CommunicAsia 2012: telcos at the crossroads with network and revenue problems

Hearing all the problems with telecom operators these days, especially at an event like CommunicAsia, you’d be forgiven for thinking they always had things this difficult.

These days, they are spending billions of dollars upgrading their networks to cope with consumer demand, yet their revenues are being undercut by so-called over-the-top or OTT services like Skype and WhatsApp. In a tight squeeze, their once lucrative, safe businesses seem to be heading towards a scary few years where profits are going to be extremely slim.

Yet, the irony is that not many years ago, these are the very same telcos that had ruled their markets, dominated all comers and decided how the technology roadmap was unfurled. 

Cast your mind back to the early days of 3G and WAP, yes, that wireless application protocol technology that first made Internet surfing possible on the phone, long before the idea of apps took hold with the iPhone.

Back then, services like Gmail were still stuck on the desktop PC, while Facebook was non-existent. If any developer, usually small ones which came up with mobile games or information services, wanted to have its app publicised to a telco’s millions of users, typically it had to give up as much as 70 per cent of revenue to the telco.

Imagine giving a distributor 70 per cent of the cut, while you slog day and night for a miserable 30 per cent of the S$1 or S$2 app that users bought. No wonder there weren’t that many compelling apps, and as a result, takeup for mobile data was slow in the mid-2000s.

Apple’s iPhone changed everything, as analysts and experts will tell you. But really, telcos have had years to think how to innovate and make their services work better with all the different phones and devices they sell every day at their shops. Thing is, they never did.

These days, when telcos complain about OTT services bypassing their traditional voice and SMS offerings, it’s like hearing old newspaper journalists still harking about the good old days of print. The technology had always been there, or at least, the potential had been, but complacency, from years of being in a position sheltered from direct competition, had blunted any urgent need to change and think ahead.

It’s ironic to see telcos like SingTel rush in to buy a mobile outfit like Amobee these days, when the telcos had often looked down on developer partners as dependents rather than important elements of a successful ecosystem.

It is also pretty ironic that telcos, for so long happy to just sell phones and offer the same plain vanilla voice calls and SMSes, now have to scramble to open app stores or develop apps to be easily accessible on their devices. After years of little innovation to differentiate themselves from the next competitor, they are finding themselves to be little more than dumb pipes.

The challenges are so great that they now find it necessary to take drastic measures. First, the investments into networks to meet some of the demand – SingTel is a prime example, having added fibre links between its mobile nodes while rushing out an LTE or Long Term Evolution network to take the load off its current 3G network.

But that alone is not going to do the trick, telcos know. The experience from Korea, for example, is that usage typically goes up even faster than the bandwidth that becomes available in the air. There, the usage has tripled with the advent of LTE networks, thanks to video streaming, for example. Open a new highway and people take no time to jam it up too.

What about other network tweaks that have been suggested? A “content-aware” network, with new pieces of hardware that examine what users are sending through with deep packet inspection, could help to prioritise certain type of more time-sensitive content, such as voice calls or videos, over less “urgent” stuff like e-mail.

But no one has the solution to the main problem. The technology has not been able to keep up with usage.

With computers, Moore’s Law has been proven true time and again, with more transistors being crammed into a small chip all the time to keep with users’ demands, while wired networks now offer almost infinite bandwidth if only a user was connected properly via a fibre optic cable.

The same cannot be said about cellphone networks. Current technologies can only squeeze that much bandwidth out of the spectrum that is available in the air. Even with digital TV and even 2G frequencies being re-farmed for mobile Internet uses, there is a limit to how much you can squeeze into thin air. With current limits, usage far outstrips that availability.

That means telcos have to find new ways to ease the congestion, like changing habits by charging differently for usage.

There have been suggestions to start charging for certain apps, say, a flat rate add-on, of about S$10 for smooth YouTube videos or unlimited instant messages. This is not new – StarHub tried selling a flat-rate offering for unlimited MSN Messenging years ago – but the problem was users already got almost unlimited usage on their existing data bundle, so why pay more?

Recently, SingTel tried to cut that bundle for new and re-contracting users in Singapore, perhaps hoping to put the genie back in the box. The jury is still out on whether it will succeed.

Yet another suggestion that is being passed around is to offload some of that data onto less congested Wi-Fi networks, or perhaps even small cells that can take the load off the main cells that everyone logs onto with their Facebook requests, for example.

These bring with them their own problems, of course. One is the coordination between the networks. Remember that 3G networks still don’t perfectly “hand over” your data smoothly to a 2G one and you’ll realise how tough this task of coordinating and authenticating between networks is going to be.

Another crucial piece of the puzzle is to get app developers to tune their software to soften the impact to the network. Draconian measures like Apple’s, which disallow big 3G downloads on its iPads, are never going to go down nicely with users. Plus, it’s often not the bandwidth that is lacking but the endless signalling and polling from apps that can saturate networks and really bring them to their knees.

Telcos have to work closely with the Facebooks and Instagrams of the world to either not check for updates so often or to find ways to compress an image, for example, when uploading over a 3G network.

This is one way to mitigate the congestion problem right now. For developers, it is like designing webpages before the days of broadband – you want to have a beautiful but fast to load website so users don’t get frustrated waiting for that nice animated graphic to appear.

Finally, telcos do have to educate users, let them know that they should manually offload their usage to Wi-Fi networks at home, for example. The experience is usually not just faster and smoother, but keeps the airwaves open for those who are truly on the move, say, at a bus stop or at a park. Education takes a long time, but it has to be done.

Essentially, telcos have to realise they are but a part of a larger ecosystem. They may know their customers very well, through their call records and subscription data, for example, but surely, they are no longer the centre of the universe. The solution to the most pressing problems now has to come from the entire ecosystem.