In Access Business, Demand Won't Change Very Much; Supply Will. You Know What That Means
In addition to the possible issues (lower value, commodity status) caused by business model inversion, telco service providers also face further disruption on a range of other fronts.
We can assume high levels of competition for all current and future products and services that drive revenue, from traditional sources (other service providers) and new contestants (over the top app substitutes).
What comes next is likely additional forms of competition from non-traditional places, something that arguably can be seen in recent and expected developments in areas ranging from fifth generation (5G) standards to use of millimeter wave frequencies, use of unlicensed and shared spectrum, as well as moves to create more open source access platforms (Facebook OpenCellular, unmanned aerial vehicles, Google Project Loon).
Where in the past it was fairly easy to figure out “who the competition is,” it will be less easy to categorize in the future. Developments such as “network slicing,” for example, will allow app and service providers to buy attributes of networks that are optimized for the particular applications and business models those providers wish to offer.
In a functional sense, network slicing is a form of “wholesale access” to network features. It allows any enterprise or app provider to bundle network access and features with services and apps that drive the revenue model.
Spectrum sharing and unlicensed spectrum, plus new access platforms likewise represent new ways for all sorts of business models combining apps, services and then network access.
As all disputes over spectrum policy are rooted in perceived business advantage, so too are debates over shared spectrum and unlicensed spectrum.
That is normal. What is atypical is the vast potential amount of new spectrum to be made available in many markets, plus the unprecedented effort to create open source models and therefore costs across data center and now access platforms.
To some extent, all ISPs and access providers will benefit from lower platform costs. But that’s the rub: the same shift to lower costs that helps incumbents also enables new potential roles for attackers.
“Dumb pipe” poses the same sort of contradictory implications. On one hand, dumb pipe Internet access now drives revenue growth for mobile and fixed service providers alike, as traditional revenues earned from voice and messaging fall.
On the other hand, such commoditized access does not necessarily drive the same level of profits as the former managed services once did (though there is room for true argument on that score, at least for the moment).
The longer-term strategic issue is simply that there will be so much new spectrum, available at potentially lower costs, plus advances in access network platforms, that new competitors are expected. Adding more supply, in any market, has clear impact on demand. Just as clearly, lots of new supply has predictable impact on profits.
It is hard to see how the access business can avoid further commoditization.