Communications Industry Trends

INVESTING IN NETWORKS – GEARING UP TOWARDS GROWTH IN A CONSTANTLY CHANGING WORLD

Gone are the days when the ‘telecommunications’ meant the plain old telephone — a tool for voice communication. Given the blurring lines between voice, data and video, the movement towards Unified Communications has come to be the norm. This primer from Butler intends to analyze the factors driving telecom market participants towards building appropriate networks, while focusing on strategies of players across three sectors: cable providers, wireless carriers and wireline carriers.

Deregulation of the US telecom market has resulted in a state of hypercompetition, with technological advances holding the key to commercial success. While the telecom industry can realize growth by expansion into new services such as video surveillance and home automation, the three types of telephony service providers (cable providers, wireless carriers and wireline carriers) are competing for the same customers.

The industry anticipates an increase in consumer demand for new digital services – these new services are spurring on the horse race for the fastest, clearest and most reliable provider of the delivery channel – the network.

Broadband remains the single primary factor critical in building next–generation telecom networks. Broadband penetration has been on the rise worldwide ever since 2002 and the United States has witnessed a quantum jump of 300% between the years 2002 and 2008 as highlighted in a study by the analyst firm Scarborough Research. San Francisco has emerged as the leading local market in terms of broadband penetration, trailed by Boston and San Diego. An ever increasing need for high–speed internet connectivity stems from a need for faster delivery of rich media content.

How much of Bandwidth is ‘Sufficient’?

Bandwidth requirements are not dependent only on current use but also the future requirements of the user. Estimates differ on what is considered as the ‘normal’ usage of telecommunications networks. Physical characteristics of a link determine the maximum bandwidth that can be sustained by a connection over the physical link. A study by Arthur D. Little (commissioned by a cable company – Liberty Global) projects that downstream requirements of households would peak at about 50Mbits/s by the year 2011. The study assumes that bandwidth requirement for an end–user will be relatively less upstream in comparison with downstream usage.

Broadband Issues in the United States

The latest report by OECD (Organisation for Economic Cooperation and Development) on broadband penetration per capita for the year 2007 has only confirmed a few observations by an increasing number of industry groups – The United States (ranking 15th) continues to fall back behind other OECD nations in terms of broadband adoption. Broadband subscribers totaled an estimated 70.2 million in the United States, at the end of IQ 2008. However, a majority of rural areas currently lack access to broadband, while there exists little competition between broadband providers in a few urban and suburban areas.

• Consumers in the United States currently shell out more (in comparison with other industrialized OECD nations) for relatively lower speeds. Average download speed among the consumer broadband services is about 8.9Mbps, as compared with 93.7Mbps in Japan, 44.2Mbps in France, and 43.3Mbps in South Korea.
  
  
• Consumers in the United States pay about US$2.83 per each megabit per second of service (for the lowest advertised price in the country), a steep cost in comparison with $0.13 in Japan. Broadband subscribers in other OECD nations such as South Korea, France, Finland and Sweden pay less than $0.43 per megabit per second (on a monthly basis).
  
  
• China overtook the United States as the largest fixed broadband subscriber market in the first quarter of 2008, with total user volume pegged at 71.6 million.
  
  

TOWARDS FASTER & MORE RELIABLE NETWORKS – A STRATEGIC INSIGHT INTO SERVICE PROVIDERS

Key Competitive Strategies

Wireline Players

Upgradation to Fiber–based Networks to take on High–Speed Cable Modems…

• AT&T recently increased capacity of backbone Internet pipeline to 40–Gbps and is considering further increase in capacity to 100–Gbps
  
  
• Verizon’s FiOS Internet Service enables maximum speeds of up to 100 Mbps or 20 Mbps downstream and 20 Mbps or 5 Mbps upstream, depending on the proximity of user’s residence from switching station.
  
  

Wireless Service Providers

Banking on relatively new technologies such as WiMax to solve Last–mile Woes…

• Focus on building WiMax networks to achieve ‘local loop’ broadband connectivity
  
  
• Position WiMax as a DSL replacement technology particularly in cost-sensitive markets
  
  

Cable–based Service Providers

Rolling out new technology to Match Speeds Offered by Fiber–based Wireline Players

• DOCSIS 3.0 developed by Cable Television Laboratories offers data download speeds of up to 150 Mbits/s, about 25 times faster than current cable modems
  
  
• Lucrative pricing deals are being offered to lure wireline DSL subscribers
  
  

AN IDEAL NETWORK?

There exists an ongoing debate on an ideal network to connect end–users to high–speed bandwidth networks. However, besides speed constraints and infrastructure requirements, regulatory mechanisms and business models do play a significant part, in adopting a particular broadband network.

• Wireless networks offer a few advantages with respect to cost for the last meter/mile, flexibility and mobility. However their inability to transmit large amount of data over long distances position them as ideal for bridging the last meter/mile from the mobile device to the physical network. However, wireless network may be the ideal option in geographic markets with dispersed population and where spectrum is available.
  
  
• Cable represents a broadcast network which enables shared use of bandwidth (both upstream and downstream) and thus its capability of sustaining multiple ‘on-demand’ applications is limited by the availability of bandwidth and number of users.
  
  
• While Fiber–to–the–Home networks appear the best bet in terms of providing the maximum bandwidth and highest sustainable rates per end–user, regulatory mechanisms and the costs involved in building new networks need to be considered.
  
  

Latest News

China Overtakes U.S. in Fixed Broadband Subscribers…
http://iptv.tmcnet.com/topics/iptv-deployments/articles/ 30258-report-china-overtakes-us-fixed-
broadband-subscribers.htm

Broadband: How the US Stacks up…
http://www.networkworld.com/news/2008/052308-broadband-how-the-us-stacks.html

DSL Providers Seek to Improve Energy Efficiency of Broadband Networks…
http://www.teleclick.ca/2008/06/dsl-providers-seek-to-improve-energy-efficiency-of-broadband-networks/