Fixed Wireless Will be a Big Deal for Some Firms

Small amounts of market share can be a big deal for certain connectivity providers. Satellite providers globally tend to hold less than one percent market share of home broadband connections, for example. But that is 100 percent of their consumer access business, a growth driver and generated perhaps $4 billion in revenue in 2020. 

In other words, satellite broadband might be a niche, but a useful niche and the foundation for many company business plans. Fixed wireless has to be seen in that light as well, though it will likely emerge as a more-important platform in some markets. 

For a company such as T-Mobile, operating in the U.S. market, a gain of just two percent share of the existing U.S. home broadband market represents revenue upside of about $4 billion. To put matters another way, T-Mobile in the United States could use fixed wireless to grow a new line of business as big as the global satellite broadband industry. 

Fixed wireless is a subject that has importance “at the margin” for service providers. The service is provided by perhaps 70 percent of connectivity service providers, according to Ericsson, yet does not generate huge account numbers globally. 

The highest growth during2021 has been in regions with the lowest fixed broadband penetration: Middle East and Africa, Central and Eastern Europe, Asia-Pacific and Central and Latin America, says Ericsson.

source: Ericsson 

Those regions grew between four and 13 percentage points. Central and Eastern Europe had growth of almost 25 percentage points since the start of the pandemic in February 2020.

Service provider adoption of fixed wireless  offerings has increased by 12 percentage points in the first half of 2021 and more than doubled since the first measurements in December 2018.

source: Ericsson 

Still, total accounts in service are not so high by global standards. There were perhaps 1.7 billion fixed network broadband accounts in service in 2020. Only about 60 million to 65 million of those connections were supplied using fixed wireless, by Ericsson reckoning. 

So fixed wireless accounted for less than four percent of total fixed network broadband accounts. Ericsson does expect fixed wireless share of fixed network connections to reach about 10 percent by 2026. 

Still, that is a relatively small portion of total connections. The real importance might well come in some highly-competitive, large and saturated markets where home broadband is nearly a zero-sum game. In such markets, one supplier’s gain is balanced by another supplier’s loss. 

And in such markets, a small shift of market share represents significant incremental revenue. In the U.S. market, market share shifts as small as two percent represent $4 billion in annual revenue. 

New lines of business worth $1 billion annually are a reasonable test of feasibility for many larger tier-one service providers. Any new proposed line of business generating less than $1 billion in annual revenue is too small to bother with. So fixed wireless easily passes the test of value. 

“At the margin” is where fixed wireless will be hugely important. That will often be the case in large, saturated markets where shifting just a few points of market share represents significant revenue upside.

New NTIA Broadband Gap Map Available

The new broadband map produced by the U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a new publicly available digital map that is intended to show areas where the minimum 25 Mbps downstream service defined as “broadband” is not available. 

The mashup uses five different data sources, including data from both public and private sources. It contains data aggregated at the county, census tract, and census block level from the U.S. Census Bureau, the Federal Communications Commission (FCC), M-Lab, Ookla and Microsoft. 

As always, assumptions matter. Microsoft, for example, once claimed about half of U.S. residents--163 million people--cannot get 25 Mbps service. In 2020, says Microsoft, 120 million cannot use the internet at 25 Mbps, or about 37 percent of all U.S. internet users . That is hard to believe. 

source: Microsoft 

The Microsoft data contrasts radically with Openvault data suggesting that, in the first quarter of 2021, less than 10 percent of U.S. internet users were accessing the internet at speeds less than 25 Mbps. 

Microsoft says its methodology uses “anonymized data that we collect as part of our ongoing work to improve the performance and security of our software and services,”

source: Openvault 

I do not know the details of Microsoft’s methodology, but a reasonable person could think of lots of reasons why a particular application does not appear to operate at access connection speeds. Use of Wi-Fi provides a good example. But there are contention issues within some homes; use of mobile connections; device issues and in-building interference issues that might explain the vast difference between Microsoft’s claims and Openvault’s data.

How Much Does "Typical" U.S. Home Broadband Actually Cost?

