Take Rates Still Key for FTTH, Fixed Wireless Business Models

Among the biggest changes in modern fixed network economics is the assumption of competition, rather than monopoly. That shift from “I serve all potential customers” to “I serve a fraction of potential customers” radically offers the business model.

In a monopoly model, the business model is based on revenue generated from most locations (80 percent to 95 percent adoption, in the U.S. market, for example).

In a competitive model, revenue is generated from as few as 20 percent of locations (for single services), up to perhaps 40 percent of locations (locations taking at least one service).

That strands a majority of outside plant assets.

Though estimates vary by area, $1,500 per passing is a reasonable estimate for U.S. distribution plant costs, including network elements, but excluding drop cabling and customer premises equipment, for a gigabit access network.

That amortization of “per-passing” network costs is recouped only from paying customers. And that is where it gets tricky. Assuming 35-percent take rates, revenue is generated from a bit more than a third of passings.

So amortization of the outside plant network essentially involves a per-customer cost of roughly $4286.

Those costs are the “common” elements. But there are incremental costs incurred on a per-customer basis.

Cost per customer depends on take rates, as some capital is invested only to turn up a paying customer.

Drop costs and customer premises equipment are incremental, installed only for active customers, but $455 might be a reasonable estimate for active customer CPE and install costs, which vary based on what specific services the customer is buying.

Also, CPE might vary based on other details of the customer’s usage (single TV decoder or multiple decoders, for example).

It is difficult to project future fixed wireless network costs, based on use of new millimeter wave unlicensed or licensed spectrum, or shared spectrum, in urban settings using small cells, simply because such networks have never been built.

Nor have traditional fixed wireless networks been designed for gigabit speeds. But better antenna technology is being developed to support small cell networks that support those bandwidth targets, and accommodate use of millimeter wave technology.

What is not clear is the degree to which fixed wireless might be a more-affordable way to build gigabit networks, instead of using fiber to the home.

In addition to the construction costs, customer behavior can be an issue. Traditionally, smaller independent competitors have found that acquiring customers has often proven more difficult than anticipated.

It is hard to say how big brand names will fare, should fixed wireless become a major platform.

Acquisitions Drove Most Telco Growth Since 2000

source: Deloitte University Press

Looking only at markets in the United States, Canada, France, Germany, Spain, UK, Italy, Singapore and Taiwan, researchers at STL Partners have estimated core revenue losses of 25 percent to 46 percent between 2012 and 2018, potentially.

In other words, to stay where they already are, in terms of revenue, service providers will need to create between 25 percent and 46 percent more new revenue over the six-year period. Big acquisitions are almost certain to be part of the answer.

AT&T’s acquisition of DirecTV, for example, instantly made AT&T one of the biggest providers of video entertainment in the U.S. market, and changed its revenue profile by about $7 billion per quarter, or potentially $30 billion annually.

It would have been virtually impossible to add that much revenue, so fast, by any organic means.

source: Deloitte University Press

In similar fashion, Verizon spent $130 billion to buy the minority stake in Verizon Wireless owned by Vodafone, boosting annual revenue by about $22 billion.

Still, even that will not be enough, long term. Voice, messaging and linear entertainment video already are flat or declining.

Eventually even Internet access revenues will stall, then decline, at some point. Long term, big new revenue sources must be found.

source: Telco 2.0

Near Term, Telcos Need Acquisitions to Grow Revenues Fast

source: Telco 2.0

Looking only at markets in the United States, Canada, France, Germany, Spain, UK, Italy, Singapore and Taiwan, researchers at STL Partners have estimated core revenue losses of 25 percent to 46 percent between 2012 and 2018, potentially.

In other words, to stay where they already are, in terms of revenue, service providers will need to create between 25 percent and 46 percent more new revenue over the six-year period. Big acquisitions are almost certain to be part of the answer.

AT&T’s acquisition of DirecTV, for example, instantly made AT&T one of the biggest providers of video entertainment in the U.S. market, and changed its revenue profile by about $7 billion per quarter, or potentially $30 billion annually.

It would have been virtually impossible to add that much revenue, so fast, by any organic means.

In similar fashion, Verizon spent $130 billion to buy the minority stake in Verizon Wireless owned by Vodafone, boosting annual revenue by about $22 billion.

Still, even that will not be enough, long term. Voice, messaging and linear entertainment video already are flat or declining.

Eventually even Internet access revenues will stall, then decline, at some point. Long term, big new revenue sources must be found.

Telcos Need to Place Big Bets

source: Infonetics

It is not yet clear how well some tier-one service providers will fare, as providers of enabling services

for business partners. It is clear that many observers believe future revenue sources will depend more on partner relationships and services than telco-created apps and services.

