Serving "Last Couple of Billion" Customers Will Always Require Subsidies of Some Sort

Internet service providers normally and naturally are most concerned about how to create facilities allowing people to get access to the Internet. App providers normally and naturally are more concerned with the usability of their products under challenging circumstances.  

So Google’s Next One Billion Project involves app adaptations for markets where Internet access might be spotty, sometimes non-existent and slow. Offline maps that allow users keep track of where they are going, even with no internet service, are one example.

“Light” searchers that will let users in areas with low connectivity do a streamlined search, as well as save and retry their search for when they can get a better internet connection.

Project Link also uses Wi-Fi as a last-mile access media, not simply an in-building distribution media. That approach--using a platform in a new way, not originally intended--is a recurring theme in communications. Wi-Fi now is a major mobile device access method, cable TV now supports

Of course, it is reasonable to point out that 5G, reliant as it will be on capacity supplied by millimeter wave spectrum, will work far better in urban areas than rural areas.

In large part, that is why Google, Facebook and a number of would-be low earth orbit satellite constellations, as well as the existing medium earth orbit O3b, are set to provide new access platforms.

It is highly possible that mobile networks will “always” have a difficult time sustaining operations in rural areas.

But that is why earning high profits some places, to support money-losing operations in other areas, will remain a key task of business strategy for access providers.

Subsidies are going to be as necessary in the future as they are today. That includes third party mechanisms such as advertising and other two-sided revenue models.

Apps Become Services; Services Become Apps

Nomenclature (the names we give things) is among the lesser problems we sometimes grapple with in the communications business.

Still, when the nomenclature changes, it is a sign that the business model has changed, as well.

Consider the phrases “TV as a service” or “voice as a service,” compared to the phrases “TV as an app” or “voice as an app.” Each phrase signals a change in supplier revenue model and customer mode of use.

Traditionally, TV was an “app,” while consumer voice was a “service.” The definitions hinge on whether the product was purchased as a recurring service or created by a product owned by the customer.

But for businesses, voice often was an “app” (they used their owned private branch exchanges to create their own voice services).

For consumers, with the advent of linear subscription TV, that formerly-free “app” become a “for fee” service. Whether something is called an app or a service hinges on the business model.

Some suppliers have pushed the term “voice as a service” precisely to illustrate how a hosted PBX service is different.

Businesses buy PBX equipment to create their own voice, as an app. The supplier business model is hardware sales. The customer use model is “make my own.”

Consumers buy communications as a service, generally speaking. The supplier business model is “sell service.” The customer use model is “buy the service.”

In an era where most consumers in the U.S. market have purchased TV as a service, some now push the idea that TV can be an app (not purchased a service).

The new wrinkle is whether a full on-demand access (pay as you go) can be called an app, even if the content is purchased.

For many, TV remains a “service,” even if a non-linear service (Netflix, Amazon Prime, others), however.

Apps are becoming services; services apps. Each change signifies an attempt to create a different revenue model and mode of usage.

More Competition Should Help End Need for Net Neutrality Rules

The T-Mobile US “Binge On” program neatly illustrates the tough issues inherent in network neutrality rules. The rules themselves allow for network management.

And yet it is hard to distinguish between network management and violations of the rules.

Also, network management is designed to preserve user experience under conditions of high network load. But that is among the aims of programs such as Binge On, which

reduce entertainment video to standard definition to enable unlimited use, while not crashing the network.

One can argue that networks now have so much bandwidth that management is not required, or that the way to avoid network management is simply to invest more capital in networks. Certainly, that approach always is taken, to some degree.

Still, few networks exist in a state of permanent abundance, which would eliminate the need for management.

From time to time, any particular network can be lightly loaded. But success causes load. So unless a network attracts few customers, it eventually becomes susceptible to congestion.

Net neutrality rules were seen as a way to ensure consumer choice (no blocking or throttling of lawful apps). But the rules also prevent consumer choice (no lawful content delivery features, for example). Some also view sponsored apps or data as violations of the rules.

