ericsson white paper

284 23-3132 Uen Rev B | June 2010

the future
role of
telecom

Expanding on the
creativity of the
internet world
In a few words…
Open, interoperable fixed and mobile telecom networks are the result of systematic ways of working
with open standards and clear interfaces. This is the way the telecom industry has traditionally
worked – with great success.
Telecom as an interoperable, seamless service is taken for granted in most parts of the world. It
enables users to call anyone from practically anywhere. Fees and handsets are affordable for most
people around the world. On the mobile side, GSM introduced a new level of competition, which in
turn has created a truly global service in terms of reach and accessibility. When GSM was launched,
the first mobile phone could instantly reach millions of fixed phones. This was crucial to the quick
take-up of mobile services and clearly demonstrates the importance of interoperability.
But a newcomer – the internet – has changed the rules of the game.
The rapidly growing market impact of the internet now presents the telecom industry with great
opportunities, but also with some challenges that have to be met. How does one handle the
emerging world of internet-inspired services, where the rules are different, and where proprietary
systems are competing with standardized solutions, for which there are numerous open as well as
de facto standards. Another challenge is how to capture both the creativity of the internet world
and support the services created in this open environment.
Building on the experiences gained from telecom’s proven ways of working, supporting
regulations will ensure interoperability and that the industry sticks to the goal of universal services
and communications for all users and businesses. In this way, and only in this way, the industry
can attain the huge volumes and low prices that will benefit users, operators, enterprises and
governments.
The way enterprises and users utilize the internet calls for new roles and business opportunities,
for both new and established players. The combination of the internet’s creativity and telecom’s
scalability and efficiency has enormous potential.

THE FUTURE ROLE OF TELECOM • IN A FEW WORDS...

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Expanding
telecom’s reach
The history and legacy of telecom is telling. Telecom is essential for individuals, communities and businesses
everywhere. Its impact on economies around the world has been fundamental, and telecom is still crucial
to the creation of individual prosperity and economic growth in many countries, especially in emerging
economies.
So far, the telecom industry has largely been focused on extending its classic business model and on
providing internet access.
However, telecom can definitely be a vital part of extending value and increasing reach for much more
than traditional telecom services. The aim is to create total interoperability between networks, terminals
and services, fixed or mobile, with any kind of device or operator.
The internet provides new opportunities here. The internet does not mean simply media and entertainment,
but many new useful applications that benefit society. It has, in fact, already developed into an indispensable
part of our infrastructure, supporting everyday societal functions, such as road traffic, security, health,
energy, public services and all kinds of monitoring, including machine-to-machine communication.
The internet is obviously much more than a service or a distribution channel for content. It’s a bridge that
is now beginning to provide improved consumer experiences, redesigned business models and greater
efficiency across a broad range of areas in business and society. This is a great opportunity, one which
allows the telecom world to expand and play an important role in the realization of these new benefits
and values. The integration of the internet and telecom into a broad range of industries and services is
set to create a much richer world of communications. But before going deeper into this interesting area,
let’s have a quick look at telecom’s current foundations.

Interoperability at the core

When talking about telecom and the future of the telecom industry, two core areas that need to be developed
have traditionally been seen as telecom’s strongholds:
• The provision of high availability and high-quality connectivity
• Offerings of interoperable communication services with clearly defined business models.

The provision of connectivity will probably be telecom’s base business in the future. Broadband and high-
speed transport networks will connect people and equipment all over the world. Governments are demanding
broadband connections for everyone, and vendors are competing to provide new forms of infrastructure.
Standardization, interconnection and regulation are essential aspects of future connectivity. That is the only
way to provide economies of scale (leading to low prices), fair usage of spectrum and quality of service.
To maximize the value of these connectivity services, telecom operators also need to further improve basic
communications services and address the potential of, for example, high-definition voice, high-definition TV,
virtual videoconferencing, and active address books. These kinds of improvements require interoperability
between service providers, higher speeds (real-time functionality) and higher-quality connections. Other
examples could be found in the areas of high-security transactions for payments, for example, e-commerce
and e-health. All of these examples point towards the importance of future communications services that are
not “media” in the sense of content provided by other market players.
Having said that, it’s clear that telecom is being redefined: telecom services are proliferating, becoming a part of
other businesses, part of the value chains for other industries, or as mentioned earlier, societal functions.
To accomplish this transformation, there should be no borders. Rather we need clear, open interfaces that
make it easier to ensure access to any communication service, anywhere, using any device. The telecom
industry therefore needs:
• Open global standards
• Fair competition regulations
• New business and service models.

