Content & Revenue Sharing Enhances Fiber Access Business Models

In a recent article in TelecomTV Juniper Networks recommends telecom providers to enhance their business models with revenue sharing schemes with the downstream content providers. The vendor argues that: “A lot of the content providers are jumping on the bandwagon of contributing HD video over their networks to consumers, and that has been generating the traffic… today you are being told you need to develop FTTH and upgrade the network capacity, there is no sound economic model behind that because you are not getting any incremental revenue from the subscribers.”

Growth opportunities have to be accounted for when drafting business plans for large scale investments such as fiber infrastructures. But to do so growth opportunities have to be thought carefully and planned effectively. In my head, the available options for access providers are:

1. Create on their own the content and make it available to their subscribers as an added value services paid by recurring fees. Short-termed and risky, if you ask me, huge amount of resources are required to fight against the fierce competition in the content business which already have the resources in place and the experience too.
2. Acquire content providers and make their content available to the subscribers for a small additional fee. That’s also risky since the content provider will be cut off from all clientele subscribed to other access networks. It might work in the short-term but market mechanisms have a surprisingly good adaptation in attempted customer lock-ins, ie Microsoft’s attempt to tight the ropes & the emergence of open source software (OS, office and internet applications)). Moreover, content’s penetration will shrink and the value associated with its reach will evaporate.
3. Invite content providers in the network and ensure the appropriate service quality level for a small fee paid by the content provider to the access operator. This type of revenue sharing give incentives to operators to upgrade the infrastructure. Guaranteed service level quality also provide incentive to content providers to engage in revenue sharing deals with the telcos.

I get the feeling that more and more players realize that DSL business models are not sustainable in a fiber access world if they are simply cut & pasted. Profits can be enlarged if revenue sources are re-oriented on the additional value provided to the user and not merely on the increased bandwidth offerings. Of course, the uncertainty is higher when business models are based on parameters that are not under the complete command of the operator, but it seems that so are the profits!