The new telcos: A field guide


The traditional industry view is that “telcos” are a well-defined and fairly cohesive group. Industry associations like GSMA, ETNO, CTIA and others have typically been fairly homogeneous collections of fixed or mobile operators, only really varying in size. The third-ranked mobile operator in Bolivia has not really been that different from AT&T or Vodafone in terms of technology, business model or vendor relationships.

Our own company, STL Partners used to have the brand “Telco 2.0”. However, our main baseline assumption then was that the industry was mostly made up the same network operators, but using a new 2.0 set of business models.

This situation is now changing. Telecom service providers – telcos – are starting to emerge in a huge variety of new shapes, sizes and backgrounds. There is fragmentation in technology strategy, target audiences, go-to-market and regional/national/international scope.

This report is not a full explanation of all the different strategies, services and technological architecture. Instead of analysing all of the “metabolic” functions and “evolutionary mechanisms”, this is more of a field-guide to all the new species of telco that the industry is starting to see. More detail on the enablers – such as fibre, 5G and cloud-based infrastructure – and the demand-side (such as vertical industries’ communications needs and applications) can be found in our other output.

The report provides descriptions with broad contours of motivation, service-offerings and implications for incumbents. We are not “taking sides” here. If new telcos push out the older species, that’s just evolution of those “red in tooth and claw”. We’re taking the role of field zoologists, not conservationists.

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Field guides are collections/lists of natural & human phenomena


Source: Amazon, respective publishers’ copyright

The historical landscape

The term “telco” is a little slippery to define, but most observers would likely agree that the “traditional” telecoms industry has mostly been made up of the following groups of CSPs:

  • MNOs: Countries usually have a few major mobile network operators (MNOs) that are typically national, or sometimes regional.
  • Fixed operators: Markets also have infrastructure-based fixed telcos, usually with one (or a small number) that were originally national state-owned monopolies, plus a select number of other licensed providers, often with greenfield FTTX fibre. Some countries have a vibrant array of smaller “AltNets”, or competitive carriers (originally known as CLECs in the US).
  • Converged operators: These combine fixed and mobile operations in the same business or group. Sometimes they are arms-length (or even in different countries), but many try to offer combined or converged service propositions.
  • Wholesale telcos: There is a tier of a few major international operators that provide interconnect services and other capabilities. Often these have been subsidiaries (or joint ventures) of national telcos.

In addition to these, the communications industry in each market has also often had an array of secondary connectivity or telecom service providers as a kind “supporting cast”, which generally have not been viewed as “telecom operators”. This is either because they fall into different regulatory buckets, only target niche markets, or tend to use different technologies. These have included:

  • MVNOs
  • Towercos
  • Internet Exchanges
  • (W)ISPs
  • Satellite operators

Some of these have had a strong overlap with telcos, or have been spun-out or acquired at various times, but they have broadly remained as independent organisations. Importantly, many of these now look much more like “proper telcos” than they did in the past.

Why are “new telcos” emerging now?

To some extent, many of the classes of new telco have been “hiding in plain sight” for some time. MVNOs, towercos and numerous other SPs have been “telcos in all but name”, even if the industry has often ignored them. There has sometimes been a divisive “them and us” categorisation, especially applied when comparing older operators with cloud-based communications companies, or what STL has previously referred to as “under the floor” infrastructure owners. This attitude has been fairly common within governments and regulators, as well as among operator executives and staff.

However, there are now two groups of trends which are leading to the blurring of lines between “proper telcos” and other players:

  • Supply-side trends: The growing availability of the key building blocks of telcos – core networks, spectrum, fibre, equipment, locations and so on – is leading to democratisation. Virtualisation and openness, as well as a push for vendor diversification, is helping make it easier for new entrants, or adjacent players, to build telecom-style networks
  • Demand-side trends: A far richer range of telecom use-cases and customer types is pulling through specialist network builders and operators. These can start with specific geographies, or industry verticals, and then expand from there to other domains. Private 4G/5G networks and remote/underserved locations are good examples which need customisation and specialisation, but there are numerous other demand drivers for new types of service (and service provider), as well as alternative business models.

Taken together, the supply and demand factors are leading to the creation of new types of telcos (sometimes from established SPs, and sometimes greenfield) which are often competing with the incumbents.

While there is a stereotypical lobbying complaint about “level playing fields”, the reality is that there are now a whole range of different telecom “sports” emerging, with competitors arranged on courses, tracks, fields and hills, many of which are inherently not “level”. It’s down to the participants – whether old or new – to train appropriately and use suitable gear for each contest.

Virtualisation & cloudification of networks helps newcomers as well as existing operators


Source: STL Partners

Where are new telcos likeliest to emerge?

Most new telcos tend to focus initially on specific niche markets. Only a handful of recent entrants have raised enough capital to build out entire national networks, either with fixed or mobile networks. Jio, Rakuten Mobile and Dish are all exceptions – and ones which came with a significant industrial heritage and regulatory impetus that enabled them to scale broadly.

