Saturday, October 31, 2015

Internet Basics to Test Demand for Village Wi-Fi

Facebook’s Internet Basics initiative now plans to test demand for Wi-Fi in 100 Indian villages. As always, sustainability is an issue.

Initially, Internet Basics will help create service in 25 villages, buying bandwidth from BSNL for a minimum period of three years, allowing time to test the extent of demand for a “for-fee” service.

Internet Basics has partnered with an Indian rural Internet access provider, AirJaldi, to manage the operation of the “Express Wi-Fi” service.

As currently configured, Express Wi-Fi costs 10 rupees, or about 15 cents, for one day’s access to 100 megabytes of data. For $3, users can buy use of 20 gigabytes of data, which can be used over the course of a month.

There are, according to Professor Rekha Jain, of the Indian Institute of Management, 640,000 villages in India, containing 180 million houiseholds.

Those households hve monthly household income of US$230, with US$24 a month in per person spending.

So part of the challenge is convincing those consumers they should spend money buying Internet access. By way of comparison, the typical Indian mobile account repersents a bit less than US$2 a month in spending.

The government of India has said it will create facilities offering public Wi-Fi in 2,500 cities and towns across the country over three years, with the network built and operated by state-owned Bharat Sanchar Nigam Ltd (BSNL).

Use of Wi-Fi as an Internet access platform in India is growing, even if that might seem a difficult proposition in country with fixed network facilities. BSNL is among those who now are deploying public hotspot networks.

The city of Delhi also separately is working on a municipal Wi-Fi plan of its own, that might use a freemium business model.

For its part, Bharti Airtel Limited (Airtel) announced that Uber riders across India will be able to pay for their trips using Airtel Money, the firm’s mobile wallet service. As part of that plan, Uber vehicles will be outfitted with Airtel 4G connections, offering free Wi-Fi inside Uber vehicles.

The government of Bihar, meanwhile, plans to offer free Wi-Fi at all colleges within the state.

Friday, October 30, 2015

MIMO and Small Cells Can Only Do So Much: More Spectrum is Needed

If you assume demand for mobile Internet access bandwidth is going to keep growing in excess of 50 percent a year, as it presently is doing (Cisco predicts bandwidth consumption in Asia will grow at 58 percent annual rates through 2019), then supply also has to be increased.

If you also assume the percentage of higher-performance smartphones will keep growing, then you also must account for much-heavier bandwidth demand. A feature phone tends to use about 22 MB a month. A smartphone tends to use 819 MB each month, while a smartphone used on a 4G network will tend to consume 2,000 MB a month, according to Cisco.

As smartphone adoption grows, so will the percentage of phone customers regularly using mobile data. That also applies to use of smartphones on 4G networks or 3G networks, compared to 2G networks. People consume more data on faster networks

It also follows that significant additional capacity will have to be supplied.

Traditionally, there are three ways to do so. Regulators can allocate more spectrum. Operators can move to smaller cells or use more-efficient antenna technologies, to reach the so-called “Shannon limit (the theoretical maximum efficiency of any communications channel.”

Use of Multiple Input Multiple Output (MIMO) antennas might jokingly be said to prove “Shannon was wrong.” He was not wrong, but the point is that after MIMO--and massive MIMO--are applied, service providers will have wrung as much as possible out of antenna technology.

That will leave new spectrum and smaller cells are the remaining technology tools to boost usable bandwidth (one can think of many ways to provide consumer incentives that reduce demand, but those are not technology tools).

Operators can control network architectures. They cannot control spectrum allocation.


Is Google Fiber an Existential Threat? How Much Can it Do with 30% Coverage of the U.S. Market?

Is Google Fiber an existential threat to either telcos or cable TV? That might seem an overblown threat. “Existential” implies a threat to existence.

To the extent there is legitimate danger, it comes not from massive losses of telco or cable TV market share and gross revenue (though that might well happen), but “only” from a sustained dip in profit margins caused by the new competition.

In other words, assuming Google Fiber currently is sustainable itself (earning a positive rate of return), the issue is whether the competition tips either telco or cable TV profit margins below the 20-percent level, towards zero.

Nor does Google Fiber have to do all the work.

Other trends work in that direction, namely declining demand for fixed network voice and declining demand for linear video, in addition to the obvious new pressure on high speed access pricing and profit margins.

The challenge Google Fiber represents is that cable TV and telco competitors have to increase capital investment while simultaneously risking zero net increase in revenue, or even actual declines in revenue. More spending to earn less revenue, in other words.

