Huawei Views on Future Industry Trends
Over the last ten years, the telecommunications industry has grown and begun changing from the familiar patterns of the past. These changes have been driven by customer needs, technology changes and the emergence of new business models.
As the industry enters 2009, the global financial turmoil adds a new dimension to an already complicated picture and deepens the existing challenges. The ability of the operators and their partners to rapidly seize new opportunities, anticipate customer demands and be able to quickly modify strategies will determine the ongoing success of the telecommunications industry.
Huawei is in a unique position to have insights into the divergent global telecom markets and this paper shares our vision of where the industry is going and our views of the key trends that will impact success.
Vision – Networked World
The concept of a Networked World has been discussed for some time, but we are now seeing the results in everyday life. Driven by the rapid deployment of new technologies and emerging user requirements, the boundary between software, IT and communications has become blurred. Added to the traditional telecom operators are service and content providers from the Internet, media and entertainment industries and these players will have a major impact on the industry. Huawei believes that the future Networked World will be profoundly influenced by:
1. Mobile penetration saturation – At the end of 2008, the number of mobile subscribers topped 3.5 Billion and projections show that it will reach 5 Billion in just a few years, equaling the total number of potential users. Over 1 Billion of those new users will come from emerging markets and this will result in a world which is fully interconnected and able to bridge the digital divide.
2. Ubiquitous broadband – The next few years will see the rapid deployment of high-speed mobile broadband and a major shift to higher speeds for fixed broadband. By 2013, 300 Million new fixed broadband users will be added, doubling today’s total and, through the deployment of FTTX, they will have access to massive amounts of data. On the mobile side, 1.2 Billion new users will be added to the 200 Million current users as the result of the HSPA technologies. The availability of this broadband will allow “3 Screen” (TV, PC and mobile handset) convergence with exciting opportunities for always-on networking.
3. Cloud computing – As high-speed data connections become common for both fixed and mobile users, the opportunity exists to provide previously unavailable services from “The Cloud”. The opportunities from what is becoming known as Cloud Computing will be enormous. The ability to offer end-users access to sophisticated information services without the need to buy expensive software and hardware, similar to the way we use electricity today without the need to buy our own generators and diesel oil, will abolish the boundaries between have and have-not information societies. In the next few years, cloud computing will go beyond the discussion of concepts and technologies and become widely available.
4. A digital flood – In the 5,000 years of recorded history, mankind generated the equivalent of 5 exabytes (1018 bytes) of written information, but during 2006, over 280 exabytes of digital content were generated. Driven by high-definition, three-dimensional and user-generated content, the annual volume of digital information will soon reach 1,000 exabytes, a veritable Digital Flood. The ramifications to the information infrastructure and backbone networks will be immense, with annual traffic growing by 10 or even 100 times.
Ten Future Industry Trends
As we move to this Networked World, the factors discussed above will have real, practical impacts on the telecommunications industry. Emerging markets will become a major factor in industry expansion, but decreasing ARPU will act as stimulation for creative solutions. Uncovering these opportunities, providing products, services and support to operators as they deal with the emerging trends and successfully managing the impacts will be the key to future success. Huawei views the top 10 trends as being:
1. All-IP Transformation – Operators are spending billions of dollars each year for network expansion, but are still not able to keep ahead of demand. We believe that the only way to build cost-effective, flexible and expandable networks is to move quickly to All-IP for broadband. This applies to both fixed-line networks, where high-capacity fiber-copper integration will become common, and to wireless networks, where single IP backbones will handle voice, data, media and signaling. In both cases, moving to All-IP control layers is also required to flatten the network and achieve CAPEX and OPEX goals.
2. Carrier-Grade IP – As networks move to All-IP, it is becoming apparent that common Internet-oriented IP technology does not meet the needs of real-time delivery demanded by voice networks. In order to meet these requirements, a new class of solutions will be required. These solutions will ensure end-to-end high-quality voice-grade communications with carrier-grade reliability and maintainability. Without these advances, it will not be possible for operators to create the All-IP networks needed to meet the challenges of a Networked World.
