Wednesday, January 31, 2018

In 4Q 2017, AT&T Earned 85% of Fixed Network Consumer Revenues from Apps, Not Access

One takeaway from AT&T’s fourth quarter 2017 results is the importance of video entertainment, compared to internet access and voice as revenue drivers in the consumer segment of the fixed network business. Consider the wide gulf between U.S. video entertainment, internet access and other revenues: video drove 74 percent of fixed network consumer revenues.

Internet access represented just 15 percent of total, while the “other” category generated about 12 percent of total revenues.

One way of describing those results is to note that internet access is a “dumb pipe” service. Both voice and video entertainment are “apps.” So AT&T, in its fourth quarter, generated 85 percent of its consumer fixed network revenues from “apps” and only 15 percent from dumb pipe internet access.

That, in turn, illustrates why AT&T will look to applications, services and maybe platforms as it grows its internet of things and 5G businesses. Ignoring profit margin for the moment, apps and services are where the money is.

5G Telecom New Revenue Growth Shifts to Enterprise Sources

The telecom industry is moving to new business models that change revenue opportunities in both mobile and fixed realms. Among the biggest changes: mobile revenue growth is going to shift to enterprise, away from consumer; from people to sensors. And fixed network revenue growth likewise is shifting from retail to wholesale.

In the mobile segment, the advent of 5G networks actually represents a discontinuity. As mobile subscriptions sold to people saturate, growth is going to come from selling connections to sensors and internet of things devices, in part.

The bigger change is that mobile access providers will have to move up the stack into higher-margin services and apps that underpin the value of IoT.

The precursor is what is happening in media and communications, as more mobile and fixed operators discover that growth hinges on moving into the content portions of the internet ecosystem.

In the fixed network, more of the value is coming from backhaul for smaller cells, as well as services for IoT, inherently an enterprise opportunity, for the most part.

As mobile and untethered access becomes dominant, with new mixes of licensed and unlicensed spectrum, the business value of the fixed network also is changing, with unlicensed spectrum assuming a bigger part of the facilities mix.

There is a simple explanation for that forecast. Essentially, 5G cannibalizes 4G, as 4G cannibalized 3G and 3G cannibalized 2G, and 2G displaced 1G.

Revenue upside from new applications and use cases does occur, though. Apps and use cases based on internet access are displacing voice and messaging revenue, for example.

That will be true for 5G, as well. In principle, it is services and apps supporting internet of things (non-human users) that represents the incremental growth, as 5G for human users will mostly be simple displacement.

And most of those non-human use cases will involve enterprises building networks, and offering services, involving sensors and big data analytics to “do things in the real world” based on insights gleaned from patterns in all that big data.

App Providers Do Not Treat Their Own Bits "the Same" As All Others

One of the frustrations I have with discussions of network neutrality is the overly-broad application of the concept of “treating all bits alike” with the obvious reality that all bits are demonstrably not treated alike on today’s internet.

Ignore for the moment that governments often simply outlaw some apps and content. Forget “treating all bits alike,” some bits are simply blocked.

Even if one assumes network neutrality is about “treating all bits the same,” that does not happen. Most large app providers--and eventually virtually all--use content delivery networks to improve user experience, precisely by treating their own bits differently from others that do not use CDNs.

Google, Amazon, Microsoft, Facebook, and Netflix, for example, operate their own content delivery networks. Such private CDNs represent 61 percent  of all CDN traffic, rising to 68 percent by 2021.

By 2021, 71 percent of Internet traffic will be delivered from a content delivery network (CDN), up from 52 percent  today, Cisco predicts.

In other words, the way consumers experience the internet already includes the clear recognition by app providers that delivery of bits benefits from not treating those bits in a “best effort” manner when flowing across wide area networks.

As one Cisco blogger notes, “the content is concentrated in the hands of a few companies, and the delivery of this content may bypass much of the Internet’s infrastructure if it is delivered from within a user’s metro area and traverses only a single service provider’s network, so it isn’t “Internet traffic” in any meaningful sense.”

That is the point: the internet is deemed too unreliable to provide consistent end user experience, so the major app providers simply build their own networks to bypass the internet. In principle, then, allowing consumers to have the equivalent of CDN features all the way to where they are is really what network neutrality is about.

