Openreach War Ends, Now Market Decides

The war over Openreach (functional or structural separation) is over. BT and Ofcom have reached agreement on a long-term regulatory settlement that will see Openreach become a distinct, legally separate company with its own board, within the BT Group.

In a sense, the disagreements have centered less on the “wholesale” approach (that was never in question) but only on the amount of possible favoritism Openreach might show to BT, compared to all the other wholesale customers. The new arrangement loosens, but does not break, the ties between Openreach and BT. Openreach is an independent company within the BT Group.

To the extent that facilities-based fixed network competition exists or expands, it will come from cable TV companies who rely on their own networks, using different technology standards. Longer term, facilities-based competition will come from mobile networks (5G in fixed mode) and possible other platforms. In fact, mobile substitution already seems to be growing.

Beyond that, we still do not know the extent to which other platforms will prove to have scale (power line, balloons, satellites in low-earth orbit, drones, Wi-Fi). As Openreach starts to build more fiber-to-home facilities, it is likely the shares of “fastest” access will change. Up to this point, cable operators have supplied a disproportionate share of such lines.

That has been true in the U.S. market as well, which chose to rely on facilities-based competition rather than wholesale.

source: ISP Review

Fiber-to-home will be important if Openreach has to compete head to head with cable networks, which already have technology to reach gigabit speeds without plant upgrades, and have suppliers working to boost speeds into the 10 Gbps range with plant modifications.

Distance to cabinet (metres)	Estimated downstream connection speed	Estimated upstream connection speed	Cumulative %'age of premises at this distance
100m	100 Mbps	25 Mbps	5%
150m	80 Mbps	20 Mbps	10%
200m	65 Mbps	18 Mbps	20%
300m	45 Mbps	17 Mbps	30%
400m	42 Mbps	16 Mbps	45%
500m	38 Mbps	15 Mbps	60%
600m	35 Mbps	14 Mbps	70%
700m	32 Mbps	11 Mbps	75%
800m	28 Mbps	10 Mbps	80%
900m	2 5 Mbps	9 Mbps	85%
1000m	24 Mbps	8 Mbps	90%
1250m	17 Mbps	5 Mbps	95%
1500m	15 Mbps	4 Mbps	98%

source: Thinkbroadband

5G Will Drive Edge Computing

Though 5G often is considered the next mobile air interface, it also is enabled by core network virtualization and even could play a part in boosting edge computing, as mobile networks are used to support many new internet of things applications.

For example, today’s service providers have cloud computing requirements to support their own network services with 100 milliseconds of latency, a maximum of 10 megabits per second of throughput, and no more than 10 billion devices that cost up to $1,000 each and with a battery life of one day, according to Said Berrahil, Nokia VP.

For tomorrow’s network, the telco cloud requirements might need latency of no more than one millisecond, support network speeds in excess of 10 gigabits per second, and host up to one trillion devices that cost $1 each, said Berrahil.

A cloud data center can meet the 100-millisecond latency up to 10,000 kilometers distant from any end user.

When latency must be four milliseconds, the cloud data center needs to be no more than 30 kilometers (18.6 miles) away, while services in need of latency less than one millisecond would require edge data center deployments “almost within eyesight.”

Fixed Wireless Spectrum to Get U.K. Boost

Spectrum expected to be used in the United Kingdom to support 5G networks includes spectrum from 694 MHz to 790 MHz; 3.8 GHz to 4.2 GHz range,  3.4 GHz to 3.8 GHz; 24.25 GHz to 27.5 GHz. Other possible bands above 30 GHz include 32 GHz, 40 GHz and 66 GHz.

Some of that spectrum will be available relatively soon, including spectrum below 4 GHz for mobile applications, and below 9 GHz for backhaul, Wi-Fi and fixed wireless purposes.

Which Parts of Ecosystem Will 5G Disrupt?

The 5G network should prove disruptive to participants in other parts of the ecosystem, as well as to new ecosystems. That arguably has been the case in the past, so we should be watching for what happens, to whom, and where.