It may seem obvious, but there are some obstacles to taking full advantage of the internet’s potential.

THE FUTURE ROLE OF TELECOM • EXPANDING TELECOM’S REACH

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A challenging
road ahead
In fact, the telecom industry is now facing perhaps its greatest challenge yet, with new technologies,
regulatory confusion and new user demands. Consumers are used to getting access to internet and
data services on the home computer and now want them on any device, on the move, anywhere.
This “second wave” of the internet is much more than browsing, messaging and looking at video
clips. It is being firmly integrated in a variety of different sectors, such as TV, education, industrial
processes and public services.
So, on the brink of a large transformation for users, telecom has great potential. But there are no
established frameworks and business practices. To realize telecom’s potential, several issues have
to be addressed.
Interoperability, with clear business and technical interfaces, is crucial. There are regulatory rules
and supply of spectrum. And there is, to some degree, a reshaping of the competitive landscape with
threats from the new “logical worlds” created by certain internet players. These new logical worlds
can, however, be turned into new opportunities for telecom.
Let’s look at these challenges, one by one.

Interoperability
There is always a threat that technologies and services will lack interoperability. Metcalfe’s law indicates
that the value of a network (or a network service) is proportional to the square of the number of connected
users of the system. Interoperability is the key to growing the number of users of a service. For example,
when MMS was launched in Europe, the lack of interoperability between network operators led to unreliable
delivery of messages. A user sending a message to another user could not be sure that the operators
had commercial agreements and if the receiving user had the service activated. Interoperability is an
obvious demand from users.
• In consumer surveys, most respondents rate interoperability between devices and applications
as very important.
• The lack of interoperability between service providers creates an equal amount of frustration.
This gives a service a bad reputation.
• The success of mobile telephony was a result of interoperability through the public switched
telephone network with fixed-network operators; early mobile users had people to call. And in
the same way, the delivery of fixed and mobile communication services over IP will require the
use of open standards and interoperability.

Making interoperability a reality is both a political challenge, in terms of regulation and fair usage, and
a business challenge, requiring business agreements that support the sharing of revenue and information
between service providers.

Clear interfaces
Clear interfaces are a prerequisite for interoperability and for a healthy supply of equipment. Just think
back to the competing, non-interoperable standards of television and video technologies, or between
Windows, Mac OS, Linux and so on. Today, devices and systems are often customized using proprietary
protocols, and as a consequence they are often incompatible with one another. Instead, clear interfaces
should allow access to any broadband service, anywhere, using any device. Interfaces play an important
role in technical standards; they allow backwards compatibility and are equally important in any business
architecture that targets a mass market with low-cost devices.
Clear interfaces enable collaboration between operators, service providers, application developers and
new market entrants. Traditional operators can gain market share by exploring new business areas.
Identifying clear interfaces is also crucial when analyzing strategic choices; conducted correctly,
the process of identifying the relevant interfaces gives operators the means to develop value-creation
propositions supporting other value chains. The right interfaces will give operators the right level of control
so they can interact with, provide services to and benefit from the “non-standardized” internet world.

THE FUTURE ROLE OF TELECOM • A CHALLENGING ROAD AHEAD

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 Open standards – which are set by standardization bodies, and subsequently verified and tested – are
therefore vitally important because they help operators create interoperable and affordable solutions.
They also align and harmonize the telecom channel, allowing simpler and faster value creation across
other industries.
Open standards promote competition by setting up a level playing field for all market players. This means
lower costs for both enterprises and consumers.

Clear regulatory rules

Regulatory confusion in some markets compounds the situation. Regulation has been applied differently
in different countries or regions. But worse still is regulatory indecision, which tends to paralyze the
market.
In many parts of the world, government regulations determine the extent to which new broadband
technologies are or are not adopted. Clear regulatory rules in a competition-friendly environment are
some of the most important criteria when operators consider investing in, say, deploying deep fiber or
mobile broadband access.
On the other hand, ambiguity on the part of regulators is a sure-fire way to stifle investments or market
growth. This suggests that operators prefer any decision, however unpopular, to regulatory indecision.
One example is the ongoing debate over “net neutrality,” which started in the US and spread to other
markets. Internet players are pressuring legislators to limit network companies’ freedom to differentiate
in terms of internet usage and charging. The net neutrality lobby’s main arguments are that this would
endanger the freedom of the internet, discriminate against certain users and raise the threshold to
new market entrants. The uncertainty that still lingers around net neutrality is a problem for network
investors.
The European Union provides other examples of regulatory uncertainty as the European Commission
intervenes on, for instance, mobile roaming charges and access-network unbundling.
Another area of regulation involves the service obligations that depend on judgments of classification of
a service e.g. if a certain service is judged to be a telephony service or not. Depending on the classification,
independent of how it is perceived by the user, the result can lead to an imbalance in the cost of providing
services e.g. giving the position of an emergency call.

