Industrial Internet Consortium Releases IIoT Connectivity Model

The Industrial Internet Consortium has released an extensive white paper on its model for industrial internet of things connectivity. As you might guess, the connectivity model is designed for technology developers, and corresponds, in general, to the Open Systems Interconnect seven-layer model.

As some of us might note, there are business analogies. With the embrace of OSI, applications now are written to be independent of access media and network platforms; as well as independent of devices and operating systems, to a large extent. In such an environment, though there still remain vertical integration opportunities, the basic framework is openness.

But that also means business models are less amenable to “lock in” based on specific protocols, networks or access media. So it is worth noting that, above the  the “framework” layer (structured data) is the unnamed “business model” layer, where businesses with revenue models decide to use IIoT.

It is natural that ecosystem participants in the communications segments focus on “how” to achieve ubiquitous communications for IoT. Ultimately, as always is the case, business value will determine whether IoT is embraced, and therefore whether markets for communication services are created.

source: Industrial Internet Consortium

source: Industrial Internet Consortium

Does NFV Enhance or Replace Evolved Packet Core?

In many ways, network slicing features of coming 5G-compliant core networks builds on  evolved packet core (EPC), the current framework for providing converged voice and data on a 4G Long-Term Evolution (LTE) network. The 2G and 3G networks use a different architecture, using

circuit-switched networks for voice and packet-switched networks for data.

Evolved packet core uses Internet Protocol, which is simpler and media independent. Standards for EPC were developed by the Third Generation Partnership Project (3GPP) in early 2009.

As always is the case, networking professionals can disagree about whether NFV either “improves or replaces” the EPC. Perhaps most would argue that NFV extends and builds upon EPC.

It might be somewhat subtle, but CIMI principal Tom Nollte says network slicing (a feature of 5G-compliant core networks) could have an impact in terms of “eliminating the expensive evolved packet core infrastructure that handles mobility in 4G networks.”

Most would probably argue that NFV virtualizes the EPC function. But that is where the nuances are important. If EPC is virtualized, is that a functional replacement of EPC by NFV networks using network slicing? It’s subtle. It might be most accurate to say that virtual replaces physical in the area of EPC functioning.

source: 3gpp

EPC also separates the control plane from the user plane, where control network is separate from the actual payload data, a move intended to reduce costs and network overhead, while improving ability to scale networks more easily (and at less cost) by reducing the amount of active elements.

source: 3gpp

source: Affirmed Networks

The next evolution, many would argue, is network functions virtualization (NFV), a network architecture concept that uses “information technology” approaches to virtualize entire classes of network node functions, making them building blocks that can be connected or chained together to create communication services.

One way to look at such an NFV network is that the business case can drive the configuration of network capabilities for each specific application (at least to the extent the network can be customized for latency, security, geography, bandwidth or quality). Historically, the goal of every next-generation network was to create the ability for bandwidth on demand, something NFV builds on, but augments.

So it might be an irrelevant argument (“how many angels can stand on the head of a pin”), but virtualizing networks using network slicing and NFV might either been seen as “improving” existing network functions, or as “replacing” them.

Who Will Develop Shared Spectrum Facilities?

Since 5G networks will build on other developments, such as the latest generations of 4G, core network virtualization, new spectrum access methods (shared spectrum) and millimeter wave frequencies and small cells, business models are likely to be evolutionary, rather than a “flash cut,” compared to prior mobile network generations.

For example, development of new commercial method for spectrum sharing in the 3.5-GHz band are not a formal part of the 5G standards process. But shared spectrum access is expected to be a staple of 5G network access methods.

Likewise, the release of more millimeter wave spectrum partly is, and partly is not, part of the 5G standards process. Similarly, small cell deployments, additional distribution fiber deployments, new radio technology and even open source efforts will eventually contribute to enabling and improving the 5G business model.

Perhaps oddly, the 3.5-GHz Citizens Broadband Radio Service (CBRS) being introduced in the U.S. market might see some unusual demand patterns. CBRS uses a three-tier access priority system, with existing licenses having interference protection rights from commercial users, while a a second tier offers priority access, while a third tier operates much as does Wi-Fi (best effort access).

