Like it or Not, Dumb Pipe is the Fixed Network's Foundation

Perhaps you see the irony of cable TV executives saying their businesses, once founded on selling applications, now see the killer use case as internet access, a textbook example of “dumb pipe.” 

“We’ve made a pivot to a broadband-centric cable company,” said Comcast CEO Brian Roberts. That is another way of saying the strategic product for a multi-product company is a classic “dumb pipe” service that is the prerequisite for using all TCP/IP-based apps and services deliverable by the public internet. 

If you ask virtually any telecom executive selling services to consumers (business to business is a different matter), you are likely to hear executives say they are not just “dumb pipes,” in the sense of providing a low-value, commodity-priced product. Rather, you will hear any number of arguments that the full range of products provides higher value, differentiated products at a range of prices and profit margins, sometimes to more-attractive customer bases and geographies. 

What many cable TV executives now argue is that their network services are based precisely on dumb pipe internet access, and not the traditional video subscriptions that historically drove value, revenue and profits. 

That is but one example of how the internet, and the separation of applications from networks, has revolutionized the communications and computing businesses. 

Until the internet era, all consumer mass market services were “apps,” not “dumb pipe.” Consumers bought the app called “dial tone,” the ability to place a phone call, not directly the use of a wire enabling the use of dial tone. Customers bought cable TV not to use a coaxial cable or modulated radio frequency signals, but to watch video. People bought mobile phones and used mobile services to send and receive text messages, not to use a data channel. 

source: Tech Policy Institute, FCC

In the internet era, the “value” of fixed network voice, mobile voice, mobile messaging and linear TV subscriptions has dropped. The value of access to the internet (a dumb pipe service) has grown, in both mobile and fixed domains. 

So consumer preferences--and the revenue earned--has changed. Though the value of mobile communications “anywhere” remains, the value of some apps (voice, messaging, linear video) has declined. 

Or, put another way, dumb pipe has grown more important, while traditional apps have become less important and valuable. 

source: CALLS

This can be seen clearly in the shifts of service provider revenue in the U.S. market from long distance--the former revenue and profit generator--to mobile service. What one sees is a 50-percent toll revenue drop over a decade, and its replacement by a new lead service, mobility. 

source: FCC

But the mobile network uses rival facilities. The fixed network business model now hinges on dumb pipe internet access. Other services and apps are important: how many service providers would willingly surrender their voice or video revenues? 

But new questions must be asked. To the extent the fixed network must rely increasingly on one service--internet access--how does the business model change, and how? Can the full value of capital investments be recouped solely or primarily from internet access?

If not, what can be done to find replacements for lost voice and video revenue? And how soon will most fixed network executives become comfortable saying their business models are built on dumb pipe? For how many service providers will this prove true?

Under the Best of Circumstances, How Much Economic Growth Can High Quality Communications and Computing Produce?

A government official from one of the South Pacific islands asked me recently why there frequently seems to be so little discussion of the role 5G can play in promoting economic development in the South Pacific. 

There are a couple of practical reasons. Economic activity, almost always, hinges on population. Most economic activity occurs where there are substantial numbers of people. High rates of economic growth require other inputs as well, but population mass is the foundation, since perhaps 70 percent of all economic activity is generated by consumer spending.

So policy makers confront the fact that total population in the South Pacific is small, perhaps 2.3 million people, scattered across 10 million square miles. 

In other words, as a practical matter, ask yourself whether the absolute best communication facilities--fast internet, low retail costs, ubiquitous terrestrial coverage, big modern data centers, 100-percent fast mobile internet coverage--can make a big difference in terms of spurring economic development, in areas of low population, in areas remote from population centers.

Producers and suppliers go where the people are, fundamentally. So economic activity tracks population. On the scattered South Pacific islands, gross domestic product can be quite low, by global standards. 

With the exception of Australia, New Zealand and Papua New Guinea, GDP on any single island is quite small, orders of magnitude smaller than on the two bigger islands and the continent of Australia. GDP on a global scale also is quite small. 

source: Wikipedia

That being the case, even 100-percent adoption of any technology in the South Pacific does not move the global needle. Conversely, what happens in India and China, right now, drives both growth of fixed and mobile internet access globally. 

At a more granular level, and ignoring contribution to global output, assume that there are no gaps whatsoever in small South Pacific island technology supply or take rates, and that supply is equal to that found among the top 20 countries globally.

We all commonly believe that broadband causes economic development, and that, to the contrary, its lack retards economic growth. Let us be clear, the two are correlated. What nobody can prove is the thesis that better broadband “causes” faster economic growth or more growth. But we all behave as though this were the case.

But it might not be true. It is entirely possible that strong economic growth itself creates the demand for better computing and communications assets and deployment. 

In other words, wealthy consumers in areas with high job growth and economic growth demand--and can afford--better internet. That, in turn, creates the supply. 

In rural U.S. or any other markets, we might note that the business case for more investment is sharply limited, precisely because the pool of customers is sharply limited.   

What could change? How much more economic output is possible? Economists always point out that consumer activity accounts for 70 percent of gross domestic product. So people matter,  and that is the ultimate point. Even supplied with the absolute best computing and communications resources, the South Pacific islands are too thinly populated and too remote from other population centers to become much-bigger platforms for economic activity. 

How much more job creation, retail spending, use of edge computing, warehouse siting, transportation facilities, factories or business activity is possible, even with the absolute best computing and communications facilities being in place?

In other words, as much as policymakers should always strive to make high-quality communications available in rural and remote areas, the actual potential economic upside is probably sharply limited. The social and educational benefits are another matter.

Still, we generally overestimate the effect high-quality computing and communications can have, where it comes to economic development, in lightly-populated areas remote from large population centers.

