5G will be "4G on Steroids"

Despite the hype about future fifth generation network mobile networks, it is quite likely that 5G will simply be an evolution of concepts pioneered on fourth generation Long Term Evolution networks.

Among the more-important capabilities are access to multiple networks, built on today’s use of Wi-Fi and carrier networks; small cells; more complex antenna arrays; and a wider range of devices and applications.

As typically happens, new frequencies will be added, since carriers have to maintain existing networks while they add the next generation.

The degree to which millimeter wave spectrum (30 GHz to 300 GHz) will be a feature of 5G is not yet so clear, but is conceivable. The issue is not so much whether millimeter wave frequencies will be important for backhaul (they already are), but how effective they will be for distribution (direct access by mobile and other devices), using sophisticated new antenna arrays (multiple input, multiple output).

Fifth generation mobile networks, most supporters are quick to say, will not be about “faster speeds” or novel air interfaces.

Instead, at least for the moment, the emphasis is on making all access platforms available to mobile and untethered devices, seamlessly. And that will mean 5G is a development of 4G, not a sharp break from 4G.

In other words, all the fundamental concepts already exist, and all the fundamental underlying technologies already are being developed to support future 5G networks.

Those of you with long memories will see the pattern. All new next generation networks are preceded by a period where all marketing emphasizes “compatibility” with the new emerging standard. That is likely to be the 5G pattern as well.

On the other hand, 5G will bring new spectrum to bear, in particular in the millimeter wave area, where much work is being done to commercialize the use of frequencies that historically have been unworkable for communications applications.

Moore’s Law, though, allows cheap processing that enables networks to take advantage of formerly-forbidding millimeter wave frequencies (30 GHz up to perhaps 300 GHz).

In the United States, the 38.6 GHz to 40 GHz band already is used for licensed high-speed microwave data links and the 60 GHz band can be used for unlicensed short range (1.7 km) data links.

The 71 GHz to 76 GHz, 81 GHz to 86 GHz and 92 GHz to 95 GHz bands are also used for point-to-point high-bandwidth communication links.

The issue is whether sophisticated signal processing also will allow use of millimeter waves for local distribution (access) , in addition to trunking (point to point backhaul).

Observers will readily admit there are issues, ranging from propagation distances to atmospheric issues (rain fade) and even oxygen absorption. But at millimeter wave frequencies, extremely high bandwidths are possible, if distance is limited.

Still, 5G is highly likely to  be an extrapolation of trends we already see. Supporters will likely not appreciate the characterization of 5G as “4G on steroids,” but that is likely to be quite correct.

New Definition of "Broadband" Could Have Big Consequences

The Federal Communications Commission decision to redefine "broadband" might have consequences. Where the FCC had used a 4 Mbps definition, it now defines “broadband” as a minimum of 25 Mbps downstream.

With the new definition, about, 12 million U.S. households that previously qualified as having a broadband connection no longer have it.

All satellite broadband and most fixed wireless Internet service providers now sell “Internet access,” not “high speed” or “broadband” access. Many fixed network telcos likewise now do not sell “broadband.”

Paradoxically, 10 Mbps Ethernet no longer is “broadband,” either. The new definitions will mean a revising--downward--of U.S. “broadband” access connections.

Some think the new definition could derail the proposed Comcast bid to buy Time Warner Cable, as well.

Up to this point, Comcast has been careful to point out it would sell off three million video accounts, to keep total video accounts below the 30 percent market share level that the Federal Communications Commission historically has used as a limit for market share in linear video, mobility or fixed network communications.

The problem is is that some do not believe “video” is the key market where share is crucial.

With the new definition in place, Comcast’s share of broadband will  be 56.8 percent, up from 30.6 percent using the older definition.

That will be a problem.

Does U.S. Telecom Industry Skate on Thin Ice?

Do service providers actually make much profit? That might seem, at first glance, a silly question, looking only at quarterly or annual financial statements. To be sure, some contestants--typically the smaller providers in any industry segment--face clear challenges.

