Technology | Media | Telecommunications

Monday, June 07, 2010

Smart Pipes and Broadband Value-Added Services

More service providers are evolving their business model to include "Smart Pipe" offerings. The market for consumer Broadband Value-Added Services (BVAS) grew by 30 percent during 2009 based on revenue gains and by 13 percent in subscribers, according to the latest market study by Point Topic.

The run rate for consumer BVAS revenues went from $39.6 billion to $48.9 billion during 2009. This was a greater rate of increase than that for consumer broadband lines which grew 14 percent -- from 366 million to 417 million from Q408 to Q409.

For comparison plain broadband access subscription revenues increased from a run rate of $113 billion at the end of 2008 to $129 billion at the end of 2009. In that context, BVAS revenues contributed an extra 37.9 percent to standard access revenues by the end of 2009.

"Value added services, like VOIP, security and IPTV grew more quickly than the number of broadband lines in 2009. The operators and ISPs are starting to increase the proportion of their revenues that they generate selling add-on services for broadband and they are doing it successfully at least in revenue terms," says John Bosnell, Senior Analyst at Point Topic.

In terms of value, the leading services were IP Telephony, home security, online gaming, IPTV and online music. IP Telephony overtook security as the service earning the most revenue during 2006.

Telephony, frequently part of a triple or quad play bundle alongside broadband and TV, generates the most revenue. PSTN replacement services such as those provided by France Telecom or Vonage generate reliable subscription revenues, along the lines of the PSTN billing model.

Internet Telephony services -- such as Skype -- rely on individual payments to make or receive calls from the Internet cloud to the PSTN. The revenue generated is much smaller than for IP Telephony services. Skype is a disruptive technology and growing fast, and it is starting to account for a significant proportion of international minutes.

Services, like PC security, achieve high revenues because they have relatively high penetration. Even if a service has a low unit price and offers a low profit margin to the supplier it can be a success if it manages to appeal to enough service subscribers.

Margins for basic broadband access are reducing all the time. That, along with pressure from competitors, is driving operators to market enhanced service bundles. BVAS offerings help operators retain customers, cross-sell new benefits and thereby increase revenues or profit margins.

All broadband service providers can promote substantive market differentiation with Smart Pipe strategies -- if they so choose. They can attain a position further up the Internet offering value-chain by pursuing internal product development or in association with independent application developer partners.