FiberLight Sold to Institutional Investors

A consortium led by H.R.L. Morrison & Co, the Australian Retirement Trust and a managed client of UBS Asset Management are acquiring FiberLight from energy firm Thermo Companies. 

Headquartered in Atlanta, Georgia, FiberLight is a pure-play, top-ten  fiber infrastructure provider in the U.S. market, featuring 18,000 route miles of fiber infrastructure reaching customers in over 30 metropolitan areas, principally in the major markets of Texas and the Northern Virginia area.

FiberLight’s seasoned management team, led by Chief Executive Officer Christopher Rabii, will continue to lead the business, the new owners say. 

That latest deal is another example of institutional investors snapping up digital infrastructure assets. Generally speaking, the attraction is that the assets are “alternative” holdings in portfolios offering the prospect of predictable cash flows over time. 

source: Asian Infrastructure Investment Bank

The interest in selling on the part of digital infrastructure owners is an exit from a business that is getting more capital intensive at the same time return on invested capital is shrinking. 

As with all trends, there are reasons why buyers and sellers are motivated.

The Metaverse Could Easily Take 30 Years to Reach Ubiquity

Major technology transitions typically take much longer than proponents expect. One common facet of new technology adoption is that change often comes with a specific pattern, namely a longish period of low adoption, followed by an inflection point leading to rapid adoption.

That leads supporters to overestimate early adoption and vastly underestimate later adoption. Mobile phone adoption, and smart phone adoption, illustrate the process. You might think adoption is a linear process. In fact, it tends to be non-linear.

Also, the more fundamental the change, the longer to reach mass adoption. Highly-useful “point technologies” such as telephones, electricity, mobile phones, smart phones, the internet and so forth can easily take a decade to reach 10-percent adoption. Adoption by 40 percent of people can take another decade to 15 years. And adoption by more than 40 percent of people can take another decade to 15 years. 

source: MIT Technology Review 

That suggests a 30-year adoption cycle for a specific innovation that has high value to be used by 40 percent to 70 percent of people. Something such as metaverse, which is far more complicated, could easily take 30 years to reach 40 percent of people in ordinary use. 

That might mean at least a decade before metaverse apps are in common use by 10 percent of people. Even then, use cases are likely to be dominated by gaming, business communications and video entertainment. 

source: Robert Patterson 

The sigmoid function arguably is among the most-important mathematical expressions one ever encounters in the telecom, application and device businesses. It applies to business strategy overall, new product development, strategy for legacy businesses, customer adoption rates, marketing messages and  capital deployment, for example. 

The sigmoid function applies to startups as well as incumbents; software and hardware; products and services; new and legacy lines of business. 

source: Innospective

The concept has been applied to technology adoption in the notion of crossing the chasm of value any technology represents for different users. Mainstream users have different values than early adopters, so value propositions must be adjusted as any new technology product exhausts the market of early adopters. Early adopters can tolerate bugs, workarounds or incomplete on-boarding and support experiences. They tend to be price insensitive. 

It always takes longer than one expects for a major new innovation to become ubiquitous. Metaverse, being a complicated development, might take longer than any point innovation.

Are Infrastructure Correlations With Economic Growth Actually Causal?

Virtually all of us act as though better broadband has a positive impact on economic growth, in the same way that electricity is correlated with economic growth. Indeed, historically higher energy consumption is correlated with economic growth. 

source: Telecom Advisory Services 

Likewise, it can be argued that transportation also is correlated with higher economic growth. Even there, however, there are questions about whether better transportation creates or merely redistributes economic growth from one place to others. 

The same can be argued for all other forms of infrastructure, physical or social, ranging from water supplies to education and medical care. There almost always is some degree of correlation between higher economic growth and higher inputs of physical or social infrastructure.   

So everyone might agree that broadband quality and economic growth tend to be correlated, though the degree of correlation varies. Burt as with other sorts of infrastructure, it is hard to argue with certainty that any particular infrastructure investment actually “causes” economic growth. 

