DSL has long been regarded as the killer application that will drive up fixed line revenues but a new report from Ovum suggests that it will not generate the financial windfall envisaged by the telecommunications industry.
According to the study,
The financial prospects for DSL, operators providing standard Digital Subscriber Line (DSL) services will be able to increase average revenue per user through investment but this will not necessarily lead to high margins.
“Operators should not expect pots of gold from DSL,” asserted Mike Cansfield, research director at Ovum. “Our research with operators and vendors lend us to develop a DSL business case model for a typical operator covering revenues and costs. From this, we found that revenues peak in year four and costs in year three, and over the five year period a typical operator can expect to make a reasonable return on its investment.”
Carriers are placing great store in the potential of DSL but competition is expected to be fierce and this will have an impact on profits. Ovum has already warned operators to avoid cutting prices to unsustainable levels (see DSL Operators Should Resist Slashing Broadband Prices, Says Ovum).
“Business revenues are one thing – margins are another,” said Cansfield. “It will be tempting for operators to concentrate their efforts on customers and the demand side, in order to win new customers and therefore increase revenues.”
The report claims that operators need to acknowledge economies of scale and pay equal attention to supply and costs otherwise margins will be thin.
“It is important to win as many customers as possible, as quickly and efficiently as possible, to make the business case positive,” said Cansfield. “It is just as important to drive out costs from the business to make it cash positive as soon as possible so that an operator can start to recover the substantial start-up costs. To do both, an operator needs to compete like crazy to maximise market share.”