Reasonable people will disagree about those matters.

Still, with the passage of time, we are going to see additional examples of instances where net neutrality and network management, or net neutrality and consumer benefit, will clash.

Many argue that robust competition “fixes” the problem of potential antitrust behavior or exercise of market power. Hopefully that will soon come to be the case for consumer Internet access, and we will not need net neutrality rules, which increasingly will have negative impact on efforts to innovate.

More competition, and more supply, should alleviate the need for the rules.

350 Live Gigabit Networks Globally

There are now at least 350 live gigabit deployments globally, with a further 164 announced or under construction, across wireline and mobile  technologies including GPON, DOCSIS 3.1, G.fast, LTE-A, 5G and 802.11ac, according to Gigabit Monitor, a visual database produced by Viavi Solutions.

North America has the largest share of announced gigabit deployments, with 61 percent. Europe is second with 24 percent. Asia, Australasia, Middle East, Africa and South America share the remaining 15 percent of deployments.

More than 70 percent of the live gigabit deployments tracked have been launched since the start of 2015, and the numbers will skyrocket as 5G networks come online, as those mobile networks will, by definition, offer gigabit to multi-gigabit speeds.

The database, developed completely from public information, is available at gigabitmonitor.com.

Fiber dominates: 85 percent of currently known gigabit deployments are based on optical fiber connectivity, while 11 percent are based on hybrid fiber coax (HFC), the platform used by cable providers.

Over time, it is likely that the percentage of deployments based on mobile and “telecom” platforms will grow, as a percentage of total, simply because cable TV platforms are not widely deployed globally. Mobile platforms should start to grow starting in 2017.

Nearly three percent of known gigabit deployments are based on LTE-A.

Enterprise Spending on Communications is Declining, Excluding Open Source Investment

It should not come as a surprise that in an era defined by software, not hardware; apps, not access; Moore’s Law cost declines for computing, storage and communications, that enterprise spending on communications actually is falling, while spending on various information technology products is growing.

Market share shifts are occurring as well, at least in the U.S. market, where cable TV suppliers are gaining share in business customer markets, and traditional telcos are losing share.

In its first quarter of 2016, Comcast reported a business services revenue increase of 17.5 percent to $1.3 billion, with small business accounting for about 75 percent of revenue and about 60 percent of the growth. In 2015, Comcast commercial services revenue grew 15 percent, year over year.

In the first quarter of 2016, Time Warner Cable grew business services revenue 13 percent, year over year. In 2015, Time Warner Cable commercial services revenue grew nearly 16 percent, year over year.

In 2015, Charter Communications grew its commercial services revenue 22 percent. In its first quarter of 2016, Charter grew its business services revenue  by 12 percent.

Still, according to Gartner, enterprise telecom spending  is dropping, both in the U.S. and global markets. The caveats are that dollar-denominated spending is affected negatively by currency fluctuations.

Also, there is no way to quantify the substitution of open source products for products formerly purchased from industry suppliers. In other words, investment in information technology arguably is higher than the commercial sales figures represent.

In addition, enterprise spending has shifted from fixed network services to mobile services, in very large part.

Perhaps most importantly, such spending analyses do not reflect higher performance at less cost, which means enterprises get higher performance from lower expenditures.

source: Gartner global IT forecast

Can Telecom Be "Uberized?"

Supply-driven pricing is not a totally new concept, if Uber has made it obvious in a new way. Though not priced in real time, electricity, drinking water, airline and many other types of tickets feature prices that vary by time of purchase or other conditions.

We can argue about whether supply-related or demand-related drivers are more common, but historically, pricing differentials to encourage people to use a product “off peak,”, or charge higher prices for higher usage, are relatively common.

Several decades ago, when long distance calling was actually expensive (international calls once cost many dollars per minute), carriers sometimes charged lower rates for off-peak use of the network.

But we have better demand management mechanisms, one can argue. So some argue we should move to on demand access to spectrum.

