The increased adoption of bandwidth-intensive applications due to the roll-out of next-generation networks has triggered a massive surge in data traffic. As a result, there is a significant demand for optic fibre cable (OFC), which can support the rising bandwidth requirements of consumers. Service providers are also adopting new business models to monetise their offerings more effectively.

tele.net takes a look at the key drivers for OFC demand and the various business models in the segment…

Growing demand

In the consumer space, services and applications like online gaming, video-on-demand, social networking, music and internet protocol television  are witnessing significant adoption. For instance, in January 2014, 31.5 million users viewed videos on YouTube, which is significant considering that only 20 million households in India have internet connections. There has been a huge surge in data traffic on telecom networks as the demand for such services continues to rise. With increased investments in the OFC network by some new telecom operators, there is greater emphasis on these over-the-top services. Another trend being witnessed is the rise in social networking. Initially, users merely shared pictures; now they are also sharing videos and in the future would want to share high definition and 4D videos. Consequently, in the consumer segment, music and video will drive data traffic on telecom networks, which will necessitate a strong backhaul network.

On the enterprise applications front, new business opportunities are emerging in the e-learning domain, increasingly backed by private equity firms. This is primarily because there are limitations to the growth of the physical infrastructure of educational services and the number of students that can be catered to. On the other hand, e-learning platforms extend the reach of education to a large number of people. Many  companies are in the process of developing study modules that will be delivered to urban and rural areas through online platforms. Other enterprise services that will drive the demand for additional bandwidth  are unified communications and enterprise mobility. The communication demands of enterprises have evolved from basic voice services to videoconferencing, which necessitates the deployment of an OFC network.

Service provider business models

Earlier, event-based business models were followed, particularly by value-added service providers. Service providers are now shifting away from this model, as they do not own the customer, which creates uncertainties for them, and are instead adopting subscription-based models, wherein users can subscribe to pre-packaged content, which is available for weekly/monthly/ annual fees. In subscription-based models, service providers offer different packages, enabling users to upgrade their existing package according to their requirements. Meanwhile, several content providers are following an advertising-led revenue model, since they are required to offer free content. These providers earn revenues from banner ads, splash screens, pay-per-view and pay-per-click schemes, and audio and video streaming. However, a key challenge for companies is achieving scale, acquiring a large number of customers and keeping them engaged on the platform. Other key business models are usage-based pricing and one-time download fees.

In contrast, the business models for the enterprise segment are more evolved. Companies are using business models such as pay per use and pay per metric. While in the former, companies earn revenues from licence fees based on the number of users, the latter enables companies to earn revenues based on different parameters such as price per hour. Other business models in this segment include revenue sharing and bulk fixed fee. One of the key challenges faced by service providers in this segment is customer acquisition, particularly with small and medium enterprises (SMEs). This is because acquiring SME customers involves significant effort in terms of cost and encouragement to adopt a technology.

The way forward

The growing adoption of voice and video applications by consumers and enterprises is leading to an increase in data traffic on telecom networks. This growth in traffic will need to be supported by increasing the bandwidth capacity of existing networks, by deploying fibre cables. This is important as only 10-15 per cent of the telecom towers have fibre backhaul connectivity. Going forward, ensuring the proper content delivery will be critical for the growth of this industry. Moreover, digitisation of content to enable viewing on different platforms will be significant in driving further adoption of these services and applications.

Based on a presentation by Akshay Grover, Vice-President, Transaction Advisory  Services, EY, at a tele.net conference on “OFC Networks in India”