3. ARPU Deterioration – With most of the future growth coming from emerging markets, the low ARPU requirements of these markets will force operators to adopt creative solutions to capture the market while still maintaining profitability. As an example, 72% of the Indian population is in rural areas, where the current telecom penetration is only 13%. This is a wonderful opportunity, but the ARPU is USD$3-5 per month! Clearly, low cost networks and low cost terminals will be key factors for carriers to develop services and make profits.
4. Mobile Broadband Delivery – Exploding use of mobile devices for high-speed data connections is one of the most exciting frontiers in telecommunications. Functionality which was previously only available from wired broadband connections can now be used from mobile devices, opening up new applications that are based on location, status or even the proximity of friends. Delivering this high-speed data experience to mobile users has a number of challenges which must be overcome. When the network bandwidth reaches 100M, the density of base stations will increase by 50 times. Our consultations with operators has underscored that the increased complexity of site selection, backhaul transmission, signaling schemes and operation & maintenance is becoming a serious burden. Optimizing the coverage of a Metrozone, base station minimization, packet transmission and level transmission, as well as organization of networks, etc. has the potential to restrict the development of mobile broadband. Since 2006, Huawei had been focused on base station minimization, support for packet-based backhaul transmission and plug-and-play of self-organizing networks. These capabilities have been successful in solving the coverage problems of Metrozones.
5. SingleRAN Advances – Continued rapid growth in users, along with the growth in mobile broadband requirements and advances in broadband technology will result in a very complex radio network environment. While operators will support market demand by quickly deploying new radio technologies, such as LTE, they must continue to support the existing GSM, EDGE, UMTS and HSPA networks for many years. Rather than building a complex “vertical” network of separate radios, the need is for a “horizontal” integrated radio network that supports voice, narrowband data and mobile broadband. Huawei has championed the “SingleRAN” concept to meet this need. With around 10,000 of these fourth-generation base stations deployed by O2 in Germany, the TCO savings of up to 30% and the smooth evolution capabilities are quickly proving to be a winning combination.
6. Tera-scale Networks – Surging growth in data traffic continues to exceed the capacity capabilities of traditional telecom networks. Network modeling for developed countries in Western Europe suggests that data growth and network transformation to flat, All-IP architectures will soon require end-to-end Tera-bit bearer networks. The appetite for capacity will be even greater for countries like China and US that have large populations and require broad geographic coverage. We believe building a Tera-Scale bearer network will become a competitive requirement for leading global operators.
With extremely high extendibility, Huawei IPTime Solution has the capability of 80T as Router Cluster System, which will reach even higher with the development of 100G interface technologies. Its adoption of unified control plane enables seamless interactions between the IP layer and the optical layer. Such architecture can offer higher transport efficiency, increasing return on investment and enhancing operators’ core competitiveness in the era of broadband.
7. New Voice Business Models – Current mobile network operators receive 70% of their revenue from voice services, a market category that is being pressured by a continual decrease in ARPU. There is a natural shift in focus towards the more attractive revenue from data and services, but this overlooks a critical element of user preference. Voice represents the most natural, efficient and convenient way of acquiring information that suits all scenarios and surroundings. How to capitalize on this and how to leverage voice as a new channel for communication and information acquisition, such as with the Web, has turned into one of the most-debated and most difficult technical propositions. It is our belief that there is huge market potential to tap in voice.
New business models are the answers to this need. A good illustration would be the “Best Tone” service offered by China Telecom. An industry-leading innovation and a fast growing service, Best Tone has become a significant driver for the carrier's voice revenue growth.
8. Value Creation in Broadband – While Moore’s Law will help decrease the cost, size and power of the equipment required to handle the massive increases in broadband data traffic, it can not keep up with the projected growth. The growth of the required equipment will result in significant increases in both capital and operational expenses, which can not be recovered from the revenue of passing basic data traffic. To tackle this challenge, carriers will need intelligent traffic management to enhance bandwidth utilization, coupled with traffic-based user behavior analysis to generate additional revenue streams through targeted advertising or other new models.
