"Hybrid" is a Risk-Reducing Strategy for Nearly All Firms

“Hybrid” is an important business strategy for communications service providers of all types. Hughes Network Systems, for example, has added 4G terrestrial connectivity in some markets to improve latency performance.  

In fact, “hybrid” tends to be a reasonable migration strategy for any firm or industry when new technologies emerge to replace older platforms. If software-defined wide area networks start to displace Multiprotocol Label Switching, most customers and suppliers will sell and support both. 

Initially, especially when MPLS legacy revenues are significant, suppliers will joust about the merits of the newer technology. But if customers start to switch, so will the marketing and sales stances. 

At some point, if and when low earth orbit satellite constellations begin to take market share, suppliers of geosynchronous satellite service will offer both, often acquiring assets to do so. 

Eventually, older platforms have shrunk so much in terms of revenue and usage that firms will shift reliance virtually exclusively to newer platforms. 

If you are familiar with the concept of the S curve, you know that at some point in the product life cycle of any technology, growth halts. So the logical strategy is to begin development and sales of the newer technologies before market saturation hits. 

source: Strategic Thinker

One sees this sort of thing all the time in the computing, software and connectivity businesses. There never is a flash cut from a legacy platform to a next-generation platform. Hybrid is virtually always the model. 

Users begin by buying the new platform, if they can, for new installations or sites (green field). They continue to operate the legacy platform as well, gradually beginning a replacement process (brown field). 

Cable operators did precisely that when they began grafting optical fiber into their access networks. “Hybrid fiber coax” was the strategy. Eventually, even cable operators are likely to transition to all-fiber access.

But the strategy might still be hybrid. To the extent possible, cable operators will, in some cases, continue to deploy more advanced versions of their DOCSIS access platform, up to the point that upgrades to the physical infrastructure are required. 

They already are starting to deploy FTTH in the dense service areas for business customers. Then FTTH will replace HFC in dense urban areas for home broadband, while keeping HFC in lower-density markets. Over time, FTTH will replace more of the legacy network. 

But “how long” matters. As with development of the metaverse, it matters for suppliers and real-world practitioners how long it takes for various forms of augmented reality and virtual reality to reach commercial volume. 

Being too early can doom a firm. Being too late also can have serious consequences. Hybrid therefore is one way to limit execution risk.

Oi Essentially Adopts MVNO Business Model

Brazilian operator Oi, which had entered bankruptcy in 2016, is moving ahead with a slimmed-down operating model roughly analogous to that of a mobile virtual network operator, which leases wholesale capacity and services from a facilities-based service provider. 

To make that shift, and shed debt, Oi has shed its mobile assets, cell towers, data centers, video entertainment operations. It also is structurally separating its fixed network infrastructure operations from its retail fixed network operations, but will retain a minority stake in the infrastructure assets supplier. 

Oi’s mobile assets were sold to TIM (Telecom Italia) as well as Brazilian mobile operators Vivo and Claro Americas. The mobile cell tower assets were sold to Highline, a unit of DigitalBridge, which invests in digital  infrastructure. 

source: Oi 

The data center assets were sold to Brazil-based private equity firm Piemonte Holding. The video subscription assets were offloaded to Sky Brasil. 

A controlling stake in its fiber infrastructure business V.tal was sold to a group of investors headed by Globenet Cabos Submarinos and BTG.

After the structural separation of the fixed network business, Oi will continue to hole a minority stake in the infrastructure wholesale business, and operate its retail business--anchored by internet access--as a retail customer of the infrastructure business.

It is akin to the model used in the United Kingdom, Australia, New Zealand and Singapore, for example. 

The moves also illustrate the shift of ownership of digital infrastructure assets from service providers to private equity and other institutional investors that began decades ago with decisions by mobile operators to offload ownership of cell towers. 

Since then, a wider range of assets have begun to shift, including local access networks and data centers. 

