Facebook and Google Now Looking Both at Rural and Dense Urban Internet Access

Terragraph is Facebook’s new effort to develop a high-capacity, fixed wireless Internet access system running on 60-GHz unlicensed spectrum.  Google, for its part, also has invested in fixed wireless.

At the same time, both firms are testing use of unmanned aerial vehicles for satellite Internet delivery, while Google’s Project Loon is testing use of balloon fleets for the same purpose.

Verizon and AT&T also are looking at fixed wireless.  

Facebook’s Telecom Infra Project meanwhile seeks to develop open source and therefore lower cost network elements and platforms for traditional telecom networks. And Google has other efforts underway in the access network infrastructure or commercial access business.

All those efforts have a common theme, but also distinct missions. Since both Google and Facebook have advertising-based business models, anything the helps connect billions more people creates the revenue opportunity both firms are based upon. In other words, Internet access and Internet users directly create the revenue opportunity.

For that reason, there is direct alignment of “Internet access availability” and “our revenue opportunity” for Facebook and Google.

At the same time, there are nuances. Terragraph and Google’s fixed wireless efforts seem primarily aimed at dense, urban areas. The Facebook Aquila UAV effort, as well as Google’s similar effort, plus Project Loon, are aimed primarily at rural areas.

Facebook’s current satellite delivery effort in Africa also is aimed primarily at rural users. Telecom Infra Project might ultimately provide lower costs in either mobile or fixed realms.

And, for some time, lots of app providers have been pushing for use of more unlicensed spectrum, as well as spectrum sharing, as ways to bring more low-cost communications spectrum to market.

Telcos are likely to prefer use of licensed spectrum. So will cable companies in mobile, eventually. But lots of other app providers are likely to look for ways to leverage lower-cost unlicensed or shared spectrum to underpin Internet access efforts, using several business models.

At least in part, Google has chosen to go direct, becoming an ISP, a mobile services and Wi-Fi hotspot supplier. Project Loon would act as a commercial partner for 4G mobile networks, but also is a commercial operation.

The other business model is open source. Facebook already has done so in the data center area. Now it is working to bring an open source approach to telecom network infrastructure as well.

Facebook, for the moment, continues to insist it does not want to become a commercial provider of Internet access. Indeed, its approach has been to create new platforms that take an open systems approach, usable by any entity.

The Telecom Infra Project already has major support from telecom service providers and network infrastructure suppliers. Presumably, Project Aries and Terragraph would be available for other suppliers to sell commercially.

Google’s UAV effort relies on partnerships with mobile operators who have licenses for spectrum Project Loon will use.

In some quarters, the bigger question is whether more firms such as Google might eventually decide there is a business model beyond open source, research and development. As telcos represent on access platform, and cable TV uses a different platform, might others eventually use additional distinct platforms, including networks based on use of unlicensed and shared spectrum?

No New Revenue for 5G?

From time to time, you will hear a consultant or market researcher make a startling claim about the next generation network (fixed, mobile or wireless), namely, that there are “no new revenues" to be generated by the new network.

It is a hard claim to refute in its entirety, for some logical reasons. Telcos replacing copper access with “fiber to home” or “fiber deep into the network” already know the issue.

If a service provider has customers served by a digital subscriber line connection, and then replaces it with a fiber-to-home connection, there is a net zero change in subscription volume: one replaces the other.

One might also make the argument that there is “no net new revenue” involved, but that likely is wrong for several reasons. That might sometimes be the case.

Quite frequently, a higher-bandwidth connection is purchased, at higher cost. Also, the fiber connection supports more-reliable video entertainment services (linear and streaming).

Or consider the matter of mobile next generation networks. Did 2G represent “no net new revenue, compared to first generation analog?” In one sense, over a period of time, voice service revenue possibly decreased, as prices for mobile service dropped.

Also, over a period of time, 1G voice revenues became 2G voice revenues. Sure, it is tough to calculate net revenue changes due to the network upgrade, as opposed to market price changes, which likely were more substantial.

