Rational Asset Use Does Not Drive Sharing

Subscriptions are a major business theme. So are various forms of asset sharing sharing. (short-term rentals, ride sharing, bicycle rental) that monetize little-used assets. 

It often is said the car ownership paradigm is challenged by ride sharing or car sharing “since cars sit idle 95 percent of the time.” All that might be true, but also irrelevant to many consumers, whose other “owned” goods also sit idle most of the time. 

Think of showers, toilets, most of your kitchen utensils, seasonal recreational equipment, much of your clothing, most of your content (books, music, videos) or gardening equipment in areas where there is a winter. 

The point is that consumer behavior does not necessarily change because an alternative becomes available. Convenience and overall cost of ownership make ownership a favored choice even if usage statistics suggest it is more efficient to rent capabilities. 

source: Ericsson

Some 10 percent to 20 percent of urban users expect to be using ride sharing for regular commutes to work in 10 years, Ericsson surveys have found. Higher percentages expect “other people” to do so. 

In other words, respondents say they will not be ride sharing, but expect others to do so. Of course, automobiles and other vehicles are deemed useful for purposes other than getting to work. Many consumers would still want to own their vehicles for other life pursuits. 

“Renting rather than owning” as a trend will likely continue to grow. But change will not happen because higher utilization of assets is rational.

How Much 5G Revenue Lift?

A new report issued by the by BCG for the European Telecommunications Network Operators’ Association suggests new use cases enabled by 5G will generate nearly 66 percent of total “telco” revenues by 2025.

source: ETNO 

It is not entirely clear what that claim means. In the context of an argument for government financial support, it seems to suggest that “new 5G use cases” will drive overall telecommunications revenue. 

That seems unrealistic in the extreme. For starters, mobility services in Europe account for about half of total revenues. Were 5G to displace 100 percent of telecom revenues, 5G would account for about half of total revenues, best case.

Even the more-focused argument that 5G might drive 66 percent of “mobile revenues” by 2025 is plausible only if one assumes that 5G replaces most existing mobile revenue and adds substantial new fixed wireless, internet of things revenue, despite the existence of competing networks and use of premises wireless that does not necessarily create substantially higher connectivity revenues. 

Do you really believe IoT drives 35 percent of total mobile revenue by 2025? Were that the case, do you not believe revenue forecasts would incorporate that expectation? Of course, there is a rational explanation. 

Legacy telecom revenues could drop so much that new IoT revenues simply allow the industry to tread water. The larger problem is that the typical firm in the telecom industry has to expect to lose about half its current revenue about every 10 years. 

That means the mobile industry has to expect to replace about $500 billion in recurring revenue, while fixed network operators have to expect to replace $400 billion in recurring revenues, within 10 years, assuming global revenues in the $1.8 trillion range by perhaps 2025. 

Those are daunting numbers. 

source: Statista 

In Asia and much of the Pacific, mobile revenues account for something closer to 70 percent of total revenue. In the Middle East, mobile revenues account for as much as 80 percent of total revenue. In such regions, one might argue that the impact of incremental new IoT revenues could be substantial. 

source: IDATE 

But that remains a tall order. GSMA has estimated service provider IoT connectivity revenue at less than $45 billion globally by 2025. In a global business of $1.6 billion, IoT at that level would represent less than three percent of total industry revenues, but possibly six percent of mobile revenues. 

That the report is issued at all reflects the importance communications regulators have in creating and shaping the business model. It is deemed necessary, from time to time, to “remind” regulators and politicians of the economic contributions an industry makes.

In that regard, the ETNO report argues that 5G and gigabit fixed networks can provide enormous economic benefits. No surprise there. What would be surprising is an argument that no financial help is required and that 5G is such a lucrative thing that service providers cannot wait to deploy it.

How Much Will Remote Work Continue to Shape Enterprise Spending Priorities?

Over half (59 percent) of the respondents to a survey by Aryaka said they expect 25 percent to 50 percent of their workers to remain remote at the end of 2021, and a further 21 percent with more than 50 percent remaining remote, the study found.

That will have repercussions for connectivity service provider revenue, possibly capital investment and architecture planning, if the trend continues longer term. 

Performance issues, for example, will be a bigger issue if a substantial portion of the work force is remote for significant amounts of time. 

source: Aryaka

Global WAN Business has Bifurcated

The global capacity business has bifurcated. Hyperscale data center operators, media and content providers have one set of needs while enterprises have different sets of needs. 

Hyperscalers need to connect with other data centers (including cable landing sites, internet points of presence, owned and third party data centers). The hyperscaler requirements are almost exclusively internet data volumes, and video entertainment represents the bulk of that demand. 

source: Cisco 

Enterprises not in the content business, on the other hand, need to connect headquarters locations with branch offices and workers with cloud or premises-based applications. 

source: Aryaka 

Hyperscalers require optical transmission and IP bandwidth. 

Non-content enterprises need quality of service networking (MPLS) and virtual network support (SD-WAN and VPNs), plus voice services. 

Much of the hyperscaler need is met by owned facilities. Nearly all the non-content enterprise demand is met by retail services. Very little hyperscaler bandwidth demand is access network related (connections to end users), while almost all non-content enterprises require access network connectivity.

Hyperscalers require relatively less collaboration support (in terms of bandwidth volume or spending). Enterprises always need significant amounts of unified communications support.

So MPLS and SD-WAN are important non-content enterprise concerns and purchases. That is virtually never true for hyperscalers and content enterprises (in terms of bandwidth demand and spending).

