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04/24/2008Dig Deep into Your Network for Cost Reductions and Revenue Enhancements
The following is excerpted from my presentation at W2i's Digital Cities Joint State Briefing in Tallahassee on March 26, 2008:
"Where we've gotten off track is that we have placed an incorrect value on the cost on the revenue side of building these networks. Some governments have taken a position where they value their assets and their community benefits to...a degree that it actually impacts the viability of the networks and that's been the cause of several that have not made it to this point. It's a bit of overpromising and underdelivering.
"We've also got to look at incremental government services with associated fees, with subscribers, value-added network services, which are going to become more and more important as time goes on. And although advertising represent the potential that it will in coming years, it's an important thing to begin to look at even now. There are projections that advertising could someday represent a value in excess of $5 an end subscriber. Today, I would say it's less than a dollar in real value.
"Part of putting these things together is to decide what kind of business model is most appropriate. I don't think there's a right or a wrong business model. There is a wrong business model for a particular environment, where it can be applied in a sustainable way. In a lot of smaller communities, it makes a lot more sense to look at community owned as an option. Why, because they don't have the density and delivery of subscriber revenue that is going to justify huge investments or, overbuild, on the part of commercial providers.
"Public-private partnerships work, I think, many times in a larger scale type environment, where the anchor tenancy of a government can really make a difference on the investment profile. But even there, I think what we've learned are that single-use networks are going to be rare in their ability to be sustainable. They still work in some public-safety applications, but I think we need to be looking at a mixed subscriber base.
"Privately owned will emerge more and more as a viable option. Why it's not there right now is because a lot of the private carriers have not really figured out their sweet spot and are reluctant to go in and just build on a speculative basis. But as we gain more of an understanding of the financial dynamics and as we settle into some of the technology standards — whether it's a combination of Wi-Fi or WiMAX...cellular, Wi-Fi, WiMAX, we're going to see an uptick in private ownership of some of these networks on a percentage basis.
"You don't build these for no reason. You're building in order to create value one way or another, and there's going to be value created through subscription boosts. There's tremendous value to be had in delivering some new applications. There are a lot of value-added services that are going to become more popular as we move into the next generation of users. And, as I said, more sophisticated advertising models are going to be introduced.
"Let's look at applications for just a moment, because I think one of the important things there is that we're not really comparing network cost to network cost. In many cases, I see many people purporting that one type of wireless network is a tremendous boon to a local community because it provides broadband — more capacity for less dollars — and they use that as a touchpoint for financial comparison. And while I think that's true, it misses the real story.
"We're not really looking at these to reduce our incremental cost of broadband delivery. What we're really doing is looking at how we can work differently and at how we can increase the investment we make in technology and pull that value out of other places. In many cases, it's in the productivity of the personnel, or it's the ability to do something that we simply had not had the capability to deliver before, or a new opportunity not only to provide service to our customers — in the case of government, the constituents that it serves — but also to go beyond providing service and actually create a far more favorable customer experience. That might be true especially in the case of visitors. You've got an application in Anaheim, which is very unusual demographically. That network isn't really designed for local residents, it's designed for the visitors that come to Anaheim. And because they have far more visitors than residents, that particular approach works.
"In the case of public-safety and video surveillance. In Minneapolis, when we looked at that service, what it really boiled down to, was that our litigation costs were greatly reduced. On average, we would spend $16,000 to get a case from the point of an arrest to an indictment and what we have been able to do is to move the guilty pleas from an average of 16 percent to 100 percent. If someone comes in and says, I plead not guilty, and we say, why don't you just take a look at this video, and they look and say, you know, maybe that guilty thing would be okay for me here today. And so, the value that it's been able to provide is that we have reduced the legal cost associated with managing that particular case load, which is not where you would expect to find the real financial value....
"We also find the value obviously in being able to respond to incidents more quickly, to be aware of those proactively, to be able to monitor those remotely — all of those things are very important for the safety of our officers and the general public. But when it comes to the dollars and cents analysis, it's really in the conviction rate that that value appears. So you really have to dig deep sometimes in order to find where that value is."
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