Will Sales Channels Shift as a Result of "Product to Service, Service to App" Transition?

Nobody should be surprised if Cisco remains consistent in its belief that business models in technology as well as the broader economy are shifting from “products to services.” Cisco has been saying that for at least a decade or two, and pushing its sales partners towards a “sell services” mentality.

If one believes that the whole “telecommunications” and Internet service provider businesses, as well as the computing business, therefore now are part of the broader Internet ecosystem, there are some important potential implications.

In a broad sense, products become services, and services become apps.

Manufacturing companies selling elevators or jet engines can move from selling those products once to providing ongoing service, said Chuck Robbins, Cisco CEO. That is an example of the “products become services” trend.

Over the top voice, messaging, audio, video and most other content is an example of the latter “services become apps” trend.

The transition from selling products to selling services is an evolution Cisco is itself making, as some 28 percent of Cisco's revenue is now from recurring sources, said Robbins.

As a purely practical matter, business and industry fortunes will hinge, in substantial part, by how well each affected industry segment adapts to either, or both, challenges. Will cloud computing, for example, allow channel partners to “sell computing as a service” to traditional clients, or will online provisioning become so simple that the “sales” function is automated, to a large extent?

How far can suppliers push the “hardware as a service” model, where enterprise or mid-sized businesses rent hardware and services, rather than buying and owning such hardware?

As always, how much incremental value can be added, creating new revenue possibilities?

The existential danger for incumbent service providers, of course, is that the “connectivity role” becomes something akin to the “PC hardware” role. Some might argue that this “dumb pipe” role will be hard to escape, and that the future belongs to access providers able to transition to additional roles within the computing and Internet ecosystem.

At the same time, new possibilities will exist for providers in other parts of the ecosystem to “vertically integrate” access, functionally displacing the incumbent access providers. That might not emerge as the main trend.

Still, the “products become services, services become apps” trends will, at the very least, result in new pressures to realign cost structures, revenue models and ecosystem roles in new ways.

So gross revenue and profit margin pressures on incumbent suppliers are bound to remain in place.

One might speculate that the same business dynamics that have made indirect sales a foundation of computing and communications sales to smaller and mid-size businesses might be extended further.

Tier one providers might retrench in the parts of the business (global and enterprise services) where they have advantages. Suppliers with large enough potential audiences might extend their “content” operations.

On the other hand, specialists might come to play a bigger role in serving the needs of rural and small market customers, much as specialists have been necessary for information technology sales to the mid-market business segments.

The shift to services, and away from products, should actually make it easier to do so, as provisioning, for example, becomes far easier. It is going to be an interesting time.

Products Become Services; Services Become Apps: Where Does it Lead?

Technology has changed, is changing and will change business models, it is safe to say Cisco believes. The implications are not always so immediately obvious, though, as the transition itself can take decades.

Many will agree that “technology will fundamentally change business models," as Cisco CEO Chuck Robbins recently said. But note the time frame: Robbins says the 1990s proved the killer app for the Internet was e-commerce. Two decades later, we still are seeing that process unfold.

One might be tempted to make another observation: products are becoming services, but products and services also are becoming apps, with the result that revenue-generating products and services become “features.”

Voice and messaging increasingly are “features” of mobile Internet access services. Look at the way leading mobile operators now price voice, messaging and Internet access. Voice and messaging are provided on a flat-fee, low price, unlimited domestic use basis, while Internet access is the variable component that drives most of the revenue.

It might be one thing for Cisco to note that the way companies make their money is changing from products (or hardware) to services (and software). It is less comforting, in some quarters, that services are becoming apps.

Optimistically, the belief that industry revenue models are changing could mean that one source is exchanged for another.

Pessimistically, revenue models are being destroyed, not merely refashioned. To say that voice and messaging are “for free” apps, rather than “for fee” services, also implies that the incumbent “service” revenue stream is effectively destroyed.

That does not prevent either incumbents or attackers from creating new revenue models in an “app” mode. But the process is far more dangerous for an incumbent.

Google and Facebook have succeeded in becoming the first big technology companies whose revenue models are based on advertising, not hardware and software sales.

