VanillaPlus Policy. Can policy deliver flexible and profitable business models?

POLICY Can policy deliver flexible and profitable business models?

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ANALYST REPORT

The authors are Karl Whitelock, (left) director of global operations and monetisation strategy and Troy Morley, (right) operations and monetisation strategy analyst, at Stratecast | Frost & Sullivan

Introduction ising data traffic is not new, in fact there has been a continued increase in traffic volumes for more than five years now. This action will persist in the near term, with some estimates indicating that data traffic by 2018 will be 11 times larger than it was in 2013. A major reason for this increase is the steady rise in smartphone and tablet sales across the globe to sustain both the consumer and business always-connected mindset

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For customers, the always-on and always available connectivity requirement for these devices is based on their need to: share data with others, engage with social media, bring the internet into an enriched learning experience, use apps for nearly every business and personal need, and seek out a variety of content sources, especially video. For network operators, the need to control how data flows across the network and to best position how usage of the network will meet rising customer needs is the business proposition for policy management today.

What is policy management?

Policy management solutions are used on both fixed and mobile networks; but, to bring clarity to the discussion, and to align with current market understanding of the role of policy, the Third Generation Partnership Programme (3GPP) definitions are commonly used by communication service providers (CSPs) and suppliers. However, the industry regularly uses 3GPP terms such as Policy and Charging Rules Function (PCRF) and Policy and Charging Enforcement Function (PCEF) to discuss policy functionality beyond the technical 3GPP standards for mobile.

The 3GPP specifications offer what is called a Policy and Charging Control (PCC) architecture, consisting of several key components including: •

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Policy and Charging Rules Function (PCRF) – The PCRF supports the definition of policy rules, and makes policy decisions based on those rules. It provides policy control, and is often called the policy manager. The PCRF directs the enforcement actions of the Policy and Charging Enforcement Function; and also interacts with the billing system – in particular, the rating and charging engine or, in 3GPP terminology, the Online Charging System.

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Policy 1.0 Business needs have changed and customer expectations are now different. Improved customer experience means controlling data usage differently than policy 1.0 prescribed

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Proprietary and Confidential to Stratecast

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Policy and Charging Enforcement Function (PCEF) – The PCEF provides policy enforcement on behalf of the PCRF, or via predefined rules configured directly on the PCEF. This logical entity also interacts, in some cases, with the rating and charging function.

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Online Charging System (OCS) – Interacting with both the PCRF and the PCEF, this system ensures that the service consumed is paid for, in the case of prepaid; or can be paid for under a postpaid billing contract. The OCS is part of a real-time rating and charging system.

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Off-line Charging System (OFCS) – The OFCS receives charging events from the PCEF, and is used for off-line charging. This logical entity is also part of a convergent rating and charging system.

The PCC architecture shows the tight interaction between the real-time rating and charging engine coupled with policy management. The rules function may be a PCRF server, capabilities included within a policy-enabled, real-time rating and charging engine, or both. For traffic pertinent to voice over LTE (VoLTE), some CSPs are dedicating a second PCRF server.

Policy management functionality provides the CSP and, under certain conditions, some customers a way to customise how a pricing package is consumed or a service is accessed.

The role and purpose of Policy Management 1.0 In the past, controlling bandwidth consumption without notifying customers (Policy 1.0) was a frequent occurrence.

Controlling bandwidth usage continues today, though to a lesser extent, in the name of keeping the network available for all. This practice – known in the global user community as usage throttling or metering, and to CSPs as traffic shaping or policy-based traffic control – is not a new concept. Policy 1.0 uses policy management rules and enforcement mechanisms to control network traffic, based on type, location, and, in extreme cases, data sent or received by individual users when network capacity thresholds – not billing thresholds – are

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exceeded. When such thresholds are reached, connectivity is either cut off completely or severely limited to a heavy data user in the name of preserving network quality and performance for all customers. Often customer notification is not provided.

Policy enforcement plays a key role in policy management.

