Google Fiber to Use Existing Fiber to Serve MDU Customers in San Francisco

Google Fiber plans to use existing fiber infrastructure in San Francisco to connect potential customers to Google Fiber. The approach is not dissimilar to the way Comparative local exchange carriers traditionally have wired high-rise buildings apartment buildings and condos.

It is not clear how many potential customer locations Google Fiber can reach using this method.

Still, the initiative shows Google Fiber continues to experiment with ways to accelerate connecting customers to its gigabit internet access networks.

Mobile Operator Messaging Relevance Now Arguably Hinges on Google

Two developments illustrate a principle, where it comes to developing over the top messaging apps that have at least some carrier involvement. First, Google, which owns Jibe Mobile, appears to want to use rich communications services (RCS) as a messaging standard for Android devices.

So Google has joined wireless standards group GSMA and a host of global operators to launch an initiative to accelerate the adoption of RCS.

Operators including América Móvil, Bharti Airtel, Deutsche Telekom, Globe Telecom, Millicom, Orange, Sprint, Telenor Group, TeliaSonera, Telstra, Turkcell and Vodafone have agreed to transition to a single RCS standard, which will be supported by Android.

Google also will provide a universal RCS client based on Jibe for all the GSMA carriers.

Separately, the Joyn initiative started by GSMA, has gone nowhere. One example: alhough SK Telecom continues to push forward, KT and LG Uplus have ended their support for Joyn.

In fact, some might argue that Joyn--the GSMA effort to create a market-viable Rich Communications Suite (RCS) ecosystem--already is “dead.”

Launched in 2008, what became Joyn was launched by Nokia, Ericsson, Orange, NTT DoCoMo, SK Telecom, Telefónica, and TeliaSonera, with the intent of creating a vibrant ecosystem for rich communications experiences based on IMS (IP multimedia subsystem).

Joyn was supposed to be the carrier answer to Skype, Viber, WhatsApp, and all the other OTT messaging and voice apps.

It simply hasn’t worked. And one might argue that lack of effort or skill is not “why” Joyn arguably has failed. Carriers simply were too late, competing against apps with high value and much more traction.

The takeaway might well be that carriers--working alone or collectively--are not in a position to lead messaging, without key leadership by app or operating system partners.

One Way "Technology" Reduces Churn in the U.S. Mobile Business

One reason the U.S. mobile services market arguably is less competitive, or “more sticky” than some other markets has nothing to do with regulatory policy, bandwidth, financial assets, brand equity, differentiated services or even network coverage or other measures of “quality.”

For historical reasons, half the market has a legacy “GSM” air interface, while the other half has a legacy “CDMA” air interface for third generation platforms that remain significant, even for users of fourth generation Long Term Evolution services.

The reason is that voice and Internet access “fallback” are to the 3G networks. That has implications for customer retention and ability to switch carriers. Those same barriers provide the explanation for today’s carrier offers to subsidize switching costs (phone installment payments or service contract early terminations).

Verizon and Sprint, which use CDMA, represent 50 percent of the installed base. AT&T and T-Mobile US represent 49 percent of the installed base. What that means, in practice, is that every customer moving from a CDMA platform to a GSM platform, or a GSM platform to CDMA, necessarily must buy new devices.

With top of the line smartphones routinely costing $600 and up, that is a significant barrier to switching behavior. That, in turn, might explain why churn rates  in the U.S. mobile services business are relatively low, despite all the competitive offers.

Verizon and AT&T have churn rates that often are below one percent a month, a rate that is low for a consumer subscription service, historically.

T-Mobile US and Sprint have higher churn rates, but rates are dropping for those carriers as well. T-Mobile US has seen postpaid churn in the range of 1.5 percent recently. Sprint’s postpaid churn rates likewise now are in the 1.5 percent a month range.

To be sure, there are other forces at work. The large number of accounts connected on shared accounts is substantial. So the cost of changing a single account entails potential replacement of numerous devices.

AT&T, for example, has said that 70 percent of all its customers are on shared accounts.