Some might argue that voice, Internet access, messaging, wholesale and enterprise services are the “core,” while virtually everything else must be developed.

Those pressures arguably are most intense in the European markets, where virtually every legacy service has declining revenues.

source: Ali Saghaeian

If global telecom revenues were about $2.2 trillion in 2015, and one assumes that half of that revenue from legacy sources will be lost over 10 years, then new services will have to grow by $1.1 trillion over that same decade simply to replace lost current revenues.

source: Telco 2.0

For the largest global service providers, that implies discovery and creation of huge new markets. For NTT, some $70 billion in annual revenue has to be found. AT&T would  need to discover $65 billion, Verizon perhaps $59 billion, Telefonica $40 billion, Deutsche Telekom $38 billion.

In some cases, a significant portion of the gain could come from acquired firms in new geographies. Still, with all legacy services in decline, or destined to decline, that strategy is a short term solution only.

One might be skeptical about Verizon’s prospects in mobile advertising, for example, or AT&T’s move into entertainment video. Whether IoT winds up being as big a revenue driver for mobile companies as some anticipate also is open to question.

What is not open to question is that mobile firms need to make big bets on replacement revenue sources, as difficult as it might be. The largest mobile firms will need to create new businesses and revenue streams worth scores of billions.

Smartphone Infection Rate Up 96%

The smartphone infection rate averaged 0.49 percent in the first half of 2016, according to Nokia, up about 96 percent from the 0.25 percent experienced in the second half of 2015.

The infection rate rose steadily in the early months of 2016, reaching a new high of 1.06 percent of devices in April.

Smartphone infections accounted for 78 percent of the infections detected in the mobile network, while 22 percent are related to Windows/PC systems connected using dongles or tethered through phones.

In April 2016, 0.82 percent of smartphone devices exhibited signs of malware infection.

The overall monthly infection rate in residential fixed broadband networks averaged 12 percent in the first half of 2016. This is up from 11 percent in late 2015.

source: Nokia

Mobile Apps are More than Half of All Media Consumption

comScore

Smartphone apps now account for more than half of all Americans’ time spent online, according to comScore. That provides some insight into the primary role mobile devices now play in the content ecosystem.

But that fact also might illustrate one more way the “open Internet” is being reshaped, as well as illustrating why “open” continues to compete with “closed” as an approach to Internet-related devices, apps and services.

In fact, some might argue that “open” is not always the “best” approach. One downside of “open” Android is fragmentation, compared to the closed, walled garden approach taken by Apple.

And it is very hard to argue that consumers are worse off when they have convenient access to “walled gardens” such as Free Basics. In fact, even critics must concede that consumers are better off when they have access to such “walled gardens” because free-to-use Internet access is available.

The same argument applies for many other types of sponsored usage. Consumers often benefit from offers that are bounded or customized, rather than “open.”

comScore

Some might argue that a world dominated by apps is more a “walled garden” than a world where web pages are the way most people use Internet content and apps.

Some nations ban some apps. That’s one angle. But should consumers be prevented from choosing products they prefer, even if more “closed” or “packaged” than might otherwise be the case?

Choice itself always leads to winners and losers. We might rightly object to external constraints on “choice,” such as application bans. It is harder to object to consumer choice. And sometimes that choice is for a more “closed” approach.

It Doesn't Matter Whether Google Fiber is Available to Most U.S. Households

It has been argued that Google Fiber would never be available to most U.S. households. Those predictions might turn out to be correct. And yet, it might not matter.

The real question is whether  gigabit Internet access will be made available to most U.S. households.

And the answer to that question is “yes.”

U.S. cable TV companies--even if Google Fiber kicked off the gigabit upgrade movement--already are the primary suppliers of gigabit connections in the U.S. market.

Comcast, the largest U.S. Internet access provider, is upgrading all its consumer locations to gigabit speeds, and makes available a symmetrical 2 Gbps service available to about 85 percent of its locations.

AT&T now touts the extensiveness of its own gigabit access service, and bigger changes are coming, as the 5G standard calls for gigabit speeds.

Independent gigabit suppliers operate as well, but cannot serve most potential U.S. customers because their networks are local and targeted.

The big change will come when 5G is commercialized, making gigabit available to most locations and potential consumers, though perhaps not always as a direct substitute for fixed connections.

The big issue for 5G platforms is whether mobile or fixed wireless offers will be close enough to wired access offers to be effective substitutes.

That noted, as many as 100 million gigabit customers might be connected by 2020. Some might note that this is not the most important headline number. As already is the case, marketing of gigabit offers also stimulates sales of services operating at lower speeds (100 Mbps to 300 Mbps, for example), often representing speed upgrades.

