Carrier Wi-Fi, Shared Spectrum Change Use Cases, Business Models

Carrier-grade Wi-Fi and spectrum sharing provide different value to actors within the ecosystem, changing the boundaries between private and public networks in new ways.

For mobile service providers, carrier-grade Wi-Fi mostly will be a way to incorporate unlicensed local networks as a core part of mobility infrastructure. Best-effort Wi-Fi mostly will remain a way to offload traffic from the mobile network.

For cable TV operators, carrier-grade Wi-Fi is a way to reduce the costs of entering the mobility business.

For business, government and other organizations, spectrum sharing will create new options for supporting private mobile networks that essentially compete with Wi-Fi as a local and private network platform.

Some entrepreneurs will see ways to create new wholesale venue communications businesses, offering indoor coverage to mobile service providers.

Fixed wireless internet service providers will see spectrum sharing as a way to remain relevant as bandwidth demands rise far above the traditional capabilities possible with legacy spectrum.

And a few large and well-heeled application and transaction providers might see new opportunities to build new access networks that better support their advertising, subscription or transaction business models.

Since the advent of the competitive era in telecom, and the rise of computing as a core use case, a distinction between “public” and “private” networks was created. In the consumer space, the “private” network is house wiring. In the business and enterprise space, private means the indoor or campus local area network.

In the 5G era, there will be additional changes. For the first time, enterprises and organizations will be able to create private mobile networks using 4G or other air interfaces. Such private networks might be used to support sensor networks or improve indoor coverage.

Speculation about the ultimate roles of private and public networks--especially the possibility that private networks might one day challenge public network roles--has bubbled up periodically over the past two decades.

Current practice suggests private networks increasingly act as extensions of the public network, though. That has been the case for mobile traffic offload (smartphones using Wi-Fi, as the best case).

With the rise of carrier-grade Wi-Fi and sharing mechanisms (the ability to aggregate mobile and Wi-Fi or other unlicensed spectrum), there is an important but slight shift of Wi-Fi roles. Essentially, Wi-Fi becomes core mobile network infrastructure, even if not owned or operated by any specific mobile service provider.

source: PwC

The ownership of assets might remain, but the use cases shift. There are some new revenue implications. If most of the value provided has an indirect revenue driver, there are some new direct revenue options.

source: PwC

Some venues might be able to provide wholesale access to any commercial mobile service provider, on the model of multi-tenant distributed antenna systems.

But one aspect of each use case does not change too much: private networks tend to be non-revenue-generating; public networks have to generate revenue. In common parlance, private networks provide valuable features at no incremental cost; public networks provide revenue-generating services.

Private networks always have indirect revenue or value models. The private networks are business infrastructure, not direct revenue sources in themselves.

That is true no matter what part of the network we discuss: in-home or premises “local” networks; access networks; metro facilities or long-haul assets.

Google and Facebook own and operate their own undersea networks because it provides more value, and is cheaper, than buying access on public networks. Consumers, organizations and businesses run their own Wi-Fi networks to connect users and devices to public networks.

In some cases, app providers and others also run their own access networks, generally as a complement to public facilities (providing access in high-traffic areas that boost use of their apps), but sometimes also to prod public carriers into boosting investment in access capabilities.

Most metro networks focused on business customers try, when possible, to build their own facilities. Sometimes organizations, governments or businesses also create and operate their “own” metro transport networks as well, for internal use.

In the long-distance undersea and terrestrial networks, perhaps half of all internet traffic actually runs over private networks, not public networks.

Carrier Wi-Fi represents a different business model than traditional “best-effort” Wi-Fi. One also can argue that carrier-grade consumer internet access represents a different business model, as well, a fact well understood by partisans on both sides of the network neutrality debate.

Broadly speaking, best-effort Wi-Fi is a mobile offload use case. Carrier-grade Wi-Fi is an “extend the network indoors” use case.

source: PwC

As Important as SD-WAN is, It Will Remain a Niche Market for Service Providers

With the caveat that it likely represents the future of most enterprise long-haul transport revenues, the SD-WAN market is a specialist segment of the market, very much akin to unified communications. It is important for enterprises and suppliers to enterprises.

It is a fundamental product for sellers of long-haul enterprise networking capacity. But the global SD-WAN market is rather a smallish part of total spending on public network communications services.

As for how big a revenue stream SD-WAN might eventually represent, just assume it displaces most of the present MPLS market.

source: Aryaka

For long-haul business connectivity providers, SD-WAN is as important as MPLS is, and private line used to be. As the humorous adage goes, "it may be a one-trick pony, but it's a good trick."

source: IHS

source: ITBrand

source: Transparency Market Research

Can Voice Input Become a Platform?

