Mobile Needs to Focus on Pipe; Won't Be Much of a Factor in Apps

You would be very hard pressed to find a single mobile executive who actually will say in public that providing "dumb pipe" services is the key to their future prospects. Up to a point, this is correct. Most service providers already are preparing, testing or deploying new services that add new "services" to "access" products.

But there might be clear limits to how much service providers can escape, or should want to escape, their fundamental position in the ecosystem. "Access" is the unique contribution service providers make in the Internet ecosystem and value chain. That does not mean service providers cannot, or should not, attempt to occupy other roles within the ecosystem as well.

But one can question how much success can be found in some of the adjacencies. Most end users won’t need much help from service providers to to discovering and use their preferred Web content on mobile phones and portable computers, says Declan Lonergan, Yankee Group analyst. In other words, there might be limited opportunity in the web apps area.

At the same time, though, dependency on mobile Web access increases as hosted, in-the-cloud services replace on-the-device apps. Perhaps there is more opportunity in focusing on "connectivity" than many believe, including both packaging innovations, quality of service features and integration with wired networks.

Customers’ mobile content and Web experiences will be delivered almost exclusively by others in the ecosystem, regardless of whether consumers are using apps or browsers as their primary means of access.

The issue with some ideas and concepts is that unstated assumptions are associated with the ideas. Service provider executives hear the phrase "peering" and they understand it as "settlement-free" interconnection. That has financial implications entirely distinct from the issue of manner of connection. Service provider executives hear the phrase "dumb pipe" and think "commodity-like, low-margin service."

But "dumb pipe" does not necessarily mean "low margin, lower price, undifferentiated" pipe. "Dumb pipe" might just mean "access."

The point is that service providers now are suppliers of a number of values, including simple access to the Internet and web, as well as other services that are managed. Entertainment video, voice, mobile voice and texting are the primary examples.

Telcos, cable companies and satellite companies cannot escape their place in the ecosystem, which is network access. In addition to access, they provider other services, applications and value as well, but all are built, fundamentally, on access.

As always is the case, participants in any value chain will fight for a bigger share of total profits from the ecosystem. It is no surprise others want "access" to be as affordable as possible, as that is better for the other participants. But "access" is the one, unique, irreplaceable value that service providers supply. Everything else they might do hinges on access.

Yankee Group Research Report

Is "Access" Where Most of the Revenue Is?

Fretting over whether people will pay for content is based on a mistaken assumption: that people have ever paid for content in the past, says Forrester Research VP. "They actually haven't," he says.

 Instead, people have paid for access to content.  You have to think about this some. People buy newspapers, so isn't that a content purchase? Well, he argues, not really. The cost of the newspaper purchase never covers the full cost of the content, which is mostly paid for by advertising.

One had to think about a "newspaper" as a distribution channel and a content aggregator, not an actual "content product" in that sense.

So what about cable TV? McQuivey argues even monthly video subscriptions are about "access" to content, not direct content purchasing. "Pay per view," where a show or movie is bought a la carte, on the other hand, is a content purchase.  Subscriptions to linear channels are a form of access, he argues.

If one looks at matters that way, "access" constitutes 77 percent of what the average household spends for "content" each month is spent on content access, not content itself.

Some will argue with the notion that a cable, telco video or satellite video connection is "access" rather than content. On the other hand, having linear video streaming in the background, even when one is not watching, is somewhat akin to voice "dial tone" or broadband Internet access. It's there, one can use it when one wants, but it is not a discrete "content"purchase.

I'm not sure I'd go so far as to classify cable TV as "access" rather than content. People pay for their voice services using a flat-fee subscription, as they pay for linear video. Some of us might not think a different payment method, or retail pricing plan, changes the nature of the product.

But it is an interesting way of looking at the relative value of various revenue streams. Back in the early days of the tramnsition from dial-up to broadband, I gave a speech to a group of ISPs very concerned about the difficulty of the business model.

At that time, most of the actual revenue was earned by providing access. There was some amount of value-added service and products.  For better or worse, I said then, "access" was where most of the money was, despite the difficulty of the business case.

The business ecosystem was simpler then. Google had not grown to its current state, for example.  Looked at broadly, it may no  longer be true that most of the money is in access.

European Commission, FCC Disagree on Competition

As U.S. competitive local exchange carriers and cable companies await key decisions from the Federal Communications Commission, the quantitative tests of "effective competition" are key. And on that score the FCC and the European Commission do not see eye-to-eye. In the video arena, the FCC targets the 30-percent market capture level as denoting "effective competition." In the voice services area the test seems to be 20-percent share loss by incumbents. The EC doesn't even think 50-percent loss of market share by incumbents is sufficient.

The disparities in thinking about what marks "effective" levels of competition leaves at least some room for new thinking on what measures might be required to stimulate even more robust levels of competition. In mass markets, 30 percent quite often is the share held by the market leader.

Wal-Mart to Sell HughesNet Services

Need a little satellite broadband with your order? Wal-Mart customers will be able to buy HughesNet satellite broadband services soon. Sure, it is a niche. But there are lots of big niches in the communications business. About 10 percent of all U.S. end users live places where the local telephone company is not one of the big brand names. Also, for some of us, wireless is a good way to back up a primary wired broadband connection. In my case, Covad as a primary for primary in-home business and personal use, plus 3G wireless primarily for mobility, but also as the backup in case the primary service fails for any reason.

iPhone Wins with Software Defined Radio

Software defined radios--software that emulates all the functions of one or more radio transceivers--have been talked about for at least a decade, and at least one company--Vanu--has had its SDR approved for U.S. use by the Federal Communications Commission. The attractions are many: mobile communications becomes an application any device can be given; dedicated firmware and hardware are unnecessary; multiple radios can be made available to any single device; smaller radios are possible.

An SDR could mean a global mobile device, able to work in Japan, on GSM or CDMA networks, with Wi-Fi or other wireless networks. Some users would love it. Mobile carriers have to be ambivalent. Sure, you'd like to sell a true "global phone." But then you also lose control of the end user and the device. Any truly global phone necessarily works with any mobile provider's network, as well as with Wi-Fi and potentially other wireless platforms--such as WiMAX--as well.

On the other hand, looking at this from a consumer device manufacturer's point of view, SDR is a wonderful thing. If you sell mass market communicating devices all over the world, and have to deal with disparate radio infrastructures and protocols, you want SDR because it streamlines the entire manufacturing and logistics process.

You build one device, supporting multiple radio types; not multiple devices designed to work on one sort of radio platform. If you are Apple, in other words, SDR is a really nice thing. It's a nice thing if you are Nokia as well. Nokia just has more entangling relationships with customers that undoubtedly will press Nokia not to make SDR available.

Also, no particular business model inevitably is bound up with the use of SDR, though obviously the technology lends itself to more open and flexible end user models. One can envision open, unlocked business rules on one hand and walled garden rules on the other where "roaming" is possible anywhere in the world so long as the user has agreed to pay for that privilege.

The point is that by fits and starts, we see more openness at both the device and application layers of any communications-enabled business, corresponding to the openness IP itself has brought to transmission.

Midband Ethernet, Everything Else is Growing...

It has been a good year for suppliers of midband Ethernet connectivity equipment and access services. Heck, it's arguably been a good year for access services, period. Where providers used to get asked for T1s, they now get asked for DS3s. Where they used to get asked for DS3s, now customers are asking for optical connectivity. It's the same story on the consumer access front: more bandwidth, more often. That's what video will do to a network.