What place for operators ?
Facing the growth in Internet traffic, especially video, the major telecom operators are now deploying CDNs in their networks. They could potentially upset the entire video distribution ecosystem. However, technical deployments are complex and the commercial challenges are daunting in a market that is already very competitive. IDATE recently published a study providing its readers with the status of this new market and with information on the positioning of the various players in the value chain.
"Telco CDN, or the deployment of a Content Delivery Network (CDN) in an access operator's network, is a major technical and economic response by operators faced with the growth in Internet traffic, especially video. Telco CDN is essentially being driven by the major incumbent operators (especially AT&T, BT, Orange, Telefonica, KPN and Verizon) with fixed video CDN", says Vincent Bonneau, Head of the Internet Business Unit at IDATE. He insists: "Operators can achieve several objectives with this solution: improve QoS, reduce network costs and traffic using caching servers and generate new revenue streams, especially from OTT players, while continuing to capture revenue from end users (through managed services) in a two sided approach to the market. Some of them can reduce deployment costs of some services using hybrid infrastructures."
Telco CDN highlights
The operational positioning of telco CDN for operators is still relatively complex. There are several options, even though some of them have limited potential. However, transparent caching (which creates the equivalent of a telco CDN without agreements with OTT players) is growing in popularity as it is easier to implement. Actually, telco using telco CDN or caching have some decisions to make on setting the right price to attract enough traffic without setting a too aggressive price, as well as on revenue generated from managed services. Telco CDN is actually also a wholesale service which competes directly with operators' managed services for retail VOD.
Telco CDN developments by operators can upset the value chain, especially for traditional CDN players. The arrival of operators introduces additional competition in an already very competitive market, which is also undergoing heavy consolidation. The threat of competitive confrontation with telco CDN leaves room for co-opetition, with all the traditional CDN still looking to sell CDN services to operators as basic reselling of production, technology licenses or outsourced services.
CDN challengers (Edgecast, JetStream) were the first to position themselves like this with the major operators (Deutsche Telekom, KPN), joined in late 2011 by CDN leaders. Competition is stiff, and traditional CDN must adapt to interconnection imposed by the operators (especially paid peering). Operators compete mostly with the Internet giants (Google, Netflix), who have their own infrastructure (and even their own CDN), and who represent the majority of the traffic, and are not inclined to use telco CDN. Nevertheless, the impact of telco CDN is very small, due to the current lack of a federation that would provide larger coverage than the natural boundary of a telco CDN (i.e. more than only the operator's subscribers).
Telco CDN will remain a very small market in the short term.
But the opportunities in the medium and long term certainly exist, with enhanced offers beyond video, mobile development (in which traditional CDN are not competitive) and coverage of poorly served geographical regions. The potential for 2017 is estimated at 5.5% of the total CDN market. In addition, operators view this as strategic positioning in this market, as the benefits are much greater than direct profits (cost savings, improved QoS/QoE, ability to segment offers, two sided business model, etc.).
Project Manager & Head of the Internet Business Unit at IDATE
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