A glimpse of the "treasure" in the tube: the last piece of cake for operators

Global Internet giants are accelerating their penetration and layout into basic networks.

Google, Microsoft and Facebook are laying submarine cables to build SDN data centers and backbone networks, while Tencent, Baidu and China Media Group are deploying cloud and CDN and applying for international Internet exports, and their businesses are beginning to penetrate into telecommunications. Internet companies represented by BATJ are constantly eroding the share of "pipelines" in terms of hardware and compressing the value of "pipelines" in terms of software.

On the other hand, as the country continues to vigorously promote speed increase and fee reduction, in order to achieve "faster speed" and "broader bandwidth", operators must increase investment in construction and maintenance. Before 5G is officially commercialized, the 4G network load cannot be multiplied. The demand for large video + large traffic + unlimited services objectively puts higher requirements on the network capacity and load of operators.

In China Mobile's 2017 performance report, communication service revenue was for the first time classified according to business attributes into "pipeline" revenue and "non-pipeline" revenue. What does this clear classification mean in the post-4G era? Pipeline revenue is classified according to customer attributes into personal mobile market revenue, household market revenue, and government and enterprise market revenue: "non-pipeline" revenue is new business market revenue, thus forming a "four-wheel drive".

The operating data in 2017 showed that the total volume of telecommunications business, net increase in users and total revenue increased by about 76.4%, 8% and 6.4% year-on-year respectively. These three data show that the revenue of telecommunications business is far lower than the growth of telecommunications business volume, the "volume-revenue gap" continues to widen, and the value of operators' "pipelines" has dropped sharply.

From voice to SMS to data traffic, at this stage, the connection "pipeline" is still the most core resource and the biggest industry barrier for operators. If the communication towers of tower companies can be opened to other companies and if there are no license restrictions, the "moat" of operators will be completely flattened. Therefore, the "data pipeline" business will become the last piece of cake for operators in recent years.

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The value of data pipelines (networks) is that without networks, the so-called hardware/software portals are meaningless. The operator's network is the foundation of all Internet/IoT, and the "network portal" created by it allows operators to obtain almost all information on the Internet.

Network quality is the premise and guarantee of high-quality information products and services. If operators lose network quality, they will lose the possibility of establishing competitive advantages in the communications industry. Only by firmly consolidating network quality, the foundation for the survival of telecommunications companies, promoting network intelligent transformation, and creating network advantages can they establish their due position in the fierce market competition.

This article will make a preliminary analysis of the current status of operator networks, network reconstruction, and data operations.

1. Current Network Status

Figure 1: Global IP traffic trends in recent years

Before the invention of computers, communication network services were mainly voice communications. Since then, with the rapid increase in computer penetration and computing power, the emergence of TCP/IP protocols has gradually replaced voice communications with data communications services, becoming the main transmission content of communication networks. In recent years, technological progress has driven the continued growth of data transmission services. In 2019, the average monthly global IP data traffic will be 2.81 times that of 2014, with a compound annual growth rate of 23% (as shown in Figure 1).

After entering the 4G era, operators have entered the era of traffic management. The demand for traffic from netizens around the world has been growing rapidly. At the same time, traffic revenue has become the main source of revenue for operators. All operators have launched unlimited traffic-based packages within the province and the country. Telecom operators and Internet companies have started a power struggle. There has been huge controversy over the occupation of signaling resources by apps such as instant messaging. Finally, in the face of strong public pressure from Internet companies, the two sides have briefly walked on parallel lines. But there is no doubt that Internet companies have greater voice, while telecom operators are becoming increasingly dim against the backdrop of the decline of a large number of new businesses.

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Internet companies develop and operate their own applications on the operator's infrastructure, allowing the operator to charge customers for traffic, thereby shifting a large part of the operating costs to the telecom operators. While Internet companies operate with light capital, they also rapidly transform the operators into pipelines. Internet companies have created huge stickiness among users through high-quality services, and have gradually gained the power to distribute benefits. Operators, under pressure from income, have actively lowered their profiles to embrace Internet companies, and targeted Internet cards for certain APPs have appeared on the market.

Figure 2: Comparison of mobile phone card rates of Internet companies (partial)

At present, the charges for various Internet cards launched by operators in cooperation with Internet companies are already very low, and other traffic of telecom operators is also rapidly falling in price. However, "selling at a loss" will not be the norm. The network needs to be built and maintained. In the competition and cooperation with the Internet, further pipelining of operators will cause the network to degenerate, which in turn will further affect the development of Internet companies. It is inevitable that both parties will reach some kind of compromise.

We have seen that due to excessive preference for Internet companies, the development of telecom operators has been hindered, the US network infrastructure has progressed slowly, and the network neutrality bill had to be repealed. Some experts said that repealing the network neutrality law is equivalent to opening a new cash machine for telecom operators, and the free bandwidth dividend of Internet giants will officially end.

