Convergence upon a single physical network for voice, video and Internet as well as wired and wireline services will soon be a reality. This is being driven not only by technical innovations, but by service provider concentration as well.
One data point in support of this claim is Verizon's recent LTE demo. It featured a laptop located within a LTE wireless testing area delivering data rates of 8.55 Mbps downstream and 2.80 Mbps upstream. This is comparable to data rates being delivered using IP DSLAM and DOCSIS 3.0 cable modem technologies. From the user's perspective, there is no performance difference between wireless and wireline service. Network convergence is achieved from a service perspective.
From a narrow technical perspective, there is also little difference between the IP DSLAM, cable modem and LTE solutions other than in the last mile between the end user and service provider's network. The common architectural approach is to backhaul traffic from a remote terminal that marks the termination of the optical network back toward the network core using IP/Ethernet technology. Finally, that "last mile" link to the customer is shrinking because end-user's demand for increasing bandwidth is driving optical fiber ever closer to the end-user.
Network convergence is coming closer from a call processing and subscriber management perspective as well. IP Multimedia Subsystem (IMS) and the related Session Initiation Protocol (SIP) are rapidly becoming industry standards for delivering both wireless and wireline service offerings. Enterprises have widely adopted VoIP for voice calling within their buildings and campuses and are now beginning to use SIP trunking for inter-office communications. Similarly, wireline operators are replacing circuit switches with softswitches that employ SIP and the IMS framework to improve the economics of their voice networks. Unfortunately, an economically viable replacement for copper twisted-pair subscriber loops and the associated circuit switched line equipment has not yet been found. This remains a big problem. For example, Verizon may have the largest all-fiber residential customer base in the U.S. with 3.6 million FiOS customers versus 15.8 million primary residential switched access lines.
Service provider concentration is also an important driver toward network convergence. Most communities have only two facilities-based providers--a telecom provider and a cable TV operator. Until recently, cable TV operators only served residences. Therefore, enterprises and other communications companies usually must obtain local access from a monopoly provider or build their own facilities from the customer premise to a carrier hotel or POP. There are a couple exceptions to this duopoly situation. Areas with dense concentrations of enterprises, such as the financial districts of large cities, have a great deal of choice, while rural areas are often served by a single provider that offers all services.
Service provider concentration also exists across services. AT&T and Verizon are the largest providers of wireline, wireless and Internet services, accounting for well more than half of the U.S. market. CenturyLink, through the recent merger of Century Telecom and Embarq and the proposed merger with Qwest, will account for much of the remaining U.S. wireline telecom market. The cable TV market is somewhat less concentrated. The top three operators account for about 40 percent of U.S. pay TV subscribers; however, head-to-head competition for subscribers is very rare. Most of the satellite TV market is served by DirecTV and Dish Network.
This industry concentration puts market power into the hands of service providers and takes it away from systems vendors. This is so even in the less concentrated cable TV segment, because cable operators look to CableLabs to create industry specifications. The result is that network infrastructure is designed and manufactured to industry-wide standards. This is a strong force driving network convergence.
Public policy makers and consumer advocates assert that this standardized converged network makes it easy to support network neutrality and open up the services market to new entrants. My view, however, is that the very uniform standardized and flexible nature of the converged network has led to the existing level of industry concentration and limited competition. It is nearly impossible to use the technology to sustain a competitive advantage by creating differentiated service offerings. Competitive advantage and sustained profitability are achieved by limiting market entry, expanding the scope of service offerings to build customer loyalty, and achieving large scale to exploit the economies of scale and scope of the converged network.
Michael Kennedy is a monthly FierceTelecom columnist and is the co-founder and Managing Partner of Network Strategy Partners, LLC (NSP), management consultants to the networking industry. He can be reached at [email protected].
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