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AFNOG – May 2002
ISP Survival Guide : A new
business Model for ISPs
Mouhamet DIOP
Directeur Général de NEXT SA
E-mail: [email protected]
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 1
AGENDA
• The Internet Market
• The regulatory environment
• Telcos Services & Competency
• ISP services & Competency
• New parternship
Source Goeff Houston
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 2
The Four Layers of
the Internet Economy
Internet Commerce
Layer 4
Intermediairy/Market Maker
Layer 3
Application Infrastructure
Layer 2
Internet Infrastructure
Layer 1
Source Cisco
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 3
Regulatory: Some fundamental truths
1. Competition is good for the Internet
2. Regulation is usually bad for the Internet
3. Internet development is GOOD for existing
telecommunications operators
4. The customer will gain better services,
more services and to lower prices !!
See the World Bank’s Economic Toolkit for African Policy Makers
(http://www.worldbank.org/infodev/projects/finafcon.htm)
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 4
The African context
• Fixed Wire Network for monopoly (DSL included)
• Explosion of the Cellular network for new telcos
competitor
• Many evolutions in the Wireless market
New media for incoming competitors
Wireless Local Loop for the telcos
Corporate solutions for VPNs
Interconnexion of ISP POP
Local Loop for the ISP customers
•
•
•
•
•
Voice services still the bigger and main service
Voice/Data Integration for Telcos and Corporate
VSAT solutions for Telcos and ISPs
Slow change in the Corporate customers environment
The actors: Telcos, ISP and Integrators.
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 5
Problem Points
• The PSTN battleground (revenue sharing model)
large scale ISDN demand without associated call revenue
PSTN modem access models are stressing ISDN investment
and revenue model
Second PSTN line demand in the surburbs stressing copper
plant
Wholesale dial access yet to be accepted
• The Leased Line battleground
DC copper pairs, ISDN PVCs, Frame Relay PVCs, High speed
DDS services
dark fibre
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 6
Problem Points
• The IP Battleground
lack of wholesale tariff point
bundled IP vs unbundled IP
settlements (or the lack thereof)
competitive interest in the customer
competitive distraction of limited expertise
Telco’s own ISP absorbs all available clue!
Clue density is a continuing problem
• The Voice Battleground
VOIP is viable in competition to existing voice pricing
Voice revenue leakage to the ISP sector is emerging
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 7
The Problem
• Data over Voice is Exhausted
• Access (Modem) market
Slow, Inefficient, Complicated, Unreliable
Call Characteristics:
voice vs modem access call
Call Concentrations move out to the surburbs
Copper loop quality problems
• Data over Voice
• Leased Line market
increasing bandwidth
different load pattern
different circuit characteristics required
• Digital Subscriber Line – DSL technology
• Wireless Local Loop (licensed and unlicensed solutions)
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 8
Evolution
• Telco Evolution
• Post
• Telegraph
• ISP Evolution
• From...Private
networks
• Telephone…
• To...LANs,
• Common Carrier role
• To...Packet
one service, one policy, one
operator
Regulatory barriers to
competitive entry
indirect taxation base
corporate
WLANs
Switched
Networks
• To...Telco
Market and
services, IP intelligent
services
• ISP, Mobile & Integrated
services...
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 9
ISP Evolution
• Service Internet Providers
Inter-Corporate connectivity
Public Email service network
• Dial Access Providers
Retail dial access model - email, web services
• Full Service ISPs
Dial Access, Web Publishing, Email, VPNs …
Carrier services:
ISDN primary rate access services
Leased Line services
Private 4 wire services
Radio Spectrum services
IPLs
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 10
WHY did ISPs appear?
• Classic Market Opportunity :
Deregulated communications environment
No license fees
No high capital requirement
No infrastructure build required - overlay
No incumbent monopoly operator
No market resistance (quite the opposite)
NEW customer NEED !!! New services required and
new suppliers (ISP)
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 11
Customer dilemma :
APPLICATIONS
(Transactionnel
Multimedia
Web Based Applications)
Intranet
Extranet
Internet
Teleservices
X25
Frame
Relay
ATM
INTERCONNEXION
(Remote sites, Broadband , Virtual Private
Network VPN, Security and Mobility)
Leased
Lines
ISDN
“A customer is not looking for technology but for Solutions”
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 12
A Common Need
• Intranet
Centralized Resources in term of servers
 Explosion of internal WEB servers
 Internal Process Management: ERP, etc…
• Extranet
 Give access to the internal resources for partners
(WEB serevrs, FTP, Support AV, ...)
