Wednesday, September 20, 2017

Is the Mobile Business Model Nearing an End? What Replaces It?

There are many reasons to expect a rather massive consolidation in the global telecom industry over the next decade. The cost of networks keeps rising, with every mobile generation. We soon will reach market saturation, when virtually every person who wants to use mobile phone service, for example, already does so.

Essentially, we are reaching a point where customers are spending about as much as they feel appropriate for the set of services now offered (business or consumer).

There are hopefully major new revenue opportunities coming, but we should also expect most mobile operators and fixed operators to need to replace about half their revenue every decade, from now on.

Those are a few of the big changes to come. There are others.

The 5G era is going to be different from all others in the history of telecom, for several reasons. Traditionally, scarcity has been the paramount business constraint.

Bandwidth was scarce and therefore expensive. Regulatory strategies were designed to keep matters that way, using monopoly or oligopoly market structures; expensive licensed spectrum; franchise or other market entry rules.

In the competitive era, where in most countries mobile competition has been the primary expression of competition overall, scarcity has remained a fundamental assumption. In most markets, less than 500 MHz of total spectrum has been available for all mobile operators to use.

Wi-Fi bandwidth helps, but even including all mobile and Wi-Fi bandwidth, less than a gigaHertz generally has been available for terrestrial applications.

All of that is going to change in the 5G era, which has to have mobile executives in many markets worried about the outcome. The reason is that multiple tools--small cells; new millimeter wave spectrum; spectrum sharing; new unlicensed spectrum; multiple input multiple output radios and spectrum aggregation across licensed and unlicensed bands are going to essentially replace scarcity with abundance.

The difference likely ranges between an order of magnitude to three orders of magnitude more usable spectrum being made available.  

Source: Intel

As always, a fundamental change in supply will affect demand and prices. Not only will the price per gigabyte drop, but we also are likely to see more use of private mobile networks and business models that essentially shrink the size of the addressable mobile market for the first time.

As we already have seen in the undersea capacity markets, significant demand actually is removed from the addressable market as enterprises (Google, Facebook, others) build, own and operate their own global networks. Where in the past they might have been expected to buy capacity from telecom providers, enterprises now increasingly simply operate their own networks, on their own behalf.

Look only at the impact of the shift to small cell architectures, compared to traditional macrocell network designs. Under any circumstances (low or high load), small cells boost total capacity as much as four to six times.

And that is before we start adding capacity implications from an order of magnitude or two orders of magnitude more total spectrum; spectrum sharing and spectrum aggregation of all sorts, that increases the efficiency of use of that spectrum.

Business model and market structure changes are virtually inevitable.

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