July 22

Connectivity: Selling an illusion?

Telecoms

2  comments

Telcos’ core product – broadband connectivity – is undifferentiated and commoditised because it is inadequately defined.

Connectivity selling an illusion

In my post “Telecoms will never be a dumb pipe” I argued that broadband networks are not pipes and that a better metaphor would help strategic thinking in the industry. I referred to the multiple dimensions of pricing freedom that post offices and logistics services use, and said that current broadband pricing approaches – peak rate or volume-based – were inadequate to the FASP4 Space layer job of maximising economic returns on the network assets.

I mentioned that road networks (and by extension, rail networks) have more in common with broadband than electrical wires or water/gas pipes. Let’s explore the analogy to see why broadband pricing is resulting in an investment crunch.

Who buys travel on a passengers per minute basis?

Imagine you wanted to move something across the country – a group of people. Two options: road and rail. If the road lobby and railway company acted as telecoms providers, they would try to convince you based on peak throughput.

  • The railway company would tell you they have a peak throughput of 50 passengers per minute (one train with 1000 passenger capacity arriving every 20 minutes)
  • The road lobby might also tell you that they have a peak throughput of 50 passengers per minute (a busload of 50 passengers pulling off the motorway junction every minute)

Now the problem, of course, is that this single metric is an inadequate definition of the road or rail experience. It forgets to address a number of key parts of the value proposition:

  • How often the trains or buses depart
  • Whether there are seats available on the desired train(s) or bus(es)
  • How long the journey should take
  • The risk of traffic jams, delays, or problems on the line
  • The risk of accidents

As you read that list, did you spot those classic networking concepts of latency, variability/risk and loss? They are there, and acknowledging them has led to innovations like:

  • Early-bird pricing
  • Car-pool lanes
  • Bus lanes
  • First and second class
  • Toll routes
  • Fast express services
  • Slow goods services
  • Night trains
  • Heavy Goods Vehicle (HGV)-free roads on busy holiday weekends

Now, I know that terms like “toll routes” can raise tensions to inflammatory levels when applied to the Internet, but this is not an argument about net neutrality. It is about how other industries have optimised the economic benefit of a shared, spatially-distributed resource by developing a variety of propositions at different price and quality points.

A crazy way to sell your road or rail – or broadband – service

There are three problems with the “peak throughput” approach mentioned above.

Firstly, it creates commoditisation, by reducing a complex and multi-dimensional offering into a single performance metric.

Secondly, the single performance metric is an unattainable illusion. Peak passengers per minute and peak Mbps are illusory, and do not reflect the capacity of the seller to meet the real-world needs of the buyer. Does trying to outdo your competitors by marketing an illusory metric seem a good idea for creating sustainable competitive advantage and satisfied customers? Thought not.

Thirdly, it makes investing in those other, critical, areas of the value proposition almost impossible. If I am only communicating on “peak passengers per minute” how can I invest in:

  • a road-widening programme (to reduce congestion)
  • increasing the speed limit, or buying faster trains (to shorten the journey time)
  • variable speed limits (to reduce congestion and lower the accident rate)
  • cheaper, slower trains

If broadband providers only communicate on peak throughput, how can they sustain investments to increase average throughput, increase reliability, and reduce latency and loss, none of which are part of the product definition?


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About the author 

Richard Medcalf

Strategist, consultant and business leader with 15 years experience in helping companies thrive in an Internet world. Formerly a partner in strategy consultancy Analysys Mason; now at Cisco Systems, developing new strategic partnerships with leading telecoms players.

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  1. Certain forms of transport are sold on a “passengers per minute” basis – ski lifts, for example.

    It’s also a good metric for various pinch-points such as ticket barriers, escalators etc.

    The problem that the telecom industry faces is that virtually no other broadband-delivered products besides undifferentiated Internet access actually appeal to customers. IPTV and carrier VoIP are the two main exceptions for consumers, and stuff like VPNs, SIP trunks, SaaS & hosting for business.

    All the others tend to be to complex when you dig into the details. Unlike trains or roads, it’s very difficult to define an “application” despite vendor rhetoric. Facebook comes in 100 different variants depending on device, web/app version, plus it has a gazillion plug-ins / page elements from other sources like advertisers, YouTube, external links, games etc. Browser pages are usually mashups as well, and increasingly being encrypted to boot.

    There appears to be no *demand* for differentiated Internet connections from content/app players, only putative “supply” from networks – and even then, it doesn’t work very well. There’s also a huge issue that Network QoS is only a small % of what drives overall experience QoE, and there’s often easier and cheaper levels to pull instead.

    Reply

  2. Dean, thanks for the comments. I agree with much of what you say, and this is not a disguised pitch for Network QoS. But it is a call for the existing products to be more clearly defined. “Up to 20Mbps” scream the DSL ads of all the providers, which provides no way to differentiate between the products.

    In France, where I live, I can’t buy “better” broadband even if I want to. And I know that my experience is not perfect, no is it hitting any technical limits. That is an example of an inadequately defined market situation. Money left on the table.

    Richard

    Reply

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