By Eric Xu, Huawei Rotating CEO
On February 28, 2017, Huawei Rotating CEO, Eric Xu gave a keynote themed “Video Powers New Growth” at Mobile World Congress 2017. He pointed out, “Content and video are redefining the telecom industry. For telcos, video is not really a matter of choice. It's clear now that video is becoming a new basic service. It's a matter of fact, and it will open the doors to huge growth potential. Operators have no choice but to succeed in video.” Read the full script.
Ladies and gentlemen,
I'm from the network equipment and IT infrastructure industry, and it's my distinct honor to join this discussion on content. I'd like to give special thanks to GSMA for giving us this opportunity to work across industries and sectors.
The theme of today’s keynote session is the Content Gold Rush. Before I start, let me make one thing clear: Huawei does not intend to extract gold from content. We want to help you, especially telecom operators, to monetize content. And we also hope to help all of the mobile and household users out there access better content with a better experience. Today, I'd like to talk about how video can become the power behind new growth for operators.
Back in the day, for operators, the voice market was worth about $800 billion US dollars, and the data market was worth $1.2 trillion. Looking forward, the video market will potentially generate additional revenue of over one trillion dollars for operators. This includes about $650 billion from entertainment video and $18 billion from communications video. Vertical industries will have video everywhere, and that market will be worth about $350 billion. In the future, video will become an integral part of our lives and our work, opening up enormous market potential for operators.
Those already involved in the video business have grown rapidly over the past several years. In North America, revenue from video-on-demand is 50% greater than box office revenue. In Europe, one Spanish operator's quad-play subscribers account for over half of their total user base. In Asia Pacific, the number of IPTV users is growing at an annual rate of 71%. This trend is especially clear in China, where the number of new IPTV users reached 40 million in 2016. One year of subscriber growth is equivalent to the total increase over the past ten years combined. Put short, content and video are redefining the telecom industry. For operators, video is not really a matter of choice; it's clear now that video is becoming a new basic service. It's a matter of fact, and it will open the doors to huge growth potential. Operators have to get it right with their video business.
2016 was a watershed year for mobile operators. On average, data accounted for more than 50% of total operator revenue from mobile services. Video and video-related traffic contributed 25%. We estimate that, by the year 2020, video's contribution to operator revenue will surpass 50%, and will drive up the revenue generated from all data to more than 70%. For mobile operators, that means their role needs to change. They can no longer limit themselves to being mobile network operators, but be digital content players too.
Mobile operators need to think about how they can shift their video strategy from being reactive, to being proactive. Instead of positioning video as a value-added service, they need to treat it as a basic service, and then develop it like they did their voice and data services. In the process, they need to optimize their organizations, processes, operations, and capabilities to develop video as a strategic business.
In the video era, network experience is more important than ever and has become the primary driver of growth. Take the movie Spider-Man 2, for example. It's 141 minutes long. This 141-minute video generates different amounts of traffic at different levels of network experience. As we all know, content operators adapt the bit rates depending on network quality and network experience that is available.
When network quality is poor, content operators stream their video content in 360p to ensure it plays smoothly. This produces about 0.6 GB in data traffic. With better network quality and network experience, users are able to watch video in 720p or even 1080p, consuming as much as 2.3 GB or 6 GB of data. With even better networks, video can be streamed in 4K and that will produce a whole lot more volume. As we can see, for the same movie, different levels of experience can produce a 10-times difference in data volume. This is something that we often overlook when providing video services.
For many years, networks have stayed the core asset of telecom operators around the world. We all know that network experience is critical. But networks themselves are cold and unintuitive; they can't be perceived by consumers. Yet people need perceivable consumption. When selling home broadband, fixed network operators used to sell bandwidth, like 10 Mbps, 20 Mbps, or 50 Mbps packages, but users had no idea what that meant for them. In the mobile industry, operators have grown accustomed to selling data traffic, for example, 1 GB, 2 GB, and 3 GB a month. These aren't readily perceived by users either. In the meantime, operators find themselves trapped in a price war, constantly fighting over whose data offerings are cheaper.
But what if we changed the way we look at things? If we approach consumers with experience or content, the situation would be much different. Users can perceive the differences between ultra-HD, HD, and SD content. Telecom operators, mobile or fixed, need to think about how they can shift from selling bandwidth or data to selling ultra-HD 4K video and HD video, or movies and TV programs with even better quality.
This is the only way operators can sell more bandwidth and data, and get better returns on their investment in infrastructure. If we continue to use cold language like "bandwidth" and "data" to engage with consumers, it won't resonate with them, and operators won't earn a decent ROI. From this perspective, video has to be treated as one of the key businesses for operators.
2K or 4K HD is becoming the new normal of video consumption. 2K smartphone screens are now standard for all mid-range and top-end phones. There are over 100 models out there with screens that have 2K HD resolution or higher.
