DJALCHEMI

Notes for broadband service providers

I was at the ISP Forum most of last week, representing Wired Workplace. The main theme of the event, which is close to our hearts, is how to make a profit from selling broadband services. Here are a few headline facts and opinions (most, but not all of them, are taken from a briefing by Tim Johnson of Point-Topic, but any errors are more likely to be down to my misunderstanding than to Tim or others).

Facts

1. Take-up of broadband is growing faster than mobile phones did: it has grown a hundred fold in five years.
2. This growth is now levelling out, if you plot it on a log scale.
3. South Korea leads the world in having one broadband line for every four people in the country (often more than one person in each household uses the line, so this means that more than 25% of people have access to broadband) — but numbers of broadband lines actually fell in South Korea in the last quarter of 2003, suggesting a plateau has been reached.
4. Business users account for about 20% of the market, and half of these are Small Office/Home Office (I assume these proportions relate to volume of lines rather than market value).
5. The UK has lagged behind but has caught up rapidly in the last year.
6. Half the broadband customers in the world have had it less than 15 months, so new behaviours have not had much time to emerge.
7. A 'major UK telecoms provider' reports that 5% of its broadband users use 55% of bandwidth. Generally this is attributed to use of peer-to-peer applications like Kazaa.
8. Many of the major broadband applications bring no more revenue to service providers, but do bring extra costs.
9. For some ISPs, dial-up narrowband services are more profitable than broadband so they want to milk their narrowband customers on the former service for as long as possible, but without losing them to alternative suppliers' broadband offerings...
10. Developments are unever across different countries. For example: Japan has 4.3 million users of Voice over IP.
11. Business offerings over DSL are more attractive to providers profit-wise because price points (and associated margins) are higher.
12. As SMEs start to rely on broadband services there is more need for resilience, which you can't get from one DSL provider.

Opinions

1. The richest market segment for broadband services has already been won: broadband has 30% global penetration so far, though there are still large numbers of dial-up users to 'convert.'
2. The four plagues of broadband service providers are spam, porn, viruses, and hacking.
3. Broadband ought to be sold as a 'serious' tool for making light work of important tasks, not 'gee whiz' entertainment. It's more a Volvo than a sports car.
4. There are still some Cassandras warning that the governance of the internet may not be up to the new problems of routing, security, denial of service, congestion control etc.
5. It's time for service providers to look at applications, not just access. People don't just want access per se: they want the gear. But note the fact (see 8 above) that popular applications may bring costs but no extra revenue on existing tariffs.
6. So charges need to reflect costs reasonably well so that you don't get caught out by new usage patterns.
7. Differentiation is the key to profitability since basic broadband access prices are going to be driven down further.
8. People are still searching for plausible 'killer applications' for broadband. One suggestion was TV quality video telephony. A more plausible contention was that "Convergence of new converged applications will be the killer application."
9. Lots of applications are going to migrate to the IP VPN
10. Ethernet has become 'carrier class' — it is becoming commoditised.

Please post a comment below if you'd like to take issue with any of these points.

See also Broadband Vantage's insightful and well-written report Beyond Broadband.