Resurgence of the OSP?
By Amy Cravens, Cahners In-Stat Group

In the plight of the 2001 in-building MDU broadband market, it seems that providers shudder at being coined as an "on-site service provider" (OSP). As many of their peers fell by the wayside, surviving in-building providers struggled to redefine themselves as anything but an "on-site service provider." While the mention of a localized provider continues to bring mixed sentiment in the MDU market, the concept has reemerged in a new arena - the connected community.

OSPs have found a new breeding ground in the growing concept of "connected communities." The definition of a "connected community" can span a wide variety of development types. On the lower end of the scale, a "connected community" is a residential or mixed-use development that has a community-wide broadband infrastructure in place, whether it is cable, DSL, fiber, or fixed wireless. A regional ISP typically provides these services, which are electives for the resident population. Additionally, the development's builders may offer technology enhancements to the homes such as structured wiring systems.

The most revolutionary developers, however, envision a level of connectivity that goes far beyond the above scenario. In this vision of the "connected community," broadband is an inherent piece of the home purchase-along with access to the community pool and tennis courts every homeowner will have a high-speed connection. Requirements for builders in these communities are also stricter, with higher standards for grade of wiring and number, location, and type of access ports installed. Frequently these builders are working toward the eventuality of a completely connected home with automated climate control and lighting, security, and Internet appliances.
It is these "ultra-connected communities" that are most conducive for the on-site provider model. With such a concentrated user base, service providers are able to validate the placement of a central office and a concentrated service presence within the boundary of the development. Furthermore, these locations are on the leading edge of converged service offerings, which also lures providers with the promise of higher per subscriber revenue.

On the flip side of the high bandwidth service offering, however, is the requirement to have high bandwidth pipes leading to the resident. While some developers and providers continue to seek lower cost connectivity alternatives, the connected community is a primary arena for fiber-to-the-home (FTTH) deployments. Solutions providers are promoting passive optical network (PON) technologies as a cost competitive alternative to DSL or cable deployments. Again with the high concentration of users, a single fiber run can be split into 32 separate strands, each delivering up to 40 Mbps continuous symmetrical connectivity to the resident.

In addition to high-speed Internet and maybe digital voice and video, these developments are promoting virtual communities through extensive Intranets. Each community hosts a branded portal that offers virtual concierge services, neighbor chat/message posting, and e-commerce capabilities. Community resources, such as schools, are also accessible through the portal so that for instance, parents can interface with their child's teachers. Additionally, some communities that have direct access to video head-ends are broadcasting a community channel the features local events such as sporting matches and concerts.

An interesting twist to the OSP story being written in these connected communities is the type of actor playing the role of service provider. In several of these ultra-connected developments, it is the developer who has assumed the role of service provider. Seen as an additional source of recurring supplemental income and assurance to the type of service the developer expects for the community, this alternative is adopted by several master planned community developers today. This level of property owner involvement represents a fundamental split from the broadband access model being pursued in MDU markets, where the REIT is largely uninvolved in the service provisioning.
While the connected community concept of broadband connectivity is very far advanced, its emergence is still far from the norm. Currently there are only a handful of the "ultra-connected communities" across the nation. Macro-level and micro-level barriers continue to dissuade developers and service providers from pursuing this potential. The most difficult micro-level barrier to surmount is the need for new infrastructure-RBOCs will continue to be hesitant to replace existing copper infrastructure with FTTH in an effort to minimize deployment costs.

On the macro-level, to fully emerge as a justified development style, the connected community will have to offer homebuyers compelling reasons to move to these communities. The most highly promoted reason to have emerged is telecommuting-for those individuals who are able to work from home, high-speed connectivity becomes more than a luxury, it is an enabling requirement. However, telecommuting is still on the fringe of the standard work environment, with a relatively small percent of employers and employees pursuing this option.

Supposing that the infrastructure issues are addressed and homebuyers find these developments compelling, the question still remains of making it a profitable endeavor. What will prevent this new breed of OSPs to forfeit the fate that turned OSP into a dirty word in the MDU community? While the developments that leave broadband as an optional service will battle against this fate, the "ultra-connected community" will enjoy a higher probability of survival.

The downfall of the MDU model was low penetration levels and minimal service offerings, typically only high-speed Internet. The connected community will offer a full suite of services, including digital video, voice, and high-speed access, with a 100 percent subscription level. Every homeowner in these communities will be required to pay a service fee as a piece of the homeowners' association fee required to live in that development.

Compared to the MDU model, with an ideal of 30 percent subscription levels and a reality of 10 percent levels, the "ultra-connected community," with 100 percent of residents as paying subscribers, is a very different game. Furthermore, these developments are becoming a showcase for emerging technologies, from FTTH to home automation, a feat that the MDU OSPs cannot, at this time, afford to rival. However, while these developments are drawing the attention of the technology community, it remains to be seen whether homeowners, especially in a slowing economy, are willing to pay to be the guinea pig. Ultimately the fate of these communities depends on the rate of home purchases, the ability to charge a fee that will support the development, and the capability for the service provider (whether it is an ILEC, CLEC, or developer) to manage a sustainable deployment-a proposition that has henceforth proven difficult for any provider.

About the Author
Amy Cravens is an analyst with Cahners In-Stat Group. She welcomes questions or comments.