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Summary:

There are key 10 things you (and the telecom industry) need to know about the future of broadband. Guest blogger Martin Geddes tells you what they are.

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.

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  1. 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.

  2. Good, thought-provoking post, Martin. My only quibble is with the 2nd point. My belief is that application-specific networks will collapse onto a common broadband network, and that common network eventually becomes a universal distribution system. More on my blog at:
    http://ikeelliott.typepad.com/telecosm/2008/01/the-11th-thing.html

  3. The Future Of Broaband and Something Of The Night | towerone.com Wednesday, January 16, 2008

    [...] on Giga Om, has shared with us 10 Things You Need To Know About The Future Of Broadband. You should visit the article to read it in full but for those of you with tight schedules here is a summary of the ten [...]

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

  5. 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.

  6. IP Telephony, VoIP, Broadband mobile edition Wednesday, January 16, 2008

    [...] like to cite and then comment on, two key points made by telecom analyst Martin Geddes in his recent guest column for GigaOm: Voice will be the catalyst. There will be a rapid rise of non-traditional voice services as voice [...]

  7. hmmm, very interesting!

    nhick
    http://www.itrush.com

  8. LULOP.org [opensource] » Gigaom: 10 things to know about the future of broadband Wednesday, January 16, 2008

    [...] a great read, but if you don t feel like to read all of the 10 points, read only 2,3 and 6 and rename it 3 things to know about the future of entertainment. [...]

  9. 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.

  10. 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.

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