The competitive landscape is still shifting, even as bandwidth demand grows and consolidation continues

Given the well-documented increase in demand for bandwidth, the ongoing consolidation among major and minor service providers that has shrunk the overall field, and the growing fixation on the cable/telco duopoly, it might seem that the competitive landscape in broadband access has stabilized.

Nothing could be further from the truth.

In fact, this year has brought new technology, legal and regulatory squabbles, and business trends that threaten once again to reshape competition for both consumers and businesses. As a result, that landscape is now dotted with a few more deep craters where, only two years ago, major architecture was under construction. The pure-play voice-over-IP (VoIP) market, for instance, was soaring in 2005 but now is struggling on many fronts — although not all — as incumbent cable companies have captured the residential market and moved in on small business, and both incumbents and CLECs have incorporated VoIP into their business offerings.

The municipal network market also is undergoing changes, having ricocheted from a fascination with fiber to a love affair with Wi-Fi to a real-world recognition that free love is never free — and neither is broadband infrastructure.

Meanwhile, cable multiple system operators (MSOs) and telcos continue to try to go head-to-head in offering bundled services that now increasingly include wireless, as they await new capabilities that will enable them to compete on differentiated services as well. In Tier 2 and Tier 3 markets, players on both sides are already deploying some of these services, proving themselves to be more aggressive than their larger brethren.

Meanwhile, lurking in the very near future are major wireless opportunities, including new spectrum availability and new mobile WiMAX technology that will be shipping in 2008 and could provide further competitive disruption. With those new wireless options comes the very real prospect that Google or another major Internet player will move full-force into providing a broadband network service.

All of this creates a kind of competitive chaos that has prevented any real sense of calm from descending upon the telecom world, even as it celebrates recovery from the doomsday environment of the early 2000s.

“The world is getting more competitive all the time in terms of who owns consumers' mind-share and wallet-share on the phone, the PC and the television,” said Meredith Flynn-Ripley, CEO of Integra5, a company that makes advanced service platforms for blending the three components of a broadband service. “Plus all three groups in the traditional telecom service provider space are looking over their shoulders at the Yahoo!s and the Googles of the world and the Skype/eBays and wondering what they are going to do next.”

Flynn-Ripley sees smaller telcos and cable companies deploying blended services such as caller ID on the television or PC, voicemail message waiting on the TV, and customer-care messaging on the TV or PC. Services like these that blend voice, data and video create “stickier” relationships with customers, who are less likely to churn, and generate more revenue.

“Tier 1 operators are catching up,” she said, especially on the cable side. “Looking at all the devices in the home, consumers want to be in control of what device they want to use to communicate at a given time. Maybe you want the network to send you an alert to your cell phone so you can see who's calling your home phone. The Tier 2 companies have spent the money to put the platform in place and deploy the services to consumers, and now they are deploying their second and third applications on the platform.”

It's important for cable or telcos to line up those video customers now, because the options for acquiring video content continue to expand, said Rick Sailor, vice president of sales for set-top box maker Amino.

“We are seeing companies that want to set up a separate subscription service,” Sailor said. “If you want to order movies, as a member, you can order this movie delivered over your broadband pipe. It may only be a 1 Mb pipe, so it may take eight to 10 hours to spool up on your hard drive, but then you use an Internet connection into the set-top box and watch the movie on your television.”

If a telco is providing that service, it may want to open up available bandwidth on a DSL pipe to enable faster downloads, Sailor said, but soon other companies with the right software will be able to bypass the telco and use the 1 Mb connection — perhaps overnight or when it isn't in use — to distribute premium content.

“We have interested parties: both companies that have the asset materials themselves as well as Internet companies that want to sell subscriptions,” Sailor said. “We could see this by the middle to the end of 2008.”

Sailor questions whether some telephone companies might not make more money selling really fat pipes for much more money than they currently sell DSL, rather than get into the video business themselves. “They could make more money without the hassle of acquiring the content,” he said.

Part of the appeal for the telecom service providers of offering their own IPTV services, however, is that there will be much more to IPTV than just video content. Microsoft is pushing the notion of connected TV following its launch last June of Microsoft Media Room, the latest version of its IPTV software that enables personal media sharing via wireless connections and is open and extensible to other applications. One of the first deployments of Media Room will be multiview, which provides the ability to “launch applications so there is multiple picture-in-picture, all software-based, that shows sporting events with different camera angles or multiple shows,” said Jim Brady, spokesman for Microsoft TV. Consumers can personalize their experience by how they use mulitview: tracking statistics or shopping while watching or performing other tasks.

These services are not necessarily available soon; Brady expects them to happen slowly at first before noticeably differentiating IPTV from other video offerings within one to two years.

“If the industry realizes the connectedness — the potential that IPTV has to offer differentiated services that enable unique and compelling personalized TV-based service — IPTV should be at a major competitive advantage” by that time, Brady said. “The technology has incredible potential, but it takes an ecosystem of tech companies and entertainment customers to take advantage. The next five years will be critical.”

The same could be said for another potentially disruptive force in broadband: WiMAX. The mobile version of the broadband wireless technology will begin hitting the market next year and is likely to first have an impact “in rural areas, where there are holes in broadband coverage,” said Tom Flak, senior vice president of marketing and product strategy for SOMA Networks, a WiMAX company.

“We do see early adopters,” Flak said. “We see independent operating companies adopting pre-WiMAX technologies, who have been able to build a business case on what is pre-standard technology and now will have a standard version.”

The advent of the FCC's 700 MHz auction, which begins next January, will offer up spectrum to new and existing players that will be ideal for WiMAX deployment and could trigger a new competitive stampede. Google is just one of the companies interested and has already partnered with Sprint, which also partnered with Clearwire, to develop a national WiMAX footprint.

AT&T is testing wireless technology in the 700 MHz and wireless communications service bands in Nevada with SOMA to see “if real-world consumers will buy the service, pay for the service and like the service,” Flak said, calling the trial “overwhelmingly successful” in attracting customers in its yearlong operation.

WiMAX also may yet move into the municipal market, where some Wi-Fi plans are imploding and some just becoming more realistic.

“This piece of the business is shifting as service providers re-situate themselves with the move to anchor tenancy as the driver for their involvement in a city system,” said Chip Yager, director of operations for Motorola's mesh network product group. “Cities have the ability to do it on their own because the benefits and [return on investment] are becoming much clearer as more of these [wireless] networks have been deployed in non-public access ways.”

Three major applications groups — video surveillance for public safety and law enforcement; mobile office and database access for public safety personnel; and municipal efficiency for things such as meter reading, traffic management and parking enforcement — drive the new muni Wi-Fi networks. Once a city has built out its internal network, either on its own or through a service provider, then it may choose to offer public access, “but that becomes icing on the cake,” said Yager.

The boom in interest for municipal fiber networks hasn't played out as expected, especially in Tier 2 and Tier 3 cities that are underserved by incumbents, said David Foote, chief technology officer of Hitachi Telecom USA. The spate of legislation against municipal networks created uncertainty that slowed things down, he said, “so there are a lot of munis sitting on the sidelines, who would still like to deploy but are hesitant.”

Still, he said there is growing interest in Gigabit passive optical networks among real estate developers, cities that own utility networks and have fiber deployed, and CLECs or smaller telcos.

“We see growing interest — it's across the board — among munis, developers, even some small cable companies,” Foote said. “For all the green field developments, at the very least, they will deploy [fiber to the premises] and then go back later and overbuild existing networks.”

The result of all this new competition means the broadband access landscape is likely to stay fairly chaotic for some time to come.