Competition in the broadband industry continues to pick up, which means providers can’t solely rely on high speeds to stand out in the market, according to Calix CEO Michael Weening.
In an interview with Fierce at last week's ACA Summit in Washington, DC, Weening explained that due to the emergence of fiber, the difference between a cable company and a telco is really “no longer relevant.”
“Everybody’s starting to think differently,” he said. “Because if we’re using this similar infrastructure which doesn’t differentiate and we’re all driving these incredible speeds that consumers may or may not need, then how do I really differentiate in the marketplace?”
Weening went on to say that historically, a company was identified as a cable operator if they used DOCSIS, while telcos have focused on telephony, IP and copper-based technology. The “radical shift” away from those technologies to fiber has “profound implications to our industry as a whole.”
Furthermore, Weening said “homes passed” is no longer a sufficient metric to gauge broadband customers, and that providers should be more geared towards the number of subscribers connected and average revenue per user (ARPU).
“That key metric is going to be, how many have I connected which is really my fill capacity on what my potential is,” he explained. “And then on top of that, what is my incremental revenue. And again, it’s no longer just about, ‘I’m providing a speed-based service and therefore I only have one service to provide.’”
Providers are rolling out multi-gig services, some with speeds of up to 10 Gbps. But Weening argued most consumers aren’t craving those high speeds.
He pointed to a recent study where Calix looked across 100 fiber providers who offered multiple service tiers, each ISP having “tens of thousands” of subscribers. The vendor found roughly 17% of consumers chose to take a 1-gig or higher service.
“10-gig is just about split ratios, and what capacity and how many splits you can put on a network,” he said. “The simple reality is most consumers don’t need that capacity and won’t for a long time.”
“If speed actually meant something to the end-consumer, it would be 100% of consumers taking whatever you offer,” Weening said, whether that service is 1-gig or 10-gig.
He added the concept of 10-gig is just a capex decision for the long-term but that it’s not a go-to market strategy. Especially if a market is comprised of several competitors, which applies to the “vast majority” of broadband providers.
“All you have to do is look to the mobile market, to the Armageddon that is pricing over there,” said Weening. “If you just stick to speed and that’s the only go-to-market that you have, then you can expect your prices are going to go down, your margins are going to be compressed and you’re going to be in a commodity market.”
Value of managed services
Another shift that’s happening is broadband providers are transitioning from being solely network operators to managed service providers. Weening pointed out ISPs have this “huge opportunity” to provide a range of new services, particularly those geared towards security.
“If my service provider would say to me, ‘here are the web cameras, here’s the home security, I’m going to run your virus protection…all the incremental services I can provide you to make your life better and in a managed way,' I would buy it from them,” he said.
Broadband providers can also leverage end-to-end autonomous provisioning, which is a key step towards “bandwidth on-demand,” said Weening.
For instance, a consumer may require 100 Mbps speeds for day-to-day internet usage. But if they need to say, host Zoom conferences or watch 4K video, the broadband provider can use provisioning to “pop you up to a gig and give you that great service as a differentiator.”
“This is where the industry has to go,” Weening stated.
Cybersecurity is another emerging element of broadband offerings, as providers can integrate that service for consumers who might be unfamiliar with how it works, Weening added.
“A service provider can put in multiple layers of cybersecurity to at least help people who don’t know how to do it, to have a base level of security,” he said.
Calix in Q4 increased managed services adoption by 38% year-over-year. The company said 293 customers have taken one or more of its managed service offerings. But that figure isn’t as high as the number of providers using Calix’s cloud and software products, such as Calix Cloud and Intelligent Access Edge.