9. Content and Media Services – Today the network is transitioning from a communications vehicle into an infrastructure that sustains all elements of society. This will lead to a new trillion-USD market for businesses who provide their services over the Internet. As the new potential is unfolding, leading carriers are all looking to transforming to add content and media services, on top of their traditional pipe offerings. The content and media arenas require new capabilities, skills and levels of user interaction that will challenge traditional operators. The service experience, development methodology and business model are dramatically different and community-based interactions are emerging as the fundamental trait of future services. User-driven and user generated content will be the prevailing theme and a large number of personalized offerings will enter the market based on the long tail theory. These offerings will be nurtured by the changing character of the network, where sharp declines in the cost of services will make it possible for “niche offerings” to win. Take publishing for example: traditionally the cost of a book could be recovered only if multiple thousands of copies were sold. With new network capabilities, the digital world increases competition, resulting in an ecosystem characterized by radical cost reductions, sometimes to zero, making on-line books profitable even with a small volume.
10. Virtual Computing – The ability to deliver high-speed data connections anywhere allows the world of computing to shift from “buying products” (computers, storage and software) to “buying services” (IaaS, PaaS, SaaS). This obviously is disruptive to conventional software and hardware vendors, but it also is disruptive to telecom operators because it provides an opportunity to re-think the boundaries of their networks. The network “cloud” can now include not only physical data centers, but also the virtualization of service capabilities that can be delivered along with dial tone to improve users’ lives. If we compare network traffic to rivers in the digital world, then data centers will be the future “reservoirs”. These new-generation data centers will require revolutionary shifts technologically, providing the capacity for massive data processing at a low cost.
Even in areas where economies are experiencing a slump, the telecom industry is still able to maintain and even accelerate its growth. Successful societies are going to require greater connectivity, placing the social responsibility of bridging the digital gap on the telecom industry. During the last ten years, an information world has taken shape. Over the next few years, the universal spread of high-speed, low-cost, anywhere connectivity will be the driving force for the telecom industry’s development.
In this process, innovation and transformation is an everlasting topic. Working together, we will create a truly connected world where people can have equal access to communications.
As the industry enters 2009, the global financial turmoil adds a new dimension to an already complicated picture and deepens the existing challenges. The ability of the operators and their partners to rapidly seize new opportunities, anticipate customer demands and be able to quickly modify strategies will determine the ongoing success of the telecommunications industry.
Huawei is in a unique position to have insights into the divergent global telecom markets and this paper shares our vision of where the industry is going and our views of the key trends that will impact success.
Vision – Networked World
The concept of a Networked World has been discussed for some time, but we are now seeing the results in everyday life. Driven by the rapid deployment of new technologies and emerging user requirements, the boundary between software, IT and communications has become blurred. Added to the traditional telecom operators are service and content providers from the Internet, media and entertainment industries and these players will have a major impact on the industry. Huawei believes that the future Networked World will be profoundly influenced by:
1. Mobile penetration saturation – At the end of 2008, the number of mobile subscribers topped 3.5 Billion and projections show that it will reach 5 Billion in just a few years, equaling the total number of potential users. Over 1 Billion of those new users will come from emerging markets and this will result in a world which is fully interconnected and able to bridge the digital divide.
2. Ubiquitous broadband – The next few years will see the rapid deployment of high-speed mobile broadband and a major shift to higher speeds for fixed broadband. By 2013, 300 Million new fixed broadband users will be added, doubling today’s total and, through the deployment of FTTX, they will have access to massive amounts of data. On the mobile side, 1.2 Billion new users will be added to the 200 Million current users as the result of the HSPA technologies. The availability of this broadband will allow “3 Screen” (TV, PC and mobile handset) convergence with exciting opportunities for always-on networking.
3. Cloud computing – As high-speed data connections become common for both fixed and mobile users, the opportunity exists to provide previously unavailable services from “The Cloud”. The opportunities from what is becoming known as Cloud Computing will be enormous. The ability to offer end-users access to sophisticated information services without the need to buy expensive software and hardware, similar to the way we use electricity today without the need to buy our own generators and diesel oil, will abolish the boundaries between have and have-not information societies. In the next few years, cloud computing will go beyond the discussion of concepts and technologies and become widely available.
