The hidden benefits of femtocells

I have spent some time now looking at various femtocell business cases and find it very interesting how creative some of the operators are when it comes to using femtocells to generate new revenue streams.

It occured to me that sometimes it's the straightforward and simple things that get over looked in these business cases, and I wanted to go back to basics and look at the simplest scenario of using a femtocell to generate revenue.

One of the revenue streams that operators rely on is the income from call termination charges. All operators negotaite commerical wholesale interconnection agreements with other operators, these are often wholesale agreements regulating the conditions under which the agreement parties can connect to each other.

The call termination rate is a wholesale price one network pays in order to terminate a call originating from its own network to a destination in the other network. Typically, the call termination rates are based on an average cost of delivery plus a margin.

With the increased regulatory pressure to reduce call termination rates (e.g. in UK and Europe) operators are having to drop their margins and have to live on a smaller revenue stream from terminating calls from other networks. Changes to termination rates is having a significant impact on the profits of mobile telecoms companies.

The average cost of delivering mobile terminated calls is greatly reduced if the penetration of femtocells in the network is high enough. And therefore it becomes cheaper -on average - to terminate calls from other networks. This automatically translates into higher call termination profits.

VoIP over UMTS: The Finale - Embrace the trend or block the threat?

This post is a try to summarise and distill a theme from the previous posts about VoIP over UMTS, without getting much into the technical detail, but rather by proposing a view of the telecomm market and motivations for VoIP.

First, let us get the definitions out of the way:
VoIP over cellular:
Carry the voice conversations of mobile users using VoIP by routing them over a packet-switched network, instead of the traditional dedicated, circuit-switched voice transmission lines.

The Market landscape:
Fixed Line broadband prices are falling. Fixed operators offer a huge bandwidth at cheap prices. With a WiFi extension it is possible to become semi-mobile. Fixed line operators realised that they have to diversify their business instead of relegating themselves to become ISPs and ISP carriers. Therefore came up with the Fixed-mobile Convergence concept. They want to win part of the mobility market by putting together compelling UMA offerings. Mobile operators undoubtedly will fight back, probably with home/enterprise collapsed architecture base stations.

Mobile operators see DSL as a headache, because suddenly they have to compete to offer high throughput. They have been fighting an uphill battle with WiFi (and soon WiMax) since they shifted their focus to “high throughput”. Mobile operators are generally unimaginative and still think in terms of “talk”, “text” and recently “broadband”, instead of capitalising on their greatest assets: mobility and location information.

The Proliferation of Wireless broadband has changed the mobility landscape. There are WiFi hotspots on every corner. WiFi Social networks are emerging. (FON): a company that gives you a customised router and allows you to share your broadband with other FONers. Businesses can also make money.

From the regulatory point of view, there is an increasing pressure on reducing mobile roaming charges. Also, it is still ambiguous how mobile data termination charges will be collected, at the moment there aren’t any, which makes VoIP an appealing solution.

Advent of “convergence” has put vendors in a predicament. Now they are trying to sell “standardised” architecture to very different types of customers.

Whenever the industry gets excited about new technology, financial institutions and banks become skeptical because they want to see some ROI on existing investments before committing any new ones.

If they don't embrace VoIP, mobile operators face a threat from it. Enterprise VoIP is already perceived to be a major threat. At the moment they are resist the trend and offering differentiated services to their enterprise customers, e.g. extension dialling

Shift in Markets structure:
The industry is moving away from a vertically integrated arrangement, where operators (think vodafone) own the infrastructure, the frequency, the transport, and applications, the portals, the content and the handsets. The future will be different, companies will own infrastructure to carry multiple types of traffic and a myriad of access technologies (fixed +wireless). Other companies will specialise in content provisioning, others will concentrate on marketing and user acquisitions.

It will be interesting to see how incumbents will shift away from current business models. There is space to diversify revenue streams: For instance, new technology will enable operators to challenge traditional promotion channels. Location information is a great asset and many interesting applications can be wrapped around it.
At the end of the day social re-engineering can open up new business models and allow the industry to get into new businesses. For example, adopting “work from home” ethos will allow telcos to compete with many industries such as: Real estate, car industry, and transportation service providers!.

