Business Model Really Has been an Issue for Telco Next Generation Networks

Telcos have faced some rather unpleasant business model realities where it comes to next generation networks of several types, which helps explain an apparent hesitance to build faster.

The big problem is that building next generation networks sometimes does not clearly offer the promise of additional revenue. That is a big deterrent to investing.

In the fixed network area, the upgrade to fiber-reinforced or all-fiber access networks has had a clear business model problem: since voice and lower-speed digital subscriber line could be provided over the copper networks, upgrading really only added one new service--entertainment video--and most smaller telcos have not found they actually made money offering that service.

Even the biggest providers, such as AT&T and Verizon, have found the financial returns rather low, even with their scale. The rationale has evolved with demand for higher speeds, so now it is apparent the networks must be fiber reinforced to sell a competitive Internet access service.

But even there, the financial return is challenging. The upgrades do not so much create new revenue as protect the ability to sell the existing product.

Some of the same logic applies for voice over LTE and voice over Wi-Fi. There are benefits, but they largely are indirect. VoLTE means mobile operators using only 4G have a way to support voice services.

There are operating advantages, including faster call set-up, and frees up potential bandwidth, compared to relying on 2G or 3G for voice, and 4G just for Internet access.

Wi-fi calling provides better indoor coverage for some users in some areas, but again, creates no significant new revenue opportunity.

Cable operators have had far easier choices. For starters, it has proven far easier to wring vast amounts of bandwidth using a hybrid approach that is far less capital intensive than a full fiber to home upgrade.

Those upgrades have allowed cable operators to become the leading providers of high speed access, and also improved performance and reliability enough to support business and consumer voice services, while retaining the lion’s share of the linear video market. Those networks also supported a move into the small business market, and some parts of the enterprise market.

In other words, the cable upgrades did create big new revenue opportunities.

That has not always been the case for mobile or fixed network next-generation network investments. So a certain reluctance to invest comes as no surprise.

Whatever else one might legitimately complain about, concern about a difficult business model is not among them.

Other contestants might--and often do--entertain different payback models.

How Soon Will Mobile Video, IoT Be Key for Verizon?

How important will Internet of Things revenue be for many tier-one service providers, and how soon “must” those revenues be generated? Rather sooner than you might expect.

Verizon’s traditional business models are disrupted. A case in point: Verizon CEO Lowell McAdam says Verizon’s full-year 2016 earnings may plateau at 2015 levels.

Among the reasons: a change in the mobile commercial model as device sales shift, disposition of fixed network assets to Frontier Communications and investments to build new , year-over-year wireline financial comparisons following the expected first-half 2016 sale of operations to Frontier Communications as well as investments in mobile video and Internet of Things.

In other words, with less revenue expected in mobile and fixed network legacy businesses, new revenue sources, including mobile video and IoT are necessary.

There is one wild card, though. As Verizon concentrates on maximizing revenue wrung from its fixed network assets in the Washington to Boston corridor, it is possible Verizon could extend its presently on hold expansion of FiOS to new metro areas.

“If you can get the right relationships between what the local governments are looking for, what we're looking for and cooperation from our unions, I would not rule out some further expansion of FiOS, but you have to figure out the right formula," McAdam said.

A big piece of Verizon's fixed network focus going forward will be on enhancing FiOS Internet access speeds.

By increasing broadband speeds to enable access to over the top services, Verizon hopes to address a growing cord cutting trend in entertainment video.

Verizon estimates that 40 percent of potential Millennial customers do not own a TV while another 20 percent have a TV but are thinking of getting rid of them, or terminating linear video service.

That makes nearly impossible the effort to sell them linear video subscriptions.

Instead, those potential customers are watching video on a mobile handset or digital media inside their home on a tablet or an OTT service. That actually improves the value proposition for high speed access.

So McAdam said he does not anticipate a sale of additional fixed network assets.  "When people ask me, and I know there's some speculation that we might be interested in selling the wireline properties, I don't see it in the near-term," McAdam said.

So it appears three potential revenue sources might--or must--be part of Verizon’s strategy: FiOS in new cities; mobile video and IoT.

Indonesia App Economy Behind Only Vietnam and Singapore

Can applications development be one route to economic success for a country such as Indonesia,  that has a large internal market? Yes, argues Dr. Michael Mandel, chief economic strategist at the Progressive Policy Institute and a Senior Fellow at the Mack Institute for Innovation Management at the Wharton School at the University of Pennsylvania.

