Who Will Pay the Bill for Broadband Investment?

By John Cassidy, Senior Manager and Strategy Lead, Communications and High-Tech Practice, Asia Pacific Region, Accenture

Communications providers around the world are poised to invest more than $1 trillion over the next 10 years in high-speed broadband networks as the result of increasing consumer demand, government support, competitive dynamics and potential cost savings. The question is how will this investment – one of the largest in communications industry history – be paid for?

Broadband networks have traditionally been difficult to monetize, in part because customers have become accustomed to receiving increased service quality for less money. In Japan and Korea, two countries that have set the bar in broadband high-speed, companies have been unable to raise prices charged to consumers due to increased competition that continues to drive subscription costs lower.

Broadband network deployment is likely to be painful for many companies, and achieving adequate returns will take time. But there is every reason to believe that the massive investments in network infrastructure will pay off in the long run with the right strategies and guidance.

Communications companies must leverage a combination of monetization strategies to recoup their network investment, including government involvement, retail service innovation and wholesale business models.

Government Funding and Incentives. Governments, in general, desire the public policy benefits of fast broadband, ubiquitous availability and low cost. They are aware of the productivity gains to be achieved at a national level from a broadband infrastructure.

Government support can take several forms. Direct investment, where the government directly invests in creating a publicly owned entity, is one example. Regulatory holidays or indirect stimulation, such as tax incentives and DSL regulation are other options. Because of the importance of government subsidies and alternative forms of support, communications companies must continue to improve their ability to coordinate with government activity.

Generating Revenue from Retail Service Innovations. High-speed broadband networks will accelerate innovations in the communications industry, and these constitute a strong opportunity to drive the kinds of revenue that will make network investments pay off. Broadband alters the dynamics for numerous kinds of services and applications.

The ability to stream high-definition video through broadband networks will lead to the growth of both free and paid entertainment and video conferencing services. Online gaming will also continue to grow. New enterprise applications will be enabled and high-capacity data links will support innovation such as software-as-a-service, virtual storage and cloud computing. In the consumer space, broadband networks will enable innovations such as presence- and location-based products that will be able to identify a user’s location, opening up more tailored advertising opportunities.

These innovations will drive an increase in network-centric services that will prove an important component in meeting the business case for broadband network investments.

Wholesale Business Models. Profiting as a wholesale provider is another important dimension. Given the market structures that regulators are setting to guide broadband network investments, there is likely to be a renaissance in the wholesale market for services.

Operators considering reselling wholesale services have a number of niches to play in. The most obvious will be to act as low-cost providers with cost-effective, reliable services and focusing on distribution and customer services. The home entertainment market will need content packages for individual households. Business providers will need network environments and call centers to promote efficiency. Device providers will need to bundle broadband connectivity with items such as HDTVs to develop an ongoing relationship. Utility bundles will be essential to the utility markets. And integrated communications providers will need to expand network coverage by owning customer premises equipment and placing femto-cell technology – IP-based cellular base stations – in homes.

A Final Thought. Monetizing broadband network investments will be challenging, and in a number of markets, regulatory and competitive dynamics are increasing the urgency of the situation. Communications companies need to plot their strategy quickly. Success will rest on a combination of government subsidy, new retail services and a variety of wholesale models. Operators prepared to innovate and extend their business models, customer agenda and network strategies will have the opportunity to achieve high performance and industry dominance.

Dr. John Cassidy is head of strategy for Accenture’s Communications Practice in the Asia Pacific region. He is based in Sydney, Australia. His specialty is product innovation. In the past 11 years, Cassidy has operated in assignments in more than 18 countries. He has worked in some of the most high-profile restructurings in the telecommunications sector. He holds a bachelor of science degree from Imperial College and a doctorate degree in process improvement and innovation in the pharmaceutical industry.