IoT Success Might Typically Require Moving Up, Down the Stack, or Both

How big is IoT? Big. According to GSMA analysts, some 7.6 billion IoT connections (mobile and non-mobile) were in service in 2017.

The complication, for communications service providers, is that the vast majority of those IoT devices are connected by unlicensed radio technologies, designed for short-range connectivity (Wi-Fi, Z-Wave and Zigbee). That might be quite as true for some future IoT apps (autonomous vehicles, for example). Still, the point is that most future IoT connections might generate zero incremental revenue growth for connectivity providers.

And for many connections that are net additions, annual revenue might be quite low.

Mobile network IoT connections might grow from 600 million connections in 2017 to 3.1 billion in 2025. That might represent 12 percent of mobile accounts. And 60 percent of those might require mobility, while 40 percent are fixed, GSMA argues, using either NB-IoT or  LTE-M.

Of total IoT ecosystem revenues, 66 percent might come from platforms, applications and services. Professional services will grab another 27 percent. That leaves about five percent for connectivity services, declining from 10 percent today.

That is the reason many argue connectivity providers will have to move up or down the stack to capture more of the IoT revenue growth. That is the same strategy chip, device, app and platform providers will be employing, as well.

The bottom line is that IoT might require most would-be major players to move up, down, or up and down the stack.

source: GSMA

Verizon Fixed 5G Strategy: Attack Out of Region

Verizon’s strategy for its 5G fixed wireless platform is fairly clear, so far. In its announced first four cities--Indianapolis, Houston, Los Angeles and Sacramento--Verizon is attacking out of its fixed network footprint, and therefore will be competing head to head with AT&T, Comcast and Charter Communications.

One obvious objective is to grow revenue and accounts the “old fashioned way,” by taking market share away from incumbents who already have those accounts, in the fixed network internet access business.

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.

Does Better Internet Access Cause Rural Economic Growth?

A new examination of the correlation between internet access and unemployment, income and employment in rural U.S. areas finds no correlation. That matters because any government program to expand internet access availability is based on the fundamental assumption that internet access “leads to” or “causes” economic growth.

On the other hand, there is a subtlety: there might be a correlation (not causation, though) between use of internet access and economic growth.

So one researcher argues the focus should be on spurring adoption by people who do not use the internet, rather than a focus on increasing internet access availability in  “underserved areas” as such.

That actually is a rather non-controversial observation, as many observers have noted that teaching people how to use the internet, and why it is useful,  is among the keys to spurring use of the internet by the the last 15 percent to 20 percent of non-users.

What we need is “a nuanced approach to broadband policy that is targeted to those individuals who have not adopted broadband Internet,” according to Will Rinehart, American Action Forum director of technology and innovation policy.

For people to benefit from the Internet, they need to use it, not merely have access to it. Yet, the trend in policy is toward expanding broadband networks, not promoting their adoption. The best mix of policies will certainly vary depending on local needs, but the key to helping local economies is getting more people connected to the Internet, not merely increasing availability.

“Broadband access is not correlated with economic growth, although broadband adoption is,” he says.  

The “percentage of the population with access to 25 Mbps down/3 Mbps up broadband “doesn’t explain the unemployment rate, median household income, the change in employment, or the rate of population change in rural regions,” says Will Rinehart, American Action Forum director of technology and innovation policy.

An analysis using the 4 Mbps down/1 Mbps up standard also shows no connection, he says.  “This analysis calls into question whether the 25 Mbps download and 3 Mbps upload metric, the older 4 Mbps download and 1 Mbps upload metric, or any availability standard for that matter, provides a reasonable understanding of the underlying economics of rural communities,” says Rinehart.

Cable Gets 100% of Net Internet Access Accounts in 2Q 2018

The largest cable and telephone providers in the U.S., representing about 95 percent of the market, acquired about 455,000 net internet access subscribers in the second quarter of  2018, compared to a gain of about 235,000 subscribers in the second quarter of 2017, according to Leichtman Research Group.

These suppliers providers now account for 97.1 million subscribers. Cable companies have 62.9 million subscribers, while telephone companies have  34.2 million accounts.

