Mobile or Fixed Operating Capex Seems Consistent: 10% Per Year

Some connectivity network capital investment assumptions seem remarkably stable after 50 years.

An example is the adage that a fixed network operator “has to do something” for about 10 percent of the physical plant every year. In other words, each year, existing plant has to be replaced, or new plant added, representing about 10 percent of the installed base.

The best example is replacement of in-service cabling and associated electronics or optics.

That has proven a useful rule of thumb for cable TV and telco access networks, and now also seems to be useful for mobile networks. According to Allot, mobile operators need to add capacity to about 10 percent of cell sites every year.

source: Allot

Essentially, that means every fixed or mobile network is potentially 100-percent renewed every decade, piecemeal.

The big exceptions are the once-a-decade upgrades of mobile networks to the new next-generation platform, such as 4G to 5G; telco upgrades from copper access to fiber-to-the-home; or a cable operator upgrade of DOCSIS or major change in serving area size (accompanied by a shift to deeper fiber deployment).

Where replacement, upgrade or repair of about 10 percent of the existing plant is "operating capex," the once-a-decade architecture upgrades are "strategic capex." The former keeps the existing network operating; the latter upgrades capabilities.

Will 5G "Cost per Gigabyte" Rival Fixed Networks?

One key issue as mobile operators contemplate the use of their networks to compete in the home broadband market--formerly the “fixed network internet access” market--is whether such services can compete with incumbents. 

Two key matters are the retail price of a service plan, which is shaped, in turn, by the cost of supplying the capacity, usually denoted as “cost per gigabyte of usage.” 

Determining price on a country-by-country basis also requires adjusting prices to account for differences in currency values and purchasing power (typically using a purchasing power parity method). All those things done, price per gigabyte of mobile data usage ranges between nine cents per gigabyte up to $110 per gigabyte, according to Speedcheck. 

 

There are all sorts of other complications, including the speed of a connection; whether we include fees and taxes as part of the calculator and whether other changes, such as equipment rental, also are included. All of that will differ from country to country and provider to provider. 

But a reasonable rule of thumb has been that mobile data costs an order of magnitude more than fixed network data, on a cost-per-gigabyte basis. So in the U.S. market fixed network gigabytes might cost 30 cents while mobile gigabytes cost $3. 

If mobile bandwidth traditionally has been an order of magnitude more expensive than fixed network bandwidth, then it is obvious that, to compete, mobile bandwidth has to be as capacious and affordable as fixed network bandwidth. 

What is clear is that, compared to past capabilities, 5G networks will have a cost-per-gigabyte profile that allows mobile operators to radically close the cost gap with fixed networks that prevailed with 4G and prior mobile generations. 

source: Mobile Experts

Up to this point, mobile cost per gigabyte has been as much as an order of magnitude more costly than fixed network cost per gigabyte. As always, it matters how we count. 

The posted retail prices are not necessarily the “actual prices” consumers pay, as many are on promotional deals at any particular time. The other issue is prices for actually-used capacity versus plan allowance price. They are usually different. 

The nominal (designed-for rate) is total usage allowance divided by total recurring cost. But not many users actually consume all the data their plans provide. Also, customers on unlimited-usage plans will have highly-variable “cost per consumption” ratios, as price is fixed, while usage is unlimited. 

Fixed network data costs, on a cost-per-megabyte basis, routinely have in the past been in the 20 times to 60 times lower scale than mobile data. Where fixed network data might cost cents per gigabyte, mobile data costs dollars per gigabyte, counting either plan costs or actual usage costs. 

source: Mobile Experts

To compete in the home broadband market with fixed network providers means mobile operators have to match prices per gigabyte more closely. Cost per gigabyte has been steadily declining, for both fixed and mobile networks. 

The importance of 5G is that, for several reasons, the cost of supplying a gigabyte of usage will drop, compared to 4G, as the cost of each successive mobile generation has done. 

Using mobile networks to compete in the home broadband market never gets the headlines when we talk about 5G. The buzz is all about edge computing or internet of things or virtual reality. 

We might be surprised by the near term revenue upside. Mobile operators might make more new revenue from home broadband services--however unheralded--than from edge computing, IoT or AI-based apps.

Risk Assessment and Availability Bias

Risk assessment is part of every person’s routine, just as much as it is an enterprise or organization taks. In that regard, human beings are biased toward judging an event’s likelihood or frequency (and hence, risk) based on how easily their minds can conjure up examples of the event occurring in the past, according to behavioral economics.  

