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IMS 3 - Rise of Rich Communications Services (?)


by Russell Bennett, UC Insights

November, 2012

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(Movie buffs will possibly recognize the title of this article as a skeptical riff on “Terminator 3 – Rise of the Machines”.  There are several layers of similarity between the Terminator series and the main point of this article; one of which, amusingly, is that the antagonist in the Terminator movies is a computer network called ‘Skynet’: which sounds like a mobile operator.)

In various articles over the last 2 years, I have considered:

  • The reduction in per user revenue growth and, for some specific features (e.g. SMS), an actual decline of mobile service provider revenues and how that might be replaced;
    (Note that I did not say that overall mobile provider revenues were falling, but there is ample evidence that per user voice and SMS revenues had reached the maturity/saturation stage in many markets.)

  • Why the mobile UC user experience has been slow to emerge;

  • The communications needs of specific classes of mobile workers, especially those in emergency response and mobile technical roles;

  • How ‘over the top’ (OTT) services are likely to subsume current incumbent operator services.

My general conclusion has been that the incumbent mobile service providers have no current interest in providing multi-media communications and that OTT communications services (e.g. Facebook, Twitter, Skype, WhatsApp, Apple Facetime, etc.) have filled, or will fill, that gap via apps on smartphones that use the data channel.   Since the PSTN is on regulatory life support (with the incumbents persistently demanding that the regulators ‘pull the plug’) the corollary of this conclusion is that the IP Multimedia Subsystem (IMS) architecture is dead and that the mobile operators are going to rapidly transition to becoming mobile ISPs.

Well, I was wrong - or at least, wrong about IMS. IMS is not dead; it has come back in a new, more potent form than previous forms.  The only question is: will it prevail?

Rich Communications Services

I was surprised to hear that the following European carriers have recently launched, or are about to launch, Rich Communications Services (RCS) in Spain and Germany:

  • Orange España

  • Telefónica/Movistar

  • Vodafone-Spain

  • Vodafone-Deutschland

  • Deutsche Telekom

RCS is an implementation of IMS that enables consumer-oriented unified communications (UC) features such as directory services, presence sharing, text chat, VoIP, video, file transfer, etc. over an interoperable inter-carrier IP network.  You can watch a Vodafone promotional video on YouTube here.

This is the first attempt (that I am aware of) by telephony providers to deploy IMS for anything other than an integration of UC with TDM (e.g. ‘SIP Trunking’) or an emulation of TDM over IP.  While I admit that I haven’t been paying much attention to IMS in general, I should not have been so surprised since I had been involved in a series of meetings with Orange, Telefónica and Vodafone while I was running the Microsoft Open Interoperability Program.  (However, that was 4 years ago….)

Other than the carriers themselves, the main beneficiaries of mainstream adoption of RCS appear to be the ‘usual suspects’ from the mobile carrier network ecosystem:

Infrastructure: Devices:
Acme Packet HTC
Alcatel-Lucent Huawei
Broadsoft LG Electronics
Ericsson Nokia
Genband Research In Motion
Huawei * Samsung
Metaswitch Sony Mobile Communications
Nokia Siemens Networks ZTE
ZTE *  

(* See also last month’s article on global network security)

The benefits of ‘joyn’ing RCS

It turns out that the organization that has led the development of RCS standards is the GSM Association (GSMA) and the resulting services are marketed under the service mark ‘joyn’.  The GSMA expounds the key benefits and attributes of RCS/joyn as:

  • Retaining relevance to customers; (my bold)

  • Ubiquity;
    (By which they mean consumers’ access to their personal network without risk of fragmentation that could be caused by the adoption of diverse OTT apps.)

  • Leveraging existing investments in IMS and LTE;

  • Global interoperability and collaboration between carriers;

  • QoS assurance (vs. ‘best efforts’ implementations of OTT services);

  • Security and Privacy management.

The first bullet neatly sums up what I was trying to say in my recent 3 part series on ‘The Approaching UC Endgame’.  Indeed, the RCS section of the GSMA web site is refreshingly candid and realistic about the threat to its members' business posed by OTT:

“Your consumers are hungry for access to the entertainment and interaction offered by RCS-based apps.  Agile and innovative, Over The Top (OTT) providers are exploiting the massive penetration of Smartphones by developing appealing rich communication apps available at little or no cost to the consumer.

Once consumers start using an OTT app service, that offering becomes, for them, the lead brand for communications services.   Operators remain more competitive by responding more rapidly to consumers’ expectations and behavior, and by using RCS to enhance the value of their network and bring richer calls to their consumers.”