The first generation of mobile created alternatives to fixed phone lines, triggering the huge mobile substitution trend that has decimated use of fixed voice services.

The 2G network created the text messaging business and also demolished the paging business.

The 3G network enabled mobile email and then mobile internet. Most likely would agree that 4G enabled tethering of PCs and other devices, plus video consumption and smartphones with pleasant user experience when accessing cloud data.

But 4G also largely displaced MP3 players and pocket cameras.   

It would be unusual indeed if the coming 5G network did not cannibalize some existing communications functions and roles; industry segments or participants.

Some will point to fixed internet access as a potential early casualty, as the mobile network--operating in fixed mode--could compete head to head with fixed services for the first time on a massive scale. Up to this point, some percentage of consumers already has learned to substitute mobile access for fixed access.

But that has been a limited phenomenon, generally favored by mobile-only users who do not watch much video. The 5G network might change all that. In fact, even unlimited mobile data, or exempting streaming video from usage charges, might already be creating such habits.

The 5G network should be different than prior mobile generations for many reasons. It should become the first generation of mobile networks to enable use by machines, sensors and servers, rather than humans. Faster and lower-latency mobile broadband will be a feature humans will notice, to be sure.

But the primary new categories of usage is expected to be by sensor networks of various types whose requirements are not so much bandwidth as low latency or low cost.

Also, 5G should be the first mobile network that integrates multiple networks, organically, for access (licensed and unlicensed; owned and third party assets). In other words, 5G will be more virtualized than prior generations.

HughesNet to Launch 25 Mbps Satellite Internet Access Service

The latest Federal Communications Commission report on broadband access suggests the potential for services such as HughesNet, which soon will be able to deliver 25 Mbps downstream speeds across the continental United States. Today, HughesNet can deliver up to 15 Mbps speeds.

Some 10 percent of all U.S. residents (34 million people) lack access to 25 Mbps/3 Mbps service. If one assumes an average of 2.5 persons per household, that suggests an addressable market of perhaps 13.6 million households.  

According to the FCC, up to 23 million of those people live in rural area. So 68 percent of the satellite broadband opportunity exists in rural areas, or about 9.2 million households.

Of course, internet speeds keep climbing, in the United States and globally, so neither HughesNet nor any other internet service provider can rest content with any present offer.

The global average connection speed increased 12 percent, quarter-over-quarter to 7 Mbps, a 26 percent increase, according to Akamai.

Year-over-year, on a global basis, the average connection speed increased 26 percent.

Year-over-year, the global 25 Mbps broadband adoption rate increased by 45 percent. Eight of the top ten countries/regions enjoyed gains, ranging from 34 percent in Japan to 201 percent in Singapore.

In the United States, average connection speeds were above 10 Mbps in the fourth quarter of 2016, in every state, with 34 states seeing speeds above 15 Mbps, up from 30 in the previous quarter, says Akamai.

In its report on U.S. internet access, the Federal Communications Commission found that median broadband speeds across the country increased 22 percent in the past year, from 32 Mbps to 39 Mbps. The study was based on 13 ISPs representing more than 80 percent of U.S. subscribers.

North American Consumers Prefer 20 Channels, at $28 to $29 a Month, Tivo Finds

When they are able to buy channels a la carte, U.S. consumers will pay about $29 a month for 20 favorite channels, while Canadians will pay $28 a month for their 20 favorite channels, TiVo’s latest report on video finds. And though it is only a one-quarter change, the price consumes in the United States and Canada are willing to pay dropped 12 percent.

	Q4 2016	Q3 2016	Quarterly Change
Price for Top 20 Channels - United States	$28.87	$32.92	- 12.3% q/q
Price for Top 20 Channels - Canada	$28.16	$32.00	- 12.0% q/q

In terms of specific genres, consumers say they watched 18 percent fewer National Football League games in 2016, compared to 2015, for a variety of reported reasons, including games that were not as interesting, too many commercials, but also 11 percent who said political issues were a turn off.

