Demand for over-the-top (OTT) video services is strong, and new OTT services together with smart end-points mean that the trend is set to continue. These services force operators to spend money on building the required network capacity without getting any of the associated revenues. Building on its fourth-generation IP (4G IP) strategy, Ericsson is determined to help operators tackle this situation. Martin Mellor, working with customer relations, explains how.

Today’s telecom market is characterized by four major trends that are evident across all regions and that Ericsson’s 4G IP strategy addresses. First of all, the world is rapidly going mobile and broadband. Second, new OTT services and business models are challenging operators. With these services – such as Facebook, YouTube and Netflix – content providers are using telecom networks to reach consumers directly, bypassing operators without sharing revenues with them. A third trend – and one that is expected to continue – is the huge growth in video traffic, which is now five times larger than it was five years ago. And finally, Ericsson’s vision of a world with more than 50 billion connected devices by 2020, when everything that benefits from an IP connection will have one, is beginning to be realized.

Ericsson’s 4G IP strategy is designed to help operators deal with these trends by making IP networks scalable, smarter, simpler and with superior performance.

Our Profitable Video Delivery Strategic Engagement Topic (PVD SET) focuses on making networks smarter by helping operators manage the growth of OTT video services in a profitable way. The current situation is that operators don’t benefit from a share of the OTT video revenues, but they do need to upgrade and expand their networks continually, building out capacity to support these new services. This leads to pressure on their margins. Our approach to this situation is to help operators lower their costs and generate revenues from OTT video content to make it profitable for them. In short, we have ideas and solutions to help operators turn the challenge of OTT video into an opportunity.

We are looking at both cost optimization and new revenue-generating business models. We propose that operators introduce video-caching solutions that will allow them to store video content deep in their networks. We recommend two types of caching solutions: transparent internet caching (TIC) and content delivery networks (CDNs).

Through TIC, operators can optimize their networks by caching the content that is being viewed most frequently, using local servers in the network. This will substantially reduce the network load, since operators won’t have to access content providers’ servers each time the content is needed. This reduces costs and improves users’ QoE.

By using CDN, operators can start monetizing OTT video content. They can then sign contracts with content providers to cache the content deep in the network – and charge them for it – to enable a much better QoE for the content providers’ users. This approach means moving from a single-sided business model in which revenues are generated by consumers only, to a dual-sided model in which content providers are also a source of revenue.

We are also looking at means of extending monetization even further. We encourage operators to use policy control coupled with service-aware charging in their networks to develop differentiated services. For example, an operator may decide to include the OTT content in a premium package that users can access by subscribing to it. Instead of applying a best-effort delivery, the operator would then prioritize that content. Additionally, by zero-rating the content, operators can enable content providers to offer their premium subscribers both the best QoE and the highest traffic volumes.

We also recommend that operators bring advertisers into the equation – turning the dual-sided business model into a three-sided business model – and start thinking about how they can take advantage of the opportunities provided by online advertising. After all, analyst reports show that 50 percent of all advertising is expected to be online by 2015. Operators should try to secure their share of this business.

Ericsson’s approach is to enter into partnerships using consultancy-led engagement with our customers. We offer a consulting option for optimization (caching solutions) and one for monetization (new business models for revenue generation). With the help of well-proven support material, we are ready to guide our customers through this business transition. And we also offer tailored systems-integration services, assisting our customers by taking an all-Ericsson turnkey approach.

Making OTT video profitable is a very hot topic right now, and our customers have expressed considerable interest in it. We have recently held several customer workshops to help operators improve their business numbers.

Read more about how to make OTT video profitable in this Ericsson Business Review article.