New Business Models are the Biggest Issue of the New Era of Communications

New business models are at the heart of most developments in telecommunications. It is no secret that value within the internet value chain has moved to app providers and away from access, whether you measure by annual revenue, profit margins or equity values.

That automatically raises the issue of whether telcos, cable TV companies and internet service providers can create new business models. Already, many would argue that profit already has been vaporized in the undersea transport business, the long distance voice business and fixed line services in general.

That same process is being seen in the mobile segment, as voice and text messaging revenues are generating less gross revenue and profit in many markets, supplanted by mobile data services that, in turn are becoming problematic in many markets that adopted early.

"The hyperscale guys are so much more efficient" than the access providers," argues Tim Horan, Oppenheimer analyst. "I kind of think everything goes to LTE (mobile) and cannibalizes wireline."

"Do telcos become commodity infrastructure providers?" asks Pierre de Vries, co-director of the Silicon Flatirons Center for Law, Technology, and Entrepreneurship at the University of Colorado. Basically, some might argue, that is the present danger.

If big data ownership is the oil of the coming age of the internet, then it might also be true that spectrum is the beachfront property of the communications networks that support the internet. But there remains huge disagreement about the most-fundamental aspects of the wireless and mobile networks that serve most consumers globally.

For example, there is not complete agreement about whether there is scarcity of available spectrum, and therefore, how important additional spectrum allocations might be. Demand for mobile spectrum has not been as extensive as the Federal Communications Commission predicted in 2010, for example, says Armand Musey, Summit Ridge Group founder.

To be sure, there are discrete industry viewpoints. Satellite industry supporters almost always argue there is no shortage of mobile spectrum. Virtually all supporters of the mobile industry argue much more spectrum is required.

LIkewise, there remains disagreement about the various ways any existing spectrum should, or can, be allocated. Allocation of licensed spectrum (exclusive use) with, or without auctions, have been the preferred methods.

But now shared access (dynamic access) is emerging as a new choice, especially where the objective is to maximize the use of already-licensed spectrum, beginning with the 3.5-GHz bands in the U.S. market, and 2.3 GHz in Europe, for example.

Dynamic access is the key to alleviating spectrum shortages, particularly in the mid-bands, argues Kalpak Gude, Dynamic Spectrum Alliance president. “I’m not sure people understand the potential,” says Gude.

Using several techniques, it is possible to protect existing licensed users, but allow opportunistic use when the licensed spectrum is not actually in use, thus using existing spectrum resources more efficiently, without the expense and time required to move existing users from their existing bands. Though Musey does not believe there is a mobile spectrum scarcity, he does agree that a technology revolution coming, in the form of shared access capabilities.

Still, scarcity might matter greatly. “Without scarcity, there is no business,” says Tim Horan, Oppenheimer analyst.

At the same time, there are big new moves being made to enable sharing of licensed and unlicensed spectrum, including 4G Long Term Evolution and Wi-Fi, for example, or to enable use of LTE in unlicensed bands alone. In the U.S. market, some seven gigaHertz of new unlicensed spectrum is going to be made available.

And while some argue for more use of unlicensed spectrum, others believe that without exclusive use licenses, investment will not be made. “Where is the revenue, if spectrum is unlicensed,” Musey asks. “How do you finance the construction of networks?”

Actually, it is quality of service that has to be assured if investments are made, argues Bob Pepper, Facebook global director.

As a practical matter, regulators globally believe much more mobile spectrum is required, and much more spectrum is coming. Exclusivity of rights is the issue, not so much scarcity of bandwidth, argues Pierre de Vries, co-director of the Silicon Flatirons Center for Law, Technology, and Entrepreneurship at the University of Colorado.

The issue is the right to exclude versus the right to be protected from interference, says De Vries. And under any system of licensed and unlicensed access, we still would have regulation, says Pepper. But the amount of regulation could be reduced if we relied more on technology standards to protect users from interference, says Gude.
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