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SERVICE PROVIDER STRATEGIES

Q&A With Benoît Felten: Services for Next-Generation Networks Residential subscribers rarely switch providers for “more speed” or “more channels.” To win customers, operators of advanced networks must offer services those customers can’t find elsewhere.

“What would you do with a gig?” Google asked in 2010, and today, the world is watching the Google Fiber cities to find

out exactly what consumers will do with a gig. In the meantime Google itself, like most other next-generation network operators, is offering a stripped-down service bundle – big-pipe broadband plus online storage and a standard TV lineup.

Benoît Felten, research director of Paris-based consulting firm Diffraction Analysis, has long encouraged network operators to differentiate on new consumer broadband services, rather than on features such as speed or content. (For a similar analysis applied to the business broadband market, see “Broadband is No Field of Dreams” in the November-December 2012 issue of this magazine, by Michael Curri and Doug Adams of Strategic Networks Group, another Paris-based consulting firm.)

Felten distinguishes among core services, collaborative services and carried services. The first two categories include services necessary to attract and retain customers; the third category consists of non-key services. Network operators need to offer all the services their customers consider essential, whether they provide them directly (core services) or develop and market them in conjunction with specialized service providers (collaborative services). They should avoid marketing non-key services.

Residential Internet access is undisputably a core service for broadband providers. Beyond

that, each service provider will draw the lines differently. An application that is essential to consumers in one time or place may not be essential in another time or place. Similarly, though some operators have a core competence in delivering a certain service (such as linear TV), others don’t have and may not wish to acquire such a competence. What’s important is that each operator determine for itself the services that it must carry and those that it must develop in-house. By using this approach, an operator can collaborate rather than compete with over-the-top service providers.

Recently, BroadBand Communities had the opportunity to interview Felten about his most recent report on this subject, “Building the Optimal NGA Service Portfolio.”

BroadBand Communities: Your new report says, “There is no next-generation access (NGA) portfolio.” That’s a startling statement. Can you explain what you mean by that?

BENOîT FElTEN: I’ll admit to having been a little provocative here, but at the same time I think it’s important that people stop hoping for a killer app that in and of itself will justify investing in next-generation access. An NGA network is a long-term endeavor that is undertaken for a variety of reasons; new applications (many of which we can’t anticipate) is only one of them. The fact of the matter is that most of the services that

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can be delivered over NGA today can also be delivered over a good-quality copper or coax network. The quality will not be as good, some services might be constrained, some might be slower than users would like, but it would be disingenuous not to acknowledge that there are very few services that work only on NGA networks. That doesn’t make it any less necessary to deploy NGA networks to provide decent quality service, to foster competition, to invest in the future.

BBC: Beyond the triple play, should an NGA provider offer a large portfolio of services, each of which might be of interest to a small percentage of customers, or focus on a few services that might be more widely appealing?

BF: There is no single service strategy that would be suited to all players. What must be recognized is that the richer the service portfolio, the more effort, involvement and investment is required from the NGA provider to build, maintain and deliver these services. It can make a lot of sense for a broadband provider to be very hands-off about the services customers want if they have easy access to these services online and want to join the network

anyway. On the other hand, a very differentiated service offering from what customers may get over copper or cable may be crucial and thus justify an innovative service strategy. The core question, in my opinion, goes beyond which services an operator wants to include in the portfolio. The operator must also, and at the same time, ask how it wants to deliver these services to the end user and if it wants these services to generate margin. This is at the heart of the content of our report and, frankly, hard to summarize in a few words.

BBC: Until recently in the U.S., FTTH access speeds often matched or barely exceeded the competition’s – but thanks to Google, “gigabit” has become a household word and 1 Gbps speeds have now become more widely available. Should FTTH providers offer ultra-high-speed service, and if

so, how should they price it?BF: Speed can be an important

component in the marketing of NGA offerings, but it’s also quite often a sign of poor marketing thinking. In other words, although an operator can (and, in my opinion, should) enter the market with a bang by offering speeds much higher than what customers can currently get at an affordable price, if that’s [the only differentiator], the competition will be quick to catch up.