VoIP over UMTS: motivation and market drivers:

• There is a big hype behind VoIP over cellular, largely because of the attention it attracts in fixed networks and internet world.
• There is a perception that VoIP over cellular will be cheap. This may be true if the operator already has an under-utilized packet core network for example. Nevertheless, offering operator controlled VoIP is not necessarily cheap. Having to run an IMS network to control VoIP introduce what is called “IMS Tax”, where the mobile operator has to deal with increased traffic for the same number of calls, and loose one of their greatest advantages: the ability to carry CS voice efficiently.
• There is also a view that VoIP over cellular is inevitable because once LTE is out CS voice is dead.
• If an operator wants to deploy IMS capabilities, VoIP can be bundled with other added value services and experiences, which hopefully will make a good compelling offer.
• There is a perception that VoIP offers some advantages in terms of capacity , quality and efficiency.
• Convergence: “VoIP fits well with the all IP convergence concept”. The fact of the matter is that convergence is not exactly “all IP”. Convergence is : "the process of replacing several legacy networks (boxes) based on old technology with a single network for all telecomm services, and for all telecom access (fixed + wireless)". So the theme is: a simplified, scalable and integrated transmission and core network.
  

What is the right VoIP over UMTS operator strategy?

There are two generic strategies which are opposite to each other, and a spectrum of possibilities in between. Essentially, the operator can either offer VoIP is a cheap substitute of voice calls, with limited investment in infrastructure and very much in line with the traditional internet provisioning model, or alternatively, offer a differentiated and high quality voice which is part of a more compelling and complete offering.

Cheap:
- The Premise: Subscribers want to do cheap voice calls.
- Provider mentality: “We give the pipe, you do the skype”.
- Follows the broadband ISP model by providing access to the internet and no additional differentiated services.
- Best effort voice calls.
- User experience is not seamless: standalone applications for VoIP and users have to know how use them.
- Ubiquity to the internet user, who can access their VoIP provider accounts from any terminal using any type of access. (unless blocked by a scrupulous operator).

Premium:
- Premise: Subscribers want to do reliable voice calls.
- Walled Garden mentality: “My network, my revenue”. Operator wants to charge for your VoIP calls.
- Guaranteed quality.
- Seamless user experience: user does not know his calls are carried over VoIP
- User ubiquity undermined by walled garden, perhaps have to pay for ubiquity.
- Differentiate the voice offering by value added services. VoIP becomes part of a complete compelling offer. (not voice centric).

Conclusion:

On the long term, VoIP over cellular is inevitable. However, there are serious issues to be addressed by the cellular mobile operators if they want to still exist few years down the line. They have to make up their mind what business they want to be in, and have to adapt to the new world of horizontal integration. It is very likely that the term "mobile operator" will diminish or disappear with new revenue streaming and business models emerging.

Contact me to get a power point presentation slides on VoIP over UMTS strategy)

VoIP Episode 8: The future of mobile VoIP

I'm linking to an article by Malik Kamal-Saadi on telecoms.com because it has a very good treatment of the subject and in essence summarises most of the VoIP/cellular strategic issues I've touched upon in my previous posts. (I don't know why they did not acknowledge the author's contribution on the telecoms.com site. I've received the written report which clearly shows his name).

One of the interesting points that Malik talks about is the high performance requirements of VoIP cellular handsets. Incidentally, both the new 3X series phones offered by Hutchinson 3 in UK (Nokia N73 and Sony Ericsson W950i walkman) can run a Skype client. Nevertheless there is no doubt that having to support HSDPA/HSUPA with all the R6 and R7 enhancements together with enough processing power to support VoIP calls will definitely be a challenge for UE chip makers and vendors alike.

