Let's Retake the Lead for Broadband Services

Many of my articles have been leading up to this one: why we should focus on content and services and not the pipe. I am proposing a fundamental shift in how we view our industry. The latest broadband penetration figures from the OECD (see table on right) show that the United States has slipped to #12. Governments in countries like Japan and Korea have subsidized the building of broadband networks. In other countries, governments have stepped aside to let broadband services flourish. Why is the U.S. lagging so much? It is not because we lack the financial or technical resources. There are two reasons that are intertwined preventing our leadership in this area: government regulation and industry protectionism.

Broadband penetration numbers in OECD states
	Penetration, number of lines per 100
Rank	Country	DSL	Cable	Other	Total	Total Subscribers
1	Korea	13.9	8.9	2.7	25.5	12 260 969
2	Netherlands	13.6	8.9	0	22.5	3 642 315
3	Denmark	13.2	6.1	2.4	21.8	1 176 637
4	Iceland	21.0	0.3	0.4	21.7	63 553
5	Switzerland	12.7	7.2	0.4	20.3	1 515 446
6	Canada	9.4	9.7	0.1	19.2	6 142 662
7	Finland	16.3	2.2	0.2	18.7	978 600
8	Belgium	11.0	7.3	0	18.2	1 899 652
9	Norway	14.8	2.5	0.9	18.2	836 060
10	Sweden	11.3	2.7	2.5	16.5	1 482 843
11	Japan	11.0	2.4	3.0	16.4	20 953 090
12	United States	5.5	8.0	1.1	14.5	42 645 815
13	United Kingdom	9.7	3.8	0	13.5	8 095 000
14	France	11.9	0.8	0	12.8	7 935 900
15	Austria	7.0	5.4	0.1	12.5	1 025 036
16	Luxembourg	10.4	1.3	0	11.8	52 920
17	Australia	8.5	2.4	0.1	10.9	2 183 300
18	Germany	9.9	0.3	0.1	10.2	8 439 732
19	Italy	9.4	0	0.6	10.0	5 783 319
20	Portugal	5.1	4.7	0	9.9	1031 491
21	Spain	7.0	2.2	0.1	9.3	3 949 234
22	New Zealand	6.4	0.3	0.3	6.9	283 798
23	Hungary	2.9	1.6	0.1	4.6	469 186
24	Ireland	3.5	0.4	0.5	4.3	175 500
25	Poland	2.5	0.7	0.1	3.3	1 250 000
26	Czech Republic	1.8	1.0	0	2.8	284 200
27	Slovak Republic	1.2	0.3	0.1	1.6	86 958
28	Turkey	1.1	0	0	1.2	862 843
29	Mexico	0.8	0.2	0	1.0	1 051 854
30	Greece	0.8	0	0	0.8	93 287
	OECD Total	7.2	3.8	0.8	11.8	136 651 000
Source: OECD

The large players in the industry have lost their entre-
preneurial spirit. Instead they are using over-
regulation of the industry to suppress competition. Divestiture, Telecom Act of 1996, FCC, state utilities commissions, and even the Supreme Court (Brand X Decision) have been the tools used to prevent the growth of broadband services and the creation of new industries in this country. Let’s face it. Our country is now a service based economy, and we need to develop new service based industries to maintain our global leadership. We could continue on this path to protect access to the customer and what rides over the networks to continue down the slippery slope or realize that there is a whole new economy out there to provide content and services.

Some of this regulation made sense for TDM-based networks, but the economics change with IP. Unfortunately telcos and MSO in the U.S are still more focused on the pipes than the services that they deliver. They know that if they can control what rides over the network then they can distribute the content which is where the real revenue and profit lies. What they are forgetting is that consumers have more choices for access these days. Companies that lock down their network are going to see customers go to networks that allow their customers choice of services. In a couple of years WiMAX will enable multiple new carriers to provide access to consumers.

Carriers should focus more on developing and packaging a superior service portfolio to consumers and less on keeping others out of their networks. The ROI would be greater than having a cadre of lawyers and lobbyists at the FCC and state utility commissions. Companies like Vonage decided that they can focus on providing consumers a better voice service and forgo worrying about the pipe. In a few short years they have attracted over one million customers worldwide. Consumers like simplicity. Vonage offers them simplicity. They have two service packages with all of the features that 90% of the consumers use. Carriers should take a cue from Vonage and act as service providers and distributors instead of bandwidth providers. The revenue is three times greater for content than providing bandwidth. This figure will only increase over time. Customers will stick with a carrier that provides a better user experience. What constitutes a better user experience? One that creates simple bundled package with video, voice, and mobility services very reliably. Providing the transport is simply a service differentiator. Carriers can still charge consumers for bandwidth transport and let subscribers purchase services from anyone ala carte, but many will chose to stick with the provider that delivers the superior user experience. An added benefit to carriers is that they may be able to offer these packages worldwide instead if just in their current operating territory; thereby, greatly increasing their addressable market.

Telcos and MSO should think more like distributors than network providers. The auto industry uses a distributor network to deliver its products. Usually the car dealerships make more profit per customer than the manufacturer. Telcos and MSO have the same opportunity before them. They know their customers, and they should be able to offer services packages better than anyone else. Do not worry about the pipe. Concentrate on delivering the services over the pipe. The cost per bit of transport will continue on its decline enabling less capital expenditure on building the network. The network should be seen as a value added part of the service offered. Consumers will still have to purchase access to the Internet, but the service they buy can be cheaper and higher quality if bundled from the carrier. Good marketing will demonstrate a better user experience. Many consumers will resonate with that message.

New service providers will still pop-up that will capture revenue of the carriers’ customers, but the carrier can turn around and provide the same or better service. Consumers then have the choice where to purchase that service. Many will come back to the carrier. Everybody wins. The secondary effect is more consumers will want to purchase more services and consume more bandwidth. This spiraling effect will drive the broadband penetration to customers. By focusing on services, carriers grow stronger and broadband penetration will increase.

Incumbent carriers and MSO along with the rest of the industry should lobby Congress to rewrite telecom legislation that will free the industry of its regulatory and statutory shackles. A minimalist position is best. Just how confused Justice Clarance Thomas was on the Brand X opinion. State utility commissions should be eliminated because this is a global industry. With the slate clean to focus on quality content and innovative services, the telecom industry in this country will flourish and we will see our prominence in broadband rankings increase as well.

Tag: telecom, VoIP, service