Unlimited Usage Plans Accelerate Pressure on Operators Trying to Monetize Usage

Unlimited mobile internet plans, whatever qualifications are placed on use of those plans, strike at the heart of hopes to monetize increased mobile internet usage. That is a huge tactical problem, even if--strategically--”everyone” has known for some time that significant future revenue growth could not be driven by consumers using smartphones or other devices.

Price wars do not help. Nor does ability to monetize higher usage by levying higher per-unit (consumption-based) prices. “Nobody” would seriously propose that consumption of fresh drinking water, electricity, heating fuels, groceries and other consumer goods be charged on an “all you can eat” (unlimited) basis.

Supply and demand clearly matter. The scarce asset, for any communications network supplying “access” now is internet usage (gigabytes instead of voice minutes of use).
For a “best effort” service, contention and network loading therefore become key issues.

Ironically, as consumers have chosen to consume less voice, less text messaging, less long distance calling, network load has lessened enough, for such low-bandwidth apps, to allow “unlimited consumption of products nobody wants to use much of.”

The problem Verizon, AT&T and others clearly face is that if unlimited-usage plans remain in effect, and if they become the “dominant” plans consumers purchase, then higher usage cannot be monetized directly.

That comes against a backdrop of “slow to no growth” globally.

Mobile operator revenue and cash flows at the largest 250 global companies have dropped by an average of six percent a year since 2010, according to McKinsey analysts.

From 2010 to 2014, the telecom business entered a period of slow decline, with revenue growth down from 4.5 percent to 4 percent, EBITDA margins down from 25 percent to 17 percent, and cash-flow margins down from 15.6 percent to eight  percent.

Among US telecom companies, for instance, landline and mobile voice now account for less than a third of total access, down from 55 percent in 2010, while data revenue has risen from 25 percent of total revenues in 2010 to 65 percent today.

source: McKinsey

It likely is worth noting that the greatest driver of consumer internet bandwidth is video. If usage cannot be monetized directly, it will make sense to try and monetize in other ways, such as owning the video service assets consumers pay for, video assets that can be monetized by advertising, or other apps for which consumers will pay an additional fee.

Uh Oh: Global Mobile Service Revenue from IoT Might Not Move the Needle

Internet of things access revenue might be quite smaller than many expect, in part because many of the connected sensors are going to use existing connections. On the other hand, an incremental $28 billion worth of global Iot-driven access revenue (in 2025) will be helpful. At that point, IoT access revenue might represent about three percent of total service provider revenues globally.

The implied bad news is that even those incremental new IoT revenues will only replace lost revenues from legacy services.

Assume total mobile industry revenue grows about one percent annually between 2016 and 2025. On a base of perhaps $810 billion, that would imply $886 in 2025 service revenues.

That, in turn, assumes that mobile operators, on a global basis, will add $8 billion to $9 billion in annual revenues, every year.

Now consider internet of things revenues. If you assume global IoT connectivity revenue already is about $6 billion, and grows about 18 percent annually to 2025, then we might expect global IoT connections revenue to be about $27 billion by 2025, adding a $1 billion or $2 billion incremental access revenue lift in the the early years, and perhaps as much as $4 billion in incremental new revenues closer to 2025.

One has to assume that the global increase in mobile operator revenues of $8 billion to $9 billion annually already includes the expected contribution from IoT access revenues, all other sources, and includes erosion of existing sources as well.

Majority of U.S. Homes Now "Mobile Only" for Voice

It finally has happened: Fewer than half of all U.S. homes buy a fixed line voice service, the Centers for Disease Control reports. That “milestone” was expected, as the percentage of U.S. households buying fixed-line voice service has been steadily declining for more than a decade.

Preliminary results from the July 2016 to December 2016 National Health Interview Survey (NHIS) indicate that 50.8 percent of U.S.  homes did not have a landline telephone service.

Earlier studies had shown that even households with fixed line phone service have been using those services less. In the U.S. market, fixed network voice peaked either in 2000 or 2001, depending on which source one cites.  

source: Centers for Disease Control

Something similar likely is happening with linear video subscriptions, as cord cutting (customers abandoning service), cord shaving (customers reducing levels of service) and cord never (people who never had bought a linear video service)

"The first quarter is usually a seasonally strong one for pay TV. It wasn’t this year," said MoffettNathanson analyst Craig Moffett. Moffett said the drop of 762,000 video subscribers was the worst first-quarter loss ever for the U.S. linear video subscription business.

