ANALYSYS MASON QUARTERLY

OCT-DEC 2014

Inside
Welcome p3
5G will require new as well as established spectrum
bands, but the availability of new bands is not
confirmed p4
Active RAN sharing business models can bring
benefits to towercos as well as operators p5
The emergence of the next TV distribution platform
in Europe p6
Pricing for data profitability: usage-based
segmentation can identify profit drains p7
Digital economy opportunities in AsiaPacific and
the Middle East and Africa: key verticals p8
Bitstream and VULA tariffs in several European
countries will need rebalancing to enable IPTV
replicability p9

www.analysysmason.com

The digital switchover in the next 5 years is an

opportunity to rethink the TV market in many
countries

p10

Content and application providers contribute over

USD30 billion per year to internet-related facilities
and networks worldwide

p11

WELCOME
Welcome to the Analysys Mason Quarterly.
The fourth edition of Analysys Mason Quarterly for 2014 covers several topics
that are trending in the telecoms industry, including 5G, data monetisation
and digital economy opportunities in emerging markets.
The process of defining the next generation of wireless communications 5G is now underway.
In our first article, Janette Stewart looks at the progress towards a global vision for 5G, and how
a key aspect of 5G will be to integrate the various approaches and bands within a harmonised
global framework. Tackling a more immediate issue, Amrish Kacker demonstrates how usagebased segmentation can help mobile operators to identify profit drains and improve data
monetisation.
We have three articles focusing on developments in the TV market. Matt Yardley considers the
potential for broadband networks to become the main TV distribution platform, while Omar
Bouhali looks at how the emergence of IPTV may require incumbents to revisit bitstream and
VULA pricing. Finally, Llus Borrell provides his view on the future evolution of the digital
switchover based on his analysis of developments across different countries and regions
worldwide.
On emerging markets, we have an article that examines the digital economy opportunities in
AsiaPacific and the Middle East and Africa, based on data from Analysys Masons Digital
Economy Readiness Index (DERI).
We welcome the opportunity to discuss your views on these and any other key industry topic.
I look forward to hearing from you.

Bram Moerman
CEO

ANALYSYS MASON QUARTERLY OCT-DEC 2014

JANETTE STEWART Principal, Consulting Division

5G WILL REQUIRE NEW AS WELL AS ESTABLISHED

SPECTRUM BANDS, BUT THE AVAILABILITY OF
NEW BANDS IS NOT CONFIRMED
The process of defining the next generation of
wireless communications (5G) is now
underway, and the economic impact of
decisions that national governments will
make about the assignment and award of
spectrum for 5G is potentially significant.
There is already immense interest and
lobbying from a wide range of stakeholders in
relation to the development of 5G, and the
associated market, technology and spectrum
issues, even though 5G networks are unlikely
to be needed until after 2020 in many
markets. A key trend is the potential use of
technologies deployed in the millimetre wave
portion of radio spectrum. This article
considers work in progress towards
achievement of a global vision for 5G, and
what the spectrum implications might be.
Mobile operators are currently investing
heavily in 4G networks, and this investment is
likely to continue well beyond 2020. New 4G
features such as carrier aggregation make it
possible for mobile operators to aggregate
two or more radio frequency carriers to boost
user-data throughput. Better ways of using
spectrum such as adding supplementary
downlink bands to cater for significant
demand for data download will also improve
utilisation of spectrum in many markets. The
need to monetise LTE investments is already
creating shifts in mobile markets and
business models, with a greater focus on
sharing between different network elements,
network consolidation and new pricing
models being launched for mobile data
services.
However, despite these advances, 4G
networks will not offer a serious challenge to
fibre broadband during the next decade and
are unlikely to achieve the speeds, coverage,
reliability and performance required in future
wireless networks. This is partly due to the
economics of 4G network build as well as for
technological reasons. One of the key
motivators for 5G is thus to provide
ubiquitous, high-speed, high-quality wireless
broadband coverage to meet societal and
industrial needs beyond 2020. This positions
5G at the core of many national and regional
government targets on next-generation
broadband availability and use, such as the
Digital Agenda for Europe.
Research programmes, industry
collaborations and standardisation debates
now underway to define a 5G global vision will
ultimately determine the technological,
network and spectrum requirements of 5G.
Consensus-building and harmonisation are
anticipated between 2015 and 2020 ahead of
full 5G commercial launches (see Figure 1).
4

First LTE-A standard

(3GPP Release 10)

2008

2010

LTE introduction
(3GPP Release 8)