Still, the fundamental divide--GSM versus CDMA--likely remains a barrier to full switching ability across the air interface barrier. And that is just one more reason why customer churn is relatively low in the U.S. mobile market.

source: Statista

Netflix, Facebook, Google Drive Bandwidth Consumption in Americas

“Network traffic in the Americas seems to be getting increasingly concentrated,” said Dave Caputo, CEO, Sandvine. Although most will not be surprised that Netflix is the single application representing the greatest bandwidth consumption, and continues to rise as a percent of North American fixed network traffic, Facebook apps come in second.

In Latin America, Facebook (Facebook, Instagram, WhatsApp) and Google (YouTube, Google Play) represent more than 60 percent of mobile network traffic, Sandvine says.

source: Sandvine

What Will it Take for Carriers to Win When Creating OTT Apps?

Uber is analogous to fring, offering a better user experience and more choice, Genband CEO David Walsh has argued, part of Genband’s focus on development of over the top applications and business models carriers might be able to create.

“We believe that the power of community and the economics of exchanges, changes everything,” Walsh has said. Many would agree with that position.

The issue, so far, is whether carriers actually can do so.

At issue is less “capability” than sheer scale and the growing “winner take all” OTT market dynamics.

Recently, instead of “leaders” in any category of OTT apps or services, markets have tended to evolve towards a “dominant” supplier, with little room, or revenue, for second place or third place.

One might argue that unless any carrier federation is a “first mover” in a new category, leadership is unlikely to happen. That is not to denigrate intent, effort or skill, only to point out that “first to market with the best experience” also has to be matched with high word of mouth (social) adoption.

Success in the OTT app business hinges on network effects--huge scale--for success and monetization models. Carriers, especially federated carrier efforts, can achieve scale.

What is not yet clear is whether carrier apps can achieve scale in the new way: not by leveraging an existing base of customers, but by capturing the loyalty of an even bigger audience of non-customers.

Consider experience so far with Joyn, the carrier-focused platform for unified and rich communications. Though SK Telecom continues to push forward, KT and LG Uplus have ended their support.

In fact, some might argue that Joyn--the GSMA effort to create a market-viable Rich Communications Suite (RCS) ecosystem--already is “dead.”

Launched in 2008, what became Joyn was launched by Nokia, Ericsson, Orange, NTT DoCoMo, SK Telecom, Telefónica, and TeliaSonera, with the intent of creating a vibrant ecosystem for rich communications experiences based on IMS (IP multimedia subsystem).

Joyn was supposed to be the carrier answer to Skype, Viber, WhatsApp, and all the other OTT messaging and voice apps.

It simply hasn’t worked. And one might argue that lack of effort or skill is not “why” Joyn arguably has failed. Carriers simply were too late, competing against apps with high value and much more traction.

Genband is right that innovation is needed. Many of us would argue OTT is simply the way apps get created these days. But we still do not have a good example of a carrier-developed or carrier-backed OTT app that has achieved leadership in its category.

That is not to say such a result is impossible, only to note that, so far, it has not happened.

One reason is that some strategies--including all approaches other than “first to market”--risk losing in markets that tend to have a  “winner take all” structure.

It remains true for all contestants in any ecosystem: moving up the stack is much harder than moving down the stack.

How Much Equity Value Does Spectrum Create for Mobile Operators?

How much of the total market value of a mobile service provider business is driven by the right to use scarce access spectrum, compared to all the other sources of value, including customer bases, revenues and profits from recurring services?

The answer seems to be that “quite a substantial amount” is driven by the scarcity value of spectrum licenses, as important as customer bases, brand equity and recurring revenues contribute to valuations.

The physical network likely accounts for relatively little of the total value.

There are several reasons for believing that is largely true, at least for wireless networks.

First, mobile operators have in the past shut down whole networks, but kept the customers, revenue and spectrum assets. That was the case when the analog network was shut down in favor of second generation networks, and undoubtedly will be the case when 2G networks or 3G networks are decommissioned as well.

Also, mobile operators rather frequently have taken steps that indicate the scarce assets are spectrum, not transmission infrastructure. Operators have not hesitated to cell towers and share radio infrastructure, for example.

There are other illustrative examples. Mobile virtual network operators, for example, also do not own towers and radios, but also do not own spectrum.

One should not overstate the comparison between a non-facilities-based MVNO and a facilities-based carrier, however, as most MVNOs sell prepaid accounts, not the more lucrative postpaid accounts.

