Earlier this year Telstra ignited something of a controversy among the technically-minded by revealing it was planning to trial a range of measures to "manage" the traffic on its wireless network.
Among those measures was "shaping", or restricting the bandwidth available to particular types of services, namely some peer-to-peer services.
The reason for the trial is obvious and is an industry-wide problem. Despite the billions of dollars Telstra, Optus and Vodafone have and are still pouring into their wireless networks and despite the ever-increasing sophistication of those networks they are facing increasing congestion issues. (The exception, for the moment, is Vodafone because of an earlier episode of network degradation that saw a mass exodus of customers.)
Globally, mobile data traffic doubles every year, mainly driven by video. That has been the experience of Telstra’s ADSL network over the past four years. The extraordinary increase in mobiles and tablets and the rise and rise of social networks creates real challenges for the telcos in meeting customer expectations.
In a speech delivered at the Communications Day conference in Sydney today, Telstra’s managing director for innovation, products and marketing, Kate McKenzie, provided some context for the trial and signalled the direction of Telstra’s thinking on how to respond to the data-driven congestion issues. Put simply, it’s all about the pricing models.
McKenzie’s starting point is that the value chain in telecommunications is becoming more complex and multi-layered and that telcos no longer provide end-users with a bundle of a network, service and application.
"In today’s world…network service providers are intermediaries, suppliers of platforms, linking application and content providers on one side of the market and end-users on the other,’’ she said.
"We do not primarily connect one end-user to another. Rather we connect end-users with service and application providers who, as one of their activities, allow end-users to communicate with each other."
McKenzie described networks as shared resources that create value for a multitude of participants and said it was the joint decisions of those participants that shaped usage patterns, affected network performance and determined the capacity required to meet quality-of-service expectations.
"For network service providers pricing is therefore not simply a way of securing cost recovery – it is the instrument which should guide those joint decisions in ways that ensure users get the best value out of the network resource,’’ she said.
The use of pricing wasn’t only about guiding decisions by end-users about the demands they placed on the network but also had to shape the demands on the network and help direct investment by working on the incentives of both end-users and content and applications providers.
McKenzie said the top one per cent of users are estimated to account for 25 per cent to 30 per cent of data traffic on mobile networks and that Telstra’s experience was that these users can download more than 130GB a day. Conversely, the bottom 80 per cent of users accounted for less than about 15 per cent of aggregate use – which explains why Telstra is focusing on particular types of users and usage during peak congestion periods.
The obvious response is to use price to shift the use of bandwidth-intensive applications from peak periods and there are plenty of pricing models to emulate.
The electricity sector, for instance, uses price to encourage businesses, and increasingly households, to smooth demand and spread its loads over the day. There are tollroads that use variable pricing to reduce congestion during peak periods of the day and reduce the under-utilisation of the roads during non-peak periods.
It doesn’t make a lot of sense – it is wasteful – to invest purely to accommodate an ever-increasing demand during peak periods and then to have networks under-utilised during the rest of the day. Customers, however, are unlikely to be happy with the option of under-investment and increasing congestion and slower speeds during those peak periods.
McKenzie says Telstra’s research says its customers want more control over the quality of the service they receive and are prepared to buy some kind of priority, like larger data allowances at peak times, rather than experience today’s vagaries of network demand.
"There are some important benefits for network service providers, too. These pricing constructs define an implied premium for service quality. As well as managing network resources that helps guide investment decisions – is users are willing to pay that premium then it is worth expanding network capacity to ensure that higher service standard," she said.
She also suggested that in the future it might be possible for application and content providers to purchase access on behalf of their end-users, perhaps at discounted prices and potentially with some revenue-sharing for the traffic they generated.
McKenzie’s speech could be interpreted cynically as a cloak for a desire to simply increase Telstra’s prices for its wireless services but was actually more about using a different pricing model, or models, to shift patterns of usage to improve service quality and provide a more sophisticated basis for future investment in an environment where there will be some competition for the wireless operators from an open-access fixed line broadband network to discipline pricing.
In an environment where the heavy data consumption of a few dictates the service quality of the overwhelming majority of telco customers, the alternatives approaches to shifting traffic would appear to be either incentives or far more heavy-handed management of the traffic flows.