As has been the case in recent years, cable is getting virtually all the net additions. Telcos have had net account losses in each of the past nine quarters. A great percentage of the losses over that period have come at Frontier and CenturyLink. AT&T and Verizon sometimes gain, sometimes lose, but at a rather low rate, either way.

The top cable companies added about 585,000 subscribers in 2Q 2018, compared to about 465,000 net adds in 2Q 2017.

Telephone companies lost about 130,000 subscribers in 2Q 2018, compared to a net loss of about 230,000 subscribers in 2Q 2017.

Broadband Providers	Subscribers at end of 2Q 2018	Net Adds in 2Q 2018
Cable Companies
Comcast	26,509,000	260,000
Charter	24,622,000	267,000
Cox	5,020,000	20,000
Altice	4,082,100	9,500
Mediacom	1,251,000	23,000
WOW (WideOpenWest)	747,800	3,900
Cable ONE	653,876	2,326
Total Top Cable	62,885,776	585,726
Phone Companies
AT&T	15,772,000	(3,000)
Verizon	6,956,000	(10,000)
CenturyLink	5,506,000	(89,000)
Frontier	3,863,000	(32,000)
Windstream	1,006,700	2,300
Consolidated	786,787	1,557
Cincinnati Bell	310,500	(400)
Total Top Telco	34,200,987	(130,453)
Total Top Broadband	97,086,763	455,183

source: Leichtman Research Group

Can Charlie Ergen Do it Again?

John Chambers, former Cisco CEO, is known for his belief that the technology business is about making transitions.

There are likely many observers who believe Dish Network cannot make another transition in its business model, as Comcast, Verizon and AT&T have done in the past. People sometimes forget (or never knew) that Charlie Ergen, Dish Chairman and also chairman of Echostar, has made at least a couple of business model transitions.

He started out in business selling personal earth stations, back before there was a direct broadcast by satellite business. That business of retailing television receive only dishes existed at a time when satellite TV programmers did not encrypt their signals, allowing any owner of a TVRO earth station to watch the feeds at no incremental cost.

That was declared lawful by the Federal Communications Commission in late 1979, allowing consumers willing to put up a 20-foot reflector to watch HBO, and eventually many other satellite-delivered channels, for free.

But programmers started encrypting their signals, killing the TVRO business. So in 1990 Ergen purchased satellite orbital slots, founding EchoStar in 1993, to support a new DBS service known as Dish Network,  that arose to supply satellite TV on a paid basis to subscribers, largely in rural areas.

In the intervening years Dish Network acquired Blockbuster, the chain of video retail outlets, and then continued to acquire other satellite assets, making bids for Hulu and Sprint as well as Clearwire. Those the Hulu, Sprint and Clearwire efforts did not result in a transaction, you can see the development of thinking about business model.

Separately, EchoStar moved into decoder manufacturing and also bought Hughes Network Systems, the supplier of satellite enterprise network services,  and consumer internet access.

Most recently, Dish has amassed, by acquisition and spectrum auctions, 5G spectrum assets that now represent the future of the company.

The point is that Ergen has made at least one major successful business model transition (TVRO to DBS), with a key diversification into satellite enterprise services and consumer internet access by satellite through EchoStar.

Ergen also has attempted to become a key player in streaming (Sling TV) and mobile services.

So it arguably is clear that Ergen has seen the need for a further business model transition out of DBS and into something else for quite a while. Some would say the 95 MHz of 5G spectrum now represents nearly the entire value of Dish Network, as the DBS business continues to shrink.

Many have believed that Ergen ultimately would simply sell the spectrum, rather than try and pull off yet another major business model transition. But at least some now believe Dish has no choice but to go ahead and build a narrowband internet of things network as the foundation for its next transition.

The reason is simply that no acquirer would be likely to get transaction approval before the deadline for building an operating network using much of the spectrum purchased at auction. That has to be done by 2020 or Dish (or any other owner) loses the AWS spectrum assets.

That buildout includes a stipulation that the network be active and reach about 70 percent of U.S. population in 2020.

