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Telecom Traffic

The indisputable conlusion, as it relates to telecom traffic, is that voice traffic is on the decline and data traffic is on the rise!

This phenomenon holds true globally, particularly so in the United States where the increase in data traffic amounts to a whopping 89% in 2011. Contributing factors are video streaming and the proliferation of the data-enabled Smartphones! Cisco estimates that the total volume of data circulating on mobile networks will grow from 97 million gigabytes per month in 2009 to 3.9 billion gigabytes in 2014, roughly doubling every year. Even with new technologies for compressing data, the ability of mobile networks to absorb this traffic remains limited.

What does that lead to? Essentially a challenge of the highest degree for telecommunications companies to finding the capital to build all the networks needed to handle this data while still maintaining the loyalty of customers and the goodwill of regulators, and fending off new Internet-based competitors such as Google, Skype, and Facebook. France Télécom’s Didier Lombard 1, recently retired, its CEO and Chairman till March 2011, and much marveled at for his vision behind creating the Orange Lab-a research outfit engineered by a government owned entity,  believes that telecommunications companies will have to cope with the data tsunami by finding new business models. In some cases, this will mean pay-for-access Internet services, including various forms of video on demand; it will also mean new applications in healthcare, financial services, and many other industries as digital telecommunications inundate them. It will almost certainly mean new types of partnerships with other technology companies; for example, France Télécom recently began selling the Apple iPad in its retail stores. The scenario is no longer far-fetched as US carriers are already considering abandoning the unlimited data plans.

Till recently, voice communications represented the majority of telecom usage. Data use was marginal. Now, some telecoms — in Asia, for instance — have seen the proportion of voice drop to 20 percent of the traffic. The rest is data. All sectors that use telecommunications, which in fact means all economic sectors, will have to transform their business model. Some have already been drastically affected: for example, music, video, and publishing. But this change will be more widespread.

The main part of the investment to serve mobile phones, paradoxically, must be in the fixed network. Even the mobile networks with the best coverage require capacity behind their transmitters, or they fail. Some countries have installed 3G networks where customers can’t reach any servers, because there is too little capacity on the trunk lines. We will need a huge investment in fiber optics. We also probably have to accelerate our “long-term evolution” [LTE] and fourth- generation mobile service rollout. [LTE/4G is a mobile data platform that will be launched in many countries in 2011.] The second impact is in customer behavior. Customers will use their mobiles almost exactly as they use personal computers, and in other ways that change the business model for a lot of activities. For example, when they read books on their iPads, that puts pressure on publishers to change their business models.

What other sectors besides media will have to transform?

Healthcare is one. Healthcare expenses are increasing every year because the population is living longer. But the insurance system, which in the US is managed by the private sector and in Europe primarily by the public sector, can no longer afford to pay all the healthcare costs of elderly people. Developing powerful IT systems, for medical information, saves a lot of expense and leads to better healthcare. For the time being, people think this healthcare IT business is marginal. But it will not be marginal forever. In the end, telecom revenues from healthcare will be higher than those from video! Having Internet access to government services and documents is another example. Still another is retail. Already, the success of electronic commerce is very high. In Europe, more than 10 percent of the turnover of goods and services is realized through e-commerce, and almost 5 percent of all the purchases made by French households take place on the Internet.

In the past, telecom economics were based on voice. The subscriber paid for each hour of voice traffic, and the data traffic, including the Internet and video, was considered marginal. It was offered more or less free of charge. Now it represents a much larger percentage of the total traffic, for most, if not all  carriers. One of the problems the carriers have with Skype or Google Voice is that it is billed as free, but the subsidy is artificial. It cannot go on for ever with the present scenario when voice becomes a minority of the traffic and data costs and usage are no longer marginal. The tariffs have to be redesigned: data cannot continue to be marginal in price. The problem is of course to persuade consumers to accept this change. One move toward a solution was made in mid-2010 with the Google/Verizon joint venture agreement [to offer premium content and services over a separate managed network]. For Google, this is a fundamental step: It recognizes that in using a majority of the capacity, the company has to participate in the cost. If we follow this direction, the problem may be solved — provided that both parties can manage the rules precisely. In the end, there will be both managed services and an open Internet and provision has to be made that everyone finds what they are looking for in this context.

During the past decade Telecom carriers had to split between the fixed line,  Internet, and the various mobile lines. It has been a nightmare for customers; who pay different rates and have different contracts for each service. Everywhere, steps are on their way, to consolidate all these services. Soon, the customers will get packages that incorporate everything in a flexible way! They will carry their Internet access from office to home, to a house being visited, and to pay for all their family mobile and landline calls with a single arrangement. It will be simpler and cheaper for them. It will be beneficial for the telecom companies as well, because they  can optimize the network. Any voice call may travel on mobile lines or conventional landlines; sometimes on Wi-Fi; and sometimes on some more advanced system that is yet to surface. This in itself will solve much of the capacity problem, because in each situation people will use the most efficient system. The present situation, where people use mobile phones at home uses up the wireless phone frequencies, while the fixed line remains empty. If you want to optimize, you would rather be flexible, connecting through Wi-Fi and packet switching [Internet protocols], where the quality is better.