One subtlety when assessing the state of U.S. broadband access is evaluating the real prices people actually pay, compared to posted retail prices. In the U.S. market, for example, perhaps 60  percent of fixed network customers buy internet access as part of a bundle.

That, in turn, means it is not possible to know precisely how much the broadband component costs, as two or more services are offered for a single monthly price.

It might be easier to track actual prices for internet access if more customers buy stand-alone internet access. In the first quarter of 2021, the percentage of U.S. broadband households with stand-alone broadband service increased to 41 percent.

These consumers pay $64 per month on average for stand-alone broadband service, up from $39 per broadband household in 2011, a 64 percent growth rate over a decade. In part, that is because customers are buying service operating at faster rates. 

In the fourth quarter of 2011, the average U.S. fixed network speed was less than 5 Mbps, as hard as that might be to believe. 

source: Statista 

About 9.6 percent of U.S. home broadband accounts now buy service at 1 Gbps, says Openvault. That is important because, historically, successful consumer products hit an adoption inflection point at about 10 percent adoption rates. In the colloquial, what happens is that “you buy because your neighbor has it.”

source: Openvault 

More significantly, about half of customers buy service operating at rates from 100 Mbps to 200 Mbps. Roughly a third of U.S. home broadband accounts offer speeds above 200 Mbps. We can safely predict that average speeds will continue to increase. Since average speed increased by two orders of magnitude from 2011 to 2021, we can assume roughly the same increase by 2031.

That suggests the typical home broadband service will operate somewhere between 1 Gbps and 10 Gbps in a decade.

CxOs Disappointed (So Far) by Cloud Computing Value

It should come as no surprise that CxO expectations of cloud computing payback lag expectations in the areas of resilience; agility; decision making; innovation; customer experience; profits; talent recruitment and retention; costs or reputation, for example. 

All of those business processes are shaped by many other inputs than mere applied technology. And the general rule with any important new technology is that the value is not recognized until core business processes are reshaped to take advantage of the new technology. That is as likely to happen with cloud computing as with any other important new tools. 

Any major shift in technology and related business processes takes time. So much time that there often is a “productivity paradox” where investments do not seem to make much difference in outcomes for a decade or more. 

Nokia has noted that manufacturing productivity since the 1980s has been slight, in the range of one percent per year growth, despite all the information technology applied to manufacturing. 

source: PwC 

Despite the promise of big data, industrial enterprises are struggling to maximize its value.  A survey conducted by IDG showed that “extracting business value from that data is the biggest challenge the Industrial IoT presents.”

Why? Abundant data by itself solves nothing, says Jeremiah Stone, GM of Asset Performance Management at GE Digital. At least one study suggests similar findings for broadband internet access as well. 

The consensus view on broadband access for business is that it leads to higher productivity. But a study by Ireland’s Economic and Social Research Institute finds “small positive associations between broadband and firms’ productivity levels, none of these effects are statistically significant.”

“We also find no significant effect looking across all service sector firms taken together,” ESRI notes. “These results are consistent with those of other recent research that suggests the benefits of broadband for productivity depend heavily upon sectoral and firm characteristics rather than representing a generalised effect.”

“Overall, it seems that the benefits of broadband to particular local areas may vary substantially depending upon the sectoral mix of local firms and the availability of related inputs such as highly educated labour and appropriate management,” says ESRI.

 Big waves of information technology investment have in the past taken quite some time to show up in the form of measurable productivity increases.

In fact, there was a clear productivity paradox when enterprises began to spend heavily on information technology in the 1980s.

“From 1978 through 1982 U.S. manufacturing productivity was essentially flat,” said Wickham Skinner, writing in the Harvard Business Review.

In fact, researchers have created a hypothesis about the application of IT for productivity: the Solow computer paradox. 

Here’s the problem: the rule suggests that as more investment is made in information technology, worker productivity may go down instead of up.

Empirical evidence from the 1970s to the early 1990s fits the hypothesis.  

Before investment in IT became widespread, the expected return on investment in terms of productivity was three percent to four percent, in line with what was seen in mechanization and automation of the farm and factory sectors.

When IT was applied over two decades from 1970 to 1990, the normal return on investment was only one percent. 