But some might argue the problems are greater than often perceived. And that means the opportunity or danger--depending on one's point of view--are quite high. The easiest example is the mobile handset business.

In some ways, handsets are fashion items. For that reason, device market share can change dramatically. That has applied to whole handset brands as well. In fact, some might argue leadership changes about every seven years, in the handset business.

Whether that applies to Apple is an open question at the moment, as so far Apple seems to be defying past rules of thumb. Apple's sales velocity and prices seem to defy rules of thumb that suggest prices "should drop," margins "should" weaken and growth rates "should" slow.

Whether Apple is the exception that proves the rule is one question. But other big questions "should" be asked. Among those big questions are the shape of future telecom service provider markets.

Product share is one issue. Share of revenue is another question. Who the leading contestants will be is yet another question. The three biggest U.S. communications service providers, by revenue, now are AT&T, Verizon and Comcast.

The point is that, for the first time ever, a "cable TV company" is in the top ranks of telecom service providers. One might suggest even that could change, in a decade or two.

On the service provider side of the business, one might argue, disruptive market share change occurs "rarely," even if the relative shares of existing providers does shift, largely because of acquisitions.

But huge market share shifts now happen rather routinely at the product level.

In fact, at least historically, one might argue that discontinuities--distinct or sharp breaks--in the telecom business are relatively rare. One might also argue that discontinuities now are more frequent in the telecommunications business.

In fact, it now is possible to argue that truly significant changes now can happen in the service provider business  over periods as short as one decade.

Consider the matter of fixed network voice services in the U.S. market. Compared to 2000, U.S. incumbent telcos in 2013 served about 42 percent of accounts sold in 2000. In other words, over about a decade, U.S. fixed network telcos lost half of their voice lines.

In some cases, providers arguably have lost as much as 70 percent of fixed network voice lines.

In the U.S. market, 27.6 million total lines were “lost” marketwide, a shrinkage of about 17 percent of total lines in the market. In other words, aggregate demand dropped by that amount.

There also was contestant market share change. Over the 2008 to 2013 period, cable TV voice accounts grew from about 20 million to 30 million, for example.

The point is that a triggering disruptive event–the Telecommunications Act of 1996, did not immediately produce huge changes in market structure or revenue shares.

In the years between 1996 and 1999, new competitors gained about four percent share.

From 1999 to 2003, a period of three additional years, competitor market share rose from four percent to 13 percent.

From 2003 to 2005, competitors gained four more share points.

After 2008, competitor share--aided perhaps b y a new way of counting--climbed to 27 percent, according to FCC data.

The point is that significant changes now can happen over a decade, and big changes over periods of perhaps two decades.

But market share might not tell the whole story. Some might argue that firms such as Verizon might have lost money with their investments in fiber to the home platforms, for example.

Some argue that is why Verizon is willing to shed even FiOS lines to concentrate on mobility.

The more shocking argument is that Verizon and others might lose money even on their mobile business.

That raises a disturbing question: what happens when even dominating scale is not enough to ensure robust earnings by the largest service providers?

What changes in business model might be needed? And by the time fifth generation mobile networks actually arrive, will even the biggest mobile service providers have a defensible “moat” against new competition?

And, and if tht is a real possibility, why do regulators spend so much time burdening contestants that, one might argue, are going to face sustainability challenges even greater than they face at present?

Sprint, T-Mobile US Improving; Verizon and AT&T Way in Front for Network Performance

Choose your storyline: "Sprint and T-Mobile US improving fast," or "Verizon and AT&T way in front." Both would be accurate ways of summarizing the latest Rootmetrics study of network performance.

Sprint and T-Mobile US gained significant ground on AT&T and Verizon in Rootmetrics studies of metro market performance in the areas of network reliability and network speed, across mobile data, voice and text messaging products in the second half of 2014.

While Sprint and T-Mobile US still trail Verizon and AT&T, both Sprint and T-Mobile either gained awards or held steady in every category in the second half of 2014.