In other words, we make bad decisions, or are biased to do so, because our memories are skewed to vivid memories.  

If a similar event has occurred recently, or past instances induced strong emotions, people are much more likely to predict that the event is likely to occur. For business leaders no less than consumers and citizens, judgment is affected by the fact that the event was recent or strongly emotional. 

These mental shortcuts happen because the human brain cannot process all the data it encounters on a routine basis. So brains create rules that simplify the search for meaning. That placing much raw data into a framework results in availability bias. 

Availability bias is a mental shortcut that relies on immediate examples that come to a given person's mind. The practical impact is that people tend to focus on information that’s easiest to access, most recent or most memorable. 

That can lead to wrong or bad decisions. According to Farnam Street, we end up remembering based on 

• Our foundational beliefs about the world

• Our expectations

• The emotions a piece of information inspires in us

• How many times we’re exposed to a piece of information

• The source of a piece of information.

Combatting or overcoming the availability heuristic--a form of irrationality--is not easy, as it requires deliberate effort to evaluate data not based on its vividness, not based on its recency, its prevalence or expected importance. 

One suggestion is to rely on statistics, less than emotion or belief. If something in business or nature tends to happen once in 1000 occurrences, its probability should be deemed unlikely, for example. Not impossible; only rare. 

Focus on trends and patterns. Regression to the mean teaches us that extreme events tend to be followed by more moderate ones. Outlier events are often the result of luck and randomness and are unlikely to reoccur soon. 

Whenever possible, base your judgments on trends and patterns—the longer term, the better. Track record is everything, even if outlier events are more memorable, says Farnam Street. 

Avoid hasty judgments that have big consequences, it goes almost without saying. The whole point of heuristics is that they save the time and effort needed to parse a ton of information and make a judgment. 

When making an important decision, the only way to get around the availability heuristic is to slow down and parse the relevant information, to reduce the impact of recent, emotional, memorable or oft-repeated information.

Do not rely on the soundness of your memory. It is hard to remember what happened in the past, and the more distant, the less-powerful the mental weighting. “What have you done for me lately?” is a commonplace expression of the rule. Humans give priority to what happened more recently, not what happened years ago. 

The unusual--a big mistake; a huge win, an outlandish occurrence--tends to dominate our thinking, rather than the statistical odds of occurrence. 

 

As a student of history, a last bit of advice is second nature. “Go back and revisit old information.” “Even if you think you can recall everything important, it’s a good idea to go back and refresh your memory of relevant information before making a decision,” says Farnam Street. 

What Causes Difficulty for Digital Transformation?

In a study of banking “digital transformation, two researchers illustrate why the way humans are involved in actual business processes shapes the effort. Even when using a single new tool--the SAP loan management system--the adaptation was easier for some parts of the organization than others. 

Complexity is a key issue. Also, it matters how much people need to understand the business logic of their firms. For example, one group of clerks used the new SAP-based loan management system to enter new contracts. For them, learning how to do their work with the new system was easy, the researchers say. 

In stark contrast, clerks who needed to make edits to loans in stock had a much harder time learning how to work with it, they note. 

Clerks in the former group achieved effective use within six to eight weeks, but those in the latter group needed over six months to do their work effectively again. The complexity of the task shapes the ease or difficulty of adapting. 

source: Harvard Business Review 

The researchers note the role of “system dependency,” which is a measure of how much of a user’s task is represented in the system. When more of the output or outcomes hinge on the innovation, adoption takes longer. 

That makes intuitive sense. An innovation that reshapes or affects 80 percent of a worker’s output or outcomes is going to be more complicated than when an innovation is actually peripheral to a worker’s job. 

Semantic dependency--the degree to which users need to understand how the business logic of their task is implemented in the system--seems just as important. 

Digitalized tasks that have a high degree of both dimensions are the most complex, they say. Of course.

Non-Profit Digital Transformation is REALLY Challenging

Digital transformation or digitalization in a non-profit setting might be more qualitative--and less quantifiable in terms of outcomes--than for private firms. Also, subjective assessment of “better outcomes” is one thing; objectively measurable outcomes are harder. 

One survey by Business and Decision found non-profit practitioners’ perceptions of value exceeded expectations across the board. Keep in mind these are perceptions, not measurements. 