But 2G made text messaging possible, so eventually, incremental new revenue was generated. Also, as voice prices dropped, consumers began substituting mobile voice for fixed line voice, increasing the number of subscriptions. So, yes, a next-generation network most often does lead to higher revenue, over time.

Some might argue 5G will not lead to higher revenues, compared to 4G, or that Internet of Things will not boost revenue.

It always is difficult to fully anticipate the business value provided by each successive generation of mobile networks. There always is a stated business case, of course. From the first generation to the second, the advantage was the transition from analog to digital, with the advantages that normally represents.

The shift from 2G to 3G was supposed to be “new applications.” That eventually happened, but not right away. First mobile email and then mobile Internet access were new apps of note, though the use of mobile hotspots also was an important development.

The shift from 3G to 4G generally was said to be “more bandwidth” supporting new applications.

Video apps generally have been the most notable new apps, compared to 3G, although user experience when using the Internet also is far better with 4G. And though it often goes unnoticed, 4G speeds have allowed any number of users to substitute mobile for Internet access.

More U.S. households now seem to be abandoning even fixed Internet access in favor of mobile access, as it now is common for households to rely on mobile voice (more than 46 percent of U.S. households now are “mobile only” for voice) , instead of fixed network voice, or over the top video entertainment in place of traditional subscription services.

In fact, because of mobile use, fixed network Internet access rates actually are dropping in the United States, having reached an apparent peak in 2011.

Eventually, skeptics will be proven wrong. In the early going, one might well argue that the incremental cost of running both 4G and 5G, plus the new capital investment, plus substitution effects (customers move from 4G to 5G) might not--initially--show net new revenues or earnings.

Over time, that will change, as 5G becomes the default network and customers migrate over. That, of course, means the 4G network is less-heavily loaded, and therefore drives less revenue, unless a new temporary purpose can be found for 4G that is distinct from 5G.

Eventually, the 4G network reaches end of life and is decommissioned. But there is a long period when multiple networks coexist, with evolving business models and profitability, over time.

That is not to say the discovery of new revenue models happens right away. Frequently that does not happen immediately. Some of us would argue it took some time before new apps--such as mobile email--actually became interesting new 3G apps and revenue drivers (direct or indirect).

It is too early to say, with precision, how new millimeter wave spectrum allocations around the world, to support 5G mobile networks and other applications, will increase the total supply of wireless communications bandwidth, spectrum and business models.  

Some might guess that the new millimeter wave capacity will equal or exceed all prior wireless allocations yet made. There are tradeoffs: distance for capacity, generally speaking.

Can Service Providers Really Affect Customer Satisfaction Enough to Warrant High Investment?

Some things are hard to change. Perhaps some things are nearly impossible to change. So, as a matter of business priorities, how much should communications service providers invest in efforts to improve customer satisfaction? Maybe the answer is “not so much.”

Ecosystem providers who make a living selling solutions that are supposed to raise consumer satisfaction obviously will disagree. But you have to question the wisdom of spending too much to change consumer perceptions that might not improve all that much, no matter how much is spent.

Historically, few service providers and services ever rank anywhere but towards the bottom of consumer satisfaction surveys. Airlines typically have the same problem.

That might not be a good thing, but the amount of change that actually is possible is arguably questionable. In other words, beyond a certain minimal point, it might not be wise to invest too much in trying to improve consumer satisfaction scores, because there might be a sharp limit to the payoff, in terms of investment, compared to many other business processes that also require investment.

That is especially important when resources are limited and when a small number of actions arguably produce the bulk of value for any access service provider. It just makes sense to focus on the relatively smaller number of things that actually can influence business results.

And it arguably is hard to prove that investing in better customer satisfaction actually will produce very much change in business fortunes.

A Frost and Sullivan report commissioned by IBM argues that, by 2020, customer experience will overtake product and price as the key brand differentiator across all industries.

Access providers are “behind the curve,” Frost and Sullivan argues. “Research indicates that only one in six customers is an advocate for his or her CSP, and just 12 percent strongly agree their CSP listens to them and collects the right amount of information to meet their communications needs.

To be a contrarian, that might well be true. But with all the other problems access providers have, just how much should be invested to improve perceptions on such matters?

