IDC ANALYST CONNECTION
Melanie Posey
Research Director, Web Hosting Services and Telecom Services
Transparent Caching in Operator Networks
December 2010

Video and other rich media applications account for an overwhelming proportion of total Internet traffic. This trend will only accelerate as content owners/aggregators develop new business models for the delivery of ever-increasing volumes of Internet video and other bandwidth-gobbling applications. Internet consumption patterns are also changing, as faster wired and wireless access makes it possible for consumers to tap into the Internet as an always-on, anytime/anywhere resource. However, this places a heavy burden on the network operators that must invest in and manage their infrastructure to meet their end users\' demands for more capacity, faster access, and reliable quality of service. To solve this problem, network operators are looking at traffic management technologies such as transparent caching, which, when embedded into networks as a foundational infrastructure element, can help operators tackle network management and business model challenges.

The following questions were posed by PeerApp to Melanie Posey, IDC\'s research director of Web Hosting Services and Telecom Services, on behalf of PeerApp\'s customers.

Q. How has the Internet changed in recent years, and what has been the impact on network operators?

A. Over the past 15 years, the Internet has evolved from a static, one-way medium of small-sized text and Web objects into a ubiquitous platform for communications, commerce, social interaction, and large-scale digital media distribution. While this evolution is an undeniably good thing, today\'s broadband subscribers consider bandwidth to be an always-on, unlimited resource, which, in turn, creates challenges for operators that must deliver ever-increasing amounts of traffic to a proliferating array of end-user devices (e.g., computers, smartphones, set-top boxes, game consoles).

A number of factors have enabled the explosion of online digital media, including video technology development, the emergence of new media companies, refinement of \"old\" media companies\' Web 2.0 business models, and (most importantly) the widespread availability of low-cost, high-speed broadband access. On a global basis, consumer IP traffic is set to nearly quadruple in the coming years, growing from almost 9,000 petabytes per month in 2009 to nearly 13,000 petabytes in 2014. Internet video traffic accounts for the bulk of this expansion, increasing from 33% of total consumer IP traffic in 2010 to 57% in 2014, and the rapid adoption of new streaming services from the likes of Netflix and Redbox could push the expansion even further. In addition, the worldwide base of consumer broadband subscribers will jump from 432 million in 2009 to 654 million in 2014, and consumer mobile data subscriptions will increase from 1.4 million in 2009 to 3.4 million in 2014.

In this world, operators must continually invest in network capacity upgrades to ensure that their networks can deliver all the video and other bandwidth-hungry applications their

subscribers want to access. However, simply throwing more bandwidth at the problem is not a workable long-term solution. Furthermore, this approach does nothing to resolve network operators\' other big problem — finding ways to participate more fully in the digital content ecosystem and developing new revenue streams by adding value to so-called dumb pipes.

Q. What is transparent caching, and how has it evolved?

A. Caching technology is not a new thing. Back in the dot-com days, ISPs used caches in downstream access networks to accelerate delivery of HTML Web pages and (what were at the time) large Web objects like photo images. In the prebroadband days of 28.8/56Kbps dial-up modems, acceleration of relatively small-sized Internet content yielded significant improvements in the end user\'s Web experience.

The transparency dimension of caching results in a number of benefits for end users and network operators. Caches temporarily store content closer to the end users requesting it, resulting in optimized \"on-net\" delivery of content popular within the operators\' end-user base. Transparency also means that caches can support multiple traffic types/services (e.g., progressive HTTP video, file sharing, online software update, mobile applications). This type of caching is transparent to the end user (no browser or other client-side modification required) and low touch for the operator in that caching engine rules determine what ends up in the cache. Because no change to the content itself is required, the in-network caching technology preserves the feature functionality of the content.

Network-embedded transparent caching differs from commercial content delivery network (CDN) services offered by Akamai and Limelight. The CDNs provide \"middle mile\" solutions that optimize delivery from the origin site of the content to the Internet edge (i.e., where operators\' individual networks connect to the Internet backbone). But commercial CDNs lack end-to-end control over content delivery, resulting in only a partial improvement of the end user\'s content experience. In addition, CDNs do not accelerate all content; rather, they accelerate just the content of their content provider customers, who benefit individually from reduced infrastructure costs. This approach yields some benefit to broadband end users (provided that they\'re big fans of the CDN customers\' content) but not much to the last-mile network operators.

With in-network transparent caching technology, operators can mitigate the capacity management issues created by the sheer volume of Internet traffic by storing and serving content closer to the end user — reducing the physical distance between centralized content origin sites and the networks to which end users\' Internet access devices are connected. What\'s new about next-generation transparent caching is the scope of the problem it solves for operators (i.e., the deluge of over-the-top [OTT] content), the benefits provided for all players in the content delivery supply chain, and the potential new business models for operators.

Q. What role can transparent caching play in operators\' network and service delivery strategies?

A. Transparent caching helps network providers face operational challenges related to network utilization and capacity management. In-network caching essentially simplifies these functions by using on-net capacity rather than expensive upstream transit links to deliver the popular content requested by large numbers of end users. Other advantages of cache-enabled localized content delivery include optimized traffic management within access networks through linked caches, resiliency solutions for flash crowd demand, and enhanced end-user experience (lower latency and improved throughput). The upshot for operators is enhanced ability to balance customer expectations with existing capital and operating budgets.

