CEO Roundtable Working Group 1 Possible new business models for the Internet. July 13th, 2011

Transcription

1 CEO Roundtable Working Group 1 Possible new business models for the Internet July 13th, 2011

2 Foreword This document was built upon several discussions, exchanges and materials provided by Working Group 1 participants. This present document shall reflect as accurately as possible the Industry stakes and concerns. This document shall serve as a non-binding building material to be delivered to the European Commission on July 13, 2011 CEOs Roundtable. 2

3 Plan of the document Methodology Detailed outcome 3

4 General objective of the CEO roundtable: foster the roll-out of next generation networks to reach Digital Agenda targets How best to ensure the very high levels of private sector investment necessary for the deployment of next generation broadband networks to sustain internet growth and so meet Europe Digital Agenda targets (N.Kroes) Working Group 1 Vivendi Working Group 2 Deutsche Telekom Working Group 3 Alcatel-Lucent «Possible new business models for Internet» «Technical Framework for Digital Delivery - Interoperability and Standardisation» «Investment framework and financing sources to foster NGA roll-out» Mandate Working Group 1 Seek win-win solutions to foster and accelerate the deployment of high speed networks allowing the delivery of innovative services to the highest possible number of users 4

5 Process and working method in WG1 (1/2) 40 companies involved representing all segments of the Internet ecosystem Represented segments WG1 participants Media / Content editors Incumbent operators Alternative operators Software, service and application providers (OTT) Vendors / Manufacturers Delivery services providers (CDN) International carriers Financial institutions 31 initial written contributions received Alcatel-Lucent Amazon Akamaï ARD BBC Belgacom Bertelsmann BSkyB BT Cisco Cogent Deutsche Telekom ebay EIB Ericsson Facebook Fastweb Fnac Google Mediaset Microsoft Netlog Nokia NSN Orange - France Telecom Prisa RIM Samsung Sony Sony Music Skype Tele2 Telecom Italia Telefonica Telia Sonera Virgin Media Vivendi (WG1 leader) Vodafone Voddler Wind 5

6 Process and working method in WG1 (2/2) Main milestones achieved Mar Apr May Jun Jul Participants initial Questionnaire distribution contributions Contribution analysis WG1 plenary meeting 1 Bilateral work & feedbacks Drafting of WG1 building material WG1 plenary meeting plenary meeting 3 Taskforce synthesis meeting

7 Plan of the document Methodology Detailed outcome 7

8 Internet traffic is expected to be multiplied by 4 between 2010 and 2015 Total IP traffic forecast: 34% average annual growth (Petabytes / month) Video is expected to be a major driver of this traffic increase % 81% +34% 11% 89% By 2015, global consumer Internet video should exceed 60% of consumer Internet traffic (up from 40% in 2010) Continuous innovation in video encoding compression and delivery efficiency (such as adaptive streaming technology, modernized protocols, etc.) could possibly impact these forecasts and are not reflected here above e 2012e 2013e 2014e 2015e Business Consumer Source: Cisco Visual Networking Index (VNI) Global IP Traffic Forecast,

9 Petabytes / Month The multiplication of connected mobile devices is expected to be another important driver of traffic growth Global mobile data traffic growth/devices forecasts Mobile Internet traffic growth estimated at 92% per year on average between 2010 and Other Portable Devices Non-Smartphones Tablets M2M Home Gateways Smartphones Laptops and Netbooks e 2012e 2013e 2014e 2015e e 2012e 2013e 2014e 2015e Source: Cisco Visual Networking Index (VNI) Global IP Traffic Forecast, Ericsson WG1 contribution 27% 56% Increasing number of connected devices allowing a permanent connection: o Netbooks and laptops remain the most used access media (56% of 2015 traffic) o Smartphones: 27% of 2015 traffic o Tablets: 3.5% of 2015 traffic The Internet of Things (M2M) could account for 4.7% of mobile Internet traffic in 2015 and records a 40-fold increase in traffic over the 5 years - in 2020, 50 billion objects will be connected Other trends will have an impact on traffic growth forecasts: o Mass market cloud services o New services like ehealth and egov

10 New uses allowed by an increasing number of connected elements in the household Connected elements in the household - illustrative HD sound (phone) Multi-stream radios Home automation Online gaming Fixe / mobile convergence HD video calls Media center Ego-casting personal media upload HD / 3D TV & VOD Digital economy (eadmin, egov, ehealth, elearning, transaction security) Content, services, and applications download Multi TV & PVR 10

11 Overview of stakes and concerns raised by Working Group 1 participants WG1 participants expressed a shared view that internet traffic will grow significantly in the coming years. This increase in traffic is seen as an opportunity for some WG1 participants who consider that the cross externalities which occurred in the past would continue to fuel the Internet in the future. Many others consider it as both an opportunity and a challenge since they see no evidence that the drivers of traffic increase would translate into solvable demand for higher bandwidth offers and could thus generate significant additional revenue. Moreover creative industries raised some concerns that traffic increase per se may not be a driver of sound and legal business models. 11

