Telcos’ core product – broadband connectivity – is undifferentiated and commoditised because it is inadequately defined.
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?
Other posts you might like:
- The FASP4 model for telecoms strategic thinking
- What drives the economics of networks
- Why telecoms will never be dump pipes