Google Fiber is coming to San Antonio, with 1.4 million residents, representing the biggest market Google Fiber has entered, to date. Some might note that the move by Google Fiber suggests Google now is starting to reap experience curve benefits (getting more efficient with experience).
It is an imponderable, but moves such as this, along with the cable TV industry’s dominance of the U.S. fixed network high speed access market, raise questions.
Telcos have been facing erosion of their enterprise, small/medium business and consumer markets for some time. A variety of competitors, ranging from local exchange carriers (especially cable TV companies) to municipal broadband providers, plus over the top apps of all sorts, not to mention product substitution by their own mobile operations, have taken market share, while profit margins have been attacked as well.
Let us reasonably assume that the function of access to high speed Internet, voice, messaging, entertainment and other services remains intact in the future.
How much share can all the competing platforms take? How does the business model for a fixed network telco change? How drastic might the change ultimately be, and how will telcos react?
Some former rural telcos already have provided us with one answer. Both Frontier Communications and Windstream are driving growth by selling service to business customers.
In fact, Windstream approaches the market as does a CLEC, choosing to service business customers with selective networks, and avoiding the consumer market altogether.
The service also is offered in Chicago, New York, northern New Jersey and Milwaukee.
AT&T and Verizon have gotten most of their growth from mobile services. But at least for AT&T, linear video turns out to be a cash flow generator, if not necessarily a “growth” business, as it has become the largest U.S. linear video provider.
Cable TV providers now are the market share leaders in high speed access, however, and remain key players in the consumer market, even as they scale up operations in the SMB and enterprise communications markets. And mobile lurks in the medium term.
The point is that it might not be reasonable to assume the present leaders in any customer segment or application will be the leaders forever. No matter how long the history of leadership in communications markets, everything seems to be changing.
DirecTV had to sell itself. Dish Network will become a mobile provider. CLECs, Google Fiber, municipal networks, cable TV, Wi-Fi-based service providers and eventually others are challenging telco revenue streams, products and market share at every turn.
One bit of business strategy I had imprinted on me many years ago is that, in a competitive market, the low cost provider wins. Generally speaking, telcos are the high cost provider in every market.
Mobile, cable TV, municipal networks, CLECs, over the top providers and even satellites (for linear video) have lower cost profiles. It isn’t yet clear where Google Fiber ranks, but it is likely Google Fiber also has lower operating costs than telcos tend to have.
If you want to know why network functions virtualization is so important, that is why. NFC helps lower operating and capital costs.
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