That is why economics often use phrases such as impact to describe such correlations. So better broadband might be said to drive economic growth. That is another way of saying causal  but less directly. 

Contribution, component or contributor might be other ways economists might describe the relationship between better broadband, transportation, electricity, water systems, education or income and wealth on economic development. 

Correlation is clear. What is unclear is “causation” of any of the inputs.

When All Home Platforms are the Same, Marketing and Operating Prowess Still Will Matter

Virtually all observers believe hybrid fiber coax eventually will be replaced by fiber to the home. The issue always is the time frame for the transition. What is not so clear is the eventual impact on cable operator market share. Some forecasts might reflect use of HFC platforms rather than internet access (home broadband) market shares, as cable operators gradually move to FTTH themselves. 

source: Point Topic 

Assuming cable operators remain astute operators, a case can be made that even after the shift to FTTH platforms, they should still be able to maintain leading shares in the home broadband markets, much as one now sees in mobility markets globally. Platforms are the same. What matters are operating and marketing prowess. 

source: Point Topic

How "Reliable" or "Available" is the Internet? Nobody Can Really Know

End user experience of the internet is virtually impossible to quantify in terms of total availability. In other words, it is objectively impossible to measure. And, no matter what the objective estimates might be, they are conditioned by subjective issues. 

For example, even if we can estimate that the total availability of all internet apps is collectively 90 percent, meaning something, somewhere,  is not available about 10 percent of the time, no user is actually trying to use all those potential apps. 

Outages that happen do not matter for users not using any particular app, data center, internet service provider or backbone network. Furthermore, nobody is actively interacting with internet apps 24 hours a day, seven days a week.

So outages that happen when one is not interacting with an app effectively “do not matter” for that user. 

We long have known that anything related to the internet is not as “reliable” (service availability) as the old public switched telephone network. The telephone network uptime standard was 99.999 percent availability, representing annual downtime of about five minutes.

source: AWS 

Availability for consumer internet apps and services tends to be far lower, in large part because the entire end-to-end transmission chain is not under any single entity’s control. Consider recent availability data for U.K. internet service providers. In all cases, availability was in the range of 97 percent to 90 percent.  

source: Uswitch 

But that was only for the local access link. Those availability figures do not take into account any other sources of availability loss: far end access; app availability; device availability; local power availability or any other platform availability. Since there is no “chain of custody,” it is virtually impossible to estimate average availability for any particular configuration of hardware, software and platforms at any single location or for any single device. 

It is safe to say that 99.999 percent availability for consumer internet “anything,” end to end, is impossible. 

It probably goes without saying that the Internet is a complex system, with lots of servers, transmission paths, networks, devices and software all working together to create a complete value chain.

And since the availability of any complex system is the combined performance of all cumulative potential element failures, it should not come as a surprise that a complete end-to-end user experience is not “five nines.”

Consider a 24×7 e-commerce site with lots of single points of failure. Note that no single part of the whole delivery chain has availability of  more than 99.99 percent, and some portions have availability as low as 85 percent.

In principle, availability could be quite low, without redundancy built in. 

The expected availability of the site would be 85%*90%*99.9%*98%*85%*99%*99.99%*95%, or  59.87 percent. Redundancy is the way performance typically is enhanced at a data center or on a transmission network, to avoid such a state. 

Component	Availability
Web	85%
Application	90%
Database	99.9%
DNS	98%
Firewall	85%
Switch	99%
Data Center	99.99%
ISP	95%

source: IP Carrier 

In practice, cloud data centers have made great strides where it comes to availability, so that dire situation virtually never happens. The other issue is that “user experienced” availability is better than actual end-to-end availability since users are not actually connected and engaged with internet experiences and apps all day, every day. 

Outages can occur with any user-experienced downtime if any particular user is not actually interacting with the internet at the moments when the outages occur. Even if end-to-end experience is at the 90-percent level, implying outages about 10 percent of the time, it does not affect a user if those outages occur when a person is sleeping or otherwise logged off.

WAN Services Now as Little as 3% of Telco Revenues?

