Managing network capacity against a growing demand for video from data-hungry devices is the problem we investigate in this paper.
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In the last five years, fuelled by improving devices and faster networks, mobile operators have seen a significant increase in the demand for video. All forecasts indicate that this growth has not yet reached its peak and will continue for some years to come. This will increasingly strain network capacity and adversely affect service quality. And, since recent research has shown that customers are choosing their ‘next’ provider according to the quality of their data services, adverse service quality will inevitably lead to an increase in market share for operators that successfully manage the demand at the expense of those that fail.
The classical techniques available to operators to manage the growing demand—pricing and improved radio access networks—are not ideal solutions and come at a price:
· price control using data capping offers new entrants and players with a smaller market share opportunities to implement disruptive pricing strategies;
· capping is a blunt instrument and a backward step in an industry where services are becoming increasingly more personalised through mobile apps;
· evidence is showing that any increase in network capacity (for example LTE) is quickly being consumed by a pent-up demand for video services;
· upgrading the radio access network can take many years to implement, and competitors can use the delay to implement more agile solutions to manage the growing demand for video, thereby achieving competitive advantage.
Optimisation is a good example of an agile solution and offers an elegant approach to managing the demand for video:
· it can be introduced in a granular fashion to maximise the return on investment;
· it has the virtue of being quick to implement so offering a market-lead advantage.
But perhaps the most important benefit is that any investment in optimisation can be leveraged to underpin a long-term strategy to grow market share.
Optimisation platforms can be used as the foundation for a revolutionary approach to pricing, which we call a service-based pricing. In essence this is pricing customised to the needs to the subscriber. The combined service-based pricing and optimisation platform offers a means to minimise churn, increase new customer acquisition and even monetise OTT content, through app-based pricing, bespoke tariffing and opportunities for upselling.
A path to market-growth from the start-point of video optimisation is straight forward:
1. Introduce video optimisation to manage the growing demand for video services and establish a platform for service-based pricing.
2. Seek to consolidate a leading position with radio access technology upgrades, HSPA/LTE as part of the long-term strategy.
3. Link optimisation with customer profiling and policy control to deliver a service-based approach to pricing.
We believe operators should see traffic growth, particularly the growth in video traffic, as an opportunity to take a technology lead by implementing capacity management ahead of the competition. We believe a service-based pricing and optimisation approach lays the foundation for delivering to the operator long-term growth in market share.
Recommendations: implementing a strategy for market growth
1. Mobile operators should implement optimisation platforms for the delivery of video services.
2. Building upon the optimisation platform, operators should explore the opportunities to adopt novel pricing strategies using a service-based approach, as outlined in this paper.
3. Operators should work to develop the business case for service-based pricing. They should endeavour to understand:
a. the opportunities for market segmentation using customer profiling and usage characteristics;
b. the opportunities for segmentation of the customer base, data packages and pricing structures;
c. the impact upon revenue streams, capacity, churn and new customer acquisition.
Many of the technologies required to implement service-based pricing exist today, but as separate technology islands. What does not exist and what is required are the necessary software bridges and interconnectivity between these technologies.
Operators, vendors and standards bodies should review standards and technologies in order to determine the gaps which need to be bridged and define the interfaces needed to develop a connected service-based pricing and optimisation platform using existing technologies.
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