We still do not know what fate awaits many big telcos as every major legacy revenue stream becomes subject to product or supplier substitution.

U.S. International Long Distance Used to Drive Industry Revenues; No More

Total international calling revenues revenues from U.S. customers decreased in 2014, compared to previous years, the U.S. Federal Communications Commission reports.

U.S. international service providers billed U.S. customers $3.87 billion in 2013. Such carriers billed U.S. customers $3.7 billion in 2014.  

Settlement payments of $2.6 billion also were recorded, for $1.0 billion worth of minutes completed on foreign fixed-line networks and $1.5 billion for minutes completed on foreign mobile networks.

So one way of looking at the business is that international long distance represents about 30 percent gross margin on a net $1.1 billion business.

Consider that Verizon’s 2015 annual revenues are about $131.6 billion. AT&T’s 2015 annual revenues were $147 billion. International consumer voice revenues now are negligible for both firms.

Calls to juste three countries accounted for about 63 percent of the outgoing international U.S.- billed minutes.

The top three routes with the highest international U.S.-billed minutes in 2014 were U.S.-India (24.8 percent), U.S.-Mexico (23.7 percent), and U.S.-Canada (14.2 percent).

Of the total 84.7 billion minutes billed in 2014, 49.4 billion minutes were completed on foreign fixed-line networks, and 35.3 billion minutes were completed on foreign mobile networks.  

The number of providers filing traffic and revenue reports increased by 30 percent. The number of providers increased from 1,457 in the previous report to 1,896 in this report, which includes, for the first time, 354 interconnected VoIP service providers.

Why 5G Might Really be Different

New revenue sources and business models have been a hoped-for by-product of 3G and 4G mobile networks, and many supporters hope the same will be true for 5G, perhaps the first next-generation mobile network being designed specifically with new Internet of Things apps and fixed network substitution in mind.

The role of millimeter wave spectrum above 6 GHz also is important, as such resources are expected to provide very high capacity in high-density areas where there is a short distance between users and the network antennas.

Also, many observers believe the initial use cases will involve targeted “add capacity” deployments, rather than a general deployment over wide geographic areas. That might involve high-traffic venues and indoor locations.

At least for the moment, some proponents believe Wi-Fi handoff will not be fully integrated and seamless.

And many believe new sorts of providers might emerge, including community-based 5G networks that will interoperate with mobile carrier 5G networks.

Low mobility and fixed service also is envisioned, to support fixed Internet of Things sensors, for example. Other possible use cases include migration of public switched network services from fixed to mobile networks.

And that is why 5G might really be different: it is the first next generation platform to be optimized for new application classes (Internet of Things and machine-to-machine communications) as well as fixed network substitution.

Why ISPs are Like PC Manufacturers

Four are the main reasons why every legacy access provider (satellite, cable TV, telco, fixed wireless, independent Internet access provider) must constantly and seriously engage in an effort to discover and create big new revenue sources.

New competitors are crossing traditional industry boundaries; policy supports more competition; technology itself enables new forms of competition; and all apps and services now essentially are part of a single “computing industry.”

First, all legacy revenue sources are diminishing, under direct and indirect product substitution (over the top apps and services) as well as changing consumer preferences (on demand services displacing linear; apps replacing carrier services).

Second, both technology and policy now allow a much-wider range of competitors to enter any market (Uber, Lyft, Airbnb, Travelocity, Netflix, Skype, Hangouts, Messenger, WhatsApp).

Third, Moore’s Law enables everything from cheaper devices to new delivery modes to use of resources that could not, in the past, be tapped.

Fourth, with the fundamental separation of apps from access, and with the rise of cloud-based app sourcing, every supplier now is, more or less, part of a bigger computing industry. That Google and Facebook--both technology companies--have business models based on advertising provides one clear example.

On that last point, consider what personal computer manufacturers have faced, namely a relative devaluing of hardware in favor of software. Computing operations now are “commoditized,” with resultant lower profit margins and gross revenue.

“Our historical industry categories obscure a bigger reality: we are all just part of a distributed computing industry,” says consultant Martin Geddes.

If access providers now are akin to hardware suppliers in the computing industry (they enable apps and computing resources to be used), then both revenue diminution and profit pressures are to be expected.

