Incumbent ISPs will have to Disrupt Themselves

Disrupting the normal economics of providing Internet access might require disruptive ways of building networks. The perhaps typical thinking is that only “attackers” and non-traditional ISPs have a vested interest in disruption.

But it might now be the case that all ISPs will have to disrupt their own ways of supplying access, to continue to maintain a positive revenue model, on both the high end (fixed fiber optic networks in the United States and elsewhere) as well as the low end (perhaps a ire people who do not at present have access).

The reason is that the economics of Internet access are growing more challenging at both the high and low ends of the access business. At the high end, the example of 1 Gbps, symmetrical, for $70 a month is going to disrupt all other pricing expectations. At the low end, the issue is how to affordably and quickly provide basic access to up to a billion new users.

Google’s “moon shot” testing of balloon based Internet access might be the best example of an attempt at widespread disruption of the traditional costs of providing Internet access at the low end, the bookend to Google Fiber, the effort to disrupt the market for high-end Internet access.

And it is hard to say which is the tougher challenge: getting 1 Gbps fiber ot home costs way down, or supplying wIreless Internet access to a billion users in the global south.

Up to 80 percent of the total broadband investment cost is related to civil infrastructure works, the European Commission says. Another way of putting matters is to say that as much of 80 percent of the cost of building fiber-to-customer networks is not affected in a positive way by Moore's Law.

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But that's only part of the problem. The other issue is that the financial return from any FTTH project is becoming more challenging in a competitive environment

In part, that is because multiple competitors in any market reduce the number of customers any of the competitors can hope to get. At the same time, revenue available from voice, Internet access or video entertainment faces growing pressure.

So ISPs face both more limited addressable markets and also potential or current threats to average revenue per service and therefore potentially lower average revenue per account.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

In the global south, there is a different problem, namely that the underlying cost of any current network is too high to rapidly add up to a billion new users.

Google's "Project Loon," for example, is testing prototype balloons as transmitting platforms, using unlicensed spectrum. But that should also be a spur for others to continue exploring ways to supply Internet access in the global south by other methods.

In many cases, unlicensed spectrum and radios (wireless) will be the only viable way to do so. All that can happen only if regulators are willing to unlock more unlicensed spectrum.