In fact, most consumer apps--and all major apps--use CDNs to deliver their own bits faster, and in a more-predictable way. For business reasons, at least some app providers see business advantage to prohibiting access providers from using CDNs.

There’s more.

Though net neutrality includes several key elements--some of which, such as “no blocking or degradation of lawful apps”--are universally supported, a key “strong” net neutrality concept is that consumers cannot be allowed the use of CDN features through their local access networks (mobile or fixed).

There are other “extreme” understandings of net neutrality that go even further, limiting even the use of promotional or other sponsored forms of internet access that clearly benefit consumers, since those “no incremental cost” access programs eliminate the need for consumers to buy internet access to use apps.

Japanese mobile provider Line, for example, offers both free data (at low rates) as well as for-fee faster internet access, allowing its users to switch between modes as they choose. Some might call that sponsored access a violation of net neutrality.

Also, Line allows its users unlimited use of some apps, such as Line Messenger, Line Calls, and Line Video Chat without any data usage chargers. In favoring its own apps, Line most assuredly does not treat all bits and all apps the same.

Other mobile operators have different policies that operate in similar ways, exempting consumption of music or video from data plan charges, for example.

In principle, those policies are simply business practices, similar to free shipping, toll-free calling or any other promotional activity any business uses. Ironically, net neutrality supporters try to stretch the concept of “treat all bits the same” in ways that stifle the effort companies take to innovate and provide distinctive value--that often saves money--for their customers and users.

Some might say it is simply irrational for app providers that do not treat their own bits equally with other “internet” bits to deny that same practice--which does improve user experience--to other actors in the internet ecosystem.

Monday, January 29, 2018

Gigabit City, Or Not?

As often happens in the telecom and technology businesses, companies make announcements by press release. Sometimes, the releases are accurate, but the headlines or summaries are factually incorrect.

“The City of Santa Maria will become the Central Coast’s first truly gigabit city under an agreement with Wave Broadband,” reads a summary on a press release announcing that
Wave Broadband will complete construction of the City’s fiber-optic ring.

The release also says the network will “bring reliable, high-speed gigabit service to City departments, businesses, schools, and residents as a whole.” That last clause--”residents as a whole”--seems to refer to public Wi-Fi hotspots to be activate as part of the municipal network.

The release says the municipal network “will also allow the city to offer public Wi-Fi in its revitalizing downtown core,” while Wave evaluate “providing Wi-Fi in residential neighborhoods where traditional carriers have been slow to upgrade internet service.”

The claim of “gigabit city” seems overblown, if the actual words are accurate. There is nothing wrong with public hotspots. But most observers would think the term “gigabit city” also includes residential gigabit service at home locations.

Now, it is possible that whoever wrote the release confuses Wi-Fi with fiber to the home service. It also is possible that Wave is considering some new deployment offering Wi-Fi in residential areas.

That seems out of character for Wave, which has been building fiber-to-home networks for residential customers elsewhere.

The point is, the release is confusing. That is not unusual, unfortunately.

New S&P 500 "Communications Services" Segment Shows You Where We Are, Where We are Going

Though impressionistic, a coming September 2018 change in industry categories--combining telecom, tech, media, and entertainment companies--tells you something about fundamental changes in the internet and telecom ecosystems. To wit, the changes show--in part--that connectivity and apps now are becoming parts of a single market.

The new S&P 500 sector called Communication Services also is being created because the former “telecom” sector now includes too few firms. The new Communications Services sector will replace the former “Telecommunication Services” category.

But the rationale is important for larger reasons. S&P Dow Jones argues that tech and content and app companies have become a lot more integrated.

Verizon, AT&T and Comcast,  for example, have made acquisitions to become content, mobile and internet services providers. Google now makes devices and provides mobile and internet access service, not just key internet apps. Facebook and Amazon have made smaller moves into either internet access and network infrastructure, or into devices.

The other important change is that both Netflix and Amazon also will be part of the single Communications Services category. Google and Facebook are moving into e-commerce or content, or both.

The larger point is that 30 years ago, the global telecom business was the center of its own industry and ecosystem. It created its own apps, built its own devices, conducted its own research and built its own network equipment.

These days, research and development primarily is conducted by third parties. Devices are supplied by other third parties. And most apps are created--”over the top”--by third parties.

And as all legacy revenue streams atrophy, the telecom industry has become--essentially--a tail on an internet dog.