Instead, most new service providers have focused on specific domains, with some expanding more broadly at a later point. Examples of the geographic / customer niches for new operators include:

  • Enterprise private 4G/5G networks
  • Rural network services (or other isolated areas like mountains, offshore areas or islands)
  • Municipality / city-level services
  • National backbone fibre networks
  • Critical communications users (e.g. utilities)
  • Wholesale-only / shared infrastructure provision (e.g. neutral host)

This report sets out… through each of the new “species” of telcos in turn. There is a certain level of overlap between the categories, as some organisations are developing networking offers in various domains in parallel (for instance, Cellnex offering towers, private networks, neutral host and RAN outsourcing).

The new telcos have been grouped into categories, based on some broad similarities:

  • “Evolved” traditional telcos: operators, or units of operators, that are recognisable from today’s companies and brands, or are new-entrant “peers” of these.
  • Adjacent wireless providers: these are service provider categories that have been established for many years, but which are now overlapping ever more closely with “traditional” telcos.
  • Enterprise and government telcos: these are other large organisations that are shifting from being “users” of telecoms, or building internal network assets, towards offering public telecom-type services.
  • Others: this is a catch-all category that spans various niche innovation models. One particular group here, decentralised/blockchain-based telcos, is analysed in more detail.

In each case, the category is examined briefly on the basis of:

  • Background and motivation of operators
  • Typical services and infrastructure being deployed
  • Examples (approx. 3-4 of each type)
  • Implications for mainstream telcos

Table of contents

  • Executive Summary
    • Overview
    • New telco categories and service areas
    • Recommendations for traditional fixed/mobile operators
    • Recommendations for vendors and suppliers
    • Recommendations for regulators, governments & advisors
  • Introduction
    • The historical landscape
    • Why are “new telcos” emerging now?
    • Where are new telcos likeliest to emerge?
    • Structure of this document
  • “Evolved” traditional telcos
    • Greenfield national networks
    • Telco systems integration units
    • “Crossover” Mobile, Fixed & cable operators
    • Extra-territorial telcos
  • Adjacent wireless providers
    • Neutral host network providers
    • TowerCos
    • FWA Fixed Wireless Access (WISPs)
    • Satellite players
  • Enterprise & government telcos
    • Industrial / vertical MNOs
    • Utility companies offering commercial telecom services
    • Enterprises’ corporate IT network service groups
    • Governments & public sector
  • New categories
    • Decentralised telcos (blockchain / cryptocurrency-based)
    • Other “new telco” categories
  • Conclusions

Related Research


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Growing the Digital Economy: Lessons from Brazil, Mexico, and Iran


Recent data on the growth of the Internet shows that different public policies have dramatically different impacts. In Latin America, two nations following very similar policies are achieving spectacular success, both in terms of raw quantity and in terms of deeper qualitative improvement, while other countries, sometimes with higher per-capita GDP, pursue different policies and see radically worse results.

In the Middle East, there is evidence of a similar breakout to development in some surprising countries, which turn out to be adopting key elements of the policy mix that has been successful in Latin America.

Renesys, a US company which provides software tools to monitor Border Gateway Protocol BGP routing activity, also collects large amounts of data on the structure of the Internet as a by-product of this activity. In May 2013, they issued a fascinating blog post, which drew attention to the dramatic development gap emerging between – for example – Brazil and Argentina on one hand, and Mexico on the other.

AS numbers: a key metric for Internet participation

What Renesys was looking at was the count of ASNs (Autonomous System Numbers) over time, a measure that we believe gives an excellent and profound indication of the development of the internet.

ASNs identify networks that control their own routing policy and IP address block. The voluntary interconnection of autonomous systems through BGP routing, which is based on AS numbers, makes up the fundamental structure of the Internet. In this sense, counting ASNs is a better metric than counting subscribers, domain names, Web sites, or IP addresses, because it is a measurement of participation in the Internet, not just consumption of cat videos and Google adverts. The creation of new ASNs is evidence that new businesses, organisations, content providers, hosting and cloud computing providers, and ISPs are emerging. It is evidence that technical competence is diffusing through society.

Because an ASN is the entry ticket to Internet peering, it’s also evidence of growing direct interconnection between networks, the fundamental purpose of the Internet, and the source of reliable, resilient, and high-performance service. In important ways, more AS numbers shows not just quantitative growth, but also qualitative improvement.

So how does the scoreboard look?

Figure 1: Brazil & Argentina Lead The Way
Latin America: New ASNs Feb 2014

Source: Renesys data, STL Partners visualisation

Argentina is doing well; Brazil is doing incredibly well; Mexico is either stable, or stagnant. We’ve labelled the chart selectively, so you can also see that among the poorer and smaller Latin American nations, Costa Rica is doing very well while Venezuela is doing poorly.

