Discussion on NGN Commercial Models and Operation Strategies

NGN (Next Generation Network, abbreviated as NGN) is an extremely loosely defined term. Generally, it refers to a distributed, carrier-grade, end-to-end unified network built on a single packet-switched network foundation, applying softswitch technology, various application servers, and media gateway technologies.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

It can carry a rich variety of services such as voice, data, and multimedia, converging multiple networks including fixed, mobile, and broadband, and is committed to seamless interworking with PSTN (Public Switched Telephone Network) and mobile networks. In addition, NGN provides an open architecture that facilitates the rapid development and deployment of new services.

After years of development, NGN has achieved certain results in China. The key to its next stage of development lies in realizing service applications and innovation, and finding appropriate commercial models to enable the large-scale promotion of NGN in China.

Judging from the global deployment and practice of NGN in recent years, NGN has become the primary technology for major international operators to carry out integrated services, including British Telecom (BT), Deutsche Telekom, Sprint, AT&T, France Telecom (FT), and domestic operators. Several typical commercial models of NGN have been widely validated and hold significance for further promotion and implementation. Major domestic telecom operators are also actively exploring and practicing these models.

Four Widely Applied Commercial Models of NGN

Model 1: Long-distance Network Application

As early as 2001, Sprint's local telecommunications division transformed its entire telephone network into a packet-based next-generation network, raising the curtain on NGN. In terms of transition strategy, Sprint's migration to the packet network proceeded from the core outward—first tandem offices, then end offices—taking approximately eight years. Two years later, it had migrated its long-distance central offices to a packet-switched network. After deploying NGN, its network node count was reduced by 75%, overall investment and operating costs dropped by 20%, and profitability increased by 20%. More importantly, Sprint was able to offer new services such as video conferencing.

In China, several major operators are also actively developing such NGN applications, with China Netcom's model being the most typical. China Netcom's network scale and subscriber base have grown rapidly in recent years, and its provincial, inter-provincial, and international long-distance voice services have increased substantially year over year, placing growing pressure on inter-provincial long-distance call switching. In response to China Netcom's network requirements at the tandem level and to alleviate pressure on its long-distance tandem network, China Netcom built the NGN DC1 network, which will save the group network construction and maintenance costs while enabling faster development of new subscribers and launch of new services, thereby ensuring sustained profit growth, establishing competitive advantages, and achieving operational objectives. This backbone long-distance network covers all 31 provinces across the country and is centered on seven major cities nationwide, covering all of China Netcom's existing subscribers.

Model 2: PSTN Network Transformation

Facing increasingly intense competitive pressure, British Telecom (BT) launched the "21CN" program. The plan is divided into the following major phases in terms of network planning and service migration: from October 2004 to early 2005, users in certain regions could communicate over the NGN trial network; from mid-2005 to early 2006, 18 NGN softswitch centers were to be deployed in London, Kent, and eastern England as planned; and large-scale migration of services and subscribers from PSTN to NGN was to begin, continuing until 2008, ultimately carrying BT's major services on the newly built NGN network.

Telstra, Australia's largest telecommunications company, selected Alcatel as the strategic partner for its network transformation project. The project was planned for implementation over five years, with a total agreement value of US$2.55 billion. "This network transformation strategy will give Telstra a leading edge in competition, reflecting its customer-first business philosophy by reducing the company's operating costs," said Mike Quigley, Chief Operating Officer of Alcatel. "Alcatel's industry leadership in related technologies and end-to-end integration will greatly benefit Telstra, ensuring the successful implementation of the network transformation."

Model 3: Enterprise Key Account Solutions

Singapore Telecom, a leading communications company in Asia, operates an MPLS/VPN network spanning 37 POPs worldwide and currently provides IP VPN services in 23 cities across 15 countries. Due to the rapid growth in demand from multinational corporations for VoIP NGN communication services, Singapore Telecom launched a new NGN wide-area IP Centrex service in April 2004, seamlessly integrated with its existing IP VPN services. Over the past few years, Singapore Telecom has successfully transformed into one of the world's top high-efficiency operators, serving more than 5,000 companies in different countries with a broad range of competitively priced services.

NTT in Japan uses a Hosted IP PBX network to provide VoIP hosted services to enterprise key accounts. Although it currently has only one key account—a gas company—this customer is large enough, with numerous branch offices across Japan, to generate substantial traffic and revenue for the operator. The operator provided the gas company with a network-wide IP PBX solution, including unified messaging, video conferencing, and IP call center capabilities.

Model 4: Fixed-Mobile Convergence

BT is pursuing fixed-mobile convergence based on its 21CN network, launching the "Blue Phone" project. The goal of this program is to promote the convergence of handheld devices, allowing users to seamlessly use services provided by different networks with a single terminal. Through guaranteed coverage and lower total cost of ownership, it aims to deliver superior communication services compared to fixed or mobile services alone. Another major objective of this investment program is to ultimately reduce CAPEX and OPEX expenditures. NGN is an effective means of achieving low-cost development of new services and addressing the two issues of currently low profitability of data services and high operating costs. Through NGN, BT planned to achieve annual operating expenditure savings of £1 billion by 2008.