This type of network optimization allows operators to avoid massive short-term investment in capacity and infrastructure, but it\'s just part of the story. The pace of Internet traffic growth eventually will overwhelm operators\' ability to sustain their margins just by focusing on the cost side of the equation. However, transparent caching is not just about storing and serving content on net and close to end users. Transparent caching can also address operators\' pressing business issues around customer retention and satisfaction, new service development, revenue growth, and competitive differentiation.

Intelligence built into transparent caching technology provides operators with important insights into consumption trends across their aggregated customer bases (which inform network planning activities) and the ability to create tailored subscriber packages based on user profile — types of content consumed, devices used to access the Internet. This approach, which better aligns subscriber usage with service pricing, helps operators to more fully monetize their network investments in the short term, but other opportunities come into focus when operators explore the potential of using cache-based localized content delivery as the foundation for broader value-added revenue-generating models. These include managed \"multiscreen\" content access and delivery, premium \"walled garden\" content via licensing or direct distribution arrangements with content owners, personalized content bundling/packaging, advanced parental controls, and digital content lockers, to name a few.

Transparent caching, combined with other network, billing, and operation/subscriber management elements, can position network operators as more prominent players in the digital media delivery supply chain. By improving the end-user experience, operators can raise the profile of last-mile networks with both end users and content owners/aggregators, making optimized network performance a key competitive differentiator.

Q. How does transparent caching play in the context of net neutrality and digital copyright issues?

A. Caching is an IP traffic management technique, not censorship or an insidious plot by operators to control end users\' freedom to use their broadband connections as they see fit. The use of caching as a technique for improving network efficiency through optimized network management is protected under the Digital Millennium Copyright Act (DMCA) as long as the operator does not modify the content or interfere with the content owners\' embedded applications and business logic. Furthermore, temporary in-network caching of content as a method of accelerating end users\' access to the content and improving their experience with it does not involve commandeering the content and assuming ownership of it. In addition, content that is stored in local in-network caches always requires an external origin source, which the cache goes back to in order to validate the \"freshness\" of the content.

Q. What is the business model transformation potential for operators that incorporate transparent caching into their networks?

A. Network operators will leverage transparent caching technology to drive transformation initiatives in different ways depending on geography, current service capabilities, subscriber demographics and usage patterns, and regulatory regimes. Implementation may involve nothing more than using caching to highlight the quality and speed of the network to establish competitive differentiation with other service providers and/or to promote the value of high-speed broadband access packages. However, the technology may also play a role in enabling new business models.

Operators that embed transparent caching to improve network quality and customer experience may be better positioned to attract the attention of partners such as content owners/aggregators, subscriber equipment vendors, advertisers, and other players in the digital media supply chain to develop integrated, content-centric value propositions.

The benefits of transparent caching technology are short term and long term in nature and include the following:

• Network cost savings. Operators can break the cycle of reactive network expansion by using caching technology to better manage IP traffic growth. Improving the broadband customer experience in the short term without massive incremental capital investment buys operators time to focus on customer retention and satisfaction, making the case for higher-speed broadband upgrades more compelling.

• Network-adjacent value-added service development. In the medium term, caching can also position network-based service providers to be more than just a \"dumb pipe.\" The business intelligence operators can obtain from in-network caches provides insight into potential new services/features that conform to patterns of content consumption within the aggregated user base. Such offerings might include advanced parental controls, malware filtering, service-level guarantees for specific use cases, or promotions that bundle last-mile devices (gaming consoles, DVRs, etc.) with optimized bandwidth packages.

• Content-centric value propositions. In the longer term, operators can leverage caching technology as the foundation of more ambitious content delivery platform strategies that position access networks as optimized on-ramps to aggregated bases of broadband subscribers and as multichannel digital media delivery ecosystems for third-party/OTT and \"homegrown\" content, applications, and services.
The business models will play out over the next few years. In the meantime, caching enables operators to add IP traffic management to their network operations toolkits, yielding valuable end-user experience enhancements. Further ahead, caching technology is poised to enable flexible downstream network architectures to support potential CDN-based business models:

• Tiered broadband access bundles. In this model, caching technology is used to enable different service levels for \"premium\" broadband service experiences. In effect, customers pay the operator for faster/optimized delivery of the requested content.

• Commercial on-net CDNs. Caching becomes a network element to be leveraged by OTT content providers. In this model, content owners receive the performance benefit of having a cache-based content repository on the true edge of the Internet (i.e., inside service provider network). This model can be extended to enable in-network multicast delivery of OTT Internet video streams via \"video stores\" for optimized distribution out to the service provider\'s subscribers via subscription-based \"push\" or on a \"pull\" basis as determined by subscriber demand. By pulling OTT content inside the access network, content owners benefit from optimized delivery and service-level assurances.

• On-net content cloud. In this model, caching, along with other network, content transformation, and OSS/BSS elements, serves as the delivery engine for operator-controlled content positioned at the subscriber edge of the network. This infrastructure can support the development of operator-centric ecosystems for walled garden video-ondemand
services or broader multiscreen, \"content anywhere\" models.

ABOU T THI S AN A L YS T Melanie Posey is research director of IDC\'s Web Hosting Services and Telecom Services Vertical Views programs. In this position, Ms. Posey provides analysis, forecasting, and consulting on telecom and Web hosting sector dynamics, service provider positioning, technological and business model innovation, and industry evolution.

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