Domestic operators will face the same situation. They have two options: one is to nationalize the network and integrate existing network resources into a public utility like the power bureau or water company; the other is for operators to rebound from the bottom and regain control of profit distribution.

2. Network Reconstruction

With the rapid development of video, 5G, and cloud services, the average annual compound growth rate of global backbone network traffic is as high as 40%. Taking China as an example, the backbone network traffic has maintained an average high growth rate of 47% in the past 10 years, and the backbone network is under great pressure. The combination of SDN, NFV and cloud network technologies is forcing the old telecommunications industry to undergo a "network reconstruction" revolution.

For operators, the invasion of OTT by Internet companies has aggravated the dilemma of telecom networks becoming pipelines. Transformation has become the only way to save themselves, and it has also made them the most active force in the tide of network reconstruction. Without an efficient network, it is impossible to have a say in future cooperation with Internet companies and the right to distribute benefits.

In this context, operators around the world are accelerating the implementation of network reconstruction. As early as 2013, AT&T released a white paper on network transformation, systematically proposing a transformation strategy based on SDN/NFV, and planned to make 75% of the entire network software-based by 2020. In China, since 2015, the three major operators have successively planned and released network reconstruction strategies for the next-generation network.

1. China Telecom

In July 2016, China Telecom officially released the "China Telecom CTNet2025 Network Architecture White Paper", proposing to use intelligence to drive network transformation and introduce emerging technologies such as SDN, NFV, and cloud to build a simple, intensive, agile, and open new generation network operation system. China Telecom has basically built three high-quality networks: 4G, optical network, and Internet of Things.

• In terms of network evolution and upgrading, China Telecom has established a network reconstruction leadership group and set up network reconstruction open laboratories in three research institutes in Beijing, Shanghai and Guangzhou to accelerate the trial and implementation of technologies such as SDN and NFV.
• In terms of basic research, China Telecom has clarified the positioning of ChinaNet/CN2/DCI networks, determined the SDN introduction plan for IP backbone networks, compiled NFVI and MANO series specifications, and proposed network DC layout and planning methods;
• In terms of support and guarantee, China Telecom established a network reconstruction leadership group, launched the vIMS full decoupling test, clarified the unified operation unit of "One Cloud", adopted the talent workstation model to strengthen independent research and development, and joined relevant international open source organizations;
• In terms of live network deployment, China Telecom has completed the world's largest two-layer decoupled vIMS deployment, has the conditions for VoLTE business development, carried out vBRAS live network experiments, and deployed SDN in cloud resource pools in six provinces including Guangdong for trial commercial use. The IP backbone network is based on SDN pilot traffic scheduling, and the completely independently developed OTMS (transmission network open operation management system) has also started online operation;
• In terms of product development, China Telecom has successively launched the VPN self-service broadband adjustment function for large government and enterprise customers, completed the launch of SD-WAN intelligent dedicated line services for small and medium-sized enterprises, and completed the research and development and pilot of SDN gateways for home users.

2. China Mobile

In July 2015, China Mobile officially launched the next-generation innovative network NovoNet and released the NovoNet2020 vision, announcing that it hopes to integrate new technologies such as NFV and SDN to build a new generation network with globally schedulable resources, fully open capabilities, elastically scalable capacity, and flexible architecture. Subsequently, China Mobile conducted the first bidding test of the SDN system solution in China, introduced SDN technology into China Mobile's 10086 public cloud, and analyzed the technical solutions based on three SDN scenarios.

NovoNet emphasizes new architecture, new operations and new services. Among them, China Mobile attaches the most importance to the redefined super network source TIC in this new architecture.

In February 2017, China Mobile officially launched the NovoNet test network project, which will design and build a two-layer DC architecture based on TIC (which can be quickly replicated in the future), support multiple services in parallel with a unified resource pool, and use a global collaborative orchestrator to achieve the orchestration and scheduling of network resources and networks. The first phase of the test network was field tested in Shanghai, Zhejiang, and Guangdong. The business scenarios selected in the first phase included NovoNet services, IoT services, and some past broadband services. China Mobile launched the second phase of NovoNet technical verification in August 2017.

3. China Unicom

In September 2015, China Unicom released the white paper on the new generation network architecture CUBE-Net2.0. The white paper pointed out that the new generation network is a decoupled network, which is decoupled from the three dimensions of service, logic and deployment through SND and NFV, providing elastic and flexible network services, and achieving the goal of Network as a Service (NaaS) by relying on ubiquitous ultra-broadband (FTTH+4G/5G+LPWA), elastic soft network (SDN/NFV+cloud service), cloud-pipe-end collaboration (network follows the cloud), and large-scale capability opening (big data+intelligent pipeline).