The Priority Access Licenses (PAL), expected to be made available at auction, and with interference rights over the “best effort if capacity is available” General Authorized Access (GAA) tier of service, might be considered the preferred choice of mobile service providers, who have tended in the past to require quality-of-service protections.

The GAA spectrum would allow licensees the right to use 10 MHz channels for two three-year periods (3550–3650 MHz). And that is the issue: the six-year license duration limits the attractiveness of PAL for mobile operators who, in the U.S. market, are used to perpetual license terms, argues Senza Fili principal Monica Paolini.

As a result, she argues, the strongest interest might lie in use of the license-exempt GAA tier, which will effectively represent a new capacity option that is similar to Wi-Fi. That might have other repercussions as well.   

If GAA spectrum can be used by any entity without a license, then CBRS can be built out by property owners in the same way they use Wi-Fi. That might effectively limit use of CBRS capacity by mobile operators

Also, CBRS access using GAA will allow venues to block use of other temporary Wi-Fi access points (consumers using their own devices, for example).

That also increases the likelihood that neutral host approaches could develop on a fairly widespread basis, eventually. The advantage there is that each service provider could use CBRS facilities without building in-building infrastructure. The disadvantage is that mobile service providers and others using a neutral host network would not be able to control the facilities to the same extent as if each provider supplied their own radio infrastructure.

So much remains to be discovered, in terms of the ultimate pattern of CBRS license preferences by commercial users (such as mobile or cable operators), venue owners (building owners and managers) or third-party developers of CBRS indoor access facilities.

If the present Wi-Fi pattern develops, then venue owners will develop CBRS access services that resemble today’s Wi-Fi. In principle, new neutral host facilities could develop, with a property owner or third party operating the radio infrastructure, and offering access to all who wish to partake. Unclear is the amount of demand for priority access approaches that resemble today’s mobile licenses.

Potential regulatory changes that would extend PAL licenses for longer durations also could have an impact. If that were to happen, then CBRS using PAL would more closely resemble traditional mobile licensing.

If one had to make a guess today, it might be that most smaller locations eventually will have CBRS operating just as Wi-Fi does today, with a property owner or tenant making the decision to create a small cell running a CBRS network using the GAA access method, just like they would operate a Wi-Fi network.

Neutral host is going to make more sense at large venues, though it remains unclear how scale will become a factor, favoring larger service providers rather than individual venue owners.

Charter Does Not Have to Overbuild, FCC Says

Charter Communications will not be required to overbuild (compete with an existing cable operator) as part of its acquisition of Time Warner Cable, the U.S. Federal Communications Commission has ruled.

That preserves the collegial structure of the U.S. cable TV industry, which historically has held to a practice of not competing with other cable operators, even if such competition is lawful. Basically, as industry execs have privately said, that “no competition” behavior has meant cable had the “best of all possible worlds, able to operate an an unregulated monopoly.”

That remains only partly true now that U.S. telcos and cable operators compete head to head, with the same key product lines, virtually everywhere. But the historic restraint (no competing with another cable company) remains largely intact.

The big changes will come as Comcast and Charter Communications enter the mobile and OTT streaming businesses, which require national scale. In such areas, Comcast and Charter will “compete” with other cable operators at least in the OTT video area. In that sense, the “competition” will be indirect, similar to the notion of a cable operator competing with Netflix.

Even so, the competition will more theoretical than practical, as smaller cable operators will not have the scale to compete in the OTT streaming services market. It is virtually certain neither Comcast nor Charter would directly challenge other cable operators in the core fixed networks business.

In the mobile business, it is possible local cable partners might, in many cases, also act as marketing and infrastructure partners with either Comcast or Charter or both. Despite that, Comcast and Charter will be trying to market services to customers served by other cable operators. No doubt both firms will do everything possible to minimize the perceived degree of competition and revenue threat.

As a condition of FCC approval of the acquisition, the FCC under the Obama administration had required that Charter build internet access facilities to about a million households that currently have service from other cable operators.

As you would expect, the smaller rural cable operators that would have faced new competition from Charter opposed the provision.

As a condition of approval for its acquisition of two cable companies, Charter in May 2016 agreed to extend high-speed internet access to two million potential customers within five years, with one million served by an existing cable competitor. That would have created new cable operator competition in those overbuilt areas for the first time.