It is a fact that linear video is past its peak. Almost nobody would dispute the faster rates of decline are coming. Many would argue the rate of decline now clearly has accelerated. The issue is whether--or when--an inflection point is reached, where the rate of change happens very fast, over a relatively few years.

It is likely fair to point out that changes in some markets--internet access, mobility, mobile data, text messaging--show clearer signs of inflection points and discontinuous change. Change has tended to move in more linear fashion in the fixed network markets, although 2000 to 2003 marked a key turning point--and arguably inflection point--for voice revenue, lines and usage.

source: World Bank

source: eMarketer

source: eMarketer  

What Roles for Access Providers in IoT? Perhaps Not a Big as You Might Think

David Harding of Analysys Mason looks at opportunities and roles available to operators in the IoT space. 

Near-Zero Pricing Remains a Key Industry Issue

Near-zero pricing continues to remain an unstated background factor in the global telecom business. Consider internet access, voice, texting or just about any other service you wish to name.

Over time, the actual cost of connecting to the internet has dropped, a fact that has fundamental implications for all in the ecosystem, if you note what happened to the "telecom" industry as international and other long distance calls fell nearly to zero.

Simply put, the profit was ripped out of the business. Sure, voice still is a vital function of a mobile service, but has become an optional part of a fixed network service. The same now is true of text messaging, which not so long ago drove data revenue growth in the mobile business. 

That might happen for internet access as well. 

Internet.org has launches its Express Wi-Fi service, lighting close to 700 Wi-Fi hotspots across

the four Indian states of Uttarakhand, Gujarat, Rajasthan and Meghalaya, and making all-day internet access possible for a cost of about 15 cents to 30 cents, purchased as needed, per day, or $3 to $5 a month, purchased a month at a time.

Express Wi-Fi is currently live in five countries: India, Kenya, Tanzania, Nigeria and Indonesia.

Bharti Airtel will launch an additional 20,000 Express Wi-Fi  hotspots over the next few months.

In addition to its partnership with Airtel, Express Wi-Fi has been deployed with ISPs AirJaldi in Uttarakhand, LMES in Rajasthan, Tikona in Gujarat, and soon with Shaildhar in Meghalaya.

Internet.org “is part of Facebook’s global initiative to spread internet connectivity,” the organization says.

“Express Wi-Fi is designed to complement mobile data offerings by providing a low-cost, high bandwidth alternative for getting online and access apps, download and stream content,” Internet.org says.

Express Wi-Fi is a paid public Wi-Fi service, sold by local entrepreneur partners at Rs 10 to Rs 20 (15 to 30 cents) for a day-long access (Rs 200 to Rs 300 for a month). The vouchers will be available to purchase through online and offline stores.

Access to the internet is a necessary foundation for all value created by the internet. On the other hand, that role no longer is exclusive to traditional access providers; no longer platform specific (fixed, mobile, satellite, Wi-Fi) and arguably no longer a long-term driver of access provider financial success, as important as it remains.

Express Wi-Fi by Internet.org Launches in India

Internet.org has launches its Express Wi-Fi service, lighting close to 700 Wi-Fi hotspots across

the four Indian states of Uttarakhand, Gujarat, Rajasthan and Meghalaya.

Express Wi-Fi is currently live in five countries: India, Kenya, Tanzania, Nigeria and Indonesia.

Bharti Airtel will launch an additional 20,000 Express Wi-Fi  hotspots over the next few months.

In addition to its partnership with Airtel, Express Wi-Fi has been deployed with ISPs AirJaldi in Uttarakhand, LMES in Rajasthan, Tikona in Gujarat, and soon with Shaildhar in Meghalaya.

Internet.org “is part of Facebook’s global initiative to spread internet connectivity,” the organization says.

“Express Wi-Fi is designed to complement mobile data offerings by providing a low-cost, high bandwidth alternative for getting online and access apps, download and stream content,” Internet.org says.

Express Wi-Fi is a paid public Wi-Fi service, sold by local entrepreneur partners at Rs 10 to Rs 20 (15 to 30 cents) for a day-long access (Rs 200 to Rs 300 for a month). The vouchers will be available to purchase through online and offline stores.