The threat of VoIP to traditional mobile voice revenue may be an inevitable outcome. In my opinion, VoIP's threat is starting to materialise when competing against the roaming chunk of the voice revenue, where business people for instance find cheap or free WiFi networks to camp on and make international VoIP calls. Apart from that, it does not seem that VoIP is giving operators much worry. Three for example has kept the traditional (line rental) pricing schemes, and introduced the X-series broadband package which the user has to pay for extra. The package already includes a large number of free minutes and TXT allowance. It does seem to me that Three has found a clever way to push their ARPU up without cannibalising their existing revenue, at least in the short term.

One of the barriers of VoIP over cellular is its lack of seamlessness. Not any user will appreciate that to run a VoIP call you have to start a different application than the usual button pressing you do when you call someone the usual way. The fact that the voice call is carried over IP should be transparent to the end user. Handset user interface software has to integrate both experiences in one unified package to give the end user the seamless feel. To make an analogy, just like the misconception that mobile Email is simply a pop3 client on your handset disregards usability issues and user experience, so does the flawed idea that mobile VoIP is simply a Skype or Vonage client.


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VoIP Episode 6: To VoIP or not to VoIP, that is the question

Cellular operators seem to be confused about VoIP. On one hand they seem to think that the whole world is going IP, hence VoIP is inevitable. On the other hand, they do not want to undermine their number one profitable application: trunked voice. There is also confusion about benefits of carrying VoIP on cellular radio access networks.

Most cellular operators see VoIP as a dangerous proposition because it cannibalises their stable voice market share. That's why, until recently, any talk about VoIP over cellular was accompanied by a view that VoIP traffic will be controlled and billed by the operators in a very similar fashion to traditional circuit switched voice. Therefore the concepts of a myriad of sophisticated "boxes" were introduced to enable quality controlled VoIP (as opposed to best effort VoIP over the Internet) along with all the added value services associated with the IMS architecture. So the emphasis is on the user experience, and perhaps the vision is to do voice "sessions" in the same way you use your Instant Messenger with the added guarantee of quality. Operators don't want to merely become bit pipes for other content providers, and they dread the prospects of following the footsteps of DSL providers.

The other driver is to have a more integrated core network. This may be true in the long term, because legacy networks will stay for some time (perhaps a generation) before they get obsolete, so the vision of one integrated core still needs sometime to materialise. Incidentally, convergence (I know, an overused word these days) is really about using less boxes to carry different types of traffic, and it is not necessarily about everything becoming IP based.

In a nutshell, the vision is to bring VoIP to cellular radio in a controlled fashion that guarantees the operator's grip on the revenue. UMTS operators can stop users from using their packet access to transmit/receive VoIP traffic. There are network devices that can "sniff" the types of packets generated by users and if you are running a Skype client for example, they can block it for you. Nokia launched a VoIP blocker to help operators stop cheap peer-to-peer VoIP from competing with their own voice services.

So on one extreme, the operator may want to run the business as a "walled garden" and have full control over content and traffic. The other extreme is to run the business following the ISP model: they give the user a bit pipe (could be fat or slim) and the user does whatever he likes with it. Content providers provide their services to the end user independently of the operator in the same way it is done over the Internet.

The cellular business could also be run in a balanced way between these two extremes, perhaps by "cherry picking" content providers that are allowed to promote their service over the cellular network. Perhaps the cellular business model can shift from generating income from the end user to making money from content providers instead. Perhaps they can diversify their business and get into making content themselves to compete in equal footing with everyone else.

3 has recently announced its launch of mobile Internet in the UK. Their model is "all you can eat" flat fee. They are partnering with Skype, eBay and Google. It is yet to be clear how much control they will have over the traffic, and what revenue streams they will have together with their new Internet partners. It seems likely they followed a "we give you the pipe you do the skype!" model. If this turns out to be true, it can be considered as the end of the cellular industry in the UK as we know it. peer-to-peer VoIP does not need any "expensive?" boxes to control it or monitor it. Users should not expect a quality better than VoIP over the Internet though; this is not trunked grade voice. So It is all about extending the Internet experience to the mobile world in this case, full stop. In contrast to this, do you remember the "IMS tax" we talked about before? It is about the quality vs complexity tradeoff again.

