Analysis of who should pay for the development of future Internet. Looking at telecos, the media players and the agregators

1. Norwegian University of Science and Technology
Who is paying for next generation of
Internet and Internet services?
12. Sept. 2014 - Thomas Jelle
Assistant Professor NTNU, Department of Telematics
CEO Trådløse Trondheim, CEO MazeMap

2. Norwegian University of Science and Technology 2
Increased need for
- capacity
- coverage
- reliability

3. Norwegian University of Science and Technology 3
Capasity
Increased number of services
2011:
Globally, IP traffic will grow 4x from 2011 to 2016
http://www.cisco.com/web/solutions/sp/vni/vni_forecast_highlights/index.html
2014:
Global mobile data traffic will increase nearly 11-fold between 2013
and 2018
http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-
vni/white_paper_c11-520862.html

4. Norwegian University of Science and Technology 4

5. Norwegian University of Science and Technology 5
Coverage
Source: Limit Values for Downlink Mobile Telephony in Denmark
Aalborg University

6. Norwegian University of Science and Technology 6
Reliability- More critical services

7. Norwegian University of Science and Technology 7
Increased coverage, capacity and
reliability
1) Traffic growth due to services
2) Apps increase signaling traffic
3) We build larger, more complex and radio shielded buildings
4) Poorer antennas on smart phones
5) More critical services

8. Norwegian University of Science and Technology
Who do you think should pay?

9. Norwegian University of Science and Technology 9
Principle of network neutrality
• Internet user have a right to an internet connection that gives access to
• Receive and send content at their own desire
• Use services and application at their own desire
• To connect any equipment and use applications which doesn’t harm the network, after
own desire
• Internet users have the right to a internet connection free of
discrimination of applications, application types, services type of
services, type of content and whom is the sender or receiver
• Examples of breach of principle of network neutrality:
• NextGenTel’s attempt to limit the bandwidth of users of NRK’s Web-TV in the summer
of 2006
• Deutche Telekom – blocking of Skype in the spring of 2009

10. Norwegian University of Science and Technology 10
History…

11. Norwegian University of Science and Technology 11
Telecom today
Infrastrukturtilbyder
Internett
leverandør
Tjeneste- og
innholds
leverandører
Terminal
Tjenesten Reklame
Generere
trafikk for
andre
Freemium

12. Norwegian University of Science and Technology 12
Telecom industry's concern
• How to avoid commodity?
• How should they be able to differentiate their services
and still comply with the Principal of network neutrality?
• How to finance the accelerating demand for capacity in
different networks?

13. Norwegian University of Science and Technology
Who do you think should pay?

14. Norwegian University of Science and Technology 14
Media Industry

15. Norwegian University of Science and Technology 16
Convergence of channels
Internet

16. Norwegian University of Science and Technology 17
Who is paying for the increasing demand
in coverage and capacity?
• Why shouldn’t the media industry pay?
• They are the one that require the capacity and coverage to
deliver their services
• Previously they had cost for distribution of TV, radio and paper,
why should someone else pay the cost now?

17. Norwegian University of Science and Technology 18
Media industry
• Before
• Controlling all parts of the value chain (paper, radio og TV)
• Monopoly on both content/information and adds
• Now
• No control of the value chain
• Everything becomes digital  the entry barriers will be minimized
• Several challengers of content and information
• International media aggregators
• User generated content: YouTube
• Challengers on advertising
• Google, Facebook, Groupon

18. Norwegian University of Science and Technology 19

19. Norwegian University of Science and Technology 20
Media industry's concern
• Trends
• «Everything» on Internet is «free»
• How can the media industry get paid for digital journalistic content?
• Users want to contribute, how should the challenge with user
generated content be meet?
• More efficient advertising channels are appearing which doesn’t
require local presence
• Global competition on content and advertising
• Technology, volume and scaling advantages is crucial

