New market pressures mold broadband network blueprint

Tom Nolle, CIMI Corp.
06 Apr 2010

When broadband access to the internet was first introduced, it seemed a simple and profitable extension to dial-up internet. But broadband service characteristics, regulations, competition and technology choices have proven dynamic and inter-reactive. Now new and even more dramatic pressures are being generated in each of these areas, and there is every reason to believe they will transform the way broadband services for consumers and businesses are created and sustained.

The Internet has created a mass data market, one whose total market value is far larger than that of the enterprise market that dominated data services in the past. The Internet has also transformed the enterprise view of the network from something that supports inter-company connectivity to something that provides a company with access to customers, computing and storage resources, applications and content. The minute-by-minute capacity requirements of enterprise branch networking were relatively easy to estimate, and so networks were based on pipes of fixed sizes and fixed access commitments.

Can providers balance speed with profitability?

Modern enterprise and consumer networking is all about "headroom," with the goal to provide a pipe sufficient to serve everything the user might be interested in buying to maximize ARPU.

The question has become, "How high can you go?" Online service and content providers like Google and would like to see access bandwidth rise sharply to encourage service consumption. But operators have long known that user willingness to pay for bandwidth isn't proportional to speed.

Some studies have shown that enterprises and consumers are willing to pay about 50% more to double their access capacity the first time, but for the next doubling, they are willing to pay only 10% more, and beyond that, less than 5%. In addition, consumers tend to cluster in the lowest-priced service tiers, with less than 10% taking the highest available rates even in favorable markets. That makes it difficult to justify extensive upgrades in access infrastructure to increase access speed.

More than any other market force, competition has been the most consistent driver of access infrastructure upgrades. Where multi-mode competition exists (cable and telco, fixed wireless and wireline), operators have found it easiest to promote services by selling access speed. In the US, for example, cable companies transitioning to DOCSIS 3.0 technology can offer speeds from 50 to nearly 500 Mbps, and 100 Mbps cable broadband is already available. This is forcing telecom service providers to consider fiber to the home (FTTH) and VDSL technology to improve their older DSL access speeds.

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