- Telcos can gain new opportunities from launching naked DSL (NDSL), but must change their attitude to benefit
- NDSL not the threat some have assumed: the financial impact of NDSL on incumbent telcos is likely to be slight
- scenario models typically show NDSL increases incumbent total EBITDA by less than 1%
- incumbents can use NDSL to strengthen their position as broadband and mobility become the key consumer telecoms markets.
The financial impact of naked digital subscriber line (NDSL) – DSL broadband without a compulsory public switched telephone network (PSTN) voice service subscription – on incumbent telcos is likely to be small, according to a new report, Naked DSL: challenges and opportunities published by Analysys, the global advisers on telecoms, IT and media. The findings of the report suggest that incumbents and regulators should move to introduce NDSL as soon as possible.
Depending on their revenue structures and competitive positions, incumbents could see slight overall revenue gains or losses, according to author, Analysys Associate Tim Hills: “These changes are largely insignificant in the context of the continuing decline in traditional PSTN revenues. However, incumbents can use NDSL to strengthen their position as broadband and mobility become the key consumer telecoms markets and the traditional PSTN service declines in importance.”
NDSL breaks the association between the DSL broadband service and the PSTN service, so that a customer may cancel an existing PSTN service, but retain the DSL service. Until recently, incumbent telcos have generally resisted NDSL, fearing the immediate loss of revenues from the absence of the PSTN subscription and suspecting that it will exacerbate the move of voice usage away from the PSTN towards mobile and Voice over IP (VoIP). Some industry observers have suggested that NDSL could have a serious effect on incumbents by deeply eroding the core PSTN revenues that still underpin much of their overall revenues and profitability.
Tim Hills continues: “NDSL may not be quite the threat that some have assumed; incumbents can gain a favourable outcome from its introduction, but it requires a major change of attitude from them. They need to develop a strong and appealing retail NDSL offering to capture as much as possible of their existing large PSTN customer base as it migrates to NDSL. Vitally, they must also provide an attractive wholesale NDSL offering to competitors in order to cap the growing threat posed by fully unbundled local loops (FULLs).”
The financial impact of NDSL on incumbents in total revenue terms is likely to be slightly positive in certain environments, and almost neutral in others. In profit-margin (EBITDA) terms, it is likely to be very slightly positive. Scenario models suggest that total market revenues are largely unaffected, whether incumbents introduce NDSL or not.
While NDSL is now beginning to attract considerable attention among regulators, users, incumbents and competing service providers, the impact on incumbents has remained uncertain (but crucial) in determining the future viability of such offerings. This has led to major uncertainty, particularly over whether regulators will eventually mandate NDSL and (if so) whether incumbents would be better placed if they offered NDSL earlier, but under their own terms initially. The report uses scenario modelling (with key inputs, methodology and assumptions supplied in an annex) to address the crucial issue of the potential impact of NDSL on incumbent telcos’ revenues and margins. Naked DSL: challenges and opportunities places these findings in the context of the overall effect of NDSL on the telecoms market and competitive environment. The report assesses the potential of NDSL in furthering fixed–mobile convergence, and examines the impacts and opportunities for a range of players: incumbents, alternative network operators, ISPs and mobile operators.
Note for press editors: The scenarios and modelling used in the report are not intended as forecasts for, or analyses of, actual European incumbent telcos or countries. Instead, the report uses mathematical modelling of high-level revenues and associated margins to assess market impacts on three specifically defined and different country/incumbent types. The modelling is simplified because the market dynamics are extremely complex and lead to multiple interactions that are impossible to make explicit exactly. The intention is to look for broad patterns of behaviour, not to make prescriptive forecasts.
