So Far, 26% of IoT Initiatives Succeed

Some observers might be surprised that 26 percent of surveyed enterprises report they were successful with their internet of things initiatives. That should not come as a surprise.

For decades, success rates for information technology initiatives have generally failed more often than they succeeded. By some estimates, only about nine percent of software development projects at large firms are successful.

The same might be said of change initiatives generally, which some say tend to fail about 75 percent of the time.  

The Cisco study also found that information technology executives were quite a bit more convinced the projects were successful, compared to business executives who were more concerned with business cases.

So far, the Cisco study suggests, IoT initiatives are faring about as well as other information technology initiatives tend to, at larger enterprises.

source: Cisco

source: Cisco

Who Pays for IoT Communications?

One pesky and important detail we have yet to fully work out is the business model for IoT appliance business models, for consumer appliances.

If you assume a world where nearly every in-home consumer appliance, and probably lots of other stand-alone sensors to track everything from motion to soil moisture to light levels, often on a “stick it on” basis (put a tracking sensor anywhere you want by peeling off the adhesive), and if you assume connectivity has to be provided, the issue is how that connectivity is supplied, and “who” pays for it.

Amazon provides one model, where the appliance supplier pays for connectivity (mobile network) if Wi-Fi is not available, and then uses Wi-Fi as the preferred connection. In that model, connectivity somehow is build into the use of an appliance (does a purchase become a rental?).

Wi-Fi might be an easy choice, as it shifts payment to the owner of the appliance (user pays for the internet access connection). In a few cases perhaps a third party pays (advertising).

That same model could hold for multi-device IoT plans sold by mobile operators, just as they now sell “multiple-device” plans. That has the user paying.

There are exotic possibilities, such as collaboration between a refrigerator manufacturer and one or more large grocers, where an appliance maker works with the retailer and gets a percentage of automated grocery orders. Those might be relatively complex deals for almost anybody but an Amazon.

  

source: Business Insider

source: Business Insider

No End in Sight for Margin Compression or Revenue Shrinkage?

When observers say the “cost” of supplying telecom services is “too high,” and must be made more affordable, the obvious and direct implication is that somewhere in the supply ecosystem, some participants are going to see a reduction in value and revenue, allowing the final end product--internet access--to be provided to “everyone,” at prices they can afford.

As one example, “open source” network elements already have been developed by the Telecom Infrastructure Project (TIP), a consortium led by Facebook to develop open source transmission products that, in turn, reduce the cost of building and operating transmission networks.

Voyager, a long-haul optical transmission system, already been tested by Facebook and European telecom company Telia over Telia’s thousand-kilometer-telecom network. ADVA Optical Networking is manufacturing the device, which also is being tested by other carriers.

By definition, open source  telecom technology is designed to lower networking costs, which means it will shrink the size of telecom equipment markets. Of course, the buyers of such gear--the communications companies--want lower-cost gear and platforms. And some equipment suppliers see an opportunity to disrupt current market leaders and seize a larger role for themselves.

TIP’s OpenCellular project likewise is working on an open source 4G LTE/LTE base station, the hardware and the software.   

So here’s the point: the global telecom industry now is said to be a $350 billion market, including software, hardware and services.

Ericsson and Huawei, among other leading suppliers, have not joined, though Nokia, Cisco, Juniper and others have joined.

The point is that, whatever you think internet access presently costs, it is going to cost less in the future. Of course, there is a corollary. Some participants in the telecom ecosystem are going to represent less value, and earn less revenue, than before. In most segments of the ecosystem other than the application portions of the business, that has been the case for some decades.

The total value of the internet value chain has almost trebled from $1.2 trillion in 2008 to almost $3.5 trillion in 2015, a compound annual growth rate of 16 percent, according to A.T. Kearney estimates published by the GSMA. About 17 percent of that total value is captured by connectivity providers of all types.

Many would argue it is possible, perhaps likely, that that percentage will shrink over the next decade or two. Margin compression is a problem all too familiar in the service provider and platform supplier parts of the networking value chain. But some problems are worse, especially gross revenue shrinkage. The problem is that margin compression virtually always is a sign of shrinking value and gross revenue contraction.

source: GSMA

AI is About "Insights"

Artificial intelligence is an “exponential” technology that will be harnessed in lots of ways, argues futurist Rohit Talwar. Most of those ways will involve application of AI to develop better insights from mountains of raw data.

