10 Things You Need to Know About the Future of Broadband

21 Comments

Written by Martin Geddes, chief analyst at STL Partners, which is responsible for the Telco 2.0 Initiative. More about this research project and the results can be found here.

“[O]ur business is about scope and scale and having superior incremental margins. If you are looking to tax content and bundle device, application and network, it isn’t going to work. You had better be good at moving information if you want to be a network service provider.” – Jim Crowe, CEO of Level 3 Communications, at Citigroup 2008 Global Entertainment, Media and Telecommunications Conference.

We’ve just completed a major 6-month study into the future of broadband, including an online survey responded to by over 800 industry insiders, interviews with leading figures and actors in the industry, and desk research into comparable networked industries like container shipping and power distribution. Below are some of the key findings, which very much echo Jim Crowe’s comments above.

1. Telecom is a logistics business for valuable data. It’s about providing personalized delivery of that data, and removing the “customs barriers” (such as network provisioning, authentication) to that delivery. This is much more complex (and profitable) than being a “dumb pipe,” but doesn’t mean being an applications or media business (something telcos are notoriously bad at doing).

2. Broadband is just one of many distribution systems for data. Others include broadcast, physical media, circuit voice, SMS, content delivery networks, and edge caches (which capture and retransmit broadcast content, e.g. networked DVRs). The successful broadband services provider of the future will be able to mix and match multiple delivery systems, just as logistics companies blend road, sea, rail and air.

3. A key enabler for this will be home hubs, media servers and set-top boxes — whoever gets to deploy and manage these boxes will emerge as the winner in the space. As these boxes are the “ports” at which all the different delivery systems must dock, they will be critical to being a “logistics solutions” provider. The best examples today come from Iliad and Sky in Europe, which have the best blend of multiple-delivery systems, features and content. Mobile devices and networks will also need to evolve new provisioning, authentication, policy and retail models.

4. Telcos will make increasing amounts of money from wholesale, not retail. Media companies, employers, merchants and government will pay BSPs to deliver content and applications on their behalf. So you’ll watch YouTube without worrying about fair use limits (on “unlimited” ISP plans), or going over your usage cap. Google wants you to watch and watch without having to worry if there’s a meter running. Wholesale markets tend to be concentrated, since the whole point is that buyers (like Google) don’t want to have to personally interact with dozens of sellers (like telcos). That means only a few large telcos or aggregators will prosper.

5. The ISP product suffers from severe economic problems. A few users are diverging in their usage from the rest, driving capital and operational cost. These users are different from day to day, so you can’t shed them. Attempts at traffic shaping to manage cost only work with a policy of “radical honesty,” such as that from PlusNet in the UK. Retail prices are falling to the point where additional usage is being priced below the cost of transit for that traffic.

6. Nonetheless, the ISP product will continue to grow, but the emphasis will move elsewhere. Users will increasingly buy (or use ad-funded versions of) applications with all “postage and packing” charges included, for all the networks and places they wish to use that application or content. Amazon’s Kindle
is just the start of a major shift in how we retail broadband services.

7. Voice will be the catalyst. There will be a rapid rise of non-traditional voice services as voice is embedded into the general online experience. You’ll be able to call your date from your mobile dating application, without knowing your date’s mobile number, and the whole cost of the call will be borne through your dating application subscription.

8. Telcos will move towards “two-sided” business models, which involve not just wholesaling bulk capacity, but increased personalization of delivery to their own retail ISP end users on behalf of their “upstream” partners. This will include using location and presence to enable everyday business processes (e.g. parcel delivery, health-care services), ad insertion, or ecommerce services like credit checks.

9. This is part of a larger “platform” business model that involves opening up the telco to exploit underused assets. This is a much bigger activity than just enabling a few APIs, and requires considerable restructuring to achieve. For example, you need a sales force to find these new wholesale customers!

10. Network neutrality is a completely mis-framed debate. It assumes that the user has access to a single telco product: pre-paid (by the user) ISP access. The real market will be vastly more complex, with users having access to many “virtual” networks — some overlaid on the Internet, some private. All the bogeymen making noise about blocking and throttling are just the shadows of welcome improvements in the wholesale markets. This exactly mirrors what has happened in the financial markets over the last 20 years, where vertical integration ended and lots of wholesale markets grew up to repackage and resell debt and other financial instruments.