“We estimate that Indonesia has roughly 22,000 app economy jobs across the entire country,” said Mandel. “In fact, Indonesia comes in third in our app economy ranking of major Southeast Asia countries, behind Vietnam and just behind Singapore.”

Indonesia’ Internet penetration rate increased to 35 percent in 2014, according to the Association of Indonesian Internet Service Providers (APJII).

Smartphone adoption use is still relatively low, but increasing quickly. The largest use is social networking, with 85 percent using a mobile phone to access the Internet, Mandel says.

According to data from Statistics Indonesia, the information and communications sector grew by 10 percent in 2014, compared to five percent growth for the gross domestic product of the whole country.

Among key segments of the app economy are large, medium, and small Indonesian app developers, who may be creating apps for themselves or for clients.

Then there are enterprises using Indonesian workers for app development. Also, finance and retail companies use apps to reach customers, and are part of the app economy as well.

Other large non-tech companies that are developing apps for internal and customer use.

India Cell Tower Utilization is an Issue

Some of us would argue that India is the world’s toughest mobile market, with unusually high numbers of mobile competitors, rather limited spectrum, high taxation and fee structures, brutal retail cost constraints and high infrastructure costs. Inefficiency might also be on the list of issues.

At a time when mobile operators complain that call drop rates are too high in part because mobile companies face obstacles placing new cell sites, tower utilization arguably is rather low as well, at about 1.3 tenants per tower.

In other markets, it might not be unusual to see four or more tenants  on many towers.

source: Deloitte

Growing North American Use of Mobile to Access Internet

source: eMarketer

Even in the United States and Canada, where fixed Internet access generally is widely available, a growing percentage of people rely on mobile access to the Internet.

About 80 percent of people living in the United States and Canada own at least one mobile phone and use it monthly in 2015. More than 70 percent of all mobile users have a smartphone and about

60 percent  of North America's residents use a mobile phone to access the web in 2015.

That means something like 42 percent of mobile phone users access the Internet on their phones.

By 2018, that percentage will climb to 70 percent.

About 81 percent of the U.S. and Canadian populations will go  online at least once a month in 2015, according to eMarketer.

Within four years, 83 percent of residents in North America are expected to access the web regularly.

Apple Launch of "Phone as a Service" Could Flip Business Model

Life is full of apparent ironies.

Mobile service providers work very hard to create differentiation and value for their core connectivity services, but new device leasing programs offered directly by Apple will further divorce the device decision--and the value the device represents as the embodiment of the service--from the connectivity service, which necessarily becomes a subsidiary decision for the consumer.

The other aspect of the iPhone Upgrade Program is that device subscriptions turn a device purchase into an on-going subscription relationship for Apple and other device manufacturers using leasing programs. Make no mistake, though Apple remains a device manufacturer, it also shifts into the role of “phone as a service” provider.

Recall that the iPhone represents 66 percent of Apple’s revenue. So while it might yet be too soon to say Apple has flipped its business model--exchanging its “sell devices” model for a “sell service” model--it potentially is poised to do so

Some might note that does tend to reduce the leap to becoming the connectivity provider, as well.

source: Phone Arena

Telstra Introduces 600-Mbps Mobile Hotspot on its Network

Telstra, working with Netgear, Ericsson and Qualcomm Technologies, has activated the world’s first 600-Mbps device operating on its fourth generation (4G) Long Term Evolution network in Australia.

Support for the world’s first Category 11 device, mobile hotspot, comes one month after the launch of the first Cat 9 (450 Mbps) devices on the Telstra Mobile Network.

The Telstra WiFi 4GX Advanced III Mobile Broadband Hotspot is the latest device working on Telstra’s network, which uses three-band Carrier Aggregation technology. This technology means customers will have access to significantly faster peak download speeds and added capacity in the network.

The new Telstra Wi-Fi 4GX Advanced III mobile hotspot supports up to 15 WiFi-enabled devices simultaneously. Customers in a 4GX enabled area can securely share blazing-fast WiFi with friends, family and co-workers while on the go. The hotspot automatically switches between 4GX, 4G and 3G coverage in areas where 4GX is not yet available. With its powerful battery, customers can connect for up to 11 hours of continuous use or 260 hours on standby.

