Inflection Point for Gigabit Access?

To the extent that faster home broadband speed tiers cost more, there is a clear and compelling argument to be made that fixed network providers can increase average revenue per account as customers migrate to higher-priced tiers of service. 

Also, we might be on the cusp of a bigger opportunity for telco gigabit services, as history suggests take rates for gigabit services has reached an inflection point. 

source: Openvault

Historically, popular consumer products accelerate after adoption reaches the 10-percent of homes level, and gigabit internet access now has reached that point. 

Openvault data shows that consumers are migrating to speed tiers faster than 100 Mbps. 

source: Openvault

At the same time, markets for 4G fixed wireless are likely to be centered on rural areas, as urban customers move to services operating faster than 100 Mbps. 5G fixed wireless might be competitive for significant percentages of urban market customers.  In fact, 5G fixed wireless offering speeds between 100 Mbps and 200 Mbps might appeal to nearly half the market.

It is hard to quantify demand for symmetrical services. It seems clear that services with faster upstream speeds, such as telco fiber to home services, could be the near-term winners in that regard.

Gigabit Take Rates Might be at the Inflection Point

In the fourth quarter of 2020, about 8.5 percent of provisioned fixed network internet access connections operated at speeds of 1 Gbps or so, according to Openvault data. That is about a tripling of gigabit customers in a year’s time, showing an acceleration of buying. 

In late 2018, fewer than two percent of buyers were purchasing gigabit speed services. So growth from 2018 to 2019 was about 55 percent. One might argue that take rates for gigabit internet access now have hit an inflection point, and will start growing much faster, possibly as much as doubling every year for a few years. 

source: Openvault 

The reason for such a change in growth is that successful mass market consumer products tend to hit an inflection point at about 10 percent take rates. And gigabit per second internet access seems right at that point. 

source: Openvault 

AI, Edge Computing, 5G, Big Data Analytics, IoT are All Parts of A Single Transformation

Artificial intelligence, edge computing, cloud computing, gigabit mobile networks (5G and others), internet of things and big data all are key trends across many industries.

What we tend to miss, as so much change is happening, is simply that so much change is coming. It is better to view the cluster of innovations as the big change, and not so much the disruption each separate trend represents.

For it is the cluster of technologies that is so unusual. In the past, it has been easier to model the impact of a single innovation (personal computer, mobile phone, internet). It will be much harder in the coming era, since so many fundamentally disruptive technologies are emerging at the same time.

Big data now requires cloud computing. Big data will get bigger as internet of things sensors are widely deployed. So only artificial intelligence can sift through all the data to discern useful patterns.

And some of that data will have to be analyzed fast enough that edge computing is necessary. But 5G and other connectivity solutions will be needed to acquire all the data.

It is nearly impossible for a human to model all the possible interactions with enough detail to make the output useful. From a mobile operator’s point of view, it might be logical to put 5G at the center.

Other industries are going to put AI, or cloud, or IoT or big data at the center. No matter. The point is that the cluster of technologies is what really matters, not any single one of the technology trends.

In this unusual situation, impact will not be measured by market share stats. The percentage of work loads, the location of work load processing, the number of sensors and connections, the use of analytics and machine learning systems will fail to tell the full story.

source: Korea Telecom

As useful as market share analysis might be, it fails to capture the underlying market dynamics when a disruption is underway. Consider that, after nearly two decades, online commerce claims only about seven percent of total retail commerce volume.

Most of us, asked to evaluate the potential impact of a substitute technology platform that has gotten only seven percent share after nearly two decades would likely say that technology is not a major disruptor of the legacy platform.

But we would be quite wrong. If history is a useful guide, we are about three share points away from a decisive change in the adoption rate--and market share--of the new platform.

The reason for that assertion is that, in the past, transformative technologies and successful consumer electronics innovations hit an inflection point at 10 percent adoption, no matter how incremental the prior moves had seemed.

This chart by Asymco shows adoption rates of popular consumer products after 10 percent adoption was reached, no matter how long the gestation.

source: Asymco

As you probably would expect, particular products introduced into developed ecosystems tend to be adopted faster, while products that require further development of an ecosystem can take longer to reach 10-percent adoption rates. Automobiles required a huge infrastructure of roads and gas stations.

