The emergence of ‘Managed Broadband Services Providers’ (MBSPs) creates new ‘carrier independent’ ways of delivering high quality services in multi-tenant locations. 

But will these new islands of broadband excellence be seen as highly localised monopolies?  And if so what are the policy implications?

Broadband Buildings

May 2001

There can be little argument that Britain needs more broadband services.  The map for the UK shows vast areas of the country untouched by ADSL – and, with a relatively slim service (up to 2Mb/s), some would suggest a lack of bandwidth ambition.  The digital deficit is particularly noticeable outside of London and for small businesses.  And all this is despite BT’s rapid roll-out of ADSL – faster in terms of enabled exchanges than in any other European country. 

At the heart of this challenge are some difficult economics linked to the limitations of technology.  ADSL in its typical and most popular form - download speed of 512k and 20:1 contention – is a balance between coverage and quality.  It is fast enough to impress those who have never even tried ISDN but slow enough to stretch, eventually, to about 80% of the population.  Different Telco’s adopt different configurations.  In Germany ADSL reaches further but has a lower maximum speed.  In the UK those trying to offer cheaper services are betting on higher contention ratios and the risk of growing customer disenchantment when networks are more fully loaded. 

Despite these balancing acts the underlying economics of ADSL are fraught.  At one level the current market rates can only be supported by unpredictable revenues related to ‘content’.  Some would say that even these offsets are unsustainable in the aftermath of the dot-com bubble burst.  These revenues are only available to market leaders: the best deals are now 18 months old and the money is fast running out.  No surprise therefore to hear more about impending prices rises and much less about ‘customer acquisition investment’ – city speak for losing money. 

At another level, research indicates that current ADSL pricing is about twice the level for mass-market take up - such is the long-bred expectancy of having more and more for less and less. 

But ADSL is not the only show in town – or the countryside. Businesses who can afford higher bandwidths for Internet access have no difficulty in getting services – especially as the pricing from BT is not distance-related.  Here again Londoners get a much better deal than the rest of the country but everywhere there is a full range of service quality options – from assured bandwidth to part-contended services and varying degrees of performance guarantees. 

For smaller business there are options on satellite Internet services – faster and cheaper than ADSL for light users – but there’s also a huge incentive to club together to share the costs of  Internet access amongst several firms.  While this is great economics the reality can be fraught with difficulties – hence the emergence of specialists such as Broadband Connect – providing managed broadband services (voice and data) to properties with multiple tenants.

This is not really a very new phenomenon – there’s a rich history of shared tenant services that has only recently turned towards the Cyber-café model.  In the most comprehensive of these service designs, broadband telecoms becomes as utilitarian as gas, water, electricity, drainage, car-park maintenance and ruled by the tenants association or the property owners in much the same was as the residents sub-committee on hedge-clipping....... except, of course, its more complicated than that.  This conduit carries the life-blood of the enterprise.  And what about security, and virus protection, and data privacy and maintenance?  And what happens if not everyone wants to join in or stay tuned?  

The economics can be startlingly brilliant – not least because usage patterns are so variable that there is a big difference between theoretical and real contention ratios.  With localised web-caching for shared tenant services even the backbone connectivity need not be excessive.  So its not surprising that property developers and owners are looking to the new breed of MBSPs to add value (and higher rental premiums) to their buildings – particularly those with a shifting population – Hotels, Business Centres, Campus sites, Exhibition Centres, shopping malls, apartment blocks and properties where long-leases are about to end and short-term tenancies keep the redevelopment options open.

MBSPs often provide much more than managed voice and data services.  The tenants view of a managed telephone service is, in reality, an ‘internal’ line from a PABX and their Internet service or ‘private network’ is just a shared reconfiguration of the building’s ‘fat pipe’.  Beyond this there are applications services on shared servers,  local community portals, umpteen variants on firewalls, email virus checking, web-content filtering and sophisticated billing services.  All this brings huge scope for ‘lock-in’ and a commitment to high service charges that may not be in the tenant’s or property owner’s long-term interest.  In the USA we have seen the recent failure of companies who have aborted their service operations – leaving tenants searching for alternative suppliers at short notice.  Many of these failures have arisen from over-investment in infrastructure that was not supported by tenant take-up. I