Huawei boost: Unleashing the power of ultra-broadband

Global fixed broadband (FBB) has been rapidly developing over the last decade, with subscribers increasing tenfold, reaching 623 million in 2012. Broadband has become a necessity of our daily lives. With the continued success of cloud computing, surge in Internet video, and popularity of smart TVs and HD/3D content, the traditional user experience has been re-invented, further driving this necessity; 100M to the home will soon become a basic demand, so it’s fair to say that we are entering the ultra-broadband era.

The value of broadband has been highly recognized, and not just in the private sector. Dr. Hamadoun Touré, ITU Secretary-General, is on the record as saying, “In the 21st century, affordable, ubiquitous broadband networks will be as critical to social and economic prosperity as networks like transport, water and power,” while World Bank research indicates that a 10% increase in broadband penetration brings a 1.38% increase in GDP in low and middle-income countries. In terms of employment, one broadband job will bring 2.5-to-4 additional jobs. In China, with a DSL line and a Taobao (the local e-commerce hub) account, any citizen can start an online business. Taobao enabled 18 million people to become online merchants in 2012, not to mention all the delivery jobs it helped bring about.

Beyond this, broadband is bringing more dividends in terms of the Millennium Development Goals (MDGs) in areas such as combating climate change, caring for the elderly, and containing healthcare costs.

Many governments are taking action to encourage and facilitate ultra-broadband development, with some even considering it a matter of national competitiveness.

Investment-friendly regulation: Physical local loop unbundling (LLU) for copper access has been a collective thorn in the side of operators worldwide looking to invest in copper. To encourage fiber investment, countries such as the U.S. and U.K. do not demand that operators open their networks at the fiber layer, while even more governments are issuing additional fixed broadband licenses or canceling license restrictions; this is encouraging mobile and cable operators to start trenching.

Broadband-friendly infrastructure policy: Certain countries have introduced policies that regulate broadband-related industries in an effort to reduce rollout costs. In China, standards for the construction industry that took effect on April 1, 2013, mandate that FTTH be used for all new residential buildings. The EU commission also proposed policies the month before that give operators better access to ducts and street facilities, which should help reduce the costs for a region where the civil engineering can account for up to 80% of the cost of deploying a high-speed network. Under this proposal, new or renovated buildings will have to be “high-speed broadband-ready,” a move aimed at cutting the cost of high-speed Internet rollout by 30%, making for a EUR40-to-60 billion savings for European ultra-broadband operators.

Government subsidies: Some governments have gone one step further and provided subsidies for so-called National Broadband Network (NBN) projects. This can take several forms, such as the government owning the NBNco (as seen in Australia), establishment of a new NBN entity through PPP (public-private partnership) between the government and incumbent operators (as seen in Singapore), or the more common government-sponsored NG access program led by incumbent operators, which minimizes the investment (as seen in Malaysia).

However, there are some business concerns regarding the sustainability of fixed broadband development given the trends towards ICT convergence and the formation of the “cloud, pipe and device” value chain. The first concern is how to monetize broadband through provision of valuable broadband content with higher bandwidth requirements that consumers will be willing to pay for. What’s more, in the cloud, pipe and device value chain, OTT innovations have penetrated the traditional telco service domain to some degree, so operators must find a way to handle this love-hate relationship between ultra-broadband and Internet content providers. Another concern is the fact that while mobile broadband development has certainly enriched the user experience, it has also reduced user dependency on fixed broadband; will the former replace the latter? And finally, FTTH is expensive to roll out and has a challenging ROI, making its business case hard to make.

Huawei believes that broadband development has entered a new phase, one that demands new strategic thinking and innovative solutions. To address this challenge, Huawei proposes our new strategy for ultra-broadband, known as BOOST (Business Opportunity-Oriented Solutions and Tactics), built around four key areas – Broadband Salami, Engagement, Synergy and On-demand.

