Sallet: Broadband Changes Traditional Value Chain

Broadband's Impact, The Innovation Economy May 11th, 2011

, Deputy Editor,


Please note, this story has been corrected in the following manner: Quotes from Jeff Eisenach have been corrected. May 11, 2011 9:40am EDT

WASHINGTON May 11, 2011 – Former Director of the Office of Policy & Strategic Planning of the Department of Commerce under President Clinton, Jonathan Sallet, presented a new way to look at the traditional value chain with respect to broadband Tuesday at a congressional briefing presented by the Information Technology & Innovation Foundation.

Sallet presented the value chain not as a chain at all, but rather as a circle.

In a traditional value chain, each company sells its goods to another company or directly to the consumer. The broadband value circle occurs when multiple companies add value to each other’s products without competing directly with each other.

The best example of this value circle can be found in the wireless broadband market.

“In the wireless broadband market, firms that manufacture devices, supply connectivity, engage in e-commerce, create software, or provide research are all creating new economic surplus in a market in which they simultaneously compete, cooperate, buy and supply from one another,” Sallet said.  ”Users are able to choose their choice of handset makers, their preferred operating systems, carriers and then the applications on the devices.”

The core of this value circle is that each service complements each other and gains value on when it interacts with other parts of the circle. A handset that does not have access to applications will not be successful.

Jeff Eisenach, Managing Director and Principal at Navigant Economics supported the idea of the value circle but claimed the notion that broadband was the center false.

“There is no single center, rather each piece relies on each other and all the parts are equally important,” Eisenach said. “It’s like a molecule, without all the parts working together it won’t be stable and useful.”

According to Eisenach users need content, something to watch or listen to, a way to interact with the video, an application; a device on which to run the application and finally the network on which the content or information  is transmitted.

Eisenach also said that while antitrust oversight of all Internet firms is important, the potential for market power abuses by ISPs is no greater than for other firms.

“Rather than singling out broadband ISPs for regulation, the same basic antitrust principles that apply to operating systems, search engines and social networks should also apply to broadband,” Eisenach said.

Director of Wireless Future Program at The New America Foundation, Michael Calabrese, said that the broadband value chain shows how the internet has become a powerful force of disintermediation.

“Before the iPhone consumers would only be able to use the application which the wireless companies allowed the phone manufacturers to install on the devices. But now via mobile broadband users can download almost anything they want,” Calabrese said.

To further this value chain and expand consumer choice Calabrese encouraged the adoption of Carterphone rules on mobile networks. These rules would allow users to connect any handset to their choice of mobile networks as long as the phone was technically capable of working on the network without harming the network.

A full copy of the paper can be found here.

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