So it now appears Dish will have to do so, spending perhaps $1 billion to create the narrowband IoT network as a first step. The actual revenue model has not yet been talked about (Dish could operate as a wholesaler to others who want to create a national NB-IoT network, or could sell at retail to enterprise customers.

Some likely continue to think Ergen will not be successful making that sort of business transition from video entertainment provider to mobile service provider. But skeptics believed cable TV operators would not be good at programming, or that AT&T would not be all that successful as a video retailer, or that AT&T cannot be competent as a programmer.

To be sure, some still might question some parts of those theses. But video suppliers have become competent providers of communication services, while telcos now are successful video subscription suppliers, and there is no reason to doubt, in principle, that a big video subscription services supplier cannot become a competent programmer.

Ergen has made big business model transitions in the past, and he might well do so again.

Fixed Network Substitution Might be a Prime Driver of Early 5G Revenue Gains

“The vision for 5G isn't merely to make mobile connections faster or more reliable, but to provide uniform ‘fiber-like’ broadband everywhere,” says analysts at Morgan Stanley. And that might be among the big differences between 5G and all prior mobile generations, along with virtualized network slices, edge computing, ultra-low latency and support for internet of things.

But 5G also is built to interwork with many other access and connectivity platforms, including 2G, 3G, 4G, WiFi and others. It is a network of networks.

And while every mobile platform has provided more bandwidth, 5G will boost speeds by an order of magnitude to two orders of magnitude, enough to become a functional substitute for fixed network access.

Ultra-low latency means 5G can become a new platform for traffic safety, critical infrastructure and industry processes. Also, 5G will need to support, and encourage, use of devices with battery lives as much as three orders of magnitude greater.

That noted, most mobile operators are going to be rational about their 5G investments, in part because revenue upside is generally believed to be limited. Only about a fifth of industry executives actually expect that 5G will increase revenues by more than five percent. Nearly a third of executives believe revenue will grow by less than five percent. And nearly a third believe revenue will stay flat in the 5G era.

The point, of course, is that observers likely expect legacy revenues to diminish, even as new 5G revenues ramp up. So net growth might be tough. In that regard, one of the easier “new revenue source” opportunities is the ability to grow revenues by taking market share away from fixed suppliers.

source: GSMA

Mobile Substitution is About to Explode

With the caveat that it often is not feasible, facilities-based competition in telecom often results in more innovation and differentiation than a “wholesale by a single facilities provider” approach. That might be especially the case as 5G is commercialized, as mobile platforms might be able to compete head to head with fixed networks on both retail price and capacity (speed and usage) metrics.

Often, that is because facilities-based providers often use different platforms (fixed wireless, hybrid fiber coax, fiber to home, satellite, mobile), with differing capabilities, “best use” cases, maximum bandwidth and retail pricing of bandwidth.  

Each of those networks has a rather distinct capabilities profile: satellite and mobile with the lowest cost per passing, but relatively high cost per gigabyte; FTTH with the arguably greatest amount of potential bandwidth, with the highest infrastructure cost profile;  HFC offering relatively lower cost facilities compared to new FTTH networks.

Fixed wireless has been most used in rural areas, but will become a more-significant factor in some markets as 5G fixed wireless is commercialized. On a localized basis, Wi-Fi offers the lowest end user cost (often free) but rarely, if ever, the highest bandwidth.

Among the best examples so far of how facilities-based competition leads to more innovation is the use of HFC by cable operators to supply more bandwidth than telco DSL and sometimes even FTTH, at lower infrastructure cost.

That is likely to be the case as 5G fixed and mobile wireless are commercialized as well.

“We believe that prevailing incentive structures will continue to push mobile network operators to invest heavily in their own infrastructure” in Australia, as an alternative to relying on the National Broadband Network, analysts at S&P Global Ratings say.

the design of all networks is converging: the idea being to get access traffic moved as quickly as possible to the optical backbone.

“Taken to its logical conclusion, fixed and mobile networks might only be distinguishable by the "last 100 meters," S&P argues. “Both will require fiber deep into the network.

In fact, assuming a small cell network has access to lots of unlicensed spectrum and millimeter wave assets, the actual architecture resembles a fixed network access architecture: fiber close to the customer and then final connection using some non-fiber means.

