Author: admin | Date: April 8, 2017 | Please Comment!

Everyone loves the idea of a gigabit networks.  Google Fiber started the hype and then all the carriers followed suit creating gigabit networks.  But what exactly does that mean to customers?  Do they know what it will allow them?  And, more importantly, how do telephone companies productize this network investment if all that is being sold is bandwidth?  Very soon it shall become a commodity and then just like voice and short message service (SMS) average revenue per user (ARPU) will begin to degrade thus the ability to obtain a high return on investment (ROI) will be lost.  Hopefully the payback period will have been achieved prior to this commodity view, otherwise the network may never pay for itself.

When the mobile industry started, the focus was on the mobility aspect for voice; the untethered handset that allowed customers to make and receive phone calls from anywhere with their own phone number.   This was then broken down into different offerings – by minutes, local coverage, long distance, roaming, etc.  Thus, emulating the original voice service and then adding the new feature sets that this technology provided.

In 1993, with the advent of SMS, while this was tied specifically to the mobile handset, it was not just assumed to be part of the offering rather we productized it and turned SMS into a revenue generating product.  With the enhancement of multimedia messaging service (MMS), we then starting looking at bandwidth capabilities but also made it into an enhancement of the SMS service offering.

In the mid-late 1990’s smart phones did not really exist instead we used PDAs (personal digital assistants), such as Palm, Blackberry, etc.  Because these PDAs were separate from the voice handset, different product offerings were created for the ‘data’ usage, which was usage driven, just like voice minutes.

In 2003, Blackberry had become the widest accepted ‘smartphone’ and even had its own colloquialism assigned to it like ‘CrackBerry’.  Telephone companies sold this service and it was predominantly focused on voice and email services.  Again, everything was usage based.   From 2003 – 2007, a variety of ‘smartphones’ were developed by various companies but the Blackberry was the dominate handset of choice.

In early 2007, Apple introduced the first iPhone, which started the smartphone revolution.  Now the smartphone could handle voice, SMS/MMS, email, but also web browsing, and the key was that it mandated a standard voice plan plus a data plan.  Now the data plan was based on usage while the voice service had become commoditized thus was not minutes or usage based as previously.

So, from 1987 to 2007, voice and SMS/MMS has become a commodity product that will not allow for new ‘productization’ of, but rather is now viewed as a means to an end to obtain smartphone data usage.   Now, in less than 5 years, there are data-only product offerings for ‘smartphone’ users, eliminating the voice and SMS/MMS revenue stream.

What does this tell us?  If we approach the gigabit networks, and yes 5G, as we have we will be seriously limited in how to achieve our payback periods and to have a solid ROI.  The sooner a technology becomes a commodity, the less likely the targeted ROI and future greater revenues can be achieved.  Because just as with the advent of the xDSL, 3G, and LTE networks, the customers expected greater service capabilities but at a lower price.  As such, to achieve these demands, we the telephone companies must significantly increase our fronthaul/backhaul networks.  However, instead of being able to increase our revenue when doing this expensive network upgrade, we instead must offer greater service capabilities but at a lower cost.

As such, with the new growth factor that we are experiencing with the gigabit networks, we need to head off the current trend of selling ‘bandwidth’ and refocus it on selling enhanced product offerings.

What do I mean by this?  Glad you asked.  So, if we look at the eventual adoption of 5G and the IoT (internet of Things), as well as the continued growth of LTE, as well as gigabit fixed line networks, we need to look at the usage patterns of our customers, not just bulk bandwidth.

Once we understand how our customers are using the network, then we can create products focused in on offering this in an enhanced mode.  Examples of packages could be:

  1. Optimized for YouTube, Social Media (Facebook, Twitter, LinkedIn, SnapChat), and OTT (over the top television)
  2. Optimized for Email, standard web browsing, Facebook, and HDTV viewing

These are just examples of productization that can be achieved.  Once we decide to accomplish this type of productization, then we depart from selling ‘bandwidth’ and instead offer enhanced services at varying price points.  Yes, this will require that we think about how we design and build our back office and network capabilities, maybe have more video caching, use of IP Sockets, etc. to allow the network to offer these enhanced services, but it would allow us to productize rather than commoditize our network offerings.

With the continuation of the bandwidth model that we are trending toward, the ability to recover cost and be profitable is seriously in jeopardy.