Also, many MVNOs compete on price, meaning they can be expected to generate lower average revenue per account, or per device.

Still, a  valuation mismatch between facilities-based mobile customers and MVNO customers likewise suggests significant value rests in the rights to use spectrum.

But it is hard to generalize too much, since MVNOs do not represent much of the global subscriber base, in large part because the MVNO business is not lawful in many markets.

Globally, MVNOs might only have represented about two percent of active accounts.

source: Paul Wade

source: Paul Wade

Perhaps a more germane question is how much value is generated simply by the value of spectrum assets, irrespective of other tangible assets.

By some estimates, facilities-based U.S. mobile operators, plus Dish Network, own about $368 billion worth of spectrum licenses.

AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman, while the value of Verizon’s spectrum is $79.4 billion.

In all, AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman. He also estimates the value of Verizon's spectrum at $79.4 billion.

The current equity value of all AT&T stock is $176.5 billion, implying that spectrum alone represents 51.6 percent of AT&T’s total equity value.

Verizon’s market value is $207.9 billion, implying that Verizon’s spectrum represents 38 percent of total valuation.  

Bloomberg Intelligence, in fact, estimate the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.

In fact, some argue that T-Mobile US spectrum accounts for more than 100 percent of its total market value.

One can legitimately argue that such metrics overstate the value of spectrum. On the other hand, spectrum arguably represents quite a lot of th value of any one of the four leading national U.S. mobile operators, leaving surprisingly modest contributions for brand equity, recurring revenues and all physical plant.

source: Investors Business Daily

How Valuable are Access Assets in the Landline Networks Business?

To what extent is the value of an access network (telco, cable TV, satellite, fixed wireless or other ISP) driven by the revenues the network can generate, compared to the residual value of the physical assets used to deliver those services?

The other way of asking the question: how much of the total equity value of a fixed network communications business is driven by customer account mass, revenues, profit and brand equity, compared to the value of physical assets?

In other words, if a service provider has a chance to operate a big communications business using leased access, is that preferable to a facilities-based strategy? Does a wholesale strategy create equity value equal to, or close to, that of a facilities-based approach?

It is not an easy question to answer. Traditionally, there are relatively few cases where big and dominant telecom businesses have been built on leased assets.

Nor are we likely to get much additional insight as Google Fiber prepares to operate its first gigabit access market in Huntsville, Ala., where a citywide dark fiber network is being built by Huntsville Utilities.

Starting in mid-2017, Google Fiber will provide Internet access to to homes and small and medium businesses in Huntsville, going citywide in four years.

Comcast and AT&T also have said they will sell gigabit service in Huntsville, but it is doubtful those suppliers will use the dark fiber network. Neither firm has had a strategic belief in operating its core business on leased facilities.

But that does raise an intriguing question: how much of the value of either AT&T’s fixed network business, or Comcast’s business, resides in its control of owned access assets?

In other words, if AT&T or Comcast could decommission their existing networks, and operate using the dark fiber network, how would the valuation of the businesses, not to mention capital or operating costs, change? Some analysts think physical assets might equal current debt.

Google Fiber will have some idea of how the use of the dark fiber network affects its own business model, since Google Fiber will have many other owned networks to compare with Huntsville.

To what extent might Google Fiber’s valuation--were it a stand alone business--vary, using either owned facilities or leased dark fiber?

Other ISPs might not relish the thought of competing against Google Fiber, Comcast and AT&T, all at the same time, so we likely will not see any significant market entry by other Internet service providers who might relish the thought of leasing, rather than buildings and owning, their own access infrastructure.

It might seem obvious that a good portion of the equity value of any access network is its sheer rarity. But precisely how much of the total valuation is driven by the physical assets?

That is hard to say, although we might gain better insight as more retailers come to market using wholesale networks.

To be sure, scarcity value has played an important part in underpinning fixed network valuations. But how much value should reasonably be inferred?

Big telcos and big cable are unlikely to build their future businesses on leased physical assets, so the question largelyis moot. Google Fiber will do so in Huntsville, Ala., but Google Fiber will not likely disclose any savings, so it will be impossible to determine what impact a "lease the network" strategy has, compared to Google Fiber's own "facilities-based" approach in other markets.