Decoupling the Network from the Service
Colin Dixon, Senior Partner, Advisory
April 29, 2011
I spent two days this week at a couple of conferences in New York City. The first was Light Reading’s “Cable’s Next-Gen Video Strategies,” the second was Seachange International’s “Monetizing Multi-Screen Video” that took place the day after just a few blocks away. Both conferences focused on PayTV operators and had an impressive line-up of speakers. Attendees were treated to discussions on topics such as a la carte channel sales, content licensing, and cord-cutting, and in both conferences the discussions were informative and interesting.
However, as the discussions proceeded I realized that the topics covered, though important, didn’t reflect the emerging reality of what’s happening to the industry: the decoupling of services (which we increasingly call “apps”) from the fabric that delivers them. This trend has huge ramifications for operators, content providers, and consumers yet it received no mention on any panel, presentation, or keynote.
The purchase of broadband (and mobile data plans) is quite unique in the pantheon of services available to consumers. Let’s review how it differs from other telecom services.
Historically, when a consumer purchased PayTV service the operator provided the service over a purpose-built network that was only used for that service. It was the same with phone service, mobile or wireline. The network and service were inseparable. If a consumer changed service providers she had to also change the physical network. This meant that the entire cost of the network had to borne by the single service that it delivered.
But that is not the case with broadband service. Outside of access to the Internet at “broadband” speeds, there is no specific “service” attached to the physical network, just a promise of throughput (upstream and downstream) for other Internet-based services and applications. Subscribers are renting access to the large, diverse marketplace of services available through the Internet. The core “service” (i.e., broadband access) is decoupled from the individual Internet-based services that can be enabled through a broadband connection, delivered “over-the-top,” meaning one can change broadband providers without changing the Internet services used, thus fueling the “dumb pipe” prognostications of the last decade.
So why is this important? Simply put, high-speed IP connections can transport a wide variety of services that replace older dedicated network services, and often at much lower cost. For example, voice communications are now a commodity service over broadband. A consumer can choose from many different vendors with many different flavors of service. Skype provides free and fee-based calling, while Vonage wants to replace your wireline phone, as does Ooma and Magic Jack. Even Facebook is getting into the act. And if I, as a consumer, want to change voice service at any time, I can do so without having to change my broadband service.
Although in its infancy, the signs are that OTT video will experience a similar future. Companies like Netflix and Hulu Plus are today offering subscription OTT video services, and others like VEVO and Revision3 are providing free ad-supported services. Many ethnic and niche channels are also available like Dish International Online and Wealth Channel (on Roku).
This is why decoupling the physical network from the service is so significant. A single broadband connection can deliver phone service, electronic books, my daily newspaper and, yes, my TV entertainment, as well. And because these over-the-top service providers don’t have to pay for the delivery network, the services are often much less expensive than facility-based incumbents.
For cable companies that have long relied on proprietary networks to mark out exclusive territories with legislated monopolies to sell consumers PayTV services, this is a difficult thing with which to grapple. But as Netflix is proving every day, in the world of quantum media, such physical advantages are meaningless. An OTT service with interesting content can, with the proper funding and a good idea, instantly compete on national basis.
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