PC or mobile connection, multimedia capacities) • Management and use of user groups in multi-user communications • Fixed-mobile application convergence, as the system is independent from accessIn fact, ABI Research predicts that world revenues from this type of service will reach U.S. $49.6billion in 2011, in line with the trend that predicts that revenues from multimedia services willreplace voice services in operators’ bottom lines8.For this purpose, operators must constantly reflect on the types of services that will soon bedemanded by users. This is of great importance, since service sale margins must not onlycompensate development and production efforts, but also affect operation or competitiveness. Forexample, Gartner proposes a mobile service identification method based on Maslow’s pyramid ofneeds (see Figure 4). This method refers to the two essential concepts of mobility andcustomization of the services to be developed, concepts that enable IMS services by freeingaccess and simplifying development.
6. Source: Gartner Maslow’s hierarchy of needs Revenue by type of need Customization Mobility and ubiquity Figure 4: Identification of Services with Greater Revenue Generation PotentialBut the industry no longer speaks of “killer applications.” In fact, voice services will continue tolead due to their indispensable nature, as compared to others such as those aimed at the leisureindustry, but margins are undergoing a downward trend. Revenues from short message service(SMS) are also expected to fall between now and 2010; they will drop 8 percent in westernEurope and up to 11.2 percent in eastern Europe9. Now it refers to a set of applications (bundles),the value of which will increase parallel to their integration in the same session: according toLucent Bell Labs, “unique service churn varies between 1.7 and 2.5 percent, while bundle churnbased on multiple collaborative services drops between 1 and 1.5 percent,” boosting mobileoperator voice and data ARPU 40 percent on average during the next five years. Service bundlingis not new—it is used in double-, triple-, and quadruple-play offerings—and supposedly driverevenues in proportion to the number of applications in the bundle (however, revenues areestimated to stabilize on reaching four or five services in the same bundle). However, accordingto Forrester only 1 percent of Italian consumers, 8 percent of French consumers and 10 percent ofBritish consumers have contracted triple-play services. In fact, an estimated 44 percent ofEuropean consumers are not interested in bundles, thereby theoretically dismantling thepossibilities of success of this strategy. However, IMS allows applications to interact in a morenatural way, whereby bundles would evolve from a sales-oriented concept to a collaborativeservice (blended services). This is expected to not only reduce churn, but also boost the numberof new contracts.While each type of operator (fixed, mobile, cable, MVNO) adapts to an all–IP and IMSenvironment at different speeds, they will all have different requirements—initial and strategic—with regard to the type of services to be developed. In the long term, this will tend toward thedevelopment of a similar product catalog by the different types of service providers in anincreasingly competitive manner (see Figure 5).
7. VoIP IP VideoTelephony IM VCC On-Demand Conference IP Centrex Click-to-dial Online games VoiceMail Push-to-x Fixed / cable Convergent Offering VoIP PodCasting IP VideoTelephony Online games VCC PodCasting Content-Sharing On-Demand Conference Click-to-dial IP Centrex IM Online games Content-Sharing VoiceMail Push-to-x Convergent PodCasting IP VideoTelephony VoIP IM Content-Sharing On-Demand Conference Click-to-dial Online games VoiceMail Push-to-x VCC Mobile Figure 5: Examples of Operator Approach to Services (Source: Everis)Thus, the identification of services and combinations of these in bundles according to type ofclient, needs, and behavior, tending toward ultra-segmentation and marketing-to-one, will becrucial. Complexity increases parallel to the uncertain and unpredictable demand for new serviceswith increasingly greater costs. The service catalog will depend on the type of operator (itsstrategy), invoicing method, location, and type of user (massive/business). Those service providerofferings that best adapt to client demands will generate greater fidelity and therefore higheraverage revenue per user (ARPU) and revenues.The Need for a More Flexible Environment …The adoption of IMS should be a strategic rather than tactical line of action aimed at ensuring theoperator’s competitiveness. But this competitiveness would also be determined by the company’scapacity to adapt to the new environment. Evidently, this affirmation will be more or lessvehement depending on the operator’s situation, e.g., if it is an incumbent, two-tier or new player;in the last case, for example, the operator would have to be more aggressive in its valueproposition to end users, although the incumbent operator will generally carry greater deadweight in its organization, such as a wider infrastructure and higher personnel costs. In thissection, we wish to emphasize the importance of the need to adapt to the new environment,pointing out that cost savings are not immediately felt due to the complex nature of migration in afixed-mobile convergent environment favored by IMS.The studies carried out indicate that cost savings will be achieved. According to Loudhouse forApertio, e.g., operator operational expenses (OPEX) will decrease 10 percent on adoption of IMS,dropping from U.S. $805 million to U.S. $723 million. However, as we already anticipated, thiswill require a heavy initial investment, and ABI Research foresees that operators worldwide will
