Currently, broadband providers compete on speed and price. But as bandwidth becomes a commodity, the rules of the game change and service bundling will become the main driver of revenue growth. Operators will fight to provide customer flexibility, to let them create their own bundle, anytime and anywhere. This requires fixed and mobile broadband access and seamlessly integrated services. Incumbent telcos are likely to face intense competition from alternative players such as Yahoo, MSN, Google and Apple who would act as content aggregators and service providers. This competition will lead to further infrastructure investments into Next Generation Networks (NGN) such as BT's 21CN and it will also increase pressure on prices and margins.

Incumbent telcos such as France Telecom, BT, Deutsche Telekom, Vodafone and Telefonica will be forced to create new partnerships. These operators must focus on providing seamless integrated access, while being alert to the strategies and tactics of innovative entrants outside the industry.

According to Michael Natusch of Arthur D. Little: "We believe that the market will converge and consolidate. The growth in broadband subscribers has been impressive and is expected to show double-digit growth in important global markets. A key issue for the operators therefore is whether to develop mutually beneficial ways of collaborating with the new players or to fight them directly on their own battleground, which has enormous implications for the culture and capabilities they will have to build internally."

The report highlights that growth is expected in innovative broadband services, high-end video content services (HD, DVR and VOD) and fixed-to-mobile convergence. Apart from traditional infrastructure and service providers, new, over-the-top market entrants such as Google, Yahoo, MSN, Apple/iPod and Microsoft are expected to benefit from this growth. They will not only pressurise DSL incumbents to accelerate the development of broadband services but will also become relevant partners in shaping the future of the broadband landscape.

Arthur D. Little has developed three basic industry scenarios, namely operator dominance, shift of value towards internet companies, or sponsored environments. In the first scenario, large converged operators would take the lion's share of consumer spend by providing fully integrated quadruple play services. In a second scenario, the possibility of value shift towards cash-rich alternative companies (such as Yahoo, MSN, Google, Apple/iPod), which would act as content aggregators and service providers, was evaluated. Finally, a critical look at the Fibre-to-the-Home developments as sponsored network initiatives.

It is not certain which scenario will prevail but the fight for the consumer "share of wallet" will be intense between operators and new service providers. This study is therefore of interest to all key market players, as they struggle to make sense of broadband developments in the short and mid-term, anticipate the role of regulatory authorities, and decide on their next moves.