Google already uses a simple form of supply-driven network access, switching customers of Google Fi mobile service from Wi-Fi to either the Sprint or T-Mobile US network, depending on signal strength and availability.

Some might point to that as an early example of the eventual uberization of network access. That could be good or bad for access providers.

Higher prices when supply is stressed, and lower prices off peak could rationalize the use of spectrum and network resources, without a lot of complicated overhead. Greater efficiency, at low cost, would be helpful for suppliers.

On the other hand, the ability to shift supply from one network to another could decrease the scarcity value of any network resource. In that sense, there would be greater price competition amongst suppliers of access services.

It is hard to divine the impact on value of spectrum assets, as there are other very-big supply-related changes coming (spectrum sharing, unlicensed spectrum, millimeter wave spectrum).

source: Yvetter Romero (darker bars represent US market share only; llight shaded bars are addressable on-demand market)

Much could depend on which part of “uberization” winds up applying most: surge pricing, demand shifting or supply shifting. Surge pricing--with its impact on demand shaping--might be most benign for suppliers, as it is simply an efficient way of rationing assets at times of high demand, or encouraging network use off peak.

Supply shifting--moving usage from one supplier to another in real time--is likely to be much more disruptive.

Mobile Price Wars Escalate, Again

Another round of price cutting has broken out in the U.S. mobile market. T-Mobile US and Sprint are emphasizing “unlimited” mobile data. AT&T and Verizon are emphasizing “more value,” increasing prices but also increasing usage allowances.

T-Mobile US has launched its “One” offers that provide unlimited data on every plan. For “one low price,” customers get unlimited unlimited domestic talk, unlimited domestic texting and unlimited 4G LTE smartphone data, T-Mobile US says .

Pricing is simple: the first line is $70 a month, the second is $50 a month, and additional lines are only $20 a month up to eight lines (for accounts with auto pay).

Without auto pay, costs are $5 more a month higher, per line. Verizon has introduced a “unified” small business communications system that is “mobile first,” and unifies desktop and mobile communications.

Wasting no time at all, Sprint has countered the new T-Mobile US “One” offer of unlimited mobile data as the standard plan.

Sprint’s Unlimited Freedom plan features two lines of unlimited talk, text and data for a price of $100 a month.

Beginning Friday, Aug. 19, 2016, Unlimited Freedom includes:

• Unlimited talk, text and optimized streaming video, gaming and music
• Unlimited nationwide 4G LTE data for most everything else
• $60 a month for one line
• $40 a month for a second line
• $30 a month each for lines 3-10

Recent adjustments of mobile data prices by Verizon and AT&T to raise prices for bigger usage allotments (bigger buckets for slightly-higher prices, producing lower revenue per gigabyte) can be viewed in several ways.

Increasing value is one way of fending off continued price attacks by T-Mobile US and Sprint. In the first quarter of 2016, for example, T-Mobile grew its subscriber base 31 percent. Sprint grew its base three percent. Verizon grew just one percent and AT&T lost accounts.

The attempts to boost perceived value might also be a response to consumer perceptions that tougher economic conditions require more-affordable solutions.

At the same time, consumers might perceive that lower-cost options do not involve unappetizing trade-offs. In other words, high levels of competition have boosted the perceived value of all options, including the “budget” options. And standard retail offers that once might have been deemed “too pricey” no longer have that downside.

The other observation is that the plan revisions by AT&T and Verizon show the continuing trend of lower prices for data consumption. Prices do not fall exactly at rates Moore’s Law would suggest. But in many cases they fall close enough.

As always, such offers are a bet on supply and demand dynamics. As always, a carrier with fewer customers, and more bandwidth, can afford to load its network more heavily than a carrier with lots of customers and more-limited bandwidth.

Also, T-Mobile US is betting that most consumers will continue to use relatively modest amounts of bandwidth. As always, the difference between a formally “unlimited” plan and a plan with “generous amounts of data” is effectively nil.

For users who each need to use only a few gigabytes a month, it doesn’t matter whether a plan offers 10 Gbytes or is actually unlimited.

