Readers have heard a lot about my distinction between bandwidth providers and service providers. In a nutshell, bandwidth providers sell a commodity: bandwidth. Service providers take ownership of a good deal more than bandwidth, including device management, application management, billing and authorization, and overall service management, thereby delivering a higher-margin, higher-value service.
But that’s a high-level view. Delving deeper highlights a few conundrums.
For example, is bandwidth a “pure” commodity? Not exactly. By definition, a commodity is a good or service that’s differentiated purely on price. By implication, therefore, commodities are 100% fungible – a bushel of wheat is exactly like another one.
Neither definition describes bandwidth perfectly. While certain forms of bandwidth – a T-1 circuit, for example – are indistinguishable, there’s a meaningful distinction between, say, T-1 access to a frame relay network, T-1 access to a VPN service, and a point-to-point T-1 private-line connection.
Another way to put this is to say that while bandwidth might be a commodity, connectivity is not because it is distinguished by architecture and price.
Bandwidth – unlike wheat – is location-dependent and therefore not fully fungible. You can’t replace a circuit in Uzbekistan with one in Sao Paolo, Brazil, for example. So there’s a further distinction. You might be able to say that T-1 circuits in New York (or any other dense area served by a plethora of providers) are commodities – but bandwidth in other geographies is not.
Why does any of this matter? Because if you’re an IT executive charged with procuring the appropriate mix of bandwidth, connectivity and services, you need to understand what you’re buying, and who you’re buying it from.
A useful breakdown is the following:
• Physical-layer services in densely populated areas are commodities. Traditional telephone companies are a good bet, but not the only bet. Rate them on stability, financial viability and geographic reach.
• Higher-layer services (for example, IP services) are definitely not commodities. While traditional telcos have made considerable headway in these areas (AT&T, for example, has one of the best IP networks in the U.S.), they’re not the only games in town. Both Infonet and Equant offer global IP networks. Rate these players on the quality of their service-level agreements, their technical infrastructure, the quality of their operating support system and support.
• Multiple-geography connectivity (regardless of type) is not a commodity. You’ll need to coordinate coverage of different geographies by working with multiple carriers. This integration effort also can be outsourced to third parties. These include aggregators, such as iPass and Fiberlink, who don’t own the infrastructure but manage their own service delivery, and companies, such as Nexagent, which offer custom solutions that let service providers offer services outside their geographic regions.
Bottom line: All bandwidth isn’t equally commoditized, and procurement strategies need to take this into account.