Use of “TV Everywhere” features (TVE) grew about nine percent in 2016, year over year, including viewing on PCs, tablets or smartphones.

Linear video is used by 83 percent of respondents. Of the 17 percent not buying, 20 percent reported cutting service over the last year. It is important to remember that is a “gross” figure, not a “net’ figure that offsets account closures with new accounts added. In most recent years, the net change has been less than one percent.

Of stated objections, 80 percent of customers abandoning service said the service was too expensive. Some 48 percent said they were using a streaming service, Tivo said.

Source: Tivo

Content packagers are likely quite right to assume that a shift to a la carte buying would disrupt the existing linear business. Some 64 percent of respondents suggested the ability to buy only channels they wanted would be a new reason to abandon linear service.

Also, in contrast to customer satisfaction surveys that show continuing unhappiness with video services, 78 percent of respondents reported they are “very satisfied” or “satisfied” with their service, while the number of respondents claiming “poor service” has declined 11 percent over the last two years.

Service reductions (cord shaving) also is happening. Some 52 percent said they

“reduced” levels of service in some way, such as reducing buying of premium channels, or reducing the number of outlets in the home.

Rapid Technology Cycles in Mobile Business Will Lead to Consolidation

It would not be unusual for any executive in a capital-intensive and highly-competitive industry to worry about rapid market changes that drive technology obsolescence, necessitating additional rounds of investment.

So some might point to the Indian mobile market, where the standard has been 2G, with relatively-slight investments in 3G, disrupted by a huge shift to 4G that essentially meant a leapfrogging of 3G.

Now operators confront coming 5G platforms just over the horizon, as well. Even before the capital investment hurdles become ruinous because of intensifying technology requirements, competition is driving smaller operators out of the market.

To support higher levels of investment, operators will need more scale, especially if payback periods are shorter than desired.

The other issue is a possible change in formerly-linear relationships between investment and revenue. You might argue that, in the voice era, additional usage brought incremental revenue at levels which were roughly in balance with the additional investment.

Some might argue that formula breaks down in the internet era, where investments in additional capacity do not produce anywhere near linear increases in incremental revenue. The net result is a process of consolidation that has multiple drivers (competition, capital intensity related to spectrum and network platform, faster pace of required investment).

All those trends tend to increase needs for scale, which is driving operator consolidation. More markets, aside from India, might face similar pressures, if not because competition is especially intense, then because the 5G upgrade cycle might be coming so soon after the 4G deployment.

Also, there is the nagging issue of wringing revenue out of mobile data services where increased usage does not grow revenue as fast as the consumption is boosted. That, simply stated, is why internet of things is so important. Such new services might well be the only way to sustain revenue growth.

source: Alcatel-Lucent (Nokia)

Need for Scale is Reshaping India Mobile Market

It would not be unusual for any executive in a capital-intensive and highly-competitive industry to worry about rapid market changes that drive technology obsolescence, necessitating additional rounds of investment.

So some might point to the Indian mobile market, where the standard has been 2G, with relatively-slight investments in 3G, disrupted by a huge shift to 4G that essentially meant a leapfrogging of 3G.

Now operators confront coming 5G platforms just over the horizon, as well. Even before the capital investment hurdles become ruinous because of intensifying technology requirements, competition is driving smaller operators out of the market.

To support higher levels of investment, operators will need more scale, especially if payback periods are shorter than desired.

The other problems include plunging profit margins, caused by Reliance Jio's market entry, which is leading to sharply lower retail prices. [\

The other issue is a possible change in formerly-linear relationships between investment and revenue. You might argue that, in the voice era, additional usage brought incremental revenue at levels which were roughly in balance with the additional investment.

Some might argue that formula breaks down in the internet era, where investments in additional capacity do not produce anywhere near linear increases in incremental revenue. The net result is a process of consolidation that has multiple drivers (competition, capital intensity related to spectrum and network platform, faster pace of required investment).