ITU report
on future
3GPP
technology
Release 12 trends

2014

Global projects
underway for
SG vision

Spectrum
harmonisations
ITU report
on IMT vision

WRC-18

Beyond
2020

20152020

ITU WRC-15

Network
implementations

Technology
consensus

Spectrum
licensing

3GPP study for 5G

(Release 14 onwards)

Figure 1: Timeline towards 5G [Source: Analysys Mason, 2014]

At this early stage, a diverging range of
business models, applications, market
sectors and devices are emerging. Possible
technological routes to 5G include entirely
new radio technologies and techniques, as
well as further evolution and deployment of
existing technologies (LTE-A and Wi-Fi, for
example).
A key difference between 5G and earlier
generations of mobile technology is that the
focus of research is on finding the best
techniques to improve spectrum utilisation
(i.e. bits per Hertz per unit area), rather than
on improving spectrum efficiency (i.e. bits per
Hertz). This is because improvements in
spectral efficiency are constrained by
background noise, meaning that
improvements through coding and
modulation design become more difficult and
less effective (the Shannon Limit). However,
new technological approaches can
substantially improve spectrum utilisation,
defined in terms of bits/Hertz/cell (or area).
They can also enable networks to become
more flexible and suitable to carry some of
the new applications and use cases being
foreseen within 5G.
Proposed technologies such as massive
MIMO, super-dense meshed cells and
macro-assisted small cells (phantom cells)
are all possible 5G radio access techniques
targeting better spectrum utilisation, higher
speeds and lower latency. From the users
perspective, the aim is to provide a better and
more-consistent service regardless of
location.
Many of the technologies being researched
are inherently better suited to being deployed
in very high frequency bands in the
millimetre range of radio spectrum (current
5G research includes trials conducted in
bands such as 15GHz, 28GHz, 60GHz and

70GHz, for example substantially higher

bands than mobile communications has
traditionally used). This spectrum can better
support the use of multiple, miniaturised
antennas (since the wavelength of higher
frequency bands is shorter and antenna
spacing is based on wavelength, so more
antenna elements can be accommodated).
Furthermore, substantially more bandwidth is
available in these bands than in the bands
below 1GHz, which is beneficial for providing
much wider channels and higher speeds as
envisaged by 5G, without the need for
multiple antennas.
However, millimetre-wave bands do not lend
themselves to providing wide area coverage
for mobile devices (and coverage will be
essential for some envisaged 5G services,
such as IoT applications such as for the
automotive industry). Therefore, further
spectrum below 1GHz is expected to be
needed in many countries to improve mobile
broadband coverage.
The spectrum needs for 5G might therefore
encompass a range of existing and new
bands, which potentially span a wide section
of radio spectrum. Different bands will serve
different purposes and a key aspect of 5G will
be to integrate the various approaches and
bands within a harmonised global framework.
Early indications suggest that spectrum
sharing is likely to be used in a far greater
way, which may signal an end to further
spectrum being reserved for exclusive
mobile broadband use as 5G is introduced.
Analysys Mason has conducted world-leading
research into 2G, 3G and 4G networks and
continues to be at the forefront of technology
and spectrum consulting with 5G.
For more information, please contact
Janette Stewart, Principal, at
janette.stewart@analysysmason.com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

MIKE PEARSON Partner, Consulting Division

ACTIVE RAN SHARING BUSINESS MODELS CAN

BRING BENEFITS TO TOWERCOS AS WELL AS
OPERATORS
antennas doing the same job, freeing up
finite tower capacity to sell to more tenants.
ROI expectations are satisfied through
passive asset transfer
Active RAN sharing is likely to be the next
significant evolutionary step in
infrastructure sharing, unlocking even
greater capex and opex efficiencies than
passive RAN sharing. Each stakeholder can
quickly benefit from those efficiencies
through the rapid adoption of optimised
business models.
Independent tower companies (towercos)
have paid billions of dollars to acquire
passive infrastructure from mobile network
operators (MNOs). Currently, the success of
the towerco business model is predicated on
tenancy ratio growth that is, growth in
hosting antennas. If MNOs choose to share
antennas in an active RAN sharing solution,
where does that leave the towercos? This
article examines the various kinds of RAN
sharing architecture, explores different RAN
sharing business models and seeks a
win-win market scenario that will ensure
benefits for all stakeholders.
Different kinds of active infrastructure
sharing vary in terms of the degree of
sharing
3GPP has defined and ratified different kinds
of architecture with varying degrees of
sharing.
Multi-Operator RAN (MORAN) is the
simplest scenario, in which only
equipment is shared
Multi-Operator Core Network (MOCN), in
which both spectrum and equipment are
shared
Gateway Core Network (GWCN) is where
both the RAN and some elements of the
core network are shared.
Sharing can ensure more-efficient usage of
spectrum
Antenna and radio technology has
progressed rapidly in recent years, such that
a single antenna can serve multiple bands
between 700MHz and 2.6GHz, although
multiband antennas can compromise
network performance. However, softwaredefined radio (SDR) can provide significant
benefits by dynamically allocating and
aggregating spectrum across multiple
bands to multiple service providers,
therefore cost-effectively maximising the
usage of what can be scarce and costly
spectrum.

