In Business Model, Internet Access, Mobile

The main reason mobile networks now dominate consumer telecommunications in most global markets is that such networks can be built faster, at lower cost than fixed networks.

Also, mobile networks are less risky. A mobile operator in a competitive market faces far fewer “stranded asset” problem are a much-bigger problem for fixed networks, than for mobile networks.

For starters, mobile networks do not require as much access network investment per potential customer, so there simply are fewer chances a capital investment will be deployed, but not generate revenue.

Also, even when an older network is decommissioned, the spectrum can be repurposed to support a next generation network. Often, tower locations likewise can be reused.

Sometimes, even temporarily unused assets can be put back into use to generate revenue.

FreedomPop, a U.S. mobile service provider, recently provided an example when it introduced a “better calling experience” called “Premium Voice technology.”

So is it a fancy new Internet Protocol tweak? No, the service uses the Sprint second generation network, much as 4G networks often rely on 3G for voice services.

When possible, FreedomPop uses local Wi-Fi connections, and reverts to the mobile network when necessary. In the case of voice services, unstable Wi-Fi can degrade voice quality.

So FreedomPop now shifts calls to the Sprint 2G network to protect voice quality, and offers that as a premium service. That’s a good example of monetizing stranded assets.

Fixed network providers face much more difficult problems when faced with competent fixed network competitors operating on their own facilities.

Stranded assets have become a huge business model problem whenever a monopoly communications business becomes competitive.

Stranded assets–network facilities that drive zero revenue–also directly related to market shares, gross revenue, profit margins, marketing, capital investment and operating costs.

Which is to say, the key drivers of the business. Though well understood now, the fundamental change in access network economics was not immediately and universally understood.

Consider any one-product service provided by a single provider with 80 percent installed base or take rate. Add one competent new supplier, and theoretical “maximum” share for each provider drops to 40 percent. Add a third competent supplier and theoretical maximum share drops to 33 percent.

That change alone would destroy the original economics and business model. Triple play now is foundational because it directly addresses competitive market dynamics: three products can be sold to a smaller number of potential customers.

If each unit sold (for example) is about $40, then per-account revenue could be $120, not just $40 if a single product were the only supplier option.

In the U.S. market, for example, former incumbent carriers often have customers on only about a third of all access lines. In other words, 66 percent of the deployed network does not actually generate revenue.

“The ILECs’ (incumbent telcos) low cash flows reflect the continuously increasing cost of sustaining a ubiquitous network that is now serving roughly a third of the lines for which it was engineered,” argues Anna-Maria Kovacs, visiting senior policy scholar at the Georgetown Center for Business and Public Policy.

To be sure, multiple fixed networks will not be that common in most markets. Where they are, stranded assets immediately will become a key business problem.

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