MTU Broadband: A New Era of Flexibility
By Amy Cravens, Cahners In-Stat

MTU broadband, a deployment strategy that moved the provider's point of presence (POP) into the building, has had a short but turbulent life. Since its emergence in the late 1990's, the MTU market climbed to considerable popularity and fame, only to fall in the past 16 months into the depths of disfavor. Suddenly the term MTU is almost profane, carrying the negative connotation of a failed strategy. Why has the model been marred and what sort of MTU makeover is necessary to restore the reputation of this once-favored market?
While much of the roller coaster ride that the MTU has taken was driven by larger market conditions, there are attributes specific to the MTU that contributed to its defaming. Although the ambitions of MTU providers were strong, the reality of these deployments fell far short from their expected potential. The current negative image cast on the MTU market is due to the failure of many in-building providers, or BLECs, to successfully implement this model. The strategy of overselling and under-delivering appeared to investors, subscribers, and property owner partners as the reality of the MTU model. The shortcomings of these providers can be summarized by a variety of factors that countered their success, including:
· An unsustainable deployment model focusing on capturing buildings and expanding footprint rather than on capturing subscribers a generating revenue
· Low per building tenant penetration, typically under 15 percent
· A focus on delivering bundled services, regardless the cost, resulting in low margin service offerings
· An unbalanced concentration on technology rather than service provision
· A delayed rollout of true high margin service packages, and a slow subscriber take rate once released
· Negative image attached to BLECs and MTU due to highly publicized failures
· Under capitalized companies attempting to pioneer a market
· Failure to work effectively with RBOCs/ILECs, yet also lacking the back office structure to effectively deploy services independently
The failure of the BLECs has been painfully obvious; however the subsequent negative light that is now shining on the concept of MTU is not necessarily warranted. The fundamental potential for service sales into this environment still exists, but the strategies to tap into this potential must, and are beginning to, shift. The new era of MTU is about flexibility…flexibility and intelligence. Providers are shedding their religious convictions for a particular technology or deployment style and are expanding their vision of service delivery.
Flexibility is key in making smart decisions about where and how to deploy broadband services. The biggest split between the old model of rigidity and the new model of flexibility is in network design. Rather than commit entirely to the in-building model, many providers are introducing direct-to-subscriber/leased line services into their portfolio. Providers, both competitors and incumbents, continue to pursue in-building deployment strategies for those buildings that merit a concentrated approach, i.e. those buildings that support the demographics and physical characteristics that will afford an in-building deployment. Such characteristics considered by the provider include the number and size of building tenants, the type of businesses residing in a building, the proximity of the building to a fiber metro ring, and the in-building cabling. Buildings that do not meet the necessary qualifications are not targeted for an in-building deployment. However, potential subscribers in these buildings are not being discarded.
For buildings where the provider only has one to two subscribers, a leased line model may be the most cost effective option for approaching these customers. For surviving BLECs, this is a way to expand beyond their limited universe of buildings. Incumbent providers are also expected to adopt a similar approach to servicing the SMBs in the MTU environment, using an in-building approach for those buildings that warrant it, while maintaining their traditional direct to customer model (leased line, DSL, cable modem). In this way, BLECs and incumbent providers are converging on a similar hybrid model of in-building and direct to customer deployments.
In addition to broadening the portfolio of deployment strategies, providers are also simultaneously becoming increasingly particular in identifying markets and building in which to deploy. The capital starved competitive providers are largely limiting their attentions to a small handful of geographic markets and have strict guidelines that buildings must meet to afford deployment. This change in strategy is directed to reducing capital burn rates and focusing on achieving a faster return on investment (ROI) for deployed buildings.
In addition to the more focused deployment strategy, falling equipment costs and increasing revenue generation are also supporting the shortened calendar for ROI. Low-end in-building solutions are selling for under $200 per port, a significant reduction from the $400 per port price tag that was attached to solutions in 1999. Service revenue is also beginning to be boosted by the slow, but sure, introduction of high margin voice, video, and value added services (VAS), which is largely enabled by more affordable and available equipment.
MTU, the never static market, continues to evolve. While the MTU in its past definition may still carry a negative connotation, providers, competitive and incumbent, have not lost sight of the potential value housed in these buildings. The commercial office sector of the MTU is home to one of the most sought after broadband markets, SMBs, and offers significant revenue opportunity. Thus, for those providers that approach the market with this new attitude of flexibility, the MTU will continue as an area of opportunity.