Text Messaging Revenue Opportunities Shift to Marketing, Customer Service, Other Business Revenue Models

New findings from Juniper Research forecast that OTT messaging applications, such as WhatsApp and Snapchat, will see adoption grow from 2.3 billion unique users in 2016 to 4.2 billion by 2021 representing a growth of over 12 percent  CAGR (compound annual growth rate).

It anticipates that players will begin focusing their strategies around the development and provision of artificial intelligence (AI) chatbot tools. In other words, the revenue upside now is seen as marketing, not consumer direct revenue.

That is one example of a broader trend, namely the decline of voice and messaging revenues and the shift of such apps to “features” rather than revenue drivers. To be sure, some revenue still is made from voice and text messaging, and no mobile service provider would dare market a mobile service that did not support voice and messaging.

From time to time, a supplier might ponder offering services that use over the top voice and messaging, with no carrier voice and messaging capability. So far, that business model does not appear to be appealing.

To be sure, traffic or usage is different from “revenue earned from providing such usage,” but consumers globally simply are talking and texting less using carrier services, and substituting OTT voice and messaging, or using social media as a substitute in many cases.

source: Informatica (Portio Research)

source: eMarketer

That explains the new emphasis on use of text messaging as an advertising or business-to-business tool.

Juniper Research predicts that OTT players will reposition their messaging platforms as customer relationship management tools, for example.

By leveraging AI technology, these OTT apps--it is hoped--will create a service that drvies revenue because it offers  a new level of consumer engagement and customer service.

The other interesting implication is that these new customer service and marketing tools will be built on use of artificial intelligence tools.

End of An Era: Android Passes Microsoft Globally as Top OS

Some milestones are turning points. Some turning points illustrate that an era has passed. Even if the fact will surprise virtually nobody, it is worth noting that, in March 2017, for the first time ever, Android passed the Microsoft operating system as the world’s most popular operating system (OS) in terms of total internet usage across desktop, laptop, tablet and mobile devices combined, according to StatCounter.

Granted, you might argue the OS share was a tie. In March of 2017, Android topped the worldwide OS internet usage market share with 37.93 percent usage, compared to Windows, with 37.91 percent share. Five years ago, Android had market share of about 2.4 percent, notes

Aodhan Cullen, CEO, StatCounter.  

That noted, Microsoft Windows still dominates the worldwide operating system desktop market (PC and laptop) with a 84 percent internet usage share in March.

“Windows won the desktop war but the battlefield moved on,” said Cullen.

In substantial part, you can credit use of smartphones In Asia for Android’s global growth. In Asia, Android represents 52.2 percent of internet-using device operating systems,  compared to 29.2 percent share for Windows.

In other regions, Windows retains its lead. In North America Windows had 39.5 percent share in March, followed by iOS at 25.7 percent and Android at 21.2 percent.

In Europe, Windows had 51.7 percent, with Android at 23.6 percent.

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FCC to Consider Special Access (Business Data Services) in April 2017

Among items the Federal Communications Commission will start to address at its April meeting is a potential change of course on special access (business data) regulations. The FCC is expected to begin a process of deregulating (removing price controls) in areas with competition, while maintaining price controls where there is not competition.

In all likelihood, that will mean price regulation is removed in urban areas, but often retained in rural markets. The big new change, after several decades of competition, is the emergence of cable TV companies as the primary new suppliers in markets dominated in the past by telcos.

The last FCC chairman and commission favored more regulation of special access services, though no action was taken, as the change of presidential administration also clearly meant leadership of the FCC would change.

But the FCC had seemingly been on course to institute lower prices for millions of small businesses, schools, and libraries, with an 11 percent reduction in prices phased in over three years. Critics argued the new price caps would further diminish investment, as demand already is moving away from special access and towards Ethernet access alternatives.

In principle, what is at stake is the proper regulatory stance for an important legacy service that nevertheless is in a declining state, with lots of competition in many--if not virtually all--larger markets. In fact, executives of independent business data service providers have noted for some years the fact that cable TV operators have taken leadership of the special access market away from independent providers who used to compete with the legacy telcos (primarily AT&T, CenturyLink and Verizon).

The new chairman now says he favors relaxing pricing rules where there is competition in the market.  Controversy about special access markets has been a staple of the U.S. regulatory environment for decades.

