U.S. Fixed Wireless Market About to be Rearranged

With Google, Facebook and AT&T exploring, testing or intending to deploy fixed wireless  for Internet access networks, the fixed wireless industry is on the brink of major redefinition. AT&T alone has said it would use fixed wireless to serve 13 million locations.

Others such as Starry, also are hoping fixed wireless emerges as a major platform for providing Internet access.

In 2012, there were perhaps 2,000 to 2,500 fixed wireless Internet service providers supplying Internet access to two million to three million subscribers in the United States, according to the Wireless Internet Service Providers Association.

So just about any serious deployment of Google, Facebook or AT&T fixed wireless would immediately reshape the U.S. fixed wireless business.

At 13 million connections, AT&T alone would represent 87 percent of all U.S. fixed wireless installed base, even if Google Fiber and Facebook added zero new accounts in the U.S. market.

Assuming Google is able to add only incrementally to its present installed base of accounts, while Facebook does not even enter the U.S. market, AT&T now looms as the major factor in the U.S. fixed wireless market.

Cloud Infrastructure Growing Faster than Software as a Service

The worldwide public cloud services market is projected to grow 16.5 percent in 2016 to total $204 billion, up from $175 billion in 2015, according to Gartner, Inc.

The highest growth will come from cloud system infrastructure services (infrastructure as a service [IaaS]), which is projected to grow 38.4 percent in 2016.

Gartner now also includes cloud advertising in its cloud services forecast.

Cloud advertising includes cloud-based services that support the selection, transaction and delivery of advertising and ad-related data.

Cloud application services (SaaS) are forecast to grow 20.3 percent in 2016, to $37.7 billion.

Cloud advertising services involve an auction mechanism that matches bidders with advertising impressions as they become available.

In fact, cloud advertising will be the largest segment of the global cloud services market, growing 13.6 percent in 2016 to reach $90.3 billion in 2016.

"The market for public cloud services is continuing to demonstrate high rates of growth across all markets and Gartner expects this to continue through 2017," said Sid Nag, research director at Gartner. "This strong growth continues reflect a shift away from legacy IT services to cloud-based services, due to increased trend of organizations pursuing a digital business strategy."

Worldwide Public Cloud Services Forecast (Billions of U.S. Dollars)	2015	2015 Growth (%)	2016	2016 Growth (%)
Cloud business process services (BPaaS)	39.2	2.7	42.6	8.7
Cloud application services (SaaS)	31.4	15.5	37.7	20.3
Cloud application infrastructure services (PaaS)	3.8	16.1	4.6	21.1
Cloud system infrastructure services (IaaS)	16.2	31.9	22.4	38.4
Cloud management and security services	5.0	20.7	6.2	24.7
Cloud advertising	79.4	15.4	90.3	13.6
Total market	175.0	13.7	203.9	16.5

source: Gattner

source: Forrester Research

Bankruptcy for Former Incumbent Telcos?

Few veterans of the monopoly telecom business can imagine outright failure of the former incumbents. But few should hold such views. Outright failure seems not only possible, but increasingly likely, over the next couple of decades.

Pre-1980, the notion that a national telecom company could go “out of business” was fanciful in the extreme. In the Internet Protocol era, any single provider probably can “go out of business” without imperiling the national interest in maintaining a viable communications fabric.

That is, to say the least, a huge change in possibility that all too often seems imperfectly reflected in regulatory approach. We keep regulating as though some markets need to be “stimulated,” when in fact markets already are evolving in a fundamentally more competitive direction.

We keep acting as though “former incumbents” have decisive market power, when at every turn their power is eroding.

Someday we will have to confront actual market failure on the part of former incumbents. Because we now live in an IP world, specifically designed to overcome failures and outages, the communications fabric will not suffer catastrophic damage.

But the mindset has to change.

Some big telecom companies can--and most likely will--eventually go out of business. There are multiple reasons. Some legacy firms simply have unsustainable cost structures, while operating in markets where lower-cost, higher-value competitors are emerging.

In the U.S. market, it is not unreasonable to argue that Comcast will eventually become the biggest and most-important provider of many fixed network “telecom” services (Internet access, voice, video) and a leading provider of mobile services.

It is not unreasonable to expect that although Verizon, AT&T and Comcast lead, other former leaders will be absorbed, merged, or otherwise removed from the market as branded entities.

It is not unreasonable to assume that leading app providers such as Google and Facebook, or major device suppliers such as Apple, might not become significant providers of mobile access services.

All of those trends will undermine the legacy telco business model, but also provide the replacement providers, so that the national communications infrastructure remains intact. IP really helps, in that regard.

“Dumb pipe” (access and transport functions) is “supposed” to support all the other layers of the software function. Over time, even as communications providers sell a mix of managed and “dumb pipe” services, dumb pipe is going to become more important.

But dumb pipe also tends to imply much lower profit margins. That is not to say incumbents cannot hope to create new managed services. They can do so, and will try very hard. They might ultimately succeed at finding big new revenue sources to replace the lost managed voice and messaging revenue sources.