We have yet to see any evidence that a telco, cable company, mobile services provider or Internet service provider is able to score anywhere above the bottom half, or maybe even the bottom third, of industry consumer satisfaction ratings.

It is possible, in other words, that people simply are not satisfied with communications services for reasons that defy easy remedies. While it might be nice to outperform peers on satisfaction measures, it also is not clear that such relative advantages produce sustainable or measurable revenue lift.

Harsh, but historical data offers little support for the notion that an access provider is “loved” by its customers.

Google Fiber Going Fixed Wireless, Buys Webpass

Google Fiber is buying Webpass, a provider of Wi-Fi services for residential and commercial buildings. Note: Webpass does so using fixed wireless.

Webpass says it has tens of thousands of customers across five major markets in the United States, including San Francisco, Oakland, Emeryville, Berkeley, San Diego, Miami, Miami Beach, Coral Gables, Chicago, and Boston.

It is just a rational guess, but we would assume Webpass is going to be part of an effort by Google Fiber to functionally add a “Google fixed wireless” capability to quickly reach locations not presently reached by the fiber to home network.

As many other access providers have discovered, the business model for fiber to a home or fiber to a business depends largely on how many such potential customers can be reached by any single mile of access facilities.

For example, Vertical Systems Group estimates that fiber now reaches 46 percent of U.S. commercial buildings with establishments of 20 or more employees.

There always are potential customers who want to buy, but which cannot be profitably served by a direct fiber connection. Fixed wireless has, for decades, been viewed as one way to profitably connect a wider number of such customers.

And it appears Google Fiber aims to do precisely that.

Oi goes Bankrupt, But Has Not Made History, Yet

The former Brazilian monopoly provider now called Oi has filed the largest bankruptcy protection request in Brazil’s history. The request for a reorganization--not a dissolution--is not unprecedented.

Also, the action essentially will wipe out equity shareholders and force bondholders and other creditors to “take a haircut.” Oi obviously hopes that by doing so, it can reemerge as a sustainable entity.

What would have been remarkable, and history-making in a more profound way, was if Oi had filled for complete liquidation. That would have made it the first former monopoly telecom provider to completely disappear (not just be acquired). Oi bought the assets of the former monopoly provider Brasil Telecom and also acquired Portugal Telecom.

So far, no former incumbent telco, in any sizable country, has gone completely out of business.

Low market share in both mobile and high speed access were among the chief business model problems.

Brazil’s market leader is Telefónica Brasil (Vivo, owned by Spain’s Telefónica). TIM Participações (Telecom Italia) is number two while Claro (owned by Mexico’s América Móvil) is third. Oi ranks fourth.

Lots of U.S. telecom firms have gone bankrupt, notably many competitive service providers during the bursting of the the telecom and dot.com bubbles in 2001. In fact, the Dow Jones communication technology index has dropped 86 percent; the wireless communications index, 89 percent, between 2000 and about 2002, representing about $2 trillion in equity value.

At least 23  telecom companies went bankrupt, mostly in chapter 7 liquidations, many preceded by chapter 11 reorganizations. WorldCom’s bandruptcy was the the single largest in U.S. history up to that point, to be eclipsed only in 2008 by Lehman Brothers and Washington Mutual during the Great Recession of 2008.

So far, business model stress has not caused the disappearance of any former monopoly carrier. But neither does it appear such a possibility is impossible, either.

Restructuring is not dissolution. Oi might survive by shedding debt, shaving obligations to existing creditors and taking other actions. Eventually, Oi is likely to be sold, so its complete collapse and disappearance seems unlikely.

But Oi’s predicament illustrates the industry change. Even if a former monopoly firm were to completely disappear, it is virtually certain that other suppliers would have arisen to take its place. So, in answer to an old hypothetical question--can a telco go completely out of business?--the answer might now clearly be “yes.”

But even if that were to happen, the traditional arguments against such a fate--a nation would lose its communications services--no longer are true. There are other suppliers. And, in many cases, the newer suppliers have the upper hand.