This productivity paradox is not new. Information technology investments did not measurably help improve white collar job productivity for decades.

To be sure, some argue that the issue is our inability to measure productivity gains. It is happening, but we are unable to measure it, many would argue. That argument will not win many supporters in the CxO suites. 

Still, the disappointment is to be expected. It will take time to reap the measurable benefits of cloud, 5G, edge computing, internet of things or any other major new technology.

SASE Interest Driven by Work From Home

If work-from-home continues at a significant level after Covid-19 pandemic restrictions have abated, it is easy to suggest that investments in security at remote locations will be an important necessity. According to a study by Sapio Research, commissioned by Versa Networks, an average of 44 percent of office workers  in the United States, United Kingdom, France and Germany will continue to work at least part of the time from home. 

source: Versa Networks 

That, in turn, suggests new investments in remote-location security. The study found 34 percent of businesses invested in Secure Access Service Edge (SASE) in the past year, and an additional 30 percent plan to do so in the next six to 12 months. 

The research, conducted by Sapio Research across 500 security and IT decision makers also found that 84 percent of businesses have accelerated their digital transformation and move to the cloud during the pandemic. 

“Digital transformation” can mean almost anything these days, from investments in processes to conduct transactions or operations “in the cloud” to use of such technology to recreate business models.

PTC Academy Accredited Training for Telecom Professionals

The next edition of the PTC Academy  online training courses--providing accredited continuing education recognition--will be held 7-29 September 2021, 09:00-10:30 SGT (UTC+08:00). 

You can register here. 

The course is delivered in 10 distinct modules over a three-week period by a team of leading industry executives. 

These modules will prepare you and your team for advancement with key insights into business challenges and opportunities in the ICT industry.

Students earn continuing education credit issued by the International Accreditors for Continuing Education and Training organization that are internationally accepted and can be used to satisfy a variety of professional requirements across a range of industries.

Course content is presented in 90-minute segments, featuring:

Introduction to Telecom: Key Trends and Changes in Business Models

Provides an overview of the global telecom industry business drivers with special emphasis on key business challenges faced by C-level executives.

5G and Beyond

A closer look at mobile and wireless segments of the industry as they relate to fixed networks and overall business models.

Pipes to Platforms: Cloud and Data Centers

Examines the role and importance of cloud computing and data centers in relationship to the connectivity business.

Your Career, Your Ladder

Explains how your skills, tasks, and knowledge will change as you move up the ladder to the C-Suite.

Doing Well While Doing Good

Examines C-level challenges of balancing the interests of many stakeholders: owners, managers, employees, customers, partners, and society.

How Would You Do It?

A workshop allowing participants to grapple with C-level issues of revenue, competition, customer demand changes, cost, innovation challenges, and social responsibilities.

OTTs: Opportunities and Threats to Telcos – Taking Advantage of Both

Over-the-top apps and services sometimes compete with, but can complement, connectivity provider strategies. What are the key challenges and opportunities?

What Really Impacts Your Mobile Gameplay or Streaming Video Experience?

A closer look at the critical elements affecting network latency and a discussion of how to reduce latency to deliver a better user experience.

Convergence

Provides a broader view of how digital natives are operating, the convergence of sectors and data models, and how this may impact telecom operators over the coming years.

Digital Transformation: How Data Centers, Networks, and Clouds Are Changing IT

A closer look at how data centers, networks, and clouds are changing the IT landscape, and how these companies come together to form the backbone of today’s digital economy.

PTC Academy is designed especially for:

• Professionals with five to 10 years’ experience in one or more functional areas at communications service provider firms, data center or collocation firms, infrastructure supplier firms, application providers, device suppliers, construction or maintenance firms, regulatory bodies, industry-related consulting firms, or other firms allied to the field

• Anyone who has not yet had general responsibilities for profit and loss at their firms

• Experts in their own fields interested in learning about key business factors in related industry segments

• Anyone who wants to learn more about the industry’s history and how business strategies have changed

Course prerequisites include:

• Basic computer skills

• English language fluency suggested

• High-speed Internet-connected computer

• Desire to learn about key C-level management challenges and perspectives

Significant WFH After Pandemic Shapes Security Mechanisms Such as SASE

If work-from-home continues at a significant level after Covid-19 pandemic restrictions have abated, it is easy to suggest that investments in security at remote locations will be an important necessity. According to a study by Sapio Research, commissioned by Versa Networks, an average of 44 percent of office workers  in the United States, United Kingdom, France and Germany will continue to work at least part of the time from home. 

source: Versa Networks 

That, in turn, suggests new investments in remote-location security. The study found 34 percent of businesses invested in Secure Access Service Edge (SASE) in the past year, and an additional 30 percent plan to do so in the next six to 12 months. 

