Keeping an open mind
In the upcoming 700 MHz auction, the FCC is mandating that 22 MHz of spectrum be allocated to allow, with certain constraints, open access to applications and devices. Google and others lobbied for open access, arguing that without it, the Internet is, and will remain, a dichotomy: a wired Internet to which users can attach any IP device and access any content, and a wireless Internet more constrained in terms of devices and content.
The CTIA opposes that view, arguing that by encumbering spectrum with open-access mandates, the FCC's ruling may deter potential bidders and reduce spectrum valuations. Major providers, including AT&T Mobility and Verizon Wireless, while initially skeptical about open access, have taken a more neutral position.
Current and potential wireless providers need to consider whether open access offers a new basis for differentiation. At least three reasons suggest it might. First, with market penetration near 80%, churn is the dominant source of gross adds. Open access provides a low-resistance path for subscriber adoption by letting prospects transition with the handset of their choice, giving the open-access provider a potential flow-share advantage.
Second, by enabling device independence, open access reduces handset subsidies and lowers cost per gross add (CPGA). We estimate that a 50% reduction in handset subsidies could lower CPGA by 20% to 25%, raising customer EBITDA margins by up to 5%, assuming churn remains at comparable levels. However, margin improvement diminishes as incremental churn approaches 1%, a risk open-access providers must manage.
Third, WiMAX deployments are on the horizon as a de facto competitor to open access. Designed from the ground up as IP, WiMAX is supported by major equipment providers, including Intel, helping to ensure a wide assortment of interoperable devices. Xohm, for example, Sprint Nextel's planned WiMAX offer, will adopt Wi-Fi's subscription and session-based open-access model, allowing any WiMAX-compatible device to connect to any content or application over the Internet. An open-access counteroffer may be the best response for incumbents.
But providers, especially larger incumbents, have reason for skepticism. Opening their networks puts providers at risk of becoming transport-only dumb pipes, ceding some profits from proprietary content and applications to third parties. Unique knowledge of their own wireless networks, however, positions carriers to develop enhanced, sticky applications that fully leverage their network capabilities, such as location and presence, and to rent value-added network application programming interfaces to third-party content and application providers.
In addition, ensuring device interoperability in a wireless context is not trivial. Today's wireless networks lack a uniform way for devices to plug into more advanced features, making incompatible devices a risk to network performance and customer experience. Also, in the U.S., there is a mix of incompatible CDMA and GSM networks, limiting device interoperability across providers.
Finally, providers are reluctant to open their networks to applications, such as voice over IP, that might cannibalize voice revenue. While IP-based voice seems inevitable, premature erosion of legacy voice revenues would cut off a key source of funding for the 3G and 4G networks needed to make this transition a reality.
The FCC has defined a path forward for open access in the U.S. From the carriers' point of view, the arguments for and against open access are complex and situation-dependent. In light of the likely future competitive environment, however, carriers must determine if and how open access fits into their own strategic plans as the 700 MHz auction approaches.
David Waite is a director for Altman Vilandrie & Co. He can be reached at email@example.com.
Want to use this article? Click here for options!
© 2013 Penton Media Inc.
In this Webinar you will learn how to create a real-time relationship with your customers, how to proactively improve the customer experience, and how to successfully target and cross-sell services to boost incremental revenue.
- Megabytes to Megabucks, Bandwidth to Business Models: How 4G Is Changing Everything
- How to Unplug Your Redundant Telco Apps To Save Money and Improve Efficiency
- When IaaS Isn't Enough: Service Provider Business Models to Drive Growth and Build Margin
- How to Transform Your Aging Telco Voice Network to Drive New Profits and Revenue
- Creative Licensing Approaches for Telcos & Their Network Equipment Vendors
- Smart Home Opportunity: Balancing Customer Data & Privacy
This paper discusses the rise of Diameter and benefits of Diameter Protocol.
- Conducting The Orchestration – Order Management at the Speed of Business
- Toward a Converged Network Edge
- Beyond Spam – Email Security in the Age of Blended Threats
- 6 Important Steps to Evaluating a Web Filtering Solution
- The Expertise to Protect You from Botnet and DDoS Attacks
- Seeing is Believing – Bridging the Order Visibility Gap
Service providers are under tremendous pressure to turn up new services faster then before and, at the same time,
to do it at less expense - and intra-office fiber is one of the biggest challenges in terms of both cost and service
From the Blog
Join the Discussion
Get more out of Connected Planet by visiting our related resources below:
Connected Planet highlights the next generation of service providers, as well as how their customers use services in new ways.Subscribe Now