Edge Computing a Mobile Operator Opportunity?

Many telcos have argued that owning data center assets would be a good way to complement connectivity services. Some have found the synergies less than truly compelling. The issue now is whether mobile edge computing will be different.

AT&T hopes so, thinking that its existing real estate portfolio (central offices, macro towers and small cells will provide locations for edge computing.

So AT&T will outfit those facilities with high-end graphics processing chips and other general purpose computers, to create new edge computing facilities.

AT&T believes it could someday embed these systems in everyday items like traffic lights and other infrastructure as well.

The point is that edge computing could provide a way for telcos to leverage existing assets to create new roles in the computing fabric and ecosystem that some might argue have eluded them in the centralized computing era.

Will Most IoT Connections Use Fixed Network Access (Wi-Fi and other)?

In the past, long-range, low-power networks have had leading share of market (55 percent) for machine-to-machine applications, with short-range solutions such as Wi-Fi having perhaps 35 percent share, with mobile networks having about 10-percent share.

How that might change as internet of things use cases proliferate is one issue. Maravedis, for example, believes that mobile platforms ultimately will have the largest share. Others believe low power wide area networks will do better than that, connecting perhaps 16 percent of IoT devices, while mobile networks connect some seven percent of devices.

That suggests most IoT devices will use other methods, such as Wi-Fi. That matters, in part, because it means most IoT connections might not increase the amount of revenue earned by access providers in a direct way.

source: Maravedis

source: Analysys Mason  

Short-range connection technologies will continue to represent the overwhelming percentage of internet of things connections through 2022, Ericsson predicts.

source: Ericsson

As Big as it Seems, Mobile Industry is Shrinking

Many observers, and many other parts of the internet ecosystem, believe and act as though the "telecom" or "mobile" industry is a powerful, dangerous gatekeeper. Ironically, those views come at a time when the mobile industry arguably has past its peak, in terms of industry revenues, and faces huge challenges that likely will lead to most suppliers leaving the market (being acquired, for the most part).

Some will see such consolidation as a sign of growing power. In actuality, such moves will highlight industry stress.

We now are five years past “peak revenue” for the global mobile business, some would argue.

Virtually all analysts who follow revenue and profit trends in the global telecom business will agree that, despite growth in some regions, at a global level revenue and revenue growth have become key issues. Indeed, revenue is the paramount industry issue, heading into the 5G era.

The signs are quite evident. Operator average revenue per user is declining, globally.

Competition is one reason. Over the top product substitution is another source of pressure. Regulatory intervention such as caps on retail and wholesale voice and data charges and on mobile termination rates also are an issue.

source: Juniper Research

There are other issues, though. As always seems to be the case, later users tend to spend less than earlier adopters. That puts pressure on overall ARPU.

The decline in certain regions is exaggerated because of the depreciation of local currency bundles against the dollar (eg in Latin America and Europe) as well.

Using 2015 as a  baseline, Juniper argues that while subscribers are expected to increase by 1.24 times their 2015 value by 2022, over the same period global ARPU is expected to fall to less than 75 percent of its 2015 value.  

Total revenue--not just ARPU--also is declining. Using 2012 (the year revenues peaked) as the baseline, by 2016 alone revenues have fallen to just 88 percent of peak values.

Also, mobile  operator revenues from international mobile roaming are expected to experience an 11% decline in 2017  in key markets including Europe, North America and Asia, Juniper argues.

Mobile roaming annual revenues, worth an estimated $54 billion in 2016, will decline to $48 billion in 2017.

We are 5 Years Past "Peak Mobile"

We now are five years past “peak revenue” for the global mobile business, some would argue.

Virtually all analysts who follow revenue and profit trends in the global telecom business will agree that, despite growth in some regions, at a global level revenue and revenue growth have become key issues. Indeed, revenue is the paramount industry issue, heading into the 5G era.

The signs are quite evident. Operator average revenue per user is declining, globally.

Competition is one reason. Over the top product substitution is another source of pressure. Regulatory intervention such as caps on retail and wholesale voice and data charges and on mobile termination rates also are an issue.

source: Juniper Research

There are other issues, though. As always seems to be the case, later users tend to spend less than earlier adopters. That puts pressure on overall ARPU.

The decline in certain regions is exaggerated because of the depreciation of local currency bundles against the dollar (in Latin America and Europe) as well.

Using 2015 as a  baseline, Juniper argues that while subscribers are expected to increase by 1.24 times their 2015 value by 2022, over the same period global ARPU is expected to fall to less than 75 percent of its 2015 value.  

Total revenue--not just ARPU--also is declining. Using 2012 (the year revenues peaked) as the baseline, by 2016 alone revenues have fallen to just 88 percent of peak values.