Mexico’s per-capita GDP at purchasing-power parity was calculated at $15,312 in 2012 dollars by the IMF, whereas Argentina’s was $18,112. But this gap doesn’t explain what’s going on here. Brazil’s was $11,875, and the Brazilian Internet is doing even better. Clearly, money is not enough. Every year, Brazil adds as many ASNs as there are in the whole of Mexico. This is a reflection of vastly different government policy and market structure. Similarly, there doesn’t seem to be any reliable link between population, ASN growth, or how many citizens there are for each ASN, as the following chart shows. Even GDP is a very weak predictor.

Figure 2: Policy, not population or GDP, drives Internet growth
It's not population nor GDP Feb 2014

Source: STL, IMF data, ANATEL


  • Executive Summary
  • What did Brazil get right?
  • A More Democratic Internet: Understanding the Problem from a Latin American Viewpoint
  • A Policy Mix That Supports Innovators
  • What did Mexico and others do wrong?
  • Monopolies lead to inertia
  • State Telecoms: not a great strategy either
  • Taking A Similar View On The Middle East
  • Censorship and Internet Development
  • Wholesale Transit as a Weapon
  • Conclusions
  • About STL Partners


  • Figure 1: Brazil & Argentina Lead The Way
  • Figure 2: Policy, not population or GDP, drives Internet growth
  • Figure 3: Brazil has been adding 700+ new local ISPs a year
  • Figure 4: The Middle East by ASN count
  • Figure 5: Iran’s Internet Flourishes Behind the Firewall
  • Figure 6: In the Middle East, it’s policy that matters too

Full Article: iFlood – How better mobile user interfaces demand Layer Zero openness

Networks guru Andrew Odlyzko recently estimated that a typical mobile user consumes 20MB of data a month for voice service, but that T-Mobile Netherlands reports their iPhone users consuming 640MB of data a month; so upgrading everyone to the Jesus Phone would increase the demand for IP bandwidth on cellular networks by a factor of 30.

It had in the past been estimated that major European cellular operators might be able to provide 500MB/user/month without another wave of network upgrades; if this calculation is at all typical, it looks like there is a substantial risk of an ”iPlayer event” hitting cellular in the near future. Recap: when the BBC placed vast amounts of its content on the Internet through its iPlayer service, DSL traffic in the UK spiked; or rather, it didn’t spike, the trend shifted permanently upwards.

That, of course, is much more worrying; because the marginal costs are set by the capacity needed to handle the peaks, a rise in average traffic means a boost to costs multiplied by the peak/mean ratio. An aggravating factor is the pricing structure for BT Wholesale backhaul service – the commits are 155Mbits/s, so if the new peak demand just exceeded your existing commit, you needed to buy a whole 155Mbits/s pipe. The impact on the UK unbundling/bitstream ISPs has been serious and the sector remains in a critical condition.

Traditionally, a mobile base station was provisioned with 2 E-1 leased lines, 2×2 Mbit/s capacity. Multiplied by 4, that’s 9,676,800 Mbits in a month. Divide by 8 to convert to MB, 1,181GB/1.15TB a month. Which means that a typical cell site could support at the most 1,832 users’ activity, or quite a lot less when you consider the peak/mean issue – typical values are 4:1 for GSM voice (458 users), but as high as 50:1 for IP (36!). Clearly, those operators who have had the foresight to pull fibre to the base stations and, especially, to acquire their own infrastructure will be at a major advantage.

The elements of traffic generation

The iPlayer event was an example of content push – what changed was the availability of a huge quantity of compelling content, which was also free. If Samsung’s recently announced video store takes off, that would be another example of content push. But this is far from the only driver of traffic generation, though. It is important to realise that the Internet video market is a tightly-coupled system. The total user experience is made up of content, of the user interface, of feedback and discovery mechanisms, of delivery over the network, and of the business model. All of them are very closely related – if the product is heavily DRM-restricted, prettying up the front end doesn’t help.

It is characteristic of a coupled system that the slowest-changing factor is the main constraint, but the fastest-changing factor is the driver of change. In this case, the slowest-changing factor is the infrastructure, and within that, the digs and poles of layer zero. Even the copper changes faster than that. The fastest-changing factor is the user interface, which can be changed at will. Sociability, discovery and the like, which require serious software development, are in the middle, with issues like BT Wholesale pricing some way below.

There was not much special about the iPhone technically; the first ones were 2G devices in a 3G world, and good luck to you trying to pull 640MB a month on GPRS alone. Is that even possible? Its integration with iTunes gave it access to content, but the cost issue meant that the bulk of the music on iPhones was probably downloaded over WLANs or sideloaded from a PC. But one thing that it did do very well was the user interface; Apple exploited its historic speciality in industrial design and GUI design to the limit. Typically, a lot of geeks and engineers scoffed at the gadget as an overdesigned bauble for big-kid hipsters; fools that we were.

But the core insight of the iPhone designers was to design for the Web and for rich media, probably helped by not having a telephony background. Therefore, they chose to cover as much of the form factor with a high quality screen as possible, and worked from there. They also made some advances in the GUI (zooming, gesture recognition), but the much talked about browser was less sensational. (Like all versions of Safari, it is based on the open-source WebKit engine that also makes the Nokia browser and Konqueror work.)