Most Computing Now Requires Communication

Communications have been important for some enterprise data communications since the days of mainframes, but computing now fundamentally relies on communications, making the old phrases "computing and communications" or "information and communications technology" a functional reality underpinning nearly all computing instances and workloads.

In early mainframe days, only a relatively few businesses required communications support for their computing needs. But communications gradually has become a foundational requirement for computing.

Telcos in the 1950s began using their own networks for internal purposes, eventually creating the T1 standard for data communications in 1958.

Communications arguably became more important for computing with the development of ARPANET in the 1960s, with the emergence of Transmission Control Protocol/Internet Protocol in the 1970s, and in the 1980s the ability to use dial-up telephone networks to support ARPANET.

Communications became even more important in the 1990s with the invention of the World Wide Web and the emergence in the 2000s of the Internet and WWW as staples of consumer experience.

The smartphone and the web illustrate the centrality of communications for computing, as remote computing requires communications. A similar observation can be made about business and enterprise computing, which now also relies on remote server access and public and private cloud computing.

So it should come as no surprise that public cloud spend is quickly becoming a significant new line item in information technology budgets, especially among larger companies, a survey sponsored by RightScale suggests. 

Among all respondents, 23 percent spend at least $2.4 million annually ($200,000 per month) on public cloud while 33 percent are spending at least $1.2 million per year ($100,000 per month). 

Among enterprises the spend is even higher, with 38 percent exceeding $2.4 million per year and half (50 percent) above $1.2 million per year. 

Small and medium businesses generally have fewer workloads overall and, as a result, smaller cloud bills (just over half spend under $120,000 per year). However, 11 percent of SMBs still exceed $1.2 million in annual spend, RightScale says. 

source: RightScale 

Enterprise respondents run 79 percent of workloads in cloud, with 38 percent of workloads in public cloud and 41 percent in private cloud. Workloads running in private cloud may include workloads running in existing virtualized environments or bare-metal environments that have been “cloudified,” says RightScale. 

Non-cloud computing comprises about 21 percent of respondent workloads. 

Small and mid-sized businesses report running 43 percent of workloads using public cloud and also run 35 percent of workloads on private cloud. Some 22 percent of workloads remains on non-cloud platforms. 

source: RightScale

Western Union Partners with Airtel for Mobile Payments

Western Union is partnering with Bharti Airtel to launch real-time mobile payments in India and across 14 countries in Africa, using Airtel Payments Bank and Airtel Africa.

Airtel Payments Bank customers will soon be able to direct a Western Union money transfer into their bank accounts 24 hours a day, seven days a week. Global senders can use Western Union’s digital services in 75 countries plus territories, or the walk-in Agent network across more than 200 countries and territories.

The collaboration with Airtel Africa will enable more than 15 million Airtel Money mobile wallet users in Nigeria, Uganda, Gabon, Tanzania, Zambia, DRC, Malawi, Madagascar, Kenya, Congo, Niger, Tchad, Rwanda and Seychelles to simply route any money transfer received from across the world into their wallets. 

It will also allow senders around the world to push funds directly to an Airtel Money mobile wallet in real-time and store value or pay for goods and services. Service launch is expected in 2020.

India is the world’s largest remittance-receiving country, according to the World Bank.

Australian Connectivity Prices Dropped in 2019

Between 2018 and 2019, Australian consumer connectivity prices dropped: down 1.5 percent for fixed network internet access; lower by 6.6 percent for mobile subscriptions and minus 16.4 percent for mobile broadband prices, according to the Australian Competition and Consumer Commission. 

source: ACCC

As always, methodology matters. The most basic approach for creating a price index is to measure the change in prices from one year to the next in an average price of a basket of products. 

There is a problem with this basic approach, the ACCC notes. If rapid increases in technology are improving the quality of the products,  then the increases in prices should not be interpreted as price inflation because the price changes partly reflect changes to the product. 

In other words, product quality changes also must be considered. That includes changes in usage allowances or access speeds, for example. It therefore is possible that specific plans might cost more, but represent better value.

Frontier Communications Seeks Chapter 11 Bankruptcy

When the world began to deregulate and privatize telecommunications, a new question arose: what would happen if an incumbent service provider proved unable to compete, and was forced out of business? 

Around the turn of the century we saw many bankruptcies of non-dominant service providers, especially those providing long distance capacity services. Since then we have seen a few restructurings of smaller legacy service providers, among them Windstream. 

Now it appears Frontier Communications will enter bankruptcy under laws that allow it to shed debt but continue operating. 

Since national governments consider their core communications facilities to be “national assets” in a real sense, it still seems quite a remote possibility that a failed national service provider would really be allowed to go out of business. 

In many countries, there is more than one service provider which plausibly could continue to serve a whole nation, even if a single major provider went out of business. 

Still, the possible bankruptcy of a former national telco remains a possibility unimaginable a few decades ago. 

Why the Need for "Agility?"

Agility, an organization’s ability to rapidly respond to change, is a highly-recommended organizational capability. Like all such recommended business values, agility arguably matters most when markets are changing substantially and rapidly; when competition is fierce; when customers and their demand have evolved.

In fact, agility is most important for industries and firms that have faced deregulation, globalization and internet-based competition. That applies almost classically to the telecom industry, which many would argue must replace half its current revenue every decade. 

That might seem unlikely, but is a simple reflection of the fact that product cycles exist for every communications product, as such cycles exist for every product.

source: University of Michigan Information and Technology Services

Microsoft gets cited as a firm that managed to create a culture of agility, arguably leading to an ability to adapt to a changing market. The point, to be clear, is business results. 

source: Yahoo Finance