Appetite and opportunity for RAN sharing

differs between European and African
operators
An almost 30-year-old legacy of European
mobile market fragmentation can make
some stakeholders reluctant to explore RAN
sharing. However, European operators,
faced with flat revenue and forced
investment to support burgeoning data
traffic demand, are motivated to explore
strategies that can unlock significant cost
savings.
In contrast, African operators may be more
willing to collaborate and engage in RAN
sharing. Cost savings are also important in
Africa, but there is an additional benefit of
rapid coverage gains, motivated by a need to
make mobile communications more
affordable and drive penetration rates by
accessing more low-ARPU subscribers.
Legacy antenna-driven business models
are sub-optimal for active sharing
In a RAN-sharing scenario antennas can be
shared by multiple MNOs. In order to
future-proof themselves against RAN
sharing, towercos should adopt a business
model driven by usage, for example, by the
number of service providers using a tower,
not only by the physical space required.
Other physical design factors should also be
considered, for example, the increasing use
of tower-mounted radio units providing
MNOs with the benefits of reduced power
consumption and/or increased coverage.
TowerXchange spoke to one African towerco
that defines a tenant as a standard amount
of space and a standard amount of power.
This seems to be the prevalent approach;
rental rates are dependent on standard
equipment configurations. At the recent
TowerXchange Meetup Americas, towercos
spoke of adding frequency-specific language
to their lease contracts, ensuring that each
additional tenant pays a monthly lease
whether hanging new equipment or sharing
existing antennas.
If towercos can agree mutually beneficial
contractual terms with MNOs, they could
become even more investible as a result of
RAN sharing, because the load and space
required on a tower can be less for one
shared antenna than for three or four

The motivation to transfer infrastructure

assets from MNOs to towercos is clear when
one considers both the immediate cash
release for the MNO and the differing return
on investment (ROI) horizon expectations for
each party. Specialist infrastructure
investors readily incorporate towers into an
investment mindset that typically includes
transport and mining infrastructure, and
might calculate ROI over anything from 10 to
25 years, while MNOs prefer 35-year ROI
horizons.
Analysys Mason recently conducted a project
to develop the business case and
operational model to establish a greenfield
towerco. The project considered the
potential synergies of augmenting the
business of an established fibre-based
service provider by offering a portfolio of
managed active network services as well as
traditional towerco services. However, the
challenge was to identify a complementary
investment profile to add shareholder value
and define the operational demarcation
between the two entities considering the
different market and operational
requirements.
Different investment models are attractive
to different stakeholders and skill sets are
not easily transferable between active and
passive operations. In recent years, MNOs
have tended to move away from long-term
investments by either setting up separate
infrastructure entities, as in the Indian
mobile telecoms market, or by divesting
infrastructure altogether through a
sell-and-leaseback arrangement to
independent towercos that have a longerterm investment view.
Analysys Mason is a pioneer of networksharing solutions, having supported very
early passive sharing ventures as well as
recent leading active sharing solutions. We
have extensive experience of providing
valued advice to both towercos and MNOs to
optimise their businesses through informed
infrastructure and technology investment.
For more information, please contact
Mike Pearson, Partner, at
mike.pearson@analysysmason.com or
Kieron Osmotherly, CEO, TowerXchange, at
kosmotherly@towerxchange.com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