Simply, a market rate of a gigabit for $70 a month resets consumer expectations enough to destroy existing pricing-value relationships upon which current cable TV and telco business models are built.

In other words, it is not necessary that Google Fiber, or any other competitor in the high speed access market, reduce telco or cable TV market share far below current levels.

All Google Fiber and others must do is attack profit margins. Cable TV gross margin is typically somewhere in the low 20s and net margins are maybe in the 10 percent to 11 percent range.

AT&T has net margin in the five percent range.  Other telcos might have net margins in the six-percent range, with Verizon somewhat higher, at perhaps seven to eight percent.

The competition “merely” needs to reinforce existing revenue and cost trends in ways that undermine the sustainability of cable and telco business models, especially the net margin performance.

You might well argue that is why the leaders of the cable TV industry “must” get into the mobility business, or telcos “must” get into the Internet of Things business. There is simply going to be increased pressure on gross revenue and profit margins in the fixed network business.

Given existing trends--shrinking voice and slow diminution of linear video revenue--all that has to happen is enough market share pressure and share gains by the new competitors to tip the cable TV and telco business model towards zero.

To be sure, we are likely five to 10 years away from any such scenario, as Google Fiber coverage remains relatively limited, compared to the larger telcos and cable TV companies (though far beyond what most independent ISPs could sustain).

The issue is how much coverage Google Fiber would have to attain, on a national basis, to become a significant and material force on pricing in most of the market, and whether Google Fiber decides to continue pushing in that direction.

So far, Google Fiber has avoided the “NFL cities,” targeting second-tier cities instead. Whether Google Fiber can exert national market power without significant footprint in the biggest markets is an important issue.

Some have estimated the cost of a truly-nationwide network at perhaps $140 billion. But keep in mind that no other service provider serves more than about 30 percent of all U.S. homes. Whether Google Fiber would be permitted to exceed roughly that coverage, and whether it wants to, are key issues.

At least in an environment where Internet access is considered a “common carrier” service, one has to believe that the government would not let even a Google Fiber exceed about 30 percent coverage of all U.S. homes. No other service provider is allowed to do so.

So if I am thinking about how to maximize the Google Fiber market impact, I would focus on how to wring the greatest effect from operations that never will exceed coverage of more than 30 percent of U.S. households.

Thursday, October 29, 2015

Reliance Jio Plans Big Push into Fixed Services

Reliance Jio, about to launch a major challenge in the Indian mobile communications business, also hopes to enter the fixed network business as well, as a cable TV operator. In June 2016, Reliance Jio Media Pvt. Ltd, a subsidiary of Reliance Jio, received approval to launch a pan-India cable TV company.

That would be an expensive, time-consuming and daunting exercise under the best of conditions. So it is not surprising that Reliance Jio would consider growth by partnership and acquisition.

The company is said to be in talks with a number of cable TV operators, particularly in large and densely packed cities, such as Mumbai and Bangalore, to supply the platform. At the moment, cable TV operators represent about 100 million connected homes.

As in the past in other markets, Reliance Jio might discover it will have to upgrade the cable TV facilities, both in terms of reliability (network uptime) as well as ability to support two-way operations.

Wednesday, October 28, 2015

Google Fiber Formally Asks 3 More Cities to Work on Qualifying for Google Fiber

Google Fiber says it has  invited Oklahoma City, Okla., Jacksonville, Fla. and Tampa, Fla. to explore bringing Google Fiber to their communities, as it did in September, inviting officials in Irvine, Calif., Louisville and San Diego to work with Google on a standard checklist of items Google Fiber uses to assess market viability.

That normally includes a detailed study of matters that affect construction, such as local topography, housing density, and the condition of existing infrastructure.

Cities also must complete a checklist of items—such as providing a map of utility lines—that Google Fiber insists are prerequisites.

Those of you familiar with the history of the U.S. competitive local exchange carrier business will see the pattern here. Many U.S. CLECs, exploring communities where it was favorable to commence operations, also stayed away from the major metro areas (“NFL cities”) and instead picked tier two cities.

The same logic appears to make sense for Google Fiber.

What is Harder than Being an Indian Mobile Operator?

It might be easier to thread a camel through the eye of a needle than to succeed wildly and easily in the Indian mobile communications market. It would not be unusual in any big market for four providers to control 95 percent share of the mobile services market.

In India, though four providers have about 70 percent share, five providers have 86 percent share, while six providers have 93 percent share. Structurally, the Indian mobile market is more fragmented than most.

For reasons I do not claim to understand, mobile operator infrastructure costs some 30 percent more than global averages, says Rajan Mathews, Cellular Operators Association of India director general.

