5G Economic Impact?

It is a no-brainer that 5G economic impact will be somewhat substantial over the next decade, if only because communications is a significant portion of global economic activity all the time. In 2018, for example, mobility by itself represented nearly five percent of global gross domestic product, by some estimates.

Other estimates often peg all communications spending at about  three percent of GDP to 3.5 percent of GDP.

source: Researchgate

Most economic assessments attempt to include the related economic benefits, in addition to the direct benefits. The multiplier might be in the range of $5 in benefit from every $1 in telecom spending. 

Still, direct impact is substantial. If global GDP is $142 trillion, then 3.5 percent in direct telecom spending is $5 trillion. Mobility is not all of telecom spending, but likely represents 65 percent or so. In that case, 5G might be included in the $3.25 trillion, mobility generates. But, of course, not all spending is on 5G. So reduce 5G share to perhaps half and 5G might represent $1.6 trillion in revenue.

It is nothing to dismiss, but is a far cry from the $7.5 trillion some estimate. 

Despite Declining Demand, U.S. Local Phone Service Prices are Rising

As a rule, retail and wholesale prices of connectivity products tend to drop with time, much as prices for computing and storage also do. But the trend is not uniform. Prices for some products rise, even if the overall trend is for lower prices. 

In the U.S. consumer market, linear video subscription prices have increased almost yearly for decades. In U.S. business markets, private line prices climbed after deregulation but then began to fall about 2012 as demand shifted to ethernet access services. 

Consumers might have a sense that internet access prices have increased, but U.S. internet access prices fell between 2004 and 2020, according to the U.S. Bureau of Labor Statistics. Using 2004 prices as the benchmark, prices in 2020 were about 61.5 percent of 2004 levels, according to BLS data. 

source; BLS

That same trend also operates globally, as a rule, according to the Alliance for Affordable Internet, even when looking at mobile data, which generally is more expensive than fixed network data. 

By way of comparison, private line services purchased by businesses and other organizations have spiked since about 1995, but in 2020 remain just a percentage point above 1995 levels. That is likely because demand has largely shifted to ethernet-based access services.  

source: BLS

Traditional local phone service prices since deregulation have risen about 45 percent, which might be surprising. What happened is that business profits, which once subsidized consumer services, substantially decreased, forcing consumer prices to reflect more of the actual cost of providing those services. 

Also, a more-recent trend is that demand has steadily decreased since about 2000, so the costs of the network essentially are spread over a much-smaller base of customers. That tends to work against price decreases. 

source: BLS

5G Health Issues from Millimeter Wave "Very Low" to "Nonexistent"

Health issues caused by 5G mobile networks are “very low, if they exist at all,” concludes a  group of health experts who study environmental and health issues associated with electromagnetic exposures from across the non-ionizing spectrum. 

“The likelihood of yet unknown health hazards at exposure levels within current exposure limits is considered to be very low, if they exist at all,” they say. “We anticipate that in all cases, exposure levels will remain well below major international exposure limits and that network operators will be aware of their obligation to maintain their systems within compliant operating parameters. 

“When exposure levels are maintained below current exposure limits, neither health agencies nor guideline/standards setting organizations have identified hazards from exposure to millimeter waves or RF signals in lower frequency bands used in previous generation technologies,” the group says. 

“First, unlike lower frequency fields, MMW (millimeter wave signals) do not penetrate beyond the outer skin layers and thus do not expose inner tissues to MMW,” they point out.  “Second, current research indicates that overall levels of exposure to RF are unlikely to be significantly altered by 5G, and exposure will continue to originate mostly from the “uplink” signals from one’s own device (as they do now).”

“Third, exposure levels in publicly accessible spaces will remain well below exposure limits established by international guideline and standard setting organizations, including ICNIRP and IEEE,” they add. 

Traditionally, the concern with non-ionizing radiation of the type routinely used by mobile networks is tissue heating. But “whole-body heating is not a concern for millimeter wave exposure because the deposition of RF energy is confined to the outermost layers of the body.”

Will We Really See a Change in Growth Rate for Work from Home?

Most observers seem certain that work from home trends will get a permanent boost from Covid-19 experiences. The only real question is how big a change might occur, as WFH has slowly been growing for decades. As with other trends, the pandemic might accelerate an ongoing trend. The magnitude is the issue. 

Remote work is  distinct from “work from home full time,” has a few meanings. It can refer to those full-time employees of a company who telecommute, rather than work on site.  It includes organization employees who work from home at least some of the time, travel for work or bring work home. 

But it also includes home-based workers. Those are very different use cases. 

By some estimates, as much as 17 percent of workers  essentially are full time WFH. In other cases, including those who telecommute a few times a month, the percentage of workers doing WFH is as low as five to six percent. 

But if you count traveling employees who sometimes work outside the office, possibly 63 percent of all workers sometimes work from outside the office. 

source: SlideModel

But many jobs cannot be performed at home, and that might include as much as 63 percent of all U.S. jobs, for example. To that one might add work done by home-based businesses. 