MATT YARDLEY Partner, Consulting Division

THE EMERGENCE OF THE NEXT TV

DISTRIBUTION PLATFORM IN EUROPE

An interesting and potentially disruptive

theme that has emerged from our recent
policy work is the potential for broadband
(IP) networks to substitute for free-to-air
(FTA) digital terrestrial TV (DTT) and
satellite networks as the main TV
distribution platform. Such a transformation
seems likely, but it is uncertain when it will
happen. This article examines the factors
that will influence when platform
substitution could take place.
Increasing high-speed broadband coverage
means that the supply-side conditions for
platform substitution could be met in 510
years
The European Commission (EC) has
launched a major push to stimulate
broadband deployment through its Digital
Agenda initiative and elements of its recent
Connected Continent legislative package.
The two initiatives plan to deliver ubiquitous,
high-speed networks with assured quality of
service. Should these policy goals be met,
then some of the necessary conditions for
TV distribution platform substitution could
be in place within the next 510 years. In
some European countries, this could happen
even sooner.
In the UK, the government has moved
quickly to stimulate broadband deployment
beyond the commercially viable footprint.
The government aims for 95% of households
to have access to broadband at speeds of at
least 24Mbit/s by the end of 2017, and for at
least 99% of households to be covered by
the end of 2018. The speed ambition for this
last 45% is not yet defined, but it seems
likely that it will be sufficient to at least
deliver broadcast and on-demand TV
streams of standard definition content. For
comparison, these expected coverage levels
exceed that for commercial DTT
multiplexers in the UK at 90%, and are close
to that of public service DTT multiplexers at
98.5%. It is also highly significant that
multicast one of the key technologies to
reduce the costs of delivering linear
6

broadcast content over broadband will be

available as a wholesale product to
communications providers serving 95% of
households (and it could be extended
beyond that depending on how the final
45% are served).
The UK is currently one of the leading
European countries in this respect, but it
seems inevitable that other countries will
also reach very high broadband coverage
levels. It remains to be seen whether the
ECs ambition of high-speed networks being
available to all EU households by 2020 will
be reached.
Demand-side factors may ultimately dictate
when IP platforms could substitute for DTT
and satellite
The supply of the right infrastructure would
not be sufficient to enable such a
transformation in itself. The most-popular
FTA content would also be needed, and
public service broadcasters and other major
content owners will need to consider the
implications of making this linear content
available on an IP platform. However,
growing consumer demand for watching
both linear and non-linear content on
multiple devices, and the growing trend for
the main household TV being connected to
the Internet, suggest that content will
ultimately need to be made available on all
platforms (including IP) in equivalent forms.
It is also evident that many leading content
providers are already heading in this
direction, for example, by experimenting
with new approaches to delivering highprofile events over IP. Furthermore, hybrid
DTT-IP and satellite-IP models are
appearing that demonstrate that the DTT
and satellite communities recognise the
importance to users of the broadbandenabled experience.
It may be that demand-side factors
ultimately dictate the timing of when IP
platforms could fully substitute for DTT and
satellite, or indeed if hybrid models exist in
the long term. The propensity to connect the

main household TV to the Internet will vary

significantly by user segment, and will be
affected by the installed base of TVs,
set-top-boxes and in-home networks.
Inertia will also undoubtedly play a part for
some people. For the elderly and
disadvantaged groups, it seems likely that
FTA DTT in particular will remain important
for a long time, because broadband take-up
among these groups is currently low in most
countries. However, many governments have
already identified this issue as a priority
getting those who do not currently use the
Internet online is critically important for
social engagement and reducing the cost of
delivering public services in the future.
Hence, most of these people will eventually
become Internet users.
In summary, we see strong alignment in EU
and national policies that, by design or
otherwise, will promote the deployment of a
pan-European IP-based TV distribution
platform as an alternative to FTA DTT and
satellite. Aside from the numerous
regulatory and licensing and demand
questions this raises, the commercial and
business model impacts could be
transformational, particularly if IPdistribution platforms were to carry all FTA
channels and be open to all ISPs at little or
no incremental cost. For the traditional TV
platforms the issue is not so much when IP
platforms would serve most users; rather it
is the impact on their business models of
even a modest proportion of their users
moving over to IP. Hybrid models may help,
but their longevity is unknown at this point.
The timing of when IP will become
mainstream therefore depends on many
factors.
Analysys Mason has been closely examining
these factors and we welcome the
opportunity to discuss with stakeholders
what this means for them.
For more information, please contact
Matt Yardley, Partner, at
matt.yardley@analysysmason.com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

AMRISH KACKER Partner, Consulting Division

PRICING FOR DATA PROFITABILITY: USAGE-BASED

SEGMENTATION CAN IDENTIFY PROFIT DRAINS

Usage-based segment heat maps can

identify profit drains
Usage-based segment heat maps provide an
overview of the level of profitability for
different customer segments, as illustrated in
Figure 3. Typically, higher-ARPU customers
provide higher margins, although some
lower-ARPU segments can also be highly
profitable (these tend to be voice-centric
users). However, in order to manage data
profitability, operators need to assess how
best to manage the profit drains that is,
segments that have negative margins and
how to improve margins for the low-margin
users. In the example shown in Figure 3, just
eliminating negative margin users will
improve total margins by 2.2% even though
revenue will decline by 3%.