It no longer matters--if it ever did--whether Google Fiber is available to most U.S. households.

Cable TV Companies Now Drive Gigabit Internet Access in U.S. Market

source: NCTA

Some argue cable TV is bad for the Internet, in the sense that the industry prefers walled garden content, higher prices and data caps.

Others would argue that one reason the U.S. Internet access market has moved so quickly towards gigabit access is because cable TV operators are able to upgrade their services so affordably, compared to other platforms.

It requires a nuanced discussion.

As a content distribution provider, Comcast’ legacy business model is threatened by over the top distribution alternatives.

But Comcast also knows very well that the new Internet access business is what drives its future growth, not linear video services or voice. Between 2016 and 2026, cable TV operator video revenue will fall but Internet access revenue will climb, according to SNL Kagan.

In the second quarter of 2016, the biggest U.S. cable TV companies had more than 57 million high speed accounts and 48.9 million linear video customers, according to Leichtman Research Group.

Internet access will be important for U.S. telcos as well.

source: Business Insider

The point is that U.S. cable TV companies have a vested and big interest in growing their Internet access businesses, irrespective of other issues.

Also, cable TV companies--even if Google Fiber kicked off the gigabit upgrade movement--are the primary suppliers of gigabit connections in the U.S. market. In that sense, it must be said, U.S. cable TV companies have done much to rapidly upgrade U.S customer Internet access speeds and availability.

Comcast, the largest U.S. Internet access provider, is upgrading all its consumer locations to gigabit speeds, using software and device changes on the ends of the network, without access media changes.

Gigabit Internet Access Forecasts are Too Low, Ironically

Any linear forecast for gigabit Internet access connections is likely going to be wrong, since the biggest long-term change will be provision of gigabit service by mobile operators on a routine basis.

Deloitte Global predicts that the number of Gigabit per second (Gbps) Internet connections grew to 10 million in 2015, a tenfold increase, of which about 70 percent will be residential connections. All of that represents fixed network potential.

in 2015, the number of Gbps tariffs almost doubled in just three quarters, from just over 80 to over 150, and falling prices.

By 2016, 250 million customers will be able to buy gigabit service, all on fixed networks.

Some 600 million subscribers may be on networks that offer a gigabit tariff as of 2020, representing the majority of fixed network connected homes in the world.

At the moment,  between 50 and 100 million broadband connections may be Gbps, or can be purchased by customers, representing five percent to 10 percent of all broadband connections.

Of these about 90 percent are residential.

Those forecasts eventually will be eclipsed when 5G mobile networks become staples of the mobile business, as 5G--by definition--will support gigabit speeds.

In fact, we are likely to see a period where--at least on the metric of speed--fixed networks are nearly universally slower than mobile networks, something that has not happened, on a wide scale, ever before.

source: Point Topic

Unlimited* Plans Now Offered, in Some Form, by all Four Largest U.S. Mobile Firms

Despite the potential danger posed by truly "unlimited" usage plans, all four U.S. mobile service providers now offer some form of "unlimited" usage, though offered in ways that limit potential exposure.

Unlimited mobile data is one of those concepts that requires an asterisk (Unlimited*). Now offered in some form by all the leading U.S. mobile service providers, “unlimited” does not generally mean there are no usage limits.

Customers still buy buckets of data usage. But if those usage limits are hit in any billing period,  mobile data speeds get reduced, at some point, to 2G speeds (128 kbps, in some cases). That, many would argue, is better than losing all connectivity.

So many would not complain about that limitation, at some level. It does mean the dreaded “overage” charges are not an issue. That saves consumers money, should usage climb beyond the usage bucket the customer chose to pay for.

That is one way service providers limit their exposure to heavy users whose behavior might change, were usage literally unlimited.

Verizon "One Fiber" Shows Changed Fiber Economics and Business Model

Verizon’s “One Fiber” strategy for the city of Boston shows the changed role of the fixed network as well as a shift of the business model. The original vision for FiOS was consumer services, lower operating costs and support for broadband (mainly entertainment video, at the time).

The new vision builds on a number of revenue streams and operating considerations, anchored by enterprise services and support for the mobile network.

There probably also is a bigger potential role for fixed wireless backhaul, should use of fixed wireless develop further.

“I think of 5G initially as, in effect, wireless fiber, which is wireless technology that can provide an enhanced broadband experience that could only previously be delivered with physical fiber to the customer,” said Lowell McAdam, Verizon CEO.

That new use of fixed wireless will be designed to support gigabit speeds. “As we densify the network for 4G, it sets us up perfectly for deploying 5G with the millimeter wave technology,” said McAdam.