The challenges of ‘joyn’ing RCS

The choice of the word ‘joyn’ as the service mark is laden with subtexts: it is not just a description of the service as a personal network, it is also an exhortation to enroll as well as a near admission that unless everyone joins, no-one will join.  In fact, the near simultaneous deployment of RCS by most operators in two separate countries speaks volumes about the power of ‘social network effect’ (see the section on that topic in ‘The Economics of Interoperability’).  That article shows that if more than half of your personal network is on a given service, the probability of you joining becomes exponentially larger for every additional contact that you would be able to communicate with; and vice versa.

As stated above, ‘social network effect’ is the driver behind the majority market share carriers in Germany and Spain deploying RCS simultaneously.  Clearly, they are more worried about the competitive threat of OTT than they are about each other.  If RCS takes off in these countries, we can expect that others will follow a similar simultaneous deployment model; especially since the same parent companies operate in multiple European markets (i.e. Vodafone, Orange and Deutsche Telekom).  The countries preparing to deploy ‘joyn’ next are France and Italy.

Other than sponsorship of RCS by the GSMA, the reason why CDMA carriers have been slow to support RCS is that their networks suffered from an inefficiency in the interaction between CDMA and LTE networks for voice calls.  Although that issue appears to have been resolved by Ericsson, CDMA carriers are clearly several years behind the GSM carriers in this regard.

As a result of this, ‘social network effect’ is likely to pose a major challenge to RCS adoption in the US, as most mobile carriers have deployed CDMA.  GSM is supported only by the number 2 and number 4 carriers (AT&T and T-Mobile respectively), so nearly 200m US subscribers will be unable to access RCS.  Paradoxically, the first US carrier to offer ‘joyn’ is MetroPCS, which is a CDMA carrier; albeit that they have just agreed to be acquired by T-Mobile and to merge their networks.

The dilemma of competing with OTT

On seeing the announcement of the Orange RCS app, Libon, one of my former colleagues from the Lync group commented on LinkedIn:

“hmmm, that's probably what the world needs, yet another island of communication...”

Indeed, personal network fragmentation (i.e. the opposite of ‘social network effect’) is one of the biggest threats to any OTT service.   The European carriers’ strategy of simultaneously deploying an interoperable multi-media service across an entire country (and, by no coincidence, a largely homogeneous cultural and linguistic grouping) appears to overcome this issue at a stroke.  However, a closer examination of the Libon strategy reveals additional complexities for RCS in competing with OTT.

Libon is being offered outside the Orange subscriber base as a ‘freemium’ service: i.e. you can use it for free to communicate with other Libon users, but to place calls over PSTN or mobile networks requires a premium subscription.  This pricing and distribution model makes apparent sense, since:

  • Orange’s business model is being disrupted by OTT, so Orange may as well disrupt itself;
    (The optimal strategy would have been to disrupt themselves first…but that opportunity is gone.)

  • The OTT providers are already offering free, or freemium, service, unconstrained by geography or subscription to a specific ISP;

  • By offering Libon beyond its own network, Orange is increasing the attraction of RCS for its paying subscribers by extending their reach into the global network;

  • Since few people use mobile phones for international calling, Orange isn’t cannibalizing its own revenue.

Orange has yet to actually launch ‘joyn’ so subscription details are not yet available.  However, Orange subscribers are already paying for their traditional service (voice and SMS) and for the wireless data service.  Therefore, since RCS is intended as a substitute for the former carried on the latter, it would presumably be indefensible to charge customers additional fees for RCS.   Furthermore, large scale uptake of RCS and its acceptance as a substitute for traditional service will require a price model change for wireless data, since wideband usage of wireless data under current pricing plans will make RCS prohibitively expensive.   However, once the mobile network operators change their data pricing model for RCS usage, then the OTT apps are likely to become even more attractive.

Viral services like Facebook and Skype would never have emerged from network operators who, I have said many times, have delegated (or surrendered) the user experience to more nimble and creative forces found in the technology business.  Ironically, in order to distribute and publicize RCS/joyn, the mobile operators seem compelled to use the same ‘app stores’ and social networks (i.e. LinkedIn, Facebook and Twitter) that the OTT providers either use or have created for themselves.   Therefore the notion that hidebound mobile operators can defeat the OTT providers on their own territory seems ludicrous.  But it gets worse.

The mobile operators have billion dollar businesses to support, with billion dollar investments in infrastructure, and millions of shareholders holding them accountable for the outcome.  To be fair to the mobile operators, it seems inequitable for them to be required to compete with OTT providers on their own networks without any financial contribution by the OTT providers.  Yet, this is exactly the situation that the mobile operators are facing, based on the somewhat abstract principal of ‘net neutrality’.  This strategic conundrum is probably best defined by the ‘Nash Equilibrium’; which earned its namesake a Nobel Prize in Economics.  So if the RCS strategy seems opaque to UC industry veterans as well as to tech-savvy commentators like GigaOm, the average person can be forgiven for finding the whole thing incomprehensible.

Will RCS be a success?

