Tuesday, August 16, 2016

Stranded Assets Always are a Legitimate Reason for Shuttering a Network

Somewhat curiously, as much as many policy advocates want the fastest-possible transition to all-fiber or other equivalent networks, some also seem to want preservation of old copper networks, even when mandating use of those older networks delays the transition to advanced, next-generation facilities. Some seemingly argue that copper is better.

As always, the business model seems the issue. During every network transition, some specific business interests are helped or harmed.

So it is that sellers of high-capacity services want to move as quickly as possible to next generation services, while many buyers of lower-capacity services want to keep buying those services as long as possible, and at lower prices if they can get them.

The problem with legacy networks is that they get more expensive to operate almost in direct proportion to the speed with which customers abandon them. We call that the stranded assets problem: assets deployed that produce no revenue.

That might not be a critical problem when stranded assets are less than 40 percent of total facilities. Beyond that, survival becomes an issue, as borrowed capital spent on those assets cannot be repaid.

That is a growing problem for Incumbent telcos, which have been losing lines since 2001, for example.


The issue is where the trend extends. The US Telecom association estimated in 2014 that telcos would have 18 percent market share in 2015.

Others suggest that could mean as few as 20 million voice lines left out of an original base of 188.5 million lines. That essentially represents stranded assets of nearly 90 percent.

A rational executive would argue that a service provider cannot sustain a whole network when stranded assets are that high.



That stranded assets problem could be a serious issue globally.


At some point, shutting down legacy networks makes sense, if stranded assets become too high a percentage of total deployed capital. 

Ford To Sell Autonomous Vehicles in 2021: IoT Analogy for Mobile Applies

Ford has announced its intent to sell a high-volume, fully autonomous vehicle in 2021.


That big stake in the ground comes with an equally big caveat: the vehicle will only be sold to operators or ride-hailing or ride-sharing services, and not to consumers.


There is a bit of an analogy to the mobile services business. Today, mobile services are sold to human beings, for use by human beings.


Tomorrow, sales will be to operators of industrial and other businesses, to support machine communications. Today, users are “people.” Tomorrow, users will be “sensors, computers and other machines.”,


Today, Ford sells autos to people, to be driven by people. Tomorrow, Ford will sell to businesses that sell transportation to people, but the vehicles themselves will be the drivers.


That is a big change. Today, mobile and auto products are sold directly to end users, for their own use, or to entities that use cars as part of their business processes (auto rental companies, trucking fleets).


Tomorrow, Ford will sell autonomous vehicles only to entities that provide transportation services, and “drive people around.”


To a greater extent in the mobile and communications businesses, but in Ford’s autonomous vehicle business, buyers might not change as much as “users.” Buyers will still be individuals or enterprises.


But users will be sensors, machines and servers.


We have seen such impact before. Fixed network services were sold for use to places. Mobile phones are sold to people, not places. There are many more people than places.


Likewise, autonomous vehicles and Internet of Things devices are much more potentially numerous than either places or people.

As mobility has meant many more potential units to be sold, so will IoT.

Access Network Costs are Going to Fall

Core communications infrastructure costs have improved over several decades, meaning it now costs less to deploy a modern, Internet Protocol based application, access or transport network.

The cost of supplying a gigabit connection on a 5G network likely will be lower than on a fixed fiber to the home network, and possibly lower than a cable TV hybrid fiber coax connection.

Different network architectures, physical media, lower cost computing and storage, open source code, virtualized networks and Internet Protocol itself have contributed.

But greater cost reductions are expected. One new initiative, the “Telecom Infra Project,”  aims to to “develop new technologies and approaches to building and deploying telecom network infrastructure,” according to Jay Parikh, Facebook global head of engineering and infrastructure.

Telecom Infra Project  members will work together to contribute designs in three areas including  access, backhaul, and core and management.

Facebook, Intel, and Nokia have pledged to contribute an initial suite of reference designs, while other members such as operators Deutsche Telekom and SK Telecom will help define and deploy the technology as it fits their needs, said Parikh.

But that is not all that will change. Google Project Loon is testing entirely new platforms for Internet access, using fleets of balloons. Both Google and Facebook are testing use of unmanned aerial vehicles. New fleets of low earth orbit satellites will change the cost of delivering Internet data by satellite.

Fixed wireless technology being developed by Facebook, Google and others such as Starry  likely will change that cost curve as well.

Telecom Infra Project was inspired, in large part, by Facebook’s Open Compute Project (OCP), which created open standards--and hence lower costs--for data centers.