Also, mobile  operator revenues from international mobile roaming are expected to experience an 11% decline in 2017  in key markets including Europe, North America and Asia, Juniper argues.

Mobile roaming annual revenues, worth an estimated $54 billion in 2016, will decline to $48 billion in 2017.

The point is that we now are past the peak of the human-driven mobile services product life cycle.

How Big a Gamble are 5G Networks? Big.

Just how big a gamble are 5G networks? Big, according to Juniper Research. “Unlike 4G, there is no discernable use case that will encourage operators to roll out 5G networks,” Juniper says.

Beyond that, in the early going, most of the 5G revenue might well come from customers replacing 4G accounts with 5G, with some revenue lift, but no net increase in subscriptions.

So great is the risk that private investors might not make the move to 5G without subsidies. “Juniper anticipates that increased investment from governmental bodies will be needed to encourage the development of these networks, with the exception of North America.”

Juniper Research forecasts that total operator billed 5G revenues will rise to $269 billion by 2025, from $850 million in 2019, the anticipated first year of services. That represents a 161 percent compound annual growth rate over the first seven years of 5G services.

What that portends, in terms of new service revenues, is unclear, as most of that revenue will come from 4G customers switching to 5G, with no automatic net gain in revenue or accounts.

Juniper “anticipates that the majority of acquired 5G connections will be users upgrading from 4G connections.”  For that reason, Juniper does not expect an increase in the number of the active subscriber information modules (SIMs) from the introduction of 5G networks.

Juniper  predicts that 66 percent of all 5G operator-billed revenues will come from North America the Far East and China by 2025.

At least at first, Juniper believes mobile operators will charge a premium over 4G for 5G services.

Also, early adopters will tend to be those customers who spend the most, each month.

So in  the early years, the actual numbers of connected subscribers will be very low, Juniper suggests.

Those projections, it can be argued, miss the impact of services sold to non-human devices, which many believe represents most of the opportunity for incremental revenue, beyond new opportunities for fixed wireless services.

Verizon Counts on Millimeter Wave to Lead 5G Capacity Race

Verizon is not the only tier-one mobile service provider pushing fast into 5G. But it has very-specific reasons for wanting to do so. Having been the first U.S. mobile provider to launch the Long Term Evolution 4G network (Sprint earlier had opted for WiMAX), Verizon now finds it has pushed revenue opportunities just about as far as it can with 4G.

Verizon, additionally, given its large subscriber base, is generally recognized to be capacity challenged, in terms of spectrum assets, compared to other key competitors who have more spectrum and fewer customers.

So Verizon has huge motivation to lead in 5G, both to crank up revenue opportunities and also to add capacity that, in the U.S. market, will come from new millimeter spectrum of various types.

And Verizon arguably has a lead in such spectrum resources, in some cases. That especially is true for millimeter wave assets.

Still, in the 4G area, Verizon is capacity constrained at the moment, and seems to be angling for dominance in 5G assets instead.

source: Fierce Wireless

T-Mobile US, citing new tests conducted by Ookla, says its network in early 2017 now is faster than Verizon’s, after essentially being in a tie with Verizon in 2016. T-Mobile US also says its 4G network coverage now is better than Verizon’s LTE coverage as well.

That poses a “brand promise” problem for Verizon, which always has claimed to have “the best” network.

source: T-Mobile US

source: T-Mobile US

Enterprise Executives Have High Hopes for IoT

Though of course we might all be wrong, and enterprise managers with us, enterprise internet of things almost uniformly believe IoT will improve service operations, increase visibility into operations, enable new business models, and create new product and service offerings.  

Boeing workers now use IoT wearables and augmented-reality tools on wiring-harness assembly lines, which has resulted in up to 25 percent improvement in productivity, McKInsey reports.

Some 98 percent of executives surveyed by McKinsey reported that most companies within their industry include enterprise IoT initiatives in their strategic road maps.

Also, 92 percent of survey respondents believed IoT would have a positive impact over the next three years, either by improving operations or by allowing companies to develop new products with embedded IoT capabilities.

Some 62 percent of respondents believe that enterprise IoT’s impact will either be very high or transformative.

But just 48 percent said that company leaders either strongly supported or were directly engaged in IoT initiatives.

When asked which department would benefit most, 40 percent of survey respondents cited service operations and 30 percent chose manufacturing.

For service operations, respondents believed that enterprise IoT would produce the most value in three areas: diagnostics and prognostics, predictive maintenance, and monitoring and inspection.

In manufacturing, the top use cases were resource and process optimization (for instance, improving yield, throughput, or energy consumption), asset utilization, and quality management.

source: McKinsey

Is "Telecom" a Stable Segment of the Equity Market?