Percentage cumulative subscribers

100%
80%
60%
40%
20%
0%
0%

20%

40%

Cumulative data used

Cumulative revenue

Eliminating subscribers who appear to be

profit drains, based on heat maps. A
time-of-day usage assessment for profit
drains can provide significant additional
analysis.
Reduction of subsidies or promotions for
unprofitable customers. A customer
lifetime value assessment needs to be
carried out after usage segmentation.
Improving margins for existing
customers. This could be achieved by
setting tiers for data bundles based on
growth of data usage by segment.

80%

100%

Cumulative margin

Figure 2: Distribution of data usage, revenue and margin, South-East Asian operator
[Source: Analysys Mason, 2014]

Margin
<0%
0%20%
20%50%
50%60%
60%70%

Managing segment profitability can ensure

profitable data growth in three ways
Usage segmentation will provide operators
with the basis for ensuring three key areas of
profitable data growth.

60%

Percentage of subscribers

Increasing data usage

A problem facing mobile operators is that a

small proportion of subscribers consume a
disproportionately large proportion of data.
Analysys Mason has undertaken a detailed
assessment of data profitability based on
detailed CDRs for an operator in South-East
Asia. Our assessment found that the 5% of
subscribers with the heaviest data usage use
30% of total network data consumed, but
contribute only 6.5% of revenue and a mere
1% of overall margins (defined as revenue
less network costs and subsidies), as
illustrated in Figure 2. The cumulative
margin line has points of decrease indicating
unprofitable users in all usage segments.
Notably, these are not only in high data
usage segments, as is generally believed.

>70%

Increasing ARPU

Figure 3: Customer segment margin heat map (after network costs/subsidies), SouthEast Asian operator [Source: Analysys Mason, 2014]
Analysys Mason supports operators in
developing robust strategies to improving
data profitability, including using a structured
approach to data costing (see our article
Mobile data services: a structured approach
to data costing is the first step to profitability).

For more information please contact

Amrish Kacker, Partner, at
amrish.kacker@analysysmason.com or
Andy Leonardi, Consultant, at
andy.leonardi@analysysmason.com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

ENRIQUE VELASCO-CASTILLO Analyst, Research Division

DIGITAL ECONOMY OPPORTUNITIES IN APAC AND

MEA: KEY VERTICALS

Each initiative in the DERI receives a

readiness score assessed across two distinct
axes: the scale or type of an initiative which
indicates its size and reach and its maturity,
which indicates its position within the
lifecycle of a digital economy initiative

50
45
Average readiness score

AsiaPacific (APAC) and the Middle East and

Africa (MEA) are two of the most fertile
regions for digital economy deployments.
Data from Analysys Masons Digital Economy
Readiness Index (DERI) a compilation of
over 340 digital economy initiatives by 32 of
the largest operators worldwide in terms of
mobile revenue reveals a divide between
these two regions, as well as potential
opportunities for operators and vendors.

Mobile education

40
35
30

Mobile financial services

Smart homes

Venture capital accelerator

25
15

Cloud-based
services

10
5

Smart homes

Mobile health

The MEA region has a high number of

mobile health deployments. A third of the
initiatives that we tracked in MEA were
related to mobile health, making this the
vertical with the largest number of
deployments in the region. In contrast,
mobile health represented 18% of
initiatives in APAC. The relatively high
level of activity in mobile financial service
initiatives in APAC indicates that
innovation may also be happening with
smaller, local operators and not only the
largest players.
Mobile education is important in both
regions. 46% of all mobile education
initiatives tracked in DERI were observed
in the APAC region. However, MEA leads
in terms of average readiness score.
Education is perceived as a key social
mobility enabler in these markets and can
be effectively monetised directly
(subscription services), or indirectly
(churn prevention).
APAC dominates MEA in terms of the
number of cloud-based services
initiatives.This is stimulated by
smartphone penetration Analysys
Mason expects smartphone penetration
as a proportion of total active handset
connections in APAC to reach 34% by the
end of 2014, while it will be 16% in MEA.

Mobile commerce
and advertising

Venture capital accelerator

Cloud-based
services
Mobile health

Mobile agriculture

0
0

10

APAC and MEA have distinct digital

economy profiles
Data from the DERI enable a top-level view
of each regions distinct digital economy
profile, and the key verticals in each of
them:

Mobile financial
services

Mobile education
Mobile agriculture

20

15

20

25

30

Number of initiatives
Aisia-Pacific

Middle East and Africa

Key: APAC = Asia Pacific; MEA= Middle East and Africa.