So we’re now beginning to see that changing the user interface can radically impact the engineering and economics of the network; and because it is a fast-changing element, it can do so faster than the network layer can react.

From receiving to sending

The Internet is a copying machine, they say; more to the point, it is usually a one-to-many medium that is experienced as a many-to-one medium. I draw content from many different sources according to the stuff I like; but each source is broadcasting itself to many readers. As a rule, people read more than they write, even if P2P distribution blurs this. One criticism of the iPhone is that it’s optimised for passive consumption of content; some users report their uplink/downlink ratio changing dramatically on changing to the iPhone.

Looking at another online-video sensation which hammers the ISP economy, YouTube, it’s quite clear that another driver of traffic is improved content ingestion. As whatever you place on the Web will be written relatively few times and read many times, there is a multiplier effect to anything that makes it easier to create or at least to distribute content.

YouTube’s innovation was three-fold; it made it dramatically simpler to upload video to the Internet, and it made it dramatically simpler to popularise it once it was there, through the embedding process and through its social functions. This latter feature meant there was much more of an incentive to upload stuff in the first place, because it was more likely to get viewed.

Better user interfaces and social mechanisms for content creation, then, are potentially major drivers of change in your cost model. They can change very quickly; and their impact is multiplied. Already, I can uplink photos to Flickr faster from my Nokia E71 than from my DSL link; granted, this is because of the UK’s lamentable infrastructure, but it shows some idea of the possibilities. Perhaps that Samsung device with the mini-decks might be less silly than we thought?

Faster adaptation: considered helpful

As we were wondering what would happen to the cellular networks’ backhaul bills, and contemplating the wreck of the DSL unbundler/bitstream business model, we looked enviously across the Channel to Telco 2.0’s favourite ISP, Iliad. They have just announced another set of fantastic figures; their margins are 70%-80% where they have deployed fibre, and their agility in launching new services doesn’t need to be rehearsed again. They even built their own content-creation service, after all; no fear of the future there.

What makes the difference? Iliad has always been committed to investing in engineering and infrastructure, giving it the agility to match the speed of change the application layer can achieve. It’s been determined to realise the OPEX and unbundling/wholesale savings from fibre deployment; and Iliad’s results have demonstrated that they are real and they are enough to fund deployment.

There is a crucial element, however, in their success; in France, access to duct and pole infrastructure is a regulated product, and major cities are more than keen on selling access to their own physical infrastructures – the sewers of Paris are the classic example. If you want to fix the ISP business model, fixing layer zero is the place to start, before the next fast-changing application knocks us back into the ditch.


  1. The ISP/telco market is a closely coupled system: An analysis in terms of differential rates of change shows that rapidly changing applications and user interfaces can have seismic impact on slowly changing network operator business models
  2. The benefits of fibre are real: Iliad is showing that fibre deployment isn’t just nice to have, it’s saving the ISP business model
  3. Open access to infrastructure is vital: There is no contradiction between applications/VAS and layer zero – instead they go together. If you want fantastic new apps, pick up a shovel.

Full Article: Online Video Usage – YouTube thrashes iPlayer, but for how long?

Online Video consumption is booming. The good news is that clearer demand patterns are beginning to emerge which should help in capacity planning and improving the user experience; the bad news is that an overall economic model which works for all players in the value chain is about as clear as mud.

We previously analysed the leffect of the launch of the BBC iPlayer on the ISP business model, but the truth is that, even in the UK, YouTube traffic still far outweighs the BBC iPlayer in the all important peak hour slot – even though the bitrate is far lower.

Looking at current usage data at a UK ISP we can see that the number of concurrent people using YouTube is roughly seven times that of the iPlayer. However, our analysis suggests that this situation is set to change quite dramatically as traditional broadcasters increase their presence online, with significant impact for all players. Here’s why:

Streaming Traffic Patterns

Our friends at Plusnet, a small UK ISP, have provided Telco 2.0 with their latest data on traffic patterns. The important measurement for ISPs is peak hour load as this determines variable-cost capacity requirements.


iPlayer accounts for around 7% of total bandwidth at peak hour. The peaks are quite variable and follows the hit shows: the availability of Dr Who episodes or the latest in a long string of British losers at Wimbledon increase traffics.

Included within the iPlayer 7% is the Flash-based streaming traffic. The Kontiki-P2P based free-rental-download iPlayer traffic is included within general streaming volumes. This accounts for 5% of total peak-hour traffic and includes such applications as Real Audio, iChat, Google Video, Joost, Squeezebox, Slingbox, Google Earth, Multicast, DAAP, Kontiki (4OD, SkyPlayer, iPlayer downloads), Quicktime, MS Streaming, Shoutcast, Coral Video, H.323 and IGMP.

