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Guest Post: Future Broadband - Free, Funded by Apps?


Could ‘free’ broadband connections for the unconnected be funded by a bundle of apps paid for by ‘upstream customers’ - such as banks, supermarkets, etc.? This is a guest post by Thomas Sachson, Founder and CEO of Box Top Solutions, Inc.

[Ed. The ‘Freeband’ model Thomas proposes raises a number of interesting questions, such as how to regulate, commercialise, and manage such a system. Thomas will be presenting this concept at the Americas Brainstorm, 27-28 October in L.A..]

Background - Can the ‘Digital Divide’ be Bridged?

In January 1996, the New York Times published its first article on the “digital divide” and highlighted the pitfalls of a society of two halves - those with online connectivity and those without. Fifteen years later, the divide is still pronounced, which is surprising given the prevalence of communications technologies. But the broadband adoption gap nonetheless exists and should be resolved. As stated by the FCC in their recent National Broadband Plan, the unconnected simply cannot afford connectivity as it is currently offered. And, short of an enormous government subsidy (not likely in the current economic environment), this reality is not going to change. However, there is another model that has just become viable in the digital world - the toll-free online access model - and it could finally connect millions of unconnected homes globally without the need for taxpayer subsidy or expensive new access infrastructure.

The ‘Toll-Free’ Online Access Model

By way of background, the toll-free model, from when it was introduced in 1967 to the present, became one of the most visible and successful telecommunications strategies for marketing (“1-800”, “freephone”, “provider pays”). It was based on the powerful observation that there was a market-driven, three-way trade possible in the field of telecommunications commerce. A voice carrier would ensure that a caller would not be billed for making a call to a merchant if, in advance of that call, the merchant agreed to pay the carrier for the cost of carriage. As a result, carriers generated many tens of billions in additional revenue, with merchants transacting many hundreds of billions. And nearly every customer on the planet now knows the how, why and consequence of using a “1-800” number and, more importantly, is comfortable using this technology in their daily lives.

Nonetheless, this “1-800” provider pays voice model has failed to translate into the field of data communications due to considerable technical and business model limitations. While most users would quickly appreciate how such a toll-free economic model might work once they are introduced to it, the vision and technology to deploy and maintain such a provider pays model has not been possible on a scalable basis. However, these problems now can be overcome by leveraging upon the recent widespread appreciation for and use of discrete applications (“apps”), and in particular Android apps. The result is a new technology platform that has appeal for consumers, online vendors, and carriers.

NB The concept outlined here is described as ‘Toll-Free Online Access’ and not ‘Toll Free Internet Access’ because the ‘free’ component is not unfettered access to the Internet as Telco 2.0 would describe it (see Net Neutrality 2.0).

Consumer ‘Freeband’ Proposition

The core consumer proposition is a ‘free’ broadband connection to alow-cost toll-free broadband gateway enabled for either 3G or xDSL, which may be connected to a suitably configured set-top box, game console, or other device.

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The connection would be funded by the ‘upstream’ App providers - merchants who benefit by the consumer getting easier access to their services. Each app would effectively mimic the experience of a bookmark in a browser, and the consumer could also buy packages of pre-paid / pay-as-you-go pure Internet use if they want to access services outside the app bundle.

From the perspective of targeting an unconnected end-user, a toll-free app system has important technical advantages over a traditional browser-based surfing model.

1. Apps possess features that make them extremely well-suited to fostering a “provider pays” dynamic that enables an end-user to access content without paying for the connection costs (analogous to the 1-800 voice call). This is possible because apps are excellent at monitoring data flows and therefore can act as “micro broadband metering” engines.

2. Apps are also very secure when compared to a browser (each app is walled-off from other apps), and often much easier to use due to their bespoke design (one need only look at the Android app universe to accept the ease of use thesis).

These advantages translate into a “no pain” adoption proposition to an unconnected end-user seeking to get online for the first time, at the lowest price point, with the greatest ease, and with a real functional utility.

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In practice, an unconnected end-user would assemble or choose a pre-set package of 50 or so apps from various online content providers. The host device would be controlled by a wireless keyboard (or cell phone with keyboard) and output to an HDMI TV.

Each app would keep a tally of the bandwidth it consumes over a monthly period and instruct the app creator (let’s say Yahoo!) to pay the carrier for the bandwidth consumed. So long as the cost of the bandwidth is less than the benefit to Yahoo! for acquiring this newly connected user, then the trade makes economic sense and Yahoo! will continue to pick up the access charges for the end-user.