AT&T and Verizon Have Diverging Business Strategies

With rather sudden speed, AT&T and Verizon--which like all former incumbent telcos once had similar business strategies and profiles--have become distinctly different. Put simply, Verizon emphasizes mobile revenue, while AT&T actually emphasizes business customer revenue, with a major contribution from video entertainment.

Of the $32.2 billion Verizon earned in the first quarter of 2016, $22 billion was earned from mobile services, or 68 percent of total. Verizon does not break out the portion that is consumer or business revenue.

In its first quarter of 2016, AT&T earned $40.5 billion. Mobile services contributed $18 billion, or 44 percent of total revenue, including both business and consumer accounts. So mobility is a significantly smaller percentage of AT&T total revenue.

The two firms also emphasize revenue in different ways. AT&T, in 2015, says it earned just 24 percent of total revenue from consumer mobility, and consolidates fixed network and mobile services for business customers.

In 2015, AT&T business solutions represented 49 percent of 2015 sales. In other words, in AT&T’s view, business services are more important than consumer mobile.

At the same time, in 2015, AT&T’s entertainment group drove 24 percent of revenue, as important as consumer mobility. In other words, AT&T says it earns 73 percent of revenue from business and entertainment services.

In other words, Verizon in the first quarter earned 32 percent of total revenue from fixed network operations, both consumer and business.

But Verizon says it earned just just $4 billion from consumer fixed network operations, or about 12 percent of total revenue.

If total fixed network revenue was $9.3 billion in the first quarter of 2016, then business revenue (including wholesale) from fixed network operations was about $5.3 billion, or about 16 percent of total revenue.

So the story is Verizon mobile, AT&T business and entertainment video. That’s a pretty big distinction.

In South America, Facebook and Google Drive 70% of Traffic

So far in 2016, in North America, real-time entertainment apps drive data demand on fixed networks, largely Netflix traffic, which represented about 35 percent of all bits transferred over North American fixed networks, according to Sandvine.

Amazon Video drove about 4.3 percent of peak downstream traffic.

On North American mobile networks, music services as a whole are increasing in traffic share, yet no single service is among the top 10 applications.

During peak period, real-time entertainment traffic continues to be by far the most dominant traffic category on mobile networks, accounting for almost 40 percent of the downstream bytes on the network.

In Latin American mobile networks, Facebook and Google drive 70 percent of total traffic in the region.

10% of Wearable Owners Have Stopped Using Them

You never can be too sure what the “next big thing” will be, in the connected devices business.

Tablets and smartwatches might be among the categories that have failed to achieve that status. People use them, to be sure. But neither device yet has yet to prove it is transformative in the same way that PCs earlier, and smartphones recently, have been.

Some 10 percent of wearable owners have stopped using their wearable, according to an Ericsson ConsumerLab poll of wearable device owners from Brazil, China, South Korea, the United Kingdom and United States.

Ericsson says about 33 percent of those who abandoned use of wearables did so within the first few weeks of ownership.

Limited functionality was the primary problem for 21 percent of respondents who stopped using their wearable device. Some 14 percent of of those who had stopped using their wearable device said it was because the devices were not a standalone product, and required use of a smartphone.

source: Ericsson

IT Shifting from "Cloud First" to "Cloud Only," Gartner Says

By 2019, more than 30 percent of the 100 largest vendors' new software investments will have shifted from cloud-first to cloud-only, Gartner analysts now predict.

"More leading-edge IT capabilities will be available only in the cloud, forcing reluctant organizations closer to cloud adoption,” said Yefim V. Natis, Gartner VP.

By 2020, more compute power will have been sold by IaaS (infrastructure as a service) and PaaS (platform as a service) cloud providers than sold and deployed into enterprise data centers.

The Infrastructure as a Service (IaaS) market has been growing more than 40 percent in revenue per year since 2011, and it is projected to continue to grow more than 25 percent per year through 2019.

By 2019, the majority of virtual machines (VMs) will be delivered by IaaS providers. By 2020, the revenue for compute IaaS andPlatform as a Service (PaaS) will exceed $55 billion — and likely pass the revenue for servers.