Singtel and Optus Partner with AWS for Edge Computing

By 2022, more than 50 percent of enterprise data will be created and processed outside the data center or cloud, up from less than 10 percent in 2019, Gartner predicts, which partly accounts for hype around edge computing as well as connectivity provider hopes for a role in edge computing. 

The issue is what roles mobile operators will choose to pursue.

Singtel and Optus, for example, have chosen to embed Amazon Web Services capabilities into their Multi-access Edge Compute (MEC) infrastructures using AWS Outposts. It is not immediately clear why Singtel chose to use the AWS Outposts platform, rather than the AWS Wavelengths platform. 

Outposts was built to reside on a customer’s premises, while Wavelengths was designed to reside in a telco edge computing facility. Outposts equipment is managed directly by AWS, but that should also be true for Wavelengths deployments. 

AWS Outposts provides the full suite of AWS tools and services on the premises in a self-contained rack. AWS Wavelengths puts AWS servers inside a telco facility. Perhaps Singtel simply preferred the footprint, capacity and ease of using Outposts, rather than using Wavelengths. 

Outposts supplies a rack of servers managed by AWS but physically on-premises. In Singtel’s case that is its own facilities. 

Presumably Singtel provides the power and network connection, but everything else is done for them. If there is a fault, such as a server failure, AWS will supply a replacement that is configured automatically. Outposts runs a subset of AWS services, including EC2 (VMs), EBS (block storage), container services, relational databases and analytics. S3 storage is promised for some time in 2020. 

Use of AWS Outposts also requires certain loading dock, connectivity and other physical requirements that Singtel and Optus might have concluded was easier to standardize if provided at telco facilities. 

Perhaps ensuring adequate facilities also is a requirement. But Singtel also says it can deploy the MEC with AWS Outposts to the customer’s location, especially for use cases where confidential data must be kept, or preferably is retained, on the customer premises.

The shift to edge computing is part of a historical oscillation between centralized and decentralized approaches, and the virtualized 5G network core essentially requires use of edge computing capabilities. It is not yet clear how much synergy might be developed between a mobile operator’s core 5G network edge computing requirements and retail customer requirements. 

source: GSMA Intelligence 

But many argue that 5G-based private networks, edge computing, and network slicing represent the best chance for mobile operators to boost revenues. Those use cases “present network infrastructure vendors and telcos with the best chance to capture the next wave of wealth that will be generated by 5G,” said Raj Yavatkar, CTO at Juniper Networks. 

source: Gartner 

Video Calling Used by 82% But Voice Calls Decline, Metrigy Finds

Metrigy’s “Workplace Collaboration 2021-22” study, Metrigy found that 82 percent of survey participants now use video for all or most meetings. Almost 44 percent of respondents say phone utilization declined in 2020 by an average of 34.6 percent. 

Fully 28.6 percent say that calls have shifted to video-enabled meeting apps, while 17 percent say that they shifted to using personal mobile phones for voice. On the other hand, given the Covid-induced shift from field sales to inside sales, neither is it surprising that 25 percent of respondents reported higher phone usage. 

Also, inbound calls to customer support centers arguably increased during the pandemic. 

source: Metrigy

CFOs are Likely to Demand More Inside Sales than Field Sales

Before the Covid-19 pandemic, international business travel was a $1.5 trillion annual expense, growing about seven percent a year. So among the questions to be asked is whether such business travel spending rebounds to former levels, or changes.

According to researchers at Growth Lab, business travel and spending has grown far faster than global gross domestic product. So it might be reasonable to expect executives to consider whether such spending--and how much--is required, post Covid. 

To be sure, much such travel arguably is related to the emergence of global firms that must coordinate across geographies, creating a need for personal relationships best developed face to face, rather than virtually. 

source: Growth Lab 

As a matter of necessity, business-to-business sales and support operations have had to move to virtual modes during the pandemic, when international travel was unlawful. As was the case for much office or knowledge work, productivity arguably has not suffered from enforced virtual work modes. 

Whether that remains true long term is another question. Most businesses can work, short term, off embedded social capital and relationships. How well they can do so long term is the unanswered question. Will new employees be able to socialize and learn each organization’s culture on a mostly-remote basis? Will human bonds be sustainable when they are created and sustained mostly virtually? 

Can business-to-business sales permanently shift to virtual modes on a permanent basis?

source: McKinsey  

There is evidence that although online traffic to company websites has grown substantially, sales close rates have fallen. In a business-to-business context, face-to-face interactions arguably are important. In other words, field sales became impossible and all sales became “inside sales.”

Most organizations selling B2B use a mix of field and inside sales, but inside sales has a bigger role for smaller customers and follow-on sales.

It remains unclear how the field sales roles can change, longer term. But there is some thinking that the distinction between field sales and inside sales almost vanishes when remote sales is ubiquitous. And, to be sure, financial officers will welcome the chance to reduce sales costs by emphasizing virtual and reducing the cost of field sales. 

Most buyers are comfortable with remote purchasing when sales amounts are relatively small. The issue is how big purchases must be handled or how to reshape sales funnels. 

Over the longer term, sales effectiveness will drive the balance of physical or virtual; field or inside sales. As always, larger sales with a longer sales cycle will be more apt to use physical processes. 

And since most organizations set operating budgets based on historical norms, a dip in sales expense in 2020 is likely to be followed by continuity in 2021 and at least a few years beyond. 

Face-to-face sales in B2B settings will get more attention as the pandemic ends. The issue is how much of a return can be expected. “Less” seems more likely than “more.” And “less” seems more likely than “return to 2019 levels.” Any organization that believes it can permanently change its sales cost metrics is going to try and continue doing so.