And that is why the discovery of big new replacement revenue sources is so important.

Global ICT Report: Kudos for Malaysia, Kuwait, Lebanon, South Africa, Ethiopia, Côte d’Ivoire

The composition of the group of top 10 performers in the 2016 Global Information Technology Report is unchanged from 2015.

The leading group consists of a mix of high-income Southeast Asian (Singapore and Japan) and European countries (Finland, Sweden, Norway, the Netherlands, Switzerland, the United Kingdom, and Luxembourg) as well as the United States. Networked readiness remains highly correlated with per capita income.

Leading the “Emerging and Developing Asian” economies in 2016 is Malaysia.

The top five in the region in terms of overall ICT readiness remain China, Malaysia, Mongolia, Sri Lanka, and Thailand, as in 2015.

The group of “Emerging and Developing Asian” countries has been both moving up and converging since 2012. Individual usage in the region is still one of the lowest in the world, but has been growing strongly in recent years.

The performance range of countries in the Latin America and Caribbean region remains widely dispersed with almost 100 places between Chile (38th) and Haiti (137th).

The MENAP region (Middle East, North Africa, and Pakistan) is home to two of the biggest movers in this year’s rankings: Kuwait (61st, up 11) and Lebanon (88th, also up 11).

Several sub-Saharan African countries among the top upward movers, including South Africa (65th, up 10), Ethiopia (120th, up 10), and Côte d’Ivoire (106th, up 9).

The networked readiness framework rests on six principles: (1) a high-quality regulatory and business environment is critical in order to fully leverage ICTs and generate impact; (2) ICT readiness—as measured by ICT affordability, skills, and infrastructure—is a pre-condition to generating impact; (3) fully leveraging ICTs requires a society-wide effort: the government, the business sector, and the population at large each have a critical role to play; (4) ICT use should not be an end in itself. The impact that ICTs actually have on the economy and society is what ultimately matters; (5) the set of drivers— the environment, readiness, and usage—interact, coevolve, and reinforce each other to form a virtuous cycle; and (6) the networked readiness framework should provide clear policy guidance.

The Global Information Technology Report 2016 is a special project within the framework of the World Economic Forum’s Global Competitiveness and Risks Team and the Industry Partnership Programme for Information and Communication Technologies. It is the result of collaboration between the World Economic Forum and INSEAD.

Will Wi-Fi Carry 90% of Mobile Data by 2020?

Wi-Fi carries around 80 percent of mobile data traffic, says Mobile Experts Principal Analyst Joe Madden. He predicts that 90 percent of mobile data will be carried over Wi-Fi and other unlicensed spectrum by 2020.

Such statistics show the nuances of value in the access services space. One might be tempted to suggest that, with that much traffic offloaded to Wi-Fi, much more access revenue “ought” to accrue to Wi-Fi hotspot networks, or the fixed line Internet access services, than to the mobile network.

But, as so often is the case in telecommunications, usage and revenue are different matters. It often happens that usage is indirectly related to revenue. There is a connection, though. The business model impacts, for suppliers of mobile devices, fixed and mobile access services, are quite significant.

For many years, the primary value of a public Wi-Fi hotspot network was the incremental value generated for fixed Internet access services. Likewise, the ability to offload data consumption, as well as the ability to tether a mobile device to Wi-Fi, have been important contributors to the value of specific mobile service plans and devices.

That remains the case. The new issue is how much additional value can be wrung from Wi-Fi, as an access method supporting or replacing mobile access. Wi-Fi-only services have been quite rare. Cablevision Systems Corp. tried that, and will be shutting down its service.

Much more common are Wi-Fi-first models, exemplified by Iliad’s Free Mobile, Google Fi and most coming cable TV-owned or operated  mobile services.

Still, even when mobile networks do not support most of the data consumption, the value of mobility remains intact, even when most traffic consumption uses Wi-Fi.

On the other hand, widespread Wi-Fi access essentially puts a limit on the amount of mobile access consumers must buy.