3 has got nothing to loose, they have a loss making business and Hutchinson was rumoured to be thinking of selling the business (I hope they will not sell to Orascom, otherwise the egyptians will run it in the same way they run EgyptAir) , therefore it is not surprising to hear that they have decided to try the rather uninspiring ISP model.

On the other hand, incumbents like Vodafone are not doing any better. They have an endemic problem of lack of creativity and ability to introduce new exciting services. The are too frightened of competition from fixed wireless and fixed wired, and feel the threat coming from every corner.

Cellular operators tend to forget that they have two very strong commodities which the others do not have. The first is mobility. The fact that they can support an advanced level of mobility is something competitors can not even get close to, at least not in the short to medium run. Roaming, portability and ubiquity flow naturally from this.

The other strong commodity they have is the location information, which many services and applications can be wrapped around. In their short sighted and rather uncreative vision, they have only looked at things like emergency services and mapping applications, but very little real work on any real creative applications.

Meanwhile, most operators are still stuck in the same corner thinking: shall we VoIP or shall we not?

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VoIP Episode 5: VoIP over UMTS mouth-to-ear delay

I have received some queries about the delay encountered by VoIP calls. Thanks for the interaction and questions, keep them coming.

In this post I will summarise the various reasons that cause delay of VoIP speech over a UMTS network, or over any network for that matter.
I should mention here that I am not trying to show that VoIP over UMTS is any better or worse than conventional UMTS (I will only do that for a high consultancy fee! ;-) ).

Let us first "dissect" a VoIP call:
Before you start a VoIP call (and during the call) signalling messages are exchanged between the two VoIP terminals and possibly with some other network elements. These are carried using the Session Initiation Protocol (SIP). When you talk into your handset speaker, your analogue voice signal is "encoded" as a string of bits. A number of bits are then packed together in one packet and all the necessary headers are added to it. These packets are then transmitted over the network. They propagate through one or more packet switched networks before they reach their destination. At the destination, the received packets are then reordered and a decoder transforms the digital bits to an audible audio signal.

The sources of delay are numerous:

• First, there is the coding delay, which is the time spent on transforming your speech into a digital stream of bits. This can be minimised by powerful DSP/electronics.
• Then there is the time it takes to compile a packet and add headers to it (packetisation delay). For example, if a packet contains X voice samples, then it has experienced a delay from the instant of the first sample to the instant the packet was complete and ready for transmission. Obviously the bigger the packets are, the longer is the packetisation delay.
• There is also the propagation delay. This is the time the packet takes to traverse the various networks before it reaches its destination. This could be the propagation time over the air interface, or over the various packet core elements. This is essentially determined by the speed of the different physical mediums over which VoIP packets are transmitted: wires, optical cables, radio ...etc
• In addition to this, there is the summation of queuing delays encountered by the packet at each node in the network(s). For example, we have seen in a previous post that a VoIP packet may have to queue for a HSDPA radio resource, or the packet may have to queue at some of the routers and switches before it reaches its destination. The various routers and switches along the route of the packet can be loaded differently, so some packets may be delayed more than others.
• When the packets arrive at the destination, they may not arrive in the right order, because they may traverse different routes before arriving at the destination and because some of them are delayed more than others. Therefore, the receiver has to buffer the packets in order to wait for the slower ones and reorder the packets before submitting them to the decoder. This is called "De-jittering". The de-jittering introduces another delay before the packets are decoded into an audible signal again.
• There is also the delay associated with call signalling. You can not start talking until it rings at the other side and the called party answers. Because of the large SIP messages this delay could also be long. The same issues arises when the call ends, which does not really affect the user perceptions as much as it keeps some network resources tied up for a while.

I hope this answered your questions. I will talk about how some of the advanced 3GPP features will address some of the delay issues in a coming post, so stay tuned!.

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VoIP Episode 4: VoIP over UMTS high speed channels

In the first episode we discussed how the various implementation options compare in terms of performance and complexity. We say that there are various necessary changes to the high speed channels to make them an attractive medium to carry VoIP traffic. Some of these changes are also necessary to reach VoIP capacities that exceed conventional circuit switched capacity. In this post I will discuss some of the suggested changes to the high speed channels to make them suitable to carry VoIP.