It just is not easy. Eventually, some big household names are going to disappear, and new providers are going to emerge to replace them. Our switch from monopoly to competition, and from TDM to IP, are going to wring inefficiency out of the business, imperiling survival for high cost providers.  

"Winner Take All" or "Winner Take Most" for Future Telecom Markets?

Referrals to content sites provide a clear illustration of the “winner take all” nature so often seen in application markets. On the Parse.ly network, for example, more than 80 percent of referrals are generated either by Facebook or Google sites.

source: parsely.com

So far, telecom markets have developed since dergulation as "winner takes most" structures. Unlike the structure of the Parse.ly referral market, most mobile markets (and mobile markets are most of the telecom business, these days) feature three to four dominant providers.

That is not as concentrated as the Parse.ly referral market, but still concentrated. The big issue now is whether a stable long-term pattern requires a reduction of leading providers to just three, from the four or five pattern still prevalent in most markets. 

A few countries have the opposite problem, suggesting that there is room for serious debate about whether three contestants really is enough to encourage robust competition on a sustainable basis. In South Korea and Japan, for example, policymakers seem to want to create room for a fourth mobile provider, though all efforts to do so, so far, have failed. 

The point is that it does not seem telecom markets are that different from most others. Over time, "digital" product markets seem to establish "winner take all" structures. And telecommunications now is a "digital product."

Are OTT Video Service Churn Rates High or Low?

How one defines “churn” radically affects one’s calculation of customer churn rates. And Parks Associates counts churn at least two different ways. One method suggests low churn, the other suggests high churn. Take your pick.

By one methodology, which compares churn as a percentage of lost customers across the whole base of U.S. broadband homes, churn rates are low for a consumer service, amounting to annual losses of about 20 percent, or monthly rates of less than two percent.

Using the other methodology, one more common for churn measurements--the percentage of the current subscriber base who drop service in a month or year--OTT video service churn is low for Netflix, relatively low for Amazon Prime and high for Hulu Plus.

In 2015, Netflix lost about nine percent annually; Hulu Plus about 50 percent for the year; Amazon Prime about 19 percent over 12 months.

On a monthly basis, that suggests Netflix churn of about three quarters of one percent a month--quite low for a consumer service of any type. Hulu Plus appears to be about four percent a month, high by consumer service standards.

Amazon Prime is about 1.5 percent a month, acceptably low for a consumer service.

Mature access services, especially mobile and triple play services, can have churn of less than one percent a month, by way of comparison.

source: Parks Associates

source: Parks Associates

Parks Associates' OTT Video Market Tracker shows 33 new OTT services entering the U.S. market in 2015. Among all U.S. broadband households, 64 percent of U.S. broadband households subscribe to an OTT video service, up from 59 percent in 2015.

Google, Facebook Drive More than 80% of Referrals to News Sites

Referrals to content sites provide a clear illustration of the “winner take all” nature so often seen in application markets. On the Parse.ly network, for example, more than 80 percent of referrals are generated either by Facebook or Google sites.

source: parsely.com

Fixed Network Now Drives Just 7% of Verizon Operating Income

If you wanted a one-sentence description of how the U.S. fixed network business has been transformed over the last 15 years, here it is: “Wireline now accounts for less than 30 percent of Verizon’s total operating revenues, down from 60 percent in 2000, and less than seven percent of our operating income,” noted Verizon Communications CEO Lowell McAdam.

In the fiscal year ended December 31, 2014, Verizon generated $127.1 billion of total revenues.

Fully $87.6 billion revenues, 69 percent of total, came from the mobile segment.

Verizon generated $38.4 billion revenues, 30 percent of the total, from fixed networks. Verizon generated $18.0 billion (47 percent) from mass markets, $13.7 billion (36 percent)  from global enterprise, $6.2 billion (16 percent) from global wholesale, and $0.5 billion (one percent) from other operations.

source: Revenue and Profits

As often is the case, revenue contribution and profit contribution can vary. Fixed network operating income margin was 4.3 percent in first-quarter 2015, Verizon reported. In first-quarter 2015, mobile segment operating income margin was 35 percent.

source: Market Realist

Typical Uber Ride Generates 19 Cents of Earnings Before Interest, Taxes, Employee Compensation

You might have heard more than a few Uber drivers grumble about the 25 percent share of gross revenue Uber takes from each ride sold to a passenger.

In February 2016 Uber earned 19 cents per ride in the United States,  according to company documents.

Of the 25 percent share of a typical fare, most goes to antifraud efforts, credit-card processing, customer support, marketing, and software development.

That 19 cents estimate does not include such matters as interest, taxes, or equity-based compensation for employees.

Google Fiber Unveils New 25 Mbps Symmetrical Service in Kansas City, for $15 a Month

How much should 25 Mbps symmetrical service cost? $15 a month, Google Fiber essentially says, as it introduces a new “budget” plan for residents in Kansas City, Mo. and Kansas City, Kan. Google Fiber neighborhoods with low rates of Internet connectivity.