Voice now is a growing consumer interface; a rival method for search and e-commerce; an input method replacing keyboards and screens. Whether voice input becomes a platform, and how that platform gets monetized, is among the next set of issues.

source: eMarketer

What 5G Fixed Wireless Means to Verizon

As it looks to launch 5G fixed wireless service out of region, Verizon seems convinced that video services are an important part of the value proposition. Among U.S. tier-one service providers, Verizon sees the greatest upside from attacking other fixed network service providers outside its core fixed network footprint.

There are obvious reasons. Verizon has the smallest fixed network footprint , and believes it can expand its network to reach as many as 39 million U.S. homes outside the core Verizon fixed network geography using 5G fixed wireless.

Comcast passes (can actually sell service) about 54 million homes. Charter Communications passes some 50 million home locations.

AT&T’s fixed network passes perhaps 62 million U.S. homes. Verizon, on the other hand, passes perhaps 27 million locations.

What that means is that Verizon has a clear interest in using 5G fixed wireless to expand its addressable market by more than 35 million U.S. homes (up to perhaps 39 million) that it cannot reach today, giving Verizon a fixed network footprint that is comparable to its key rivals.

AT&T Now is a "Modern Media Company"

This slide from the AT&T quarterly earnings call tells you quite a lot about how AT&T sees itself, and how differently it sees itself from its past. AT&T is said to be “a modern media company.” The building blocks of that business include content, advertising, distribution networks and high-speed networks.

Sure, AT&T has business (enterprise) operations and assets in Latin America and Mexico. Its single biggest revenue generator still is consumer mobility. But all those assets are infrastructure to support content, advertising and distribution, AT&T now emphasizes.

source: AT&T

Honolulu

It’s summer, so I was reading the book Honolulu (really enjoyed it). The protagonist is a Korean picture bride, and my maternal grandmother was a picture bride.

That got me to thinking about when my maternal grandfather immigrated to Hawaii.

Here is the Port of Honolulu record of his arrival, in 1905, on the steamship Korea, at age 15.

He worked in the cane fields, like everybody else. Probably hated it, like everybody else. 

Eventually he became the now stereotypical Korean corner grocer (some things do not seem to have changed much). 

Grandma met him for the first time on the docks. 

"People" Versus "Households" Can Make a Huge Difference

Fewer people in the U.S. market subscribe to linear video subscription services than in the past, that is clear. But there are some possible subtle qualifications worth noting. Traditionally, linear video subscriptions were purchased by “households,” much as traditional voice services were purchased.

Over-the-top subscriptions are purchased by people, as are mobile subscriptions, the key import being that the universe of potential OTT video subscriptions is far larger than the potential universe of linear video accounts.

So comparing OTT subscriptions and linear video accounts is not exactly an “apples to apples” exercise.

Overall, 186.7 million U.S. adults will watch linear TV (cable, satellite or telco) in 2018, down 3.8 percent over 2017, according to eMarketer. Whether that corresponds in a linear way to subscriptions is not so clear, since most U.S. households are multi-person.

According to eMarketer, the number of cord-cutters (adults “who have ever cancelled pay TV service and continue without it”) will climb 32.8 percent in 2018 to 33.0 million. Again, it is a nuance, but if a single household with three residents “drops service,” it is conceivable that the number of people reporting they are cord cutters is three, not one.

source: eMarketer

Headline Numbers on Linear Video Hide Other Trends

By now, nobody is surprised to hear that linear video subscriptions continue to drop or that over the top subscriptions are growing. In aggregate, there are more U.S. paid streaming accounts than linear accounts in service.

Net changes in revenue and accounts are harder to describe, as every quarter and year, some new accounts are added on both linear and streaming ledgers, partly because of churn (customers switching providers), sometimes because of moves (accounts are cancelled at one location but possibly added at another location), temporary suspensions.

In fact, linear revenue might actually be growing, even as accounts dwindle.

Netflix has some 55 million U.S. accounts, while Amazon Prime has some 90 million subscribers. All the largest linear video providers together have about 92.2 million accounts.