Figure 4: Number of initiatives and average readiness score by vertical, AsiaPacific and
Middle East and Africa [Source: Analysys Mason, 2014]
The DERI assesses digital economy
initiatives on more than just numbers of
deployments

mobile operators. In MEA, opportunities

exist in mobile education, mobile financial
services, and mobile health.

Operators in MEA, such as Ooredoo, MTN,

Orange and Saudi Telecom, have deployed
fewer mobile health and cloud-based
service initiatives than operators, such as
NTT Docomo and SoftBank, in APAC.
However, the initiatives in MEA receive
higher readiness scores on average.

Analysys Masons Digital Economy

Readiness Index (DERI) presents a view of
operators ability to capitalise on emerging
digital economy verticals, quantifying the
readiness of their initiatives in:

In MEA, mobile education and mobile

financial services are the two most
successful verticals in terms of average
readiness score (see Figure 4). MEA
commands the highest scores for mobile
financial services worldwide, followed by
APAC. In the former, Vodafones M-Pesa,
MTN Mobile Money and Orange Money are
best-practice examples of productmarket
fit. APACs deployments have been driven by
the success of contactless and mobile-only
payments, and money solutions.
Nevertheless, average readiness scores for
mobile financial services are slightly lower
in APAC than in MEA, because the most
successful initiatives are often limited to
Japan or South Korea, which are not
representative of the whole region.
Opportunities exist in verticals that have a
high average readiness score and a small
number of deployed initiatives. In APAC,
smart homes, mobile education and mobile
agriculture are potential growth verticals for

mobile financial services

mobile health
mobile commerce and advertising
(including location-based services)
mobile education
cloud-based services (including OTT,
mobile content, big data, and software)
mobile agriculture
smart homes
venture capital or start-up incubator/
accelerator programmes.
The DERI integrates data from each
deployment across a number of categories,
including vertical, scale, maturity, target
customer segment, countries and regions.
Each initiative in the DERI receives a
readiness score using Analysys Masons
proprietary methodology.
For more information, please contact
Enrique Velasco-Castillo, Analyst, at
enrique.velasco-castillo@analysysmason.
com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

OMAR BOUHALI Principal, Consulting Division

BITSTREAM AND VULA TARIFFS IN SEVERAL

EUROPEAN COUNTRIES WILL NEED REBALANCING
TO ENABLE IPTV REPLICABILITY

When regulators test whether bitstream or

VULA offers enable alternative operators to
replicate the incumbent operators offers,
they have to use traffic assumptions these
can be based on actual market data or on a
forecast evolution.

Bitstream and VULA are wholesale offers

that many alternative operators around the
world use to provide broadband offers in
regions where they do not identify a business
case for deploying their own local loop or for
using physical access. The development of
IPTV, in particular for non-linear content, will
require several incumbent operators to revisit
the pricing structures of these offers,
because traffic-driven price components may
make it impossible for alternative operators
using bitstream or VULA to replicate some of
the incumbent operators offers.

IPTV can have a dramatic impact on such

traffic assumptions, because IPTV requires
significantly more bandwidth than
applications such as web browsing or VoIP.
Content delivery networks (CDNs) can limit
the traffic increase in some cases (by
multicasting linear channels or caching
popular content, for example), but they are
less efficient when demand becomes a wide
diversity of non-linear programmes, and they
may be too expensive to address some
low-density areas. When IPTV leads to a
strong increase in the average traffic profile,
bitstream and VULA offers that had been
designed to enable replicability of the
incumbent operators offers may no longer
enable this replicability because of the

IPTV can have a significant impact on

broadband average traffic profile

Monthly revenue costs per subscriber

Bitstream and VULA pricing structures

generally include a fixed component per
connection (that typically depends on
connection characteristics, such as peak
speed) and a variable component based on
traffic (typically measured as peak traffic, 95
percentile traffic or average throughput).

