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Broadband Connectivity - HYPOTHESIS

As per the Voice & Messaging 2.0 ‘hypothesis’, here’s our ingoing suggestion for ‘Broadband Connectivity - new ways of funding and pricing networks’

1.) Situation

• Huge growth in all markets, but low margins.
• Where unbundling (wholesale DSL or raw copper) exists, there are many competitors.
• Emergence of “free” broadband in some markets as adjunct to fixed or mobile calling plans.
• Significant inter-modal competition, mostly coax vs. twisted pair; limited wireless penetration.
• A few telcos “going for broke” with fibre deployments (e.g. Verizon, HKBN, KPN?, DT?, BT??).
• Emergence of municipal network movement (US, northern Europe, Taiwan).
• Bulk of traffic is generally peer-to-peer (P2P) file sharing. Paying for explicit QoS is rare; “best effort” is the de facto norm.

2.) Complication

• Attempts at price discrimination of network traffic meet regulatory/political or technology barriers (“network neutrality”, IMS beyond IP-based PSTN replacement).
• Users are competing against bundled telco video and voice offerings using peer-to-peer file sharing and VoIP; ultimately you can’t compete against your own customers.
• Paradox of best (heaviest usage) customers being kicked off because of inadequacies of QoS, pricing, metering, ownership, technical and billing models. No other market works like this!
• Many fibre assets are underused; and penetration remains unimpressive as many users fail to see value, often despite being avid “old media” consumers.
• Duplicative competing access infrastructure harms business case (based on premises passed/take-up rate).
• Cost of sales, marketing, billing to individuals and households is high.

3.) Question (in the mind of the operators today)

1. Are we packaging, positioning and selling the product in the right way?
2. Are we creating the right technology models and pricing incentives for different classes of user and traffic?
3. Is the traditional funding and sales model (“fiscal architecture”) the right one for the future?
4. Is the triple/quadplay bundling going to deliver good returns generally, or are places like Hong Kong anomalies?

4.) Answer (our suggestion as to the solution)

1. Focus on the non-functional aspects of the service. Consider alternative models where service purchase funds necessary connectivity. Bundle more horizontal connectivity together, rather than vertical service integration.
2. Investigate tiered access and pricing models that don’t rely on the application filling in a “customs declaration” as to the nature of the traffic. Support P2P explicitly and tailor your product for it.
3. If you can’t beat them, join them. Shape the regulatory and commercial environment so that the municipal/co-operative/public access LAN movements become part of your business model.
4. Quadplay will have limited success as a profit engine, but the offer is likely to be a hygiene factor in the minds of consumers who will by-and-large continue with pick-and-mix.

5.) Details of the solution (high level for now)

1. Sample non-functional aspects: plan flexibility, customer service, security, privacy, etc. Yahoo and Skype offer services where you get “free” WiFi access for using their services; mobile operators in particular need to remove data service price uncertainty. Bundle 3G data, WiFi and broadband together, particularly where you have unique assets in any one sphere.
2. Explore “Paris Metro Pricing” and other “stupid QoS for stupid network” solutions. Price and meter local/P2P traffic and on-net traffic differently from off-net and global traffic. Issue your own P2P client.
3. Consider following models along the lines of Earthlink in US (muni specialist), or in Stockholm and Amsterdam (shared common fibre infrastructure).
4. Assemble basic bundles, but don’t assume that highly differentiated content (e.g. premium football) will be affordable, unique or compelling in a world of fragmented production and consumption of media, where blockbusters are few and far between.

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