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Enabling New Service Provider Business Models With IMS
By William J. Barnett Jr., Lucent Technologies
It is no surprise that with revenue pressure, cross-segment substitution, and new competition bundling voice with other service offerings, traditional telephony business models are under attack. The IP Multimedia Subsystem (IMS) is a service architecture that enables new service provider business models for both current telephony and new revenue-generating service offerings. This article discusses three potential models for creating value via business partnering “ecosystems” enabled by IMS and then compares these models to a traditional service provider business model.
Introduction
The global telephony industry is undergoing massive disruption dealing with the business implications of convergence, especially with the greater cross-elasticity of wireless and wireline, data and voice, and circuit and packet-based technologies. Wireless operators are raiding wireline markets with substitution offers. New industry entrants are challenging the traditional business model with new offers, advanced features, and/or radical pricing structures. Some industry players wholesale their network capacity to other providers that focus on specific market segments. The applications service provider (ASP) business model is experiencing a re-birth with voice over Internet Protocol (VoIP) services and similar applications hosted via the Internet. Fundamentally, all types of service providers are pursuing the same end-user spending, driving down the unit price of all voice services.
The IP Multimedia Subsystem (IMS) is an industry standard, initially developed by the 3rd Generation Partnership Project (3GPP) and 3rd Generation partnership Project 2 (3GPP2) organizations primarily as an IP-based network architecture for cellular/wireless operators (replacing the traditional functions in a circuit-based mobile switching center). The International Telecommunication Union (ITU) has chosen to start with IMS to specify a next-generation network (NGN) standard architecture for delivering lower-cost advanced revenue-generating services for all types of service providers, including interexchange carriers (IXCs), local exchange carriers (LECs), cable operators, and ASPs. VoIP is just one of many services enabled by an IMS architecture.
IMS as a Services Architecture
Traditional telephony networks have the end-user services functionality inseparably embedded in a core network switch. With intelligent networking (IN) technology, enhanced telephony capabilities can be built external to these switches, but services are still closely tied to the core network via Signaling System 7 (SS7) signaling. IP-based networks enable the end-user functionality (i.e., software applications like Web and e-mail servers) to be flexibly located and available from wherever in the world the user is able to access the public Internet.
The IMS architecture and its particular use of Session Initiation Protocol (SIP) as a powerful signaling protocol that extends the flexibility of the IP model in several ways. Independent of access network technology, the IMS architecture:
Establishes methods for subscriber identification, authentication, authorization, routing, session control, and accounting for usage of network resources, as well as methods for exchanging this information across multiple network operators;
Standardizes the interfaces that applications use toward the core network, allowing multiple IMS applications to share data (including provisioning and billing data) and “blending” these applications such that they may simultaneously provide services to a single subscriber; and Provides methods to dynamically assemble end-to-end quality of service (QoS) data sessions based on an application’s needs and the available intermediary network resources, as well as the end devices’ capabilities, such that VoIP and multimedia, real-time, latency-sensitive types of services can be delivered over IP networks.
Service Provider Business Models
When selling services to an end-user, a service provider needs within its business model the following eight significant elements:
- Brand—A marketing image of the service provider perceived by the end user/buyer.
- Channel—The place in which or medium through which the user buys the service.
- Billing and customer care—The methods by which the user pays for the service and by which the user interacts with the provider post-purchase.
- Content—Creative intellectual property/media with end-user appeal and value (not all services require separate content—e.g., traditional telephony).
- Applications—Functional implementations of the features and services the user is paying for (these implementations provide packaging around content when such is part of the service).
- Core networks—Highly interconnected networks of resources that route and process the end-users’ traffic among multiple devices, access networks, and applications.
- Access networks—“Last mile” networks that connect devices to a core network.
- End-user devices—Hardware and client software with which the user physically interacts when using the service.
Multiple instances of each element are possible via internal operations, purchases from suppliers, and/or via ecosystem partners. Some simple pre-IMS examples include:
A traditional service provider partnering with peer operators for network capacity when a subscriber’s call terminates beyond the bounds of its own network geography, and
Wireless providers partnering with each other when one provider’s subscribers roam into and obtain use of local services when visiting in the other provider’s network coverage.
The partnering model is also the norm in the cable TV industry, where the network operator is also often a content owner, distributing through other service providers as well as through its own cable network.
Business Models Enabled by IMS
The eight elements delineated above are used to describe three potential business models and possible strategies that are available to service providers with an IMS services architecture. These elements represent significant areas of potential investment and partnering. While partnering reduces the net revenue the service provider may receive, it requires less capital investment to launch new services or enter new markets. A key strategic issue will be how a service provider competes with others who may have some or all of the same partners.
Model A: Converged Service Provider
A service provider that combines access networks and valuable end-user services should have strong appeal (“one-stop shop”), especially with a trusted brand name and positive user experience with easy-to-use devices and applications. By aggregating multiple access networks with IMS though roaming (fixed and mobile, locally and when traveling), subscribers have global use of their services without paying separately for access. Converged service providers have many options for the components in their business model. Significant partnering provides a broad service portfolio. Internally developed components or components with exclusivity may be expensive, but they are needed for differentiation against other competitors with converged services. For high-volume commodity services or content, multiple partners and the ability to move traffic between the partners can help the service provider lower costs. Because this business model demands high investment and high volume, there are likely be only a few large players in this niche of the ecosystem.