At the same time, large app providers increasingly are integrating functions once provided by service providers. From owned undersea cables to hyperscale data centers; from devices and mobile services to local internet access services; from voice to messaging; other firms with business models based on advertising or commerce are competing both with telecom service providers and consumer electronics manufacturers.

In principle, that is why firms such as Comcast, AT&T, Verizon, NTT and others are moving into new lines of business other than “access or transport” services.

So, though impressionistic, the new S&P 500 Communications Services category tells you quite a lot about where the business is, right now, and where it  is going.

Cord Cutting by Heavy Users Saves Them $115 a Month, Study Finds

Customers who seem to the heaviest users--and cut their linear video subscription--saved about $115 each,  study by LendEDU finds.

The typical heavy users--spending more than $140 a month total on entertainment video, also reported buying three streaming services, though, spending an average of about $33 a month on streaming services.

Some 77 percent of the cord cutters report they still continue to buy streaming services, and report spending about $35 a month on streaming services.

When current cable subscribers were asked whether they use their linear services or streaming more, the split was fairly even: 52 percent reported using linear more, while 48 percent reported using streaming more.

Less than 70 percent of the current linear video subscribers estimated they still would be buying in a year. Three years out, just 44 percent believe they still will be buying a linear service.

The main point seems to be that many consumers still want to buy entertainment video, but are not inclined to spend $100 a month. Many of us believe typical customers will buy multiple subscriptions, up to perhaps $60 a month, total, for all services.

Nokia Launches Future X Platform for 5G

Nokia now is calling its 5G platform"Future X," referring to the reference silicon design and the 5G network itself. Here is what is notable about the nomenclature. The phrase “Future X” actually comes out of Nokia Bell Labs, the research and development unit, and specifically from the title of the first book ever published by Nokia Bell Labs, The Future X Network, written by Bell Labs President Marcus Weldon.

In choosing the name, Nokia also suggests its strategy. The Future X Network will have to deliver different value, Weldon and the team of contributors argues.  Most fundamentally, the value of the network will not be “connectivity.”

"Free" Wi-Fi illustrates the problem. At a recent industry conference, the audience saw a slide illustrating the telecom industry new value proposition, and laughter erupted. It erupted because at the base of the value chain was the phrase “free Wi-Fi.”

Acknowledging the mirth, Weldon suggested that was because the audience of telecom professionals understood very well what was happening.

Go to 08:30 minutes into the video if you just want to hear the discussion of where telecom sits in the perception of value. Or watch starting at about four minutes in if you want to hear the Bell Labs vision of how "value" will be created in the next era.

Simply, the thesis is that value will be created by the network to the extent that it “creates time” for people and augments human intelligence. That might sound ethereal, but the point is that to survive, much less thrive, the global telecom industry will have to find a way to create an entirely new value proposition, one not based on connectivity.

It is challenging in the extreme. So what is noteworthy is that Nokia has chosen to name its entire 5G platform the “the Future X platform,” encompasses eight major technologies, including Nokia 5G New Radio, AirScale Radio Access, 5G AirScale Active Antennas, 5G Small Cells, 5G Anyhaul, 5G Core, Massive Scale Access and 5G Acceleration Services.

Congratulations to Bell Labs professionals who have been able to take a big idea and get it into commercial use at a high level. Best wishes to Nokia in its effort to make the platform concrete.

Sunday, January 28, 2018

U.K. Hits "Superfast" Targets, But the Target Keeps Moving

Remember when the United Kingdom in 2010 announced plans for “superfast” internet access blanketing the British Isles? That is pretty much done. Nearly 95 percent of U.K. customers now can buy internet access at minimum downstream speeds of 24 Mbps.

Of course, speeds change fast in the internet access business. When the “superfast” initiative was launched, back in 2010, 24 Mbps might have seemed “superfast.” At that time, about 68 percent of U.K. customers had services with headline speed (not actual experience) of between 8 Mbps and 10 Mbps.

In practice, actual average speeds were perhaps half the “headline” speeds. By April 2017, typical average U.K. internet access speed had climbed to 36 Mbps.

By way of comparison, U.S. average internet access speeds  were less than 4 Mbps in 2010, by some estimates. By 2017, average speeds had jumped to 23 Mbps, by some reports, while other studies said average speeds were up to 55 Mbps.

