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.

sachson.png

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.

sachson-1.png

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.