The research, conducted by Sapio Research across 500 security and IT decision makers also found that 84 percent of businesses have accelerated their digital transformation and move to the cloud during the pandemic. 

“Digital transformation” can mean almost anything these days, from investments in processes to conduct transactions or operations “in the cloud” to use of such technology to recreate business models.

3 Pandemic-Related Threats Dominate Risk, Risk Managers Say

Business risk directly related to the Covid-19 pandemic dominates concerns, a survey of 3,000 risk management experts finds. 

Surveyed for the Allianz Risk Barometer, the top three dangers were lead by business Interruption, followed by the pandemic itself, while cybercrime--caused by exposure to digital intrusions and the shift to digital commerce because of the pandemic--ranked third out of 10 issues. 

Some 94 percent of surveyed companies reported a COVID-19 related supply chain disruption in 2020.

source: Visual Capitalist 

What might be striking is the much-lower scores for threats such as “market developments” (debt, gross domestic product health) or regulatory and legal changes, which might, under other circumstances, be perceived as bigger risks.

GCI Gigabit Take Rates are 4 Times the U.S. Average

GCI customers are buying gigabit home broadband service at about four times the national U.S. rate, GCI says. Take rates for gigabit service are in the 40 percent of passings range, compared to national U.S. rates less than 10 percent. 

Alaska’s remoteness, low population and distance from the equator (for geostationary satellite access) are historical reasons for limited bandwidth within the state. New long-haul optical fiber connections, as always, make the difference. 

source: www.submarinecablemap.com  

ESG Weighing Down AT&T?

With the caveat that some may not care about costs or other implications, AT&T CEO John Stankey, speaking at AT&T’s annual meeting, uttered something telling. The third question asked at the meeting (share price first, then ownership of CNN) was about “AT&T engagement on public policy and political issues.”

The question in this instance appears not to have been asked about the routine operations of its regulatory staffs, but about environmental, social, and governance issues that have seemingly become pronounced. 

Noting the “tough” environment for ESG that is “as polarized and as caustic an environment as any of us have ever seen,” Stankey might have suggested that the burdens now are such that management time is diverted from AT&T’s other pressing issues.  

“I know I personally and the rest of the management team are spending a lot of time” on these issues,” said Stankey. He did not quantify how much “a lot” entails, but a reasonable person might infer that it is a non-trivial volume. 

That leaves less leadership bandwidth for other pressing issues, which for AT&T includes its equity valuation; its debt load; its position in mobile and fixed network markets and its growth initiatives. 

Few would question a proportionate attention to stakeholder issues more broadly defined than “shareholder value.” But shareholder value is a weighing mechanism that suggests how well AT&T is managing the effort--as must any on-going business or non-profit entity--to sustain itself for success in the future. 

And that was the first question asked at the annual meeting of shareholders, the “owners” of AT&T. We might all agree matters are “better” when shareholder value; employee interests; environmental impact and societal good all can be fostered. 

The rub is the balance of effort and impact on outcomes when an entity is under stress, as AT&T is, in a market that is changing substantially. This year AT&T broke a decades-long tradition of raising its dividend.

AT&T had raised its dividend for more than 30 straight years, as best I can recall. That ended in 2021, when the company broke tradition and declined to increase the dividend.

To be sure, AT&T has not yet taken the truly-disruptive move of cutting its dividend, a drastic move that would portend serious trouble with its core business model. But investors clearly are worried about that prospect. 

One might well suggest that time-consuming ESG matters should not be prioritized as they have been when sustainability of the enterprise is arguably the biggest issue.

