What are we waiting for?

Raise your hands: How many of you out there are tired of hearing that broadband is dead?  OK, so DSL-based broadband hasn’t lived up to its promise.  

FROM OUR ARCHIVES

Consumer take-rates for DSL have been disappointingly low, and telco provisioning costs have been horrendously high.  Reluctantly, but surely, we must admit that the way broadband is sold today, as a conduit for commodity bits-per-second,is--and should be--dead. 

With 20:20 hindsight, we now know that it’s tough to make money providing broadband data service over DSL.

With 20:20 hindsight, we now know that it’s tough to make money providing broadband data service over DSL.  A lot of telcos have implemented data networks to provide a service that they thought would be a gold mine, back when the Internet was a high-growth phenomenon.  

Few could blame them at the time, but placing the burden of the current misery on subscribers, for not taking what carriers gave them, is exactly wrong. 

Let’s look at some of the real reasons:

• Unsustainable business model. The competitive local exchange carrier (CLEC) model failed because CLECs got squeezed.  On one hand, they couldn’t adequately differentiate their services or make them appealing to the average subscriber and therefore couldn’t charge a premium for it.  
  
  On the other hand, as resellers of bandwidth from the “actual” local network providers, their costs were high.  Similarly, if the incumbent LEC deploys and offers broadband data (only) service to consumers and businesses, what assurances do they have that they will recover the investment within a reasonable period of time?

• Competition. Is there really still competition without the CLECs? Absolutely. Digital television is mandated in the U.S. before 2006.  As a result, the cable television industry has been spending billions of dollars annually to upgrade its infrastructure. 
  
  One of the ways to recover this gargantuan investment is to offer new interactive TV services.  And, as telcos in major metropolitan markets can already attest, they’re also offering broadband data and voice services.

• Availability of content. Movie studios and TV networks have been extremely reluctant to make their content available to broadband providers. They have not been convinced that their intellectual property would be immune to piracy.  On the other hand, cable TV operators are a trusted channel for the studios.

• Low perception of value. Without access to mainstream content, why bother subscribing to broadband? Yes, a few subscribers do pay extra just for faster Web surfing, but many consumers want more.  And why should the act of subscribing to DSL broadband service be like getting a root canal, when cable modem service is comparatively so much easier?

So, what’s the solution?  First of all, I challenge the conventional wisdom that broadband is dead.  We all know that broadband doesn’t just do data-–and therein lies its real promise.  Today, the true potential of broadband is TV.  

Full-rate ADSL can exceed 8 Mb/s, well over 10,000 feet from the central office, which makes it a viable medium to carry multiple simultaneous “entertainment-quality” MPEG-2 digital video streams--TV, movies, music, games, the Web, whatever--over a single standard copper phone line. VDSL can exceed 50 Mb/s, in short runs such as in high-density housing areas.  

Gigabit Ethernet The newest version of Ethernet, which supports data transfer rates of 1 Gigabit (1000 megabits) per second. --from Webopedia Click here for more information 10 Gigabit Ethernet Alliance

Fiber-to-the-home is gigabit Ethernet, which can extend many miles.  In other words, current technology and current access networks make TV-over-broadband a reality--now.   In fact, each part of the ecosystem that makes it possible is available from multiple sources.

Why should telcos care?  Because, by delivering TV, telcos can multiply their per-subscriber revenue. But then again, the culture and politics of the telco business (the 8th layer of the ISO/OSI model, right?) may find many U.S. telcos unwilling to pursue the opportunity, while the cable TV companies cannibalize the telcos’ core subscriber base by bundling phone service over their shiny new digital networks.

If sober people think we’ll be watching TV on cell phones in a few years, then why not TV from the phone company?

Then there is consumers' expectations. Can consumers fathom entertainment services from the phone company?  Well, why not?  If  a telco can beat the local cable franchise’s channel lineup, provide equivalent or greater service options, offer cost savings through bundling and offer “Five 9s” reliability, then how can subscribers ignore it?  In countries where cable television is less entrenched than in the U.S., many DSL broadband providers are already offering TV.  If sober people think we’ll be watching TV on cell phones in a few years, then why not TV from the phone company?

Some U.S. telcos already do. Qwest, for example, serves more than 50,000 subscribers with its TV-over-DSL service in Phoenix, one of the most competitive cable TV markets in the United States.  Admittedly, a significant barrier for Qwest has been high equipment cost, but, generally speaking, with the proliferation of possible services and the declining cost of network gear, it is becoming a very viable business opportunity.  Time (and culture) will tell.

I hope that I’ve accomplished the objective of my first column for The Analyst’s Corner: to help you look at broadband from a new perspective, one from which telcos can significantly increase revenues, provide value and fend off new competition, all at the same time.  Future columns will provide more insight into the solutions, delivery chain, network operators, services and business models in this new world of broadband. 
Steve Hawley is a consulting analyst and president of Advanced Media Strategies, Issaquah, WA. He can be reached at steve@tvstrategies.com.

Visit Advanced Media Strategies online.

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