 Integration of Suppliers in the process.
• Internet
 Serveurs WEB
 E-Commerce
 E-mail, ….
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 13
The Telco Perspective
• One view is that the Telco serviced the data market to
prevent private-wired corporate voice systems gaining
market impetus
• It is likely that the Telco did not foresee a competitive
data service industry due to:
competing data standards
low value data transactions
• Usually, the data market was serviced using the
margins of oversupply of voice
Voice provisioning uses long-term investment models
Voice service architecture relies on over-provisioned network
• Additional infrastructure investment to provide DSL
services
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 14
The Telco Perspective
• Voice is good business... But just for them
Installed asset base
Static service model
Historical monopoly incumbent
High revenue potential
• Data is good business for ISP but …WITHOUT Voice
• Data business should become part of the Telco
business
• Voice Protect Mode
Barriers to voice entry decreasing
Protect core voice assets from competition
Service the data market at voice bypass prevention pricing
Restrict resale access
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 15
MPLS
Telco-class IP
• MPLS provide:
IP Intelligent VPN’s
Reduction of Backbone complexity
Backbone isolation
Traffic Engineering
Quick Rapide remise en état (50ms)
QoS at level 3 (L3) at each node (DiffServ)
Independence of layer 2 (L2)
MPLS adapt ATM to IP
Evolution to DWDM (IP over Optical)
• Benefit:
New services and new revenus
Improve line usage (Multi-user/ Multi-class statistical muxing)
Improve network reliability
• QUESTION: Who will take care of the QoS in the Internet ?
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 16
The ISPs view of the Telco
• SUPPLIER, COMPETITOR,
CUSTOMER OR PARTNER ?
• incompetence or malice?
• Critical path supplier
• competitor
larger
more capital
more staff
customer relationships
billing capability
larger network
Incoming calls
ISDN primary rate accesses
Digital circuits
IPLs
Upstream Wholesale IP
• New market: New competitor or
customer ???
Cheaper
• But also a CUSTOMER for
• CONSULTANCY business to be
developped in:
IP network Design
Service provisionning
IP infrastructure management
IP services : Design , market and
sales
Network Design
IP services (Adressing,
Numbering Plan, Security, etc)
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 17
Area of potential Growth for the ISP
• IP Telephony and Data/Voice Integration
Quality of service
Bandwidth
shortage still a problem in developing countries
Regulatory prohibition
But, more than 70% of int’l traffic flows between markets where IP Telephony already
liberalised
Regulatory: liberalising or “turning a blind eye”
Competence – Skills to run a good network for IP Telephony
• Wireless Network (Voice and Data)
Easy to install
Bandwidth
Unlicensed technology
Security is a big concern but solutions exist
• Security Solutions for Network and applications
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 18
100'000
Circuit cost p.a. (US$)
10'000
Circuit costs,
falling by 72% p.a .
1'000
10'000
1'000
100
100
10
Circuit capacity,
rising by 89% p.a .
1
10
1
TAT-8 PTAT-1 TAT-10 TAT- AC-1 TAT-14 Flag
1988 1989 1992 12/13 1999 2000 Atlantic
© 2002 Mouhamet DIOP
ISP survival guide : A new business model
for ISPs
AFNOG TOGOG
12-13 May 2002
1996
2001
Circuit capacity (56/64 kbit/s, 000s)
Addressing constraints: Increased
trans-Atlantic bandwidth
Source: ITU,
adapted from
FCC.
Page 19
Network Capacity in U.S. explode over 8,000%
Bandwidth IS a KEY ISSUE !!!
