Net Neutrality Friday

A couple of weeks ago, I posted some information about new technologies that are just starting to be implemented in some Service Providers. The reason I talked about these is that these technologies are the current focus of discussions around innovation. So, why this important to business and regular people who want to buy services? You need to think about what is going on. You hear regularly about mergers within the Communications Business. Comcast and TWC did not go through, but now Charter and TWC are merging. CenturyLink is a huge roll-up of CenturyTel, Embarq, Qwest, and Savvis among others. Why is this happening? Why are we not having new entrants, but instead having existing companies merging?

The reason is pretty simple. It is the lack of innovation in the kind of services and the way we want to buy them. Think about it. We want a company to go build a network to compete with Comcast, AT&T, Verizon and other large ISPs. Okay, well why would anybody do it? Can they build and operate a network at such a different price point that they can attract lots of customers? Today, the answer is no. Much of the cost of building and operating a network has little to do with the kind of things we innovate on. Think about it. If you want to build a new network, you have to lay cable, rent or build buildings, buy a bunch of equipment that you have to power and cool. None of these elements of a network are changing price significantly. Some of them are very labor intensive (especially the construction bits).

It is innovation that allows markets to be move from a point of efficiency through inefficiency (and disruption) and back to efficiency. Without that change, there is little space for new entrants. This is particularly true for entrants that have to spend a lot of money just to build out their service. Imagine having to spend $100s of Millions before you can offer your service. When you get to offer your service, your competitors can just lower their price a bit and put you out of business.

Do SDN and NFV offer a way out of this? Maybe, but not at the low level of delivering bits. What these technologies do is optimize the processing elements of the networks and connectivity to them. The problem is that at any given customer the cost of this is a small portion of the overall budget to deliver their service. As an absolute number, the cost is still significant at a carrier level. I have yet to hear that a Service Provider is going to lower their pricing because of the implementation of these technologies. What is more often heard is that new services can be offered more flexibly and at a lower cost. Nothing wrong with that. But from a money standpoint we are talking about optimizing the 10 cents of the dollar being spent. You still have to spend the dollar.

So, that means that the investment to build a new network is not fundamentally changing. Given that there is only so much money to be made on these networks, there is not a large chance that new competitors are going to be attracted.

The result of this is that we need to plan our path forward with not a lot of new Service Providers.

Jim Sackman Focal Point Business Coaching Business Coaching, Executive Training, Sales Training, Marketing

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