Facebook Unveils OpenCellular Open Source Mobile Access Platform

Facebook has designed and tested an open source, cost-effective, software-defined wireless access platform aimed to improve mobile connectivity in remote areas of the world. Called “OpenCellular” is a reference model intended to be used by platform suppliers, who can use it to provide lower-cost access, allowing networks to reach rural and hard-to-reach areas, with hard-to-sustain business models.

The model also should allow smaller organizations to contemplate building their own localized access networks, when necessary.

In many cellular network deployments, the cost of the civil and supporting infrastructure (land, tower, security, power, and backhaul) is often much greater than the cost of the cellular access point itself. “One of our goals was to make architectural and design improvements that would result in lower costs associated with the civil and supporting infrastructure,” said Kashif Ali, Facebook engineer.

The platform supports a range of communication options from 2G to LTE.

The system is composed of two main subsystems: general-purpose and baseband computing (GBC) with integrated power and housekeeping system, and radio frequency (RF) with integrated analog front-end.

Facebook plans to open-source the hardware design, along with necessary firmware and control software, to enable telecom operators, entrepreneurs, OEMs, and researchers to locally build, implement, deploy, and operate wireless infrastructure based on this platform.

Facebook will  work with Telecom Infra Project (TIP) members to build an active open source community around cellular access technology development and to select trial locations for further validation of technical, functional, and operational aspects of the platform.

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Spectrum Futures, to be held in Singapore, 19-21 October 2016, brings together the whole ecosystem supplying Internet access for everyone across South Asia and Southeast Asia, and features topics and speakers addressing why, how, when and where the most-important developments are happening.

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Chris Weasler, Facebook global head, spectrum policy and connectivity planning at Facebook, will be speaking at Spectrum Futures

Micro Enterprises in Developing Nations Rely Heavily on Mobile Voice, Internet Apps, Including WhatsApp, Facebook

Mobile apps--even those generally considered “consumer apps”--matter for small business in developing countries, and are, as always the reason people and businesses want to use the Internet in the first place.

To be sure, mobile communications and Internet access arguably are among the most-important tools any micro business has access to. But it is the apps that arguably matter most.

Almost all of surveyed micro business entrepreneurs (96 percent) in Ghana said they accessed the mobile internet in some way each day.

For 70 percent of those respondent s, WhatsApp is their primary mobile application for business, while 40 percent identify Facebook as the second most important application for their business,  a Vodafone report suggests.

But education levels seem to matter greatly.

Some 90 percent of  entrepreneurs with a junior high education prefer WhatsApp as their primary mobile internet application. The use of Facebook, email, Viber and Google search is almost absent among micro-entrepreneurs with just junior high education.

In a culture where there is a preference for rich interpersonal communication (face-to-face), micro-entrepreneurs surveyed also appreciate the ability to visually depict their products or services to customers who are not physically present.

Many Ghanaian MSMEs consist of one person, an owner-manager, who usually has limited formal education, limited access to and use of new technologies, market information and formal credit.

Mobiles, especially smartphones providing internet access, offer scope to improve the sustainability of these enterprises.

In Ghana, there are an estimated 121 mobile subscriptions per 100 inhabitants as of December 2015. The mobile internet penetration rates are growing rapidly, having increased by approximately 30 percentage points in Ghana in the three years between January 2013 and December 2015.

About 70 percent of Ghana survey respondents running micro-sized businesses consider mobile phones with Internet access  to be the most important ICT tool for their business. And that value represents monthly spending by a majority of the micro-entrepreneurs of US$10 or less each month on voice, and roughly the same amount for data.

The average monthly expenditure is US$14.4 for voice and US$7.1 for internet. The expenditure with highest frequency is US$6 for both voice (16.3 percent) and internet (17.8 percent). Seven out of 10 microentrepreneurs reportedly spend more than half of their monthly voice expenditure on business activities. Just under five out of 10 spend more than half of their monthly data expenditure on business activities.  

WhatsApp users spend less on mobile data than their peers. They also make and receive fewer voice calls.
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Spectrum Futures, to be held in Singapore, 19-21 October 2016, brings together the whole ecosystem supplying Internet access for everyone across South Asia and Southeast Asia, and features topics and speakers addressing why, how, when and where the most-important developments are happening.
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IoT Revenues Might be Necessary to Help Expand Rural Internet Access

As other mobile operators likely would attest, a relatively small number of cell sites generate the bulk of a mobile service provider’s  revenue. And that is why rural Internet access to lower-income potential customers is such a challenge.

