Indoor Services Could Drive Many New Revenue Niches

We do not typically think of the internet and mobile business as a matter of “indoor” and “outdoor” business models. Rather, we tend to look at the ecosystem as an “edge provider” and “service provider” dichotomy, or sometimes in a broader context, including chips, infrastructure, devices, apps, connectivity and sometimes other categories such as retail distribution.

The point is that the whole internet ecosystem contains many segments, and opportunities for any stakeholder to grow by occupying adjacent niches. The other issue is that the share of ecosystem revenue might well change, over time. In many cases, growth is not so much the issue as rates of growth.

Still, businesses and revenue built on “indoor” parts of the ecosystem are substantial, and have offered most of the opportunities for businesses that are not tier-one service providers.

That always has been the case, if you think about it. Phone interconnects, value-added resellers, system integrators, venue Wi-Fi, cable TV and the device business all rely principally on solving indoor problems, not “access.”

Many believe such opportunities could grow as new platforms, such as Citizens Broadband Radio Service (CBRS) emerge. CBRS and private LTE could underpin a new wave of business models that drive revenue by solving indoor connectivity problems and create new value propositions.

The existing models include Wi-Fi, local areas networks, the distributed antenna system business, Wi-Fi offload and small cell deployments (which can take carrier, venue or end user forms).  

Boingo says it has 54 distributed antenna system (DAS) venues live, with another 73 venues in backlog. Boingo, which already is heavily in the DAS and indoor venue Wi-Fi business, believes the addressable market for DAS is about 20,000 more locations (in addition to the sites already installed).

While there are five million commercial buildings in the United States, more than 90 percent of those buildings occupy 200,000-square-feet or less, according to the U.S. Energy Information Administration. That might imply that 30 percent, or roughly 1.5 million sites, are the best candidates for lower-cost CBRS systems providing indoor coverage.

In terms of all small cell venues, there are perhaps 400,000 such potential locations where CBRS provides the same benefits as DAS.

So one way of setting parameters is to assume the number of U.S. venues where either DAS or CBRS makes sense ranges from a low of 20,000 locations to a high of 1.5 million locations, with 400,000 possibly representing reasonable CBRS potential.

Boingo’s business opportunities point up the role of indoor mobile coverage in the mobile ecosystem.

But that is not a new issue, since the advent of deregulation and the end of the monopoly era. Since the breakup of the AT&T Bell System, when indoor and outdoor networks were owned by AT&T, “indoor” or premises networking has been the province of private networks owned by consumers or businesses, while “outdoor” networking has been the province of the service providers.

That is why consumers own their phones and PCs, why Wi-Fi exists, why distributed antenna systems and coming in-building small cell networks, as well as private mobile networks, will exist.

Traditionally, service providers have been essentially barred from owning facilities infrastructure, terminating their networks at a demarcation point on the property. Mobility was the new wrinkle, as mobile networks, to be valuable, must provide service everywhere, indoors and outside.

Still, mobile service providers shy away from investing in in-building infrastructure, for cost reasons. Wi-Fi has eased those concerns to a large degree. And some service providers, especially firms such as Comcast, see new value in “owning” the indoor Wi-Fi experience.

So a big new business question is what new opportunities might exist, in the indoor networking environment, for service providers and others in the ecosystem.

Though it now seems “natural,” virtually all the businesses now associated with private networks, end user equipment and software, consumer and business applications, Wi-Fi and other local area networks have been created only as the end of monopoly phone service era began.

Apple’s device business, the Android ecosystem, Wi-Fi ecosystem, local area networks, cable and satellite TV, the phone interconnect and computing system integration and value-added reseller businesses all exist because the public network was deemed to end at a demarcation point on every customer’s premises.

Though in a regulatory sense the rise of Facebook, Google, Amazon and all other app providers (edge providers) was not enabled by telecom deregulation, they were enabled by legal frameworks that left computing services completely unregulated.

To understand why many firms work to create new roles for themselves, consider that, in the monopoly era, AT&T supplied not only connectivity services, but also the network’s equipment and software; the customer equipment (phones) and owned the inside wiring as well as the rest of the network.

In a revenue sense, AT&T made money building and selling infrastructure (as Nokia, Ericsson and others now do); building and selling the CPE (as Apple, Samsung and others now do) and providing all the connectivity (instead of retaining only a fraction of such revenues).

These days, service providers mostly must rely on connectivity revenues alone, in competitive markets, to generate revenue.

So one way to look at efforts to create additional roles in mobile banking; entertainment services; applications and computing is to understand them as ways of recreating the once more-robust involvement in greater portions of the communications ecosystem.

It is not exactly “back to the future,” but it is close.

Historically, only the public network existed. When U.S. consumers or businesses purchased a phone service, the wiring inside the home and the phones were owned by the telco.

That began to change in 1968, when in the Carterphone decision, people gained the right to use their own equipment on the AT&T network.  

With the breakup of the Bell system in 1984, inside wiring became the property of the building or homeowner. That, in turn, lead to the creation of  private networks (local area networks, for example).

The in-building or campus communication systems, equipment and software became the province of private networks. Where in the monopoly era, all customer premises equipment was produced and owned by AT&T itself, today all sorts of companies produce CPE, and AT&T has gotten out of the business of building either network infrastructure products or CPE.

Ironically, the strategic imperative many telcos embrace is an effort to recreate the “multiple roles in the ecosystem” position they once had in the monopoly era.

After 50 years of shrinking roles in the communications ecosystem, major service providers seek to create new roles offering higher revenues, greater profits and diversified revenue streams, as once was the case.

That does not mean firms want to recreate roles in most of the former areas, such as becoming manufacturers of network infrastructure or end user devices. But firms now seek roles beyond connectivity.

Firms whose roles were legally prohibited, curtailed or opened to competition, are trying to find additional and profitable roles in many parts of the ecosystem that were curtailed or forbidden by the deregulation process of the 1980s and earlier.

But indoor coverage and services might well create many new opportunities for service providers and specialists in the ecosystem as well.