Spectrum
Spectrum is a critical building block in any new regulatory framework. The supply of spectrum is a key
enabler for choice and competition, and spectrum decisions have a major impact on the evolution of the
communications sector.
As technology advances, allowing more and more spectrum to become usable, the issue ceases to
be whether there is a shortage of spectrum. Instead the issue becomes a shortage of rights to use the
spectrum. Many countries are now adopting a technology-neutral approach for new spectrum auctions.
Spectrum allocation goes hand-in-hand with global standardization and business development, and must
also be applied on a global scale.
Alignment of spectrum is a decisive factor for the price of handsets – fragmentation makes handsets
more costly because they must be manufactured in smaller volumes.

Logical worlds
A new challenge to the industry is the creation of “logical worlds” by the likes of Google, Apple and
Microsoft, which are imposing their own brands and services on entire network ecosystems. These logical
worlds are extremely innovative and are attractive for telecom players.
They already offer interesting services, but combined with telecom features, such as interoperability,
user context-related information, integration of telecom services, and transaction capabilities, they could
be even better. The marriage between the internet and telecom means golden opportunities for synergies,
resulting in added value for both and increased network data traffic.
Bearing all of these challenges in mind, let us now clarify what opportunities we see ahead.

THE FUTURE ROLE OF TELECOM • A CHALLENGING ROAD AHEAD

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new opportunities
The internet has created several different businesses, such as on-screen advertising and search
engines, in a relatively short time. We want to note here that the internet world is rapidly outgrowing
its original technology platform and will benefit greatly from the ability to incorporate the values of
the telecom world as it develops further.
Scale is crucial and all innovation involving the internet seeks to reach
the broadest possible market, to achieve economies of scale. Service
providers usually try to reach the largest possible audience, leading
in the end to a more or less monopolistic situation for a particular
service. For many services, this is potentially acceptable. However,
for some vital communication services, the core telecom value of
interoperability is essential in order to serve the public with a choice
of service providers.
The history of SMS in the US market is a good case in point. It took
many years for this basic mobile feature to develop in the US, which
lagged far behind markets in Asia and Europe. The simple reason
was that US operators initially tried to market it as an operator-
exclusive service. Operators did not cooperate to allow customers to
exchange messages with others across different networks. As soon
as interoperability was introduced in 2001, SMS took off and became
a tremendous success. People simply want communications to be as Figure 1: SMS growth in North America due to
interoperable as possible. interoperability and pricing
So the internet world and the telecom world rely equally on
interoperability for their future.

Opportunities beyond access

In discussions on the future of traditional telecom network operators, it has largely been taken for granted
that they are under threat from the internet world and will be reduced to bit-pipe providers, gradually losing
their traditional close relationships with subscribers and spiraling downwards in the value chain.
This is a pessimistic and unjustified view. There is a range of new service possibilities opening up
for operators, naturally positioned beyond the pure access service. The key to these possibilities is
interoperability and clear interfaces, which we have described above.
Keeping clear interfaces between different kinds of services with different characteristics – some are
standardized, others are not – will facilitate the formation of new business alliances and enable network
operators to benefit from the dramatic growth in non-standardized, non-interoperable services emerging
from the internet world, while still maintaining the right level of control.
As a first step, one needs to acknowledge the split between user access and user service implied by
the move to IP.  Telecom traditionally bundled access with the service, and may still do so for commercial
reasons, but services will technically be kept separated from access.
We see basically four groups of services delivered by an operator to consumers and enterprises:
• Connectivity such as fixed and mobile broadband access delivering internet connectivity. Currently,
this service is mainly differentiated by speed and/or volume. It offers enterprises services like site
interconnect and machine-to-machine connectivity, which will increase in importance. With connectivity
to multiple devices and machines, as well as the integration of connectivity into processes across
all industries and sectors, new requirements for business models, service provisioning and service
performance will have to be met. This implies that capacity, coverage and quality will be vital aspects
of the connectivity service.
• Person-to-person communication running across different service providers. These interoperable
services, such as telephony, messaging and presence, are built on standards. Standardized interfaces
open the way for mass-market devices and truly global services because they can be used across
different service and network providers.
• Value-added services that complement communication and connectivity services and are normally
charged through regular billing. Examples of these are TV, ringtones, music, “friend-finders” and
positioning, and they are often retailed directly to consumers. For enterprises, these services are