Sprint and T-Mobile increased their award tally by 140 compared to what the two networks earned at the metro level in the first half of 2014, according to Rootmetrics.

One might note that the results are shaped by the lead AT&T and Verizon have, and therefore the room for improvement possible for Sprint and T-Mobile US.

That said, all the networks improved in the second half, compared to the  first half.

Verizon either won or tied for first in our “overall” scores in 113 of the 125 markets tested. AT&T had 51 such scores. Verizon won or tied for first in 117 of the 125 markets. AT&T had 78 first-place wins or ties.

But T-Mobile US “in particular continues to show very fast speeds in many of the metro areas we test and, as we note below, even recorded the fastest median upload speed we saw from any network in the second half of 2014,” says Rootmetrics.

Also, T-Mobile’s 27 “overall” RootScore Awards in the second half of 2014 also represents “the most we have ever recorded for the network,” Rootmetrics says.

Sprint has also “made tremendous strides in our measurements,” says Rootmetrics. “With much better reliability than what we saw in the first half of 2014, Sprint won significantly more RootScore Awards in our call, text, and reliability measures this time around.”

“Sprint even pulled ahead of T-Mobile in both our call and  reliability categories at the metro level,” Rootmetrics said.

On the other hand, “while Sprint was the biggest net gainer in RootScore Awards (improving by 108 awards compared to the first half of 2014), its tally of 135 trailed those of the other three networks.”

Mobile Data Consumption to Grow 59% in 2015

Mobile data traffic will grow 59 percent in 2015 and 53 percent in 2016, Gartner predicts, driven primarily by consumption of video.

“Mobile video is generating 50 percent of all mobile data,” says Jessica Ekholm, Gartner research director. “We expect video streaming to account for over 60 percent of mobile data traffic in 2018.”

Video-calling services will contribute to overall demand, as well. In terms of traffic, five minutes of 3G FaceTime video calling uses up to 15 megabytes of data, a small amount. But the number of users arguably is large and growing.

Though mobile video is the primary usage driver, mobile music streaming can easily generate hundreds of megabytes of data as well.

Usage is increasing for several reasons. Faster mobile networks lead to higher data consumption.

More affordable smartphones also mean more people are using smartphones, which also increases data consumption.

Despite the activation of new 4G networks, 3G networks will continue to fuel worldwide data growth during the next five years, Gartner predicts. “We expect 3G connections to grow by 45.7 percent globally in 2015,” Gartner says.

“We predict that, in 2018, half of North American mobile connections will use 4G networks, but in the Middle East and Africa 4G users will amount to only 3.5 percent of the region's total,” says Ekholm.

By 2018, 4G users will generate 46 percent of all mobile data traffic, with each 4G smartphone consuming 5.5GB of data per month, three times more than a 3G smartphone, Gartner says.

Will 600-MHz Auctions Flop?

Is it possible the upcoming 600-MHz auctions of U.S. TV broadcast spectrum will flop? And is that possibility more or less likely than huge demand for spectrum that leads bidders to overpay?

Right now, it is hard to say which outcome is more likely.

Some might argue the prospect is for overpayment, as bidders compete for high-quality spectrum. The precedent is surprising high prices paid in the 700-MHz AWS-3 spectrum.

In fact, some might say, the results of that precedent already are being seen in reverse auction prices for 600-MHz spectrum auctions.

In some cases, initial prices have been reset at an order of magnitude higher ranges. In New York City, the median bid for a full power station rose to $660 million from $410 million.

In Los Angeles, initial prices  jumped to $560 million from $340 million.

In Portland, Ore., the initial price  rose to a median of $170 million from just $18 million. In Nashville, Tenn., prices climbed to $220 million from $20 million.

On the other hand, some might argue the pressure will run in the other direction: namely less demand for the 600-MHz spectrum.

For starters, there are multiple ways mobile service providers can create more effective capacity. Spectrum resources matter. But so do network architectures, air interfaces and other signal processing techniques.