China Unicom has mainly promoted five aspects of work in SDN/NFV:

• First, we will focus on serving corporate customers and build an SDN-based industrial Internet infrastructure, creating a new network infrastructure that serves industrial interconnection for corporate users.
• Second, we will use the DCization of network nodes as a breakthrough point to promote the construction of telecom cloud infrastructure and edge cloud.
• Third, we will carry out network cloudification pilot projects with the virtualization of metropolitan area networks and mobile core network element functions as the entry point.
• Fourth, reconstruct the operation and management system and carry out optimization and transformation.
• Fifth, actively participate in the open source community and enhance independent innovation capabilities.

As of June 2017, China Unicom's SDN transformation of the IP bearer A network has been launched in 34 cities across the country and provides data center interconnection services. By the end of the year, it will cover all cities in China, including more than 330 local networks and overseas nodes of China Unicom.

3. Data Operation

As "data pipeline" providers, the three major operators have inherent advantages in developing big data.

On the one hand, operators have accumulated rich data resources, and their data pipelines are the foundation of all Internet. Based on the "network portal", operators can obtain almost all information on the Internet. On the other hand, with the popularization of mobile phone real-name registration, operator big data has the advantages of high accuracy, full geographical coverage, full business coverage, and good time continuity. In theory, it can replace the big data of Internet companies (OTT).

Taking data collection and other factors into consideration, in the future, operator data will be the main source, while Internet big data will be the supplementary source. The premise is that telecom operators can use some new applications in the Internet of Things and 5G era to overtake others, bring the user interface back to the operators, and Internet companies and telecom operators will form a new close relationship, with operators once again becoming the "center".

1. Characteristics of operator data

(1) Large user scale. As of the end of December 2017, the total number of China Mobile users reached 887.2 million, the total number of China Unicom users reached 284.16 million, and the total number of China Telecom users reached 249.96 million. The large user scale of the three major operators has brought about a massive amount of data accumulation.

Chart 3: Number of users of the three major operators in December 2017

(2) There are many sources. The big data of the three major operators mainly comes from network data, business operation support system data and the operators' own Internet applications. Network data is the behavioral information generated by users on the Internet, including location data, phone call data, Internet logs, user access trajectories, power on and off information, etc. The business operation support system is composed of the business support system (BSS) and the operation support system (OSS), including real-name information, package information, payment records, terminal information, call records, etc. Internet application data is data from Web and App clients. The App applications of the three major operators mainly include mobile business halls, application stores and vertical applications. Among them, vertical applications include China Mobile's Address Book, Migu Music, Migu Reading, etc., China Unicom's 116114, Wo Reading, Wo Mail, etc., China Telecom's Tianyi Video, Yi Pay, Tianyi Reading, etc.

(3) High use value. On the one hand, my country has implemented a real-name system for mobile phone users, which fully guarantees the authenticity and reliability of the telecommunications big data of the three major operators. On the other hand, based on the real-name system and combined with other types of data, a complete customer portrait can be formed.

2. Big data operations usher in a new era for operators

Domestic and foreign operators have made many beneficial attempts in the field of big data, and the operator big data market is in the start-up stage. The operator big data industry chain can be divided into four links: big data collection, big data management, big data analysis and big data application.

(1) Big data collection mainly uses BOSS systems and deep packet inspection (DPI) equipment to collect various structured and unstructured data. Data collection network data, that is, user access information on the Internet, power on and off and location information on the telecommunications network, will become increasingly important; in theory, any data packet passing through the operator's network is detectable, which is more comprehensive than the data of Internet companies.

(2) Big data management mainly includes distributed database software and hardware. As the proportion of unstructured data will increase, traditional data warehouses will not be able to meet the demand, and operators' demand for cloud computing platforms and distributed databases will increase. The three major operators have established national cloud bases and released cloud brands not only to sell cloud hosts, but also to establish a big data operation center based on cloud technology.

(3) Big data analysis relies on technologies such as business intelligence, data mining and artificial intelligence. Data analysis will be the biggest shortcoming of operators. Compared with the annual salary of data analysts in Internet companies, which is often hundreds of thousands or millions, the salary of operators is not enough to retain data analysis and artificial intelligence talents. "Data with data analysis is worthless data." In this way, operators need to share this pie with Internet companies.

(4) Big data applications are divided into two categories: internal applications and external applications. Internal applications refer to operators optimizing their own business through big data, while external applications mainly refer to the external commercialization of big data, which is currently mainly focused on value-added services for target companies and participation in precision marketing. In the field of big data applications, external applications will truly monetize operators' big data and become another source of income in addition to traffic revenue.

3. Develop big data to help build smart cities

The three major operators have inherent advantages in the construction of smart cities. The operators have the most extensive and solid information infrastructure, which will be the foundation and guarantee for the construction of smart cities. Secondly, the three major operators focus on smart cities and implement different sub-scenarios such as smart government affairs, smart urban management, smart poverty alleviation, and smart campuses to promote the intelligent upgrade of all walks of life. Finally, the three major operators also actively play the local characteristics of provincial branches and cooperate with governments, enterprises, and universities in the province to explore the construction of smart cities.