The early Cat 11 enabled footprint is concentrated in Sydney, Melbourne, Brisbane and Canberra, and in selected popular holiday locations.

Altice to Buy Cablevision Systems Corp.

Cablevision reportedly has agreed to sell itself to Altice, the French communications and cable firm that already owns Suddenlink Communications, the seventh-largest U.S. triple play provider.

Were the deal to pass regulatory muster, Altice would become one of the largest U.S. communication providers. Cablevision has about 2.6 million customers while Suddenlink has about 1.1 million, for a total of some 7.7 million subscribers. That would make Altice the third-largest U.S. triple play provider.

The proposed deal values Cablevision at $17.7 billion, and would be a larger transaction than the $9 billion paid to acquire Suddenlink Communications.

Many of us long had thought Cablevision would be purcased by Time Warner or Comcast. The Altice move is big and bold. Some think Altice will face regulatory opposition. That seems to me unlikely. T-Mobile US and Sprint both are largely owned by international entities.

U.S. Triple Play Providers
Companies	Subscribers at End of 2Q 2015	Net Adds in 2Q 2015
Comcast	22,306,000	(69,000)
Time Warner Cable	10,982,000	(43,000)
Charter	4,258,000	(30,000)
Cablevision	2,637,000	(16,000)
Suddenlink	1,102,600	(29,400)
Mediacom	879,000	(12,000)
Cable ONE	399,878	(21,455)
Other major private companies*	6,395,000	(40,000)
Total Top Cable	48,959,478	(260,855)
Satellite TV Companies (DBS)
DirecTV	20,279,000	(133,000)
DISH^	13,932,000	(81,000)
Total Top DBS	34,211,000	(214,000)
Telephone Companies
AT&T U-verse	5,971,000	(22,000)
Verizon FiOS	5,765,000	26,000
Total Top Phone	11,736,000	4,000
Total Top Pay-TV Providers	94,906,478	(470,855)

source: Leichtman Research

Is Sprint a Problem that Cannot be Solved?

Some problems arguably are not possible to solve, as much as we want to believe that all problems, given will and effort, are in fact capable of being resolved. Meaning no disrespect, perhaps Sprint continues to be a case of the problem that cannot be solved, as hard as smart talented people continue to try.

Moody's Investors Service has downgraded several ratings of Sprint Corporation debt obligations.

“Today's rating action reflects Moody's view that the numerous operational and network initiatives, management changes, and funding plans recently announced by Sprint and its parent company and majority shareholder, SoftBank Group Corp. ("SoftBank"), will be insufficient to stabilize Sprint's operations in the next few years,” Moody’s said.

“The brutal competition now playing out in the US wireless industry will pressure the financial performance of even the strongest operators,” said Moody’s.

The problems are that Sprint's cash consumption remains high, liquidity remains weak and leverage high. That means concern about Sprint’s ability to  refinance its large upcoming debt maturities.

Despite some improvement in operating metrics (reduced churn, decrease in postpaid handset losses), capital markets will require more collateral.

That is why Sprint is creating two leasing companies to finance customer devices and network equipment.

Hard work, talent and even luck sometimes are not enough. Sometimes companies just run out of time, assets to sell and cash.

Will Universal Service Support Allow "Internet Access Only"?

Government policies enable and shape most fundamental parts of the Internet access, mobile,  fixed, fixed wireless and satellite communications businesses, it perhaps goes without saying.

That applies to rural telecom companies offering Internet access as well. In a strict sense, there is not a viable business model for most fixed communications services in many rural markets, which is why the U.S. Federal Communications Commission has universal service programs.

How such programs are operated can make a difference, though. On a visit to many communities across the rural western United States, FCC Commissioner Ajit Pai “heard repeated concerns over the last few days that outdated Universal Service Fund (USF) rules are holding back investment in next-generation networks,” said Pai.

The problem is that rate-of-return carriers (fixed network telcos) are currently ineligible to receive support for stand-alone broadband service (service providers receiving such funds must provide fixed network voice service as well).

“Dakota Central Telecom, for example, told me that it started offering stand-alone broadband standalone broadband, but had to stop providing it to new customers because it became prohibitively expensive to do so,” said Pai. “However, with USF support for stand-alone broadband, Dakota Central Telecom could start offering that service to consumers again.”