Forrester Research, for example predicts that “insights-driven” businesses will represent about $1.2 trillion a year in revenue growth by about 2020, essentially representing market share taken from competitors.

There is another potentially-important angle. Over time, virtually all larger companies--and more people within those companies--will be able to use AI to harvest information in a direct way.

While in 2015 only 51 percent of data and analytics decision-makers said that they were able to easily obtain data and analyze it without the help of technologist, Forrester expects this figure to rise to around 66 percent in 2017.

Some observers think that sort of spreading capability also will eventually lead to something we might call “artificial intelligence as a service,” where virtually every business will be able to use AI-driven algorithms to extract business value from data. So eventually, contestants with more data to mine might gain advantage over competitors who have less data to mine, and hence can derive fewer insights.

There might be other analogies. Most of the value of internet of things might well come from the analytics and insights, not the communications function linking sensors with servers.

source: Forrester Research

Value Contribution of "Connection Services" is Dropping

The total value of the internet value chain has almost trebled from $1.2 trillion in 2008 to almost $3.5 trillion in 2015, a compound annual growth rate of 16 percent, according to A.T. Kearney estimates published by the GSMA. About 17 percent of that total value is captured by connectivity providers of all types.

Many would argue it is possible, perhaps likely, that that percentage will shrink over the next decade or two. Where connectivity might today represent something less than 17 percent of total internet ecosystem revenue, that portion could drop to 14 percent by 2020 or so.

More than half the value of the total ecosystem will lie in the app provider realm, while 22 percent is earned by device suppliers.

source: GSMA

source: GSMA

Enterprises Think "Cloud Computing" Very Important

A survey of enterprise executives finds nearly-universal opinion that cloud computing is “very important” for “digital transformation,” a study released by 451 Research indicates. On a scale of 1 to 10, 80 percent of respondents ranked cloud's importance at 7 or above, and 20 percent gave it a 10.

Additionally, enterprises with a mature digital transformation strategy ranked the importance of cloud services 15 percent higher than companies in the early stages of a transformation, the study suggests.

source: 451 Research

Precisely what “digital transformation” means is debatable, but the 451 study emphasizes “competitive differentiation,” especially in four areas:

• business agility
• managing business risk
• Improving operational efficiency
• Improving customer experience

Back to the Future: Narrowband Will Drive Revenue Growth and Use Cases

For virtually all of the last 30 years, networking technologists and business leaders in the information and communications industries have rightly assumed that “faster speeds” and therefore higher data throughput rates were virtually directly related to financial outcomes.

In other words, the ability to send data faster increased the value of communication networks, made more use cases viable, and therefore drove revenues for suppliers of networking platforms, service providers.

So it is noteworthy that in the next phase of value creation and industry development, narrowband platforms might drive the next big wave of revenue.

That could well be the case if internet of things use cases develop as widely as expected. Look at the direction of standards extensions of Long Term Evolution, for example. Standards bodies that traditionally have worked to wring more performance out of networks now are working to create networks that feature less bandwidth.

Cat-1 for LTE networks tops out at 10 Mbps in the downlink, 5 Mbps in the uplink. But Cat-M1, the next development, will feature just 1 Mbps peak data rates, upstream or downstream. The Cat-NB1 standard will support just 20 kbps in the downlink and 60 kbps in the uplink.

Those developments are related directly to the expected use cases for sensor reporting, which quite often entails only uploading small amounts of data, but also communications cost and battery life.

The shift to perceived business use of narrowband platforms is a huge shift. All the direction has been towards broadband (faster speeds, more data throughput) in communications, for decades.

So 5G will be the first networking era in quite some time where, despite use cases for higher speeds, the real use case and revenue upside will come from narrowband platforms.

source: Sequans

5G Might be an Unwanted Watershed

We normally expect that each successive mobile network generation will also produce higher gross revenue or new services. That belief is held because it always has been the case in the past.

So 5G should not be different. We should see incremental revenue growth from new use cases. What we might not see is enough of that "new stuff" to keep pace with declines in revenue from legacy sources.

In that case, we might very well see 5G as a watershed, the first next generation platform that actually leads to lower total revenue, a contraction of suppliers and a reshaping of business models.

There is growing consensus that 5G could well mark a fundamental turning point in telecom industry history. If matters develop as hoped, a huge new wave of revenue growth, apps and services will be enabled.

And the biggest change of all is that the growth will come because computing actually becomes pervasive or ubiquitous, precisely as futurists have been predicting would eventually happen.

