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May 2010 | Volume 2/Number 3
SDPs, SDFs and Innovation

Eye on NGN

By Grant Lenahan

Mobile broadband is upon us.

Driven by technology, need and the surprisingly strong growth of true smartphones, we are seeing the maturing of 3G networks (HSPA, EVDOrevA) and even the advent of 4G (WiMAX, LTE (News - Alert)). Many forecasts show more than four times more mobile broadband subscribers (globally) than fixed and more than five times the spend on associated SDPs. Clearly, this technological shift will have an overwhelmingly important impact on consumers, economies and the telecom industry.

Given all that, my goal in this bimonthly column for this year is simple: To investigate how to make mobile broadband profitable.

Each column this year will discuss a different aspect of mobile broadband success, including efficient operations, controlling backhaul costs, capacity optimization, creation and pricing of long-term profitable plans, and extending business models to address more than transport ( aka "dumb pipe") revenues.

Here's the basic challenge we face: Mobile broadband will offer very different economics as compared to traditional 2G, 2.5G and even traditional 3G networks. There are three inevitable and inter-related shifts contributing to this margin squeeze:

• open, IP devices;

• data usage that will rise faster than (and possibly exceed) flat-rate revenues; and

• the steady progress of over-the-top content and applications.

Quite simply the economics of IP will change the rules.

Possibly the most dramatic change is that devices are far more open. With IP connectivity users can download thousands – maybe millions – of apps that consume bandwidth, without necessarily generating incremental revenues for communication service providers. Worse, these apps, like Skype (News - Alert) or IM, may in fact substitute zero revenue (cost) or low revenue services for dependable profit centers like voice and SMS.

The second challenge is data usage, which is forecast to – and already is – rising faster than revenues. Smartphones contribute to this, as noted above. But so do air cards for PCs, and even specialty devices such as instant hotspots. (I like to think of them as Wi-Fi routers run in reverse.) In this environment of rising usage, traditional all-you-can-eat data plans are a recipe for disaster and a spiral into the world of declining margins.

The third challenge is the third-party apps themselves. Some apps are of the familiar downloadable variety. Others are more complex, involving content servers, VoIP servers and other infrastructure. The problem is, CSPs don't own this infrastructure, nor do they have the option to charge for it.

So we as an industry need to think about what we do offer and how we do charge for services, including the basics of bandwidth, cumulative data usage, and latency. It's not all bad news. It's just a different paradigm – but that's for a different column, one that will look at the true value that CSPs can add, and how this can be priced so that it is profitable, attractive to consumers, and fair and acceptable in expected regulatory environments.

The other half of sustained competitiveness and profitability is, of course, cost. Cost means both opex and capex – and will be significantly impacted by a wide range of processes from how efficiently backhaul can be planned and acquired, to how efficiently radio capacity can be deployed and matched to demand.

We see a lot of opportunity to balance the challenges. But success will demand new pricing paradigms, new business arrangements, two-sided business models, an integrated view of radio/transport networks and a dynamic view of network resources. Aside from that, nothing will change!

Grant F. Lenahan is vice president and strategist for service delivery solutions at Telcordia (News - Alert) Technologies (www.telcordia.com).

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