Our take...
The incumbent telco leverages a wide-reaching international backbone (see map), linking multiple countries where the company acts as a broadband network operator - as an incumbent telco in four countries; a local loop unbundled (LLU) DSL operator in Norway (NextGenTel) and Denmark; and doubling up as a cable operator in three of its territories, Finland, Estonia and Denmark.

Teliasonera can leverage its national and international network operations to absorb many of the data transfer costs incurred by some smaller standalone CDNs paying fees to third parties. Further, the operator could in turn undercut the pricing of some of these smaller CDN competitors.

ISPs, particularly in developed Western European markets, and CDNs are facing increasing competition. ISPs are looking at tightened margins driven both by stiff price competition and a swell in traffic from bandwidth-intensive content including video which is pushing up bandwidth bills. Meanwhile, CDNs are battling new entrants with aggressive pricing strategies.

As such, ISPs are looking beyond providing access for supplementary revenues. For incumbent telcos and other large network operators that can make the most of the advantage of reduced bandwidth bills, monetization of the content running through their pipes via CDN operations is one such potential revenue stream. Indeed, Teliasonera follows in the footsteps of US incumbent telco AT&T which reported a similar project in July 2008 (see link). Screen Digest expects a number of other large incumbent telcos to follow similar schemes in due course. However, it remains to be seen to what extent these large network operators whose core businesses lie outside of CDN operations can integrate third party solutions and offer the sorts of specialized customer care and tailored solutions provided by smaller CDNs to bring about significant levels of churn in the sector.