“According to the 2018 American Time Use Survey, less than a quarter of all full-time workers work at all from home on an average day, and even those workers typically spend well less than half of their working hours at home,” say economists Jonathan Dingel and Brent Nieman. 

Doubtless all the types of remote work, telecommuting and work from home will get an extra boost after the pandemic. The issue is whether the growth curve changes enough to notice. Many suppliers who benefit from WFH hope so.

But lots of changes are fairly short lived, as business and consumer behavior might suggest after the internet bubble burst and Great Recession of 2008. Lasting impact can be hard to spot, as prior trends simply reasserted themselves.

Flat Growth for Asia Telcom in 2020; Return to Growth in 2021

Average revenue growth for the Asia-Pacific telecom business will be flat to low-digit to single-digit in 2020, compared to four percent in 2019, according to Fitch Ratings. Growth will return to pre-pandemic levels in 2021.

source: Fitch Ratings

Balance sheets will be maintained by cost cutting and capital investment reductions or dividend cuts, says Fitch. 

In most countries discretionary capex has been slowed to conserve cash, without skipping necessary capacity investment. But Korea, China and Singapore are pressing ahead with 5G plans. 

In part, that is a reflection of the importance of mobile broadband average revenue in some of those countries. South Korea mobile ARPU is higher than fixed network internet access, for example. In Singapore, mobile ARPU is equal to fixed network internet access ARPU. 

source: Fitch Ratings

The other noteworthy observation is that capex intensity is far lower in Singapore and South Korea than in India or the Philippines, for example. It is easier to sustain capex programs in adverse circumstances when capital investment is a lower percentage of revenue. 

source: Fitch Ratings

Internet Access will be 64% of Total Service Provider Revenue in 2024, Says Omdia

The two biggest revenue drivers for connectivity providers in 2024 will be mobile data and fixed network broadband, according to Omdia analysts. Internet access, in fact, will be 64 percent of total connectivity provider revenues in 2024. Voice services on all networks will generate 14 percent of total revenue. 

source: Omdia

Global revenue trends will be negative for voice, positive for internet access, smart home and video. Mobile data revenue will grow about twice as fast as fixed internet services. 

Service	Revenue $ Billion	% of Total
Mobile Voice	147	10%
Fixed Voice	61	4%
MobileText	14	1%
Mobile Data	570	41%
Fixed Data	329	23%
Video	120	9%
Smart Home	162	12%
Total	1403

Source: Omdia data, IP Carrier calculation

In terms of strategy, revenue growth will be most critical for mobile data, since that is the single biggest revenue driver. Voice services and messaging simply must be harvested and run to maintain profit margin. The growth areas of video and smart home must be cultivated.

Will Internet Access Patterns Return to Normal?

The percentage of subscribers provisioned for gigabit service increased to 3.75 percent in the first quarter of 2020 year-over-year, essentially driving changes in a couple of months that otherwise might have taken a year, according to OpenVault. But what remains to be seen is the sustainability of those trends, once most people return to work and school. 

What is clear is that average data consumption at the end of the first quarter jumped to 402.5 gigabytes, an increase of 47 percent over the same quarter of 2019, when the average was 273.5 GB.

The areas of sharpest growth were power users consuming one terabyte or more of data. The percentage of subscribers who were power users in 1Q20 reached 10 percent,  an increase of 138 percent over the 4.2 percent of power users in 1Q19.

Median usage was 233.6 GB, up 60 percent from 1Q19 levels, driven by heavier media consumption, Open Vault says.

B2B Sales Just as Effective When Remote? Really?

A survey of business-to-business executives by McKinsey has found that virtually all firms in the B2B space have adapted to Covid-19 pandemic “stay at home” rules by shifting to online support and e-commerce, while dramatically shrinking in-person sales. 

Over a few months, 60 percent to 70 percent of those executives say they believe remote sales are just as effective as the former in-person sales methods. 

That might shock you. “Remote selling” is 60 percent to 70 percent “just as effective” as in-person selling? 

source: McKinsey

Maybe not. 

If they really believed that remote sales truly were “just as effective” as in-person sales, the percentage of respondents who believe they are “very likely” to  be doing so a year after the end of the pandemic restrictions would not be half, or less than half, of those same respondents. 

B2B Executive Views on Remote Selling
source: McKinsey
Country	% Remote	% "Just as Effective"	% Very Likely to Keep 1 Yr. Afer	% Somewhat Likely to Keep 1 Yr. After
Asia Pacific	96	70	35	48
Japan	93	68	18	45
United States	96	65	32	47
China	98	70	30	61
Europe	97	60	28	50
Global	96	64	32	48

source: McKinsey

Keep in mind that intentions in such surveys often do not match actual behavior, no matter how sincerely opinions might be held. 

At least in part, even respondents reporting they are “very likely” to continue with “remote” go to market strategies after the pandemic is over might be thinking of e-commerce and online support activities, not direct sales. 

I might very well be wrong, but a “new normal” where B2B sales activities are not conducted face to face seems highly unlikely. 

In other realms, such as after sales customer support, online delivery does make sense, and likely will continue at a higher level than before.