Model B: Wholesaler and Retailer
A wholesale business model sells bulk network capacity and related services to retail service providers, who will typically focus primarily on their own brand and channels. In the IMS architecture, almost all network components are designed to be shared across multiple services, and only the home subscriber server is provisioned with subscriber-specific information. Shared media servers, media gateways, and application servers can be found today in pre-IMS wholesale core network operators. A pre-IMS retail business example is the mobile virtual network operator who buys wholesale wireless minutes from mobile network operators (e.g., 7-Eleven* Wireless ). Retail service providers will find value in partnering with wholesalers that have global connectivity; such partnering will reduce their risk, lower their cost, and improve their time to market. There are likely to be many retail service providers, some with broad appeal and some with niche appeal, but each leveraging unique brands and channel strengths.
The wholesale business model is most typically seen today for core and access networks, but there are also more recent examples in the areas of customer care, billing, and device fulfillment (e.g., mobile virtual network enablers). Typically, a wholesaler must focus on economies of scale and performance aspects for differentiation. By supporting multiple retail service providers, the wholesaler lowers its own risk by leveraging the market diversity and strengths from the multiple brands and channels of the retailers. Because this is a cost- and quality-differentiated business model, the wholesaler’s margins will be tight and there are likely to be only a limited number of long-term successful network wholesalers in the ecosystem.
Model C: Applications Service Provider
An ASP business model primarily focuses on the applications, content, and perhaps a dedicated device, generally without owning any network in the traditional sense. ASPs may also be wholesalers, and/or retailers (e.g., if have their own brand, channel, billing, customer care). The retail ASPs may lease access and core networks from wholesalers, or they may use the public Internet. Vonage is an example of a retail ASP delivering a pre-IMS VoIP application where subscribers separately purchase their own broadband Internet access. Other ASPs are the “behind the curtain” wholesale partners to service providers who market multiple services to end users. The ASP’s differentiation could be a specific device or application, and/or the differentiation could be unique content. An ASP may add new features to an existing application (e.g., AOL VoIP services ), device (e.g., a BlackBerry handheld wireless device), or system (e.g., the OnStar in-vehicle safety and security system). ASPs may target a specific segment with content (e.g., ESPN Mobile for sports fans, Virgin Mobile for the youth market). With low barriers to entry and the large potential for innovation and differentiation with IMS applications and content, there are likely to be many ASPs in the ecosystem.
Situational Analysis
With an IMS services architecture, service providers have new opportunities to pursue end-user spending for higher value services in areas such as entertainment, commerce, and business collaboration and productivity. Using a standards-based IP infrastructure, an IMS architecture enables service providers to offer traditional applications such as voice and messaging services in a lower cost structure. Additionally, through easier integration of multiple applications from multiple suppliers or partners with the operator’s network and also with billing and provisioning systems, IMS enables greater innovation and rapid realization of new services. Furthermore, IMS enables a service provider to offer these services and collect revenue from subscribers beyond the traditional geographic boundaries of their own networks to anywhere in the world (depending on legal and regulatory issues) over an IP connection on most any access network technology, fixed or mobile.
This separation of service offerings from geographic coverage means that service providers will compete in a greatly expanded, single global marketplace. The industry will not be segmented by network type as in the past. Cable operators, LECs, IXCs, mobile operators and new access network entrants (e.g., fixed wireless, WiFi technology, WiMAX technology) will all compete for the same subscriber revenue, using a variety of business models. Internet-based applications providers (e.g., Vonage, Yahoo!), as well as IT systems integrators, are already selling services to consumers and/or enterprises without owning an access (or core) network at all. However, services offered from IMS service providers will be able to provide greater functionality, broader coverage via roaming partnerships, end-to-end QoS, and a more consistent user-experience, therefore delivering more value that subscribers will pay more for.
Conclusions
Existing service providers and business models will undergo a fundamental business transformation to survive the competition with new types of service providers already appearing. With limited capital to invest, service providers, regardless of their starting point, will be driven to significant partnering within the industry ecosystem. Using the standard IMS services architecture, three possible ecosystem business models have been described. While the current industry situation will be disruptive to some, it also provides significant opportunity for creating greater value and new industry revenue growth. Service providers will need to leverage a next-generation network IMS architecture and their own ecosystem of strategic and innovative partnerships in their transformed business model.
Barnett is chief architect for the Network Business Consulting practice within Lucent Worldwide Services, helping service-provider customers to transform their business model as well as their networks. He has over twenty years of experience in wireline and wireless telecommunications applications software development, systems engineering, network architecture, product management, and marketing and sales. A long-time member of IEEE, Barnett holds a B.S. degree in electrical and computer engineering from Clemson University in South Carolina and an M.S. degree in electrical engineering from Carnegie Mellon University in Pittsburgh, Pennsylvania.
William J. Barnett Jr., Lucent Technologies on Tuesday, October 25, 2005 from 11:15 – 12:00 p.m. on the panel: Triple Play: the Implications of Convergence.
Michael Cooper, Lucent Technologies is speaking on Monday, October 24, 2005 3:00 – 3:45 p.m. on the panel Deploying Services Using IMS.
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