Today’s PCEF solutions still aim to help control and optimise the network, while also maximising the quality of service (QoS) and the customer’s quality of experience (QoE). PCEF solutions also work with the PCRF and billing functions to more effectively monetise the use of network resources. In 2013 for example, mobile video traffic consisted of more than 53% of all mobile data traffic globally. For most CSPs, optimising the transport of video traffic is key for the effective operation of network assets. In the recent past, when network congestion was detected, these CSPs would have reduced the quality of all video traffic, and, therefore, the bandwidth consumed by this traffic, with little regard to how such actions affected their customers’ service experience. That approach is beginning to change.

With many CSPs today, policy enforcement strategies, most of which provide video and content optimisation, now take into consideration the potential customer impact. Video is optimised to provide the best viewing experience for the subscriber, on the device on which they are watching it – reducing the bandwidth required, but, more importantly, providing the best QoE for the end user. Popular video content is cached, further reducing bandwidth consumption, in an optimised format so that every smartphone, for instance, receives a quality viewing experience. Implementation of 4G LTE brings additional improvements.

Stratecast believes that the quality of the customer’s experience, the increasing desire for personalised service offers, and new needs from advanced mobile technologies such as VoLTE, mandate that policy strategy focus first on the customer experience then on managing the load-carrying capabilities of the network.

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ANALYST REPORT

Policy 2.0 Instead of differentiating on price, which eventually becomes a losing proposition, policy 2.0 allows new services that compliment the data connection

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Proprietary and Confidential to Stratecast

Policy 2.0 - Paying attention to the customer experience The evolution of policy from its need as a network management and optimisation function to a tool for enhancing the customer experience is ongoing. So what is second generation policy management – Policy 2.0?

Policy 2.0 is the teaming together of policy management with rating and charging to deliver an improved experience through delivery of advanced services that involve network connectivity, content and cloud-based functions. These services, regardless of payment method – prepaid or post paid, have operations and monetisation needs that must be addressed on a real-time basis. The real-time component is a driving factor in aligning Policy 2.0 business strategy with customer expectations and current business realities.

For mobile, customer services revolve around data. Increasingly, instead of one network dedicated to voice traffic, and a separate designed for data, mobile is evolving to a single data network. As an example, most CSPs have either deployed or are in the process of deploying LTE. Where already deployed, LTE has delivered much faster data rates and increased throughput capacity over that of 3G, often approaching fixedline speeds. In addition, moving to VoLTE services with LTE makes the transition to all-data mobile services a reality while introducing several new functions that place CSPs back in a lead position with over the top (OTT) suppliers. These new functions include high-definition (HD) voice, HD voice/HD video interchange within the same call session, and embedded voice on a website or in an application.

These new capabilities are reflected in how subscribers are charged for the services they use. Mobile plans now include

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unlimited calling and text messages, but charge data usage. As VoLTE services roll out, CSPs may choose to charge for different guaranteed levels of quality such as HD voice and for multi-stream (voice and video) single session services.

Instead of differentiating just on price, policy allows new services to be built on top of the data connection. This approach allows service differentiation, including quality of service differentiation, and the delivery of added value to the customer experience. Of course, other CSPs will follow any success; but, by continually innovating through services based on a policy-enabled, real-time, rating and charging solution, a service provider can keep ahead of its competition. And, by personalising services to the wants and needs of its customers, such services get stickier, especially when the service is rightlypriced for the benefit received.

Policy 2.0 in action: The wave of personalisation A majority of new policy-driven use cases focus on enhancing the customer experience and in delivering the tools needed by a CSP to increase the profitability of its customers. Some time ago we introduced the notion that the evolution of policy was following a wave of personalisation, moving from networkfocused control and optimisation to increasingly personalised, customer experience-enhancing services. We see this trend continuing today at an even faster pace than just a few months ago.

The broad groupings shown in Figure 1 are a way of categorising the types of use cases that are at some level of deployment around the world. As is becoming increasingly apparent with the growing needs of CSPs, a use case

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Figure 1: Policy evolution use cases – The wave of personalisation

Source: Stratecast

introduced in one geographical region can become an instant success, while the same use case in a different region will receive mediocre or even poor customer response.