Broadband Salami involves filling the broadband network with appealing content and promoting offerings in a way that makes consumers appreciate the value of ultra-broadband. Huawei suggests that operators define and promote ultra-broadband products based on metrics that consumers can appreciate (such as number of concurrent HDTV channels), alongside the usual engineering statistics that revolve around connection speed. Huawei also suggests that offered connectivity speeds match the mainstream bandwidth consumption levels for the target markets, with upgrade occurring as consumption grows; this brings opportunities for ARPU growth along the way, as simple promotion of 100M technology to consumers is not enough.

Engagement in this case is proactive with the broadband and content ecosystem so that mutually beneficial business goals are achieved, with the model of partnership between Internet content providers and operators migrated from over-the-top (OTT) to via-the-telco (VTT). Some practices indicate that consumers are willing to pay more to enjoy Internet video on their televisions through service bundles for content and broadband, bringing positive changes to today’s freemium business model for Internet video, while indicating that operators are not just a channel for cost-effective and quality-managed Internet traffic distribution, but also a convenient sales channel for Internet content providers. There are several models available for VTT; they vary by the extent of the operator’s involvement in the value chain.

Content-driven VTT: Even in a market highly driven by the content side, we already see deeper engagement between the telcos and content providers. For example, Netflix now offers its Open Connect program where a telco hosts a Netflix CDN edge server in its own data center to improve the user experience and optimize network traffic for both partners.

Alliance VTT: In the U.K., content providers such as the BBC, itv, BT, and TalkTalk, have formed an alliance dubbed Youview where telcos host third-party video contents in their IPTV platforms.

Telco-driven VTT: In China, where telco is more influential, China Unicom Tianjin has successfully aggregated contents from iQIYI.com (a local OTT video provider) under a revenue-sharing model and now serves residential customers through its IP video platform, ensuring user experience from end to end.

Synergy under the BOOST moniker refers to the collaborative development of FBB and MBB, as opposed to mere substitution. The rapid penetration of smart devices has been driving the uptake of both fixed and mobile broadband, as consumers tend to switch to capless FBB whenever they can. OFCOM has indicated that 67% of smartphone users in the U.K. will use Wi-Fi as much if not more than a standard mobile data connection, with 90% of Wi-Fi connectors utilizing it at home, indicating a clear complementary role for both media.

By offering unified service bundles, operators can reduce churn rates through a consolidated bill and innovative multi-screen experience. This applies to both residential and enterprise customers. Today, most operators worldwide provide full services. In 2012, Telefónica launched a converged fixed and mobile brand (Fusion), with 1.1 million users developed in only three months. Driven by competition, Vodafone has launched its program to provide Pan-European Unified Services which includes a co-investment of EUR1 billion with Orange for FTTH in Spain, acquisition of Cable & Wireless in the U.K., delivery of FTTH services by leveraging fiber network of a local operator in Italy, etc.

The aforementioned synergy also extends to the underlying transport layer as FBB and MBB can share the same infrastructure, including the sites, last-mile access, and bandwidth in the IP and transport networks, optimizing both consumer experience and TCO efficiency.

On-demand, in this case, refers to fiber access on demand. This will require a “fiber-to-the-most-economical-point” approach from the telco. Technologies such as Vectoring and G.Fast can now deliver up to 1G of bandwidth over copper, so FTTH is no longer the only game in town for ultra-broadband. Huawei’s Heterogenous Access Network (HetAN) solution, for example, is compatible with copper, coax, and fiber, enabling an on-demand approach to fiber that might include FTTC, FTTB, FTTD, and FTTH, which should mitigate investment pressures here. Under Swisscom’s ultra-broadband program, only 48% of homes will be passed with FTTH by 2020, with the operator still holding 190,000km of copper. On the whole, this fiber-on-demand approach can improve the RoI for this project by up to 61%.

Huawei’s BOOST strategy is designed to flourish in the social and business environments of today, and includes proactive telco policies, including the leveraging of legacy resources and utilization of government support, that accelerate ultra-broadband development to achieve those broadband dividends. Telcos will also need to price based on experience as opposed to bandwidth if they are to differentiate and monetize bandwidth resources effectively. VTT cooperation will also be needed if telcos are to start benefiting from Internet content provision. And finally, operators must move themselves, if they haven’t already, into the realm of full service operation, which should improve user stickiness through fixed/mobile convergence.