The telephone required network economics, as the value of having a phone line was fairly low, for most users, when few other people had them. Likewise, supplying electricity required power plants and transmission lines, plus local power distribution networks.

source: Forbes

And though it is a lesser point, as in some other markets, online commerce represents virtually 100 percent of the net growth.

source: www.nielsen.com

Researchers have been predicting for several decades that computing is going to be pervasive. What we are seeing is the realization of that prediction. Some say "fourth industrial revolution" is coming. Some of us might simply say the era of pervasive computing, as predicted, is arriving.

It is not simply "production" that is going to be affected, affecting industries and economics. Human consumption, lifestyles and behaviors are going to change, as well. This is big, very big.

Thinking about "Change Management"

For what it is worth, these are some references I used when preparing to teach portions of a "change management" course to some Asian telco executives a couple of years ago.

70 percent of change efforts fail, the Journal of Change Management has estimated. Management consultant Philip Kotter argues there are eight crucial processes to a change plan.

As you clearly can see, the whole process inherently is political: executives have to overcome resistance to change, creating a sense of urgency, then building a coalition to overcome resistance, then creating and communicating the vision.

Organizational personnel then must be given authority to make the changes by acting in non-traditional ways. People with power to support and sustain the changes must be hired and promoted. Perhaps the corollary is that key obstacles have to be removed.

Leaders need to understand they will face a huge amount of resistance, and then discouragement.

What business are you in?

Executives know what business they are in at present. The difficult question is what business they will be in in the future. That’s the hard part. Some organizations will eventually find themselves in different lines of business.

What is the value of the fixed network? How are fixed networks used? What is the opportunity or danger from mobile substitution? What, in fact, is your response to "mobile" competition or the mobility business?

In any event, data services are driving growth on both fixed and mobile networks. And that might always be the case. But what is the relationship between access and services?

What happens to smaller carriers? Scale always matters in the communications business. Will organic growth or acquisitions drive growth?

Many service providers will have tough choices to make, such as whether to sell the business, divest some parts of the business, or outsource parts of the business. Others will find the business context has changed.

Is your business growing, flat or declining?

Global telecom revenue tends to grow, in most years. But that doesn’t mean every segment, and every market, does so.

Your business strategy will reflect that dynamic. Some service providers face a fundamentally tougher future business climate. That is true in Europe, and could be an issue in other similar markets. Consider four years of decline in the U.K. market and other Western European markets.

That is a problem for most service providers in developed markets, less a problem for developing markets, where the decline of voice revenue is not yet a problem. Some think additional markets are approaching a peak. Even mobile messaging is becoming mature.

But the Asia-Pacific region is generally seeing high rates of revenue growth. So, in general, does most of the developing world. But growth will not be universal.

Regulatory action also will affect your strategy. In some cases, regulators will take action to decrease your revenue. Regulators also powerfully affect your business model, prices, revenue opportunities and therefore strategy.

What business should you be in?

What is the foundation for your business? what is the lead offer? How much must you supply? How will that change, over time?

How much should you rely on organic growth, versus acquisitions. Can you, and should you, enter the mobile business, if you are not already in that business? Is such a move even feasible?

Is unified communications the answer? How about machine to machine services such as home automation? How big will that business be in the Asia-Pacific region?

What about cloud computing? What is the role of entertainment video? What about connected car opportunities? How much can service providers make from the connected car business?

How important will mobile commerce potentially be, for mobile service providers?

What are the relative values of business and consumer customer segments? What do those customers want to do? How big will product transitions be? In any case, business models must change, many would argue. If there is good news, it is that such transitions are possible.

Who are your competitors?

Who are the logical, and unexpected, potential mobile service providers? Can mobile compete with fixed networks for broadband access? Even the most stable markets can be upset by new competition.

The switch to IP networks automatically allows new competitors into any business, especially non-traditional providers. That means new competition is coming. Look at France, where Illiad has disrupted the market.

Expect more of those unconventional attacks, from unexpected competitors.

Who are your customers?

Do you serve consumer and business customers, wholesale or retail customers? What do they want from you? How might your customer base change in the future?

If you are a fixed line provider, how do you benefit from mobile and mobile offload?

What are you doing now?

It is important to contain cost. That might not be so easy. But in competitive markets, the lowest cost competitor tends to win.

And customer demand is changing. Keep in mind that big changes in the communications business tend to have a long gestation period, where it doesn’t seem much is happening. But then we hit an inflection point and everything changes quickly. Because change is slow at first, many will move too slowly to meet coming challenges.