12 WG1 identified five mutually beneficial levers to strengthen the internet ecosystem and help reach the Digital Agenda targets A Development of a competitive and healthy marketplace for managed services / services beyond best effort B What options for optimized interconnection schemes and practices Structuring the Internet ecosystem: relationships on the digital value chain and with the environment E Creation of a favourable and open environment enabling service development and Innovation D Transparency and safeguards C Innovative and transparent retail pricing schemes 12

13 WG1 identified five mutually beneficial levers to strengthen the internet ecosystem and help reach the Digital Agenda targets A Levers B The best efforts internet is and should continue to be the by default option for all players. The best efforts internet is an essential demand of consumers and a cornerstone of an open and consumer centric internet. Development of a competitive and healthy marketplace for managed services / services beyond best effort Options for optimized interconnection schemes and practices Two sided business models can be enablers for investment. New wholesale business models could be developed (e.g. managed services, paid peering model, etc.). There should be no a priori restrictions on the development of these business models, provided they are based on commercial agreements, respectful of competition law and non-discrimination principle. Market driven managed services developing alongside transparent and non-discriminatory best efforts internet will foster innovation both at the core and at the edge of the network 13

14 WG1 identified five mutually beneficial levers to strengthen the internet ecosystem and help reach the Digital Agenda targets Levers C Innovative, competitive and transparent retail broadband offers such as: Tiered pricing, Bandwidth dependent flat rate, Innovative and transparent retail pricing schemes Volume/time based pricing, Differentiated QoS pricing, etc would provide consumers with better response to their actual needs in terms of speed, bandwidth, latency, premium content services, etc. 14

15 WG1 identified five mutually beneficial levers to strengthen the internet ecosystem and help reach the Digital Agenda targets Levers D Transparency and safeguards Appropriate safeguards should be implemented in order to ensure trust, confidence, and legal certainty for all stakeholders: On the retail side: Ensure a strong level of transparency on the characteristics and performances of broadband offers to European consumers. Industry self-regulation initiatives have a role to play in this respect both at local and EU levels. On the wholesale side: Ensure the principle of non-discrimination; Avoid technical fragmentation and guarantee interoperability (see WG2) This could be implemented through the creation of catalog of services on which commercial negotiations would be based. 15

16 WG1 identified five mutually beneficial levers to strengthen the internet ecosystem and help reach the Digital Agenda targets In order to achieve the digital agenda targets, the European Union should create a true level playing field between all digital players by more timely action. E Levers Creation of a favourable and open environment enabling service development and Innovation In order to better concentrate investments on the NGN/NGA roll out, the EU should take measures to apply throughout the 27 member states the same level of rules regarding : Transparency, Openness, Privacy, Data protection, IPR protection, VAT rate harmonization; and should also take a forward looking approach to tax/levies on ICT sector. Technological innovation to improve the use of network resources: development and investment in encoding, formats, compression techniques, etc. should be encouraged at all levels of digital economy 16

17 Content distribution issues were also discussed Context Three major stakes have been identified The digitization of content and the development of social networks - driven by shared tastes and preferences Combined with the increasing development and the growing importance of digital distribution technologies Pose major new challenges and opportunities for media and content industry 1. Is there a potential pan-european consumer demand for ATAWAD 1 access for online products and services? 2. How to support the development of a robust market for content and media in Europe, including both online and offline retailers? 3. How to build successful partnerships for improved content distribution? 17 (1) ATAWAD : Anytime, Anywhere, Any device

18 1 Is there a potential pan-european consumer demand for ATAWAD access for online products and services? Working group discussed topics Consumers are increasingly expecting instant access to any type of content (TV, music, video, games, newpapers, books, etc.) Demand in EU countries is at the same time becoming more segmented and more complex to address for content, media and service providers Investments on media and content are more efficient when they are made to address local tastes, needs, preferences of consumers The key success factor to deploy offers in Europe is a step-by-step approach to take into account the local practices and tastes (in terms of technology adoption but also in terms of repertoire and catalogue ), as well as windows release schemes, legal framework of each country 18

19 2 How to support the development of a robust market for content and media in Europe, including both online and offline retailers? Global digital revenue across media platforms is developing 29% 4% a/ Development of music legal services Licensed music services < Catalogue available 1M tracks 13M+ tracks Global digital revenues (trade) <$50M $4.6B b/ Development of new distribution models for music 2% 1% Download (itunes, Amazon, 7digital) On-Demand Subscription (Spotify, Deezer) Ad-Funded Streaming (we7, last.fm) Music Video (YouTube, Vevo) ISP Service (Fastweb, Telenor, Telia, TDC) Hardware-Bundled (Sony Qriocity, Nokia) Cloud (Catch Media) Recorded music Newspaper Magazines Films c/ Online & offline complementarity Source: Sony Music based on IFPI, PWC Global Media Outlook 19

20 3 Towards more robust and dynamic partnerships between players Working group discussed topics The development of digital offers requires significant cooperation efforts from multiple players : content producers, broadcasters, online service platforms, devices manufacturers, ISPs Successful partnerships are based on case-by-case strategy to bring the highest value and offers to consumers in each market given the local specificities and habits, based on appropriate and adaptive licensing schemes Importance to have consistent incentives along the digital value chain to build strong partnerships. Competition with illegal services and applications destroy value for all those who invest in building innovative and attractive new online offers Harmonisation of VAT is key to the creation of a dynamic European marketplace for digital offers 20