There is a fourth alternative: sell additional services using the spare capacity in the last-mile connection.

First, we need to recognize that broadband operators use physical media (e.g., DSL, PON) to connect their customers to the nearest network point of presence. Over that physical media they sell high-speed internet access, a layer-three connection between the subscriber gateway and the ISP’s edge router. The “speed” (it’s actually capacity) of that internet connection is always considerably less than the capacity of the media. This must be so in order to compensate for oversubscription factors that are required to deliver internet access services consumers can actually afford.

Second, we need to recognize that virtually all “high value” video (e.g., television episodes and movies) isn’t delivered over the internet. Instead, Amazon, Apple, Hulu, Netflix and others pay content delivery networks (CDNs) to bypass the unruly, rough-and-tumble “best-effort” internet and deliver traffic directly to the broadband operator (by the way, regulators in Washington don’t seem to know this so let’s keep it between you and I).

Given these two realities, why can’t broadband operators merely connect the CDN with a channel using spare capacity over the broadband pipe and deliver enhanced video services (or gaming, or telecommuting, or…) to their customers? The answer is that they can and they are and customers like it and will pay for it.

Again, this isn’t a matter of promoting some internet traffic since none of it is internet traffic. The actual internet connection is unhindered and all traffic within that connection is treated in a like manner.

Gee, broadband operators get the incremental revenue necessary to justify investment in expanding capacity. Customers get high value streaming video on their televisions. And proponents of internet regulation get unfettered, every-packet-is-the-same internet access.

Sounds like a win-win-win to me.

Wireless companies throughout Europe that have employed these partnerships still own their networks and make the key decisions. But they are able to bring to their customers a network with the expertise and experience of thousands of more engineers, technicians and other experts to add on to the existing carrier’s network team. More people; more skills. When this happens some of the existing teams have been rebadged – but they stay in place, doing the same job with more resources, more highly advanced software, access to global best practices, etc…

Generally, while retaining ownership of its network, the carrier interacts directly with the customer. The carrier plans network investment and expansion and the kind of strategies that ensure the customer receives value-added services beyond just a network connection. The carrier is in total, ultimate control, but can focus on the things the carrier does best, and leave tower repairs, equipment delivery, asset management and day-to-day network monitoring to a vendor – employing much of the carrier’s original team – who does that best.

Sprint used to be primarily known as a long distance company, and we saw the value proposition change in that business. We know very well how to retain value in our 3G and 4G businesses, and we’re always considering smart, creative decisions that to ensure that happens.

That said, the network *is* increasingly becoming “the platform” for new service innovation. Consider the fact that many broadband service provider already offer managed service, hosting services, and soon will add a variety of high-value cloud services to their portfolio.

My point: the problem arises when service providers don’t articulate a clear business strategy to their employees and customers. Those that play to the middle are in big trouble — “we’re sort of a low-cost provider, but then again we can also meet all your needs” is not a credible business strategy.

However, those service providers who successfully unite their IP NGN infrastructure, robust fail-safe data centers and superior technical support capabilities will be able to deliver substantive value to customers — both consumer and enterprise.

Therefore, perhaps the question that remains is how many will actively progress to one end of the value spectrum or the other — rather than stay stuck in the middle zone and ultimately perish? Time will tell, and 2009 is likely a pivotal year for many SPs. Bottom line, choose wisely and decisively — one way or the other.

David Deans
Business Technology Roundtable

Carriers will not hire designers, futurists, engineers etc. to come up with new products of their own. They can innovate by doing better marketing and packaging of their offerings. At present they market their phone services – they need to market their other services better. They will collaborate with third parties to offer VAS etc. The telco companies need to become better at marketing and distributing their diverse offerings even if they do not develop them in-house.

We seem to have forgotten that back in the 90s they took a huge amount from the taxpayer because Congress said they had to build out 100Mb pipes. Then in late 90s that requirement was dropped because they had “spent” all the cash and hadn’t met the target. We’re talking billions of dollars here.

Then, even though their margins naturally increase over time they have a law allowing them to increase our rates in the future through 2012.

Now Time Warner says they can’t do 3.0 in my area because they cannot afford it.

No sympathy at all.
Sorry… forgot to say great post – can’t wait to read your next one!

We seem to have forgotten that back in the 90s they took a huge amount from the taxpayer because Congress said they had to build out 100Mb pipes. Then in late 90s that requirement was dropped because they had “spent” all the cash and hadn’t met the target. We’re talking billions of dollars here.

Then, even though their margins naturally increase over time they have a law allowing them to increase our rates in the future through 2012.

Now Time Warner says they can’t do 3.0 in my area because they cannot afford it.

No sympathy at all.

they would actually be doing something they are pretty good at and avoid doing all the things they suck at (customer service, providing services on the Internet, marketing).

first one to do it wins.

It’s not hard to draw a projection that puts the ROI for telco investments below the cost of capital. Any industry faced with the proposition that they may be better off investing their money elsewhere – not in their own business, has got to be looking for a solution.

I don’t think outsourcing the network is a long term solution. There are short term gains but the underlying problem is still there.

Innovation is the only choice they have.