Market competitive Internet access offers provide one example. In some markets, change now has become non-linear.

Still, managers will do best, financially, by protecting existing revenue streams, even as new lines of business are grown. The reason is revenue magnitude. The legacy business normally is large; the new businesses small. So small changes in the legacy business represent much more revenue impact that big changes in new lines of business.  

What must you do tomorrow?

Over the medium and longer term, new revenue sources must be found. In many cases, there will be serious gross revenue implications. The saying “exchanging analog dollars for digital dimes ” captures the dilemma.

But even legacy services require more investment. And nobody likes being thought of as a dumb pipe. But “access” is a foundation for the rest of the business. Untethered might be as important as “mobile.” Can you use new spectrum?

But in many cases, major change will be necessary. But the timing of your moves will be crucial. And what drives growth is a question.

Much also depends on the future competitive environment, including mobile bandwidth capabilities that challenge fixed networks.

What are your unique sources of advantage?

Does your firm possess unique sources of value? If so, what are they, and how do you know? How much value will your network provide in the future? Is innovation one of those strengths?

How do you create value? What should your core revenue strategy be? If you are a fixed services provider, what is the strategic value of your network?

Are your people ready for change?

Skills need to change, and that can be difficult to manage. Change will be easier for mobile service providers, harder for fixed network service providers.

Reinvention is risky and hard, but there are some examples of success. The bad news is such success normally happens for larger carriers, not smaller carriers.

Are you making the right investment choices?

Few executives actually focus on what is most important. Are you measuring success the right way?

What is your network?

Wi-Fi hotspots now are part of the carrier infrastructure, even when those facilities are not owned. What is your strategy about mixed private and public access? Consumers are rational about the value those options represent. Can you match your services to those expectations? How does Wi-Fi figure into your strategy?

How must you run your network to accommodate higher Internet access demand? In many cases, gigabit networks will become a market reality.

If you run a fixed network, and must upgrade, which network do you choose? Can you use unlicensed spectrum? Can you use mobile networks?

What are the roles for mobile and fixed networks?

Industry Issues

Net neutrality will have impact on revenue models and innovation. But investment is a bigger issue. So is intensified competition. That also means more mergers. Over the top competition is a fact of life.

Mobile services are a strategic factor globally. So is the Internet. How fast use of the Interent is growing likewise is a major investment issue.

Disruption is a major industry concern. Sometimes, that disruption can be unintentional. Often, the attacks use unconventional approaches.

Where is the revenue growth?

Mobile services drive growth, globally, but the role of fixed networks will vary from market to market. Public access will provide a niche opportunity. In many instances, mobile networks will be the primary way people buy  high speed Internet access.

In most cases, even new services will have uncertain revenue magnitude.

That illustrates another problem with many new services: profit margin might be a challenge.

One reason so many service providers now bundle products is that the old “one product” model is broken. There is just too much competition to support a business that way.

How do you respond to over the top services?

In some specific instances, OTT could help service providers. Also, software or application services might grow faster than hardware based solutions. Unified communications might be one example of that trend.

Sometimes the revenue models are not completely clear. And every larger service provider must decide to get into OTT apps themselves, or not. That requires an assessment of whether OTT messaging cannibalizes text messaging.

That could unlock some Internet ecosystem revenue for service providers. The point is that service providers have choices.

But that doesn’t necessarily mean service providers always should respond to new offers by matching them, as logical as that seems. Can you compete? Should you?

How do you price and package services?

Bundling works, which is why most service providers are striving to be multi-product providers.

Crafting retail offers entails some science, some art. The challenge of pricing Internet access will become more difficult in the future.

In many cases, adding small incremental charges can add more revenue than big new services initiatives. But packaging tactics can make a big difference.

Also, revenue upside from selling faster access services can be a challenge.

Mobile service providers are counting on 4G networks to boost revenue. Just how impact that will have is unclear. There is hope, over the long term, but new revenue opportunities often emerge only after some time has passed. Tablets might be an exception to that rule.

How offers are constructed might also become important. Today, service providers price by the minute or by the megabyte. Someday we might price by the value of an application. That will require retail packaging that is both simple and sophisticated.  

One growing problem is that people have choices. There simply are other ways any consumer can solve a problem. Many of those choices have revenue implications.

Price anchoring will be important.