Margin
squeeze
Margin

Incumbent
operator retail
offer

Replicability test
for alternative
operator

Limited IPTV usage

Retail ARPU

Fixed component

Incumbent
operator retail
offer

Replicability test
for alternative
operator

Significant non-linear IPTV usage

Traffic-driven component

Retail costs

increase in traffic-driven costs. This can be

the case even when additional revenue that
the incumbent operator can get from these
IPTV services is taken into account (see
Figure 5).
Ensuring replicability with IPTV is likely to
result in a decline in the variable component
of bitstream and VULA prices
A recent Analysys Mason report showed that
high usage had made the bitstream and
VULA services with bandwidth-based
backhaul charges very uncompetitive in
several European countries.
In its latest Market 5 analysis (decision no.
2014-0734, 26 June 2014), French regulator
ARCEP imposed an obligation on Orange to
adapt its bitstream offer in zones where it is
the only wholesale broadband service
provider, by taking into account the
development of non-linear IPTV services
during the next 3 years in the cost accounting
allocations used to set these bitstream
tariffs. This review should lead to a strong
decline in the traffic-driven component,
which is necessary to enable alternative
operators to replicate Oranges IPTV services.
In most countries where the development of
non-linear IPTV services leads to a significant
change in average traffic profile, regulators
and operators will need to revisit the pricing
structure of bitstream and VULA offers in
order to ensure replicability. This is likely to
result in a reduced variable component of
bitstream and VULA prices and, potentially, in
an increased fixed component.
Analysys Mason regularly supports
regulators and operators in markets analyses
and in adapting regulated offers to changes
in the competitive environment.
For more information, please contact
Omar Bouhali, Principal, at
omar.bouhali@analysysmason.com

Figure 5: Impact of a strong increase in the average traffic profile on replicability tests
[Source: Analysys Mason, 2014]

ANALYSYS MASON QUARTERLY OCT-DEC 2014

LLUS BORRELL Partner, Consulting Division

THE DIGITAL SWITCHOVER IN THE NEXT 5 YEARS IS

AN OPPORTUNITY TO RETHINK THE TV MARKET IN
MANY COUNTRIES
Africa rethinking the TV market with a
focus on local content and network
investments. The situation in Africa
highlights different technical challenges
and issues. Although the situation varies
between countries, analogue terrestrial
infrastructure can be less universal than
in other regions, meaning that satellite or
cable are taking some lead. Therefore,
DSO policy makers need to focus on their
DTT content strategies as well as on
taking action to improve the terrestrial
distribution reach.

The deadline for the digital switchover (DSO)

from terrestrial television has been set for
between 2015 and 2020 in many countries
worldwide by ITU and national authorities.
The DSO will be used as an opportunity to
rethink the TV market in many countries
during the next 5 years. The approach
governments and regulators will take will
depend on their aims and objectives, which
the private sector will also need to consider.
These objectives are typically among the
following:
supporting digital TV transformation and
the launch of new services (HDTV and
HbbTV, for example)
ensuring that comprehensive and
universal TV services are affordable to all
opening up the TV market to new
entrants, therefore diversifying the TV
offering to consumers
freeing up spectrum for mobile broadband
and to obtain significant revenue
supporting national original content and
independent production
supporting national industrial policy.
Many articles on DSO have been published
that focus on the associated narrower
operational and technical decisions but fail
to address these key objectives. In our
experience, while these operational
decisions are crucial, the success of DSO
also relies on three main issues associated
10

with these objectives: the attractiveness of

digital terrestrial TV (DTT) content offers, the
appropriateness of the regulatory regime
and the ability to enforce the regulatory
regime.
Analysys Masons worldwide experience in
DSO projects illustrates the diversity of
situations and policy decisions
We have worked on DSO projects across all
regions worldwide. The fundamental issues
and analyses are the same, but diverse
situations, policy decisions and private
investments lead to different outcomes for
the TV market. Below we outline some
high-level differences to illustrate this
diversity and examine the key issues in each
case.
Europe launching new services with
spectrum issues at the centre of the
debate. Much of the focus has been on
the associated UHF broadcasting
spectrum digital dividend bands that
could be migrated to mobile use (initially
800MHz and now potentially 700MHz as
well). In markets where DTT content
offerings have not improved significantly,
the platform has struggled to remain
competitive. More widely, the TV industry
focuses on making DTT competitive by
moving to HDTV and UHDTV, adopting
non-linear TV standards like HbbTV, and
ensuring that DTT is available on mobile
devices.