One way of looking at the traditional telecom segment of the total public market is that it is, in some ways, too small to constitute a “sector” in its own right, like transportation, industrials or health care, especially when considered on a “single country” basis.

Consider the U.S. market, which essentially consists of AT&T, Verizon, CenturyLink, T-Mobile US, Sprint, and a handful of other firms with significant market capitalization.

Some funds include a wider basket of companies, on a weighted basis. But most of the market value is driven by a handful of firms. Verizon, for example, has a market cap of about $177 billion. AT&T has a market cap of about $223 billion.

CenturyLink has a market cap of about $13 billion. Sprint is worth perhaps $35 billion. T-Mobile US is worth about $50 billion.

Comcast is valued at about $186 billion, but the access business is valued at perhaps 61 percent of that, or perhaps $113 billion. Charter is worth about $92 billion.

The point is that including fixed network, mobile and cable TV providers as a single market, nearly all the market capitalization is held by seven firms.

Going forward, we might expect not only further consolidation, but also a shift in revenue towards “applications” revenue (video entertainment networks, studios and enterprise apps related to internet of things). At least for the moment, it does not seem that truly-significant additional market cap will be generated by cloud computing or hosting, devices.

Equity analysts often follow a larger basket of firms and industries called “telecommunications, media and technology.” That might not only offer enough diversification to create a more-stable “segment,” but also likely represents the future of the former “access” segment as well.

Provider	Market Cap
AT&T Inc.	223.049B
Verizon Communications Inc.	177.796B
CenturyLink, Inc.	12.577B
Shenandoah Telecommunications Company	1.421B
Consolidated Communications Holdings, Inc.	0.9B
Frontier Communications Corporation	1.1B
Cincinnati Bell Inc.	0.7B

Trunking Fiber Decisions Now More Complicated

For the most part, fixed network internet service providers rightly have focused on access bandwidth (what is delivered to the end user or customer), and based distribution network decisions on what is necessary to deliver bandwidth at the network edge. For most legacy telcos, that has meant more fiber to home or fiber to curb (fiber deep, the only question being “how deep?”).

Cable operators, assuming use of copper media as the end-user connection, mostly have focused on ways to drive more fiber into the network, but without going “all fiber.”

As the need for small cells has become clear, all ISPs are asking different questions. Even if all trunking network decisions still are based on assumptions about end user bandwidth, the decisions are more complicated.

Even if all assume consumption is going to keep growing, at faster rates than in the past, so that both access bandwidth and trunking resources must increase, there now are more ways to supply that demand.

In some markets, the mobile network remains the “only” way to supply most of the demand. In other markets both fixed and mobile networks are potential suppliers. In a few markets there also are alternative facilities (cable TV networks), in addition to mobile and fixed. Also, 5G will add another option--fixed access--from the mobile platform.

In recent years, the ability to offload traffic from mobile to Wi-Fi access has been crucial. Going forward, the range of choices will grow. And that means more decisions.

Cable operators, for example, long have believed their distribution networks, and even consumer bandwidth, would become more valuable in the small cell era.

In part, that is because they can use their existing networks to support Wi-Fi access to mobile services.

Also, the thinking has been, the hybrid fiber coax networks have significant bandwidth available at the edge that could prove useful for supporting new small cells beyond consumer users at home. How the market develops, and how soon, will determine the extent of that value.

In principle, cable operators could provide wholesale trunking services for small cells, to third parties. Just how effective that strategy could become will be determined by where small cells are needed, the bandwidth those small cells must support, and how many such sites are needed.

The best scenario for a cable operator is “lots of small cells, but relatively light bandwidth demand,” as that supports maximum reuse of already-deployed capacity. The tougher scenarios are “high demand, few locations,” as that business case means potential customers can afford to  install new trunking fiber directly.

A similar sort of thinking now underlies the strategy Verizon uses to deploy its distribution fiber. The “One Fiber” architecture assumes a single trunking network that supports small cells, enterprise customers and consumers with gigabit bandwidth services, both fixed and mobile.

The difference is that the immediate driver is “fiber deep” trunking to support small cells (potentially many), that also has enough spare fibers to then support business customers. The small cell locations might then also be leveraged to support gigabit internet access for consumer customers, using radio drops.

Much depends on “how” that distribution fiber has been, or is, deployed. Extra dark fibers in cables will matter. The ability to use different colors of light will matter. The cost of overlaying new fibers will matter. The nature of demand (how many simultaneous users, for which apps) also affects thinking about the number of small cells, where they are located, and how much backhaul therefore is needed.

Up to a point, the more distributed, and the more numerous the small cells must be, the more optical fiber could be required. That is especially true for high-demand urban locations.