4. A digital flood – In the 5,000 years of recorded history, mankind generated the equivalent of 5 exabytes (1018 bytes) of written information, but during 2006, over 280 exabytes of digital content were generated. Driven by high-definition, three-dimensional and user-generated content, the annual volume of digital information will soon reach 1,000 exabytes, a veritable Digital Flood. The ramifications to the information infrastructure and backbone networks will be immense, with annual traffic growing by 10 or even 100 times.
Ten Future Industry Trends
As we move to this Networked World, the factors discussed above will have real, practical impacts on the telecommunications industry. Emerging markets will become a major factor in industry expansion, but decreasing ARPU will act as stimulation for creative solutions. Uncovering these opportunities, providing products, services and support to operators as they deal with the emerging trends and successfully managing the impacts will be the key to future success. Huawei views the top 10 trends as being:
1. All-IP Transformation – Operators are spending billions of dollars each year for network expansion, but are still not able to keep ahead of demand. We believe that the only way to build cost-effective, flexible and expandable networks is to move quickly to All-IP for broadband. This applies to both fixed-line networks, where high-capacity fiber-copper integration will become common, and to wireless networks, where single IP backbones will handle voice, data, media and signaling. In both cases, moving to All-IP control layers is also required to flatten the network and achieve CAPEX and OPEX goals.
2. Carrier-Grade IP – As networks move to All-IP, it is becoming apparent that common Internet-oriented IP technology does not meet the needs of real-time delivery demanded by voice networks. In order to meet these requirements, a new class of solutions will be required. These solutions will ensure end-to-end high-quality voice-grade communications with carrier-grade reliability and maintainability. Without these advances, it will not be possible for operators to create the All-IP networks needed to meet the challenges of a Networked World.
3. ARPU Deterioration – With most of the future growth coming from emerging markets, the low ARPU requirements of these markets will force operators to adopt creative solutions to capture the market while still maintaining profitability. As an example, 72% of the Indian population is in rural areas, where the current telecom penetration is only 13%. This is a wonderful opportunity, but the ARPU is USD$3-5 per month! Clearly, low cost networks and low cost terminals will be key factors for carriers to develop services and make profits.
4. Mobile Broadband Delivery – Exploding use of mobile devices for high-speed data connections is one of the most exciting frontiers in telecommunications. Functionality which was previously only available from wired broadband connections can now be used from mobile devices, opening up new applications that are based on location, status or even the proximity of friends. Delivering this high-speed data experience to mobile users has a number of challenges which must be overcome. When the network bandwidth reaches 100M, the density of base stations will increase by 50 times. Our consultations with operators has underscored that the increased complexity of site selection, backhaul transmission, signaling schemes and operation & maintenance is becoming a serious burden. Optimizing the coverage of a Metrozone, base station minimization, packet transmission and level transmission, as well as organization of networks, etc. has the potential to restrict the development of mobile broadband. Since 2006, Huawei had been focused on base station minimization, support for packet-based backhaul transmission and plug-and-play of self-organizing networks. These capabilities have been successful in solving the coverage problems of Metrozones.
5. SingleRAN Advances – Continued rapid growth in users, along with the growth in mobile broadband requirements and advances in broadband technology will result in a very complex radio network environment. While operators will support market demand by quickly deploying new radio technologies, such as LTE, they must continue to support the existing GSM, EDGE, UMTS and HSPA networks for many years. Rather than building a complex “vertical” network of separate radios, the need is for a “horizontal” integrated radio network that supports voice, narrowband data and mobile broadband. Huawei has championed the “SingleRAN” concept to meet this need. With around 10,000 of these fourth-generation base stations deployed by O2 in Germany, the TCO savings of up to 30% and the smooth evolution capabilities are quickly proving to be a winning combination.
