Thursday, September 17, 2015

Business Model Really Has been an Issue for Telco Next Generation Networks

Telcos have faced some rather unpleasant business model realities where it comes to next generation networks of several types, which helps explain an apparent hesitance to build faster.

The big problem is that building next generation networks sometimes does not clearly offer the promise of additional revenue. That is a big deterrent to investing.

In the fixed network area, the upgrade to fiber-reinforced or all-fiber access networks has had a clear business model problem: since voice and lower-speed digital subscriber line could be provided over the copper networks, upgrading really only added one new service--entertainment video--and most smaller telcos have not found they actually made money offering that service.

Even the biggest providers, such as AT&T and Verizon, have found the financial returns rather low, even with their scale. The rationale has evolved with demand for higher speeds, so now it is apparent the networks must be fiber reinforced to sell a competitive Internet access service.

But even there, the financial return is challenging. The upgrades do not so much create new revenue as protect the ability to sell the existing product.

Some of the same logic applies for voice over LTE and voice over Wi-Fi. There are benefits, but they largely are indirect. VoLTE means mobile operators using only 4G have a way to support voice services.

There are operating advantages, including faster call set-up, and frees up potential bandwidth, compared to relying on 2G or 3G for voice, and 4G just for Internet access.

Wi-fi calling provides better indoor coverage for some users in some areas, but again, creates no significant new revenue opportunity.

Cable operators have had far easier choices. For starters, it has proven far easier to wring vast amounts of bandwidth using a hybrid approach that is far less capital intensive than a full fiber to home upgrade.

Those upgrades have allowed cable operators to become the leading providers of high speed access, and also improved performance and reliability enough to support business and consumer voice services, while retaining the lion’s share of the linear video market. Those networks also supported a move into the small business market, and some parts of the enterprise market.

In other words, the cable upgrades did create big new revenue opportunities.

That has not always been the case for mobile or fixed network next-generation network investments. So a certain reluctance to invest comes as no surprise.

Whatever else one might legitimately complain about, concern about a difficult business model is not among them.

Other contestants might--and often do--entertain different payback models.

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