Telcos Outline Their Thoughts On How They Can Win In the CDN Market

At last week's Content Delivery Summit, I moderated a panel with speakers from Deutsche Telekom, Global Crossing, Level 3 and Tata Communications who discussed how over time, they believe they can dominate the CDN market. (video archives of the panel will be online shortly)

It was a very interesting discussion to hear the telcos talk openly about their offerings today and what they envision them looking like a year from now. Global Crossing, who to date has entered the CDN market by reselling Limelight and EdgeCast, said that 18-24 months from now they will need to stop reselling third party CDNs and bring the product in-house. Deutsche Telekom also agreed that at some point, the CDN offering would become large enough that it makes sense to bring it in-house and have more hands on control with the service.

Level 3 and Tata Communications have taken a different approach and instead of reselling, Level 3 built their own CDN and Tata Communications licensed technology from BitGravity to deploy their own offering. Level 3 said that today, 70% of the traffic on their network is video and building a CDN for them was as much a defensive move as it was an offensive one. Not surprisingly, when I asked all of the CDNs where they think they could slip up, all of them stated that focus and quick reaction to the market would be essential to them being successful within the CDN sector. This should come as a major concern to all the telcos as the one thing they are not known for is reacting quickly to anything. Focus is another concern as well, but I think any company can focus if they really want to. Moving fast, that's a different story and even when some companies try to move fast, they simply don't have the mindset to be successful.

I also asked the speakers if they felt that owning the network offered any kind of cost savings or advantage in the market in regards to being able to sell CDN services at a cheaper cost. While most of them agreed that it did, none of them have yet to be able to prove that to the market since they all have only recently been offering CDN services. While owning the network may give some companies like Level 3 an advantage, until they can show the industry they are making money with CDN and have lower prices, it's pure speculation at this point in time.

While taking questions from the audience, one of the attendees asked the telcos on the panel who resell pureplay CDNs why none of them were reselling Akamai since Akamai is the leader in the space. Deutsche Telekom commented that Akamai "would not move fast enough" and was not "nimble" which is kind of scary when a telco thinks someone else is slow to react. While this is a comment I hear often from customers in regards to Akamai's slowness to respond, I also see a trend taking place. Akamai use to be the number one CDN to go to for resellers and has Verizon, BT and NTT Communications reselling their services today. But in the past eighteen months, AT&T, Deutsche Telekom, Global Crossing, NaviSite, Pacnet, Reliance Globalcom, Tata Communications and TeliaSonera have all decided to resell someone other than Akamai or build the CDN themselves. This can't be a good sign for Akamai and while they do report a large percentage of their revenue each quarter as coming from resellers, we have no idea how much of that revenue is specific to video.

While the telcos were very adamant that they think they can become the major players in the CDN market in 24 months, all of them also spoke with caution and no one was willing to guarantee that they will be disruptive. I think they all realize that they have a lot of work to do to catch up to the pureplay CDNs and the barriers to entry are very high. You can't just roll out a CDN with a bunch of boxes and have true scale, capacity and performance overnight, let alone do a few hundred million a year in revenue.

It's way too early to know what role the telcos will have on the CDN market but at some point, many of them will have to acquire some of the successful CDNs in the industry so they can get to market faster. It's only a matter of when, not if and 18 months from now I think we'll have a very good idea if the telcos can truly disrupt the CDN industry, or will still only account for a small portion of the market share.

  • Rob

    It is super important to remember that telcos are limited, usually by law at the very least, to sell inside their own networks.
    So while I think the idea of a telco offering CDN has merit and value it is also limited in scope.

  • I was moderating another panel at the time, so I didn’t get to pose this question to the telcos- but I think the industry would still benefit from the answer:
    Why should someone spend $1 with a telco CDN on a single network when they can spend $1 on a pure play CDN and get hundreds or thousands of networks?

  • Rob

    Great question Steve and as a follow on to my previous comment let me further comment that CDN for a telco makes sense from a network management/user experience perspective but not much sense in my opinion as a direct commercial venture.
    I could see a telco signficantly improving video delivery qualilty thereby creating more value for their ISP business but that’s about it. That however, is no small thing and potentially worth it.

  • Matthew Townend

    Dan as you may remember I asked the question. I cannot understand Akamai’s strategy, they have relationships with most ISPs & carriers globally as their kit is in their network. However they do not seem to want to engage in terms of helping them build their own video or other CDN infrastructure. Meanwhile every other CDN is running towards them establishing these relationships. Also most carriers I talk to are questioning the benefit of having Akamai deployed in their network.
    Also in terms of the Telcos ability to be successfull in the CDN market, a lot of carriers have been very successful as a sales channel for CDNs, particulalry in international markets where the CDNs are not strong. Akamai has generated a lot of international Enterprise CDN revenues from these relationships. I am not sure if this is the case in the US.

  • Again- I wish I was at the Telco panel but our CDN TCO Panel was fun too. Check out the video archives when they are posted to see surprising revelations from MTV and Amazon.
    Matthew- a couple of points here:
    “they do not seem to want to engage in terms of helping them build their own video or other CDN infrastructure”
    Historically, these efforts have failed. Telcos, in the past, were unwilling to solve the channel conflict problem that occurred between the IP transit group and CDN groups. Many telcos tried to build CDNs back during CDN 1.0- BT, COLT, Globix, and many others tried this… They used Inktomi, Squid, and even Speedera’s offering. Additionally, a premium CDN does not want to create a situation where a 3rd party is using their technology in a non-optimal way- so why even bother enabling companies whose core focus is not CDN? At Speedera, we enabled many telcos with an “on net” CDN and watched them all bungle it… The core CDN solves all of the problems- it distributes content across multiple networks using performance based load balancing. The need for telcos to handle this, as far as a true CDN is concerned, remains to be proven- although I welcome the proof from the CDNs who are working hard to build their own offerings.
    “Also most carriers I talk to are questioning the benefit of having Akamai deployed in their network.”
    I’d like to see a list of telcos, and the names of their staff members, who actually make these statements. I’ve heard many claims, but have never seen any names. Telcos value a CDN for two reasons: #1 they are often very large paying customers of the telco, and #2 they can help improve the quality of content delivered across their telco by removing the need for having the traffic come across a cross connect. These values have not changed since the history of CDNs.
    “a lot of carriers have been very successful as a sales channel for CDNs, particulalry in international markets where the CDNs are not strong”
    Numbers? What percent of CDN sales are handled by telcos? Again- a claim I’ve heard for years- but no one is willing to put numbers behind this.
    The best value I see behind single-network Telco based CDNs is the ability to offer an end-to-end solution involving hosting, managed services, storage, transit, AND CDN services sufficient for a customer’s needs. This package is the one area that CDNs DO NOT address… I’ve been encouraging who are partners of RampRate to do this very thing- compete based on the value of the end-to-end solution- and ideally deploy on multiple networks. But trying to compete, head on, with a multi-network CDN in the exact same services offered for the last ten years seems to be a bit tricky if you are only a single network competing against a CDN with thousands.