February 8, 2013
Orange’s CEO mentioned during a business show on French TV that Orange is receiving money from Google for transmitting Google’s traffic (most of which stems from YouTube). No details about the financial arrangement of the year-old deal were disclosed.
Given the well-known explosion in data traffic, carriers must invest a significant amount in their network infrastructure to support this traffic. See the Forrester report, “The Future Of Telecom: Strategies To Move Off The Endangered Species List,” for more information. For years, carriers have argued that online service providers (OSPs) like Google should pay for using the carrier network infrastructure.
So, does the Orange-Google deal mean that Orange has won a true victory and that the balance of power between carriers and OSPs is restored? Does the deal really address the challenges of the carrier world? Hardly.
- Carriers rely on video content that drives demand for high broadband connectivity. Moreover, consumers already pay the carriers for their broadband connectivity. In my opinion, there is a valid argument that those end users who want high-quality video should be able to have it at extra cost. But this extra fee could be paid directly to the carrier in the form of a high-end broadband connection fee. Alternatively, the carrier could offer wholesale connectivity to OSPs, allowing the OSPs to offer content that comes with embedded high-quality connectivity.
- OSPs are building out their own networks. For instance, Google Fiber reveals OSPs’ intention to bring competition to the market and provide carrier-independent routes for the transmission of content, in both the consumer and business arenas. Carriers should take notice as such solutions aim to circumnavigate the public Internet altogether. See my recent blog post, “Google Becomes More ‘Tangible’ By Building Its Own High-Broadband Network Into The Home,” for more details. In addition, content delivery network providers like Akamai and CDNetworks are nibbling at the carrier connectivity cake.
- Carriers need to continue to drive true innovation and improve their service activities. Carriers have the potential to take on the role of an ecosystems broker in the wider technology value chain and thus remain relevant to consumer and business users. See the Forrester report “Telcos As Cloud Rainmakers” for more insight. Deals between carriers and OSPs regarding traffic payments do not address the real challenge that carriers must address: to transform their business model and business culture.
No doubt, this deal makes Orange and other carriers feel much better about their regained “power” vis-a-vis the big OSPs. In this sense, the Orange-Google deal therefore risks cementing the role of the carrier as the connectivity provider — while carriers take the most pressing task of transforming into providers of truly innovative services too lightly.