In essence, a wider range of physical infrastructure assets are considered for disposal, to enable a lighter-asset business model that has been proposed by many observers for more than a decade.

Verizon Uses Owned Optical Fiber for 48% of its Mobile Site Backhaul

Verizon now says it connects 48 percent of its cell sites using owned optical fiber. That might not seem like such a big deal, but consider that Verizon’s fixed network only reaches about 20 percent of U.S. homes. 

That matters because ownership of a fixed network reaching homes and businesses provides cost advantages for deploying optical fiber backhaul to cell towers and sites. AT&T, in contrast, has fixed network assets passing about 44 percent of U.S. homes. That also provides advantages for cell site backhaul. 

Building fiber backhaul to towers outside the Verizon fixed network territory requires construction or long-term leases of capacity from other providers who can provide the access. It appears that a substantial percentage of Verizon backhaul uses built or owned facilities. 

For U.S. cable operators, who prefer to sell mobile service only to their own existing customer base, the same logic applies. Owning their own landline facilities reduces the cost of creating a cell network. 

Of a total of 140 million homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations.

What Will "Return to Normal" Mean for Home Broadband?

“After a tumultuous 2020, in which the COVID-19 pandemic caused internet traffic patterns to shift and volumes to surge, network operators have returned to the business of adding bandwidth and engineering their traffic in a more measured manner,” say researchers at Telegeography. 

Connectivity suppliers have said that the immediate shift to “work from home” and “learn from home” pulled forward some demand, meaning subscription growth that might have taken a year happened in a couple of months. 

Telegeography estimates suggest traffic growth also has returned to more typical levels. 

source: Telegeography 

What might take some time to decipher is whether the remote work gains (subscriptions, for example) will presiste on a permanent basis or whether an eventual return to the office and schools might actually lead to some reduction of demand for home connections. 

It is too early to tell.

Metaverse is Part of Movement Towards "More Realism"

Not all observers believe metaverse environments  will actually happen. Others might argue it just  makes no sense. 

But there is another way to look at movement towards full metaverse experiences that suggests it will arrive: realism. Defined as the experience that “you are there,” realism approaches “real life” experiences: three dimensional, interactive, using multiple senses. 

Think about the experience of participating in a sport, watching others play a sport live in a stadium, watching it on television or listening on radio, viewing a photo of the game or hearing somebody talk about a great play during that game, reading a story about that game or viewing an artist’s rendition of a key moment in a game. 

The point is that there are degrees of immersion and realism, and that the degree of realism has tended to improve in the eras of electronic media. 

source: Prezi 

“Real life” experiences are the ultimate in realism: you actually are there, actually doing something. All media are efforts to portray activities such as surfing, playing baseball or cooking in ways that simulate “being there and doing that.”

Storytelling is perhaps among the oldest forms of media or content. But it requires use of imagination on the part of the listener. Live theater performances were early developments in realism, as “you had to be there” watching real people in real roles. 

Electronic media extended participation in experiences, but with less realism. Radio was sound only, and monaural. Stereo arguably improved realism. “Surround sound” added more realism. 

Film was more immersive, but without sound. Movies were more realistic after sound was added. Film arguably became more realistic after the addition of color. 

Television began in black and white, then added color. Digital media improved realism by increased image definition (first DVDs, then Blu-ray). Broadcast television switched from lower-resolution NTSC to HDTV. Now we are moving to 4K and 8K. 

Think about 3D movies or TV as efforts to further extend immersion and therefore realism. 

Videogames initially were quite two dimensional. Today’s games are graphically much more realistic and immersive. 

In that framework, our movements toward metaverse are the next stage of improvements in realism and immersion. Persistent, three-dimensional environments where “you” and other people and objects “are there” is simply part of the on-going development of media realism. 

Of course, there are other angles. In manufacturing, realism might mean that whole processes can be modeled and replicated in real time. For videoconferencing, realism might be the sensation that all participants are in the same room. 