Beyond a certain point, highly-distributed demand means less need for distribution fiber.  In a very-highly-distributed consumption scenario (individual users in rural and many suburban locations, less fiber might be needed, since the density of demand is not so high, for any single user.

The example is gigabit 5G, as end user smart phones are among the best examples of highly-distributed consumption, but will be supported on a per-device basis at gigabit levels. In many use cases, the standard mobile network will suffice.

Similar observations can be made about consumer consumption at many home locations. Consumers who switch to Wi-Fi at home might mean ISPs are not required to deploy too much additional distribution fiber, beyond that needed to support gigabit fixed access.

The point is that decisions about trunking fiber arguably are more strategic than decisions about access fiber, since multiple “access” drops are feasible (coaxial cable, fixed wireless, direct use of the macrocell network.

Amazon to Federate All Other Messaging Domains?

“Anytime” by Amazon is a rumored new messaging app that essentially federates (makes interoperable) all other “friends” and groups. As was the case for email, it always has seemed inevitable that various messaging domains eventually would be unified (federated) so that anyone could reach anyone else, as is the case for email and voice.

If so, Anytime would appear to be the first to do so.

source: AFTV News

How Do You Get to 5G? Invest in Advanced 4G

Even if it represents the next-generation mobile platform, it is fair enough to point out that the constellation of new technologies 5G will build upon will in many cases be deployed to support advanced 4G networks.

In that sense, 5G builds directly on advanced 4G, in effect aggregating and reusing advanced 4G assets with a new 5G air interface.

Some observers will argue that “5G Evolution” networks already launched by AT&T are not really “5G.” It is in some ways a curious argument.

For starters, the name “5G Evolution” is proper: "evolution." All roadmaps for 5G, in fact, show that 5G will be built on precisely the technologies put into place for 5G Evolution, including LTE-Advanced technologies like 256 QAM, 4x4 MIMO, and 3-way carrier aggregation, all of which also will be used by 5G.

By the end of 2017, AT&T expects to deploy LTE-License Assisted Access and four-way carrier aggregation in certain areas of 5G Evolution metros. Those features also will be foundational for 5G networks.

source: Qualcomm

Small cells are also an important ingredient on our path to 5G, and AT&T is  installing small cells in Indianapolis. Those small cells use centralized RAN (C-RAN) architecture, allowing engineers to add capacity and improve efficiency for hundreds of cell sites quickly and simultaneously.

C-RAN is a key building block for AT&T’s software-defined network, which in turn is integral to 5G, and is part of the 5G Evolution plan.

The point is that 5G builds on advanced 4G, in a direct way.

When the 3GPP approved a “Non StandAlone” (NSA) version of 5G New Radio (5G NR specification,  the way was cleared for suppliers and mobile operators to deploy a version of 5G radio that uses the existing LTE packet core with a broader array of spectrum resources (legacy 4G and new 5G), including spectrum above 6 GHz, below 6 GHz and including LTE Unlicensed and Wi-Fi resources.

So  5G will use many different spectrum assets, aggregating all those assets (including 4G assets) and in early deployments. The air interface is 5G, but control plane functions and spectrum assets can leverage LTE-Advanced.

That is one way 5G will be introduced by building on existing 4G assets, aggregating LTE-Advanced assets with new spectrum resources, with the newer 5G air interface.

In that direct sense, 5G will build directly on advanced 4G.

How Much New Revenue Will 5G Produce?

One often hears forecasts of 5G revenue, as one used to hear estimates of “4G revenue” or “3G revenue.” Such forecasts must be considered in context, as much of the next-generation platform revenue simply cannibalizes last-generation network revenue. That is especially true in developed markets, where there is little actual account growth.

In most developing markets, the actual incremental impact of 5G will be disguised, as subscriptions continue to grow significantly, as do mobile data accounts. So revenue growth comes from multiple sources, not solely from 5G.

The other “moving part” is that average revenue per user and account is dropping, in most markets. Eventually, in all saturate markets, that will matter, possibly or probably reducing total revenue.

source: GSMA

source: Strategy Analytics

That noted, 5G--it is hoped--will create some amount of incremental new revenue as well. For U.S. mobile operators, the biggest immediate test will be use of 5G to support consumer internet access in fixed mode. The bigger boost in revenue is expected to come from robust internet of things deployments, but that will take some time.

Use of mobile networks for fixed access has not been a viable business case in the past, but will be possible with 5G, in part because speeds will match fixed offers, in part because the cost of supplying “fixed network equivalent usage” will be possible at prices that also are comparable to fixed access prices.

The other attraction is that average revenue per location for a fixed account is virtually always higher than the ARPU for a mobile line, though not for some shared accounts.

The point is that 5G will produce some incremental new revenue, from new sources. But not all 5G revenue is “new.”