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Friday, February 17, 2012

The telecom services federation and QoS paradox

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There's a painful paradox emerging for next-gen comms. I don't think the telecom equipment vendors quite realise its implications yet.

Vendors say that they can offer prioritised, guaranteed QoS for specific mobile services, if Net Neutrality laws permitted it. They could optimise YouTube, Skype, whatever, right down to the packet scheduling at the base station, and provide end-to-end quality guarantees.

Let's imagine that they're right.

Let's imagine as well, that laws permit this to happen.

If that's the case, why would I, as an operator exec, bother to run my own telephony service in a core network any more? Given that voice revenues and margins are going to fall anyway, wouldn't I just use a third-party service? Maybe a hosted, multi-tenant, "cloud" or UTF version of VoLTE? Why would I want my own, when I could spend the money on something new and growing?

At the moment, telephony is a bizarre industry, with 1000 local manufacturers of a commodity product, despite it having near-zero shipping costs. Each has its own small factory, with the only difference being a special sticker with a "number" on each unit produced, issued by a local licencing authority. Each factory can do maintenance on the units produced in one of the other factories, but charges them quite a lot of money for the work.

In most similar industries these days, you get big regional manufacturers, with huge warehouses and efficient distribution networks.

The two perceived barriers to this model applying in telecoms are QoS, and regulation (which is usually consumer-centric).

If vendors and operators *really* enable QoS for third-party services, they make the "local voice manufacturer" model look even more archaic.


As regulation catches up, we will inevitably move to more centralised production of "commodity VoIP", and the local players will have to revert to being "cottage industries" producing specialised "craft voice" services.

I don't think that vendors have quite woken up to the dilemma that the more QoS equipment they sell, the less standalone telephony and comms services infrastructure is needed.

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3 comments:

Unknown said...

The recent FCC moves to end terminating access and go to a bill and keep model ensure service creation will be sorely limited. Without a way to compensate the terminating side to invest, where are the incentives. As well, there is no ability for centralized procurement (like 800, vpn, calling card, etc...). The App/OTT model will only become more prevalent, ensuring carriers become simply dumb, instead of smart pipes.

Anonymous said...

Which laws, in the UK certainly, do not allow differentiated QoS? I've long heard telcos plead for net neutrality to be abandoned, but the truth is there are no net neutrality laws. They just want anti-net-neutrality to be enshrined in law to head off future threats.

Doug Varney said...

I agree with your post in principle, but I disagree with the timing implication.
The timing concerns really come down to barriers that hinder that transition. [Using your factory analogy]

- there are Billions of phones out there that are setup to be serviced from a particular factory. And that factory has a fixed cost whether serving a 10 million or 200 million phones. Outsource a block of mobiles and you probably see costs increase because you have to deal with both factories and your costs end up going up. Plus, if you are in the fixed line business then that factory is really cheap to run (Class 5 switches paid off years ago humming along in the dark). You end up with a local maxima that is not globally optimized. Getting over the hump takes too long to get to a positive NPV … at least for now.

- the telephony factory is still directly coupled to the RAN coverage factory. Your situation in Europe may be different, but the data coverage and quality in the US is variable. Phones bundle a ubiquitous circuit switch component (whether it is UMTS or 1x) and we are back to the previous point – operators are forced to keep their existing fixed cost telephony factory running. Plus dropped phone calls are still one of the biggest customer dissatisfiers out there – and stitching together networks to minimize that, for now, is still within one factory.

Of course a smart operator figures out the path, over time, to either be a low cost provider of telephony (clouds play a big role here) or out of the business of providing the guts of a telephony service. We will see the market reach an efficient state – I am just not holding my breath.

I think you undersell Telecom equipment vendors’ perception of the situation. It’s just that voice telephony, as a percentage of their business, has shrunk considerably. Who would jeopardize sales of QoS enabled LTE/EPC to try and protect a telephony business?