The BBC are planning to introduce a “bookmarking��? feature to the iPlayer which will allow pre-ordering of content and hopefully time-of-day based delivery options. This is a win-win-win enhancement and we can’t see any serious objections to the implementation: for the consumers it is great because they can view higher-quality video and allow the download when traffic is not counted towards their allowance; for ISPs it is great because it encourages non-peak hour downloads; and for the BBC it is great as it will potentially reduce their CDN costs.


YouTube traffic accounts for 17% of peak-hour usage – this is despite YouTube streaming at around 200kbps compared to the iPlayer 500kbps. There are about seven times the amount of concurrent users using YouTube compared to the iPlayer at peak hour. Concurrent is important here: YouTubers watch short-length clips whereas iPlayers watch longer shows of broadcast length.

P2P is declining in importance

The real interesting part of the PlusNet data is that peak-hour streaming at around 30% far outweighs p2p and usenet traffic at around 10%. Admittedly the peakhour p2p/usenet traffic at Plusnet is probably far lower than at other ISPs, but it goes to show how ISPs can control their destiny and manage consumption through the use of open and transparent traffic shaping policies. Overall, p2p consumption is 26% of Plusnet traffic across a 24-hour window – the policies are obviously working and people are p2p and usenet downloading when the network is not busy.

Quality and therefore bandwidth bound to increase

Both YouTube and the iPlayer are relatively low-bandwidth solutions compared to broadcast quality shows either in SD (standard definition) or HD (high-definition), however applications are emerging which are real headache material for the ISPs.

The most interesting emerging application is the Move Networks media player. This player is already in use by Fox, ABC, ESPN, Discovery and Televisa — amongst others. In the UK, it is currently only used by ChannelBee, which is a new online channel launched by Tim Lovejoy of Soccer AM fame.

The interesting part of the Move Networks technology is dynamic adjustment of the bit-rate according to the quality of the connection. Also, it does not seem to suffer from the buffering “feature��? that unfortunately seems to be part of the YouTube experience. Move Networks achieve this by installing a client in the form of a browser plug-in which switches the video stream according to the connection much in the same way as the TCP protocol works. We have regularly streamed content at 1.5Mbps which is good enough to view on a big widescreen TV and is indistinguishable to the naked eye from broadcast TV.

Unlike Akamai there is no secret sauce in the Move Networks technology and we expect other Media Players to start to use similar features — after all every content owner wants the best possible experience for viewers.

Clearing the rights

The amount of iPlayer content is also increasing: Wimbledon coverage was available for the first time and upcoming is the Beijing Olympics and the British Golf Open. We also expect that the BBC will eventually get permission to make available content outside of the iPlayer 7-day window. The clearing of rights for the BBC’s vast archive will take many years, but slowly but surely more and more content will be available. This is true for all major broadcasters in the UK and the rest of the world.

YouTube to shrink in importance

It will be extremely interesting to see how YouTube responds to the challenge of the traditional broadcasters — personally we can’t see a future where YouTube market share is anywhere near its current level. We believe watching User Generated Content, free of copyright, will always be a niche market.

Online Video Distribution and the associated economics is a key area of study for the Telco 2.0 team. 

Full Article: Beyond bundling, the future of broadband

This is an edited version of the keynote presentation of Martin Geddes, Chief Analyst at STL Partners, at the October 2007 Telco 2.0 Executive Brainstorm in London. It provides some initial findings from our research into future business models for broadband service providers (BSPs), including our online survey. (The summary results will be mailed out to respondents in the next few days.) Those wishing to find out more may want to take a look at our forthcoming report, Broadband Business Models 2.0.

To save you the suspense, here’s the headlines for what’s upcoming for the telecoms industry, based on what insiders are saying through our survey and research:

  1. Operators are going to face a slew of non-traditional voice service competition. To corrupt the words of Yogi Berra, “The phone network? Nobody goes there anymore, it’s too crowded.? The volume may linger on, but the margins in personal communication will move elsewhere.
  2. Content delivery is a logistics problem that spans many distribution systems. Those who can solve the delivery problem by sewing together many delivery services, rather than those focused on owning and controlling one channel, will win.
  3. Wholesale markets in telecoms are immature and need to evolve to support new business models.
  4. Investors aren’t up for more “loser takes nothing? facilities-based competition capex splurges. Time to look hard at network sharing models.

So, read on for the background and evidence:

Background to the survey and research

Our ingoing hypothesis is that telecoms – fixed or mobile — is a freight business for valuable bits. This could be via traditional voice networks. Broadband is another means of delivering those bits. It includes Internet ISP access, as well as other services such as private VPNs and IPTV.

Broadband competes with and complements other delivery systems like broadcast TV, circuit-switched phone calls and physical media.

Just as with physical goods, there are lots of delivery systems for information goods. These are based on the bulk, value and urgency of the product – from bicycle couriers to container lorries for atoms; phone calls to broadcast TV for bits.

As part of our research we’ve also been looking at how other communications and delivery systems have evolved commercially, and what the lessons are for the telecoms industry. After all, broadband as a mass-market business is barely a decade old, so we can expect considerable future change. In particular, the container industry has some strong parallels that may hold important lessons.

