By Benoit Felten, The Yankee Group
Ever since DSL was “buzzword of the month,” the “religious war” on whether the wireline network should be open or not has been ongoing.
One side of the argument says monopolies are bad and competition is good. Therefore, if a network is monopolistic, it should be open. The other side says whomever makes the investment should reap the rewards, and let competitors lay down their own network.
In different countries, governments and regulators have taken different sides in the war – incumbents have lobbied more or less successfully and competition authorities have punished monopoly behavior with varying degrees of success. The debate is now so entrenched, riddled with specious arguments, disputable statistics and confusing analogies that it’s become really hard to understand what people even mean when saying “open access” anymore.
Meanwhile, the world has moved on. It used to be that whoever owned the network owned the customer. Now, according to the very companies who screamed “blue murder” when forced to open their network, the “dumb pipe” business is not where you want to be. In their words, the value no longer is in the network. The war is about services – and these services are increasingly available on the Internet.
But the emergence of Fiber-to-the-Home (FTTH) is a stark reminder that there certainly is cost in the network. Of course, incumbents never rolled out their copper networks – they inherited it – so this is something they have forgotten. But once you sit down and try to work out the economics of FTTH deployment, as we have recently done at Yankee Group, you quickly realize the costs are certainly not trivial and the only assured revenues are in the network.
So now the paradigm shifts.
If your network business isn’t sound, you shouldn’t be rolling out a network. The service business is the cherry on the top, and it can be a lucrative cherry if you offer compelling services. But you won’t be alone in delivering them. Net neutrality arguments aside, even the staunchest monopolist will never be allowed to block access to the Internet, and as bandwidth abundance becomes the norm, nothing will prevent a customer from going out in the wider world to find a service that’s better than the one offered by his network provider.
The corollary is that anyone who wants to be in the network business should be able to live from the network revenues alone.
This has two major implications. The first is that either the ROI expectations of legacy network players (and the shareholders backing them) will have to change, or we will see a new generation of network players emerge who are focused on the infrastructure and access business.
The second is that “open” is no longer a swear word.
Our analysis shows it makes economic sense to open the network: Acquiring customers (direct or indirect) is a lot more crucial to a network business than reaping high revenues from a subset of customers. In saying that, we are not taking sides in the war (although we expect to be accused of that, nonetheless), we are simply making a statement based on economic analysis. The results of our model suggest that players considering FTTH deployment should ignore the scriptures for a minute – put aside the “Book of Walled Gardens,” as it were – and at the very least do their own economic analysis to assess the viability of embracing the access wholesale business.
Benoit Felten is a principal analyst at Yankee Group, a respected source of deep insight and counsel on the impact of global connectivity revolution on enterprises and consumers. He recently co-authored, “Open Access Makes Economic Sense,” a Yankee Group economic analysis of Fiber-to-the-Home.
