Last week I introduced our readers to the basic layout of the “Layers of Revenue” business model for a broadband ISP. I said that there are three primary layers in the model; (1) the broadband physical infrastructure, (2) ISP’s value-added services and (3) content.  I will not discuss the infrastructure layer in this series as that is basically the hardware implementation of your particular wireless or wired network.  The physical layer is interesting from the technical standpoint, especially to people deploying brand new WiMax networks, but I want to instead focus on the business model and the service offering for your customers.

Figure 1: Broadband ISP’s “value layers”.

This week I want to focus on Layer-2, the ISP’s value-added services. My basic premise behind the model was that the ISP becomes completely independent of the content they provide.  However, these value-added services will be dynamically selected by the ISP’s network in such a way as to establish an appropriate service mix (represented by the black lines in Figure-1) to support a high quality of service required for the particular content type requested by the user.  Furthermore, the customer’s perception of the ISP’s complete value proposition will be the combination of Layer-1, the physical network and Layer-2 the additional service provided on top of physical connectivity. 

Let’s now examine how this will work in the real world.  What I am suggesting is that the ISP starts “Tiering” the different capabilities of their network and charges differently for each Tier of service depending on a particular customer’s demand and the type of content they want to use on the network. Here are examples of the type of value-added services that are under full control of the ISP and can be added or removed or “throttled” to provide different Tiers or levels of service:

• Bandwidth (can be throttled).
• Latency to a particular destination on the internet (can be minimized).
• Packet prioritization for a particular web application.
• Content caching for a particular application or web destination (edge servers).
• POTS gateways for VoIP applications (improve call quality to old phones).
• On-line game caching servers.
• Many other’s to come with future applications…

As new applications become available they will all need some form of value-added service from the ISP’s network that will improve their performance and user perception of the quality of service offered by the ISP.  Today most ISPs do not offer any value-added services as I define them here.  All they provide is basic internet access, sometimes a choice of bandwidth, and all without any regard for the user’s experience with the different types of content available on the Internet.

This demand from web applications imposed on the ISP’s network presents an opportunity for the ISP to up-sell the customer on network configurations that will deliver the quality of service the applications need to function better.  The key is to position your service offerings in such a way that they are “driven” by the demands of the applications themselves.  What I mean is that now you can advertise your offerings based on the applications the customer wants to use on the network. You can now have a basic internet access package plus, a VoIP package, a Video package etc.  Your customers will now differentiate your services from the basic broadband service offered by competitors, Telco’s, Cable etc.  It’s no longer just basic broadband Internet access; it is now a complete service offering that supports the demand and quality of service for applications such as voice and video.

This model allows the ISP to re-coupe the additional investment required to support the demands of various web applications.  You now don’t have to worry about the next piece of functionality coming out from Skype or others and if it will threaten your telephony business, instead you partner with Skype for example, to see how you can deliver the best video performance for their new video calling service and up-sell the customer on this additional feature. It is very likely that the network upgrades you make will also work for another VoIP service like Vonage etc.   

Yes, I did say “partner” with the content providers.  Next week I will discuss examples of how you could charge for the different Tiers of services and we will talk about content partnerships that can enhance your business proposition.