Value Your Bit Pipes

We have all heard it said that telecom operators must move up the value chain if they are going to increase their corporate revenues and compensate for declining or stagnating voice-centric sales. I have heard or read statements from dozens of senior service provider and equipment vendor professionals in recent years highlighting the need to add value beyond the commoditized bit pipe. Former Vodafone Group plc (NYSE: VOD) CEO Arun Sarin captured this sentiment when he reportedly told an audience at the Mobile World Congress earlier this year: "We must not allow ourselves to become bit pipes and let somebody else do the services work."

If you think about being a dumb bit pipe only for voice, that warning makes a lot of sense. But in today's interconnected, data-dominated world, there is more value in the network than ever before, because of the wide variety of mission-critical and other services and applications that can be delivered over bit pipes. Instead of surrendering the high ground in public forums to companies such as Google (Nasdaq: GOOG) and Yahoo Inc. (Nasdaq: YHOO), facilities-based service provider and cable executives should be increasingly emphasizing the enormous value associated with delivering bigger, smarter, and more reliable bit pipes to consumers and businesses.

Network operators need to recognize that they are collectively sitting on fiber-based oil fields, and the big pipes they provide carry the digital fuel that drives information-based economies. Individual value-added services and applications will come and go, but the fiber networks and their optical/Ethernet bit pipes will not disappear for a long, long time.

We're talking about a paradigm shift in thinking here that requires telecom operators to be willing to consider what their networks are worth in light of macro-economic trends that place them in the driver's seat. They need to stop whining about the applications guys riding on top of their networks for free and, instead, methodically set out to reshape the public debate.

Banging the drums even louder for a national broadband policy, for example, would be one way to highlight the value of network connectivity and the critically important role of big bit pipes in driving productivity.

It also makes sense to raise consumer broadband prices at least at the rate of annual GDP growth. There is no reason why telcos should not recapture a small portion of GDP growth associated with broadband-enabled efficiencies in economic transactions.

— Stan Hubbard, Senior Analyst, Heavy Reading

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