And presuming the end-user confines online viewing to content available within this toll-free app ecosystem, then the bandwidth costs associated with these app-enabled online activities would be borne by the parties providing the apps and the affiliated content, resulting in no broadband bill to the end-user. When one considers the amount of time spent by viewers on AOL, Yahoo!, Google, Facebook, Netflix, Amazon, WebMD, Monster.com, etc., one could easily envision the assembly of a fairly comprehensive viewing universe capable of meeting the daily needs of many online users, where the content providers would be willing to pay for the “cost of the call” in order to get access to millions of new end-users: the presently offline, unconnected demographic.

Of course, at times the end-user would seek to access web content from a source that does not wish to provide a toll-free app (a typical HTML page). In these cases, the end-user will be allowed to go outside the app ecosystem by purchasing à la carte bandwidth directly from the carrier (pay as you go, pre-pay per hour of bandwidth). So in effect, end-users can customize their online experience to reflect their willingness to pay access fees for certain content and not for others.

Content Provider Proposition

Online content providers also have much to gain from a toll-free Online Access system - namely those millions of newly connected users who represent true organic growth for their industries. Clearly, not all online content providers will be willing to pay the specific broadband access costs in order to gain a presently unconnected user, but many thousands of merchants and online providers will be interested in paying the access costs. And remember, in this model, the content provider is not paying the whole monthly broadband fee, just the bandwidth costs associated with the new user’s specific use of the app, which is likely to be only pennies per session per app. So, for many content providers, the traditional customer acquisition and maintenance costs associated with securing an online customer are likely to be greater than the cost of paying for the broadband access to that customer (akin to the vendor paying the cost of the 1-800 voice call).

Carrier Proposition

Lastly, the toll-free Online Access platform introduces two new, organic-growth, recurring, access revenue streams for the carrier, who now collects: (1) a monthly tariff from credit-worthy application providers (for the bandwidth consumed by each toll-free app); and (2) from the end-user whenever they venture outside the ecosystem and purchase additional unrestricted à la carte bandwidth (e.g. pre-pay). As mentioned earlier, both of these revenue streams are easily quantified and managed due to the apps’ ability to monitor data flows.

The use of toll-free applications has another considerable benefit for the carriers. Just as each application is capable of monitoring and controlling the flow of broadband access (bytes), it is also capable of monitoring commercial activities associated with the application so used. In this sense, subject to appropriate data permissions and customer relationships etc., each application could be uniquely positioned to act as an “affiliate marketing” engine that can be used by the carriers to generate new, high value, and recurring revenue streams related to commercial activities enabled by the apps.

As has so often been pointed out in the past, carriers have been unable to fully leverage their position as the physical broadband conduit to the home, instead having to accept billing models where they seek payment only from the end-users and not the broadband-enabled online merchants. However, where an app also is used as a dedicated affiliate marketing tool, the carrier can finally participate in the actual commerce resulting from the connection between the service end-user and the online vendor, and do so in a manner that increases the utility to the end-user (no broadband fees) and the online vendor (access to a new online customer and organic growth). Under this paradigm, a traditional carrier in a very short period of time could possibly establish itself as a major and permanent affiliate marketer of goods and services.

In terms of the carrier investment in such a platform (central office and customer premises), the up-front costs will depend on the type of toll-free connection deployed (e.g., 3G, xDSL) and whether that connectivity is built into a stand-alone device (a stand-alone modem gateway) or integrated into another platform (DVD, DVR, game console), either directly or through a device peripheral. However, much of this cost could be offset by having the app providers shoulder some of the device costs in exchange for being pre-loaded onto the device (akin to the trialware model for new computers). Clearly, from the perspective of the app provider, having one’s logo and app appearing immediately and prominently on a living room TV screen is of great value and worth bearing a fractional part of the hardware deployment costs.

Carriers also benefit because there is a low risk of cannibalization to their existing customer base, as current customers (unlimited access plan customers) would not likely cancel their existing service in order to access a “toll-free + pre-pay plan” that would be considerably more expensive on a per byte basis for their high level and diversity of Internet use. But there is the very real possibility of the carrier up-selling the toll-free access household to a more comprehensive connectivity package once they have experienced the benefits of broadband in the home for the first time.

Obviously, a key requirement will be that the carrier receives enough revenue from “inside the ecosystem” app provider fees coupled with the app users’ “outside the ecosystem” fees (pre-pay) so as to cover the cost of the new line. However, as part of the terms and conditions of this service, the carrier could reasonably specify that the end-user engage with the toll-free apps or purchase à la carte bandwidth often enough to justify the maintenance of the line over a pre-determined period of time.

$28Bn of Growth in the US?

