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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