But since linear subscriptions represent many times more revenue than a typical linear video subscription, revenue losses are happening, even for firms such as AT&T that sell both linear and streaming video, and even when the net change in streaming accounts offsets the loss from linear accounts.

source: Statista

Total revenue is another story, as monthly subscription revenue earned by a linear account can be an order of magnitude greater than the revenue from any single OTT streaming account.

source: Ovum (Informa)

Among the bigger issues is the rate of decline of linear subscriptions, which seems to be accelerating. Net changes (including new accounts and customers switching providers) typically mean the gross losses are less than headline numbers might indicate.

In 2017, for example, the major U.S. providers lost about 1.5 million accounts, up from some 760,000 in 2016, according to Leichtman Research Group.

The big swing was that streaming services owned by the linear providers gained 1.5 million accounts, nearly the amount lost by the two satellite services.

In that case, the net losses by linear providers were about zero, even if the switch was from higher-revenue linear to lower-revenue streaming accounts.  

source: cg42

source: UBS

For Regulators and Suppliers, Competition and Investment are Inversely Related

Communications regulators and service providers always face a cruel tradeoff: over the long term, investment that boosts revenue tends to be inversely related to the amount of competition.

So regulators always face policy tradeoffs. Regulators can emphasize investment or competition, but arguably not both--at high levels--equally and simultaneously. Up to a point, competition creates incentives for investment. But only up to a point.

The reasons are obvious enough. If regulators take a wholesale-based approach, with one network serving all retail providers, the facilities provider’s incentives to invest are limited by government policy. By definition, all retail providers get access at the same rates and terms and conditions. So, as competition increases, incumbents who generally build the wholesale facilities lose ever more market share.

Facilities-based competitors find that incentives to invest increase as the number of competitors is effectively limited (by merger, less wholesale market entry), since contestant market share increases. And that means higher gross revenues and generally higher profit margins.

Also, investment in internet access facilities is something of a zero-sum game.

Internet access providers long have known that there is no linear relationship between data consumption and revenue earned for providing that access. On the other hand, there is a somewhat linear relationship between cost per bit and data consumption.

New data from the U.K. Department for Digital, Culture, Media & Sport shows that although mobile customer spending on mobile internet access is roughly flat between 2012 and 2016, data consumption and cost per bit show a relatively inverse and linear relationship.

As mobile data consumption increased by an order of magnitude over those years, the cost per bit dropped by an order of magnitude.

The business model implication is clear: increasing end user data consumption does not lead to revenue increase.

source: Department for Digital, Culture, Media & Sport

How Many Gigabit Networks in U.K. Market?

Where facilities-based fixed communication networks compete, business models always are contingent on market share. Where just two equally-skilled and financially-endowed contestants face each other, it is reasonable for each competitor to expect take rates of 50 percent, on a network that passes every location.

That strands half the invested capital in the access network. In practice, since adoption is never 100 percent, the addressable market theoretically is less than 50 percent for each supplier.

Additional competition reduces the potential market share yet further. In the U.S. market, some 20 to 30 percent of households already are mobile-only for internet access, reducing the potential share for two competitors to no more than 40 percent each.

source: Deloitte

Mobile substitution also will, in the 5G era, vastly complicate the fixed network business model. “The distinction between fixed networks and mobile networks is increasingly being eroded,” the report says. “In some places 5G could provide a more cost effective way of providing ultra-fast connectivity to homes and businesses.”

Such substitution already has happened for consumer voice, and consumer internet access and subscription video are the next big areas of potential shift.

That poses further threats to the fixed network business model, as potential market share will will even further in the direction of mobile platforms.

In the U.K. market, for example, BT’s network passes nearly every location, but BT itself has about 37 percent market share, according to a new report by the U.K. Department for Digital, Culture, Media & Sport.

Wholesale customers on the Openreach network include Sky (24 percent share), TalkTalk (12 percent) and smaller providers. There also are some facilities-based providers operating on a localized basis.  

Virgin Media is the primary facilities-based competitor and has 20 percent market share, while passing a bit more than half of U.K. households. It might not be unreasonable to argue that Virgin will be the first operator to offer gigabit internet access at scale, as a disproportionate share of UK. customers with faster speeds are on the Virgin network.

Housing density is the other key variable. About a third of U.K. households are in areas dense enough that as many as three competing gigabit networks can be built. That logically includes the Openreach, Virgin Media and one additional competitor on a local basis.

Perhaps half of U.K. households might be in areas dense enough that two gigabit network providers can survive.

About 20 percent of homes are in low-density areas where only a single network is likely to be possible (subsidized or not).

So the study sees three basic deployment scenarios. In areas representing 80 percent of U.K. homes, two or more gigabit-capable networks are possible. That includes larger cities and towns.