The top 10 percent of total sites contribute over 30 percent of total revenue, whereas the bottom 50 percent of sites contribute under 10 percent of revenue, a Vodafone report says.

Of the top sites, just 10 percent are in rural areas.

Data revenues represent a much greater proportion of revenue at the highest earning cell sites than at the lowest earning sites; the top 1,000 sites contribute 37 percent of total data revenues, whereas the bottom 2,000 sites contribute less than one percent of total data revenues.

That illustrates the importance of lower-cost infrastructure to supply communications and Internet access in rural areas.

As always is the case for ubiquitous networks, more-profitable customers and portions of the network subsidize the less-profitable customers and portions of the network. Analysis of individual cell site revenues and costs suggests that around 30 percent of Vodacom’s cell sites would not be profitable on a standalone basis, for example.

That also suggests the importance of potentially big new revenue sources such as Internet of Things. Mobile and other network platforms might require the profit such services provider to business and enterprise customers to generate the surplus that allows more support of rural access facilities that will not generate much net revenue or profit.

That is one reason why Spectrum Futures, a conference promoting Internet access for everyone across South Asia and Southeast Asia, this year will focus extensively on apps, app development, partnerships with ISPs and business models for new apps.

Internet of Things apps--in addition to consumer apps such as Facebook and WhatsApp--will be part of the conversation at Spectrum Futures. V. Shrinath is one of the app development specialists who will share his views at the event.

European Auto Manufacturers, Telcos to Test Connected and Automated Driving

Europe’s leading trade associations for the telecommunications and the automotive sectors, including the European Automobile Manufacturers Association, the European Association of Automotive Suppliers, GSMA, ETNO and ECTA, announced a project to test connected and automated driving.

The main objective is to “strengthen Europe’s leadership in connected and automated driving.”

The industry-led project will focus on use cases and test functionalities in three main areas: automated driving, road safety and traffic efficiency, and the digitalization of transport and logistics.

That will include testing of high-density platooning, cooperative collision avoidance, remote control parking, local-hazard warnings and traffic flow optimisation. High definition maps will be updated with a fast connection to the internet on phone or other mobile devices.

Safety, cyber-security and protection of personal data, quality of service and network latency, will be prioritised and addressed during the different use cases and functionalities’ testing.

A first phase, to run from 2017 until 2019, will feature tests on available communication technologies, such as LTE – Long-Term Evolution – (4G) technology.

A second phase, to run until 2021, will be based on both 4G and 5G networks.

New Speakers Confirmed for Spectrum Futures, Singapore 19-21 October 2016

New Confirmed Speakers:

Leo Sugandhi, spectrum frequency planning analyst for mobile services at Directorate of Spectrum Planning and Policy; Ministry of ICT, West Java Province, Indonesia

B. Shadrach, Independent Consultant, Bill & Melinda Gates Foundation; Asia Coordinator, Alliance for Affordable Internet, New Delhi Area, India

Mr. Sushil Kumar, IoT standards and implementation, Telecommunication Engineering Center, Department of Telecom (DoT),  India. (will speak about IoT opportunities in India in several industries)

Syed Ismail Shah, Chairman, Pakistan Telecommunications Authority, Pakistan

Confirmed Speakers:

Chris Weasler, Facebook, Director of Global Connectivity

Greg Leon, Google Product Manager

Jay Fajardo, Founder, LaunchGarage

Praveen Sharma, Tata Communications, Head of Regulatory Affairs

Rajan S. Mathews, Cellular Operators Association of India, Director General

Shrinath V, Product Management & Design Thinking Consultant and Google Developer Expert

Mohamed El-Moghazi, National Telecom Regulatory Authority of Egypt, Director of Radio Spectrum Research and Studies

Camilo Alberto Jiménez Santofimio, Comisión de Regulación de Comunicaciones, Colombia, Senior Advisor

