After 4 Decades, Business Model is Still the Issue for Next-Generation Access Networks

We now have been debating the business model for next-generation access platforms for at least four decades.

Somewhat oddly, we continue to debate whether fiber to the home or some other platform is “best” for ubiquitous next-generation networks. And though we undoubtedly will continue to debate where and when any particular platform is best, the business model increasingly is going to shape answers.

Some wonder why Google Fiber, which has been actively investigating deploying its gigabit Internet access service in Portland, Ore., has suddenly put the project on apparent hold. Others might wonder why BT is “dragging its feet” on a more-aggressive fiber-to-home build.

To paraphrase: “It’s the business model, stupid.” In Portland, since news of Google Fiber interest, both major Internet service providers--CenturyLink and Comcast--have moved to upgrade their existing networks for gigabit speeds.

That means Google Fiber now faces a key challenge. Where it might have been the “only provider of gigabit Internet access” in Portland, it now becomes “the latest of three” to do so. Granted, Google Fiber’s features (symmetrical bandwidth) and price could be differentiators.

But the big market opening--entering the market as the only provider with a disruptive gigabit offer--has substantially closed.

In the United Kingdom, BT’s “reluctance” to invest more heavily in fiber to home likewise has its roots in the payback model. As many tier-one service providers already discovered when opening their networks to wholesale customers, robust wholesale policies can lead to a loss of 60 percent or more retail market share.

The issue might be worse if the network is upgraded to fiber access. Losing 60 percent retail is compensated for by “gaining” that same percentage in wholesale customers. But wholesale customers represent less gross revenue than retail customers, and probably lower profits as well.

Having that, plus the high capital investment, could exacerbate the problem. Some see structurally-similar issues in the U.S. market, where regulators want to tighten price controls on legacy special access services. The facilities owners object to being forced to sell price-controlled services to competitors who gain most of the advantages of using the network, and none of the capital investment or risk.

At this point, it might be more fruitful to stop arguing about the technology platforms and look at the matter of incentives to invest in next-generation networks. That is the real problem.