Summary
Here Jeff Vinson points out the market size is probably too small, the product has been around for years with no success. I discuss why and what needs to happen.
Analysis
Jeff Vinson has touched on a fundamental issue with product offerings that affect technology roll-outs and business innovations by Tier One Network Operators. As the carriers consolidate into very large customer databases. Their considerations of any (not just new) technology roll-outs gets very murky for these carriers.
As a consumer and business operator we need the innovation. Many products we relied on and used well have been abandoned by the network operators because theup-take was insignificant. Let’s be clear, 100,000 customers in a niche network feature (even with extremely high margins) is not a concern to the tier one network operators and their vendors.
IPTV with STBs is of a perfect example. Two examples: CATV vendors could not afford to gut their customers by providing STBs to telcos third attempt to enter. The volumes were not there for the manufacture. Small companies met the need (2-wire who had to take AT&T as a significant shareholder). Large companies could not manufacture STBs for only 100,000 customers in a new entrants offering. The vendors needed 3-5 million STB orders to start breaking even. You have a Cisco (Scientific Atlantic, Motorola verse 2-Wire, PACE and Amino comparison).
As a vendor, we develop platforms and services for the carriers. The platforms need to be robust and resilient but economical. When Intelligent Operator workstations initiated, Switchlink Systems did a great job, tier one operators were hesitent because the platform package was so inexpensive. To prove it's salt, the tier one operators could have suggested Switchlink burden itself with 10 years of qualification in an un-yet identified BELLCORE process that has now become Telcordia OSMINE.
The carriers need to develop divisions with economically burdened resources. The division needs to develop it's own integration into the carrier while limiting the cost of the mortgaged network debt load. The network operators need to accept innovation responsibility in a longevity mentality. Otherwise when dealing with smaller carriers who take up the development, have to be left alone to earn a living. The smaller carriers are literally happy to have huge margins that feed 50 employee families, their only thorn is the mixed up departmental reactions from the networks dominating vendors they have. Some want to own the opportunity as fiscally required by shareholders, others want to kill the competitive threat who adds very little revenue, others seek to help the innovator and refer opportunities.
Main Tier One Consideration Issues:
1) North American/European vs Asian strategy of feature offerings. In North America, we roll-out when we know what the expected inventory/traffic will produce a recognizable income as opposed to Asia which makes all features available to all consumers on an all-you-can-eat basis; negatives are it leaves money on the table, often times consumes network resources in an unprofitable way (Internet is woefully very un-profitable compared to voice, video and data-services).
2) When to adopt: at 3% of customer interest has long-time been a threshold if the margin is 20% or more on retail pricing. But often times the retail price, fully burdened results in years of trail offers with no consumer able to afford the fully burdened price. These companies have huge platform consideration in addition to a corporate welfare set of costs for donations, citizenship and heavily mortgaged debt obligations.
3) Backbone verses features. Backbone is a commodity but it adds significant revenue streams at very slim margins. Features is very costly to provide, very low uptake volumes and with the burdened costs not at all possible to offer at take-up creating prices.
4) Small companies cannot use the backbone to meet the features offering requirements. The carrier cannot let an offering be by small companies who hit traction with a product by just living with the backbone revenue. They just have to find a shareholder stake or a commercial contract percentage of the revenue. Certainly the telcos are easier to deal with than the CATV companies because of the former must offer rules.
The biggest threat is innovation requirements will be met by small companies who are on the fringes in a pioneer mode. The must be allowed to deploy or the result will be another Westinghouse customer who forces the separation of heavily bundled network operators who cannot service the public with required products.
Believe me, there are lots of great ideas; it is just how does Verizon, Time-Warner, AT&T, Comcast begin to justify 100,000 customers using a 50% mark-up with fairly low usage. The mark-up % is huge compared to voice, wireless, video, data offerings which live off small margins (internet is literally no retained earnings contribution until carriers earn revenue from the content provider or the consumer for the huge transport router upgrades). With 60 million subscribers using commodity transport products, 100,000 customers using feature-rich applicatons are not even on the radar.
Kelly