The FCC has been studying the business data services (special access, primarily T1 and DS3) market for more than a decade. “The extensive record compiled by the Commission's excellent staff shows substantial and growing competition in many areas of the country, thanks to new market entrants like cable companies,” said FCC Chairman Ajit Pai. “Where this competition exists, we will relax unnecessary regulation, thereby creating greater incentives for the private sector to invest in next-generation networks. But where competition is still lacking, we'll preserve regulations necessary to prevent anti-competitive price increases.”

IoT Use Cases for 5G Networks

Investment or Competition: "Choose One"

Almost every important regulatory decision in the telecommunications industry is directly related to investment and competition, as regulators and policymakers, in principle, want more of both. The big problem always is that those goals often are mutually exclusive. In the short term, it always is possible to boost consumer welfare by policies that promote competition, using policies such as mandatory wholesale and mandatory healthy price discounts for such services.

In the longer term, those same policies tend to depress facilities investment, as profits are not attractive. The problem arguably is worse for legacy services in clear decline, as no amount of investment changes the demand curve for products consumers are abandoning.

So virtually every strategic decision made by every larger access provider these days relates to harvesting of legacy revenues and development of replacement revenues. That is especially true for legacy mobile and fixed service providers, as attackers often can add revenue simply by taking market share from incumbents, even if markets are mature.

For more than a decade, U.S. policymakers have debated whether price controls need to be maintained for special access (T1, DS3) sold to enterprises. Among the issues other than presence or absence of competition in such markets is the fact that demand is shifting away from special access and towards Ethernet replacement services, even as prices for such special access services have dropped substantially over the past few decades.

Among items the Federal Communications Commission will start to address at its April 2017 meeting is a potential change of course on special access (business data) regulations.

The last FCC chairman and commission favored more regulation of special access services, though no action was taken, as the change of presidential administration also clearly meant leadership of the FCC would change.

But the FCC had seemingly been on course to institute lower prices for millions of small businesses, schools, and libraries, with an 11 percent reduction in prices phased in over three years. Critics argued the new price caps would further diminish investment, as demand already is moving away from special access and towards Ethernet access alternatives.

In principle, what is at stake is the proper regulatory stance for an important legacy service that nevertheless is in a declining state, with lots of competition in many--if not virtually all--larger markets.

In fact, executives of independent business data service providers have noted for some years the fact that cable TV operators have taken leadership of the special access market away from independent providers who used to compete with the legacy telcos (primarily AT&T, CenturyLink and Verizon).

Telecom is Mature; Is it Declining?

Every legacy retail access service supplied by cable TV and “telco” providers in most developed markets arguably has passed its product cycle “peak.”

U.S. voice lines peaked in 2000 or 2001, for example, as did long distance minutes of use. Text messaging revenues also are falling. Fixed network internet access markets are reaching saturation as well (in terms of accounts). The degree to which mobility services will limit further growth, and then possibly cause fixed network internet access decline is among the next big issues.

The offsetting trend is data access to support internet of things apps and services, which will add accounts and revenue, though not with the same level of average revenue per account. On a per-device basis, IoT devices might represent monthly revenue an order of magnitude lower than services for smartphones, for example.

Still, demand for internet access connections “for humans” is reaching saturation, in either fixed or mobile realms. That trend remains latent in many emerging markets, where net growth of accounts and revenue is possible.

Eventually, though, even burgeoning mobile adoption and mobile internet access in emerging markets likewise will peak.

That is why internet of things is considered so strategic a development in the access business: it represents the single biggest new revenue driver to replace lost legacy revenues over the medium term.

source: FCC  

source: Turk Telecom

At the same time, value and revenue within the communications and internet ecosystem are shifting to the application layer. That, in a nutshell, explains the key strategic problem for every tier-one access services provider, and the danger for small access providers.

Over time, tier-one providers must become significant owners of new application assets that are used by digital appliances and delivered over access networks. That will be the case even if IoT develops robustly as a new market for access connections.