Practitioners ranked transformation efforts high for “raising awareness,” for example. Perceptions of value for gaining new members or generating donations were generally expected to yield less improvement, as was fund raising or generating donations. That likely reflects a genuine understanding that these “tangible goals” were going to be more difficult than intangible outcomes. 

source: Business and Decision 

It is not easy. Many nonprofits struggle to get by, Microsoft notes. They are revenue-stretched, and paper-bound. Also, if digitalization normally presumes the ability to harvest insights from data, non-profits often have limited capability to generate meaningful data.

Also, non-profits often lack a firm understanding of how they are performing or what their costs really are, Microsoft notes. “They aren’t sure what programs are doing well and what could be done better.”

“Arcane and laborious administrative tasks, as well as the pressure of constant fundraising, can tie up skilled specialists and volunteers, keeping them from focusing on their real mission: helping others,” Microsoft says. 

Some basic requirements, such as understanding actual process flows, can be challenging as they are non-linear, non-standardized or porous, as they often rely heavily on volunteers or high rates of employee and volunteer  turnover. 

Also, “the nonprofit sector is not known for being particularly innovative or open to change,” notes Suzanne Laporte, Compass president. . 

So it might not be surprising that as much as 84 percent of non-profit digital transformation projects fail. 

DirecTV Now is a Standalone Company

Back in 2015 (though it seems much longer ago than that), a colleague working on U-Verse worried that the deal meant DirecTV would become the “go-to” platform for video entertainment. Some six years later, it is hard to disagree. 

AT&T’s deal to move DirecTV assets into a different company has closed. TPG Capital now will own and operate the DIRECTV, AT&T TV and U-verse video services previously owned and operated by AT&T. 

DIRECTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.

Many describe the transaction as “AT&T getting out of video entertainment.” That is far from correct. AT&T contributed its U.S. video business unit to the new entity in exchange for cash compensation, debt assumption but also retains a 70 percent interest in DirecTV. 

TPG contributed approximately $1.8 billion in cash to DIRECTV in exchange for preferred units and a 30% interest in common units of the new company.

At close, AT&T received $7.1 billion in cash and transferred approximately $195 million of video business debt to the new entity. 

Aside from the asset ownership dilution that frees up cash to pay down debt, AT&T managerial attention can shift back to the core mobility business. But AT&T still owns 70 percent of DirecTV. That is hardly “getting out of the subscription video business.”

Are Trade Shows Dead?

It is early to determine what permanent changes might happen in sales, marketing and customer support functions after firms have had a couple years worth of enforced use of virtual channels. 

But the behavior of sales and marketing teams since the start of the Covid-19 pandemic is fairly clear. Return on investment from virtual events or virtual conferences has been seen as sub-par. 

Generally,  trade show exhibitors and sponsors say virtual events have yet to match the networking and lead-generating potential of face-to-face experiences

Nick Borelli, Director of Marketing Growth at Allseated “worries that C-suite marketing teams may lose confidence in the value of face-to-face events as they gradually learn to live without them.”

Conversely, attendees at virtual events or exhibitions have overwhelmingly been concentrated among “learners” rather than buyers and sellers, according to surveys conducted by Bizzabo. 

“Learning is the primary motivation of virtual event attendees,” Bizzabo says. 

Virtual trade shows arguably have attendee pros and cons. They save money on physical travel costs, event exhibit costs and sometimes sponsorship or attendee fees. Virtual events arguably save time, as time out of the office is eliminated. 

Among the cons are lack of opportunities to network, ability to interact in the same way as in-person encounters, less engaging experience, possible technology or interface issues. Virtual is just more impersonal. 

Event managers who have had to pivot to “virtual” recognize the issue. 

source: Event Manager 

The big issue of importance is future behavior. Will firms have found work-arounds that make trade shows and exhibitions less important than in the past? 

One observation is obvious. Firms have had to learn how to drive sales, marketing and fulfillment operations even when physical channels are unavailable. In the process of doing so, there is some anecdotal evidence--and some hard financial results--that suggest the inability to conduct in-person sales and marketing has been detrimental to firm financial performance. 

Small business owners who generally rely on social media advertising, are generally unimpressed with the return on investment. Enterprises might be more satisfied, but also have the cost savings from not attending physical trade shows.