8. invest a total of U.S. $10.1 billion in IMS infrastructure in the next five years and the return oninvestment (ROI) will not be short-term (between two and five years, according to the samesource), although with a 5 percent decrease in capital expenses (CAPEX) (also according to thesame source). Additionally, operators are expected to spend U.S. $4 billion in servicedevelopment platforms (service delivery platforms) in the next five years and U.S. $470 millionin operations support systems (OSSs) (according to OSS Observer) at best. According to our ownexperience, a business case based exclusively on investment and cost savings could have an evenlonger payback period than expected.Not counting personnel costs, which vary from country to country and can represent a highpercentage of the total adaptation costs of an incumbent operator, the initial cost of infrastructureand next-generation OSSs and business support systems (BSSs) will account for the greater partof initial investment costs. In addition to introducing new network elements, IMS will forceoperators to take applicability into account in service management, the number of which must behigher and with less time to market (TTM). For this reason, OSS and BSS systems areparticularly delicate, not only due to their importance to the operator’s capacity to manage itsnetwork and relationship with clients, but also because these systems are not considered in thescope of IMS. At present, current services are deployed on many platforms, each with its owndedicated databases, interfaces, functionality, and interaction with OSSs and BSSs such as servicedelivery and client attention. These services are either developed in silos or under a verticalarchitecture. This method gives rise to significant technical problems on introduction of newservices, increasing both cost and TTM, which is contrary to one of the objectives of IMS andNGNs. Additionally, the management and control of the deployed services are increasinglyexpensive and confusing. Areas impacted by IMS in OSSs and BSSs include the following: • Order management and fulfillment—The estimated number of service components increases up to 100 times in customized services, while clients expect real-time order fulfillment. • Monitoring of resources—Service delivery must be ensured the first time around. • Service quality—Service and quality as specified in the service-level agreement (SLA) must be ensured. • Mediation and invoicing—Users expect a convergent rate with a wide range of invoicing options. • Automation of outbound and inbound marketing tools with real or potential clients. • Greater relevance of customer-experience management (CEM) systems to detect, track and solve service availability problems; these systems can even become a differentiating factor for operators.The adaptation of systems to the IMS environment is one of the key aspects that must beconsidered to ensure its ROI. The convergence of fixed-mobile access networks, the need forgreater operating efficiency, and a growing number of services with less TTM will force serviceproviders to change the systems map.… That Includes the Organization and ProcessesBut infrastructure and system costs are not the only problems an operator must tackle in itsadaptation process. From the determination to migrate to a full–IMS environment to theadaptation of its IT systems, internal processes, client attention, and even its own internalorganization, there are determinant factors in the operator’s capacity to offer a so-called optimumuser experience, which will become an even greater differentiating factor than it is today (see
9. Figure 6). Project Portfolio Management Excellence Strategic Master Plan Plan Telco XXI Initiatives Business Processes Change Management Figure 6: Aiming at Optimum User Experience through Operating Excellency (Source: Everis)Impact on the OrganizationAlthough IMS is a network architecture—a technological concept—its implications on theorganization as a fixed-mobile convergence enabler are very important, and service providers willhave to reconsider their organizational structure. The boundary between the network and ITsystems is becoming increasingly blurred, in addition to the distinction of functions betweenworkstations in service providers. The following are examples of what must be considered: • Redistribution of responsibilities between work teams (merger between networks and systems, thereby strengthening the product marketing department, greater emphasis on user support, etc.), giving more and more importance to certain functions (such as that of service manager) • Organizational adaptation to the new service/product life cycles (product life-cycle management)Additionally, as with all major projects that affect a company and its business model, it is veryimportant to be able to count on the support of the company’s management team.Impact on ProcessesFor each value-chain model, and with business model characteristics based on NGN–IMSarchitecture, the service provider must revise its third-party and client management processes.The service provider must revise its processes with regard to different content providers andother operators. Examples include the following: • Management of client operations to ensure that content providers and other operators can give an adequate response to the operation of services offered to end clients • Integration of third-party needs (e.g., content providers) in procurement processes