It is too early for subscription and revenue data to be available for RCS.  However, given the trend towards multi-media communications in the consumer segment as well as UC in the enterprise market, there is undeniable latent demand for RCS.  Furthermore, with the decline in traditional service revenues, combined with the massive investments made by mobile operators in 3G and 4G networks, there are powerful drivers pushing the mobile operators to deploy RCS.

Even if RCS is bundled with the wireless data plan, as described above, the pricing models for data will have to change.  I have no doubt the brightest minds in the mobile industry (including the corporate lawyers) are working feverishly over their spreadsheets and simulations, trying to define a pricing plan that will cause subscriber engagement with RCS while maintaining profitability.   However, with so much money at stake for the operators, and so little money at stake for the OTT providers, the pricing problem can probably best be compared to juggling with chainsaws: anything other than flawless execution will have dire consequences.

Disaggregation, not to mention globalization, is a powerful force in markets today.  It seems counter intuitive that a bundled service like RCS would gain mainstream adoption in the face of the first mover advantage of OTT services.  Admittedly, the users of MySpace defected en-masse to Facebook – so success is not beyond the realms of possibility.  However, given that RCS only offers the same communication functions that OTT services have offered for a decade or more, it seems unlikely.  However, the mobile carriers are not without options.

Potential scenarios for RCS success

I don’t believe that OTT providers have all the winning cards.  Quite apart from anything else, the OTT providers and the ISPs (including the mobile operators) have an unbreakable symbiotic bond.  Without the Internet, there can be no services, and without revenue generating services, the Internet infrastructure cannot be maintained.  So, whoever ends up providing the end-user services, there has to be a way for the ISPs to stay in business.  That can mean only two options: the users continue to pay the ISPs for access to services, and/or the service providers pay the ISPs for service delivery.  Either way, I can see several ways that this may play out.

RCS actually beats OTT, based on structural advantages

There are a number of advantages that RCS has over OTT services.  The first is ubiquity: i.e. that by owning an RCS enabled device, subscribers find that they can communicate with more of their contacts than by the serendipity of them all using the same ‘freeware’ app downloaded from the app store.  The opportunity for RCS providers to federate their directories and thereby facilitating the discovery of contacts across networks is critical in this regard.  This may allow the RCS providers to overcome the smaller market share apps, but not the big players like Skype.

The next advantage is the opportunity to provide a guaranteed user experience, via QoS functionality, to which the OTT providers don’t have access.  It is not clear if such a strategy breaches the principal of ‘net neutrality’.  However, that objection can be bypassed by offering the OTT providers access to QoS in exchange for shared revenue: this is covered in the next section.

OTT providers pay for network access

I have already highlighted the AT&T strategy for partnering with an OTT service (Apple Facetime on iOS6) to generate revenues for wireless data service.  Also, it seems that Skype is partnering with ISPs to deliver their service, presumably with some revenue and service offsets.  So, I have no doubt that this model will be generalized if it is a success.  If it is not a success, the ISPs can use it as a defense against ‘net neutrality’ violations; i.e. that the only viable economic model for the provision of premium bandwidth is via financial support by competitors who are gaining market share at the expense of the infrastructure providers.

Linkage of RCS with UC

Another alternative is the linkage of RCS with UC.  Enterprises want UC, and UC vendors have struggled to provide a compelling mobile modality via OTT clients (which is understandable).  This has several sub-scenarios, which are not mutually exclusive:

  1. If interoperability between UC systems and RCS networks is provided, then that provides the RCS providers with a new source of revenue and a new pool of users (i.e. mobile professionals).

  2. RCS providers could host the UC system of choice for their enterprise customers – thereby also gaining access to a proportion of the hosting revenue.

  3. RCS, with some adaptation, could morph into an enterprise UC competitor.

Of course, the biggest OTT provider, Skype, already has this advantage.  But the counterpoint to that is that incumbent service providers already have the opportunity to host Microsoft Lync, so this would be a negotiation leverage point for the RCS network gaining access to the Skype and Lync networks

Conclusion

Will RCS succeed, or will we all be using OTT services in 5 years?   Without doubt, the outcome will be partly determined by the resolution of the data pricing model conundrum that I have outlined above.  That aside, it would seem that the OTT vendors’ first mover advantage combined with the RCS operators’ high capital costs make the outcome a foregone conclusion.

However, the mobile operators have cash, ingenuity, and an enviable market opportunity.  Furthermore, in a previous article I have expanded on the issue of communications being a regulated industry with national security interests involved, so the heavy hand of bureaucracy, possibly prompted by overt lobbying (not to mention lawyering), will play a role.

The Terminator movies are about a last-ditch effort by a technological monolith to avert destruction at the hands of a popular uprising; this seems very similar to the RCS situation.  So how will this movie end?  Will the N+1 version of IMS succeed where the N version failed?   As with the Terminator movies, we may think that we already know the answer, but we can’t resist watching to find out how it happens.


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