Some Parts of the Network Always Lose Money

It might not be self evident that there is a direct relationship between Internet of Things revenues and the ability for any Internet service provider to provide rural Internet access services.

There is a very clear connection. Simply, no service provider ever really can make money serving customers in rural or isolated areas. Such service always is subsidized, by some mechanism, generally a mix of public and private.

That, in fact, is why governments often directly and indirectly subsidize communications services in rural areas.

Less often do we think about the fact that private actors themselves are forced to subsidize service to customers over great portions of their networks. The rule of thumb in the U.S. fixed network business, for example, has been that service providers make money in urban areas, break even in suburban areas and lose money in rural areas.

And even a mobile operator does not expect to actually recover costs--much less make an actual profit--from those cells that serve customers in very-rural and isolated areas.

Lower platform costs will help. That is why open source telecom projects such as Telecom Infra Project, fixed wireless, low earth orbit satellite constellations, new spectrum, shared spectrum and unlicensed spectrum are so important.

Lower access platform costs will directly enable service providers of many types to serve customers who cannot afford to pay very much for Internet access.

But such innovations might not be enough. It remains highly likely that full rural access will require subsidies. And that, in a nutshell, is why discovery of new revenue sources is so important.

As likely is true in most industries, a disproportionate share of firm profits are generated by a relatively small number of customers, with likely losses among some customer groups.

In the access business, sustainability is so important an issue because as much as “half the network doesn’t make much--if any--money.”

If so, only subsidies of one sort or another are going to enable universal Internet access, no matter how good our platforms are improving.

That is one reason why IoT is a key focus of the Spectrum Futures conference this year. As important as innovations in access platforms are, subsidies will be required. As always, surplus profits from some customers will fund access for many customers whose costs of service actually exceed revenues earned from serving them.

Here’s a  fact sheet and Spectrum Futures schedule.