Physical goods and the telephone system have developed a wide range of payment methods and business models.

With physical goods we have “collect it yourself?, cash-on-delivery, pre-paid envelopes and packages, as well as express parcels, first and second class postage.

The phone system offers freephone, national, non-geographic and various premium-rate billing features. It offers the user a simple, packaged service that includes connectivity, value-added features, interoperability, support and a wide choice of devices.

Likewise, SMS packages together the service and its transport. It’s wildly popular, bringing in more money globally than games software, music and movies combined.

The problem is that this has come within closed systems that don’t enjoy the rich innovation that the open Internet brings.

Internet access, by contrast, offers an abundance of goods but is relatively immature in the commercial models on offer. Broadband service providers typically offer just one product: Internet access. And they generally only offers one payment mechanism for delivery of those online applications: one-size-fits-all metered or unlimited, paid independently of services used. (There are some important exceptions — you can read more here.)

As a small example of how the Internet under-serves its users, when a small non-commercial website suddenly gets a surge of traffic it typically falls over and is swamped. That is because there’s no commercial incentive for everyone to pay for a massively scalable hosting plan just in case of unexpected demand. The telephony system doesn’t suffer this because the termination fee for every call is designed to at least cover the technical cost of carrying the call.

Oh, and don’t expect Google to host it all for free for you either – the error message in the slide above is cut and pasted from a bandwidth-exceeded Google Blogger account.

There is also a lack of incentive for access providers to invest in capacity on behalf of Google to deliver richer, heavier content (where Google collects the revenues).

The question therefore is: How can BSPs find new business models inspired by more mature distribution systems?… whilst at the same time not killing off the innovation commons that is the Internet. BSPs must both create and capture new value in the delivery of online applications and content. Being an NGN or IPTV gatekeeper is not enough.

Fixed voice revenues are declining; mobile voice is peaking; and SMS is slowing down. The theory has always been that broadband ISP services will take up the slack, but in practise margins are thin.

Our research is testing out a wide variety of alternative commercial models. For example, would an advertiser like Google pay for not just the hosting of content (via YouTube, Picassa or Blogger), but also the end-user usage on a fixed or mobile device for receiving that content?

We believe that whilst these alternative models may individually be much smaller than traditional broadband Internet access, collectively they may add up to a larger amount of value.

Survey supporters and respondents

The research would not be possible without the active support of the above sponsoring and supporting organisations, and we thank them all.

We’ve had over 800 respondents, with roughly one third from operators & ISPs; a quarter from vendors; and the rest consultants, analysts, etc. The geographic split is Europe 40%, N America 30%, Emerging 20%, Developed Asia 10%. There is a ratio of around 60:40 fixed:mobile respondents, and mostly people from commercial (rather than technical) functions.

We asked about four main areas:

  • Today’s ISP model — is it sustainable.
  • Future of voice service in a broadband world
  • Future of video service, as the other leg of the “triple play? stool
  • Future business and distribution models

Rather than assault you with dozens of charts and statistical analyses, what follows is the gist of what we’ve discovered.

Furthermore, we’re looking 5-10 years out at macro trends. You might not be able to predict Google, Skype or Facebook; but you can foretell the rise of search, VoIP and socially-enhanced online services. Even in our own industry, there can be large structural changes, such as the creation of Openreach by BT. You could probably have foretold that as vertical integration weakens there would be such organisational upheavals, even if not who and when.

Sustainability of ISP business model

What’s the future business model for broadband?

Around 20% see the current stand-alone ISP business model as sustainable long-term. This includes many senior industry figures, who cite better segmentation, tiered price plans, cost-cutting and reduced competition in more consolidated markets. It may be a minority view, but cannot be dismissed out of hand.

Around a quarter of respondents thought that broadband works as part of a triple or quad-play bundle of voice, video and data – cross-subsidised by its higher-margin cousins. This is the current received wisdom.

However, a majority of respondents say that a new business model is required. These results hold broadly true across fixed and mobile; geographies and sectors.

Which brings us to our first lesson from the container industry. Old product and pricing structures die hard. The equivalent efforts at maintaining a “voice premium��? all failed. Trying to price traffic according to the value of what’s inside the container or packet doesn’t scale.

For BSPs, that means technologies like deep packet inspection might be used:

  • for law enforcement (“x-ray the containers?), or
  • to improve user experience (at the user’s request), for example by prioritising latency-sensitive traffic (“perishable goods?)

However, traffic shaping can’t be your only or main tool for the long-term; you can’t reverse-engineer a new business model onto the old structures. It doesn’t, ultimately, contain your costs or generate significant new revenues.

Broadband voice

One of the big surprises of the survey was how quickly respondents see alternative voice networks getting traction. We asked what proportion of voice minutes (volume – not value) will go over four different kinds of telephony in 5 and 10 years from now. Looking at just the growth areas of IP (i.e. non-circuit) voice, you get the following result.