PCCW is Hong Kong's largest telecommunications service provider, with an extensive network, lines, and customer base. However, PCCW also faces intense market competition from multiple fronts and urgently needs to provide a broader range of integrated voice, data, and video services with lower capital investment and ongoing operating costs to enhance its market competitiveness. As early as 2003, it launched the "PCCW Convergence" service, renamed "Priority Plus" in February 2005. Within that year, "Priority Plus" began bringing the benefits of IP technology into daily operations, allowing customers—whether in the office or outdoors—to receive messages, emails, and faxes through a single screen.

New Operators' New Explorations of NGN Application Models

While incumbent operators deliberate over their massive legacy networks and remain cautious, new entrants have already moved forward aggressively, leveraging NGN technology to compete.

Jiangsu Netcom, as an emerging operator of China Netcom Group in the southern region of China, leveraged NGN's advantages in services, access, and networking to rapidly develop a large subscriber base in a short period, actively practicing the principle that "the purpose of introducing NGN is not merely to build a new network, but to realize new services and meet new customer demands." The substantial returns since NGN began serving subscribers have confirmed the success of Jiangsu Netcom's NGN introduction, providing active exploration for other new operators in NGN network commercialization and operation.

First, the forms of service delivery have become more flexible and the scope broader. Jiangsu Netcom's NGN achieved "network-wide IP transformation," enabling seamless connection with customer networks without changing existing service models, network topologies, or access technologies. Through flexible and rich NGN service offerings, it not only expanded user application experiences but also migrated users' existing network applications onto the NGN network, fully supporting multi-site, multi-LAN users in achieving transparent remote office operations through IP-based VPN.

Second, the customer-centric operating model not only satisfies diverse user needs but also provides opportunities for "bundled service sales." Throughout the network construction and service expansion of Jiangsu Netcom's NGN, one important principle consistently followed was to closely align with customer applications and needs. Adhering to a customer-need-centered, service-customization strategy, it provides comprehensive solutions tailored to the different needs of various users. NGN's support for diverse access methods satisfies enterprise customers' rich requirements to the greatest extent—from IP telephony, video telephony, and multimedia applications to back-office systems, NGN provides comprehensive support to customers.

Third, network-wide IP transformation simplifies service convergence and evolution. Leveraging NGN's technical advantages, Jiangsu Netcom can offer customers flexible access methods, connecting users to the NGN network via integrated access gateways, IP phones, video phones, or access gateways. This approach is currently not adopted by many operators, because when actually connecting users, these operators rely entirely on access gateways to provide voice services. On the one hand, this access method cannot adequately accommodate user needs; on the other hand, this narrowband access approach limits the advantages of NGN multimedia services. For example, some traditional operators' NGN networks have only achieved IP transformation in the core network, without "long-term planning" for access, adopting the single model of placing AG access on the PSTN network. Although this network construction approach can utilize existing cabling resources to some extent and support some IP-based services such as VoIP, it is difficult to expand future services. Therefore, multiple factors must be considered comprehensively in NGN service development: for key accounts such as enterprises with high service requirements, broadband access should be adopted directly, while for users with existing twisted-pair deployment and low service requirements, AG access should be used.

NGN Commercialization Requires a More Mature Industry Chain

In today's industry landscape, the entire communications industry is showing two trends. The first is the shift toward a user-experience-centric approach; the second is that the entire telecommunications service industry is transforming from providing universal telecommunications services to providing consumer services. These two trends not only hold significant strategic importance for telecom operators but also have a major impact on the entire value chain of the telecommunications industry. Under the new trends, for any type of service to succeed in the new telecommunications market, it must satisfy three conditions: first, it must be service-oriented and meet user needs; second, it must be able to demonstrate that communication technology can deliver services to end users; and third, the entire value chain must achieve profitability.

First, the focus of market research has shifted from policy research as the primary focus to a balance between end-user demand research and policy research, with end-user demand uncertainty and individuality being unprecedented. As a solution provider, it is necessary not only to meet explicit end-user needs but also to anticipate future trends, using new solutions to drive end-user demand, thereby promoting sales and maintaining industry leadership. As early as 2003, Shanghai Bell Alcatel began providing domestic operators with consulting services on network construction, operation, and equipment integration, helping them build and successfully launch NGN networks.

Second, the importance of industry chain research has become prominent. The segmentation and repositioning of the industry chain have changed the distribution of benefits within the value chain, requiring communication solutions to follow the profit focus within the industry chain. Alcatel acquired three new companies to ensure its capability in NGN broadband video applications on fixed and mobile networks, and formed strategic alliances with companies such as HP and IBM to provide assistance for enterprise key account NGN applications.

Finally, due to the complexity of user demands, communication technologies have evolved from being few and specialized to correspondingly complex and diverse. Understanding competitors' technology types and development levels in depth, in order to respond to changes as early as possible, has become particularly important.