Some have argued that mobile marketing wars are moderating. Others might argue the facts indicate otherwise.

85% of Asia Mobile Service Providers Want OTT Partnerships

Fully 85 percent of surveyed Asia-based mobile service providers believe partnerships with over-the-top (OTT) providers give, or will give their organizations, a competitive advantage in the region that will contribute to revenue and subscriber growth, Alepo says.

Since most apps now are developed by third parties, not access providers, if app bundling is desired, that means partnerships with app providers. The big issue is what sorts of apps to bundle, and which bundled apps will drive the greatest value for access providers (ISPs, mobile operators).

While just over half of respondents have working partnership agreements with OTT providers today, nearly all expressed interest or intent in forming OTT partnerships.

Today, OTT services represent a $28 billion market globally, projected to double to $54 billion by 2019, Alepo says. Or course, those gains for app providers also will produce losses.

The challenge is huge. Ovum predicts that operators will lose $386 billion to OTT voice providers from 2012 to 2018. One can disagree with the magnitude, while agreeing that product substitution is happening.

In India alone, the growing popularity of OTT messaging apps in the past two years has siphoned $2.76 Billion from operator text messaging revenue, according to Ovum.

In the Asia Pacific region alone, OTT TV and video revenues are expected grow to $18 billion by 2021.

So it is not surprising that more than 78 percent of respondents say third-party OTT players represent a threat to their business or revenue.

Fully 67 percent of respondents agreed that  “OTT providers are able to provide lower-cost service options.” Some 63 percent agreed that  “traditional mobile voice revenues are stagnant or declining while OTT voice services are on the rise.

Also, 60 percent say “OTT providers are able to innovate and better market their services to our subscribers.”

That is why app development will be such a big focus at the upcoming Spectrum Futures conference. Apps now are created mostly by third parties, so access providers mostly have to partner to create bundles of value featuring apps.

Here’s a  fact sheet and Spectrum Futures schedule, illustrating the planned discussion of how and where ISPs and app providers can partner, as well as the business issues to be confronted.

Venture capitalists will explain what they are looking for, as well.

Verizon Introduces Small Business "Mobile First" Service

Verizon has introduced a “unified” small business communications system that is “mobile first,” and unifies desktop and mobile communications.

“One Talk” from Verizon is the “only” mobile-first communications solution in the U.S. market designed for small businesses and simplifying small business communications decisions, Verizon argues.

Some might argue that Sprint has been crafting unified mobile-desktop approaches to business communications for at least a decade, though.

So the Verizon offer arguably resurrects in slightly different form a Sprint mobile-only approach adopted about five years ago, pioneered a decade ago and reflecting a similar mobile-only approach.

Verizon says “One Talk” is the first mobile solution that includes business calling features typically only available on traditional desk phones, and allows customers the flexibility to buy only one service to meet both needs (mobile and desktop).

One Talk supports both Android and iOS devices, plus One Talk-capable office, lobby, and conference room phones.

The advantages, aside from single numbers, might include reduced need to buy desktop phones. Ability to support both a business number and the customer’s own personal phone number on one device also are said to be advantages.

One Talk supports:

• High Definition (HD) Voice, video calling, Wi-Fi calling and messaging
• Auto receptionists, hunt groups, and executive assistant line sharing, all of which work uniformly over mobile devices and One Talk-capable desk phones
• One service provider, one bill, one support team and one partner for all mobile and fixed communications
• A graceful evolution path for established businesses, who can migrate branch or satellite offices to One Talk to simplify their communications, reduce cost and mobilize their business

“We designed One Talk to be flexible, to meet the needs of the 39 million employees working in small businesses across the U.S., and to scale to medium businesses as well,” said Mike Lanman, Verizon SVP, IoT and enterprise products.

One Talk is available nationwide, while cable companies are limited by regional geographic footprints and struggle to support out-of-network employees.