But 5G might also mark a historic change in industry dynamics for other reasons, perhaps not so welcome. It already is possible to argue that mobile data revenues and profits will follow the same path as earlier mobile services, such as voice and text messaging.

That is to say, gross revenue eventually will peak, while profit margins contract. If that happens with 4G, and if 5G represents only “more of the same,” clear problems could develop.

The biggest problem is that mobile data increasingly features a market requirement for supplying faster speeds and greater consumption, with incremental revenues that lag the increased supply.

For decades now, we have seen that average revenue per megabyte or gigabyte has fallen, dramatically. That will not change in the 5G era. Not a problem, some might argue. We will simply sell more units. Up to a point, that argument has merit.

It is the same argument suppliers have used in the voice business, and in the capacity business. It works for a while. Eventually, though, the revenue per unit sold does not compensate for the fact that consumers simply require fewer units. In other cases, usage quotas rise, while prices remain flat.

In the voice business, that shows up as declining minutes of use, declining numbers of fixed network subscriptions and declining prices per unit as well. In the capacity business, that shows up as higher usage allotments or higher speeds, at the same or lower prices.

And if that problem shows up in the 4G business, it arguably will get worse in the 5G era, in part because 5G is a more expensive network, and in part because the incremental new revenues do not justify the incremental new cost.

In other words, t is conceivable 5G actually will mark the end of a profitable business model for many mobile operators whose only real option is “access” services.

The problem is that we already can foresee a time when all current revenue streams (voice, text mesaging, mobile internet access) have past their peak, in terms of users, accounts and revenue generation. 5G is not automatically going to fix that.

For many mobile operators,, 5G will be a more-expensive platform that helps supply much-higher data consumption for human users, but at rates that lag unit growth. And though new revenue opportunities should develop in the area of machine communications, much of the upside will be reaped by platform, app, device or system suppliers, not connectivity suppliers.

So 5G is not just “the next generation of mobile.” It might be a generation of mobile that sees much of the industry disappear.

5G: The Downside

There is growing consensus that 5G could well mark a fundamental turning point in telecom industry history. If matters develop as hoped, a huge new wave of revenue growth, apps and services will be enabled.

And the biggest change of all is that the growth will come because computing actually becomes pervasive or ubiquitous, precisely as futurists have been predicting would eventually happen.

But 5G might also mark a historic change in industry dynamics for other reasons, perhaps not so welcome. It already is possible to argue that mobile data revenues and profits will follow the same path as earlier mobile services, such as voice and text messaging.

That is to say, gross revenue eventually will peak, while profit margins contract. If that happens with 4G, and if 5G represents only “more of the same,” clear problems could develop.

The biggest problem is that mobile data increasingly features a market requirement for supplying faster speeds and greater consumption, with incremental revenues that lag the increased supply.

For decades now, we have seen that average revenue per megabyte or gigabyte has fallen, dramatically. That will not change in the 5G era. Not a problem, some might argue. We will simply sell more units. Up to a point, that argument has merit.

It is the same argument suppliers have used in the voice business, and in the capacity business. It works for a while. Eventually, though, the revenue per unit sold does not compensate for the fact that consumers simply require fewer units. In other cases, usage quotas rise, while prices remain flat.

In the voice business, that shows up as declining minutes of use, declining numbers of fixed network subscriptions and declining prices per unit as well. In the capacity business, that shows up as higher usage allotments or higher speeds, at the same or lower prices.

And if that problem shows up in the 4G business, it arguably will get worse in the 5G era, in part because 5G is a more expensive network, and in part because the incremental new revenues do not justify the incremental new cost.

In other words, t is conceivable 5G actually will mark the end of a profitable business model for many mobile operators whose only real option is “access” services.

The problem is that we already can foresee a time when all current revenue streams (voice, text mesaging, mobile internet access) have past their peak, in terms of users, accounts and revenue generation. 5G is not automatically going to fix that.

For many mobile operators,, 5G will be a more-expensive platform that helps supply much-higher data consumption for human users, but at rates that lag unit growth. And though new revenue opportunities should develop in the area of machine communications, much of the upside will be reaped by platform, app, device or system suppliers, not connectivity suppliers.

So 5G is not just “the next generation of mobile.” It might be a generation of mobile that sees much of the industry disappear.

What Will the Future "Former Telco" Sell?

