Monday, June 29, 2015

"Rent Rather than Own" is One Consequence of Network Shift; "Enable Not Own" is the Other

“Today, the largest taxi company in the country doesn’t own any vehicles, the largest overnight lodging company doesn't own any hotels, and the fastest growing of the top-10 retailers has no showrooms,” said Federal Communications Commission Chairman Tom Wheeler.

That is a good statement of the fundamental issue faced by traditional telecom service providers: businesses can exist and thrive, wringing value out of existing assets, without paying for or owning those assets.

Contrast that with the traditional interconnection framework, which is that “if you use my network, you compensate me for that use.”

In many ways, those comments made by Federal Communications Commission Chairman Tom Wheeler at the Brookings Institution illustrate the challenges traditional communications service providers face, in their business models.

With the advent of all-IP networks, the old managed services model breaks. Apps of almost any sort can be delivered over an open IP network, without permission. Granted, that creates the value of Internet access business.

But most of the new value, services, apps and business models develop “outside” the access network, and therefore outside the control of the access providers.

Likewise, the financial benefit also accrues outside the access business.

Simply, the ability to wring new value out of high speed access and the Internet arguably benefits app providers more than access providers, even if Internet access services now underpin all telecom, cable TV, mobile and satellite revenue models.

“What they do have is easy access to a broadband network, which enables them to assemble resources in new ways, present them to the public in new ways, and define an economic future that is task-based as opposed to the production-based economy of the pre-broadband era,” Wheeler said.

In other words, the “dumb pipe” broadband access network enables many other business models, applications and revenue streams. To be sure, that has been the architecture of Internet Protocol, by design.

Access is separated from application, and therefore app revenue from network access revenue. In many ways, that is a very good thing. It is a platform very well suited to innovation.

But the framework also ensures that most of the new value, economic and financial benefits will accrue to third parties. About the best any traditional service provider can do is operate efficiently in the access business and own--or have an equity interest in--some of the apps used over the network.

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