Reza Arefi, Intel Corporation, Director of Spectrum Strategy

Bob Horton, Horton Consulting, Director & Principal

Vern Fotheringham, V-Satcast, LLC, Executive Chairman

Josh Gordon, Red Pocket Mobile, President

Narendra K. Saini, Telecommunication Engineering Center (TEC), India, Chair - Smart Governance WG

Rajnesh Singh, Internet Society, Director, Asia-Pacific Regional Bureau

Muhammad Rashid Shafi, Multinet Pakistan (PVT.) LTD., CEO Global Business & Chief Strategy Officer

Devid Gubiani, Bolt Super 4G - PT First Media, CEO

New speakers will be added every week this summer. Join us at Spectrum Futures, sponsored by the Pacific Telecommunications Council.

India's TRAI Preparing Mobile Average Speed Rules

The Telecommunications Regulatory Authority of India appears to be preparing for new quality of service measures related to minimum mobile Internet access speeds. The new rules might focus on minimum average speeds.

TRAI also reports India’s mobile data usage  grew 58 percent to 451,185 TB in March 2016, year over years.

Mobile  Internet subscribers grew 16 percent, year over year, reaching 30 percent of the mobile subscriber base.

Mobile Mergers: Okay When Resulting Market Has 4 Suppliers

Pakistan mobile  operators Mobilink and Warid Telecom have completed their merger, strengthening Mobilink’s lead in the market, which will be reduced from five suppliers to four. Reductions of that sort have been relatively non-controversial.

Mergers that reduce the number of suppliers from four to three, on the other hand, generally have failed, in recent years.

The combined entity will serve about 50 million subscribers in the Asian nation and will provide 2G, 3G and LTE services across Pakistan.

source: Ali Shah

To gain regulatory approval for a merger between CK Hutchison Holdings 3 Italia with Vimpelcom's Wind, Iliad will be enabled to enter the Italian mobile market on a facilities-based basis.

The deal also creates a new number-one provider in the Italian mobile market (3 Italia).

The arrangement will have France's Iliad entering the Italian market, while CK Hutchison Holdings will be able to merge its 3 Italia with Vimpelcom's Wind, while still preserving a four-provider market structure, something that has proven mandatory in recent European Commission decisions on mobile market mergers.

Illiad will launch its facilities-based attack by selling a 15.1 percent stake Iliad holds in Telecom Italia, and by buying divested assets from Hutchison and Vimpelcom.

The deal notably involves the transfer of  2x35 MHz 3G/4G frequencies (2x5 MHz at 900 MHz, 2x10 MHz at 1800 MHz, 2x10 MHz at 2100 MHz and 2x10 MHz at 2600 MHz), to Iliad from Hutchison and Vimpelcom, for 450 million euros, with payment phased between 2017 and 2019.

Illiad also will acquire several thousand cell sites in densely populated areas offered by Wind/H3G or rented from third parties.

An undertaking either to bring into force a RAN-sharing agreement covering rural areas with Wind/H3G, or to acquire several thousands of macro sites in those areas from Wind/H3G or third parties. - A 2G, 3G and 4G roaming agreement on the merged network, for a period of five years renewable for one further five-year period at the initiative of Iliad.

The agreement, which involves the sale of frequencies and infrastructure assets to Iliad, is subject to European Commission approval as well as to the Commission's approval of the H3G transaction combining Wind with H3G, with a decision due by Sept. 8, 2016.

The total deal has been structured to maintain four Italian mobile telecoms operators, a provision considered necessary to allow Hutchison antitrust approval for a merger that otherwise might leave Telecom Italia  and Vodafone Italia as the only other mobile network competitors in Italy.

Last year, when plans to merge Wind and 3 Italia emerged, many observers believed the consolidation of the number-three and number-four operators would boost profit margins, allowing operators to start investing more heavily in their networks.

Italian mobile operator revenues from mobile services have fallen by 40 percent since 2011, according to GSMA, discouraging investment in Long Term Evolution 4G services.

But the EC regulatory authorities have held the line on mergers that reduce the number of competitors from four to three. In the United Kingdom, Denmark and Italy, proposed mergers that would reduce the number of leading providers in mobile markets from four to three have been denied.

The issue now is what happens to competition, retail prices and competition, as Iliad is known for its spirited low-price attacks.