All of the policy categories described are relevant to business success, including network-focused policy. While not personalised nor displaying much customer appeal, networkfocused policy is essential for the health and operation of the network. In other words, a higher level of personalisation does not equate to better, it just serves a different purpose.

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Application-based – In the past this was a control-related approach designed to not allow access unless a premium was paid. Today, control is focused on bettering the customer experience with a specific application. In some cases, a behind-the-scenes B2B relationship between the CSP and app partner allows free usage for certain CSP customers who have a particular price plan or loyalty arrangement.

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Fair usage – Is aimed at users that consume more than their fair share of network capacity. In 2010, the top 1% of mobile data subscribers generated 52% of the global mobile data traffic. Focusing policy-defined traffic controls on this group was a logical step. In 2013, the top 1% of users generated only 10% of the global mobile data traffic – a clear example of why the Policy 1.0 approach is no longer the right focal point for a CSP’s business strategy.

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Tiered Plans – Tiered usage plans provide a happy medium for both customers and network providers. For instance, the lowest tier may be 1GB of usage, the next tier 2GB, then 3GB, and so on. Tiers may be for an individual or part of a shared plan. These plans also provide customer notifications when certain levels of usage are reached – which is now a regulatory mandate in many global regions.

Network usage-based use cases Usage-based service offerings are geared to address network usage and control needs. While we view this set of service offers as holdovers from Policy 1.0, they are the most common type of policy use case in force today, and form the foundation of more customer-centric use cases to follow. Some of these are: •

Usage quotas – Allows a certain level of consumption per period; such as 1GB of data per month. A quota within a quota allows additional levels of control; such as 1GB of data per month, with a daily usage limit not to exceed certain values.

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Time-based plans – Adds time as a criterion; for instance, 12 hours of access, with or without usage quotas.

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Location-based plans – Adds location criterion, for example, with international roaming service plans; provides an incremental usage level per day when roaming outside the customer’s home network.

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Network-focused use cases Network-focused use cases are not designed with the customer in mind, but are necessary to assure that a network operates at an acceptable level of performance to minimise service quality concerns including:

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ANALYST REPORT

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RAN congestion management – With increasing levels of data traversing a network, congestion is sometimes inevitable. This category gives CSPs policy-based solutions to mitigate congestion problems when they occur.

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Wi-Fi offload – A method for dealing with network congestion is to off-load traffic from a mobile network to Wi-Fi, and then back again. Wi-Fi offload is emerging as a new way to increase bandwidth limits and as a potential new source for monetisation tied to advanced service offerings and possibly sponsored advertising.

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Multi-access networks – Few CSPs have a homogeneous mobile network – composed of all LTE technology, for example. This type of use case is designed to help CSPs deal with the complexities of mobile devices switching between networks – say, from 4G to 3G.

Optimisation use cases Optimisation is a double-edged sword – initial use cases focused on the network to operate better, but more recent incarnations are more about the customer's QoE, including: •

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Video optimisation/management – With video now accounting for more than 50% of global data traffic, optimising video is essential to the health of a network. But consumers of video also appreciate the end result when what they want to watch loads quickly, plays without pauses, and looks great on their particular screen.

Device-based optimisation and application optimisation – Video or web pages can be optimised for a type of device, which again supports network operation and a quality customer experience. Applications are also optimised to the performance and output display of a device.

Bill shock and customer notification use cases Initially driven by bill shock regulation, there are several use cases that can inform customers when a level of usage is reached compared to a percent of plan limit. CSPs have now realised that the ability to notify customers, on their devices in near real-time, provides more than protection from the regulators. Real-time notifications allow customers to be more comfortable with data usage before exceeding plan limits.

Bill shock use cases also enable CSPs to upsell. For instance, a customer watching a video as they near a data plan limit can be offered – in real-time and on device – not only the ability to continue the video, but an option to consume more video in the future.