Conversely, if enterprises find they can sell, market and fulfill virtually, that is going to diminish the value of, and revenue for, suppliers of “live, in-person events.” Early in the Covid pandemic, event managers already were seeing the impact. 

source: Event Manager 

Virtual might still work for “learners.” It might not work so well for business-to-business sales purposes.

New Lumen Remains a Hybrid, but Barely

Asset reshuffling tends to be rather common in the connectivity business, with occasional bouts of merger unwinding. Consider the proposed sale of Lumen fixed network assets to Apollo Global Management.   

Basically, the deal unwinds the merger of CenturyLink and Qwest fixed network assets (more an acquisition by CenturyLink of Qwest) in 2011. What remains for Lumen are the original Qwest local exchange operations, plus networks in Florida and Nevada that were not part of Qwest.

Perhaps more important is the Lumen retention of the former Level 3 Communications assets. The proposed deal still leaves Lumen a bit of a hybrid: operator of large tracts of rural fixed networks, plus a handful of tier-two cities, as well as a global enterprise services network. 

source: Lumen

As was the case for the assets divided as part of the AT&T divestiture in 1982, observers will argue about which assets are most valuable. The new AT&T--focused on long distance and equipment manufacturing, was the “growth” play. The new Regional Bell Operating Companies were the “value” or “income generating” play, with little expected growth. 

Ironically, the eventual values were reversed. AT&T kept shrinking, while the RBOCs grew by acquiring each other. Eventually, new AT&T was acquired by SBC Communications, which had consolidated BellSouth, Ameritech and Pacific Telesis. 

Nynex was acquired by Bell Atlantic to form Verizon. 

The issue for Lumen is whether, shorn of roughly half of its local exchange assets, it can execute on a growth strategy driven by its enterprise and business customer operations, while shoring up losses in its consumer segments. 

Apollo may see upside from the rural ILEC operations in upgrading internet access while harvesting voice revenues. Still, it is a cash flow play, not a growth story. Lumen, on the other hand, will bank on a “growth” strategy. 

Lumen still remains a hybrid, deriving most of its revenue from its global network and enterprise connectivity services. Still, it remains one of the larger suppliers of fixed network access in the U.S. market. 

Before the sale, Lumen earned about 25 percent of total revenue from consumer services. After the asset dispositions, Lumen might earn about 12 percent of total revenue from consumer local exchange services.

source: Statista

So Lumen remains a hybrid--enterprise services and global networking--but with a 12-percent contribution from legacy consumer fixed network services.

DX, Digitization or Digitalization: Maybe There are Only 2 Categories

If “digital transformation” is a broader, organization-wide change, it probably cannot be quantitatively described. Some traditional attributes of “digitally transformed” companies include “agility” or “customer focus.” 

And efforts might still fail about 70 percent of the time. Each discrete process change might have a 70-percent chance of failure, defined as “no successful change” in process outcomes. In other words, investing to change a process, and then changing it, with no apparent improvement in outcomes, might still be deemed a failure. 

source: Digital Master Channel 

So perhaps nobody should worry too much about the difference between “digital” strategies; “digitalization” strategies and “digital transformation.” In principle and in practice, it often is hard to see the difference. 

Sometimes the difference is “objective.” According to analysts at Gartner, the difference might be the objectives of the application of any digital technology: optimization of any existing business process or transformation (changing) such processes. 

In fact, optimize or transform might be the key concept, even if Gartner itself defines “digitalization” as having “transformation” as an outcome, and perhaps “the” outcome. 

The problem is that, in some cases, changing an analog or manual process to a “digital” process (a “digital” objective such as replacing typewriters with personal computers for word processing; or electronic newspaper composition rather than manual typesetting) might also result in process change, which is supposed to be “digitalization.” 

Digitalization is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities,” Gartner says. 

“One common misconception is that going digital is about implementing a set of technologies that get you to a digital outcome,” says Paul Chapman, Box CEO. “And that actually isn’t the case.” The problem is that it is not crystal clear whether that expectation of an outcome is an example of “digitalization” or “digital transformation.” It might be either; it might be both. 

SAP differentiates by saying digitalization is when “data from throughout the organization and its assets is processed through advanced digital technologies, which leads to fundamental changes in business processes that can result in new business models.” 

So an accumulation of digitalization efforts can eventually result in “transformation,” according to SAP, which tends to see transformation as a process that culminates or results from a series of more-discrete digitalization efforts. 

