Broadband: Evolving Beyond the Big Dumb Pipe

June 22, 2017
As video and home phone services move over-the-top (OTT) and traditional revenues erode, strategic broadband economics have never been more important. As markets mature, the simple "big dumb pipe" plan ...

Broadband services are treated as a commodity by service providers and their customers when based on a simple “speed plus price” service model. During the “go-go” days of exponential subscriber growth, this was entirely sufficient to meet the business objectives of network service providers: There is no need to worry about a customer leaving if three new customers are signing up. Why try to optimize broadband margins when home phone and TV deliver profitability?

This is no longer true. As video and home phone services move over-the-top (OTT) and traditional revenues erode, strategic broadband economics have never been more important. As markets mature, the simple "big dumb pipe" plan no longer meets the evolving and differentiating needs of the market, representing lost opportunity to network service providers. Some customers need great performance for voice over IP (VoIP) and cloud services in their home office from 9 a.m. to 5 p.m. Some customers want lower prices as they don’t do much online. Other customers demand greater video experiences. Big dumb pipe plans simply cannot meet the different needs of these diverse segments, forcing service providers to dilute average revenue per unit (ARPU) with price discounts for customer acquisition and retention.

Service innovation drives better outcomes

Before we begin looking at network service innovation, let’s take a look at an example of how a commodity can be turned into a high-margin offering. Water has been a commodity for thousands of years, with most people having ready access from taps in their homes, community centers and businesses. And yet bottled water is a multibillion dollar industry. Why? Because of the power of packaging.

Consumers are willing to purchase products and services that more closely meet their immediate needs. When someone buys a 500 mL bottle of water for four times the price of gasoline, they are doing so because that is the right amount of water made available to them when they need it. The same forces can be used by network service providers to create targeted services that reflect real value to consumers.

The goal of any good product or service is to deliver customer value that is sticky and cannot be purchased cheaper elsewhere. Let’s take a look at a few examples of network service innovation that can improve business outcomes.

Our first example is based on a loyalty and retention scenario. "Value for money" is a top voluntary churn driver for broadband service providers, representing 20% of overall churn. These customers tend to represent light users who feel they are paying too much for what they use. Creating usage-based retention plans not only preserves that customer revenue, it avoids the cost of acquiring a replacement customer, which drives more cost-effective subscriber growth. We have seen service providers save more than 5% of churn using this retention tactic while maintaining unlimited acquisition offers in the market.

Another example of service innovation would be improving the experience of the home-based worker with targeted network traffic policies. Whether they own a small business or telecommute, these subscribers depend on online collaboration and communication applications, such as Skype, WebEx, and Google Meet. By creating service tiers that prioritize upstream traffic from 9 a.m. to 5 p.m., operators can offer these customers more efficient and effective bandwidth to improve quality while additionally being able to leverage off-peak capacity to increase ARPU by 10% or more.

Our final example involves growing addressable markets with prepaid business models. While prepaid is a dominant business model in mobility, it is only now emerging as a viable option for fixed network providers as well. Prepaid broadband reduces the credit check and subscription commitment barriers to entry for many segments including seniors, migrant workers and students. Implementing this service model also allows network operators to retain customers with payment delinquency issues by migrating them to prepaid. In the United States alone, there are more than 7 million people unaddressable with postpaid services, representing a $2 billion market opportunity for prepaid broadband services. It is no wonder that Comcast XFinity Prepaid, Verizion FIOS Prepaid, and Buckeye Nymble have launched into market with other service providers in the planning stages.

Strategic planning for the innovation era

How do service providers make the change from utility to innovation service models? They start by laying the foundations for innovations that provide service insights, development agility, and industry partnerships. Strategic planners in technology and product management need to introduce these three enablers of innovation success:

  1. Gather subscriber insights: Understanding your subscriber usage patterns and trends is a critical first step towards developing the right services portfolio for your market. Use the subscriber usage metered data to define subscriber segments, correlate usage to network utilization, and strategically offer services that reflect real value to customers. This information will be critical to creating service models that deliver revenue and cost savings benefits.
  2. Enable agile development and delivery: Go beyond the buzzwords and implement a structured environment from development to service delivery. Use policy-based service definitions to accelerate time to market.
  3. Leverage strategic partners: You might be first in your market to roll out a particular service, but chances are that something like this has been done before. Find the people who have already crossed the chasm. These trailblazers not only deliver a technology solution but their ability to think strategically also provides benefits across the product lifecycle.

Changing customer demands and maturing broadband technologies are creating new opportunities for network service innovation. Service providers who can deliver targeted, personalized and relevant broadband experiences will be able to move beyond a commodity model to create sustained competitive advantage and improve overall economic performance. The key to innovation success for network service providers is creating subscriber insights, enabling agile service development, nurturing strategic partnerships, and moving beyond the big dumb pipe.

Bob Petrovic is marketing manager - Active Broadband - at Incognito Software Systems.