21 Comments

badi

Great article. The future belongs to broadband, at least for the consumer and SME worldwide. But, why is it that when it comes to connectivity,there are no servers working in broadband environment? Wouldn’t it be nice if the likes of Exchange, Communication 2007 server, Groove server to name a few, could be hosted on the broadband (and of course affordable) so that millions of people worldwide could also enjoy what the corporate users have been enjoying: all-time data access, mobile email, VPN etc…?

We, at Mundial Communications are working on such solutions. Check these screenshots from the launch of our platform in India this week:
http://www.mundialco.com/unifiedmessaging/2008/01/22/yambi-demo-screenshots/
http://www.mundialco.com/unifiedmessaging/2008/01/22/yambi-presentation-at-protoin-08/

ishan

i dont think i would need to say anything more then after u read the title ..

with the director of linux international coming up as a barcamper..the barcamptechfest would be the most intensive gyan session a barcamper would ask for ..BarcampTechfest is the third one thats being held in mumbai and barcamp being a part of techfest and IIT Bombay and everything seems to fall into the rite place…the hub of the geeks and a time when IIT Bombay would be having as many as 30000 people coming up .. u cant as k for more ..

be there at barcamptechfest.

http://www.barcamp.org/techfest

Neal Page

You bring up some interesting topics. I agree with #2 specifically that “successful broadband services providers of the future will be able to mix and match multiple delivery systems just as logistics companies blend road, sea, rail and air.” Great analogy.

What is omitted from your observations, however, is the ability to mix and match media to the different delivery systems and multiplicity of devices used by consumers. Such network and device nimble content is enabled by media encoding/transcoding, and this must become a transparent part of the network and service offering by value-added broadband (and other) service providers.

Like others, I differ with the premise that voice will lead the traffic. It will be data, and increasingly video/media data that will required the most attention. We discuss key trends and infrastructure requirements for new media over these new networks at http://www.inlethd.com/blog

Doug Kessler

Love the logitstics analogy — land, sea, rail and air for web, mobile, IPTV, STB.

Surprising we haven’t seen the player who really knows how to move information around. My money’s on… Google.

Jim

As a Service Provider I find this piece of interest but very misleading in some areas. Case in Point:
Item# 2: This piece is confusing and wrong on all counts. First, Broadband is not a distribution system. It is if anything a definition of the bandwidth and or capacity of a distribution network. If you are talking about delivery systems you need to discuss DSL, Cable, Wireless, FTTH etc.

Item# 4 Wholesale revenues for Providers will be neglible and in many cases counter productive. If anyone is to Wholesale anything it would eb a Google who might elect to Wholesale any spectrum they win in the 700Mhz auction to Local Service providers for true Broadband Wireless distribution.
Google will not have to buy anything from the Service Provider. If they want to have access to and or cotnrol the Last Mile they will work hand and hand with Providers and allow them direct access (Fiber links) to their Cloud Computing Data Center and all the COntent/Apps.

Item # 7. VOice is not a catalyst in these networks. Data (IP) is the Catalyst/transport and everything is and will be routed using IP. VOice over these networks will be handled by a QoS feature to ensure prioritization as willGaming and other Video type services.

Item #10. The real market for Broadband Service will evolve around the ISP or SP creating a series of Tiered Service offerings based on priority access to bandwidth and such items as Latency etc. The customer will have a CHOICE as long as they pay for the premium. The SP will create these channels and assign each a Priority level and features. Network Neutrality is one of the most overhyped misunderstood terms in the market today.

Brent Hopkins

It’s good to see someone talking about the future of broadband in terms other than the vague gee-whiz it’s gonna be amazing. Your comparison to trends in the financial sector disturbs me greatly. What a mess… it is all too believable that the future of broadband will be similarly convoluted and disastrous. The problem as I see it is one of too many entrenched interests more interested in protecting captive markets and profits than in implementing real innovation. The classic case is the DSL/phone connection which hooks up to a fiber optic cable mere dozens of feet away. The “phone” company wants to continue its “phone” business model ad infinitum.

Geoff Daily

Fantastic post! Truly highlights the potential of the position broadband providers are in. The key point in this, though, is that better tomorrow of a broadband-enabled world is only possible when network and application and content people all work together with the common goal of delivering the best possible user experience.

Too much of today’s rhetoric puts these various parties at odds with one another.

It’s time to stop the insanity and start having a real dialog, which this list is a tremendous addition to.

Andy

Trust a consultancy to come up with ten statements of the obvious. 6 month study!! The aticle has something of the night about it ….

Jholbrook

Wow! That analysis is so misguided on so many fronts I can’t begin to dissect the work. In fact, many of the 10 points contradict one another.

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