In the TV market, of all the new sets shipped in 2016, 46 million had 4K HD screens, and prices are now lower than ever. 4K TVs made up 20% of total shipments last year. There is an increasing amount of 4K content available too. In 2016 there were 95 4K TV channels, twice as many as in 2015. By 2018, this number will grow to 180. At the beginning of 2016, 15% of YouTube content was in 2K or 4K HD.
One global survey found that 82% of users were willing to pay 10%–30% more for 4K content. To them, paying extra for a better experience or better content is worth it. We believe that consumer demand knows no bounds. They are always looking for something better. And in the near future, video services based on virtual reality and augmented reality will become a basic service requirement.
Telecom operators face a lot of challenges when developing their video business. The biggest challenge is fragmented content. Around the world, there are more than 1,000 content providers, 600+ telecom operators, and 100+ content operators. Video content is diverse and abundant, but it's very difficult to aggregate and distribute to consumers in a given country or region.
Content providers think there are too many telecom operators out there, so they're reluctant to explore cooperation. On the flip side, telecom operators think there are too many content providers, and it would be impossible to negotiate partnerships with all of them. Content operators don't want to let go their users, accounts, or billing relations with the end users. This presents even greater challenges to telecom operators when it comes to content operations.
Content providers or content operators can't possibly provide all of the content that consumers want. And there is no single point of entry. So consumers have to purchase multiple accounts from multiple providers or operators. You often come across situations where you want to watch a certain movie, but it isn't available from the provider or operator you already have a subscription with.
For consumers, the best-case scenario is having a single point of entry that provides easy access to all the content they want to watch. One single account, one single payment.
If we ever hope to address the demand for universally available content for all consumers and households, then content providers need to change, telecom operators need to change, and content operators need to change too. Everyone needs to make some changes. Only by becoming truly consumer-centric can they make content universally available to all mobile and household users.
The way things stand, neither content operators nor providers can make that happen. Telecom operators are best positioned to provide a single point of entry for all video content. With this point of entry, content operators can choose to become a channel on the platform or work out some other solutions. So we have to think about how telecom operators can make this a reality. If operators can successfully provide a single point of entry, then they can ensure that consumers are able to watch all the content they want to watch.
If operators decide they want to develop their video business, then they're going to face some other challenges. There is currently no way of measuring whether or not a network is truly capable of supporting a good video experience in HD, 2K, or 4K. There is simply no standard of measurement for video experience, for both fixed and mobile networks.
And because there is no standard of measurement, telecom operators have not planned, built, or optimized their networks around consistent video experience metrics. This has had a negative effect on the development of the video industry as a whole.
In the past, most indicators for measuring network experience weren't designed for video—they were designed around voice and data. For video, image quality is important, as are initial buffering times and things like whether or not a video freezes. When it comes to aspects like this, operators have no visibility into whether or not their networks can ensure a consistent video experience.
For example, if you're watching high-definition video, will it remain high definition for a full two hours without constantly jumping between different bit rates? Or if you're watching something in 4K, is it 4K through and through? For operators to take informed actions in building out and optimizing their networks, the industry needs to come up with standards for measuring video experience. This will help ensure that the experience consumers get is consistent.
Huawei has worked with Oxford University to develop such a standard of measurement. We call it vMOS, and we hope it can serve to better inform operators in the construction of their networks.
Taking into account all the challenges in the video industry, as well as the challenges that telecom operators face in developing their video business, Huawei aims to be the enabler of operator's business success in video, committed to supporting operators in developing and growing their video business. To that end, we have decided to take action and invest in six specific areas.
First, we are developing our business and network consulting capabilities in video to enable operators' business success.
Second, we are building our content aggregation capabilities to address the problem of content fragmentation. We aim to help operators reduce the costs and difficulties associated with content acquisition, and make their video operations more efficient.
Third, we are building a cloud-native convergent video platform to help operators run their video businesses more efficiently, open up their video capabilities to partners, deliver on their role as the single point of entry, and develop effectively in the markets for entertainment video, communications video, and industry video.
Fourth, we are increasing investment in set-top-box (STB) chips and opening our STB middleware to drive the entire STB industry forward.
Fifth, Huawei is a network equipment and IT infrastructure provider, and we will use our vMOS standard to effectively plan and optimize networks, and deploy them together with operators to ensure that the networks can support the best possible video experience from end-to-end.
Sixth, we are developing our planning, design, integration, and experience management capabilities around video, and providing these capabilities to help operators who are willing to become video players do so successfully.
Huawei isn't looking to monetize content. Video is a trillion-dollar opportunity for operators, and operators are well positioned to share a decent slice of it. Our goal is to become the enabler of operator's business success in video. We are also ready to help all content providers and content operators in bringing their content to all of the mobile, household, and industry users.