Group and shared plan use cases These use cases are not new. Regardless of the grouping, the idea is to share usage and spend amongst a group with common customer-definable attributes. A family share plan allows data limit allocation amongst users on the plan. This allows a level of personalisation that is specific to the needs of the group. The plan may include, for example, 4GB of data usage for a four-person family; but the administrator of the plan may allocate 1.5GB per parent and 0.5GB per child. After report cards come out, one child may be rewarded with additional usage for the next month, due to his or her success; potentially, at the expense of a child who did not meet expectations or reallocation of one of the parent's usage limits.

Groups may be anything: a family, a club, or an enterprise. They could even be an individual that needs the flexibility to share usage between devices. Each type of group has different needs and wants, but the idea is the same regardless of the group.

More specific group-level use cases include: Shared Plan or Shared Wallet; Family Plans; Group Plans; Enterprise Split Billing Plans; Sponsored Data Plans; Multiple-Device Plans; and Multiple-SIM Card Plans.

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Quality of service use cases Policy 2.0 encourages customer usage, especially if QoS guarantees are possible. These overlap heavily with other use case groupings. The aim is to not only make customers happier by increasing their QoE, but to monetise this enjoyment, either directly from the customer or via partnerships and sponsored data. For example, additional revenue may come from an executive who insists on QoS guarantees on their device(s) or from an OTT provider that pays a CSP for a defined level of network quality. Typical Quality of Service use cases are: •

Quotas with QoS guarantees – Combines a usage quota with quality guarantees.

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Turbo boost/Bandwidth on demand – Provides the ability to boost bandwidth on demand, where capacity is available and automated processes are operational.

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Application-based QoS – A particular application is guaranteed by the CSP to be delivered at a particular level of access or response time definition.

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Service bundles – A set of applications bundled together with a particular QoS level. For instance, a social media bundle may include Facebook, Twitter, and Instagram with a guaranteed level of access and service performance for posting messages or updates.

Machine-to-Machine (M2M) – As M2M business models evolve, the value of traffic for a particular application may require QoS guarantees. This applies particularly with delivery acknowledgement within a fixed time window. An example would be M2M in a healthcare setting where timely delivery may mean the difference between favourable and less than desired outcomes – literally life or death.

Location-based QoS and roaming plans – Locationbased policy for roaming may mean a guarantee that data usage and voice services always work whenever a customer travels outside their home country.

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Tiered plans – Plans with tiered usage levels may have some QoS with certain service plan offers. An example might be an executive tier, with high usage levels and service availability guarantees.

Customer control use cases A major change from the recent past has been an increase in the amount of near real-time information that customers can access, and the amount of control that customers have with their accounts and services. Customer self-care is desired by both the CSP – to reduce cost; and the consumer – to increase personal control. Giving end-users the ability to adjust their services to their liking, in near real-time and without the need to call a customer service representative, is a major step forward in the personalisation trend. Usage examples that allow customers to personalise their communication services based on specific needs are: •

Parental Control Plans

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Enterprise Control, including Bring-Your-Own-Device (BYOD) Plans

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Service Personalisation Plans

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Roaming Control Plans

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Data Control Plans

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Spend Control Plans

Loyalty and promotion use cases Receiving awards for customer loyalty promotes longevity. This approach works whether the customer is at the grocery store, a frequent airline traveler, or a mobile data customer. Promotions and loyalty plans may be used to encourage network usage at times when utilisation is low, or just to engender loyalty for premium customers. Promotions can be used to introduce new services, either specifically targeted or broadly based.

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ANALYST REPORT

Coupled with purpose-built analytics – automated analytical solutions designed to address specific business problems, advanced loyalty service offers can include packages based on device type, time-of-day, network location, type of content consumed and multiple others. In this case, a package of HD movie downloads could be provided for a set price, with no data usage measured against an already subscribed data plan.

Analytics increases the likelihood that offers will be relevant to the customer. Analytics combined with real-time presentation of an offer – on device and at the time of need – greatly increases the likelihood that the customer will accept the offer.