If Steelcase is not a furniture manufacturer, and Ford wants to stop being an “auto” manufacturer and become some kind of “mobility” company, one naturally wonders what it will take for former “telcos” to become something else, and what term we will eventually create that captures the nature of the change.

One framework is that telos become enablers of services and apps, more so than the creators of apps and services, more on the model of a “platform” than a provider of vertically-integrated services.

“I think the technology is probably already there. What isn’t yet there are the business models and the market structures and the ecosystems that need to cooperate with each other, need to be orchestrated in order to turn these things into a real business,” says Martin Creaner, corporate strategy advisor for Huawei.

All that is one other way of illustrating why the “don’t be a dumb pipe” argument is so important. Even if and when a telco “becomes something else,” that “something else” will still involve use of a network to create a business model and value for customers of some type.

Steelcase, for example, describes itself as providing “architecture, furniture and technology products and services designed to unlock human promise and support social, economic and environmental sustainability.” But its $3 billion in annual sales still revolve around what we call furniture.

In the same way, it is hard to imaging at least some telcos creating revenue streams where communications networks are not embedded or underpinning elements.

Has Mobile Price Competition Driven Half of U.S. Inflation Drop in 2017?

This probably is a first: low U.S. inflation rates might well be driven in substantial part by new competition in the mobile business.

Nearly half of the  decline in core consumer price index inflation in 2017 can be traced to a single item: mobile services, according to Paul Ashworth, Capital Economics chief economist.  

Mobile service plan prices dropped seven percent  in March 2017 and fell an additional 1.7 percent  in April 2017, according to Labor Department data.

From April 2016, mobile service prices were down 12.9 percent the largest decline in 16 years.

Core inflation—prices excluding the volatile categories of food and energy—rose just 1.9 percent in April 2017 from a year earlier, decelerating from 2.3 percent growth in January 2017, as measured by the U.S. Labor Department’s consumer-price index.

source: Wall Street Journal

Uber Applies Artificial Intelligence to Create Pricing System for Uber Pool

Practical uses for artificial intelligence continue to proliferate. Uber Technologies, for example, now uses machine learning (a type of artificial intelligence that provides computers with the ability to learn without being explicitly programmed) to predict how much a particular rider is likely willing to pay for a specific trip, on a specific route.

In fact, Uber has used AI to create a new fare system based on machine learning. Called “route-based pricing,” the system charges customers based on what it predicts they’re willing to pay.

In the past, Uber calculated fares using mileage, time and multipliers based on passenger demand at a particular moment.

The change likely is related to the “upfront pricing” system Uber introduced in 2016, where riders are guaranteed a set fare before they book. That obviously places a premium on any intelligence Uber can use to incorporate willingness to pay in a more granular way, since the whole business model is premised in substantial part on variable pricing.

The trick is optimizing market clearing transactions, essentially matching what a rider is willing to pay and what a driver is willing to accept.

The value of such machine learning is one reason why Uber launched its artificial intelligence laboratory.  Though AI will be needed as Uber moves into the era of automated vehicles, the lab’s work apparently already has paid off in terms of using machine learning to tweak the far offering system.

Beyond that, the researchers will be working on developing forms of machine learning that need less data. That obviously would allow greater use of AI, with faster learning. Faster learning means AI can be applied in a wider range of cases.

The labs also are said to be working on machine learning systems that can explain the reasoning behind decisions. For a firm under much scrutiny, that makes sense. Uber itself, and others watching the company, will want explanations for “why” pricing rules are set the way they are.

Uber’s existing business apparently already benefits, as in the case of price predictions for the Uber pool service, where the new machine learning system is in use.

Three or Four? It Will Not be an Easy Decision

source: FCC

It likely still is true that the top four U.S. mobile service providers have about 98 percent market share.

Perhaps just as significant, from a market structure perspective, is the way antitrust regulators typically quantify the conditions that suggest a market is “concentrated,” which is a warning sign about the potential competitive impact of market consolidation.

This already has been an issue twice in the last decade regarding consolidation among the top-four providers, and obviously there is talk between Sprint and T-Mobile US about trying again, for a third time in a decade, to consolidate the ranks of the leaders from four to three.

Some believe a change of presidency is going to mean better prospects for any such effort. By most accounts, the U.S. mobile market has been “highly concentrated,” using the Department of Justice methodology, since 2005, and has grown more concentrated over the last decade.