Other, less dense areas might support only a single network. That might include about 10 percent of all U.K. homes.

Very rural areas, representing about 10 percent of homes, will need subsidies to support building of a single new network.  

The big unknown is the degree of mobile substitution, which will make the business case for fixed networks tougher.

35% of U.S. Hispanic Households are Mobile Only for Internet Access

Mobile substitution, long a feature for voice services, now is a growing reality for internet access. According to CTIA data, 20 percent of U.S. households rely exclusively on their mobile devices for internet access, up about 54 percent from 2015 levels.

That trend is even more pronounced in Hispanic households, where 35 percent of smartphone users rely solely on mobility for internet access; lower-income households and younger households.

source: CTIA

Bundling or Tying is at Heart of EC Charge Against Google (Always Is)

The European Commission argues that by tying use of the Android OS and Google Play to a phone supplier's offering of Google's search engine and browser, Google quashed potential competition. 

But many would argue Android is not a monopoly. There are other choices, aside from Android and the iPhone OS. But few end users or phone manufacturers have chosen to use those alternatives. Tying or bundling always raises issues, though. 


source: Statista 

Will Autonomous Vehicles Increase Video Consumption?

Executives at AT&T seem certain that new video screens are going to emerge as passengers start spending more time in autonomous vehicles. The argument is that if people are riding, but not required to drive, then video viewing time might well increase beyond present levels.

The biggest potential changes might come from people with long commutes, though even users of autonomous or even ridesharing vehicles for shorter trips around town would logically become potential new audiences.

Consumer behavior still is a barrier for subscription-based or pay-per-view approaches. Consider an airliner a ridesharing vehicle. How many passengers do you notice buying a video entertainment service during the flight? Not many.

Ad-supported content obviously will have a bigger potential audience, and especially for ridesharing services, rather than auto owners. The immediate problem is that the economics of substituting ridesharing for auto ownership, in most parts of the United States, do not exist.

Using Uber or Lyft (or a taxi) for episodic travel often makes more sense than renting a car. What is not yet clear is whether it will soon make sense to use ridesharing instead of owning a car, in some instances.

It probably is easy enough to argue that car ownership still makes more sense, financially, than full time ridesharing for most families and individuals, in most areas of the United States.

Some attempt to include “cost of your time” in calculating the benefits of ridesharing, compared to car ownership, but most of us cannot name another individual who really would consider that value in trying to assess ridesharing versus auto ownership.

Assume the cost of most Uber or Lyft rides is about $2 a mile. Assume you really need to move about 12,000 miles a year. The ridesharing might then cost about $24,000 a year. The Internal Revenue Service uses a figure of $0.545 per mile for use of autos for business purposes.

So owning a vehicle and using it 12,000 miles a year represents about $6,540 a year (including depreciation of the vehicle, insurance and operating expenses, but not parking).

At such rates, ridesharing represents out of pocket costs about four times higher than owning a vehicle.

So while many of us would consider ridesharing as a full alternative to auto ownership, the economics do not yet work, for people who live in suburban areas, or even in many urban areas other than New York or San Francisco.

There are Limits to How Much Mobile Data People Want to Consume

As much as connectivity is untethered and mobile; as important as internet apps now are in the mobile value proposition; as much as consumers keep increasing their data consumption, we tend to vastly underestimate consumer behavior as a moderating influence on mobile data consumption.

An analysis of mobile tariffs and mobile data consumption by Tefficient found only a weak correlation between average revenue per user and data usage, for example.

That is not what one might expect. The analysis shows that, in most countries, mobile data consumption is 3 Gbytes per month, or less, no matter whether overall recurring charges are high or low.

That seems to fly in the face of both economics and the Tefficient data, which also shows that mobile data prices and usage are directly correlated (high price leads to low usage; low prices lead to high usage). So something else is at work.

source: Tefficient

Among the logical explanations for those findings are that mobile subscriptions represent a bundle of features, including messaging, voice, device rental, plus possible bundling with other services (fixed network voice, fixed network internet access, mobile or fixed video subscriptions) that affect unit cost. So mobile data is one of many determinants of retail recurring costs.

Also, Wi-Fi offload plays a role, representing a majority of mobile device data access in many markets. End user behavior also matters, as it seems people use mobile data in different ways than data used while stationary (at home or at work).

source: Tefficient

Still, the Tefficient data suggests even at low prices, people only want to do so many things, or spend so much time, on mobile internet apps. And that is reflected in mobile data usage.

Ironically, the one development that changes the overall usage curve is the use of 5G platforms to supply fixed access.