Telecommunication Business Model in the Internet Era

Zhang Zhengyang

(Xi'an Research Institute, Mobile Phone System, ZTE Corporation, Xi'an 710065, China)

Abstract:The Internet is the best practice of Next Generation Network(NGN).One goal of NGN is to change the telecommunication network from a“monopolized and closed”one into a“competitive and open”one.The network service providers will offer high-quality,low-cost and colorful services while the traditional telecommunication operators will gradually develop into the network access providers and not directly participate in any specific service.In the service-dominated future,the telecommunication industry will be horizontally integrated with other active industries,such as consumption,entertainment and shopping,into an open,distributed and operable win-win ecological chain.In the new win-win situation,the users will be the biggest beneficiary.

1 Internet —The Best Practice of NGN

N ext Generation Network(NGN)is the generic name for all next generation networks.In a broad sense,it involves a series of leading information communications technologies,including soft switch,Next Generation Internet(NGI),Third Generation(3G),Beyond 3G(B3G)and Broadband Wireless Access(BWA).

A technology can be regarded successful only after it has been tried in the market and accepted by users.Similarly,NGN can prove its powerful vitality and competitiveness only after attractive new services are offered,the charges are considerably reduced,and the Quality of Service(QoS)is guaranteed.It should offer comprehensive services integrated with voice,packet data and video,allow free access,as well as support individualized demands and experiences of users in various aspects,such as information,communication,entertainment and payment.As the future telecommunication services willbe fashionable and entertainment products rather than basic consumer goods,NGN will evolve from technology-driven into market-driven and user demand-driven.

The Internet,characterized by competition and openness,has greatly enriched telecommunications services.Since its introduction,various kinds of services(e.g.,gateway website,online search,e-commerce,Internet banking,online games,online chatting and blog)have sprung up like mushrooms.The Internet has broken the monopoly of traditional telecommunications operators in telecommunications services,and changed the business model from“operator-centered”to“user-oriented”.As a result,it has been widely welcomed by users.In a sense,the Internet is an information network constructed by people,shared by people and open to people.Therefore,the Internet is the best practice of NGN.

2 Distinct Differences Between NGN and Traditional Telecom Network

The distinct difference between NGN and traditional telecom network is that the former is open while the later is closed,which can be seen most clearly in their business models.

In the past,the telecommunications industry was strictly regulated by the government,and its business model was a verticalecological chain with the operators at the core.The upstream of the chain was the telecom equipment manufacturers and the value-added service providers,while the downstream was the users.The typical features of this modelare“monopolized and closed”.Its monopoly is reflected in the price,which is absolutely and independently determined by the operator,and the staggering profits;while its“closed”feature is reflected in the service offerings.Because the network provides only voice services,users have few alternatives when choosing an operator and service differentiation between operators is almost zero.This situation has not changed even in the period of 2G mobile telecommunications system.The 3G system,which is under construction and aims to protect the huge investment of operators,continues to strengthen the core status of operators.

One goalof NGNis to change the telecommunications network from a“monopolized and closed”one into a“competitive and open”one.Technically,NGN provides open service interfaces,allowing the third party or the users to participate in the generation,management and development of services;and supporting fair market competition.Because of marketization,the business model will be finally changed from“operator-centered”to“user-oriented”.Meanwhile,the value chain of the industry will be subdivided and optimized;thereby,the entire industry flourishes.

Obviously,the business model of traditional telecommunications operators goes in the opposite direction of the NGN's goal.

3 Internet's Challenges against Traditional Telecom Business Model

The Internet has partly fulfilled the goal of NGN:transition from“monopolized and closed”network into“competitive and open”network,which suggests new ways for future telecommunication operation.

The Internet is a decentralized,self-organized“ecologic community”.In this community,the users and the providers are not strictly distinguished.Anyone can be both an information provider and an information user.The users can freely select the services and the providers,or even participate in the process of service generation.In the business modelof the Internet,the operator is no longer the center and the dominating party;all participants have to follow the Internet rules,that is,openness and autonomy.

As the best practice of NGN,the Internet has challenged the traditional telecommunication network from its birth.

The following paragraphs are abstracted from a piece of news published at the end of 2006,entitled“NGIkicking off 3G fence,current telecom business model challenged”.

“Just when the telecommunication industry focuses on 3G and/or 4G,its traditionalmobile telecommunication business model is feeling the heat of the Internet.

In China today,the users can use mobile phones to access the Internet,but only through the private networks of the operators.These private networks are like‘isolated islands'while the Internet is the‘continent'.Clearly,the users want to enjoy the colorful services on the‘continent'rather than those on the‘isolated islands'.The common approach used by the operators is to allow the users to access the Internet but not to make phone calls via personal computers,or to enable the users to access their private networks via mobile phones.This‘isolated island'is called the‘fenced garden'of the operator.

Being a small telecom operator in Europe,the‘3 Group'of Hutchison Whampoa has introduced new services,allowing the users to limitlessly access the Internet via mobile phones at a fixed monthly rate,and to make unlimited calls using Skype.

The mobile operators have a love-hate complex with the Internet.They treat the Internet as a treasure bowl when the data service becomes a new growth point,but they regard it as an evil when its network phone service endangers their traditional voice services.This time,by introducing the evil Internet into the‘fenced garden'of the mobile operators,Hutchison opens the Pandora's Box of the mobile telecommunication industry,which will no doubt bring great impact on the charging mode and network architecture of current mobile telecommunications systems.”