Premises-based solutions available from cable, telecommunications and cloud service providers require customers to buy two solutions, one for mobility and one for wireline services.

Charter Passes Verizon as Supplier of Carrier Ethernet Services

Charter Communications has passed Verizon as a supplier of carrier Ethernet services (as measured by port share)  to U.S. business customers, according to Vertical Systems Group.

That one data point is among many others showing that incumbent tier-one telcos are losing their “dominant” position in many market segments. Some would argue that means regulatory policy should change, as well.

In the middle of 2016 retail port share was lead by AT&T, Level 3, Charter (Time Warner Cable and Bright House), Verizon, CenturyLink, Comcast, XO, Cox and Windstream.

Charter instantly becomes the third-largest supplier, as a result of its acquisitions of Time Warner Cable and Bright House.

At the end of 2015, Time Warner Cable was the top Cable industry supplier, and ranked fifth. Charter Spectrum is now the largest cable industry provider of retail Ethernet services.

Verizon drops to fourth from third and CenturyLink moves from fourth to fifth.

"The competitive balance of the Ethernet marketplace is evident, as more than 60 percent of new connections were delivered by CLECs and Cable MSOs during the first half of 2016," said Rick Malone, Principal of Vertical Systems Group. "Our analysis shows a 17 percent annualized growth rate for U.S. carrier Ethernet services for the full year."

Will IoT be as Big as the Industrial Revolution?

If you are in the communications business, you should hope the hype is going to be proven correct, and Internet of Things is as transformative as was the Industrial Revolution. 

The reason is that all those connected devices represent the next wave of growth after mobile data saturates. And that is just the "access" part of the story. 

To the extent that "dumb pipe" providers want to "move up the stack" and into value-added parts of the ecosystem, IoT offers many opportunities to do so. 

Comcast Increases Internet Access Speeds at Moore's Law Rates

As crazy as it seems, U.S. Internet service provider Comcast, now the biggest supplier in the market, has doubled the capacity of its network every 18 months.

source: Comcast

In other words, Comcast has  increased capacity precisely at the rate one would expect if access bandwidth operated according to Moore’s Law.

source: Comcast

Mobile Internet Price per Gigabyte Falls Again

Lower retail prices are an expected outcome of price wars. So it is not surprising that retail prices for mobile service in the U.S. market have become more affordable in the wake of price attacks by T-Mobile US and now Sprint that seem to be crimping growth for AT&T and Verizon, when not causing actual market share loss.

Recessions also cause sales to slump, most executives in most industries likely believe. Most also likely believe that recessions or difficult economic conditions cause consumers to seek lower-cost solutions.

One example: look at what happened to U.S. cable TV business customer segment growth during the Great Recession that began in 2008. Growth was slashed a much as four times the prior levels.

Recent adjustments of mobile data prices by Verizon and AT&T to raise prices for bigger usage allotments (bigger buckets for slightly-higher prices, producing lower revenue per gigabyte) can be viewed in several ways.

Increasing value is one way of fending off continued price attacks by T-Mobile US and Sprint. In the first quarter of 2016, for example, T-Mobile grew its subscriber base 31 percent. Sprint grew its base three percent. Verizon grew just one percent and AT&T lost accounts.

The attempts to boost perceived value might also be a response to consumer perceptions that tougher economic conditions require more-affordable solutions.

At the same time, consumers might perceive that lower-cost options do not involve unappetizing trade-offs. In other words, high levels of competition have boosted the perceived value of all options, including the “budget” options. And standard retail offers that once might have been deemed “too pricey” no longer have that downside.

The other observation is that the plan revisions by AT&T and Verizon show the continuing trend of lower prices for data consumption. Prices do not fall exactly at rates Moore’s Law would suggest. But in many cases they fall close enough.

As crazy as it seems, U.S. Internet service provider Comcast, now the biggest supplier in the market, has doubled the capacity of its network every 18 months.

In other words, Comcast has  increased capacity precisely at the rate one would expect if access bandwidth operated according to Moore’s Law.

source: SNL Kagan