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OTT services beneficial to 'dumb pipe' ISPs

Partnering over-the-top players allows Internet service providers to supply and sustain subscribers a good Web experience over their broadband connection, and not lose money by investing in content which the OTT players provide anyway.
Written by Jamie Yap, Contributor

SINGAPORE--Internet service providers (ISPs) typically flinch at the idea of commoditizing bandwidth for fears of becoming nothing more than "dumb pipes". But Hong Kong Broadband Network is glad to do just that, and wants many over-the-top (OTT) players to fill up their bandwidth to bring content and services to customers in order to drive user demand for faster speeds.

"We embrace OTT, we want them to fill our big fat dumb pipes," said Niq Lai, CFO and head of talent engagement at HKBN, during his keynote at the Management World Asia event here Tuesday.

The key is finding "LUCA", or legal unfair competitive advantage, for the company, Lai said, pointing to how offering fiber broadband at "the best value" for local residents can also bring "huge margins" for the company to be profitable.

Letting OTT players fill up fiber bandwidth will bait users to expect content access on ultra-fast speeds, prompting demand for fiber packages.

The cheapest plan from HKBN is 100Mbps (megabits per second) fiber-to-the-home for HK$168 (US$21) per month.

HKBN does not take a commission or cut from the OTT players' revenue, meaning they "get a free ride on our network", Lai pointed out, adding the company proactively engages with OTT providers.

Rather, the benefit of embracing OTT players to fill up the fiber bandwidth is that subscribers become used to getting content such as movies or sports matches on ultra-fast Web speeds. This is the only reason why customers would sign up for fiber, because it is "like drinking water from the hose", he explained.

"We want our customers to have a much better [experience] on Netflix and Apple, for example. We don't have to lose money [from investing in creating] content. Those companies make the investment. We want a free ride on their J-curve from investing in making content."

The worst case scenario is when users do not want a better service and they are "happy with a slow copper connection", he added.

Asked if taking the "dumb pipe" approach can be the silver bullet for ISPs (Internet service providers) to stay competitive, Lai replied: "It's not the only way. It's our way." He also highlighted that the particular approach is not necessarily the best or the only way as there is "no right or wrong [answer]".

Changing a company's business mindset to adapt to shifting macro trends was a theme brought up among keynote speakers at Management World Asia 2013. The two-day event was organized by TM Forum, a non-profit industry association for communications businesses.

Avoid "boiling frog syndrome"
Martin Creaner, president and CEO at TM Forum, said the structure of the communications industry in Asia-Pacific warrants a rethink, because it is turning more into a digital services industry.

The critical piece is the perspective companies have toward this change, since the mindset will influence whether they want to act on the change and how they do so.

"It's about detecting the overall temperature of the water you're in, and know when to jump rather than stay in the existing environment," said Creaner, referring to it as a "boiling frog syndrome" where the amphibian is boiled alive before realizing the temperature has gone up.

Prashant Gokarn, chief strategy and planning officer at Indonesian telco, Indosat, said the emerging business realities in a fast-changing world are prompting a "change in the thought process of traditional telcos". These include declining voice and SMS revenues, mobile device and OS (operating system) proliferation, and the rise of next-generation networks such as LTE (long-term evolution), he said.

To maintain profit margins, telcos try to innovate their existing products and processes, but there are pitfalls. The returns from product and process innovation are often uncertain, and can easily be copied by competitors, he noted.

Instead, a better and more sustainable bet might be business model innovation, he added.

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