The all IP/Cloud future, once on the distant horizon, is now arriving in a hurry. For many operators, this supposedly evolutionary change is already having a revolutionary impact on their businesses – and yet most face major barriers to achieving the feature-rich, leading-edge service offerings their customers are increasingly demanding.
There has been no shortage of change in the industry over the last five years, which has seen a wave of merger and acquisition deals as operators recognise and adjust to the structural issues facing them. Yet the multi-billion-dollar deals – involving big names such as Vodafone and Kabel Deutschland, Liberty Global and Virgin Media, AT&T and DirectTV – are in many ways a reaction to fears rather than a leap towards opportunity.
Multiple service operators are feeling the squeeze of cord-cutting and decline of premium packages, as compelling, ad-free subscription video on demand rivals such as Netflix and Amazon Prime carve their own market share – pushing up content costs by nearly 50% in the past decade. What’s more, the cost of fibre to the home – at the core of multi-service operators’ broadband offering – is eating up capital investment budgets.
More importantly, subscribers in markets across the globe are demanding more from service providers. The wish list is extensive: multiscreen and multi-device capabilities, video on demand, access to 4K/UHD content and Android-based apps – all within slicker and more accessible user interfaces. Operators need to find a way to meet these demands, or they risk shedding customers.
The challenge for smart operators
Smart operators see this as an opportunity and are moving to get ahead of the curve and meet the expectations of today’s digital-savvy consumers before competitors. However, many backend systems, applications and customer premise devices are simply not designed for the next generation of services. This has emerged as a major obstacle to a sophisticated, unified IP offering.
A major cost is customer premise equipment (CPE), whether that’s a set-top-box (STB) for television – which remains key to the pay-TV offering – or a gateway device for broadband. The industry ships around 100 million STBs a year, yet the vast majority of the estimated 950 million-plus non-OTT, pay-TV subscribers (according to industry intelligence provider Digital TV Research) are using a box that is at least four years old and unlikely to support the majority of the next generation services that that are so in demand.
Although a global problem, looking at just the US offers insight into how much of a challenge upgrading subscribers has become. With its estimated 1,200 IPTV service providers, serving approximately 14 million households, the hidden costs associated with upgrading are truly staggering. The costs are not just hardware but include factors such as field service engineers and transport.
The true cost of hardware replacement
Based on a survey by the Technology Service Industry Association, each truck roll costs about $1,300 per day factoring vehicle, technician, spares, and disposal costs. Although this is based on a repair model while a scheduled upgrade project may well manage five such localised visits in a day, this still equates to up to $200 additional cost per STB. And it cannot all be done instantly.
Based on a 100,000 subscriber pool, even running a fleet of 20 vehicles and technicians would mean a major upgrade could take three years to reach the entire subscriber community and easily cost $20 million. This figure does not even take into account the licensing and change management costs of upgrading software and integrating legacy middleware and security components, which can equate to hundreds of man-hours alone. This is assuming that IPTV integration skills are even readily available in the operator’s market – which they are not.
The net result is a major capital expenditure hurdle for service providers, along with a lengthy time delay that provides an opportunity for rivals to swoop in and offer subscribers a better deal.
The overall size of this potential market is massive. Based on data from global analyst IHS, there were roughly 300 million IP enabled STB shipped globally between 2009 and 2014. Even at a very conservative estimate of $200 to do a full refresh of each of these legacy boxes – and assuming that only 50% of these units will be targeted for replacement – this represents a $30 billion barrier.
The ‘upcycling’ alternative
There is a way, however, for multi-service operators to surmount the legacy barrier: the virtual STB, which uses software to transform the underlying hardware. The device chipsets – dominated by only a handful of large manufacturers, including Broadcom, MStar and Ali – are released as families, each with a common set of comparable features for processing video and signalling information. The impediment to delivering, for example, a Netflix integrated service will reside in the software layer within the STB and not necessarily within the fundamental hardware architecture.
The result is, through virtualisation, individual operators can ‘upcylce’ their existing STBs, so that they can then provide leading-edge services and other advanced features previously not available though their older hardware. A number of pioneers, Amino included, are now turning legacy bases – as well as new products – into single virtual operating environments. This technology already provides STB virtualisation for multiple chipset families encompassing STB’s from ZTE, Samsung, Hybroad and Xavi – amongst a growing list.
This over-the-network upgrade, with additional server-side software and middleware, eliminates the need to send out field service engineers – saving cost while speeding up implementation. For operators with a mixed estate of CPE of varying age, vendor and capability, virtualisation enables them to deploy sophisticated services across their entire customer base through a unified user interface. Early adopters have already seen cost savings of up to 80%, subscriber growth in excess of 200%, and deployment times drop from a year to three months.
The ability to bring a fresh, unified user experience across all devices – new and old – through virtualisation is potentially a game-changer for operators wrestling with the cost of keeping pace with technological change. It takes the pain out of adding innovative services and paves the way for ongoing growth in an all IP/Cloud world.