Under the impact of the Internet,the structure and profit-making mode of traditional telecommunications business model are in danger of collapsing.Users'choice,experience and participation will become the theme in the development of the telecommunications industry.In the future,the user-oriented mobile voice,video and new media services will mostly run in the public interconnected networks rather than in the traditional telecommunications networks.As a result,the evolution process of the cell mobile telecommunications network and the users'understanding of NGN will be changed.

But,are telecommunications operators willing to wait for the doom that they cannot even monopolize the voice services?

Feeling the threat of the Internet,telecommunications operators around the world have not agreed to become pipe/bandwidth providers only.They have brought forward their transition strategies one after another.British Telecom(BT)has made a total transition plan,including changes from narrowband to broadband,from sales capacity to sales capability,and from product-focused to user-focused.It will focus on broadband,mobility,Information Communications Technology(ICT)and worldwide solutions.Supported by its renewed profitable growth model,France Telecom Group pursues to become an integrated operator.In its three-year transformation programme(i.e.,NExT),it clearly expressed to become the preferred telecommunications service provider in Europe.In China,China Mobile has purchased the shares of Phoenix TVand claimed to become a comprehensive information service provider.

These operators'actions are to conform to the telecommunications development in the Internet era.But what dose the future telecommunications business modellook like?

4 Future Telecommunication Business Model

The future situation of the telecommunications industry will be a result of games between telecommunications operators,Network Service Providers(NSPs)and users.The demands of users will be the most critical.

Users'demands vary in many ways due to the differences between user groups,such as users demanding only basic communications functions,fashionable users,users focusing on entertainment,and high-end business users.In addition,users of different ages,regions,cultures and incomes always require different services,applications,terminals and experiences.The diversity of services and the individualization of user demands force the value chain of the telecommunications industry to be further divided into the following:

·The upstream of the chain will gather lots of NSPs to provide various users with high quality,low-cost and colorful services.

·Telecommunications operators,being in the middle of the chain,will gradually develop into Network Access Providers(NAPs).Their functions will be to offer open,uniformed service interfaces for the upstream NSPs,as well as to provide trusted,diversified,low-cost accesses for the users,allowing them to independently select services,and ensuring that the entire network will work reliably.Because they will not directly participate in the provisioning of specific services,the“separation of services and carriers”will be truly realized.

·In the new win-win situation,users,who are in the downstream of the chain,will become the original driving force in the development of NGN and the biggest beneficiary.

With functions such as multimedia,personal information management,entertainment and electronic payment integrated,the communication terminal will become a platform to carry personal services and a comprehensive information management tool.In the“service-dominated”future,the telecommunications industry will be horizontally integrated with other active industries(e.g.,consumption,entertainment and shopping)into an open,distributed,and operable win-win ecological chain.Compared to the current,single value chain,the future chain will undergo a series of profound changes in terms of business model.

Firstly,the value chain will be further divided and integrated.The network operation department and the service provisioning department tend to be separated from the telecommunications operator,and the service provisioning department may even become an independent company.Meanwhile,operators and specific service providers will make strategic alliances to complement one another with their own advantages and share the interests.The competition between operators will become a competition between alliances.

Secondly,operators will seek for competitive cooperation with each other rather than keep in pure competition.For example,various kinds of networks,such as fixed and mobile,will complement each other.The cooperation will enhance the strengths of each operator and increase their market share while the sharing of network resources can improve the overall QoSand customer satisfaction,thus creating competitive advantages.

Thirdly,operators will establish a closer cooperation with equipment manufacturers.To meet the service requirements of a specific user,the operator will take a leading position more than ever in equipment purchasing,including the customization of special services and terminals.

As Doctor Chen Shanzhisaid［1］,“Once the competition becomes more intensive,and the consumer group is subdivided,no service can be independently offered by a single telecommunications operator.As a result,lots of contributors and beneficiaries will emerge,just like parasites in an ecologicalchain.In the new value chain,the conflict of interests between participants will sharpen,but at the same time,their dependence on each other will be increased.Consequently,a telecommunications community chain comes into being.”

Despite the facts that the Internet and the BWAtechnology have greatly threatened the traditional telecommunications business model with services such as network video and Voice over Internet Protocol(VoIP)that are increasingly robbing the operators of their profits,and users are changing their concepts of telecommunications service consumption,we have to keep a clear head that the dominant position of the telecommunications operators will not change in the near future for the following reasons:current mobile voice services still can meet the requirements of most users;the QoSof the network has been guaranteed due to mature technologies and lots of investment;and the charges are within the acceptable range for most users.In a considerable long period,the huge user group will still contribute to the development of the operators,and the operators have the capabilities to continuously improve their products and services to satisfy their consumers.Therefore,the evolution to NGN telecommunications business model is a long-term process.

5 Conclusions

The development of traditional telecommunications networks and services is technology-driven,where users have to passively accept the limited telecommunications services provided by operators.Although the specific form of NGN is difficult to depict,it is predicable that the future network will be a user-oriented network,where users can freely access,select services and choose the rates.Users'demands and the services will be the determinants for the finalform and evolution of NGN while operators will provide low-price and quality services and make the right profits they deserve.

As Doctor Chen Shanzhipredicted［2］,“The services and terminals will play determinant roles in the evolution to the future network.That is to say,they will determine the final form of NGN.The evolution to NGN willbe a long-term process driven by services and terminals.The next 10 years will be a transition period for networks,terminals and services of operators.Due to the great difference in Chinese human environment and the huge market,NGN will create an innovative opportunity for local enterprises in China,including services innovation and terminal innovation.”