Most global telco revenue is earned providing mobile services. Contributions by local fixed network services are lower. Perhaps lowest of all are wide area connectivity services. If total service provider revenue is about $1.6 trillion, mobility represents perhaps 57 percent of the total.  

source: IDC. 

That is just as true in the consumer segment, which itself represents perhaps 60 percent of total service revenues for a typical service provider. In the United States, for example, fixed network communication services might represent only about 20 percent of total consumer segment revenues. As much as 20 percent of total revenue might be generated by video entertainment subscriptions. 

source: Mobile Experts

Wide area network services sold to businesses are a small revenue contributor, overall. In 2020, for example, wide area network services might have represented $46 billion in service revenue, or possibly three percent of total service provider revenue.  

source: Telegeography 

Total enterprise connectivity revenues might have been in the $70 billion range in 2018, with roughly 30 percent coming in the form of local access.  

The point is that wide area network services--for consumers or businesses--is a small part of total telecom service provider revenues, in the three-percent range in most cases.

Content Businesses Remain Important for Some Connectivity Providers

“Average” is always potentially misleading when discussing any trend related to the internet. To a lesser extent, perhaps, “average” also can be misleading in the connectivity or data center businesses. Everyone can see that traditional linear subscription television is in decline, while streaming services are growing.

But there are big differences in rates of change and direction of change in different markets. The slide is biggest in the U.S. market, but other markets are growing. 

source: Omdia

Also, asset ownership matters. Though most streaming services are owned by third parties, connectivity providers might own those assets in some cases. That makes possible significant revenue growth for connectivity providers who also are asset owners. 

source: Omdia 

But high rates of content investment and pressure on average revenue per account present many of the same financial challenges as faced by connectivity service providers investing in their core businesses: high capital investment and slow growth with often declining ARPU. 

Content no longer seems to be a silver bullet for revenue growth, as once might have been believed three decades ago. And content profit margins have often not matched those of legacy connectivity services, either. Though some content services offered by connectivity providers once had profit margins as high as 40 percent, margins have since dipped towards 10 percent for many, though perhaps remaining as high as 20 percent for the providers with the most scale.

IoT, Private Networks, Edge Computing Will Get the Headlines, Fixed Wireless Will Generate the Cash

It is conceivable that mobile operators globally will make more money providing home broadband using fixed wireless than they will earn from the flashier, trendy new revenue sources such as private networks, edge computing and internet of things. And that might be true even if those other new revenue sources represent vastly more connections, sites or contracts.

source: Ericsson 

Wells Fargo telecom and media analysts Eric Luebchow and Steven Cahall predict fixed wireless access will grow from 7.1 million total subscribers at the end of 2021 to 17.6 million in 2027, growth that largely will come at the expense of cable operators. 

source: Polaris Market Research 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12140	24158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14082
source: IP Carrier estimate

Consider the U.S. market. By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues.

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026. $24 billion would represent about 33 percent of total home broadband revenues. 

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all to 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

Do you believe U.S. mobile operators will make more than $14 billion to $24 billion in revenues from edge computing, IoT or private networks?

In fact, do you believe 5G mobility services will drive much revenue increase? The issue is opaque. U.S. mobile operators increasingly are taking the marketing tack of moving customers to higher-priced accounts featuring unlimited usage and then enabling 5G access as a feature of that upgrade.

So is it 5G driving the increase in revenue per account, or is it the upselling of service plans? Some of us would argue it is the latter, not the former. 

The GSMA has argued that fixed wireless would be a key driver of 5G value. 

By way of comparison, low average revenue per device might well mean that even high numbers of sensor connections do not drive especially notable connection revenues for mobile operators. 

Nor might private networks or edge computing revenues be especially important as components of total revenue. It is almost certain that global service provider revenues from multi-access edge computing, for example, will be in the single-digit billions ($ billion) range over the next few years. 

The same is true of forecasts of service provider internet of things revenue. The service provider 4G or 5G private networks revenue stream is likely to be small as well. 

All that implies that 5G fixed wireless might be the most-material--and largest--source of new service revenues for mobile operators.