It seems those WiFi phones we laugh at now are more dangerous than previously thought – maybe when 90% of your young customers are communicating via social networking sites, you’ve got some unexpected competition? (Indeed, we note that social network traffic is just overtaking the traditional email portals.)

We were also given a surprise in that respondents saw most of these changes happening over the next 5 years.

Insiders see the growth in voice traffic as being anchored on best-effort Internet delivery, which gets around 1/3 of the IP voice traffic. Using traffic shaping, offering tiered levels of priority, and using traditional end-to-end quality of service guarantees all got roughly equal share.

There are some small differences between fixed and mobile, and mobile operators might like to seriously consider offering tiered “fast dumb pipe? and “slow dumb pipe? that applications can intelligently choose between.

This all suggests that operators may be over-investing in complex NGN voice networks and services. They need to urgently work out how they can partner with Internet application providers to offer “voice ready? IP connectivity without the costly telco-specific baggage of telco protocols and platforms.

So what’s the lesson from container shipping for the broadband voice community?

At the same time as containers where being adopted, some ports doubled-down on the old business model and built better breakbulk facilities – and lost. Manhattan’s quays are gone, Newark has replaced it.

Others waited to become “fast followers?, and lost too. London went from being one of the world’s busiest ports, to zero activity. Dubai did the reverse by investing exclusively in the new model, with a low cost base and high volume. (Shades of Iliad’s approach in France.)

The winners were those who staked out the key nodes of the new value chain.

There are some clear lessons here for telcos and their NGN voice networks. The cost of broadband access technology is dropping, capacity is rising, and the voice component’s value is decaying towards zero. Furthermore, session control (the software part of the voice application) is just another IT function that runs inside a big server, and isn’t something you can charge for above hosting costs. It has the economics of email, and that’s mostly given away for free. So IP voice isn’t adding anything to your triple/quad play bundle, and can only be justified on the basis of reducing cost in the old business model. An IP NGN voice service that’s still selling metered minutes does not constitute a new business model.

Broadband video

The survey results for video are a little less dramatic than for voice and follows received wisdom more closely. Overall respondents endorsed Internet video as far more of an opportunity than a threat. (Only in telecoms can a significant proportion see more demand for their product as a problem! The potential issue is that video could drive up costs without sufficient compensating revenue.) A long slow decline for broadcast TV and DVDs is matched to a slow ramp-up in various forms of on-line delivery. Every form of Internet delivery, from multicast IP to peer-to-peer file sharing gets a roughly equal cut. There were some things to watch out for though…

The opportunity is to become as supplier of advertising, e-commerce, caching and delivery services for a variety of video portals, not just tied to your own. This isn’t surprising; can you imagine a Web where there were only two portals to choose from, both owned by the network owners? The same applies to video.

Economic migration, cultural fragmentation and user-created content ensure that we’ll need a diversity of aggregation, recommendation, filtering and presentation technologies.

Given a choice between building a closed IPTV solution, or an open content platform, the response was well in favour of the latter as the more profitable to run. (The slow ramp up of BT’s Vision service suggests its success is more likely to be based on the “push? of analogue switch-off than the “pull? of the telco brand as a TV provider. Why do no telco TV plans centre around external entrepreneurial talent and innovation?)

Both options beat the alternative of disinvestment in video delivery technology. So fixed and mobile operators are well positioned to help enable and market video, just not “TV over IP?. That’s the steam-hauled canal boat, when you’re supposed to be using IP to build a railroad. It seems telcos are over-investing in emulating broadcast TV and under-investing in the unique nature of the online medium.

P2P and “over the top? are here to stay. You deal with the costs by offering more profitable alternatives, not by punishing your most voracious customers. (See our article on Playlouder as an example of how to do it right.)

In music, Apple’s iTunes captured the key bottleneck in the distribution chain. Could the same happen for online video?

We gave respondents a choice of four scenarios:

  • Direct to user from the content author or publisher
  • A single dominant player
  • A fragmented market dominated by telecoms companies
  • A fragmented market dominated by non-telcos

Our respondents say that the market is likely to be fragmented with many aggregators and non-carriers will dominate. Again, “triple play? doesn’t capture the richness of the business-to-business model required with many partners in the distribution and retail value chain. How will Telco TV satisfy my wife’s taste in Lithuanian current affairs and my interest in gadgets and economics lectures? It can’t.

Our take-away from the shipping industry is that when it comes to shifting bulky stuff around, big is good and bigger is, err, gooder. Networked infrastructure businesses have strong increasing returns to scale. There’s no point in building a new port anywhere near Rotterdam because that’s not where the other ships go. There’s a good reason why Akamai takes the bulk of the profit pool from content delivery networks — their one is the biggest.

Network ownership models

Compared to today’s dominant models (facilities-based competition and structural separation), respondents rated a third ownership model – co-operatives of telcos – surprisingly highly. The two currently dominant models remain on top.

