Wednesday, November 21, 2012

Scarcity-based business models may elicit government intervention

Government intervention in the broadband market conflicts with free markets. It arises from fears of market failure as a result of:

  • Ineffective duopoly i.e. oligopoly and too little competition.
  • Underinvestment by the incumbent, the cable company, and challengers.
  • Scarcity-based business model at both the incumbent and (if any) the local cable company.
About scarcity vs. abundance as the foundation of the business:
                         Scarcity            Abundance
Revenue driver           price               volume
Bits are like            wood, water         electrons
Bandwidth                throttle            maximize
Business focus           connectivity        VAS
Business model           usage-/speed-based  one proposition
Market                   saturated           growing
Innovation               none                maximize
Vertical integration     yes                 no
Infra-based competition  yes                 no
Structural separation    no                  national infra
Marketing, propositions  maximize            minimize
Customer focus           increase spending   increase satisfaction
Business model           subs, transactions  ads, transactions
Customer data            full                growing
It appears that telcos, cablecos and ISPs traditionally belong to the Scarcity group, whereas Amazon and Google are in the Abundance group. Netflix, Facebook and Apple seem to be moving from left to right. Microsoft and Nokia may be moving in the opposite direction.

If the governement believes there is market failure, or that Abundance is a better foundation for economic growth than Scarcity, then it has several options to intervene and contribute to broadband performance and coverage:
  • Limit the effort to bringing broadband to rural areas where xDSL doens't work and cable is absent. But then, it could be left to the market to provide LTE services, or even satellite-based broadband.
  • Facilitate all market participants by reducing red tape, providing loans, becoming an anchor tenant, etc.
  • Participate at market terms to create a third infrastructure (FTTx). But do not expect existing players to simply quit competing and become service providers on your FTTx network.
  • Regulate in such a way that competition truly increases. For example:
  1. forbid the incumbent to consolidate the market, or even do any takeovers at all.
  2. force structural separation upon the incumbent (see New Zealand). But raising wholesale prices is clearly a way of helping just the incumbent, and foregoing the interests of its wholesale customers.
  3. nationalise (see Australia, NBN).

Tuesday, November 06, 2012

Fixed/mobile convergence 2.0: 10 varieties

In the business market, fixed/mobile convergence is probably the biggest issue at the moemnet, with cloud computing. But what does it mean in the consumer market?

1. Apps. In the mobile data world, apps helped break open the market. In the fixed broadband market they are not new, but they may redefine how we use the internet.

2. Mobile-only. Why hang on to fixed voice, unless it is given for free as an add-on.
3. Unified communications. A call is routed to any handset, based on preferences managed in a portal such as Google Voice.
4. Quad play. The 3P and mobile are combined into a 4P. The addressable market is much smaller than the 3P market. Virgin Media UK's 4P penetration grows very slowly and now stands at 15.6%.
5. OTT. Apps, whether independent (Skype, WhatsApp, Viber, Facebook Messenger, Google Talk, Rebtel, VoipBuster, Kakao, KeKu, IKmobiel, Tango, Fring, Nimbuzz, eBuddy) or operator-controlled (pfingo (StarHub), Joyn (Vodafone, T-Mobile), TuMe (Telefonica), UPC Phone, SmartCall (Virgin Media UK)) branch out to offer a full communications suite (text, voice, video calls), from fixed, mobile and WiFi, with free on-net calls.

6. TV Everywhere. Content on any screen, primarily VOD but live TV as well. Primarily in and around the home, but anwhere as well (Slingbox, Belkin's @TV).
7. Second screen. The tablet or smartphone functions as second screen, as social TV or as remote control.
8. Cloud. Content (and in TV Everywhere: the UI) moves into the cloud (Apple iCloud, Google Drive, Amazon Cloud Drive etc.) and so can be consumed on any connected device/screen.

9. WiFi. This is where fixed and mobile networks meet, whether public (free or net), private (whether open or closed) or shared (MiFi, TriFi) hotspots. Backhaul network (fixed or mobile, or even satellite) is more or less irrelevant. Cable companies consider foregoing mobile and focus on WiFi instead.
10. LTE. This may be a fixed-line replacement. Not for the entire market, but the addressable market could still be interesting. See for instance Cota's TD-LTE in Spain.