Sprint Magix Box Creates New In-Home, In-Business Small Cells

Sprint is taking another step on the road to commercial small cell architectures with the introduction of the Sprint Magic Box, an all–wireless small cell (pico cell) designed for consumer or business use.

Separately, Comcast, for example, has used a different "small cell" approach to create homespots on the backs of its consumer internet access routers, creating a partitioned "public Wi-Fi" footprint usable by its own internet access customers initially, and later as a building block for Comcast's mobile service. Eventually, the platform could support wholesale access services as well.

The plug–and–play Magic Box is an LTE 4G small cell that “dramatically improves data coverage and increases download and upload speeds on average by 200 percent,” Sprint says.

The Magic Box, an indoor, self-configuring small cell, about the size of a shoebox, requires no implementation, labor, or rental costs that are a hurdle for many traditional small cell deployments.

The unit is simply placed near a window and plugged into a power outlet. The Magic Box then connects directly to the Sprint macrocell network for backhaul, without requiring a fixed network connection.

The move also finally commercializes Sprint’s 160 MHz of 2.5 GHz spectrum in the top 100 U.S. markets.

Sprint says it will continue its deployment of three-channel carrier aggregation on 2.5 GHz sites, moves that will allow even faster speeds.

The company also anticipates using other technologies including four-channel carrier aggregation, 256 QAM, 4x4 MIMO (multiple-input, multiple-output) and Massive MIMO to further enhance the capacity and coverage of its 2.5 GHz TDD-LTE spectrum.

One Sprint Magic Box provides average coverage of 30,000 square feet indoors and can benefit adjacent Sprint customers inside the building. The signal can also extend coverage 100 meters outside a building, benefitting Sprint customers in nearby buildings and improving street–level network performance.

source: Queryhome.com

"Best Effort Only" Network Neutrality Inhibits Many Proposed 5G Apps

It might soon be a moot issue, but some argue that common carrier regulation of consumer internet access will prevent the development of some 5G services and apps, particularly those related to internet of things.

It is hard to say, in part because of uncertainty about the boundaries between managed services and consumer internet access. The clear distinctions are between “business” internet access and “consumer” access. Business access services are allowed to offer quality of service attributes, such as packet prioritization to support some apps over others.

That is the sort of feature barred under existing “strong” forms of network neutrality affecting consumer services.

It has been less clear where the boundaries are where it comes to consumer managed services, such as video or audio subscription services or home security. And that ambiguity is likely to extend to consumer-focused IoT apps and services.

The potential use cases include self-driving cars with pre-crash sensing and mitigation, health biometric sensing and response, telemedicine, and proactive monitoring of critical physical infrastructure such as transmission lines, Rysavy Research notes.

“What many of these new applications have in common are stringent data communication requirements, such as high reliability or minimal delay,” Rysavy notes.

In other words, quality of service requirements are likely to be necessary. And that conflicts with strong forms of network neutrality that forbid packet prioritization.

In other words, might quality of service necessitate use of packet prioritization, or “fast lanes,” as some proponents of strong network neutrality have argued should be illegal?

Current consumer internet access networks assign equal priority to all third-party application traffic, regardless of the application type, as required by strong network neutrality rules that prohibit any sort of priorities between classes of apps or providers.

Traditionally, the objective of such prioritization is to maximize the quality of experience across the largest number of users and application types possible, allocating higher priority for those applications that need it while not adversely affecting those that do not.

For some IoT apps, the stringency of communications latency is even more important, not simply user experience. “At 60 miles per hour, a car travels nine feet in 100 msec versus only one inch in 1 msec,” Rysavy notes. “In a scenario of an intelligent highway warning a car of a pedestrian on the road at a blind curve, that could be the difference between life and death.”

The present uncertainty is that it is not clear whether an autonomous driving app or service is a “managed” service using the internet, or is an “internet app” used by consumers. If it is the former, an argument can be made that a method of controlling autonomous vehicles is a managed service, not subject to “best effort only” access rules.

If an autonomous car, on the other hand, is deemed to be a consumer service using “the internet,” then latency protection cannot be applied. It gets worse.

Perhaps the service provider is providing a “business” access service to the owner of the vehicle, in which case latency protection can lawfully be provided, if the owner is a fleet operator.

But does that same rule apply to a consumer owner of that vehicle?

The problem is that such uncertainties are endless, where it comes to apps and services that depend on assured latency, or assured bandwidth, to work.