Lastly, it is worth flagging the potential value of the unconnected market to carriers that need to identify and secure long-term growth in their markets. By way of example in the U.S., presuming that there are 35 million households that could adopt broadband under a toll-free model, and the revenue per household per month was only one-third that of a typical broadband household, this nevertheless implies that the carriers could avail themselves to $28 billion in enterprise valuation growth by bringing these lower revenue households on-line (again, so long as it is done in a manner that did not disrupt their relationships with their existing broadband customers).

Furthermore, this value would be achieved not through the deployment of expensive, new infrastructure rollouts, but through the efficient monetization of existing last-mile assets. In other words, the toll-free broadband market represents a disproportionate return on investment opportunity for a carrier seeking to grow rapidly in the near-term and, from a corporate citizenship perspective, to do so by closing the digital divide.

Just The Beginning

There is, of course, much more to the toll-free model (especially in terms of setting the bandwidth price as between the carrier and the app provider), and that is what my company Box Top and its partners have been working on this past year. We call the platform “FreeBand” and are confident that it is a workable model by which we can “connect the unconnected”. The result will be a new toll-free application ecosystem where service end-users can access much, if not all, of their daily content on a provider pays basis. As with the “1-800” voice market, should the provider of content feel it is worth paying the broadband carriage costs in order to ensure that their content is consumed, then they will do so as a rational economic choice. Moreover, a major improvement with FreeBand will be the diversity and perhaps unlimited nature of the applications offered to the end-users. Taken as a whole, this collection of free access applications can approximate the “browser + bookmarks” experience of today’s web for many end-users as they engage in their daily online experience. To this end, Box Top is already considering the parameters for several localized trials (xDSL and 3G) that are likely to tell us much about the actual use of this platform.

The FreeBand model is an easy to understand, high quality means for free broadband where the carriers, merchants, and end-users all benefit in a virtuous cycle, in which each offers something the other values. And, unlike most models for free or subsidized broadband, it is not dependent on overly intrusive ads being foisted upon the end-user or the government (and ultimately taxpayers) paying out more, as the public incentive to fund the broadband bills is provided by the prospect of a net reduction in public services costs.

In the end, the carriers, online vendors and the end-users will gravitate towards arms-length commercial arrangements that suit the parties in each given circumstance (sometimes FreeBand, sometimes pre-pay, sometimes an end-user customized mixture of both). As such, the toll-free Online Access model relies wholly on the “invisible hand” of commerce to allow market participants to determine what type of content the online provider should pay for and what type of content the end-user should pay for. FreeBand, and the toll-free Online Access Model, is therefore as powerful as it is novel. It is a technology platform that can make a real difference in connecting the unconnected and eliminating the digital divide once and for all.

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Comments

So, essentially, toll-free Minitel?

No offence, but I do get a strong sense of deja vu with this plan.

One could certainly draw a comparison in terms of each platform's ability to successfully bring people online for the first time at little or no cost, but I think it ends there as the technologies and user experiences are vastly different. Minitel was a simple terminal consisting of a text-based screen, keyboard, and basic modem (and indeed, a nice solution for its time). FreeBand uses an advanced broadband modem and CPU with graphics capabilities and the ability to run sophisticated online and off-line applications capable of supporting video conferencing, distance learning, job training, telehealth, etc. Next add the ability to overlay a "toll-free" framework to drive down the cost to the end-user while simultaneously allowing the carrier to more efficiently monetize their last mile and we think FreeBand is something that has the potential to alter the broadband landscape going forward.

Minitel is a good comparison as there were free (directory) services for which the business case was cost savings and call stimulation. Then there were paid usage and premium services, paid on the phone bill. In terms of experience, target market, payments & technology, this is completely different.

Are you familiar with Jonathan Zittrain's book "The Future of the Internet - and how to stop it"? The walled garden model you are describing here essentially resembles an endothermic reaction: you have to keep pouring money and energy into it to keep it running, because it has no inherent mechanisms for self-sustained growth

I am a somewhat familiar with Zittrain's work and I think our platform supports one of his main theories -- that web technologies be "generative" -- that new platforms empower people to find new uses for the technology. That is very much what we are doing with our FreeBand platform. FreeBand's "mixed use" ecosystem (not "walled garden" per se since people are free to go outside the garden at any time) is designed to be commercially sustainable since the basic access is paid for by third-parties that want (or need) to keep the pipe open to the end-user (Adam Smith's invisible hand at work). We see the technology therefore encouraging many new uses and models where individuals, governments, artists, merchants, etc. make a rationale decision to reach out to this demographic who would otherwise have zero access. Clearly, "toll-free" access is not the optimal solution for every Internet user -- but it is nevertheless a new option in terms of getting first time, low cost/free access. And by definition, additional choice improves the utility to the end-user and drives competition and innovation from providers.