6. Tera-scale Networks – Surging growth in data traffic continues to exceed the capacity capabilities of traditional telecom networks. Network modeling for developed countries in Western Europe suggests that data growth and network transformation to flat, All-IP architectures will soon require end-to-end Tera-bit bearer networks. The appetite for capacity will be even greater for countries like China and US that have large populations and require broad geographic coverage. We believe building a Tera-Scale bearer network will become a competitive requirement for leading global operators.
With extremely high extendibility, Huawei IPTime Solution has the capability of 80T as Router Cluster System, which will reach even higher with the development of 100G interface technologies. Its adoption of unified control plane enables seamless interactions between the IP layer and the optical layer. Such architecture can offer higher transport efficiency, increasing return on investment and enhancing operators’ core competitiveness in the era of broadband.
7. New Voice Business Models – Current mobile network operators receive 70% of their revenue from voice services, a market category that is being pressured by a continual decrease in ARPU. There is a natural shift in focus towards the more attractive revenue from data and services, but this overlooks a critical element of user preference. Voice represents the most natural, efficient and convenient way of acquiring information that suits all scenarios and surroundings. How to capitalize on this and how to leverage voice as a new channel for communication and information acquisition, such as with the Web, has turned into one of the most-debated and most difficult technical propositions. It is our belief that there is huge market potential to tap in voice.
New business models are the answers to this need. A good illustration would be the “Best Tone” service offered by China Telecom. An industry-leading innovation and a fast growing service, Best Tone has become a significant driver for the carrier's voice revenue growth.
8. Value Creation in Broadband – While Moore’s Law will help decrease the cost, size and power of the equipment required to handle the massive increases in broadband data traffic, it can not keep up with the projected growth. The growth of the required equipment will result in significant increases in both capital and operational expenses, which can not be recovered from the revenue of passing basic data traffic. To tackle this challenge, carriers will need intelligent traffic management to enhance bandwidth utilization, coupled with traffic-based user behavior analysis to generate additional revenue streams through targeted advertising or other new models.
9. Content and Media Services – Today the network is transitioning from a communications vehicle into an infrastructure that sustains all elements of society. This will lead to a new trillion-USD market for businesses who provide their services over the Internet. As the new potential is unfolding, leading carriers are all looking to transforming to add content and media services, on top of their traditional pipe offerings. The content and media arenas require new capabilities, skills and levels of user interaction that will challenge traditional operators. The service experience, development methodology and business model are dramatically different and community-based interactions are emerging as the fundamental trait of future services. User-driven and user generated content will be the prevailing theme and a large number of personalized offerings will enter the market based on the long tail theory. These offerings will be nurtured by the changing character of the network, where sharp declines in the cost of services will make it possible for “niche offerings” to win. Take publishing for example: traditionally the cost of a book could be recovered only if multiple thousands of copies were sold. With new network capabilities, the digital world increases competition, resulting in an ecosystem characterized by radical cost reductions, sometimes to zero, making on-line books profitable even with a small volume.
10. Virtual Computing – The ability to deliver high-speed data connections anywhere allows the world of computing to shift from “buying products” (computers, storage and software) to “buying services” (IaaS, PaaS, SaaS). This obviously is disruptive to conventional software and hardware vendors, but it also is disruptive to telecom operators because it provides an opportunity to re-think the boundaries of their networks. The network “cloud” can now include not only physical data centers, but also the virtualization of service capabilities that can be delivered along with dial tone to improve users’ lives. If we compare network traffic to rivers in the digital world, then data centers will be the future “reservoirs”. These new-generation data centers will require revolutionary shifts technologically, providing the capacity for massive data processing at a low cost.
Even in areas where economies are experiencing a slump, the telecom industry is still able to maintain and even accelerate its growth. Successful societies are going to require greater connectivity, placing the social responsibility of bridging the digital gap on the telecom industry. During the last ten years, an information world has taken shape. Over the next few years, the universal spread of high-speed, low-cost, anywhere connectivity will be the driving force for the telecom industry’s development.
In this process, innovation and transformation is an everlasting topic. Working together, we will create a truly connected world where people can have equal access to communications.
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