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IPTV via the Edge or the Network?

An important hot off the press piece here reminding us again about how value is moving increasingly to the edge of the network. In this case Microsoft announcing that it’s new XBox 360 will offer HDTV and HD movie downloads for rent or sale.

We’ll be releasing the details of our next Telco 2.0 Industry Brainstorm programme for 27-29 March (London) later this week. The news above is perfect context for a need for telcos to think MUCH more creatively about their role in the value chain. And quickly. Hence the brainstorm.

When we describe these ‘edge’ developments at our in-house workshops we often hear telco execs respond “Well, at least they’ll be using our pipes, that’s fine by us. More broadband take-up…” At which point, of course, we describe the ‘Broadband Incentive Problem’ (beautifully elucidated in a hot breakout room at the October Telco 2.0 event by John Watlington, participant in the MIT Communications Futures Programme and Principle Research Scientist at France Telecom’s R&D iLab in Boston.

This is pretty critical. Here’s our take on it (as a sneak preview of the Day One theme of the March Industry Brainstorm):

There is a fundamental challenge to network operators as they hurtle rapidly towards a ‘Telco 2.0’ world:

Who finances broadband access networks? End-users, municipalities, content providers, merchants, advertisers?

Broadband is heralded as the golden growth opportunity for fixed and mobile telcos and a driver of economic and social well-being for local and national communities.

However, recent studies of the advanced markets in Japan and South Korea are demonstrating that the costs of providing broadband access rise faster than revenues.

This leads to a.) an unsustainable business model for network operators and b.) causes them to be a bottleneck in many internet value stacks with major repercussions for all parties.

This is driven by five key trends:

- Growth slows as the broadband access market saturates
- ‘Flat-rate’ pricing models continue
- Inability to capture enough value-added services to cross-subsidize
- Per-subscriber usage increases, possibly significantly
- Bandwidth costs don’t drop as fast as usage rises

This problem will soon heavily affect fixed line operators, cablecos and ISPs in most of Developed Markets and mobile operators too as they increase adoption of HSPA and 3G.

The key questions, then, are:

- How can we provide a return on network investment without discouraging innovation by users?
- In the short term, what are the alternatives to ‘flat-rate pricing’?
- What architectural changes are needed to the internet?
- How should we think more creatively ‘downstream’ (about users, communities, and municipalities) as well as ‘upstream’ (content providers, merchants, and advertisers) to develop more sustainable business models?

While these issues are being considered operators need to develop strategy on two fronts:

- How can we drive revenue?
- How can we reduce cost?

On the Day One of this Industry Brainstorm we will be looking at the broad strategic approaches to a.) driving revenue and b.) reducing cost. Stimulated by specially commissioned presentations we will decide which strategies and business models are likely to be most ‘Telco 2.0’-compliant.

On the Day Two of the Industry Brainstorm we will look at the issues in much more detail from the end-users’ point of view. We will split into 4 workstreams looking at:

1. Digital Youth (the critical 16-34 year old market)
2. Digital Home (the key hub for communications and entertainment)
3. Digital Town (economic and social regeneration through connectivity)
4. Digital Workers (making the knowledge worker more productive)

On Day Three, we are holding a number of workshops:

1. IMS/SDP Insiders Workshop (open session)
2. Advertising-Funded Content (by invitation-only)
3. New Investment Metrics for Telcos (by invitation-only)

More to follow…

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