Bidders will have to decide how much emphasis to place on acquiring new spectrum, compared to other techniques.

Also, other spectrum options exist, and are developing. That means “scarcity” might be a relative concept. Longer term, there is lots of attention being paid to huge new blocks of spectrum in the millimeter range that previously have been unusable for communications purposes.

Nearer term is the possibility of spectrum sharing between current non-profit and government licensees and new commercial users.

An immediate possibility is use of spectrum not yet commercially deployed, especially the LTE spectrum amassed by Dish Network.

Dish Network has amassed a significant collection of spectrum assets to enable it to launch a new Long Term Evolution mobile network.

Whether Dish Network ultimately will do so is not clear, though. Some think Dish Network might ultimately simply sell the spectrum to another firm, or might create a national wholesale business, or sell all of Dish Network--video business and spectrum--entirely.

Any of those moves would affect demand for 600-MHz spectrum by reducing demand. Less demand would first mean less spectrum is made available, and then lead to lower prices for available assets.

In other words, one might argue there is as much likelihood of a relatively unsuccessful auction as of an auction that draws huge bids.

One might argue that “overbidding” is a danger to be avoided.

Mobile service providers have in the past misjudged the value of spectrum and nearly bankrupted themselves.

When auctions for third generation network spectrum were held in Europe, carriers overbid, creating financial pressures that nearly bankrupted a number of tier one service providers. (“Shocking,” some sarcastically will note).

And every cost anywhere in the delivery ecosystem ultimately is paid for by end users. So higher spectrum prices will mean higher retail prices, one way or the other.

Concern about excessive prices already has arisen in some 4G auctions. On the other hand, there has been some speculation that 700-MHz AWS-3 prices were bid up so much because carriers think the 600-MHz auctions might not provide as much value.

Indeed, the very structure of the 600-MHz reverse auction process encourages “high prices.”

In a two-step process, the auction has to encourage TV broadcasters to part with spectrum by offering large payments. Only then will spectrum be made available for mobile service providers to buy.

So high initial prices are not necessarily the ultimate prices buyers might pay. Also, the voluntary clearing process also means it might be hard to assemble uniform national footprints of new spectrum. That might lead to lower prices in secondary and tertiary markets.

So despite speculation that demand for AWS-3 spectrum was unexpectedly robust, demand for 600-MHz spectrum is less clear. Other spectrum alternatives are coming, longer term.

But some think the precedent of the AWS-3 auctions suggests higher prices for 600-MHz assets.

The impact of broader service provider debt loads is not to be discounted, either. Leading service providers face revenue pressure at the same time they face demands to invest in the next generation of services, plus pay for additional spectrum.

How much operators should--or can--pay is a growing issue.

Cloud Computing Now 5% of Enterprise IT Spending

One way of illustrating cloud computing prospects is to note that in 2014, cloud computing probably represented only about five percent of enterprise information technology spending.

By about 2018, more than 60 percent of enterprises will have at least half of their infrastructure on cloud-based platforms, according to Saugatuck Technology.

Year over year growth for leading cloud services suppliers has been dramatic. Between 2013 and 2014, Amazon revenue grew 51 percent.

Microsoft’s cloud revenue grew 96 percent; IBM’s revenue was up 48 percent; Google’s cloud revenue climbed 81 percent and Salesforce revenue was up 37 percent. In the fourth quarter of 2014 quarterly revenues were about $5 billion.

At current growth rates, the cloud services market might generate $160 billion by 2020.

In 2014 Amazon Web Services  share of the worldwide cloud computing market was 28 percent, followed by Microsoft at 10 percent, IBM at seven percent, Google at five percent, Salesforce at four percent and Rackspace at three percent.

Cablevision Launches First "Wi-Fi Only" Mobile Service

Cablevision Systems has launched Freewheel, its new Wi-Fi-only mobile service. It costs $30 a month for customers who are not buying Cablevision high speed access, but only $10 a month for consumers who do buy Optimum Online broadband services.