20. Norwegian University of Science and Technology 21
Turnover in Norway 2010
700 millioner NOK
700 millioner NOK
Same turnover, the difference is that Adresseavisen spent 250 years
building this revenues, Google spent 5…

21. Norwegian University of Science and Technology 22
Scenario: Media industry is paying
• Media industry in Norway is paying to telecom operators to build sufficient
capacity and coverage
• Not allowed to discriminate content (The principal of network neutrality)
• The terms for competition is changed
• Norwegian media players gets a huge competitive disadvantage towards the global
players that won’t
• Local content becomes even more expensive
• Traffic volume and advertising money goes to the global players  Local media
players can’t afford to pay to telecom operators and no one can afford to build
network infrastructure – Norway is eventually set back to the digital stone age

22. Norwegian University of Science and Technology 23
Scenario: Telecom industry is paying
• As of today fiber infrastructure is paid through bundling of services
like e.g. Altibox
• If all services can be delivered through Internet, including TV,
bundling of services is no longer necessary and telecom players
have only one service to sell a «bit pipe»
• Consequences: Lower margins, higher risks for building of new
infrastructure  less incentives and «rollout speed»

23. Norwegian University of Science and Technology 24
Scenario: Aggregator and distributor is
paying
• Media industry claims that Google and other aggregators
steal their content and that Google must pay for this

24. Norwegian University of Science and Technology 25
http://www.reuters.com/article/2013/02/01/us-france-google-idUSBRE91011Z20130201

25. Norwegian University of Science and Technology
Who do you think should pay?

26. Norwegian University of Science and Technology
So what kind of investments are we
talking about?

27. Norwegian University of Science and Technology 28

28. Norwegian University of Science and Technology 29
Google’s revenues in 2012: 12,7 Billion USD
 Google’s global revenues is not enough to cover
the yearly investments for a large US Telecom
operator

29. Norwegian University of Science and Technology 30
Money in - money out
Commodity
Huge Investments needed
Free distribution - low
investments needed
Huge potential for profit

30. Norwegian University of Science and Technology 31
Money in - money out
Commodity
Huge Investments needed
Free distribution - low
investments needed
Huge potential for profit

31. Norwegian University of Science and Technology 32
Todays business model of internet is
changing how the world works

32. Norwegian University of Science and Technology 33

33. Norwegian University of Science and Technology 34

34. Norwegian University of Science and Technology
Is today’s solution sustainable?
Who do you think should pay?
What happens to the ecosystem if
we change who is paying?

35. Norwegian University of Science and Technology 36
Who is paying for next generation of
Internet?
• We need incentives both build coverage and capasity and to develop
local journalistic content
• The Principle of network neutrality: freedom to choose and competition
on content
• How fare should the principle go? Today there is a volume limit on mobile
broadband…
• The Principle of network neutrality could be bypassed with price models?
• The entry barriers in the media industry is dramatically reduced
• The entry barriers in the telecom industry is increasing

36. Norwegian University of Science and Technology 37
Who is paying for next generation of
Internet
• Conclusion
– The largest threat is the global players with technology and scale
advantages
– A question of influence of the user
– Need for cooperation and innovation to develop sustainable
business models

37. Norwegian University of Science and Technology 38
A tool that can help you do the analytics
• http://www.youtube.com/watch?v=2FumwkBMhLo
• http://www.youtube.com/watch?v=xTtvwAmjais

38. Norwegian University of Science and Technology 39
Osterwalder Business Model Canvas

39. Norwegian University of Science and Technology 40
Homework
• 1) How does the Osterwalder business model look like for
• a) A mobile operator, e.g. Telenor
• b) Media house e.g. Adresseavisen
• c) Google
• 2) Does CDN (Content Distribution Network) players have a role in
the debate of The Principle of Network Neutrality?
• 3) «Innovation in zero's» - Jonas Kjellberg
– https://www.youtube.com/watch?v=G3a2NX2kIb0