One often hears it said that “broadband is the anchor service” for fixed-line service providers in the future. One also frequently hears that new value-added services would be a healthy antidote to service providers becoming “dumb pipe” access providers. One sometimes also assumes the growing use of "connected devices" benefits mobile service providers (it does), but not fixed-line providers.
All of those statements are true, but analysts and observers might be missing the growing potential of the “dumb pipe” access business, especially as the home and business environments increasingly feature the use of many different “untethered” devices, and as more users get used to switching even their mobile devices to untethered fixed line connections (Wi-Fi).
That isn't to discount the importance of new applications, but the revenue contribution, especially for fixed-line broadband providers, is not going to approach the volume of revenue that always will come from providing basic broadband access. That always has been true for every communications service, on fixed or mobile networks.
Where do Internet service providers make most of their revenue? From basic access. All the other ancillary revenue is helpful, but ISPs live or die based on basic access. Fixed-line service providers and mobile service providers sell lots of "enhanced" applications aside from basic voice, data and text. But where does most of the revenue come from? Basic voice, texting and web connectivity.
There is no reason to think this pattern will change, with one salient exception. Entertainment video, which requires a broadband connection, is the one "enhanced" service with the potential to drive significant incremental revenues.
With that exception, most other devices and applications will build on the basic broadband connection. Even mobile devices are starting to rely significantly on fixed connections. For example, in August 2011, 37.2 percent of U.S. digital traffic coming from mobile phones used a Wi-Fi connection, according to comScore. New data consumption patterns.
Then there are all the other untethered devices observers expect to populate the home and business environments. As one of the world’s most mature technology markets, the United States currently exhibits one of the highest percentages of non-computer traffic seen among markets, says comScore.
That’s important, because the value of the home or office broadband connection has largely been based on services for PCs. In the future, the fixed broadband connection will be important for tablets, mobile phones, connected game players, e-readers, sensors and other devices.
At the very least, the value of a fixed-line broadband connection will grow as each additional connected device is added.
In August 2011, for example, the share of non-computer traffic for the U.S. market increased to 6.8 percent. The largest percentage from this share came from mobile devices, which drove 4.4 percent of total digital traffic in the U.S. market. The second largest driver of non-computer traffic was the tablet category, contributing nearly two percent of total traffic.
As the share of U.S. non-computer traffic rose over the past four months, the percentage of that traffic driven by tablets has risen from little more than 20 percent to nearly 30 percent. In May 2011, 22.5 percent of non-computer traffic came from tablets. By August 2011 that figure had grown to 28.1 percent, eating into the share of traffic garnered by mobile devices and other web-enabled devices.
That is but one example of how use of connected devices is changing the value and use of fixed-line broadband connections.
In fact, the GSMA expects the number of total “connected” devices to increase from nine billion in 2011 to more than 24 billion in 2020. “Mobile connected devices” (presumably those with a subscriber information module) will grow 100 per cent from more than six billion in 2011 to 12 billion in 2020.
The addressable revenue opportunity for mobile operators is about $1.2 trillion by 2020, a seven-fold increase from expected revenues in 2011, GSMA estimates, based on research by Machina Research.
Connected devices are “smart wide area and short range devices that have the benefit of connecting to a network, including: remote sensors, remote monitoring, actuating devices, associated aggregation devices, PCs, laptops, tablets, eReaders, mobile handsets, femto cells and routers,” the GSMA says. Proliferation of Connected Devices.
The GSMA says “mobile connected devices are either currently or likely to include SIM technology and therefore be connected by wide area mobile networks.”
The $1.2 trillion revenue estimate represents the potential revenue that a pure-play mobile network operator could earn.
The forecast includes potential revenues from the sale of mobile devices, data traffic, applications, system integration, installation, and service revenues.
Those definitions are important, because there is no widespread agreement on what it means to call something a “connected device.” By some definitions, connected devices are non-phone, non-PC devices operating in machine-to-machine mode. Tablets and mobile broadband modems, such as personal hotspot devices, would not be considered “connected devices.”
Others define “connected devices” as anything using a mobile network other than a smartphone. That tends to be the way AT&T uses the term at the moment, for example.
The GSMA includes all Wi-Fi-capable devices within the definition of “connected devices.” The logic appears to be that any Wi-Fi device can contribute to the value of, and demand for, mobile or fixed broadband services.
The point is that definition matter, greatly, when trying to estimate the future revenue streams from all sorts of network-using devices. Still, virtually everybody believes connected devices other than smart phones will drive much revenue growth in the future.
Aside from notebook PCs, many Americans now own portable or mobile devices that already are capable of mobile communications, or increasingly will be capable of mobile communications.
That means a large potential base of mobile and portable devices that will be candidates for Wi-Fi and mobile broadband services in the future, in numbers that dwarf the installed base of "phones."
What remains to be developed are pricing plans that account for ownership and use of multiple devices, most of which are designed for content consumption or entertainment more than communications. Broadband plans that allow a user to connect multiple devices at various times, at prices deemed reasonable, will be a huge opportunity, going forward.
So far, most consumers have shown only modest interest in $60 a month plans that connect PCs, though mobile service providers now are experimenting with demand for $15 to $45 a month plans for tablet devices and smartphones.
Those are steps in the right direction, but what ultimately will be needed are the equivalent of family plans for data devices, where the "family" might be a single user or household wanting to use multiple devices on a single access account.
Gary Kim is an active industry writer and analyst, editor of Mobile Marketing & Technology, Content Marketing News and Carrier Evolution. He is a frequent contributor to IP Carrier and TMCnet, and a good friend of Razorsight. Keep up with all his industry insight -- follow him on Twitter @garykim.
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