To some extent, live video streaming has latency and bandwidth requirements. But is Netflix an internet app, or a managed service? What about a Comcast or AT&T streaming service? And what about health apps delivered to smartphones or other consumer health devices?

Some might argue we can create rules ad hoc, as needed. But that raises the level of business uncertainty for smaller, start-up entities, of the “it is not clear whether this is legal, or not” sort.

The point is that “business access” can lawfully provide QoS. Consumer services mostly cannot, but might, in those cases where a service is deemed to be “managed.” It is not so easy to make such determinations, and certainly not “a priori.”

No Strategy Lasts Forever: Verizon Might Have to Change

Perhaps ironically, Verizon's mobile strategy--which made lots of sense when mobility drove revenue growth--now exposes the firm to greater risk than AT&T’s different strategy of business services and entertainment video.

Verizon earns 68 percent of total revenues from mobility, and all of that from the U.S. market. The current marketing war in U.S. mobile therefore has potential to harm Verizon’s revenue significantly more than AT&T, which earns just about 44 percent of total revenue from mobility.

AT&T earns nearly a quarter of total revenue from linear video subscriptions, about 73 percent of revenue from business services and entertainment. AT&T also has diversified into Mexico and Latin America, and is expected soon to enter the content business with its Time Warner acquisition.

To be sure, Verizon’s mobile advertising strategy (AOL and Yahoo) arguably will make Verizon a number-three supplier in the advertising venue business, behind Google and Facebook. But some will note that Verizon would be a distant third in a duopoly market.

It is not clear how much success Verizon will have at growing the AOL/Yahoo business beyond the $1 billion level, a sort of minimum threshold for any new business effort Verizon might hope to grow.

Given the pressures on Verizon revenue caused by the mobile price war, many speculate that, like it or not, Verizon now has to search elsewhere for an immediate source of cash flow, beyond mobile advertising or internet of things.

The issue, many would argue, is whether Verizon can come up with a strategy beyond “boost cash flow,” in a narrow sense. So far, some might argue, Verizon has no clear strategy for moving up the value chain at a level that would materially affect its revenues.

That an acquisition is the only path seems obvious. That the acquisition must be large also is obvious, to have any revenue impact. The downside is the debt load that would likely entail. Also, any new move virtually has to reduce the total revenue Verizon earns from mobile services.

Just as certainly, any acquisition able to move the revenue needle would have to center on consumer services, if a domestic acquisition is desired, either video distribution or content. There simply are no potential assets other than that, that immediately help Verizon boost revenue and cash flow.

Different options would exist if an international path is chosen (and Verizon has shown little interest in that regard, in recent years).

It will not be an easy choice, and the chances of a mistake are high.

Verizon Data Center Exit Illustrates Strategy Issues

Equinix acquisition of 29 data centers and their operations from Verizon Communications illustrates one issue with tier-one service provider efforts to move up the value chain. Large entities need large opportunities to “move the needle” on revenue.

Those facilities generate annual revenue in the $450 million range, too small a number to materially affect Verizon’s annual revenue of about $126 billion. In other words, the data center business represents only about three-tenths of one percent of total yearly revenues.

The point is that the revenue stream, for Verizon, is too small to matter.

Though 451 Research projects the global colocation market will reach $33 billion by 2018, the market is highly fragmented. In 2016, for example, Verizon had less than two percent market share.

“The majority of this revenue (54.6 percent) continues to be derived from local providers with sub-$500 million in annualized colocation revenues,” analysts at 451 Research said of 2015 revenues.

As often is the case in the telecommunications business, scale matters. The colocation business simply lacks the scale attractive to most tier-one service providers. And that means the business will be dominated by specialist providers.

Another angle is that, even if large telcos tend to grow more by acquisition than organic growth, few of the “move up the stack” moves have really reached enough scale to matter, AT&T being among the salient exceptions to the rule. AT&T’s acquisition of DirecTV has, at least for the moment, dramatically affected the firm’s revenue profile.

AT&T now is the largest U.S. linear video subscription provider, and generates about a quarter of total revenue from video entertainment services. Verizon, on the other hand, earns 68 percent of total revenues from mobility.

The point is that large tier-one service providers not only must “move up the value stack,” but also need scale when doing so. Colocation, as opposed to cloud computing, remains a fragmented business. Cloud computing infrastructure is very much a winner-take-all business.