100
90
80
70
60
50
40
30
20
10
0
Level 3
Frontier
Qwest
GTE (Qwest fiber)
IXC
Williams
Sprint
MCI WorldCom
AT&T
Total
Bandwidth:
99.8
terabits/second
30,0
21.7
terabits/second
7,0
3,5
7,7
7,4
9,0
6,8
6,6
1.2 terabits/second
1996
21,8
1999
2001
Fortune Magazine, 3/15/99
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 20
IP Telephony wants to be “free”
350
5
Users
300
4
minutes
250
200
3
150
2
100
1
50
0
0
Call minutes (million)
Registered users (million)
Cumulative number of Dialpad users & call minutes
Since launch on 18 Oct. 1999
6
18-Oct- 22-Nov- 10-Dec- 12-Jan- 04-Apr99
99
99
99
00
Source:
ITU, adapted
DialPad.com
© 2002 Mouhamet
DIOP fromISP
survival guidepress
: A newreleases.
business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 21
Telco Services to ISPs
• circuit provider
and
• Servicing the ISP sector
• call termination provider
and
• Upstream wholesale ISP
Understand the sector’s
requirements
Set realistic expectations
Create appropriate service
delivery processes
• Single service interface ?
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 22
The ISP view of the Telco
• ISP Killer !!!
• dissatisfaction
• suspicion
• forced relationship
• gorilla competitor
• Potential Customer with the biggest customer
base
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 23
The ideal ISP’s Telco
• good, fast, accurate, cheap
• fast service provisioning
• wide portfolio of data services
• low prices
• high quality
• high service accuracy
• non-competitive retail services
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 24
The Telco view …Confused
• under-capitalized
• poor service quality
• poor business foundation
• limited role
• limited future
• distracting competitor
• Short term perspective
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 25
The Telco view
• ISPs are a potential revenue stream
call revenue
services revenue
circuit revenue
wholesale IP revenue
• In a competitive carrier world this market
cannot be ignored
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 26
The Technologies
Online Access Technologies in Europe
Acccess Technologies Global Large Bande
NID
56k Modems
ISDN
Modems
DSL
Cable
Source: Data Monitor, Dec 1998
Source: DataMonitor, Dec 1998
• Service Internet = Independence of the Wireless LOOP
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 27
The ISP Survival plan
1. Market Entry
2. Rapid Growth
3. Market Strategic – Partnership or competition
4. Market Exit or Integration
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 28
ISP Survival Plan - 1. Market Entry
• market analysis
• business plan
• technology plan
• capital
• equipment
• marketing plan
• carrier services
• deployment
• service delivery processes
• staff
• boundless optimism
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 29
ISP Survival Plan - 2. Growth
• rapid application of:
capital
equipment
carrier services
staff
service processes
• to meet demand
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 30
ISP Survival Plan - 3. Market Strategy
• Telco partnership
Expertise
Facilities Management
IP network services management
SLA for the IP infrastructure
• Versus Telco competition
DSL market introduction
Wireless Network
WLL
Voice Over IP business
Building network infrastructure
Building Application Infrastructures
Develop the portal as the main and only access to the
customer
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 31
ISP Survival Plan - 4. Market Exit
• Sale of business assets:
expertise
customer contracts
growth potential
or
• Become a new Next Generation Telco
or
• Public Float:
an investor market primed on e*hysteria
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 32
Generic ISP profile - Small
Upstream ISP
Linux or NT Host
Port Concentrator
PSTN
Modem Bank
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 33
Generic ISP Profile - Medium
Upstream ISP
Web Proxy
Mail Host
Web Proxy
Modem Bank
Web Proxy
Modem Bank
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 34
Generic ISP Profile - Large
Upstream ISP
Access Clients
Local
Office
Central Office
Access Clients
Access Clients
Local
Office
Local
Office
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
Access Clients
AFNOG TOGOG 12-13 May 2002
Page 35
Generic ISP Profile - Large
Local Office
Network Access
Server
Access
Filters
Local Office
Local Office
Access Router
Radius
Server
Accounting
Data
© 2002 Mouhamet DIOP
Local Office
Upstream ISP
Upstream Feed Router
Mail
Server
DNS
Server
WWW
Cache
WWW
Server
Usenet
Server
Network
Management
Server
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 36
Questions ?
© 2002 Mouhamet DIOP
ISP survival guide : A new business model for ISPs
AFNOG TOGOG 12-13 May 2002
Page 37