Delivering 1 Gbps does not cost 10 times as much as delivering 100 Mbps, and very often it’s a better marketing strategy to sell high speeds and price them aggressively than to overly segment on speeds in the hope that half a percent of customers will buy the very expensive highest tier. The only point of caution when pricing 1 Gbps offers is the segmentation between residential and business offers. That might very well justify keeping 1 Gbps for the business market at a higher cost.

BBC: You mention end-user Wi-Fi aggregation as a potential new service offering. There has been some fevered speculation in the press that Google may drive cellular providers out of business by using its excess fiber bandwidth for Wi-Fi to mop up mobile data. Is this a possibility, if Google or another FTTH provider were to offer Wi-Fi aggregation? And what’s the value of Wi-Fi aggregation to an FTTH provider?

BF: There’s definitely a risk, although it shouldn’t be overstated. Building a seamless and continuous network based on consumer Wi-Fi hotspots is very complex, and doing so with a high quality of service is, as of now, virtually impossible. The value

FOCUSED SERvICE DElIvERy FOR NExT-GENERATION ACCESS PORTFOlIOS

Importance of Service

Definition Production Approach

Attitude to Competing

Online Services

Core Services Services that are key to customer retention and can be built with

in-house know-how

Focused in-house delivery

Fierce competition

Collaborative Services

Services that are key to customer retention but cannot be built

without external collaboration

All-in collaborative

approach

Online service provider

competition unlikely to exist for such services

Carried Services

Services that aren’t key to customer retention and/or could

be obtained on any network.

Distribution and delivery

partnership or nothing

Do not compete

Source: Diffraction Analysis

Collaboration between network operators and application providers can succeed only if both players benefit from the arrangement.

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SERVICE PROVIDER STRATEGIESof cellular wireless connectivity is ubiquity, and there’s no way Google or someone else can take that away based on Wi-Fi only. That being said, cellular operators in those areas can expect a lot more mobile offload to go through such Wi-Fi solutions, but as they keep complaining

about too much data going on their mobile networks, they should see that as a boon, not a threat.

As for the value of Wi-Fi aggregation to an NGA provider, I clearly see it in retention and acquisition, not in revenue generation. If operators make it a

paying option (or, worse, a usage-based payment), then usage will drop dramatically and the service will become pointless.

BBC: Your report gives some examples of successful and unsuccessful collaborations between network operators and application providers or local institutions. Based on the cases you’ve reviewed, what is necessary for a collaboration to succeed?

BF: The same as with every collabor-ation: that both players win from it. The core issue with NGA providers is that quite often they expect to play a secondary role in delivering the service but also to retain customer ownership. That cannot work. NGA providers have to be willing to take a backseat and benefit from the increased richness of their portfolios at no cost. Their revenues will be limited, but the impact on customer acquisition, retention and satisfaction will more than make up for that.

BBC: How can a provider monetize a “carried” service in a way that doesn’t violate net neutrality? Is there any benefit to a provider from reselling a service that a customer could purchase directly over the top?

BF: As I just mentioned, increasing customer acquisition, retention and satisfaction is a form of monetization even if a provider can’t or won’t measure it. Beyond that, providers can play important roles in exposing their customers to the services (just as an app store does) and ensuring the quality of the services on their networks through content hosting and so forth. Both of these activities are valuable to [application] providers, generate revenues and do not violate net neutrality. v

“Building the Optimal NGA Service Portfolio” is available at www.diffractionanalysis.com/blog/2013/03/13/report-building-the-optimal-nga-service-portfolio.html. Readers of BroadBand Communities are entitled to a special discount on this publication. Write to contact@diffractionanalysis.com for details.

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Taitronics_Broadband Communities_2013.pdf 2013/6/3 下午 01:50:52

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