Transforming the dumb pipe to a smart pipe

Ericsson shows local telcos ways to make more from mobile broadband

It has been shut out of building the three mobile networks in New Zealand – Vodafone, Telecom’s XT network and 2degrees – but Ericsson has not given up touting for mobile business in New Zealand.

Warren Chaisatien, strategic marketing manager from Ericsson Australia, was in Auckland recently to speak to local network operators and technology media about the company’s “thought leadership” programme. The nub of his presentation is that mobile operators need to create intelligence in their networks, so that they become more than simply “dumb pipes”.

Chaisatien’s presentation was based on Ericsson’s experience with telcos overseas and on market research the company has conducted among 4674 consumers in the US, UK, Sweden, Austria, Singapore and Australia.

He says there are three waves of mobile broadband. The first is uptake. The second is when penetration reaches 20 percent of the market and, as the gap between revenue and traffic widens, telcos look for innovative ways to boost ARPU (Average Revenue Per User). According to the New Zealand World Internet Project, 18 percent of people accessing the internet in this country did so via mobile phones in 2009.

By the time the third wave hits, around 2020, there are expected to be 50 billion mobile broadband connections worldwide – and it won’t only be via smartphones, tablets and data sticks. Chaisatien says that in Japan, for example, it’s now possible to buy a car with an inbuilt GPS system that is paid for in the vehicle’s purchase price – in other words the car manufacturer has a deal with the telco to provide connectivity for GPS units sold in its cars.

Chaisatien referred to the ways telcos currently charge for mobile broadband as “big buckets” – that is, for a set fee each month a customer can use a certain amount of data. There are slight nuances to this pricing method – for example, on the XT Network a post-pay customer can top up their mobile broadband allowance part-way through the billing month. But in general most consumers pay the same amount for best-effort speeds.

According to Chaisatien the difficulty for telcos is that a small amount of users – five to 10 percent – are using 80 percent of the network’s capacity. This concern was raised recently by Vodafone NZ chief executive Russell Stanners, when he told an industry conference that a Vodafone Group company in Europe has found that while just 20 percent of its revenue is generated by mobile data, it consumes 65 percent of the network’s capacity.

“Regular users end up subsidising them [heavy mobile data users] and they are slowing us down. Nobody gets what they want because the pipe is not smart,” says Chaisatien.

However, by putting ‘intelligence’ into the network, telcos can gather data on the websites its customers visit frequently and partner with popular content providers to increase revenue – either from the customer, from the content provider, or both.

Chaisatien says that in Sweden the incumbent telco TeliaSonera has teamed up with music site Spotify, a digital music service. For an additional $NZ20 a month customers can download as much music as they want via their mobile broadband connection. This traffic is not counted towards their data limit and it is given priority service. Which means that a customer who has not opted for the priority service may receive a downgraded experience — slower data speeds, even disconnection — if those with ‘Spotify priority’ are clogging the network by downloading content.

Content isn’t the only way to offer premium service. Chaisatien says priority can also be given to users with particular devices. In Europe Ericsson is working with a mobile operator (whom can’t be named) that prioritises traffic for iPhone and iPad users. This service isn’t marketed much, instead the telco hopes that by providing a better user experience to these high-end customers it will spread by word of mouth that this is the best network for Apple devices.

Another way to differentiate pricing is through location — users pay less for mobile phone calls made at home or at the office than in other locations. Chaisatien says this is particularly appealing for an operator such as 2degrees, which has no fixed line business.

When discussing these new ways to price mobile data Chaisatien drew an analogy with the airline industry. He says that passengers on an international flight receive different service depending on how much they pay, so why not do the same for mobile broadband users?

Internationally the idea of a dumb pipe vs a smart pipe became a hot topic in the fixed line market a few years ago, when many were concerned that telcos would try to clip the ticket on every transaction that occurred across their networks, thereby increasing end-user charges and possibly stifle innovation. The debate became known as ‘net neutrality’ and it reached all the way to the US Senate. Does Ericsson envisage a similar resistance in the mobile world?

“I think it is a give and take,” says Chaisatien. “If you want better pricing, if you want better service, if you don’t want spam, if you want advertising that’s relevant to you, then you have to let me into your world a little bit otherwise you pay this big bucket.”

Ericsson NZ GM Mobile Sales Pieter Van Rensburg agrees. “You have a pipe, you’ve got assets; how do we actually take those and transform them into a better value creation for yourself and the end-user?”

Computerworld asked Van Rensburg how the company could be selling products and services to create “smart pipes” to network operators in New Zealand, when their business is primarily with Ericsson’s competitors.

But Van Rensburg says Ericsson does work with the all three New Zealand mobile operators however, “it’s not fair for me to comment on that because we are in the process of implementing some new solutions for them.”

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