Compared to using fiber-to-the-home, fixed wireless should cut network costs in half, McAdam says. By using fixed wireless, Verizon also avoids the cost of drop cable connections, the second-biggest driver of the access network capital cost.

“We expect there to be a significant cost reduction” for fixed wireless access, compared to fiber, McAdam said.

Essentially, Verizon believes it can create a denser fiber network that initially supports enterprise customers and also supports backhaul for a dense network of small cells across the city.

But doing so also lays the foundation for consumer fiber-to-home services and support for Internet of Things applications as well.

"When we looked at running the fiber for wireless, we said, well that will enhance what we can do from an enterprise perspective and by the way, it's only $300 million more over the next six years to actually deploy fiber to the home from that same fiber," said Fran Shammo, Verizon CFO.

The larger point is that the business model for fiber facilities in metro areas has changed. Essentially, in dense areas such as Boston, what Verizon must spend to support business users, the mobile backhaul network and new small cell deployments, the incremental cost of targeted consumer fiber-to-home deployments is reduced dramatically.

And where consumer FTTH does not make sense, Verizon can use fixed wireless to supply gigabit access connections.

New Facebook Compression Method Works 3-5 Times Faster Than Older Method

A new open source compression method developed by Facebook has lead to a significant reduction in  storage and compute requirements for Facebook data centers.

Replacing zlib--the prior method--with Zstandard 1.0 resulted in six percent storage reduction in Facebook data warehouses, 19 percent reduction in CPU requirements for compression and 40 percent reduction in CPU requirements for decompression, said Yann Collet, Facebook compression expert.

Zstandard 1.0 compresses data about three times to five times faster than the previous method used by Facebook. Zstandard 1.0 also takes up 10 percent to 15 percent less storage space.

Compression speed also is about two times faster than zlib, the previous method. “Command line tooling numbers” are more than three times faster, as well.

Which IoT Network Wins, in the End?

source: Ericsson  

The attractiveness of specialized Internet of Things networks such as LoRaWAN and Sigfox has been that they allow much lower communication costs, in addition to lower-power sensors and devices, compared to traditional mobile networks.

In fact, cost reduction, often by an order of magnitude, generally is viewed as key to the success of IoT services.

Whether that advantage lasts is the issue, as mobile air interfaces designed to offer low-cost, low-power communications come to market.

LTE-M, which is an abbreviated version of LTE-MTC (or “machine-type communications”), is a part of 3GPP’s release 12 and 13.

The advantage of LTE-MTC for M2M communications is that is a standard LTE network air interface.

In other words, a mobile operator only has to upload new baseband software onto its base stations to turn on LTE-M and won’t have to spend any money on new antennas.

It’s also five times simpler than a category 4 receiver—like that found in user equipment like a cell phone.

LTE-M has a little higher data rate than NB-LTE-M and NB-IoT, but it is able to transmit fairly large chunks of data. Thus, it can be used for applications such as tracking objects, wearables, energy management, utility metering, and city infrastructure.

With modules expected to be priced below $10, LTE-M is expected to improve the economics of IoT for use cases like smart energy meters, industrial IoT sensors, asset trackers, smart city controllers and consumer wearables.

“The first shall be last” often happens in the communications business.

How Much Share Will Skype for Business Take?

source: No Jitter

In many ways, the relative slowness of hosted PBX adoption is a puzzle, given the feature richness and cost savings, compared to premises switch alternatives, in many cases.

A subsidiary question is how well some services, such as Skype for Business, might fare.

Of the 224 respondents to a No Jitter survey that say they are using Skype for Business on-premises, 33 percent said they are using Enterprise Voice as a PBX replacement.

source: No Jitter

Of those 75 respondents, 52 percent estimate that their organizations have replaced at least half of their prior PBX capacity with Skype for Business Enterprise Voice and 63 percent indicated that their organizations will have done so in two years.

Some 17 percent of these respondents report a full replacement of PBX capacity, with 25 percent reporting that they expect to have fully replaced their PBX capacity with Enterprise Voice in two years.

Overall, 61 percent of respondents using Enterprise Voice said they consider it to be "better" or "much better" than the PBX systems replaced or still in use at their organizations.

source: No Jitter

Conversely, 11 percent deemed Skype for Business to be "worse" or "much worse," while 22 percent said Enterprise Voice and PBX systems are about the same in their experience.

Of those respondents whose organizations have already shifted some or all of their UC to Skype for Business in Office 365, many seem to be open to the idea of using Microsoft's cloud-based calling services..

Just shy of 60 percent of 175 respondents said they are already using or have considered using Skype for Business in Office 365 for voice services.

source: No Jitter