In some U.S. markets, 20 Mbps to 25 Mbps from a telco or cable TV company can cost $60 a month. 

The new Google Fiber plan is offered without any data caps, no application process or contracts and no equipment rental and no construction or installation fees.

Broadband plan coverage areas are determined using publicly available data from the U.S. Census and Federal Communications Commission (FCC).

The new service will be available in Kansas City starting May 19, 2016.

Ingenu Launches IoT Network in Dallas

Ingenu, a supplier of a machine-to-machine network platform, has launched in Dallas. The Machine Network is intended to provide Internet of Things (IoT) connectivity to the region and will cover approximately 2,116 square miles, serving a population of more than 4.4 million people.

The Machine Network is powered by Ingenu’s RPMA (Random Phase Multiple Access) technology, designed to provide robust, reliable connectivity for M2M apps.

Application development for the Machine Network is currently underway with partners such as Dallas-based, Plasma, said to be a leader in enterprise digital transformation and IoT.

Plasma is partnering with Ingenu to support various Smart Cities initiatives.

Plasma supplies an enterprise-grade IoT platform that allows rapid prototyping and deployment of IoT and mobile solutions, Ingenu says.

If you have been in the communications or computing business long enough, you know that not all proposed technology platforms and standards succeed in the market. But it always is hard to pick winners and losers early on in the development of any coming technology and business.

In fact, as sometimes is the case, the general shift from proprietary or special-purpose networks to general purpose networks also occurs at the same time as special-purpose networks also are proposed.

It is too early to have complete assurance of how the overall IoT market and business will develop, which industries will deploy first, which deployments will prove to add the most value, which firms will emerge as leaders in the various markets or which access networks will be significant.

source: The Connectivist

Facebook's 10-Year Roadmap Includes "Connectivity" as Among Top 3 Technology Directions

Here’s another illustration of growing changes in the Internet ecosystem that pose a huge challenge to incumbent access providers.

Facebook has released some details about its 10-year roadmap. On the agenda: virtual reality, artificial intelligence and “connectivity.”

Connectivity includes drones, satellites, terrestrial solutions, telco infrastructure.

A couple of key points: Internet access no longer is the exclusive province of telcos, cable TV, fixed wireless or satellite providers of Internet access. Many other entities, including ISP businesses set up by local government, independent ISPs and application provders, are going to bundle Internet access with their other products.

That is not so unusual. Broadcast TV, broadcast radio, linear video entertainment, fixed and mobile voice and text messaging are apps or services that bundle access as part of some other product.

When we say that content is going to a growing part of the access provider business, that is only a reflection of the broader historic reality for many managed services.

Over time, it is highly likely that content and apps will be bundled with access for consumption by consumer users and customers, as connectivity, storage, computing or other services often are bundled as part of specialized business customer networks.

Source: Facebook

The other observations are that participants within the Internet ecosystem often expand into adjacent roles within the ecosystem, while it also is proving to be easier to move “down the stack” than “up the stack.”

When access providers add managed services or Internet apps, or app providers add access, those are examples of firms taking on additional roles within the ecosystem.

When app or service providers become device suppliers, or device suppliers become access providers, those are additional examples of ecosystem participants moving into adjacencies.

When app or service providers build their own devices, those are examples of moves into adjacencies.

Sometimes the moves are driven by strategic reasons, such as maintaining or gaining dominance in a market segment.  In other cases the moves might simply reflect the ability to grow gross revenue or reduce costs.

Ericsson has built an interesting business operating service provider networks, for example, essentially allowing access service providers to outsource operations.

The long term implications for access providers are clear enough. Staying within the one assigned ecosystem role (access) is going to be difficult, or dangerous, as time passes and more suppliers in other parts of the ecosystem decide that access is something they should be providing.

Half of Free Basics Users Buy Mobile Internet Access Within 30 Days

Half of all “Free Basics” users buy a data plan from their mobile service provider within 30 days of trying Facebook's free service, said Emeka Afigbo, Facebook's manager for product partnerships for Middle East and Africa.

Mobile operators receive no compensation from Facebook or Internet.org, and give away mobile Internet access to Free Basics users.

The perceived--and apparently real--upside is the chance to acquaint new users to the value of mobile Internet access and key Internet apps themselves.

Free Basics is offered in 37 countries, though Egypt and India have banned the service.

Some 25 million people have used the service, with six million users added since January of 2016.

If the conversion rates everywhere were to reach levels in the Middle East and Africa, potentially 12 million new mobile Internet customers would have been added in developing nations since Free Basics launched.

But there is far to go. Free Basics now is available to 1.67 percent of the potential population of the target nations representing around 1.4 billion people.

Other ISPs might be interested in a graphic Facebook has released about its 10-year roadmap. On the agenda: virtual reality, artificial intelligence and “connectivity.”

Connectivity includes drones, satellites, terrestrial solutions, telco infrastructure.

Source: Facebook