The service should provide a huge real-world market test of the attractiveness of a "Wi-Fi only" approach to mobile device access, a possibility that observers have speculated about--as an alternative to mobile service--for decades.

The market window for such an approach might be somewhat limited, some might argue, as coming fifth generation (5G) networks are expected to feature an ability for devices to choose any available access network.

Perhaps significantly, this is not the first time Cablevision has actually contemplated building a service that is mobile and untethered, but not “full mobile.”

Back in the 1990s, when the U.S. government was auctioning a new block of spectrum still called Personal Communications Service (PCS), the thinking was that the new spectrum might be used to create new types of services distinct from mobile service.

At that time, mobile service was expensive and used primarily by people in business. The thinking was that PCS would be a lower-cost type of mobile service.

Predating many of today’s fundamental concepts, the thinking was that Cablevision could create a big network of small cells, with antennas perhaps located at every amplifier location, which would create a grid of transmitting sites supporting in-home or pedestrian call hand-off between cells.

The thinking was that a person walking on a street would be able to transition a call between one small cell and the next, something that would not be possible at highway speeds, though.

So basically, the thinking went, the service would work in the space between a “home cordless phone” and a full “mobile service.”

Cablevision never proceeded with the plan, but as so often happens, some of the basic concepts were correct, but just too early for the commercial market.

Lower cost service, in home or pedestrian use, new spectrum, small cells, a new transmission network and new market entrants were hallmarks of the original Cablevision plan.

On the other hand, as also often happens, the potential market shifted. Whatever thoughts proponents might have had, the release of new PCS spectrum--initially thought to be the underpinning for new types of service--wound up bringing much more competition to the mobile services business, changing a niche market into a mass market.

With the release of PCS spectrum, Sprint and what become T-Mobile US emerged as leading mobile providers in a new mobile mass market.

That competition lead to far-lower service prices, which eliminated the gap between cordless phone and mobile phone service, and also made mobile a viable replacement for fixed voice service.

But the Cablevision Freewheel offer nevertheless is historic, as the first U.S. Wi-Fi only mobile service.

On the other hand, Freewheel faces a market likely to change. Already, most smartphone owners use a “mobile-first, Wi-Fi often” form of access.

In fact, in some cases, the volume of data consumed might already be “Wi-Fi first, mobile second.”

All other service provider offers already incorporate the ability to shift to Wi-Fi as the primary network connection.

A number of providers use a “Wi-Fi first” approach, with a switch to mobile access as needed.

Also, a growing number of service plans are offered at prices comparable to the Cablevision “not a subscriber” price of $30 a month. it is the $10 “current subscriber” price that is disruptive.

So the primary customer base is likely to turn out to be existing Cablevision high speed access customers.

HIstory suggests the offer will face high obstacles. Rarely, if ever, do “non-standard” consumer electronics or communications offers succeed broadly when they deviate from the general market expectations.

That has applied to any number of appliances that blend in-home phone and Internet access capabilities, for example. None have gotten traction. Instead, people rely on smartphones.

Cablevision suggests the service might appeal to several potential  customer segments, including people who do not travel outside the New York metro market that often, or

spend their typical days in WiFi-rich environments, including colleges, offices and homes.

Other potential customer segments include users who worry about overspending on data.

Also, Cablevision suggests, the service might appeal to customers who live in in areas that suffer from poor cellular reception  

The low price for Cablevision high speed access customers ($10 a month) might make it a useful service for children getting their first phones, the company suggests.

The issue is how long the market window exists for a Wi-Fi-only service, given the growing trend to “use any access” approaches.

Consumers Choose, Churn From Mobile Service Providers for Very Different Reasons

U.S. mobile service providers tend to lose customers for different reasons, a new study by Consumer Intelligence Research Partners has found, and the reasons are congruent with each firm’s positioning in the market.

AT&T and Verizon tend to lose customers because of the cost of service. That would make sense, as Verizon has a reputation as the “most expensive” carrier. AT&T does not hold quite that position in the market, but might generally be seen to be more expensive than Sprint and T-Mobile US.