That is not all. Spectrum prices range from 30 percent to 35 percent higher than global averages as well.

And Indian mobile operators labor with less spectrum. “Every mobile operator in India has, on average, 12 MHz to 15 MHz of spectrum,” said Mathews. “Globally, every operator has 45 MHz to 50 MHz.”

There other important observation is that the Indian government has an interest in the mobile business that arguably is more concentrated than regulators elsewhere might have.

In developed markets, there are five access networks, including landline, satellite, cable TV, government networks and mobile. “India has one network: the mobile network,” says Mathews.

There are other implications. “The government has a proprietary interest, so spectrum is going to be licensed,” says Mathews. “The network is a sovereign national imperative as we are the only network in town.”

"Dig Once" is More Useful to Some Than to Others

In principle, it is helpful to some communications service providers when conduit suitable for installing new optical fiber cable already is in place. That is the attraction of “dig once” policies that install conduit whenever other construction projects are undertaken.

That is the thinking behind a ”dig once bill introduced in the U.S. Congress. Of course, the measure balances “more” value for future potential Internet service or app providers and less value for users of federal highways, since the cost of installing the conduit means “less highway.”

That will be deemed a reasonable tradeoff in many instances, with the greatest value if the conduit is laid along important and recognized routes useful for path-diverse long haul transport, or passing population centers or other sites where close access to long haul facilities is useful.

The conduit will have less value if it merely is installed along existing long-haul routes where conduit already exists, or where there is little incremental demand that cannot be met by already-installed cables.

“Who” benefits also will be an issue. Incumbent suppliers of capacity--with no capacity constraints--on those routes will not necessarily welcome potential new competition. Potential new suppliers will get the advantage.

Chorus to Outsource Network Management to Alcatel-Lucent

New Zealand wholesale network operator Chorus has awarded Alcatel-Lucent a five-year managed services contract covering 24/7 monitoring of the operator's nationwide wholesale copper network.

Under the agreement, Alcatel-Lucent will provide real-time monitoring and analysis services from a new network operation center in Hamilton working with an additional NOC in Bangalore, India to provide monitoring aimed at preventing faults, improving network availability and ensuring continuous service quality of the copper network.

The contract is part of a long-standing trend in telecommunications, where service providers outsource network management functions to third parties, or actually divest assets such as networks of cell towers, or, in the case of Telecom New Zealand, the entire network.

That throws light on an old question (largely rhetorical) about what the typical telecom operator’s core competence might be. It remains hard to answer with precision. The question concerns not merely “what things do you believe you are good at” but ideally “what is the distinguishing core competence, not possessed by those who compete against you?”

Few are able to boil the answer down to a single, unitary and fundamental core competence. Perhaps there is not a unitary answer, in most cases. But few executives historically would have omitted “we know how to build and run big communications networks” from a short list of “things we are really good at.”

Telcos historically might be deemed to be good at such functions. But the issue is whether such skills constitute a “uniquely important” competence that other competitors cannot match. Perhaps it is too difficult for any firm to say there actually is one single “core” advantage others cannot duplicate.

Some might indeed say it has been “we can run a network” that is core. Others might say it is “ownership of spectrum licenses,” scale or capital resources that are close to being the unique assets. Some might argue it is knowledge and scale of the regulatory apparatus.

But that’s the difficulty of the exercise: not listing many attributes that are helpful, but the salient and distinguishing advantage others cannot copy. Perhaps nothing, anymore, provides that sort of a “moat” against competitors.

Recent history, with massive global adoption of Internet Protocol, encouragement of competition and growing access to spectrum, might suggest any historic advantages are systematically being stripped away. That, after all, is what the goal of competitive policies has been.

Perhaps about all one can say is that there is one attribute some members of a class tend to possess. In the U.S. market, perhaps only AT&T and Verizon might be said to possess a sometimes overwhelming regulatory apparatus. That is not to say Comcast, Sprint, T-Mobile US and Charter Communications do not have such an apparatus, simply that it might not be a distinguishing and unique advantage.

In fact, recent developments suggest even that advantage, if it can be said to be a core competence, is as much an advantage as it once was. In recent days, it can be noted that few key policy battles have actually been won by “telcos,” when opposed by “Internet app providers.”

That might not be the case elsewhere. In Europe, India and elsewhere, for example, telcos seem to retain the old advantages.

So the frightening prospect for most telcos, strategically, is that they are moving to a business environment where every believed source of advantage diminishes to the point where there might someday be no core competence; no characteristic that is unique.