Others might argue that transformation primarily describes an entity’s ability to be customer-driven, end to end, across every internal operation. But just as many might disagree, arguing that transformation “means far more than a customer-focused technology transformation.”

In that sense, perhaps it is fair to see “transformation” as a concept, while “digitalization” is the set of practical changes in business processes, when digital technology is applied intentionally to change processes. 

According to Gartner, “digitization” is the simple substitution of a digital process for a former analog process, with no intent to change the business process. But as with “digitalization” and “transformation,”t often is hard to characterize the difference. 

Substituting automated teller machines for human bank tellers might be considered a “mere” digitalization move. But it might also enable a change of business model and processes. 

One might note the same for use of self-checkout kiosks in retail stores. That might be said to be a “mere”  digitization strategy, substituting a digital self checkout and payment process for a human clerk handling the same functions. 

But it also is a transformation of business model, to the extent that any business model includes both “how” an entity makes its revenue and all internal processes required to realize sales and revenue. 

Not only are operating costs affected, but human resources can be freed up to undertake other tasks, such as concierge services such as fulfilling shopper online orders for on-site pickup. To a real extent, that changes the model from traditional in-store retail to something else, including grocery delivery. 

Even our definitions require subtlety.

U.S. Office Workers REALLY Do Not Like Office Work

U.S. workers REALLY do not like working in the office, a survey of 3500 U.S. workers by Goodhire finds. 

 

Some 68 percent of respondents would choose remote working options over in-office work. 61 percent of respondents would be willing to take a pay cut to maintain remote working status. Some workers even suggested they would take a 50 percent pay cut to avoid returning to the office. 

Some 45 percent of respondents would either quit their job or immediately start a remote work job search if they were forced to return to their office full-time. Nearly 25 percent said they would quit if a return-to-office mandate was instituted.

Nearly three quarters of respondents said they need a continued remote working arrangement to stay at their current job. Fully 85 percent of respondents prefer to apply for jobs that offer remote flexibility, while just 15 percent would apply for a position that requires total full-time office work. 

Some 60 percent of respondents would move to a new city just for the opportunity to work remotely in any capacity; while 70 percent of respondents would forfeit benefits to maintain remote working status, most commonly: health insurance, paid time off, retirement accounts, and more.

About 74 percent of respondents believe that companies not offering remote working arrangements will lose major talent in the workforce. Also, 67 percent of respondents believe that companies that do not offer remote working arrangements will struggle mightily to attract quality applicants.

Additionally, 64 percent of respondents believe companies that do not offer remote working arrangements will have to increase salary offerings to entice job seekers to apply.

U.S. Telcos Halt Broadband Account Erosion

It might not seem like much that the biggest U.S. telcos added 50,000 net new internet access accounts in the second quarter of 2021. Not when the biggest cable companies added 840,000 net accounts in the same period. 

But the telco performance is important as it halts a 20-year period when cable dominated internet access growth. For most of the last two decades, telcos had either lost accounts overall or lost market share to cable operators. 

So far this year, telcos have had positive net net additions. 

Still, with cable companies adding new customers an order of magnitude faster than telcos, there is a long ways to go before telcos can hope to reverse the installed base trend, which has cable with about a 70 percent share, compared to about 30 percent share for telcos.

Change "What" More than "How"

Business advantage is the purpose of digital mastery. Otherwise, investments in digital processes are a waste of money. 

Some--because of their role in the business ecosystem and their own revenue models, emphasize customer experience almost to the exclusion of all else. That makes “customer experience” into “digital transformation.” That is fine as far as it goes, but is incomplete. 

source: MIT Sloan Review 

New business models are hard, complicated, complex and often time-consuming, so it is understandable that much DX thinking and action occurs at a more discrete process level. 

Of course firms are going to look for ways to sell online, to leverage newer sales channels. Some sellers of products will look for ways to create service businesses built on “rentals” of those same products. That is an example of a “product line extension” and does not require getting into a whole new adjacency in the value chain. 

In other cases DX allows new products to be created within the core business. Selling “outcomes” rather than products ranging from tires to aircraft engines. So the product is so many kilometers of safe driving or so many hours of propulsion: a service rather than a product purchase. 

The point is to focus on “transformation” rather than “digital.” “What needs to change” is the question, not so much “how it can change.”