The Commission earlier had pledged to support “broadband only” support by the end of 2015. The issue is whether that goal can be met.

To be sure, some service providers prefer the policy of bundling voice with high speed access. It boosts average revenue per account.

But a growing number of consumers prefer to buy Internet access without voice, or a bundle of Internet access plus entertainment video.

Google Fiber Installers Show Up On Schedule 96% of the Time

Though Google Fiber competes partly on the features of its service and its retail price, any Internet service provider, over time, will be judged by consumers on other important measures, such as the quality of customer service or bill accuracy, as mundane as such things appear.

In that regard, Google Fiber says visitors at its service centers are helped in under one minute on average, while call center hold times are just 33 seconds on average, according to Alana Karen, Director, Google Fiber customer service director.

Also, Google Fiber installers show up on time for appointments 96 percent of the time.

Asia Internet Access Will Grow 7% Annually Through 2019

Internet access growth in the Asia-Pacific region is expected to be 8.2 percent in 2015 and then remain around seven percent through 2019, according to eMarketer, and, as has been the case for years, most of that growth will be based on use of smartphones and the mobile network.

There will be 2.51 billion mobile phone users in the region in 2015, a figure equal to 62.5 percent of the population, rising to 69.4 percent by 2019.

China alone accounts for one billion mobile phone users in the Asia-Pacific region.

Some 40.8 percent of the mobile population in Asia-Pacific now use a smartphone. By 2019, smartphone penetration among mobile phone users will be 51.5 percent, on a smartphone base of 1.48 billion users.

India now has emerged as the largest potential growth opportunity.

China alone accounts for 28.3 percent of all smartphone users on the planet, though growth now is slowing.

Wi-Fi Quality of Service Imperatives Growing

As many operators of public Wi-Fi hotspot networks strive to emulate “carrier” network features, you might sense a bit of incongruity. Historically, carrier and Internet networks had different strategic imperatives.

Carrier networks were supposed to provide “high quality” service, typically quantified in terms of service availability (99.999 percent available over a year’s time) and audio quality (MOS scores for voice).

The Internet was optimized for robustness more than quality; the ability to survive failure.

These days, some Wi-Fi network operators are striving to achieve more “carrier-like” attributes, such as seamless registration to the network, seamless session support between one cell and the next and at least some measure of application quality and continuity across the network.

That shift in thinking is driven by desires to create new business models based on carrier grade network support for Internet of Things apps offered by enterprises, for example, as well as mobile services.

“As mobile and Wi-Fi services continue to overlap and converge, the integration of mobile and Wi-Fi networks, such as that used for 3G to Wi-Fi network handoff, will continue to become increasingly prevalent and more complex,” says CableLabs. “As Wi-Fi networks are used for faster and more robust data, video, and voice services, maintaining a quality-user experience is becoming increasingly important.”

That is not to say all supporters of public Wi-Fi have the same concerns, or the same degree of concern. App providers arguably are less concerned, providers of mobile services more concerned.

Still, "quality of service" concerns increasingly are raised within the context of a "best effort" access network historically more concerned with robustness to failure than seamless and assured levels of user experience.

LTE Adoption has Yet to Reach 50%, Anywhere

Communications network nvestment cycles are rather long, in part because development cycles are lengthy. Detailed standards work is the reason. 

So, despite the flurry of work to create new fifth generation (5G) standards, even in countries with the highest adopiton of fourth generation Long Term Evolution services, adoption has yet to reach the 50-percent mark. 

Video Cord Cutting Still Muted, Survey Finds

With an important caveat--that disruptive changes in markets tend to build for long periods of time before erupting--a study sponsored by Rovi Corporation suggests the actual degree of video entertainment service “cord cutting” remains muted.

The study of consumers across North America, Europe and Asia found only  three percent of global viewers had actually done so, despite the fact that 57 percent of all respondents had given cord cutting either “a lot of” thought or “some” thought.

The greatest amount of cord cutting, though, is happening in the U.S. market, where seven percent of survey respondents had done so.

In Germany, France, China, and India only two percent of respondents in each of those countries were actual cord cutters.

The research findings were the result of an online survey of 4,000 linear subscription TV and over the top video subscriber service subscribers across seven countries worldwide with 1,000 interviews completed in the U.S., and 500 interviews completed each in the U.K., France, Germany, China, Japan, and India, Rovi said.