By
Barbara Lancaster and Wedge Greene
"Show me the money!"
- the movie Jerry McGuire
In a time when the world's attention is focused on turbulence in the financial markets, it might be good to look at financial strategies in telecom. We find reasons for traditional service providers (telcos and cablecos) to review their strategic plans for future revenue growth. It could be that too much reliance is being placed on charging extra for higher QoS and more bandwidth, at the expense of developing truly novel services. Are these providers headed for the same cliff as the big investment banks? Not yet – if the industry reacts intelligently. But this requires change in current strategic plans.
A Two-Sided Sword?
Some are hoping that profitability will flow from a strategy called the "two sided model." In this revenue strategy, one side is the Selling Enterprise wishing to sell its content, goods, or services via the internet, and the second side is the Consumer of those goods or services. The Sellers are charged for unique access (a plurality of methods) to "owned" Consumers and for guaranteed QoS for access to the universe of consumers. Consumers pay for communications access and for the goods and services they consume. The service provider also expects
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Think this through a bit more carefully, and as our analysis shows, this so-called "two sided model" is just about indirectly raising the cost of access - and potentially alienating customers. |
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a bit more carefully, and as our analysis shows, this so-called "two sided model" is just about indirectly raising the cost of access - and potentially alienating customers.
From an external viewpoint, this revenue model appears as if service providers are imposing a special tariff; we find it hard to discover where value is added, which would merit those extra fees. Instead, some are making rather bald-faced threats: Pay more, or be subject to throttled access, poor QoS,
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to do the billing for these transactions and earn a transaction fee from the Seller for doing so. At first glance, the two-sided model put forward by Telco 2.0TM makes some sense: Seller through service provider to consumer: content product flows down the pipe, some dollars flow back up and enough get stuck in the middle for the service provider to thrive. Yet, so this story goes, this marvelous new income strategy is threatened by "evil" Over the Top service providers (OTTs) who are not paying their fair share for network traffic and valuable access to users. Really? Think this through
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or even blocked access to your site. Guarantees of better service at higher rates are simply a nicer way of saying you'll get bad service if you don't pay up.
The QoS Quandary
QoS was originally a given in telecom networks. So charging extra for QoS is something of a quandary. Will the QoS tariff be perceived as (1) a fee for enhanced quality or (2) blackmail to avoid being throttled? How likely is it that tiered charging will provide long term sustained revenue? If every transaction
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