Fixed Network Business Models Now Based on "Dumb Pipe"

Intangible products such as music, video, print content, banking transactions and even communications services are among those most easily sold “online” or “digitally.” Another way of describing the change in channels of distribution is to note that, over time, “sales” and “fulfillment” became more virtual and less physical. 

So the issue is the extent to which connectivity services sold to consumers and small businesses might also become more “virtual” over time. For consumer mobility services, the switch might be experienced as ordering a new phone online and then activating online, with no need to visit a physical retail outlet. 

source: A.D. Little 

That retail virtualization is perhaps a mirror of the content and applications virtualization that already has reshaped the connectivity business. 

“Over the top” applications and services are more than a revenue model, a strategy and an asset ownership model. They reflect fundamental changes in how computing and communications networks are designed and operated. 

In a broad sense, OTT represents the normal way any computing network operates, and since all telecom networks now are computer networks, there are clear business model implications. 

Though it is so familiar we hardly notice it any more, communications network architecture, computing and software architecture also mirror a profound change in possible communications, media and content industry business models. 

The separation of access from apps, transport from other functions now is a fundamental reality of communications, software design and applications. The whole idea is to compartmentalize and separate computing or communications functions so development can happen elsewhere without disrupting everything else. 

The desired outcome is the ability to use any app on any device on any network, while making changes and upgrades rapidly within each layer or function. Abstraction is another way of describing the architecture. Devices do not require detailed knowledge of what happens inside the network black box (which is where the notion of “cloud” came from). 

Devices only need to know the required interface. That also explains the prevalence of application programming interfaces, which likewise allow the use of abstracted functions. 

What we often forget is that these technology conventions have business model implications. Simply stated, the business model (all the inputs and operations needed to supply a product to a customer for a profit) mirrors the architecture of software and networks.

source: Henry Chesbrough 

Which is to say business models now are built on abstracted ecosystems and value chains. The clearest illustration of that is the phrase “over the top,” which describes the ability of any third party application or service provider to reach any customer or user on any standard internet connection.

That “open” process contrasts sharply with the old “closed” analog telco model where the only apps or devices that could be used on the network were owned or permitted by the connectivity services provider. 

That is why the terms “over the top” and “dumb pipe” have developed. Where in the past telcos sold services that used a network (voice, messaging, video entertainment), now they also sell “data network access,” where the product the customer buys is, strictly speaking, a “dumb pipe” that enables access to applications. 

The irony is that, to the extent the dumb pipe internet access is the foundatinal service now sold to fixed network consumers, and a core product for mobile network customers, revenue streams now are built on dumb pipe.

Keep in mind that all telecom networks now are computer networks. The value lies in enabling access to applications. Some of those apps are owned by the connectivity provider (public network voice, public network messaging, linear or OTT entertainment video, virtual private network services, private line, hosted voice and--in some cases--enterprise applications. 

But the dominant value of the dumb pipe internet access is access to all other third party applications based on delivery using the public internet. 

The great irony is that, as much as connectivity providers “hate” being dumb pipe providers, their business models now are based on it.