Thursday, July 23, 2015

LCO: Local Cable Operators, how they can actually accelerate the incomes of TELCOS

When a whale comes to attack.... It is evident for the other fishes to co-pete than compete.....

Technically speaking for any kind of an IPTV or a broadband deployment LCO is the last mile connectivity. LCO which stands for local cable operators provide the last mile connectivity to the customers in retail for which they get their own share of money and actually have some major expenses towards the procurement of Bandwidth and content from the BW providers and the Content providers or the IPTV streamer.

The LCO is the final point of service provision which actually makes or breaks the experience of a customer.

Have a look at the figure below.

LCO Entity and how it is helping the distribution

As you can see that Major networks of India are terminated in the same way. Over here we have the LCO which is actually bearing the brunt of the customer pressure directly but is earning the least. While on the technical aspect the architecture does not have any flaws, there is a major flaw in the business model of this architecture.

Let us understand the aspects of the LCO over here which actually kills the experience of the customers and the basic Business model towards generating more Bandwidth for the end users.

1. LCOs have shallow pockets:

The domain of business for LCO is less and thus the revenue generation is also less. Demands from the Indian customers with lower prices actually lead to the fact that LCOs would not be able to deliver the rising levels of services with higher experience at this price.  LCOs have to pay each and every back provider at negotiated costs which brings them under severe financial pressure.

2. Low Reliability in the network:

LCOs are not bound by the SLA agreements of retail at such low prices, not saying that they do not meet it, but again they are not obligated to meet them. This actually leads to lower experience and lower consumption.

3. Use of non standard and open source solutions:

While the solution at the TELCO front may be standardized and of high level of quality this is not there for the equipments for the LCOs as due to budget constraints they are forced to go for cheaper and quality compromising solutions. Not saying that they do not deliver it, but there is a lot of compromised done to maintain quality.

While we have discussed about this about the problems of LCO there are solutions to this at a very global scale which will actually maintain high quality of the network at effective prices. However this has to be done with some good deal of hand helding by the TELCOs. Question why should they do this? Is this charity? Answer is no... Let us understand how.

1. Retail Broadband business is a focus that TELCOs have to take:

It is not a hidden fact that every TELCO wants to increase the customer base and bandwidth consumption. However if every TELCO wants to be independant in the retail business of broadband this may not work. Therefore TELCOs generally consider selling bulk pipes to the LCOs, which by the way reduces revenue year on year for them, however keeps them out of the headache. However, it has to be considered that there is a break Even point.

2. Telcos can become CDN of their OWN and actually can get a lot of money from content. 

Again it is the TELCOs who have covered the length and breadth of the country by their fibers and SWAP fibers between each other. However one thing that has been overlooked in this entire concept is the fact of earning from the content. With the magnitude of the network that a TELCO has the telco can be the CDN of their own and actually can invoice the content providers for the content delivered through their networks to the LCO as well.

3. Copete with the LCO:

A Business model that is based on revenue sharing of content and BW delivery every month which is actually lower on the LCO pocket and which enables LCO to provide more and more content to the users at accelerated rates.  If a TELCO which has like 500 LCOs under it does a revenue share with the LCO rather than a complete lumpsum BW deal then this will be lighter on the LCO pocket as well as will be more profitable for the TELCO. As this will mean that the TELCO is now free to provide good solutions that are not only based on BW but also based on content to the users.

This way a TELCO that is aspiring to deliver FTTx kind of solution but does not have the amount of resources or focus to deploy it independantly can actually enter this market with very less Time to Market.

Let us have a look at the figure of how the Revenue flow works. Accounting stays with the TELCOs for the users so that there is no revenue leakage in this process.

Co-petition with the LCO 

In this model as we can see the TELCO does a Revenue tie up with the LCO and this actually releases a lot of pressure from the LCO about maintaining a huge strata of equipments. LCO can focus on laying infrastructure and peering with the TELCO only instead of multiple sources.

The Authentication and charging of the system remains with the TELCO and this is how the revenue flow is in control and on that basis there is a revenue share agreement between the LCO and the Telco. As and when the LCO customer grows TELCO pushes more and more content at high BW rates. Content that is localized in the content localizer.

The TELCO now is also a CDN and does the Invoicing to the content provider and gets money out of the content delivery. TELCO can actually contemplate on launching its own applications and own content to push through many users now. 

TELCO is no limited now only to mobility.... It is in real sense TELCO now. 

I know it will not be easy to bring forward this change in India (Though this has been happening in the western world in a quite nice way) as there are many apprehensions for new Idea but I am confident that the new generation of telecom engineers and telecom professionals would look forward to it. 

This actually releases the TELCO from the shackles of diminishing BW rates and makes it more focused on content delivery and earning revenue from it. 

It also encourages the SW and domain development industry in a country of a Billion people. Enhances E-Commerce. 

Think about it.