Carriers to compete more aggressively in content delivery: CDNs hope this will grow the market

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By Jon Tee

As network-connected devices capable of consuming rich content – smartphones, tablets as well as traditional laptop and desktop computers – have proliferated, content producers have sought to capitalize on the increasingly powerful content-consumption capabilities of these end-user devices and the widespread increased availability and adoption of high-speed broadband access networks to distribute their content over these broadband networks.

Increasingly such distribution has been substitutive of physical distribution networks such as postal or high street distribution of CDs, DVDs and packaged software. This has created opportunities for new players. In order to improve the user experience of content consumed over broadband networks such as video, ads and file downloads, specialist players such as Akamai, CDNetworks, Limelight, EdgeCast Networks have developed content distribution network (CDN) businesses to enable content publishers, advertisers and software vendors to provide their consumers with a smooth and enjoyable user experience avoiding long download wait times and irritating content buffering.

Carriers set out their case - and plans for geographical partnerships

These specialist CDN players have, to date, been most successful in this market although a number of major carriers, including AT&T, Level 3, NTT, PCCW and Tata have also sought to compete. At Carriers World 2011 in early October 2011, James Crowe, CEO of Level 3, argued that the time was now right for carriers to develop their CDN platforms, claiming that CDN was fundamentally a carrier technology and not a service to be delivered by a specialist provider. Level 3's vision of carrier CDN is of a federation of carrier CDN networks, potentially interconnected through an Operator Carrier Exchange (OCX) if not bilaterally, thereby able to provide global coverage while also able to control the network closer to the end-consumer. Telefónica's Julien Lehman made a similar argument in his presentation. Telefónica is promoting and rolling out its current CDN offering and Lehman emphasized the value of its strategic alliance with China Unicom for delivering services in the Chinese market.

CDN players respond

On the face of it, a determined attempt by a number of major carriers to develop geographically complementary CDN propositions and compete aggressively in this market has the potential to pose a major challenge to specialist CDNs such as Akamai, CDNetworks, EdgeCast Networks and Limelight Networks – all much smaller companies than the carriers – if downward pricing pressure significantly increased.

Akamai's Robert Blumofe, however, made the case that doing CDN is actually quite difficult and not simply a matter of caching content and having lots of servers on a network; media companies have grown to expect a high degree of functionality from their CDN platforms that specialists such as Akamai have developed over a number of years. He pointed out that carriers had tried and (largely) failed to make significant inroads into the CDN market in the past. In fact, Blumofe argued, Akamai would welcome carriers competing more aggressively in the CDN market.

From Akamai's point of view its competitive advantage comes from its over 10 years' experience in delivering CDN. It sees its major challenge as being that Akamai remains a small company and unable to drive large-scale market growth. Its major 'competitor' is not carrier CDN but 'DIY' content delivery that doesn't use CDNs at all by companies that Akamai simply doesn't have the scale to reach. Akamai sees carriers as able to bring significant sales forces and reseller networks that can stimulate the growth of the overall CDN market by raising awareness of the benefits of CDN with new kinds of customer and believes that this will lead to an overall growth in the CDN market from which Akamai can also benefit.

How much capacity is "too much"?

If Akamai is right and a resurgence of carrier CDN stimulates significant volume growth in CDN customers then both the specialist players and the carriers could benefit. The danger, of course, is that too many players try and compete and there is insufficient growth in new volumes of business leading to catastrophic price declines that make the business unviable for many players. And this is a CDN industry story that has been through at least one cycle over the past decade.

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