So the issue, in the U.S. and many other markets, is what regulators believe is necessary to sustain competition. By definition, any combination of Sprint and T-Mobile US makes the U.S. market more concentrated.

source: FCC

There is an argument that more concentration can lead to more competition, though that clearly is not what virtually all analysts looking at the matter seem to believe. The reason equity analysts generally are in favor of such a merger is that it strengthens pricing power and reduces competition.

Since that leads to an ability to raise prices, consolidation arguably strengthens all the surviving three firms for the long term. In that view, higher profits for the survivors ensures survival, and therefore three leaders, not a duopoly.

Though some argue that the new merged Sprint-T-Mobile US would be in better position to challenge Verizon and AT&T more vigorously, there is an equally-strong case to be made that a stronger Sprint-plus-T-Mobile US would not want to rock the boat, and would back off its challenges.

That can--and arguably does happen--in stable markets because it is deemed advantageous to maintain the stability of a market that deters new attackers but also allows reasonable margins for each of the top-three providers.

Logically, even in that scenario, having three choices is better than having just two choices.

And, in the U.S. market, it is possible that a relatively-stable duopoly in the fixed network business still has delivered significant consumer benefit. So it cannot be dismissed, out of hand, that a three-provider market representing 98 percent market share would still deliver some competitive benefits, and possibly could work as well as the fixed network duopoly.

But it is hard to say what actually would happen. Optimists might point to market entry by the likes of Comcast, Charter and other cable companies, plus other forays by new entities with different business models that could provide new competition.

Pessimists will point to the low degree of consumer benefit under the old duopoly conditions before Sprint and others entered the market using 2-GHz spectrum.

Optimists will point to T-Mobile US success as an example of what might happen in a three-leader market.

Some might say that, yes, there will be less competition in a three-provider market, but that this is required to maintain profitable competition, rather than ruinous competition. Some might point to Sprint’s “nn-profitable” status as an example that four profitable providers are not possible in the U.S. market.

The rejoinder is that there are other ways to envision a stronger mobile market that still has four providers, including participation by Comcast or even other new owners with different business models, able to bring new assets to bear.

It is hard to say what might be allowed. But the U.S. mobile market will continue to be deemed “highly concentrated” by antitrust authorities, that much is clear.

5G is All About the "Next Big Thing"

The hottest buzzword in telecommunications in 2017 is 5G. And a relative handful of service providers are racing to be first to deploy, for reasons that sometimes are not so obvious.  

First mover advantage is why “speed” (time to market) is driving mobile operators in the United States, South Korea, Japan and China.

“Getting to market first with LTE gave North American first-mover operators an extra 6.6 billion U.S. dollars in revenue over the second mover within five years,” says Amit Mukhopadhyay, partner at Nokia’s Bell Labs Consulting. “The same will be true with 5G, if not more so.”

What sometimes is less clear are the business motivations for 5G deployment, beyond the breathy slideware that has routinely been produced in advance of 3G and 4G, and now 5G. It is always, one way or the other, about “the next big thing.”

That might really the case this time, for some glaring reasons. Most significantly, all existing mobile revenue streams are either declining or about to decline. So the next leg of industry growth has to come from something other than voice, text messaging, mobile data or even video services, as important as that latter source is shaping up to be.

The problem is not especially new. After voice, text messaging drove revenue growth. Then mobile internet access came to the fore. Video subscriptions might help next, perhaps more on the scale of text messaging than mobile internet access.

But as the core voice and mobile data revenue streams drop away, the industry will have huge holes to fill, and there is universal belief that those big new revenue sources are going to come--broadly speaking--from selling services for use by machines, not humans.

Not for the first time, but with new urgency, the business model is key, not the network. As was the case for 3G, then 4G, the valuable new applications driving revenue growth had to be discovered. They were not obvious. The same will be true with 5G, with the new twist that it is applications and services for machines (sensors and servers) that will likely be key.

“With 5G, it is all about the use cases and your business strategy,” says Claudio Mattiello, Nokia network planning and optimization service product Manager,

 

There are other noteworthy changes. For the first time, the core networks themselves must be transformed to support the expected 5G end user applications.

“Network elements that are implemented in the telco cloud environment must enable the key concept of network slicing, in which services can be configured to different needs using the same underlying infrastructure,” says Ashok Rudrapatna, Bell Labs Consulting principal consultant.

All of that will be subject of the Spectrum Futures conference, to be held 18/19 September in Bangkok.