In the late ‘90s the newly-liberalised European telecommunications’ market had two confident catch-cries:
“There is no such thing as too much bandwidth”. And “If we build it they will come”.
And so they did build it. As the dot.com bubble continued to (unsustainably) expand and equity poured into network investment, it formed the business case for billions of new fibre backbone and international cable investments.
If you take a 15 to 30-year view of return on investment, you could say that the mantras were probably true: yes, the users have come and demand for bandwidth has grown exponentially. Unfortunately, it took a lot less time than that for a number of the backbone operators to go bust. And the revenues are not necessarily being captured by the builders, but by the internet “tenants”.
So for many, the discussions at the Commerce Commission’s excellent “Broadband at a Crossroads” conference in February had a sense of déjà vu. The catch-cry has now been rephrased as a question: “If we build it, will they come?” Or, to be more precise, “What is the business case for the billions in next generation mobile and fibre network investment?”
The consensus was, in general, pessimistic: based on current spend and usage, there isn’t a clear business case, not within a commercial timeframe. Current investment will deliver the speed and bandwidth requirements for the foreseeable future. And there was little vision for the role telcos could play in the provisioning of consumer or corporate services.
But here I want to play the devil’s advocate for a moment, and ask “Can we truly afford to live with this as our status quo?”
Think of it this way; Telecomms is an industry with little revenue growth left in it. Revenue growth in 2008 was flat, despite dynamic subscriber growth in broadband and mobile. That means in order to continue growing, the industry either needs to accept and adopt a wholesale utility role — or move into adjacent industries.
The industry that is most obviously adjacent to telecos in the consumer space is the entertainment media sector. Coming developments in the global media market — multi-channel, high-definition television on-demand — require ultra high-speed bandwidth that pushes ADSL2+ and even VDSL to the limit on anything but the shortest lengths.
Symmetry will also become increasingly important: ADSL’s low data rate in the uplink makes it unsuitable for high-grade implementations of two-way applications like interactive gaming, distance learning and videoconferencing. In some cases, those applications are also strategically important, because they can capture revenues from other industries such as transportation or travel. These are the services and applications that will drive demand for fibre.
This puts the industry into a real fibre bind. Fibre is massively expensive, and it is not clear that it will generate sufficient incremental service revenue to justify the investment particularly in a country of New Zealand’s limited scale. But that uncertainty doesn’t mean we can afford to wait to see what happens. Without a long-term fibre vision, telco carriers remain confined to telecommunications, which may prove to be an increasingly uncomfortable position over the coming decade.
So what do telcos need to do?
Firstly, recognise that industry structures are fundamentally changing and current business models are becoming outdated. Telcos are now part of a much larger ecosystem: and this requires new ways of thinking, new channels to market and new types of partnership.
Secondly, understand what value telecommunications truly brings to this ecosystem. It is anchored, not in network technology, but complex and managed connectivity. That means taking the time to really understand the strategic changes impacting parallel internet, media, broadcasting and IT sectors.
From experience, most content and media owners regard the network — so highly prized by telcos — as just a dumb distribution pipe and see little value to the telco offering. Their business model is based on continual content production and managing the release of content across different channels to maximise revenues.
Telcos need to understand their business models, and look for where connectivity and communications can be embedded into their services.
Thirdly, begin to think of what it is that the “domestic CIO” needs. Technology and home networking is complex: there is a sweet spot in helping users to access and manage all their content, services and applications across devices and networks simply and reliably.
The challenges are fundamental to the future of the sector: they confront every telco in every market globally.
We cannot rely on a business case of “If we build it, they will come”. But sitting on our hands and waiting to see what happens risks relegation to the sidelines. The opportunity — and challenge — now is for the sector to work with other industries and government to look for ways to build and drive service demand as a first step, then map this against a long-term fibre roadmap. No one said it would be easy: but do we have a choice?