You might justifiably argue that the idea of “dumb pipe” scares telecom and cable TV executives, but not really for reasons often supposed. The notion implies, though it often is unstated, that dumb pipe means “low margin, commodity” access.
The problem is that the notion is partly true, and partly untrue. “Share Everything,” the new Verizon Wireless pricing policy, makes voice and text messaging a “flat-fee price of admission” to use the mobile network. Internet access, on the other hand, becomes a variable-fee feature based substantially on usage.
One might argue that moves Verizon Wireless therefore has embraced the “dumb pipe” paradigm. Again, the reality is more complex. For starters, the voice and texting portions of the service will remain high margin, under the new plan. In fact, if people continue to reduce reliance on use of voice, in favor of texting and other forms of messaging, margin should actually rise.
Nor, the way Verizon Wireless is setting up data charges, is it the case that broadband access necessarily is “low margin.” Margins might be reasonable enough.
There is more truth to the notion that, at least initially, the charging by usage does make access more a commodity than not a commodity. But telecom service providers have not historically had a business problem when pricing based on usage.
So long as prices are in line with usage levels, the model should work. So, in part, “dumb pipe,” in the sense of simple access, is a foundational part of the future business model, but no more than voice was, in the past. Voice, originally the only service, was billed in part on flat rate and in part on a usage basis. That’s exactly what Verizon Wireless now does with “Share Everything.”
But that does not mean Verizon Wireless is restricted from creating other services and applications that essentially run “over the top” of that bandwidth, are owned by Verizon or partly owned by Verizon.
One might argue that part of the Verizon Wireless revenue stream is, in fact, based on “dumb pipe,” namely best effort Internet access. But much of the revenue remains based on applications, voice and text messaging for the moment. And Verizon Wireless is not precluded from doing other things.
Again, the historic fear of “over the top” applications is partly that they offer more-affordable versions of the products carriers sell. Underneath that legitimate concern is something else, namely the change from “tightly integrated” to “loosely coupled” applications.
In other words, apps run over the top of “dumb pipes” to the extent that access and apps are decoupled. Over the top is just the way the network works, whatever the ownership relationship between the provider of access and the provider of apps.
Some might argue “Share Everything” is an indicator that telecom providers will become data transmission utilities that make a living off supplying access. The situation is more complex than that.
The specific role in the Internet and application ecosystem provided by telcos and cable is, specifically, access to the Internet and other applications. That does not mean “access” is the only business they already are in, or will be in, in the future.
Already, telcos and cable offer a mix of “dumb pipe” or simple access services, and applications. Video, voice and text messaging, mobile payments platforms, peer to peer money transfer, cloud computing, machine-to-machine communications and private networks and content delivery networks are examples.
Some might argue that telcos and cable will become “land owners” (infrastructure providers) while others become the “farmers” cultivating the land. Again, the picture is complicated. Telcos and cable providers will retain the preeminent role in supplying access, and will sell that simple access according to usage, and therefore create space for others to create and supply applications.
But telcos and cable operators already are multiple service providers, and access supplies the foundation, not the ceiling. In the future, they will supply both “dumb” and “smart” services, as they already do.
There is no desire, and in fact no compelling reason why any service provider “has” to sell “only” low-margin or commodity network access services.