“A few years ago, Facebook was faced with a data center problem familiar to many scale companies: We depended on proprietary systems and hardware that were inflexible and expensive,” said Jay Parikh, Facebook Global Head of Engineering and Infrastructure. “We realized quickly that this approach would not be sustainable; we needed to find a new way.”

Note the language: traditional rack and stack approaches were “unsustainable.”

The end result, for Facebook, was that “we were able to...save billions of dollars in infrastructure costs over the last few years,” Parikh said. The obvious winner was Facebook and its users. The obvious losers were suppliers of traditional data center gear.

“We recognized that telecom infrastructure could benefit from the same innovations taking place in the data center,” Parikh said. So make note: the winners will be Internet access providers. The losers will include many suppliers of network platforms, or whole lines of equipment and software platforms.

“It was clear that the raw building blocks of what we were developing for our own infrastructure could be applied to telecom networks with great benefit,” he said.

The Telecom Infra Project “ is bringing together operators, infrastructure providers, system integrators, and other industry players to work together to develop new technologies and rethink approaches to deploying network architecture.”

Early founding members include Intel and Nokia, Deutsche Telekom and SK Telecom.

At first, “TIP will focus on disaggregating the components of network infrastructure that are traditionally bundled together and vendor-specific,” said Parikh.

TIP members will work across three areas: access, backhaul, and core network management.

As one early example, Facebook has been working in partnership with Globe, deploying a low-cost, solar-powered network-in-a-box solution, bringing mobile coverage to a village. “In the first week alone, we connected more than 60 percent of the community,” said Parikh.

New members include Axiata Digital, Indosat, MTN Group, Telefonica, Vodafone, Acacia, ADVA, BlueStream, Broadcom, Coriant, Deloitte, Juniper Networks, and Lumentum.

The TIP Board of Directors includes Dr. Alex Choi of SK Telecom (TIP Chairman), Axel Clauberg of Deutsche Telekom AG, Ashish Kelkar of Facebook (TIP Secretary and Treasurer), Lynn Comp of Intel, and Henri Tervonen of Nokia.

Project groups also have been created to address “the most pressing industry needs including connecting the unconnected or underserved populations, and augmenting the development of powerful new technologies like 5G.”

The access system integration and site optimization group is chaired by SK Telecom

The unbundled solutions group is co-chaired by SK Telecom and Nokia, and will seek cost-effective, low-power and low-maintenance solutions.

Media-friendly solutions, chaired by Intel, will focus on mobile experience, especially for close-to-edge solutions.

In the backhaul area, Facebook heads the effort to develop “thin and extensible software stack to autonomously coordinate routing, addressing and security related functions in packet-switched IPv6 networks.”

The open optical packet transport project is co-chaired by Facebook and Equinix, and is working on Dense Wavelength Division Multiplexing (DWDM) open packet transport architectures that avoid supplier lock-in.

The core network optimization project is chaired by Intel, and seeks to disaggregate
core network components.

The greenfield telecom networks group is co-chaired by Nokia, Facebook and Deutsche Telekom, and will work on IT-based network architecture.

If and when those solutions emerge as commercial realities, we must assume the cost structure of networks will be lower. So all current assumptions about business models will have to be revised as well.

Telecom Infra Project  members will work together to contribute designs in three areas including  access, backhaul, and core and management.

Significantly, the effort will apply Open Compute Project models of openness and disaggregation as methods of spurring innovation. In other words, in addition to relying on open source, the Project also will rely on use of standard, “commodity” hardware.

“In what is a traditionally closed system, component pieces will be unbundled, affording operators more flexibility in building networks,” Parikh says.

The bottom line is that access costs are going to fall.

Will U.S. Cable TV Industry Also Need to Replace 1/2 Current Revenue Over Next 10 Years?

The most-recent SNL Kagan analysis of cable TV industry revenues predicts cable TV revenues will decline by $2.7 billion over a decade.

But SNL Kagan also predicts the cable industry will also generate $11 billion in new residential broadband revenues.

There is room to question the SNL Kagan optimism on linear video. The product could decline much faster than that. But the substitution of new Internet access revenues for former video revenues illustrates an important point about service provider revenues.

It is becoming something of a rule that leading service providers must replace about half their revenue every decade or so. Assume SNL Kagan is about half right. That could mean video losses of perhaps $5.7 billion, and Internet access gains of about $5.5 billion.

That would be almost a one-for-one revenue substitution.

Total residential video revenue for Comcast, Charter Communications and other American cable operators is projected to fall from $57.7 billion in 2016 to $55.0 billion annually in 2026, declining at a compound annual growth rate of 0.5 percent over the next 10 years, according to SNL Kagan.

