ISP Survival Guide : A new business Model for ISPs

1. AFNOG – May 2002 ISP Survival Guide : A new business Model for ISPs Mouhamet DIOP Directeur Général de NEXT SA E-mail: mouhamet@next.sn

2. AGENDA • The Internet Market • The regulatory environment • Telcos Services & Competency • ISP services & Competency • New parternship • Source Goeff Houston

3. The Four Layers of the Internet Economy Internet Infrastructure Layer 4 Application Infrastructure Layer 3 Intermediairy/Market Maker Layer 2 Internet Commerce Layer 1 Source Cisco

4. 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)

5. 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.

6. 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

7. 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

8. 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)

9. Telco Evolution Post Telegraph Telephone… Common Carrier role one service, one policy, one operator Regulatory barriers to competitive entry indirect taxation base ISP, Mobile & Integrated services... ISP Evolution From...Private corporate networks To...LANs, WLANs To...Packet Switched Networks To...Telco Market and services, IP intelligent services Evolution

10. 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

11. 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) WHY did ISPs appear?

12. Customer dilemma : Intranet Extranet Internet APPLICATIONS (Transactionnel Multimedia Web Based Applications) Teleservices X25 Frame Relay ATM INTERCONNEXION (Remote sites, Broadband , Virtual Private Network VPN, Security and Mobility) ISDN LeasedLines “A customer is not looking for technology but for Solutions”

13. 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, ….

14. 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

15. 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 The Telco Perspective

16. MPLSTelco-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 ?

17. SUPPLIER, COMPETITOR, CUSTOMER OR PARTNER ? incompetence or malice? Critical path supplier Incoming calls ISDN primary rate accesses Digital circuits IPLs Upstream Wholesale IP New market: New competitor or customer ??? CONSULTANCY business to be developped in: IP network Design IP services (Adressing, Numbering Plan, Security, etc) competitor larger more capital more staff customer relationships billing capability larger network Cheaper But also a CUSTOMER for Service provisionning IP infrastructure management IP services : Design , market and sales Network Design The ISPs view of the Telco

18. 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

19. Addressing constraints: Increased trans-Atlantic bandwidth 100'000 10'000 Circuit costs, falling by 72% p.a . 10'000 1'000 1'000 Circuit capacity (56/64 kbit/s, 000s) Circuit cost p.a. (US$) 100 100 10 10 Circuit capacity, rising by 89% p.a . 1 1 TAT-8 PTAT-1 TAT-10 TAT- AC-1 TAT-14 Flag Source: ITU, adapted from FCC. 1988 1989 1992 12/13 1999 2000 Atlantic 1996 2001

20. Network Capacity in U.S. explode over 8,000%Bandwidth IS a KEY ISSUE !!! WDM Total Bandwidth: 99.8terabits/second 21.7terabits/second 1.2terabits/second Fortune Magazine, 3/15/99

21. IP Telephony wants to be “free” Cumulative number of Dialpad users & call minutes Since launch on 18 Oct. 1999 6 350 300 Users 5 250 minutes 4 200 Registered users (million) Call minutes (million) 3 150 2 100 1 50 0 0 18-Oct- 22-Nov- 10-Dec- 12-Jan- 04-Apr- 99 99 99 99 00 Source: ITU, adapted from DialPad.com press releases.

22. circuit provider and call termination provider and Upstream wholesale ISP Single service interface ? Servicing the ISP sector Understand the sector’s requirements Set realistic expectations Create appropriate service delivery processes Telco Services to ISPs

23. The ISP view of the Telco • ISP Killer !!! • dissatisfaction • suspicion • forced relationship • gorilla competitor • Potential Customer with the biggest customer base

24. 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

25. The Telco view …Confused • under-capitalized • poor service quality • poor business foundation • limited role • limited future • distracting competitor • Short term perspective

26. 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

27. The Technologies Acccess Technologies Global Large Bande Online Access Technologies in Europe NID 56k Modems ISDN Modems DSL Cable Source: DataMonitor, Dec 1998 Source: Data Monitor, Dec 1998 • Service Internet = Independence of the Wireless LOOP

28. The ISP Survival plan 1. Market Entry 2. Rapid Growth 3. Market Strategic – Partnership or competition 4. Market Exit or Integration

29. 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

30. ISP Survival Plan - 2. Growth • rapid application of: • capital • equipment • carrier services • staff • service processes • to meet demand

31. 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

32. 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

33. Generic ISP profile - Small Upstream ISP Linux or NT Host Port Concentrator PSTN Modem Bank

34. Generic ISP Profile - Medium Mail Host Web Proxy Modem Bank Upstream ISP Web Proxy Modem Bank Web Proxy

35. Generic ISP Profile - Large Upstream ISP Local Office Access Clients Central Office Access Clients Local Office Access Clients Local Office Access Clients

36. Generic ISP Profile - Large Local Office Local Office Local Office Upstream ISP Network Access Server Local Office Access Router Upstream Feed Router Radius Server Mail Server DNS Server WWW Cache WWW Server Usenet Server Access Filters Accounting Data Network Management Server

37. Questions ?