In other areas, internal meetings, training and routine support operations are likely to continue using newer forms of remote communication, if not always significantly higher levels of remote communication. 

That scenario likely hinges on a permanent shift to remote work at significant scale, and that is likely not to be as robust a trend as many expect.

Fixed Networks Bore Most of the Stay-at-Home Traffic Increase, Says Ericsson

Most of the 20 percent to 100 percent increase in network traffic caused by lock down policies was handled by the fixed networks, says Ericsson. Mobile network traffic increased 10 percent to 20 percent. 

source: Ericsson

As you might expect, given the stay-at-home orders, use of some apps related to mobility saw less usage. Travel and booking app activity was down about 33 percent, while ride hailing app usage dipped a bit more than 20 percent, Ericsson says. 

Use of location apps dipped about 22 percent. Use of parking apps declined about 13 percent.

As you might also guess, use of some apps related to people staying at home grew. Remote working app usage increased about 30 percent, for example. Use of instant messaging grew about 53 percent; use of social media about 50 percent. Use of news and video apps also grew more than 40 percent. 

source: Ericsson

Rural Internet Program Politics

The U.S. Federal Communications Commission’s rural broadband funding program, the 

Rural Digital Opportunity Fund, is pretty much technology neutral. What it arguably is not so much is supplier neutral, even if such programs have become more neutral over time. 

Even if the regulations do not specify it, all rural support programs historically have favored rural fixed network telcos who are carriers of last resort. 

The assumptions for the subsidies are sound enough. Since there actually is no sustainable business case for fixed network communications in many rural areas, the only way service will be provided is by use of subsidies. 

But the need for subsidies does not, in and of itself, explain why most of the funding has traditionally gone to rural fixed network telcos, even if the obvious answer was that, in the monopoly era, there was only one firm to which such funds might have been given.

That has changed over time, as other platforms have emerged. 

When voice was the issue, mobile networks arguably would have been capable. In the broadband era, cable TV companies are obvious suppliers, and many fixed wireless or new alternatives such as low earth orbit satellite firms will eventually emerge as potential suppliers as well.

You can assume the funding decisions will not--as a political matter--be based strictly on which platforms can deliver suitable broadband access. There is a requirement to supply voice services, which many internet service providers might prefer not to do. There are some regulatory oversight conditions cable TV or other smaller independent companies might shy away from. 

And then there are the non-network issues. Most rural telcos are “significant” providers of local jobs and have significant political support in states. Nor is it clear those businesses are sustainable without direct subsidies, where others might well survive without the funds. Mobile operators, wireless ISPs and cable TV operators might have a business case without subsidies. 

Some argue the past programs have not worked, or might not actually be needed as much as often is claimed. Perhaps 60 percent of high-cost funds support corporate overhead, not the expansion of networks. And since funding is based on “high costs,” applicants have incentives to keep their costs high. 

The need for subsidies and societal value is clear enough. The politics of funding arguably are also clear. Carriers of last resort arguably will carry some political weight that is not reflected in funding criteria in a direct sense. 

Publisher or Platform? Or Both?

Some issues--including network neutrality and regulation of publishers and platforms--are nettlesome and complicated, as much as we might prefer absolute simplicity. In part, that is because new platforms and industries do not conform neatly to our prior models. 

Platforms might be likened to common carrier products: all users are treated the same way, at standard prices, terms and conditions. The platform makes publishing possible, as formal common carrier networks simply “transport” products, but do not exercise editorial control, as do publishers of newspapers, for example. 

But big content platforms no longer operate as pure platforms. They also exercise content moderation and make choices about what gets published, under the guise of community moderation. That makes them publishers more akin to newspapers or magazines. 

That is why the debate over Section 230 of the Communications Decency Act is important.  Title V of the Telecommunications Act of 1996 was intended to protect platforms from content posted by platform users, exempting the platforms from laws pertaining to other publishers. On the other hand, platforms claim the right to censor and remove content under the rubric of community standards. 

But there arguably is a crucial difference between “offensive” speech and “political” speech. Most people might agree that bans on obscenity or violence are one thing, but restrictions on clearly political speech are questionable. 

Nor is it easy to apply First Amendment protected speech rules, which classically protect speakers from government restrictions, not listeners and readers from private company restrictions. 

On the other hand, “while the First Amendment generally does not apply to private companies, the Supreme Court has held it ‘does not disable the government from taking steps to ensure that private interests not restrict’ . . . the free flow of information and ideas,”  say Adam Candeub, law professor at Michigan State University, and Mark Epstein, antitrust attorney. 

We do not yet have good models for regulating such hybrid industries. But that is likely to change, as regulation changed with the emergence of over the air broadcasting and then cable TV, with a hybrid model not fully in the realm of either common carrier nor unregulated publishing. 

As platforms become a mix of content delivery (platform) and curated and created speech (publisher), some new hybrid form of regulation is likely to emerge and evolve, given a government interest in fostering open and fair debate where it comes to political speech. That was the approach taken with broadcasting, for example.