The network as a service: A primer on the fundamentals of network economics

The current trend towards hosting and cloud computing is the latest popular embrace of the compelling and timeless case for sharing systems resources. The author imagines a world without the essential services of a network operator and examines the cost dimensions of creating an end-to-end fixed or wireless private network from scratch. Investors may query what will be a service provider's most enduring asset. We take for granted the ability to speak or send data around the globe, and the conventional wisdom is that connectivity has become a commodity. As computer users and business students lose interest in how it all works, there is a risk that investors may lose sight of where the indispensable value in a network business lies. We present a short primer on the fundamentals of fixed and wireless networks, and readily demonstrate why the cost of building a wholly private network would be prohibitive for all but the most powerful institutions. Acknowledging the mathematical certainties which make this so, we also illustrate the earning power of well-utilised communications equipment. Finally we examine the factors which are driving businesses to adopt hosting and cloud computing services. While the arguments are sometimes compelling, we question whether the value is in the connectivity or the computing. An investor needs to make a shrewd judgement about which elements of this value chain are really sustainable.