All increase needs for scale, which is driving operator consolidation.

Leading India Mobile Operators Could See 40-50% Drop in Revenues from Best Customers

With Reliance Jio saying it will meet and beat any other mobile data offers from its competitors, the Indian mobile market is in at least a momentary race to the bottom, in terms of mobile data pricing. Acting as the market disruptor, Reliance Jio has said it will beat any new public competitor offers, in terms of usage allowances, by 20 percent.

Some predict that  Bharti Airtel, Vodafone India and Idea Cellular revenues  from its best customers might plummet 40 percent to 50 percent as a result. That 30 percent of the customer base typically generates 70 percent of an incumbent’s total revenue, according to Kotak Institutional Equities.

Two decades ago, some observers of the Internet argued that was exactly what should happen, and would happen. “Information wants to be free,” many argued, a development with clear implications for media companies and content providers.

These days, zero rating of video and other content is a live issue. Other related activities, including Wi-Fi access, free use of software, retailing and transactions, open source computing and software, as well as much internet content show the trend is rather extensive.

Some have argued that mobile wants to be free, technology  wants to be free, For communications service providers, “communications wants to be free” is the fear.

That is a rational fear, as it turns out. Skype and WhatsApp provide examples of “free” (no incremental cost) substitutes for carrier voice and messaging. In many other areas--long distance calling, international calling, under-ocean capacity--prices have plummeted, on a cost-per-bit basis, and often also in absolute terms.

To be sure, many trends globally have driven down prices, ranging from deregulation and competition to technology improvements (Moore’s Law and its application) to the emergence of the internet.

source: Strategy &

To this point, retail telecommunications service prices have not plummeted, despite all those trends. But as the mobile marketing wars in India illustrate, margin compression is the rule, not the exception.

Half of U.S Mobile Consumer Time is Spent with "Communitainment" Apps

About half the time U.S. consumers spend with mobile apps is spent  with social, messaging, media and entertainment applications, according to researchers at Flurry. In fact, a goodly portion of “communications” now is communitainment: communication for the sole purpose of entertainment.

That category includes Facebook, Whatsapp, YouTube and Snapchat.

Flurry data suggests that U.S. consumers continue to increase their time-spent on mobile devices,   the average U.S. consumer spending five hours a day on mobile devices.

source: Flurry

The Solution for "Telcos Can't Innovate"

Whether in the business or consumer segments, tier-one telecom providers tend to agree they must “add value” to their connectivity services (“avoid becoming a dumb pipe”) by “moving up the value chain” (“moving up the stack”). It is a fundamental strategy, for simple reasons. In the Internet era, applications and access are formally separated.

The phrase “over the top” literally refers to the way all apps and services now are delivered, no matter which entity owns the particular apps and services.

The way some of us would describe the strategy is that “you have to own at least some of the apps that flow over your pipes.” In the consumer area, that might mean video services. In the business customer segments, that might mean information technology solutions.

NTT Data, for example, has rolled up a number of IT-providing businesses, becoming a bigger system integrator and information technology consultancy. For example, NTT Data has acquired Dell Services, Keane, Carlisle and Gallagher Consulting Group, Optimal, Intelligroup, Centerstance, giving NTT Data accounts, competencies and staff able to provide IT consulting and technology implementation and support (SAP, Oracle and Salesforce implementation, among other things), on a global basis.

NTT DATA arguably is strongest in healthcare, life sciences, financial services, manufacturing, and public sector verticals.

The oft-noted observation that “telcos are not good at innovation” arguably is largely true, but also less important than we often think. So long as managements do not meddle, acquired assets and people who are free to do their jobs will work. Those assets simply must be allowed to function as they must in the spheres where they operate, even if owned by new telco entities.

In other words, Comcast’s ownership of NBCUniversal assets is not a problem so long as content units are free to produce the best content they can, within the constraints of their business models. IT consultancies in various verticals can win, so long as they are allowed to succeed.