As one forecast by ABI Research suggests, as important a market as internet of things could be, more revenue will earned by app and service providers than by connectivity services (about three to five times more app/service revenue than “connectivity” revenue).

source: ABI Research

India Landline Accounts Fall 22% Last 5 Years

The number of landline telephone connections in India has shrunk 21.6 per cent in the last over the last five years, falling to 25.22 million in 2016, compared to 32.17 million lines in 2012, By the beginning of 2017, connections had fallen further to 24.34 million.

That “drastic” fall should come as no surprise. That trend has been in place since 2012, when analysts at Gartner predicted that, from 2012 to 2016, fixed voice revenue would decline by 25 percent. And the same trend has been seen in many other markets.

In substantial part, that is because--as happened in other markets--consumers switched to use of mobile phones for voice communications. In the U.S. market, voice lines peaked in 2000 or 2001, and the only issue now is whether a stable base eventually will be reached.

Such declines in voice are not unusual. It is easy to argue that peak messaging (the carrier text messaging market) likewise is past peak adoption. Some might warn that although mobile service provider revenue continues to grow, it now expands at less than the growth of gross national product.

Verizon to Launch New Streaming Service

Verizon Communications plans to launch a new over-the-top streaming live TV service service that would compete with Hulu, Dish and DirecTV Now, Bloomberg reports. The service would not compete directly with Netflix or Amazon Prime, whose catalog largely is built on movie and other pre-recorded content accessed on demand. The Verizon service would instead compete in the “live streaming” segment of the market that is a replacement for linear TV.

In large part, the move is designed to capture demand from consumers for lower-cost, skinny bundles of channels. Comcast seems also to be preparing to offer a skinny OTT bundle.

Pricing is expected to range between $20 and $35 a month, most expect, as that is the range for the competing services.

The Verizon move shows the “harvest linear, grow OTT” strategy the leading linear video subscription service providers are following. The launch also shows the importance of video entertainment services as a driver of consumer service provider gross revenue.

Beyond that, the OTT video launch also illustrates the strategy for larger tier-one service providers, which is to participate at the application layer of the media business in the consumer segment, and in the Iot, M2M and mobile advertising platform businesses in the enterprise customer segments.

OTT Video is a Challenge, But Not a Fatal Challenge for Access Providers

It goes without saying that the maturation of the linear TV business, and the growth of the streaming business, could have significant repercussions for revenue earned by telcos and cable TV companies in the U.S. and other markets from consumer customers, though not as great an impact as will the development of the internet access business.

The reason is that linear video has become a significant--in some cases very significant--contributor to fixed network telco revenues. Video represents a greater contributor to consumer account gross revenue per account than does voice, for example.

source: Telco 2.0

source: Deloitte  

So a clear and key strategic challenge for fixed network providers serving the mass market is how to finesse the transition from linear to OTT formats. Some will point to leadership by Netflix and others as evidence that linear providers cannot make the transition to OTT. We do not know that, for certain, as linear providers have huge incentives not to cannibalize their existing business by moving prematurely to OTT.

Some 13 percent of US homes (15.4 million)  now buy internet access but not linear TV services,  according to SNL Kagan researchers. Kagan estimates that such cord-cutting  homes will reach 28 million by 2021, and possibly more.

It is not a new challenge. Telcos faced the same problem with OTT voice and OTT messaging. Some urged telcos to embrace OTT fully. The problem is simply that the financial returns for doing so (matching OTT prices and plans, for example) would simply destroy most of the existing business, where a strategy of measured decline (the course virtually all telcos have taken) actually produces better financial results.

That, in fact, was the strategy used by AT&T earlier: harvesting a legacy business as long as possible, to buy time to create a new set of revenue drivers.

Nor is lack of leadership in OTT a show stopper. U.S. telcos--especially Verizon and AT&T--have grown more through acquisition than organic growth.  When the time comes, assets will be acquired.

So it might not, in that view, be too alarming that the number of U.S. customers relying solely on OTT for video entertainment keeps growing. That is the current pattern, and a pattern that is expected to continue. So the classic past pattern--harvesting the legacy revenue stream while building new revenue sources--will hold.

Steps will be taken to retain as much of the linear business as possible. Effective price reductions (skinny bundles and triple play) are part of that strategy. At the same time, efforts to organically grow the OTT business will be undertaken. Ultimately, the tier-one providers will buy their way into the business. They have done it before. They will do it again.

source: IHS