• Scheduler changes:
  3GPP defined the structures of the high speed shared channels such that they are optimal to carry large chunks of data. To make the system reactive to users' channel conditions, an intelligent scheduling entity that usually resides in the RNC is moved to base station. Thus if a user happens to be in good channel conditions, the scheduler allocates resources and send them to the user before the favorable channel conditions disappear. The problem with VoIP traffic is that the packets have to be delivered to the user pretty frequently in order to maintain the perception of a good quality connection. The packets can not be queued forever waiting until the user has good channel conditions. Therefore the scheduler algorithms, which were originally developed to be optimal to carry discontinuous chunks of data, have to be adapted to work well with VoIP traffic side-by-side. One of the concepts to enable this is called “priority queuing" which as the name implies, gives priority to delay intolerant traffic such as VoIP. Most of what I describe above applies to HSDPA (downlink). In the uplink, 3GPP included enough functionality in the HSUPA requirements to make it versatile and able to cope with VoIP traffic using a scheme called “Non-Scheduled Transmission”.
• HARQ Retransmission Reduction:
  The HSDPA channel uses also a concept called "HARQ retransmission", where lost packets are retransmitted (partially or completely). The idea is to optimize the air interface efficiency, so instead of sending few highly protected bytes that will be definitely received correctly, the transmitter sends a big chunk of bytes and hope for the best. If part of the data is received incorrectly, then the transmitter can retransmit the packet. This approach is one of the enablers of high speeds achieved on this type of shared channels (see note 1 below). It turns out that the HARQ retransmission concept is a challenge to smooth VoIP operation. This is because the VoIP connection is intolerant to delay, and obviously packet retransmission will increase the round-trip delay, which degrades the call quality. Packet retransmissions also increase the severity of packet jitter at the receiving end: one packet may arrive almost immediately and the next packet may be transmitted several times before successful reception happens. If you eliminate re-transmission altogether the channel efficiency drops and you end up with a reduced cell capacity. (Check note 1 below) .
• Reduce the possibility of code limitation (Fractional DPCH):
  Every user connected to the network using a shared channel requires a number of small dedicated channels to carry signaling and control information. These channels carry very little traffic, but they are numerous. If there are many users in a cell using the HSDPA channel, a large number of dedicated channel is required to support them, and it could happen that the system runs out of channelization codes (if you don’t understand the concept of channelization codes, check this). Therefore, 3GPP included a new feature called Fractional DPCH, which essentially multiplexes the control information of multiple users on one physical channel.
• Continuous Packet Connectivity (CPC):
  This is a huge 3GPP work item which includes many aspects that, although not necessary for VoIP to work, but will benefit its operation and increase the cell VoIP capacity. The most noteworthy of these aspects are:
  
  1. DPCCH gating: The control channels have a discontinuous pattern, which reduces the amount of interference and increases battery life.
  
  2. Modified HS-SCCH operation. HS-SCCH is a channel that carries HSDPA signaling in the downlink. This channel typically consumes large amount of power which eats up a part of the cell capacity. Therefore 3GPP came with various suggestions to reduce its effects by restricting it, or eliminate it altogether.
  
  3. CQI reporting reduction: CQI stands for Channel Quality Indicator, which is a message sent by the terminal to the bas station reporting the channel quality so that the base station can decide what to send to the terminal. As we discussed in the scheduler section above, successful VoIP operation is more concerned with the continuity of the traffic instead of mapping transmission to channel conditions, therefore reducing the rate of CQI signaling will reduce overheads without affecting VoIP quality. This means that more bandwidth is available for VoIP packets instead of overhead.
  
  All in all, CPC is expected to increase VoIP cell capacity by anything from 15% to 40%.
  

Note 1: There is an optimal packet loss rate that will cause the system to operate at the maximum possible capacity. On one hand, high packet loss rates mean that many packets are being retransmitted many times and hence the air interface resource is being wasted on these retransmissions. On the other hand, low packet loss rates mean that the transmitter is not taking chances and is protecting data more than necessary. This will lead to a lower cell capacity.

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