"The End" of Connectivity Services Revenue Model is Coming

“The end of communications services as we know them” is coming, argues the IBM Institute for Business Value. That puts the institute on one pole of an argument that never seems settled: should service providers build strategies around connectivity revenue sources, or look elsewhere for growth?”

In other words, should service providers focus horizontally on connectivity services or vertically integrate?  

In part, the study team--consultants Chad Andrews, Steve Canepa, Bob Fox and Marisa Viveros--base those recommendations on shrinking profit margins and lessened value of core connectivity services. That is what I have called near zero pricing.  

“There is evidence that connectivity may commoditize more suddenly and dramatically than expected,” the team argues. In other words, both lower prices per bit and lower demand for other legacy services will continue as a fundamental trend. 

“Margins for connectivity are likely to fall,” they note, as data consumption keeps increasing. “On the surface, exponential increases in scale would seem like a good thing for CSPs, but only if pricing keeps pace with the rate of expansion,” they say. “History and data suggest it will not.”

Near zero pricing is the term I use to describe the larger framework of connectivity provider pressures towards ever-lower prices. Others might prefer to emphasize marginal cost pricing. The point is that there is a reason the phrase dumb pipe exists. What we need to remember is that dumb pipe now is the foundation of the whole connectivity business. 

A caveat is that what people usually mean by “dumb pipe” is that a product has low value, is sold at low prices and generates low profit margins. That always is positioned as a bad thing. 

But think about it: industry revenue growth now is lead by broadband services (internet access), which is, by definition, a dumb pipe service. It is a way to get access to applications, not an actual application itself. Nor are profit margins always low. Broadband access now routinely has higher profit margins than entertainment subscriptions or most voice services or messaging can generate. 

The other issue is that value and revenue within the information technology and communications spheres keeps shifting away from “data access and transport.”

“In just three to four years,” sustaining growth may require “most CSPs (communication service providers)...to develop new competencies and assert themselves in new roles in value chains,” the IBM Institute for Business Value says. 

To be sure, that is not a novel bit of advice. “Think beyond connectivity” is about as standard a recommendation as one is likely to find any analyst, consultant recommending as a revenue growth strategy.  

“If CSPs are to thrive, most will need to develop new competencies and assert themselves in new roles in value chains,” the institute also says. As always, that advice runs counter to that of virtually all equity analysts, who always seem to want service providers to “stick to their connectivity roots.” 

Where the institute urges pursuit of different and new roles within the internet ecosystem, equity analysts want a focus on connectivity services. “Up the stack” or not remains a key argument. 

“CSPs should seek new ways to make money, beyond metering connectivity and access to data, as these traditional mainstays of CSP business models are likely to commoditize,” the institute says. 

“CSPs should seek new ways to make money, beyond metering connectivity and access to data, as these traditional mainstays of CSP business models are likely to commoditize,” the institute says. 

The institute identifies 5G and edge computing as key platforms, in that regard. Again, rather obvious suggestions. The institute also recommends a hybrid cloud strategy. That is not too surprising, given IBM’s commitment to hybrid cloud as its core strategy.

The institute also argues that telcos must become platforms. Again, not a novel view. The term platform is misunderstood by most, however. It has a different meaning when referring to computing than to business models. It is the former instance, not the latter, that seems generally meant by the phrase “becoming a platform.”

In the sense the institute sees matters, becoming a platform is meant in the sense of computing platforms. 

A platform in that sense is a group of technologies that are used as a base upon which other applications, processes, services, or technologies are developed. Platforms can be hardware (e.g., chips, devices) or software. Types of software platforms include operating systems, development environments (e.g., Java, .NET), and digital platforms. Digital platforms are highly configurable/extensible software tools that sit above traditional development platforms. 

Most observers would agree that core connectivity revenue streams are under pressure and are likely to stay that way. Where opinion really diverges is “what to do” about those circumstances. 

As wise as diversifying into new roles might be, history suggests how difficult that will prove to be for most service providers. That noted, most would also agree that opportunity exists in a number of areas including internet of things, edge computing and advanced networks. How to seize opportunities remains a subject of debate.