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| BVNOs: the director's cut |
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| Tuesday, 07 September 2004 | |
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08 September, 2004: Much as ISPs try to act as gatekeepers for Internet information, so broadband resellers are attempting to inject a proprietary slant into the unbundled local loop. Unlike the ISPs, they have a significant chance of success. There are three conventional evolutionary phases when it comes to building a broadband business on the back of an unbundled local loop proposition. First, complain, about the terms, conditions and prices according to which the regulators decree that such unbundling can occur. Second, engage in hefty brand marketing allied to marginal price packaging differentials in order to establish a 'competitive advantage' in the eyes of consumers. Third, try and make your offering appear as close as possible to that of your incumbent rivals, thus bridging the credibility gap which all new entrants face. In short, new operators spend a great deal of time and money seeking to demonstrate that they are not the same as the incumbent, and then spend a great deal of time and money turning themselves into clones of the incumbent. Outside the box The problem with this strategy is that most incumbent customers are conservative and sticky, and those who change are statistically more likely to churn once, and then churn again. The economic model for this is the class of customers who are endlessly playing off rival offers for balance transfers on credit cards. A small proportion of these people are very clever; the vast majority are credit unworthy. Applied in the mobile telephony arena, this has led to the creation of mobile virtual network operators (MVNOs), which are little more than badged resellers of services over existing cellular networks. MVNOs have achieved insignificant success to date, in large part because they do little more than piggy-back their brands onto wireless infrastructure with, at best, some cross-sector marketing and a healthy billing engine chucked in. Broadband service providers are, by their very nature, virtual network operators. They should thus be called 'broadband virtual network operators' ('BVNOs') – which is not yet a familiar phrase. In the UK, HomeChoice is looking like a BVNO: it combines high-speed Internet access (up to 2Mbits/s) and up to 60 digital TV channels plus 1,000 on-demand movies, plus 2,500 music videos on demand. With telephony nowhere to be seen, this is not 'triple play'. Likewise, there is terminal confusion over whether its broadband content options are delivered to a PC or a TV or an iPod. And yet… Telecom carriers and cable providers have spent years trying to balance the need to supply unique content, whether broadcast or on-demand, and to ensure that rival platforms do not provide a richer offering. Sensibly priced, BVNOs might break out of that stranglehold. Arguably, BVNOs will need to wait five years before their weight can be punched. But you can see it rupturing the pattern of combined broadband/digital TV before too long. Jim Chalmers |
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