“Unless very small, most enterprises will continue to have an on-premises (or hosted) data center capability,” said Thomas Bittman, Gartner VP.

In Every Ecosystem, One Segment's Cost is Another Segment's Revenue

Ecosystems always are contentious, since one segment’s revenue is another segment’s cost.

We saw an obvious example of that when Verizon’s fixed network workers went on strike for higher wages and benefits.

We see the conflict often when various parties argue about rights to use spectrum; whether spectrum can be shared; whether spectrum should be available license exempt, or not; whether zero rating should be allowed.

We also will see that principle in action as the Indian government auctions a prodigious amount of mobile spectrum--as much as 2300 MHz-- later in 2016. Consider that the whole Indian mobile industry presently uses between 200 MHz and 300 MHz of spectrum. So the upcoming auction represents an order of magnitude (10 times) increase in spectrum.  

To put that into perspective, the potential spectrum rights could cost more than double the industry's gross revenue and more than 20 times the annual free cash flow of the entire mobile industry.

The expected spectrum payments also represent a sum four times higher than the last auction.

Shockingly, projected spectrum payments in this one auction could represent a sum as high as twice as much spending as in all prior mobile spectrum auctions put together.

So there you have a clear example of ecosystem tension because one segment’s revenue is another segment’s cost. The Indian government thinks it could raise a sum representing as much as 25 percent of the government’s total annual revenues.  

Some analysts would note that India already has some of the highest costs in the world, where it comes to spectrum rights.

In the end, all costs, everywhere in the full ecosystem, are paid by other parts of the ecosystem, with all ultimate costs borne by end users and consumers, or parties subsidizing use of ecosystem products (advertisers, for example).

Uber Requires Smartphones; Airbnb Arguably Does Not

It is probably not too early to speculate that smartphones now have been around long enough that people see new ways to leverage the technology. More accurately, people are coming to understand how apps, running on smartphones that people always have with them, are creating new possibilities.

Without smartphones, it is unlikely that Uber and other ridesharing services would be feasible. Airbnb likely would be conceivable, even without smartphones. But that obviously raises a question: in what other spheres of economic activity might smartphone-based apps be used to bring latent resources to market?

Let us be clear. People using smartphones to comparison shop, while they are out and about, and then ordering online, already is changing the face of retailing. But Uber is more profound than that.

What Uber did was revolutionize our thinking about the real-time use of assets that mostly lie fallow, even more than Airbnb did. Airbnb allows people to bring latent lodging assets to market, though not necessarily as a smartphone-essential function.

Uber really does require the ubiquity of smartphones to really demonstrate value. So the only question is what other areas of life have latent resources not brought to market because of friction, including the lack of a marketplace to monetize those assets.

Uber could not function without smartphones. Airbnb arguably can do so. So which potential spheres of economic life are smartphone-dependent, where it comes to commercializing latent assets that are underused?

"Impossible to Predict" How Consumers Will React to a Truly New Product, AWS Head Says

"What we've learned over time at Amazon, is that very often at the beginning of something really different and really new, it's impossible to predict how customers are going to react to the offering," says Andy Jassy, Amazon Web Services CEO.

That's why Amazon, as a company, doesn't focus on the first wave of feedback to any product,

Few firms have enough financial depth, or patience, to do so. But that approach resembles what Apple used to do, under Steve Jobs. Famously, Jobs believed consumers could not really judge whether they would like a new product they never had experienced, so market research was useless.

Access Providers Literally Cannot Own and Control IoT, So Partner

If current forecasts are correct, it literally will be impossible for access providers to dominate or control the broad Internet of Things business.

That might suggest it makes more sense to invest in stakes throughout the rest of the ecosystem--partnering, in other words--rather than staking everything on owning and controlling sizable portions of the value chain.

The Internet of Things, in all its forms--has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025, according to an analysis by McKinsey Global Institute. The biggest segments might well be industrial automation, smart cities and health apps.

At the top end, that level of value—including the consumer surplus—would be equivalent to about 11 percent of the world economy.