THE FUTURE ROLE OF TELECOM • NEW OPPORTUNITIES

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 adapted to company-specific needs and processes such as supporting work-group collaboration.
These services are provided by operators on their own portals to their own subscribers and are often
supported by access enablers.
• Enablers helping other enterprises improve services for their customers. These may involve user
information, for example for targeted advertising, and some communication services and access
enablers, such as quality of service, messaging, payment and position.

Enterprises that are “non-operators” offer services that are essentially “unaware” of the access form.
These are sometimes referred to as “over-the-top” or internet services. They are typically offered globally
by one provider and have limited cross-service interoperability. However, they can be extended to benefit
from “interoperable communications services” as defined above. Internet services can also be extended
by incorporating “access enablers,” so they benefit from being access aware and supported by quality
of service (guaranteeing a certain service level), device identity, position and other features.
Based on this classification, we see how new operator opportunities can be defined by choosing
one service or a combination of several. The most basic, and closest to the traditional telecom operator
role, is providing pure connectivity (mobile broadband, fixed broadband, IP-VPN) together with the
communications services, such as telephony, SMS and other messaging, which can be characterized as
the basic content of the connectivity.
Figure 2 exemplifies some services. The producing enterprise area represents the ever-growing and
greatly diversified world of web-service providers, by which we mean everyone who uses the internet to
reach customers or citizens, be it Google, YouTube, CNN, Wal-Mart, the local dentist or governments.
This is an opportunity not only to help enterprises to rationalize their internal processes but also to help
them improve services for their own customers.
These new service opportunities
have resulted from network operators
leveraging their connectivity and
communication assets in support
of other companies’ value chains.
The attraction for web-service
providers is, again, that they get the
interoperability required to scale up
and reach mass-market levels.
Another fundamental building
block for this collaboration is to
deliver quality of service, security
and service assurance, to maintain
network and basic service integrity,
to control the use of resources, and
to prevent network overload – all
Figure 2: Service categories
traditional telecom virtues based on
a long tradition of standardization.
For non-standardized services, it
is important to have short time to market and to bring innovative service ideas to end users quickly as the
situation and the “market window” demand. When a service becomes a success, it will gradually face the
same requirements as the standardized services. If the service has reused standardized and interoperable
communication services as its basis, it can easily grow and be offered to all users globally. This means a
huge competitive advantage for any internet-driven business idea.
Value-added services dedicated to its own customers give an operator the opportunity for differentiation
from other network operators. This is in contrast to communication services, which are to be run in
cooperation with other operators in order to be valuable to as many users as possible.
All these services must be able to continue to evolve over time, even if at different paces and potentially
driven by different needs. It is important to bear in mind the basic characteristic of the service as such:
for example, a connectivity service must be able to support mass-market devices; an interoperable
communication service must be deployed across service providers; a value-added service must have
competitive characteristics in comparison with over-the-top services; and an enabling service must be
easy to access and use.

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CONCLUSION
As traditional telecom merges with the internet world, it is crucial that we recognize the importance
of building on the proven success of the following formula: cooperation on standardization leads to
interoperability, mass-market growth and, not least, reaching important societal goals
For a telecom provider, there are numerous viable positions beyond becoming only an access
provider, with a dumb bit-pipe. As a result of the discussion over a more advanced, “next-generation”
internet, there is also growing evidence that the role of a pure access provider may have a strong
business case. The growing communication between machines and the need for rationalizing enterprise
processes will provide many opportunities. The real issue is positioning oneself in a new game in which
telecom players have a strong hand in terms of basic interoperable services.
In summary, the comments sometimes heard from the internet industry – that traditional telecom
ways of working will lead to a dead end, with telecom companies offering classic services such as
voice and little more – are not true.
On the contrary, telecom values and principles – with open standards and interfaces, and clearly
laid out regulatory rules – are the only long-term solution as the traditional telecom business integrates
with the internet world.

THE FUTURE ROLE OF TELECOM • CONCLUSION