Examples include:

VoLTE is not one use case. It involves many complex process interactions between the policy management functions and other parts of a network. VoLTE is a building block for several new services such as high-definition voice, voice with video, and voice combined with certain web sites or applications.

VoLTE is a service sold as a superior quality alternative to regular voice. It requires policy to ensure that quality. In all likelihood, legacy policy servers will not be able to deliver the level of definition needed to give prioritisation to voice services such as emergency services, lawful intercept, or alternative voice support – fallback to circuit-switched channel – which is a regulatory mandate in most global regions. VoLTE use cases need policy to give the right level of prioritisation for service delivery and monetisation accountability.

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Loyalty programmes

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Promotional plans

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Upsell opportunities

Personalisation via analytics use cases

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Roaming passes

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Data passes

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Application service passes involving OTT partnerships

Combining analytics with policy is a growing trend amongst suppliers. Smartphones allow personalisation of external look and internal content – use of apps that now number in the millions. Utilising purpose-built analytics with their policy data, CSPs have greater insight into what types of devices consumers are using, where and when they are using them, what applications and services they currently utilise, and the content they consume. With this information, CSPs can offer services that appeal to niche markets. Combined with real-time presentation of an offer – on device and at the time of need – this greatly increases the likelihood that a consumer will accept any offer provided to them.

Partnership and new business model use cases There are a number of new business models taking shape, many involving one or more partners, that are essential for the future growth and financial health of the CSP community. One example includes a CSP ecosystem of partners to provide consumer services. These partners are often application and content providers that can supply various types of content or mobile applications. Certain OTT services may be greatly enhanced by increased QoS or network-based, customerspecific detail made possible from the CSP partner. Each requires policy control to deliver the right type of service functionality at the right time.

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VoLTE use cases

Customer insight, gained through purpose-built analytics for understanding customer usage consumption and preferences, enables a more effective approach for the delivery of many of the use case examples previously discussed. For instance, imagine a package aimed at heavy users of Facebook and NetFlix, that have iPhone 6 devices, and who regularly roam.

Through analytics, CSPs can segment their subscribers in an unlimited number of ways.

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The last word Policy and policy-enabled rating and charging provide the keystone for creating, enabling and monetising advanced new services that are in demand by consumers globally. Other notable factors are: •

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Policy’s role in ensuring the operation of the network continues in the face of exponential growth of data traffic brought about by increases in network speed and bandwidth from 4G LTE, along with increased customer usage from the immense global popularity of smartphones and tablets.

The next generation of policy – Policy 2.0 – expands the role of policy management: enabling new services, focusing on the customer experience, and, most importantly, monetising new offerings. The evolution of policy is enabling a wave of personalisation services, which allows CSPs to segment their markets to smaller and smaller sub-groups.

Purpose-built analytics, embedded within CSP billing and policy management solutions, address the need for real-time decisioning – the ability to gain insight about current customer behaviour, and then capitalise on that

knowledge by offering the customer something additional at the point of peak attention.

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The effects of virtual network technologies are still evolving, but will impact policy management and all of the billing functions in the months ahead.

Policy has far reaching benefits to both customers and service providers, with a build toward service personalisation. The use of Policy 2.0 business strategies, described by each of the different use case categories represented by Figure 1 above, pushes business strategy closer to the level of a very small group or even individual customer service offers. When this occurs, customer stickiness is almost guaranteed.

Keeping customers is something that many CSPs must manage now, because obtaining a new customer in many regions of the world means stealing one from a competitor, as saturation levels reach well beyond 100%. We believe that the customer-centric use of policy management becomes the ultimate opportunity window for CSPs to continue to play a key role in the land grab for customer attention, which will be a lucrative revenue opportunity for some time to come.

About Stratecast Stratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hypercompetitive Information and Communications Technology markets. Leveraging a mix of action-oriented subscription research and customised consulting engagements, Stratecast delivers knowledge and perspective that is only attainable through years of real-world experience in an industry where customers are collaborators; today’s partners are tomorrow’s competitors; and agility and innovation are essential elements for success. www.frost.com

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