Latin America diverse industrial policy,

rethinking the TV market and
affordability. DSO is planned to take place
between 2015 and 2020 in most countries
in the Latin America region. In terms of
industrial policy decisions, we have seen a
variety of choices influenced by different
models, such as those of the USA, Europe
and Japan, both in the selection of
technical standards (ATSC, DVB and ISDB)
and the structure of the TV market.
AsiaPacific offering attractive and
affordable TV to all. In the AsiaPacific
region, DSO is planned for most countries
between 2015 and 2020. The main
challenge is similar to that in other
regions to ensure that DTT is accessible
and attractive to all.
USA broadcast spectrum auctions are
the central focus. The focus in the USA
has mainly been on spectrum release for
mobile use after the associated auction.
Following the 700MHz auction in 2009,
plans are underway for an incentive
auction of spectrum below 698MHz during
the next 12 months.
We expect significant progress towards DSO
in many countries worldwide during the next
5 years that will lead to changes in the TV
markets.
Through its team and network of offices,
Analysys Mason has international and local
TV experience in more than 35 countries
worldwide, including DSO and all the
associated issues.
For more information, please contact
Llus Borrell, Partner, at
lluis.borrell@analysysmason.com

ANALYSYS MASON QUARTERLY OCT-DEC 2014

Andrew Kloeden Principal, Consulting Division

CONTENT AND APPLICATION PROVIDERS CONTRIBUTE

OVER USD30 BILLION PER YEAR TO INTERNET-RELATED
FACILITIES AND NETWORKS WORLDWIDE

40

Investment (USD billion)

35
30

29.60

25
20
15
10
5
0

The Internet is often abstracted as a cloud,

but in practice it relies heavily on bricks,
mortar, cables and computer boxes the
intangibility and ubiquity of the cloud is built
on real, physical infrastructure.
Many different market participants invest in
the networks, facilities and equipment that
make up the Internet: Internet backbone
providers; Internet access providers; content
and application providers; and a range of
specialised service providers. This article
examines the investments of content and
application providers.
Our study found that content and application
providers are major investors in the
networks that make up the Internet
In a recent study, we focused on the
investment that content and application
providers make in Internet infrastructure.1
These investors include pure online
companies such as Facebook, Google and
Spotify, but also the online businesses of
multi-platform players such as the BBC or
The New York Times. We found that these
players are major investors in Internet
infrastructure, from data centres to
submarine cables and the multitude of
servers that store, process and serve content
to end users.
This investment relates to three major
activities.

Hosting

Mid-point

0.92

1.73

Submarine

Terrestrial

Minimum

0.52

0.29

Peering
points

Content delivery
networks

Maximum

Figure 6: Approximate annual investments by content and application providers,

20112013 [Source: Analysys Mason, DatacenterDynamics, TeleGeography, Informa, company data,
news reports, PeeringDB, comScore, Sandvine, 2014]
Delivery includes the equipment necessary
to hand over the content to the Internet
access provider, which then delivers it
across the middle and last mile to the end
user. This includes in particular equipment
used in Internet exchanges, private peering
points, and content delivery networks
(CDNs).
Based on this categorisation, we found that
the investment attributable to content and
application providers was approximately
USD33 billion per year during 20112013 (this
includes direct investment as well as
investment from third parties such as
backbone providers or data centre operators
that support and are sold to content and
application providers). Investment is growing
rapidly as demand for content and
applications delivered over the Internet
increases this investment grew by 13% per
year between 2011 and 2013. Figure 6
summarises these investments.

Hosting of content and data this includes

the storage devices and servers that reside
in large data centres located around the
world.

This level of investment is significant,

particularly because it is additional to the
investment that content and application
providers make in their core businesses,
which may be software, digital content or
ecommerce.

Transport includes the high-capacity

fibre-optic cables (terrestrial or
submarine) that are used to carry content
from the hosting location to the edge of the
Internet access providers network.

We also found that Europe appears to be the

largest destination for this investment. This
region is a hub for Internet traffic, where
many international cables meet, it hosts the
worlds largest IXPs, and has a large

population of Internet users. This is

attracting investment by US companies,
particularly in data centre facilities, as well
as investment by local content and
application providers such as the BBC and
Spotify.
The Internet relies on ever more complex
infrastructure, which encompasses data
centres, transmission networks, connectivity
as well as access. The source of investment
in this infrastructure is evolving, and content
and applications Providers are responsible
directly or indirectly for a material and
constantly increasing amount.
Analysys Mason works across the telecoms,
media and Internet value chains to deliver
research, analysis and strategic
recommendations to some of the largest
companies in the world, policy makers,
governments and investors.
1
For more information, see Analysys Masons
Investment in networks, facilities and equipment by
content and application providers. Available at www.
analysysmason.com/About-Us/News/Pressreleases1/Internet-players-invest-USD100-billionin-the-physical-Internet-over-three-years.

For more information, please contact

Andrew Kloeden, Principal, at
andrew.kloeden@analysysmason.com or
David Abecassis, Principal, at
david.abecassis@analysysmason.com

11

www.analysysmason.com