Speeds increase at Moore's Law rates, one can argue, at least for some suppliers, such as the cable companies. Comcast has doubled speed every 18 months, for example. Prices likewise have changed about as you would expect for a Moore’s Law rate of change.

When at least some suppliers are doubling speeds every 18 months, most targets and goals set by government are going to be eclipsed very quickly, no matter how ambitious the goals seem at the moment.

The impact of Moore's Law has been clear: with just a modicum of competition, U.S. access speeds have climbed quickly into the “hundreds of megabits per second” to “gigabit” (1,000 Mbps) ranges.

Even mobile access, which historically trails fixed bandwidth and speed, is poised to emerge as a functional substitute for fixed access in the 5G era.

PTC18 Launches Innovation Awards

At PTC18, the annual conference held by the Pacific Telecommunications Council, several innovation awards were presented to companies and individuals, in a range of categories ranging from technology to quality of life impact on the peoples of the Pacific region.

Organizers say they hope the program will continue, as a way of recognizing and promoting innovation in communications as practiced across the Pacific region.  

Image result for ptc 18 innovation awards

The awards covered six categories related to innovation within the ICT industry and were judged by a panel of seven jurors representing a broad cross-section of industry executives and thought leaders from a variety of network-centric industry segments.

The jurors were RingByName CMO Matt Bramson, Salesforce Vice President for Strategic Research Peter Coffee, APTelecom CEO Eric Handa, DE-CIX International CEO Ivo Ivanov, Garnet Consulting Pty. Ltd. CEO Hugh McGarry, North American Hawaiki Cable President of Business Development Randy Neals, and HOT TELECOM President and Founder Isabelle Paradis.

Each candidate entry was evaluated quantitatively against multiple criteria, with a strict mathematical protocol used to combine the perspectives of each of the independent judges. There was no fee or sponsorship required to enter to safeguard the neutrality and objectivity of the awards.

PacketFabric took the award for Best Application/Service Innovation, as well as Best Networking Innovation Award together with Aqua Comms. The award for Best Regulatory Innovation was presented to Geeks Without Frontiers, while Telstra took home the Lifetime Innovation Award. Télécoms Sans Frontières was recognized for Best Quality of Life Improvement, and Cloudflare won Best Overall Innovation Award.

Mobile Phone Use as a Proxy for Creditworhiness

I was chatting with a banker recently about the use of mobile phone behavior to assess borrower risk in areas where most people do not have credit scores or banking relationships. She was skeptical. I don’t blame her.

But many now believe that analysis of mobile data relationships, communities, frequency of communication and other evidence based on mobile phone use could, indeed, be used to assess credit risk.

There are many straightforward indicators of behavior that are plausibly related to loan repayment. A responsible borrower may keep their phone topped up to a minimum threshold so they have credit in case of emergency, whereas one prone to default may allow it to run out and depend on others to call them.

An individual whose calls to others are returned may have stronger social connections that allow them to better follow through on entrepreneurial opportunities.

As you would guess, such techniques are most valuable in the global South.

One obvious source of data is remittances received on a phone (M-Pesa, for example). It seems to make a difference whether contacts on a mobile phone include both first and last names, for example.

That bit of data can mean a 16-fold difference in default rates on loans. Micro-loan provider Tala analyzes mobile phone behavior such as the size of the applicant’s network. Consistency, like making a daily call to parents, and where a person goes daily make a difference.

About eight to 10 questions seem to be enough to establish a proxy creditworthiness score.

Certain behavioral patterns are remarkably accurate in predicting the probability of default among borrowers without formal financial histories, even for very poor borrowers whose mobile phone usage is extremely limited, according to studies cited by the World Bank.

Higher-risk borrowers used their phones infrequently, and were found to only place 22 minutes of calls and send one text messages, spending a total of $2.85 over a period of 11 weeks.

Individuals in the highest quartile of risk were six times more likely to default than those in the lowest quartile.

A bank that participated in a study found it could eliminate 43 percent of loan defaults by eliminating the 25 percent of people who are most risky.

At one level, this chart only illustrates the fact that developed nation citizens have more income, cash or wealth than citizens in developing nations.

Likewise for digital payments, citizens in developed markets tend to use such mechanisms more than citizens in developing nations.