Oddly enough, both those facts--fragmentation and winner-take-all--have key implications for tier-one providers of any size. Fragmented markets are not going to make a difference. Winner-take-all markets can move the needle, but only if the telco is among the top few providers in the market.

source: 451 Research

How Much More Growth for SIP Trunking?

How much more growth is left for SIP trunking? Lots more, by most estimates, or more, in other estimates. If 62 percent of the market already has bought, 38 percent more potential customers remain.

If so, then SIP trunking might prove to be the sort of communications product that never sees an inflection point where growth rates accelerate non-linearly.

So far, no inflection point has yet been seen, something many of us would have thought would already have happened, for SIP trunking or hosted IP telephony. Instead, we see slow, steady adoption of hosted IP telephony, for example. That raises the possibility that no inflection point ever will happen. Instead, slow, steady adoption could well be the market growth model.

That is not necessarily a bad thing, but might also suggest the whole SIP trunking and hosted IP telephony space, though important to business users and niche suppliers, is going to motor along in linear fashion, with a slowdown happening maybe sooner than many would have suspected.

It is conceivable that adoption might already be nearing a peak, if it is true that adoption reaches the 60-percent level in 2017.

source: Infonetics

Business buyers of SIP trunking will be spending about seven percent more in 2017 than they did in 2016, according to the Eastern Management Group. SIP phone purchases might climb as much as 12 percent.

source: audiocodes

The global regions with the fastest SIP growth are Asia Pacific, the Middle East and Africa. The growth rate in these regions is much stronger than in either the U.S. or Europe, both of which are more mature markets. Eastern Management Group suggests North American adoption rates might see additional growth of  less than four percent in 2017.

SIP trunking might have been about a $3 billion business in the U.S. market in 2015.  Some researchers believe the SIP trunking market could reach $20.7 billion by about 2024.

Cavell Group’s latest IP Voice market reports show unexpected market dynamics, with the SIP Trunking market performing slower than expected and the hosted VoIP market continuing to grow strongly.

The hosted VoIP market has shown 11 percent growth reaching a total of 2,423,123 Business hosted VoIP seats, while the SIP Trunking market has only grown nearly 10 percent  in the last six months to a total of 2,113,528 SIP trunks.

“This is a slowdown in the migration from ISDN to SIP trunking and may show that customers are leapfrogging SIP to move directly to a hosted solution,” Cavell Group notes.

source: IHS Infonetics

source: Eastern Management Group

Cost is now the big driver behind today's SIP sales, according to John Malone, Eastern Management Group president.

SIP trunking easily costs 50 percent less than traditional networks. Furthermore, SIP trunk prices are dropping five percent to seven percent annually.

Three Plans Major Fixed Wireless Assault on Consumer Access Business

With the caveat that facilities-based competition in the consumer internet access business might not be feasible in many markets, Three is about to launch a facilities-based assault on the U.K. consumer internet access business using fixed wireless, joining Virgin Media as a major facilities-based provider of such services across the United Kingdom.

Virgin Media has 5.7 million accounts. Assuming there are 25 million U.K. homes, Virgin’s customer base is about 23 percent of all U.K. domiciles.

U.K. mobile operator Three, part of the Hutchison company’s holdings, plans to build a fixed wireless network reaching about 40 percent of U.K. customers, nearly the same percentage of U.K. homes reached by Virgin Media’s hybrid fiber coax networks.

It is not yet clear how the footprints (Virgin and Three) will overlap, but the move means a new facilities-based provider will have a big presence in the U.K. fixed internet access market. But it might not be unreasonable to suggest Three’s fixed wireless network might be able to garner share up to about 20 percent.

Virgin's network passes about 40 percent of U.K. locations. U.K. mobile operator Three, part of the Hutchison company’s holdings, plans to build a fixed wireless network reaching about 40 percent of U.K. customers, nearly the same percentage of U.K. homes reached by Virgin Media’s hybrid fiber coax networks.

One touted business advantage of the facilities-based approach is ability to differentiate an offer. In the United States market, for example, cable operators have been able to exploit a different platform (hybrid fiber coax) to leapfrog digital subscriber line and, at least in the past, many fiber to home networks.

Three might be able to create a new value proposition (high speeds, lower cost), especially compared to any retail internet service provider using the Openreach wholesale platform for access.

source: thinkbroadband.com