10. • Definition and management of SLAs throughout the third-party chain (diverse providers) to ensure correct delivery to the end client • Alignment of invoicing processes to ensure that the service provider’s concepts and processes for content provider invoicing are adequate and in accordance with service capacitiesIt is also important for the operator to modify its client attraction/treatment processes, expeditingthem, adapting and/or modifying them, creating new ones, and standardizing the processesbetween the service provider’s departments to maintain user quality. Examples are as follows: • Adaptation of invoicing processes to the new possibilities created by IMS • Generalization of self-procurement and self-activation of services by clients • Streamlining of attention processes for increasingly skilled users who increasingly demand SLAs, homogenizing them between departments and creating processes to improve user experience, detecting, tracking, and solving service availability problems while managing end-to-end qualityAll of these process modifications can be summarized in three concepts: the homogenization ofprocesses between the operator’s departments to lower costs; the automation of said processes toimprove end-client attention; and the generation of added value for the client.IMS will not succeed in achieving these objectives unless operators tackle the impact of IMS, notonly from a technical point of view but also in terms of streamlined processes and businessgeneration. IMS, as an essential part of a next-generation fixed-mobile convergent network, notonly favors an agile operating environment, but also needs this greater agility, which impactseverything from network infrastructure maintenance to the organization, process by process,resulting in improved service to end clients: the concepts of lean and agile operations as a way ofguaranteeing the competitiveness of telecommunications operators.ConclusionTaking the figures and timelines anticipated above as a more or less accurate reference, and inspite of the many challenges, fixed-mobile convergence must be adopted by operators, since it isthe IMS standard and a key part of its implementation.But beyond the technological challenge, the identification of services (which includescustomization as a client acceptance strategy) is probably one of the areas of greatest difficultyand greatest strategic impact.In this way, this new environment does not exclusively affect network infrastructure andoperation, but also impacts corporate strategy; marketing, product, and service launches (definingnew product/service catalogs, which are increasingly segmented by client type and are no longeroffered individually but in bundles that favor cross-selling of services); and business operations(see Figure 7).
11. •Customer •Processes •Systems • Are the processes sufficiently • Can current OSS and BSS systems support automated to adapt to the new IMS requirements? business model? • Is attention in line with customer •Operator • Are the SDP platforms IMS-ready (operators will invest US$4B in these platforms over the 1 expectations? next 5 years )? •Organization •Network • Does the operator already have an IP infrastructure in place? Is there a plan to • Do fixed and mobile areas operate independently in migrate to All-IP? the case of convergent operators? • Does the operator have multiple network • Have timely alliances been established with relevant equipment suppliers? market players? Figure 7: The Operator Approach towards Customers (Source: Everis)Each type of operator will have different requirements and will adapt to the new rules at differentspeeds, being the remainder of the period 2006–08 key to said adaptation (see Figure 8). Figure 8: Examples of Operator Approaches to ServicesEventually, service providers will tend toward offering a similar service catalog, making fastadaptation to the new environment crucial to operator competitiveness. In this way, launching
12. new services, adapting them to client needs, and quickly supplying an optimum user experiencebecome the most powerful strategies to drive operator growth, though clients must be able toperceive the value of those services. Access control does not guarantee client retention:customization, brand, and service value are the differentiating factors of the new model. Carlos Ruiz Gómez Gerente Telecomunicaciones – Innovación Pº del Club Deportivo s/n, Bloque 10, La Finca 28223, Pozuelo de Alarcón - MadridNotes:1 Attempt by operators to control IP traffic (according to IDC, the number of minutes of VoIP willincrease 717 percent from 2006–09), placing special emphasis on service quality, for example.2 Siemens foresees a decrease in monthly mobile voice ARPU of 18 percent from 2006–09.3 Positioning of Skype as a new type of voice service provider.4 Multiple-system operators (MSOs) launch voice services and ADSL wideband fixed accessproviders launch TV services.5 Merger between Lucent and Alcatel and agreement between Nokia and Siemens.6 Gartner foresees that revenues from traditional PSTN telephony in the 10 largest Europeanoperators will drop approximately 30 percent from 2006–09.7 See note 2.8 According to the same source and in the same period and region as in note 2, the representativityof monthly voice ARPU in the total will decrease approximately 28 percent in favor of data andmultimedia services.9 EnterData as from GSMA, Ovum, and Tekelek.