This is certainly not endothermic. Money flows in only because more money flows back out for the destination site. Its not a subsidy, its a fee for the service of providing desired traffic.
This is brilliant. The timing is perfect the way the different technologies and enlightenment of users and service providers has finally arrived.

Certainly bridging the digital divide will need new technologies. My reservations for FreeBand are that the technology design is unable to evolve with competition (qv Minitel), and that the walled garden is defined by commercial interests rather than community groups who are already trusted by internet non-users.

Close but no cigar

We can do better

Wonderful ..thanks a lot for posting a good informitive blog

Great concept.
However I would believe that the digital divide is also much about accessibility as much as it is about affordibility. Your platform addresses the latter, but the accessibility still remains a issue. By that I mean rural broadband and infrastructure investment.

I think the FreeBand solution is possible and will happen. We are moving more and more to the internet becoming an integral part of people lives and activities. The phone started off small and has continued to grow and evolve. The 800# is a great example and it is used a lot and has proven to be very effective. The iPhone apps which are "free" use a similar pronciple because they serve up ads in exchange for you using the free version and are effectively in the "walled garden" which is fine for me for most of the free aps I use. If you don't like the ads then pay for the premium version and escape the "walled garden" which is the same as paying for your own broadband. I'm personally following this closely as I think it has legs.

Interesting idea. But ... as market rules and consumer perceptions get dominated by **flat fee price structures** for both mobile and fixed access, I foresee limited application of the idea in reality.
Few to no consumers will trade the 20 bucks for more or less unlimited access for a "castrated" (i.e. walled garden) internet.

I'm intrigued by this. Pushing out into the last few deciles that aren't online needs a more creative solution than just exhortation and the odd subsidy. Turning the economics around and actually making it worth the telcos' while to deploy could be interesting.

By definition, most of the people still not online see no appeal in a 'full internet' - any solution is going to need to think creatively about what they need.

We completely agree that no existing broadband customers will trade a $20 fee for a more structured access experience (although calling it castrated seems a bit much). The point we make is that those who are unconnected today will embrace an online solution if the cost is free (or as close to free as possible). The fact that the existing $20 customers will never trade in their existing service for a FreeBand one is why the carriers will do well to embrace a FreeBand model -- there is no risk of losing their existing "flat rate" customers to a "toll fee" model. Instead they get to access the rather large new user pool with an economic model that does not eat into their margins on their existing customer base. And long term, many of these new FreeBand customers will upgrade to an unlimited rate service (another plus for the carriers).

My main question with this model is that (I think) it is implied that the 35 million people in the case of the US, that these potential users want to be connected, but can not afford to do so. My question is if this is indeed the case, would the app provider have a viable market segment to address (i.e. people who can pay for services that the apps may be providing)? I would also wonder how many of the 35 million are not REALLY connected...if these users ostensibly have a PC to connect to the service, maybe they just do so at establishments (such as coffee shops) that offer free WiFi.

That said, I do think that this model has merit irrespective of my questions, as I think this solves some of the major issues associated with Net Neutrality (such as OTP players getting a 'free ride').

Thanks for posting an excellent article.

I am familiar with what BoxTop are trying to do and I think it's going to fill a void that needs to be filled. I believe a large number of the underserved/unconnected probably have a TV in the house and a phone line going into the house. This plus the Freeband box with keybopard is basically all you need to get the people up and running (i.e. it is not dependent upon a PC). Very similar to some of the intelligent set top boxes and the new Google TV boxes. The additional advantage is this concept is also deployable on other platforms including smart phone and it can also use cellular networks thus not always necessary to have a phone line/DSL/Cable connection. I don't think this is a solution for people who are already paying for high end broadband but it could have it's place with some of the currently paying customers at the entry levels.

More good questions -- thanks. We think many thousands of app providers would be very interested to tap this lower income demographic and get the organic growth. While this demographic has thus far resisted 12 month contractual commitments to pay $30-$50 per month for broadband, they still have disposable income (less than many, but more than enough to be attractive to many merchants -- especially relating to content). Many also have funds to spend but don't fully appreciate the value of connectivity -- yet. By giving them an opportunity to experience broadband for free (the toll-free apps and ultra-low-cost device) they are more likely to make the jump to broadband since FreeBand gives them a "no pain" proposition to get started. As to the ultimate size of this group, it is tough to say -- but it is certainly in the tens of millions -- making it a very attractive market for a carrier looking to grow quickly.

"Toll-Free Online Access..."

A new IT and telecommunication terminology for me. Better watch out this upcoming technology of future broadband access.

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