Over half of consumers who switched from Verizon or AT&T said cost was the primary reason, compared to less than 40 percent for other deserting customers of Sprint or T-Mobile US.

On the other hand, customers leave Sprint and T-Mobile US because of perceived problems with network quality. That also might make sense, given the broader network coverage of the Verizon and AT&T networks.

Almost 40 percent of Sprint and T-Mobile departing customers say “network quality” is the reason they switched.

But customer churn also is less an issue than often is believed, the survey indicates. “Mobile phone customers are very loyal to their carrier,” CIRP argues.

Almost 80 percent of customers stay with their current mobile phone carrier when they buy a new phone, far more than stay with their operating system or brand of phone.

That 20 percent churn rate, spread over a two-year period, implies a churn rate less than one percent a month, at least when phones are replaced.

Loyalty varies somewhat among customers, with AT&T and Verizon maintaining the most loyal customers, and Sprint and T-Mobile have somewhat lower loyalty rates, CIRP notes. That is congruent with churn rates, which are lower at AT&T and Verizon than at Sprint and T-Mobile US.

As a generic, consumers arguably switch carriers for many reasons. Lower price, high cost, network quality, plan structure, device exclusivity or perhaps customer service quality might drive a change of service provider. But the survey shows the concrete reasons vary by carrier.

As you might guess, consumers also choose new carriers for different reasons.

AT&T and Verizon tend to appeal to consumers based on network quality, even though consumers think they cost more.

Consumers think that T-Mobile provides a lower-cost service, at the expense of network quality.

Sprint draws customers based on plan features, such as friends and family pricing or unlimited data.

Consumers do not appear to switch carriers based on the quality of customer service received from their old carrier or anticipated from their new carrier.

Verizon Sells 3.7 Million Lines, 7.1 Revenue Generating Units to Frontier Communications

Verizon Communications will sell its fixed network business in California, Florida and Texas to Frontier Communications Corporation for $10.54 billion (approximately $9.9 billion in cash, plus $600 million in assumed debt) for the business and related assets in these states.

At the end of fourth-quarter 2014, these operations served approximately 3.7 million voice connections; approximately 2.2 million high-speed data customers, including approximately 1.6 million FiOS Internet customers; and approximately 1.2 million FiOS Video customers.

The transaction includes Verizon’s FiOS Internet and Video customers, switched and special access lines, as well as its high-speed Internet service and long-distance voice accounts in these three states.

The consumer and small business wireline operations that Verizon is retaining provide service in nine states and the District of Columbia and had approximately 16.1 million wireline voice connections; seven million high-speed data customers, including approximately 5.1 million FiOS Internet customers; and 4.5 million FiOS Video customers.

The states in Verizon’s contiguous consumer wireline footprint are Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Washington, D.C.

At the same time, Verizon is returning a significant amount of capital to its shareholders through a $5 billion accelerated share-repurchase program.

In a separate transaction, Verizon also has agreed to lease the rights to over 11,300 of its company-owned wireless towers to American Tower Corporation, which will also purchase approximately 165 Verizon towers, for a total upfront payment of approximately $5 billion.

American Tower will have exclusive rights to lease and operate over 11,300 Verizon cell towers.

The average term of the lease rights is about 28 years. As the leases expire, American Tower will have fixed-price purchase options to acquire these towers based on their anticipated fair market values at the end of the lease terms.

Verizon will sublease capacity on the towers from American Tower for a minimum of 10 years for $1,900 per month per site, with annual rent increases of two percent. Verizon will have customary renewal options that could potentially extend the full term of the sublease to 50 years.

Earlier, I had estimated that “if Verizon acquires $10 billion worth of assets from Verizon Communications, and the value of a subscriber is about $3000, that implies the purchase of about 3.3 million subscribers. At $3200 per subscriber, the deal implies the purchase of about 3.13 million subscribers.”

The price actually wound up being about $2835, for a mix of consumer and small business accounts.