Some observers think that is far too modest a projection, as second quarter losses in 2016 would suggest a decline as high as three percent on an annual basis. Granted, the second quarter is the toughest reporting period of the year. Still, the point is that SNL Kagan arguably is being much too optimistic about linear video losses.

Basic video subscriptions are projected to drop from about 53 million today to 45.4 million by 2026.

Internet access subscribers, on the other hand, could grow as much as 13 percent, SNL Kagan estimates.

Remember When 10 Mbps was Really Fast?

AT&T has launched its GigaPower gigabit Internet access service in the Sacramento market, in parts of Placer County (Roseville, Rocklin, Lincoln, and their surrounding communities).

These communities are in addition to the parts of the Bay Area where we initially launched service in 2015, and expanded in parts of Fresno, Clovis, and other areas of the Central Valley in June.

That is notable in some ways because the Roseville market was one of the first in the United to get fiber to the home services from SureWest Communications, formerly Roseville Telephone Company, back in 2002.

It might seem quaint now, but back then SureWest was selling access at 10 Mbps over its fiber to home network. It was symmetrical, but at 10 Mbps. With Comcast and AT&T both upgrading to a gigabit in the Sacramento region, the former SureWest offer no longer is so unique, or so fast.

Monday, August 15, 2016

How Many Telco Voice Lines Will be Left by about 2018?

How many telco fixed network voice lines will still be in use by about 2018? Not too many, industry associations and the Federal Communications Commission tend to suggest. Some have in the past forecast as few as 20 million total residential voice lines sold by telcos by about 2018.

That does not necessarily mean only 20 million lines will be in service, but that the number sold by former telcos could well be that low.

It is easier to note that “peak voice” happened around 2000, and that lines have been falling ever since.



Linear Video Subscriber Losses Continue in 2Q 2016, But Inflection Point Not Yet Reached

There were not too many--if any surprises--in the latest Leichtman Research Group survey of the U.S. linear TV business. The second quarter of 2016 showed net subscriber losses, but that is consistent with the trends of the last several years.


Some might point to the magnitude of the net losses--665,000 net video subscribers--compared to 545,000 subscribers in the same quarter of 2015.


But the second quarter always is the worst quarter of the year, and the magnitude of those losses could decline for the next three quarters. And most of that came from losses of AT&T U-verse accounts.


Statistically, a loss of 665,000 customers represents about seven-tenths of one percent. Perhaps not pleasant for linear video service providers, but hardly a jarring loss.


On an annualized basis, if continued at the same rate, that would work out to about three percent annually. That would be historically high for any one-year period. And, granted, at that high rate, it wouldn’t take long for the industry to lose most of its business over a decade or so.


And that is what observers will be watching.


Fixed network voice accounts supplied by incumbent telcos (cable TV companies have gained accounts) have fallen far faster than that over the last couple of decades.


From 2000 to 2015, incumbent telcos lost about 70 percent of switched access lines and 79 percent of switched retail residential access lines.




From 2006 to 2011, U.S. fixed voice lines fell from about 139 million to 89 million, a drop of 50 million lines, or about 36 percent, or roughly seven percent a year.


From 2010 to 2015, voice lines fell at a slower rate, from about 153 million to 135 million, a loss of 18 million lines, or about 12 percent over five years, or perhaps 2.4 percent annually.


If past is prologue, the steep period of losses of linear video accounts has yet to begin.


Linear Video Subscribers, Second Quarter, 2016
Pay-TV Providers
Subscribers
Net Adds
Cable Companies


Comcast
22,396,000
(4,000)
Charter*
17,312,000
(143,000)
Altice**
3,639,000
(25,000)
Mediacom
842,000
(11,000)
Cable ONE
338,974
(11,602)
Other major private company***
4,330,000
(30,000)
Total Top Cable
48,857,974
(224,602)



Satellite TV Companies (DBS)


DirecTV
20,454,000
342,000
DISH^
13,593,000
(281,000)
Total DBS
34,047,000
61,000



Phone Companies


AT&T U-verse
4,869,000
(391,000)
Verizon FiOS
4,637,000
(41,000)
Frontier^^
1,340,000
(70,000)
Total Top Phone
10,846,000
(502,000)



Total Top Pay-TV Providers
93,750,974
(665,602)
Source: Leichtman Research Group

U.S. Consumers Still Buy "Good Enough" Internet Access, Not "Best"

Optical fiber always is pitched as the “best” or “permanent” solution for fixed network internet access, and if the economics of a specific...