Firms operating without such characteristics will nearly always fail. One different way of asking the core competence question is to ask “what do customers believe you are uniquely good at?”

The ability to answer clearly will be an important test of how things are going, in the future.

Tuesday, October 27, 2015

T-Mobile US Adds 2.3 Million Net New Customers

T-Mobile US third quarter 2015 results continued a recent streak of subscriber, revenue and earnings growth.

T-Mobile US added 2.3 million total net customers, grew service revenue 11 percent and “adjusted earnings” 42 percent, quarter over quarter. T-Mobile’s total revenues for the third quarter of 2015 grew by 6.8% year-over-year

T-Mobile US added 2.3 million total net adds, the 10th consecutive quarter when T-Mobile US added more than one million net new accounts.

Of the total net adds, 1.1 million were branded postpaid net adds, of which 843,000 were branded postpaid phone net adds. T-Mobile US also added 595,000 branded prepaid accounts.

Verizon added 430,000 net accounts during the same quarter, while AT&T lost 333,000 postpaid accounts.  

European Parliament Sets Network Neutrality Rules

The European Parliament has ratified net neutrality rules applying across the European Union. Blocking of lawful apps has been an issue.  

In 2012, the Body of European Regulators of Electronic Communications (BEREC) reported that between 21 percent and 36 percent of Internet access subscribers were affected by blocking or throttling depending on the type of application.

The new rules forbid blocking or throttling of lawful online content, applications and services, on mobile or fixed networks. That will have possible implications for Skype, Facetime or other apps sometimes blocked by ISPs. Nor will it be lawful to charge a fee to “unblock” those apps.

No traffic can be prioritized, whether on a paid or unpaid basis. At the same time, equal treatment allows reasonable day-to-day traffic management according to justified technical requirements, and which must be independent of the origin or destination of the traffic and of any commercial considerations.

The rules also clarify the conditions under which “Internet” and “managed services” can be offered.
Basically, managed services only might be offered where and if sufficient capacity for internet access remains available.

The rules forbid any special treatment of different classes of Internet traffic except for “reasonable traffic management” to optimize overall transmission quality.

Reasonable traffic management therefore cannot be used to discriminate against specific categories of content or services such as peer-to-peer (P2P) traffic.

The legislation allows operators, under very strict conditions, to take action in the network that may affect certain types of traffic in order to mitigate the effects of congestion. Such measures are only permitted if congestion is "exceptional" or "temporary", and provided all traffic of the same category is treated alike.

Zero rating, also called sponsored connectivity, is a commercial practice used by some providers of internet access, especially mobile operators, not to count the data volume of particular applications or services against the user's limited monthly data volume. Zero rating is not forbidden, but must comply with the other provisions of the rules, in particular those on non-discriminatory traffic management.

The rules on net neutrality will apply starting 30 April 2016.

European Parliament Approves End to Mobile Roaming Charges

The European Parliament has ratified an end to wholesale mobile roaming charges by June 2017 and also set net neutrality  rules for the first time in EU law.

For consumers, the new rules mean that, starting 15 June 2017, EU mobile customers will pay home rates for voice, texting and mobile data when traveling within the EU, subject to a fair use cap that is not yet defined.

Since the EU took action in 2007, prices that consumers pay for roaming across calls, texting and data have decreased by over 80 percent.

Data roaming is now up to 91 percent cheaper compared to 2007, with perhaps predictable results:  the volume of the data roaming market has grown by 630 percent.

Current Revenue Opportunities Dictate AT&T, Verizon Linear Video Strategies

It might not have seemed obvious, a few years ago, what stance either AT&T or Verizon "should" take towards future video entertainment strategy. Both firms had modest share of the linear video business, even if video was an essential ingredient for the triple play anchor service.

Today, AT&T and Verizon are taking different tacks to video entertainment. AT&T has made a bigger commitment to linear video. Verizon is emphasizing mobile video.

To be sure, there are some commonalities. AT&T believes its ability to bundle video entertainment, on a national basis, will help it sell and retain mobile accounts that also are sold nationwide. 

Verizon, on the other hand, had a smaller fixed network footprint to begin with, and concluded for several reasons that the better bet was to "go mobile," since perhaps 85 percent of total Verizon revenue is generated by mobile services. 

Aside from other considerations, the DirecTV acquisition was immediatly accretive for AT&T in terms of free cash flow. That is an important consideration for a firm committed to continual dividend payments and dividend increases. 

Long term, neither firm believes linear video will continue to be as big a business, or have the profit margins, as at present. 