Metaverse will get traction as it proves to enhance realism in media experiences. And that is why, despite the hype and the long journey to commercialize it, metaverse ultimately will arrive. 

Humans have adopted all forms of media that provide higher realism.

Cogent Communications Gets Former Sprint WAN Business for $1

T-Mobile’s sale of the former Sprint wide area network asset for $1 to Cogent Communications is not as shocking as it might seem. The asset was not central for T-Mobile, though generating about $739 million in annual revenue. T-Mobile likely will get a big discount on IP transit services it will buy from Cogent for nearly five years. 

Also, Sprint’s network has received relatively scant investment for up to two decades, as other wide area network service providers (mostly new entrants) were winners as WAN traffic shifted to TCP/IP and much traffic was carried on owned networks, rather than purchased from wholesalers or retailers. 

source: Cogent Communications 

Cogent sees benefits in the form of increased fiber network footprint will be owned in fee simple rather than leased under IRUs with finite terms. Cogent also will gain scale in dedicated internet access, IP transit, Virtual Private Networks (MPLS, VPLS) and colocation/data center market spaces.

Cogent also will gain entry into the North American market for wavelength and dark fiber sales.

Additional international operating licenses (India and Malaysia) also will be gained in large markets where Cogent has no presence today.

T-Mobile unloads a business that increasingly was viewed as a distraction from the core mobile services business. 

U.S. ISPs Do Not "Discriminate" in Supply of Internet Access, Based on Census Bureau Data

An analysis of U.S. internet access speed conducted by the Phoenix Center for Advanced Legal and Economic Public Policy Studies does not find evidence of invidious discrimination based on race, in the supply of internet access services. 

The U.S.  Infrastructure Investment and Jobs Act of 2021 says “it shall be the policy of the United States, insofar as ‘technically and economically feasible,’that subscribers ‘within the service area of a provider’ should benefit from the ‘equal opportunity to subscribe to an offered service that provides comparable speeds, capacities, latency, and other quality of service metrics’ at ‘comparable terms and conditions.’” 

The intent is to prohibit “redlining,” where some households in some areas are specifically denied access to some product generally available in a town or city. 

“Digital discrimination, as we define it, is present when differences in some relevant outcome exists across communities when the profitability of serving the communities is equal,” says George Ford, Phoenix Center chief economist. 

The outcome here is not the “take rate,” which is in part a function of end user demand, but “availability” in terms of “a potential customer ability to  buy a product with the same performance and price attributes generally available to potential customers across the market area. 

That is an important distinction. Some consider the existence of any statistical differences in take rates as evidence of discrimination. Differential rates of Tesla ownership, for example, might not be the result of discrimination by suppliers, but rather buying preferences on the part of consumers. 

So “discrimination” implies more than mere differences among protected classes, says Ford.  “Discrimination requires differences in outcomes caused solely by membership in a protected class, other things constant.”

The concept is similar to “redlining,” a once-practiced policy by banks to refuse loans to potential customers in some areas of a city for non-economic reasons (race, generally). 

“Redlining is present when people with equal economic characteristics (who thus may be expected to produce the same “profit” to the firm) experience unequal treatment based on non-economic factors such as race,” Ford notes. 

After analyzing data at the census block level, including downstream speeds, Ford concludes the data show “no evidence of meaningful digital discrimination in any of the comparisons.”

That is not to deny that household income does correlate with take rates. The point is that such divergences are not caused by invidious practices on the part of internet service providers. As is well documented, take rates for premium tiers of internet access service also vary by educational attainment, age or household wealth, for example. 

Still, the average maximum download speeds are approximately 1 Gbps for all groups across all comparisons (race and income), says Ford. That noted, Ford reminds readers that the analysis is at a “whole market” level and does not address individual providers in those markets. 

“Discrimination, at least in economics, is a term of art, and implies differential treatment of equally-profitable groups based on membership in some sort of protected class,” says Ford. The study shows no evidence of such invidious treatment.