That arguably was more a problem in past decades, when acquired assets often failed because they were essentially bent to the needs of the access or transport business units. These days, there is far-wider recognition that the access and transport business units are there to support the applications units.

OTT Video Offers Telcos Better Business Model

Often, there are multiple reasons for deploying a new technology, none of them contradictory. For example, one might argue that fourth generation Long Term Evolution (4G LTE) was deployed to gain bandwidth advantages or higher speeds. One might also argue LTE made sense because it offered lower cost per bit.

Something similar is developing in the over the top video streaming space. OTT streaming most often is touted because it offers lower cost or more choice (on demand rather than linear access). For some service providers, a better business model now seems to be driving thinking.

AT&T, for example, acquired DirecTV for a number of reasons, including the ability to achieve a lower cost structure for cost of goods, a way to supply linear video nationwide without immediate local network upgrades and as a platform for OTT video as well. That lead to DirecTV Now, the streaming video service AT&T has launched.

Now other fixed network telcos, including CenturyLink and Frontier Communications, now are looking at OTT as well, but arguably for a different reason: OTT will boost profit margins, compared to IPTV. Consider the practical implications. Where today the service provider has to supply one or multiple decoders (capital investment), OTT simply uses the customer’s own computing devices.

OTT is provisioned online, using a simple web interface, where linear TV or IPTV require a truck roll (and installation labor), external drop and possibly internal wiring, plus set-up.

So OTT video might actually driven for “cost savings,” as much as end user demand.

AI is Being Used for Practical Reasons in Media, Content and Customer Service. IoT Will Use it Soon

It is hard to envision really-new things before they are available; something that Apple CEO Steve Jobs always insisted was the case with new products consumers had no experience with.  So it is with artificial intelligence, or machine learning. But there already are commonplace uses developing in the content, streaming and communications businesses.

Netflix, for example, plans to use artificial intelligence to improve image quality of its content, on a frame-by-frame basis. That has not been possible, affordably, in the past. Cheetah Mobile uses AI to produce individualized and curated content streams for its users.  Natural language processing obviously is used to support Amazon’s Alexa and Google Home.

In telecom, AI might typically be seen in customer operations, especially customer service apps. Artificial intelligence is implemented in automated online assistants that can be seen as avatars on web pages.

It is possible the widest and most-significant application of artificial intelligence will come in the internet of things areas, and therefore, would become vital for communications entities active in the application and platform parts of those businesses. The easy prediction is that AI will be used to wring meaning out of big data produced by sensors.

The more-interesting applications, if harder to envision, are advanced Iot networks that eventually could develop along the lines of the human internet. Technologist Kevin Ashton believes IoT eventually could feature sensors connected to the Internet and capable of making open, ad hoc connections with other servers,  sharing data freely and allowing unexpected applications, so computers can understand the world around them and become humanity’s nervous system.

In other words, the Internet of Things is not only a new way to gather facts but also a way to gather new facts and use them in new ways. That’s one more way AI will start to become something quite practical.

"Private Cellular" is Coming

“Private cellular” or “private mobile” networks are among the new possibilities created by new spectrum access methods, most especially license-exempt or shared spectrum. In principle, that could include enterprise voice networks or shared indoor mobile infrastructure.

Nokia, for example, is introducing platforms that can use unlicensed and shared spectrum to create private end-to-end networks for vertical applications in specific  industries. That might prove important for  enterprises, venues and the hospitality industry in the United States using the 3.5 GHz Citizens Broadband Radio Service (CBRS) shared spectrum.

Enterprises can use CBRS to create “private LTE” networks. “Neutral host” networks are another application, where an enterprise can create an open platform supporting multiple mobile suppliers for indoor access.

Likewise, Quortus and Telefonica believe  DECT replacement and mixed voice and secure data services can be created for enterprises and other organizations using unlicensed spectrum.

Telefónica says it is pioneering the use of private cellular, particularly for its industrial and enterprise customer base. Emergency restoration is another potential application for Quortus solutions.