With the caveat that today’s access providers likely always will earn a majority of their revenue providing access services of various types (mobile, fixed, Internet access, Wi-Fi hotspot access,

Ethernet and other high-bandwidth connections), the key to future revenue is likely going to come from providing managed apps and services, as always has been the case.

That statement should be unremarkable, except for the fundamental change in business model since the advent of the Internet and IP communications.

In the past, one might have argued that most revenue came from selling apps (voice and messaging), and relatively less from “data access” connections (dumb pipe T-1, DS3 and so forth).

Even data access services such as frame relay, MPLS and ATM essentially were managed services, or “apps.”

These days, as apps are structurally separated from access, legacy communications providers are earning less revenue from fully-owned apps and lots more from data access (dumb pipe).

So the issue is how the revenue model might evolve over the next decade or two. Broadly speaking, it is clear that dumb pipe access and apps now are separate parts of the revenue stream. So the big question is how access providers can create viable and useful roles for themselves in the app part of the business.

Entertainment video is an early example of diversification. Other telco forays into new revenue sources have not been nearly that successful. Oddly enough, it is cable TV operators who have developed a model that should work for telcos, if telcos can create both the right internal mindset and consistently show a willingness to “make money without owning everything.”

The emphasis there is “making money,” not “owning everything.” All too often, new service initiatives seem to fail because the approach is too heavy handed and too controlling.

There is another approach, which is to “own some, but not all” of the apps used by consumers and end users of access services. No cable operator ever expects to own all or most of the relevant content being consumed by its video subscribers. But, where possible, it makes sense to own a few of those networks.

Some take matters even further. Liberty Global fully owns some assets--especially its access assets. But where it comes to app and content providers, owning parts of those operations, letting them run autonomously, and then participating in the equity upside, is a proven model.

The implications for former incumbent telcos, as their legacy revenue sources dwindle, is to cultivate a new approach based on maximizing total financial return, not return from internal branded services and assets.

In other words, owning--but not controlling assets--might provide a surer path to financial well being than controlling all the assets. To be sure, some mix of fully owned and minority investor models will likely be the path taken by most who can do so.

But the model of “owning access, but investing in apps” might be the most-logical way to create new asset value and revenue over the long term, compared to a strict “we own everything” model.

In that regard, the Internet of Things seems a promising area where partnerships, especially those where the access provider mostly has an ownership interest, but does not control IoT services and apps, seem logical.

For starters, there are simply too many market segments for a monolithic approach to work, too much domain knowledge required.

So even if “access” remains an obvious revenue generator, the volume of revenue still will lie in the apps. Better to own a small piece of that part of the business, than try and “own and control” very much of it.

Connectivity seems destined to a be a sliver of the total IoT market revenue.

source: Machina Research  

source: McKinsey Global Institute

By some estimates, there already are between six and 14 billion autonomous connected devices or “Things” that are connected via some form of communication mechanism, not including smartphones, tablets, computers and similar consumer devices. By way of comparison, there might be seven billion connected consumer devices in use today, including phones, PCs, tablets, TVs, game players and so forth.

As you might guess, the further out one goes, the more current estimates diverge. The number of connected devices by 2020 ranges between 18 billion and 50 billion devices. Some of us would argue the issue is not the number of devices in use, but the timeframe.

We will probably see less deployment up to 2020, then much more development after 2030.

source: IoT Analytics

A Towel is about the Most Massively Useful Thing an Interstellar Hitchhiker Can Have

“A towel is about the most massively useful thing an interstellar hitchhiker can have.” That line from the Hitchhiker’s Guide to the Galaxy illustrates well our perceptions of “technology.”

As author Douglas Adams, author of the The Hitchhiker’s Guide to the Galaxy,  once said, “I've come up with a set of rules that describe our reactions to technologies,” said Douglas Adams,

“Anything that is in the world when you’re born is normal and ordinary and is just a natural part of the way the world works. Anything that's invented between when you’re fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it. Anything invented after you're thirty-five is against the natural order of things.”

For Millennials, towels are not technology. Neither are computers, the Internet or smartphones. For Boomers, all that stuff often remains “technology.”