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Broadband

How 'unrefined' is telecom?

Friday 27 May 2016 | 12:03 CET | Market Commentary

UK regulator Ofcom has conducted an extensive review of the telecom market and proposed new regulation. The market players are arguing for a number of changes based on broadband penetration and the quality of networks and services. Vodafone, TalkTalk and Sky have called for 'structural separation' of incumbent BT and tighter regulation. The two sides continue to talk at each other, slinging arguments for and against regulation. The ongoing debate is due in part to confusion about where the discussion starts: is it primarily about rolling out top-class infrastructure or more about creating effective competition?

Which side a person takes depends on a number of fundamental choices:

  • Which is more important: infrastructure or competition?
  • Is a 'level playing field' only possible is structural separation is applied?
  • Is the network a 'dumb pipe' (or a 'smart pipe', it makes little difference) and an 'unrefined' service? That is, does the actual innovation occur in services and media (content) - so, over-the-top?

The focus here is on the fixed network, as there are already four mobile networks in the UK. BT emphasizes the important of infrastructure, while Vodafone points to the competitive dynamics. As far as BT is concerned, competition is not relevant when it comes to deploying infrastructure. It sees vertical integration as the best way to create a national broadband network, with competition only an afterthought. Vodafone draws a connection between the two: only with a 'level playing field' for all players (and as such structural separation) can a competitive market exist. And that is a necessary condition to achieve a quick and effective national roll-out of an ultrafast network.

Innovation

The underlying issue here is innovation. This occurs at various levels:

  • Broadband networks. For passive networks, fibre is increasingly important as operators bring it closer to the end-user. For active components, it's about the step from for example 100 Mbps to 1 Gbps. A similar trend is underway in the cable market with the transition from Docsis 3.0 to Docsis 3.1 and freeing up spectrum (first up to 1 GHz and then further).
  • Managed services. Telephony services such as call forwarding or programme restart and VOD in the video market.
  • Subscriptions. Based on the infrastructure, there is a tendency towards 'adulterated' products. A simple product, such as 50 or 100 Mbps is cheaper, while a more extensive product like 1 Gbps is more expensive. 
  • OTT services and content. Innovation is coming largely from the internet sector (Silicon Valley). A complicating factor is that these services compete with the managed services.

How 'unrefined' are these services? Is it game over for managed services in the face of OTT competition? Does differentiation on the broadband market still make sense, if it's based only on exploiting the maximum bandwidth? Can operators play their own role on the OTT market, or have they left it to the internet sector? Or is the core competence of the operator assembling, selling and supporting subscriptions?



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