|Issue:||Asia-Pacific II 2001|
|Topic:||Connectivity and Profitability – The Key to Success in Broadband Access Market|
|Title:||Vice-President, Sales Support and Marketing, Carrier Internetworking Division|
The broadband market faces a ‘last mile’ or access bottleneck. New services increase traffic and demands for network capacity and high speed access solutions. Solutions can be costly and deployment costs need to be balanced against revenues to protect return on investment. DSL and LMDS are both viable ‘last mile’ options. Incumbent operators will tend to leverage existing infrastructures and use DSL. New, alternate, operators might find broadband wireless (LMDS) more attractive.
The recent slowdown in the telecom and Internet sectors brings with it the realisation that new technologies may need to be integrated with established technologies in order to create market value. Experience, whether in the form of seasoned management or with proven technologies, is once again being recognised as an asset rather than a liability. And, now that everyone recognises the true value of cash, the financial industry is once again looking for sound business models. In the broadband access market, the challenge for both incumbent and alternate services providers, in order to deliver innovative residential and business applications, is the ‘last mile’ or access bottleneck. New services are increasing traffic and putting greater and greater performance demands on the network-creating an increased demand for high speed access solutions. Both established and new service providers need broadband access solutions that can: o Provide services to 100% of their potential customers o Turn up and provision services quickly o Provide a return on investment that balances revenue generating services and deployment costs while protecting the investment in infrastructure. However, the battleground is dramatically different for incumbents and alternates. For the incumbent, the challenge is to leverage the existing infrastructure (sunk cost) in the pro-visioning of future services. For alternates however, local loop unbundling is just a stopgap solution to offering a commercially viable service. DSL – A technology on existing infrastructure DSL (Digital Subscriber Line) is, for incumbents, the technology of choice in delivering broadband capabilities to an existing user base. DSL achieves broadband speeds over ordinary phone lines. Unlike a dialup connection, there is no logging on and off or waiting for a dial tone. The always-on feature of DSL enables home and business users to access high-bandwidth information on demand and provides improved opportunities to experience streaming video, online gaming, multimedia applications and telecommuting upon demand. Importantly, DSL does not tie up the user’s telephone line. DSL solves the bottleneck problem associated with delivering network services over phone lines. When a computer receives information from the Internet over a phone line, the telephone company filters information that arrives as digital data and converts it into analogue for telephone lines, requiring the computer’s modem to change the data back into digital form. As DSL transmission is digital, it does not need this conversion. This allows phone lines to carry more bandwidth for transmitting data. Typically, individual DSL connection provides between 1.544 Megabits per second (Mb/s) to 512 Kilobits per second (Kb/s) downstream and about 128 Kb/s upstream. A DSL line can carry both data and voice signals and the data signal is continuously connected. In Asia, DSL is poised to grow rapidly and is very promising. Dataquest estimates that Asia will have a total of 20 million DSL subscribers by 2004. Incumbents in Asian countries such as Australia, Hong Kong and Malaysia are already benefiting from the additional revenue generated by DSL on their existing telephone network. Aggressive roll-out of DSL lines is also expected in China and Taiwan this year. LMDS – A low start-up cost technology For new operators looking to deploy broadband services to the end users, broadband wireless is proving to be a powerful way to meet their commercial objectives. It requires a small up-front investment, it is quick and easy to deploy and enables demand-based network build-outs. Quick revenue generation and a flexible multi-service offering translate into rapid return on investment and capture of market share for alternate services providers. The Broadband Wireless Access (BWA) market encompasses all Point-To-Multipoint radio access networks and technologies able to offer rates of up to 40 Mb/s per End-User termination. High-speed Internet services to SMEs (small and medium enterprises), home offices (SOHOs) and, under specific conditions, residential users are among the main drivers fuelling a sustained growth in demand for broadband wireless. The BWA space includes a variety of technologies, frequency bands and related markets ruled by regulators all over the world. As of today, the most strategic frequency bands on a worldwide basis are the 3.5GHz, the 10 GHz and the 24-38GHz bands. The use of the latter band is often referred to as the Local Multipoint Distribution System (LMDS). A point to multi-point Broadband wireless access solution, LMDS allows service providers to address all market segments, from residential to medium-sized enterprises in high density areas. It can also be used to meet the needs of small businesses and SOHOs, as a backhaul in cellular mobile networks and in multi-tenant buildings. What is in a broadband wireless network? In addition to the wireless access, a broadband wireless network consists of 3 essential elements o Base station equipment o Customer premise equipment o Network management system The base station is the central location that collects all communication traffic to and from customers within a given area and routes it to the backbone network. At the customer’s premises, a compact, highly directional transceiver/antenna is mounted on the roof to communicate with the base station. The transceiver /antenna is connected to a network termination device providing the necessary interfaces to the customer’s in-building network. A