In the near term and medium term, however, linear and other forms of video entertainment often are seen as essential products to support the fixed network business case, which no longer can be supported by voice, Internet access as a stand-alone product, or a dual-play voice-plus-Internet-access approach. 

Some have argued AT&T would have been better served had it not acquired DirecTV.  The thinking there is that the capital could have been deployed in Internet access facilities. Whatever the merits of those arguments, there would have been no immediate lift in free cash flow or revenue magnitude, had that choice been made. 

source: Market Realist

Does 25 Mbps Change Anything?

With one obvious possible exception--doling out of federal funds to support high speed access in rural and underserved areas--what is the impact of the Federal Communications Commission’s change in definition of “broadband” from 4 Mbps (downstream) to 25 Mbps?

Record keeping obviously changes. When the next report appears, many service providers will no longer be said to be providing “high speed access,” their services being defined out of existence.

Many more residents will said to be “lacking” such access. That, of course, is the purpose: creating a gap; a problem to be fixed. And the shift could be as high as 90 percent, using the latest Akamai study results.

Akamai also says U.S. “adoption rates for 25 Mbps broadband remain fairly low nationwide, with 46 states seeing levels below 10 percent.” That’s the magnitude of the likely reporting change.

It matters “what” is being measured, of course. What likely matters more are Internet service provider investment decisions about what is required in each market to remain competitive. And those decisions are not necessarily related to definitional changes.

Google Fiber, many would argue, is largely responsible for the widespread shift in thinking about headline speeds, shifting the marketing battle to “gigabit” levels, even if most consumers, given a choice, seem to be opting for speeds ranging from 40 Mbps to 100 Mbps, even when they could buy a gigabit service.

As often happens, the market and the technology is moving faster than the definitions or regulations. Cable TV companies, Verizon and many independent ISPs already have eclipsed the new FCC definition, and had done so before implementation of the new minimums.  

Cable TV companies also, by virtue of their use of hybrid fiber coax networks, had generally surpassed all but the fiber to home providers in terms of Internet speed. That largely accounts for the slower speeds notched by CenturyLink and AT&T, for example.

In 2015, according to Ookla tests conducted by PC magazine, only Verizon was among the top providers of Internet access in the U.S. market. Obviously, where Google Fiber operates, it has been the provider of the fastest service, by an order of magnitude.

That should continue to be the case, even where Comcast and other competitors boost speeds. The reason is that Google Fiber sells just one service--at a gigabit--where the other providers tend to offer multiple tiers of service, including services ranging from 50 Mbps to hundreds of megabits, in addition to the headline gigabit services.

That essentially means all consumers buying from Google Fiber are taking the gigabit service. Only some of the customers of other ISPs offering gigabit services will buy the fastest service.

Average global speeds in the first quarter of 2015 were about 5 Mbps, said Akamai. But global  peak speeds were about 32 Mbps.

In the second quarter of 2015, average global speed was still about 5.1 Mbps, while peak speeds
globally were still at 32.5 Mbps.

So it matters which figure is cited and used. In U.S. cities, Akamai says average speeds were between 14 Mbps and 19 Mbps, while peak speeds ranged from 62 Mbps to 73 Mbps. That also is true at the state level, according to Akamai.

You can agree--and most will--that higher speeds are a good thing, and that bumping up a standard to a minimum of 25 Mbps only reflects reality. In fact, that is the case, many would argue, even if “average” and “peak” speeds diverge.

Traditionally, long access loops have been an inhibitor. But investment in optical fiber networks has been ramping up. Comcast, especially, will have the greatests immediate impact, as it will upgrade virtually 100 percent of its consumer locations to 1 Gbps in 2016, with some 85 percent of locations capable of buying a 2-Gbps service.

AT&T likewise has committed to a big upgrade across its footprint as part of its Project VIP, something CenturyLink also is doing, introducing faster speeds and gigabit access in metro areas.

That refers to the supply situation. The other element is the demand. According to the FCC, consumers are upgrading speeds at about a 20-percent annual rate, as well.

The point is that there arguably has been remarkably little impact from the definitional change. For starters, the definition simply raised the minimum to a level many suppliers already were meeting or beating, especially in the case of cable TV operators who are the majority suppliers in the U.S. market.

At the same time, competition from the likes of Google Fiber definitely has encouraged cable and telco suppliers to boost speeds. That, and not a definitional change, is what is driving investment.

Sales Friction Creates Barriers to Buying Behavior

Sales friction occurs when a sales process is: too long (the line at the grocery store) too complicated (working with real estate agents) a...