Saturday, January 27, 2018

Federal Preemption Coming in Internet Access Business?

Communications that cross state lines generally have been regulated differently than communications that are confined within a single state, or parts of a state. In the internet era--even if data communications tend not to be regulated very much--there has been a “hands off” approach, which fits the generally highly-distributed nature of modern computing.

In more recent times--in the wake of the Telecommunications Act of 1996--there was a perhaps-necessary clarification of state and federal roles, mostly in the area of federal preemption of state and local rules.

The logic has been that, for clear efficiency reasons, it does not make sense to have potentially 50 sets of rules for communications that are, almost exclusively, interstate or global in nature.

It seems almost inevitable that we will have some form of the federal preemption debate as policy on internet access potentially fractures with imposition of state rules on internet access. AT&T, for example, already has started calling for federal rules to re-establish or preserve a single national policy.

That comes as some states and localities create their own policies for internet access, once again raising the issue of fractured policies across the nation. As those of you who work in tariff and taxation areas know, it is devilishly-complex to comply with all local and state regulations when you are running a nationwide business.

That, in fact, is behind the whole European Union project: ending the friction that comes with multiple regulatory and currency regimes within what increasingly is a single market.

“It is time for Congress to end the debate once and for all, by writing new laws that govern the internet and protect consumers,” AT&T says.

Given the obscurity of network neutrality in general, and its weaponization, it might be reasonable simply to point out the areas where nearly everybody continues to agree.

We all agree that people and consumers must be able to use all lawful services and applications. There cannot be blocking of lawful applications.

Such applications cannot be throttled or downgraded based solely on the ownership of specific sites and content.

Everyone has agreed on these principles for more than a decade. So, even if most seem not to understand, do AT&T and other major internet service providers.

“We don’t block websites; we don’t censor online content. And we don’t throttle, discriminate, or degrade network performance based on content. Period,” AT&T says.
But “Congressional action is needed to establish an ‘Internet Bill of Rights’ that applies to all internet companies and guarantees neutrality, transparency, openness, non-discrimination and privacy protection for all internet users.

“Legislation would not only ensure consumers’ rights are protected, but it would provide consistent rules of the road for all internet companies across all websites, content, devices and applications,” AT&T argues.

At this point, and ironically, it is as much the major app providers--not just ISPs--that probably have to worry about what that means. If the objection to changing the “best effort only” level of consumer internet access is about preventing the emergence of gatekeepers, we have problems far beyond “who owns the access pipe.”

Actual instances of “commercial blocking” have been happening, but by Amazon and Google, for instance, not ISPs.

In the coming debate, the need for predictable rules, across the whole country, will be stressed, as we have seen in the past, and for the same reasons. To be sure, AT&T’s concern is about future services whose performance does matter, and which might clearly benefit from optimization, as do consumer apps whose performance is assured by use of content delivery networks.

Ironically, most larger content and app providers already use content delivery networks, precisely for the purpose of optimizing performance of their consumer apps.

“In the very near future, technological advances like self-driving cars, remote surgery and augmented reality will demand even greater performance from the internet,” AT&T says. “Without predictable rules for how the internet works, it will be difficult to meet the demands of these new technology advances.”

To be sure, the issue all along has not been “lawful use of apps” and “no blocking” but the development of quality-assured or other services whose costs are defrayed by an enterprise.

Some ISPs and app providers have argued for the freedom to offer “toll free” services--offered at no charge to end users--alongside the for-fee models., for example, has tried to create no-charge internet access programs for mobile customers in developing markets.

Some ISPs want the freedom to create toll-free or tariff-free services that provide internet access in the same way that toll-free calling is offered.

To be sure, business services are not covered by network neutrality rules. The problem is that the line between enterprise and consumer services increasingly is blurred. Virtual private networks, for example, can be used by business or consumer end users.

The fear in some quarters, perhaps logically, is that, eventually, quality-assured internet access becomes high-definition to standard definition video; or 4K instead of HDTV, a “better” level of service that eventually forces app providers to upgrade, possibly with the implication that app providers pay money to a transport provider, as already happens with content delivery network payments.

The point is that CDNs are lawful and routinely used. Why are CDNs "to the end user" not lawful? And if so, does that business require uniform national rules, given that CDNs almost intrinsically operate across state lines?

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...