The issue is how to structure the vehicles for mutual or co-operative asset ownership. The financial industry has already created structures that allow shared operational businesses, either mutually owned or as private special entities. Furthermore, they’ve managed to preserve barriers to entry. To become a member of the VISA network, you need a banking license. That costs a lot of money.

Telecoms and the Internet business have some common structures around numbering and interconnect, but could emulate these other models from other industries.

The arrival of containers shifted the balance of profit away from the shipping lines and towards the ports.

In terms of telecoms, it’s where the content is originated or goes between delivery systems that matters – from CDN to broadband access, from broadcast to DVR. That means every Googleplex and content delivery network that gets built puts Google or Akamai at a massive advantage, since everyone wants to peer with them.

Traditionally it has been long distance and access networks that have dominated telecoms economics. AT&T’s early years found it the only owner of a long-distance network and thus able to negotiate very advantageous terms in buying up local carriers into the Bell system. It mistakenly help onto the long distance network just as the bottleneck shifted to the access network. At the moment the US sees a duopoly in access networks, and supernormal profits. Wireless carriers enjoy an oligopoly in most markets as a by-product of spectrum licensing.

However, Europe is moving towards structural separation or open access of fixed networks. Homes and offices offer WiFi or femtocell bypass options for cellular. Over time, local access ceases to be such a bottleneck. Furthermore, there are many physical paths and proliferating technologies and suppliers hauling data between the distant points that want to be connected up — be it transoceanic cables or competing wireless backhaul technologies. So the owners of the transmission networks don’t enjoy the benefits. It’s the owners of the places where traffic is exchanged between delivery systems that do, since those feature increasing returns to scale and dominant suppliers.

What is the product we are selling?

Today operators expect you to go out and buy yet another access plan for every device you touch or place you make your temporary home. They sell “lines��?, either physical, or virtual (via a SIM card). Is this really the right way for the future?

All I want to do is connect my phone and laptop to the Internet wherever I am – but I get different prices and plans depending on which combination of device and access technologies I use – yet all from a single vendor. (The first is using my phone as a 3G modem over a USB cable; second is a separate 3G USB modem; third is WiFi.) This creates the perverse incentive when I’m sat in Starbucks to use my phone as a modem for my laptop over the expensive 3G network.

Also, I might be a peer-to-peer download lover, and hopelessly unprofitable. Or I might just want to check my email and surf the web a little on my mobile. How can you rationally price this product? What are the alternatives?

We gave users a choice of 3 alternatives (above) as to how broadband connectivity is provisioned. Should we sell you “unlimited browsing?, but listening to Internet radio is a separate charge? Or should we price access according to the device, but not make the plan portable between devices? A data plan on a basic featurephone would differ in price from a smartphone, Internet tablet or laptop. Or should we just give the user a set of credentials that activates any device or network they touch and bills that usage back to them?

The preferred one was to offer users a connected lifestyle, regardless of devices, applications or prices.

BT’s deal with FON is an example of a step towards this goal. Picocells too have the potential to upend the access line model. In terms of immediate actions, mobile operators should recognise the trend towards divergence and users with multiple handsets. Don’t make me swap SIMs around when I go from my “day phone? to “out on the town phone?. Give them a common number and interface.

New, more liquid, ways of combining together devices and networks for sale would require wholesale markets to evolve.

We asked what impact it would have on BSP revenues if all the friction were taken out of the wholesale market. Anyone who wants to come along and build an application with connectivity included in the price would be able to source their wholesale data from any carrier. You don’t have to be Yahoo!, Google or RIM to negotiate a deal with every carrier in the world, or make one-off special billing integration.

The effect? A 50%+ boost in revenues, which has a commensurately greater effect on profit. How much value is the broadband industry leaving on the table because of its inability to package up and sell its product via multiple channels?

Even more profitable than the ports are the agents who arrange the end-to-end logistics and supply chains for their customers. In telecoms terms, it’s the operator who can assemble a multitude of fixed and mobile networks, content delivery systems and B2B parterships with the application providers that wins.

For telcos, the critical development to enable personalised packaging of connectivity, applications and devices is to build richer wholesale models. The hot activity will be in the B2B markets, not direct-to-user. The failure of most MVNOs has shown that you don’t just want to create “mini me? telcos, but to enable more granular offerings.

Conclusions and summary

Telecoms is going to move to a multi-sided business model. Google are as likely to be paying for the full delivery of the ad-supported YouTube video as the user is. The telco will also feed Google usage and relationship data to help target advertising. Google might use credit data from the operator to manage its own fraud and chargeback risk on its checkout product. Telcos are logistics companies for data, helping the right data to be at the right place at the right time. This is completely different from being a “dumb pipe��?, wannabe media company or end-user services provider.

When you buy a new electronic gizmo, it typically comes with batteries included. The battery makers have learnt to supply batteries wholesale to consumer electronics makers, as well as to end users. Broadband needs to evolve to add “connectivity included?, with the right quality and quantity packaged up with the application or content in ways that the user finds easy to buy. Today’s product is selling users a raw unprocessed commodity, which is serving neither the interests of the users, merchants or operators.