Twenty years ago, infrastructure was all about the pipe. Today, it's all about value.
As Rameez Ansar, co-founder and director of Singapore telco Circles.Life, told CNBC in an interview: "When we looked at this space, we asked ourselves, 'where does the value get created in the next 10 to 15 years?' And it's in the front end of the layer, where you interact with the customer and it's in the network intelligence part. Other than that, the towers, the data pipe, the routers -- we just lease."
Qwest Communications International Inc. (NYSE: Q) CEO Joseph Nacchio predicted just that in a 1998 article in Wired. If the cost of bandwidth could be driven down, "something big" was going to happen, but carriers wouldn't be the instigator, he said. "We're not going to be the guys that are going to design it, it's going to be all the complementary industries."
Yet operators can't just sit on their hands, content with vendor partnerships. "In today's environment," Elias Cagiannos, MSO Practice Leader at Ciena tells UBB2020, "with a plethora of OTT (over-the-top) options available, it's important for operators to be more than just a pipe to survive long-term -- and most understand that."
Shift in direction
In some cases this shift led to consolidation, as struggling providers were purchased by companies with a broader vision (or deeper pockets). Netherlands-based Altice Group, for example, absorbed France's SFR , Portugal Telecom SGPS SA (NYSE: PT) and the US's Cablevision Systems Corp. (NYSE: CVC) and Suddenlink. It is now the fourth-largest cable provider in the US and plans to build a 10Mbit/s fiber broadband network to augment existing infrastructure. The parent company also launched a rebranding program to establish the Altice name and logo as its primary identity.
"We are changing. The world is changing. The economy is changing. Our competitors are changing. And resistance to change threatens both our ability to meet our goal and our capacity to bring the world together," CEO Patrick Drahi told employees in May.
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That could well be the mantra for operators that want to continue to survive and grow. If they think they can remain just a pipe, they're missing opportunities to wed customers to their services.
"When an operator can offer more value, they become more important to the customer," Cagiannos explained. "If subscribers become more reliant on services beyond just broadband access and are receiving a high quality of experience [QoE], the likelihood of them changing or cancelling service diminishes."
Safe and smart
Home automation and security are areas in which carriers create both value and "stickiness." Comcast, for example, offers several services under its Xfinity brand. Its home security service includes sensors, monitoring, battery backup, cellular backup in the event broadband is not available, as well as real-time alerts via smartphone. It charges additional subscription fees for video surveillance. Its home automation system controls everything from Nest Labs thermostats or Chamberlain garage door openers to Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) Hue smart lights, and with Xfinity X1 equipment, customers can control their systems by voice.
For its part, Orange's foray into the home automation space includes its recently announced Djingo virtual assistant for the French market, which answers questions, performs online activities and controls home automation devices and Orange television services. People use it via voice or text.
A Sticky Situation
Smart-home services generate monthly service fees and ongoing relationships between consumers and providers.
adds another twist, including a free starter version of its Magenta SmartHome
service in its smart routers to allow customers to get an idea of the product's value before they upgrade to the full-featured paid service through the SmartHome app.
Consumers are responding to these offerings. Canada's Rogers Communications' Smart Home Monitoring even won the Product of the Year Canada 2017 award for home technology. Rogers offers several bundles that range from basic home automation through a complete security, video surveillance and home automation service, including monitoring, as add-ons to its cable Internet services. It gives customers a discount for the first year of a two-year term if they also subscribe to its cable television or wireless services, further adding to its penetration into homes.
No going solo
Partnerships are key to providing many of these value-added services.
"In general, an operator would want to formulate a partner strategy that enhances subscribers' daily lives, but that also fits with a high-quality broadband offering," said Ciena's Cagiannos. "By partnering with companies recognized in these markets to resell or bundle a service, it can take away many of the potential burdens and risks from the operator having to create the offering themselves."