network management system at the service provider’s central office oversees the entire network, ensuring smooth operation, administration and provisioning of reliable broadband service. Operators in Australia, New Zealand, Korea and Japan, who benefited from early spectrum allocations have already started to use fixed wireless technology to roll-out broadband connectivity to their end-users. Korea is one of the most successful countries in Asia in the adoption of broadband wireless access technology. With early spectrum allocation, a fully liberalised telecom environment and, as well, its government’s effort to building a National Information Super-Highway, Korea now has 1.6 million broadband access subscribers (22 per cent of Internet access users in Korea) according to IDC. As a case in point, Hanaro Telecom, a full-service telecommunications carrier operating in Korea had, by December of 2000, signed up more than 10,000 LMDS (local multipoint distribution system) customers and was adding approximately 1000 new customers per week. Two additional fixed wireless licences at 27Ghz were issued by the Australian Communications Authority (ACA) issued on November 28, 2000. Agility, a fully owned subsidiary of Cable & Wireless Optus took an aggressive stance and deployed its network infrastructure prior to winning a spectrum licence and was able to deliver services immediately after getting the licence. Winning business case for sustainable growth Apart from choosing the right technologies, there are in fact a couple of factors that will have a major impact on success for both incumbents and new entrants. Irrespective of whether an operator deploys wireline or wireless solutions, three factors have a major impact on the business success of new broadband access entrants and contribute to early profitability: o A clearly defined service offering and target market; o Phased deployment alongside the fast acquisition of customers in the targeted areas; o Effective execution. Clearly defined service offerings and target market It is very true that customers will be prepared to pay for the benefits derived, not the service itself. Ensuring the delivery of the right services at the right price at the right time creates a marked differentiation. Service providers should have a clear understanding of : o what the product set being taken to market is; o who the target customers for the product set are; o what benefits the product will transfer to target customers and o what they will be prepared to pay for these benefits. Phased deployment and fast customer acquisition As the financial market’s growth-domination mantra has now been usurped by a new-found faith in profitability, broadband access operators need to manage the quality of their growth much more closely. To achieve quality growth, operators must deploy their infrastructure in lock-step with the acquisition of customers and revenues. Keeping deployments properly phased; ensuring the service offerings are well targeted, compelling and properly market-tested; focusing on sales and marketing and pre-selling services through wholesale or other agreements are all ways in which the negative impact of delays in customer take-up can be mitigated. Effective execution Effective execution is required to turn intent into reality and can be measured qualitatively through elements such as sponsor and partner quality, management team excellence and local presence. The ability of the project sponsors and partners to underpin the success of the deployment is key. Even with a strong operator focus on early profitability, sponsors must have the capability and desire to fund negative EBITDA in the early years of operation. Project partners need, similarly, to be strong to provide the necessary support both today and in the future. Looking internally, an experienced, cohesive management team has the best chances of delivering on their promises. Another valuable contributor to effective execution is the ability to leverage established in-country operations. Irrespective of the chosen business, having to start from scratch is very difficult and involves significant risk. Operators who establish a new line of business through broadband access, rather than a totally new business, potentially benefit from existing sources of free cash from established operations. There might also be unique sources of synergy between lines of business to drive competitive advantage. Partnering with existing local players is a way that new entrants can share at least some of the benefits of an established local presence. Conclusion As both DSL and LMDS are viable options for last mile service delivery, prudent service providers should keep their access options open. They ought to look for network solutions that give them the flexibility also to use other complementary access technologies whenever it makes sense. Customers do not care about how the operators reach them-they care about what the operators are delivering. Furthermore, the access portion of an operator’s network-whether wireless or wireline-is just one part of the overall network requirement. The availability of edge, core, transport and network management solutions that can be effectively integrated with the access portion of the network is one key to getting up and running quickly, and ensuring smooth operation on an ongoing basis. The key to success in the broadband access business therefore depends, in good part upon the operator’s choice of partners. Partners must be compatible with the operator’s business objectives and contribute to the operator’s ability to meet the financial market’s expectation of profitability. Depending on their internal competencies and personnel infrastructure, operators may-during start-up or to initiate new services-require use of third party business case analysis and support, cell design, network engineering, site acquisition and preparation, installation services, training, financing or even full turnkey network deployment. Broadband access solutions suppliers very often play a vital role in an operator’s business throughout the lifecycle of their project from pre-licensing straight through to commercial deployment and roll-out.