Even fiber-to-home networks convert signals from optical to electrical, with actual delivery using copper media (to a Wi-Fi router, perhaps), with direct links using wireless.

Fiber-to-curb and hybrid fiber coax networks are more directly analogous, terminating the optical network someplace close to the end user, and then using some other media (copper cabling, copper wire, fixed wireless or mobile access) for final delivery.

So as small cell networks are deployed, using either fixed wireless or mobile access, they will resemble HFC and FTTH very closely.

In all cases, the design objective is to get traffic off the access network (wired or wireless) and onto the optical backbone as quickly as possible.

Still, the use of rival platforms is likely to produce more innovation than would be the case if all competitors used the same platform.

What is the Business Value of a Network Slice?

What is the business value of a network slice, the ability to create an end-to-end virtual network with features optimized to fit particular use cases on a number of dimensions?  Network slicing is the logical partitioning of a physical network into independent virtual mobile networks.

So the issue is what value various mobile operators will see to creating a multi-tenant capability. Should that extend only to the operator’s enterprise customers, or should multi-tenancy also extend to enabling rivals (as traditionally is the case for network operators selling capacity to third party competitors who want to operate mobile virtual network businesses?

The easiest case, for a network operator, is using network slicing to better support its own retail customers.

For starters, network slicing implies the ability to tune the core network features to match different use cases.

An automated vehicle control network might emphasize ultra-low latency. An industrial internet of things network might emphasize low-bandwidth and infrequent communications.

A high-end consumer internet access use case might focus most on bandwidth. Health applications might value reliability and predictability above all else.

Existing consumer mobile and fixed network services are “one-size-fits-all.” That has operating and capital cost implications since most use cases arguably result in network resources being underused (stranded).

On the other hand, some use cases might require either high-bandwidth or low-latency, but not both. Some use cases benefit from higher levels of security; others are less stringent.

So network slicing offers the hope of more efficient networks that also can be customized, to an extent, to fit specific use cases.

Each network slice can be optimized to provide the required resources and class or service or quality of service to meet the diverse set of requirements for different use cases.

Source: CableLabs

There could be other far-reaching implications, however. What network slicing could mean is “multi-tenant” use of a fixed network access facility. In other words, it should be possible for multiple independent users (enterprises, app provider or service provider) to manage their own networks over the one physical access link.

Think of the ways mobile virtual network operators now provision network resources. To be sure, capacity will be sold wholesale in some way that relates to network usage (bandwidth, for the most part). Today, MVNOs pay their suppliers based on consumption (volume).  

With network slicing, other possibilities can be envisioned. Perhaps an MVNO buys a fixed slice of capacity and use (fixed or flat fee) and then is able to tweak functionality to match its expected use cases. This might be particularly useful for a specialized MVNO serving customers with special requirements (health apps and services emphasizing class of service protections).

Perhaps an autonomous vehicle network really wants ultra-low latency, above all, and builds that into its own slice.

Also, at least in principle, some entities could consider co-investment in fiber to home facilities that share one physical link but are partitioned into multiple virtual connections. That could be a substitute for today’s practice of buying standard capacity, with charging based on usage, and a new way to share infrastructure costs without sacrificing “control and differentiation” of network features.

Put another way, could network slicing be a new way of allowing multiple service providers to share the cost of access infrastructure? Traditionally, service providers have shared physical elements such as towers, radios, metro transport or access facilities. Sharing of towers and radios has been somewhat common, in some markets, and will be a feature of South Korea mobile 5G infrastructure, for example.

Nations with a wholesale approach to facilities have had one physical network supplier and then multiple retailers using that common infrastructure.

But network slicing in the 5G era could bring substantial changes. Perhaps network slicing creates a new way for mobile operators and others to share the costs of building networks, perhaps most obviously for the half of radio sites that typically carry only about 10 percent of traffic.

Since executives are likely to want to maintain full control over any elements of their business that provide customer-facing strategic advantages, one possible driver of network slicing is to use that technique to reduce the cost of coverage for up to half of sites that carry very little traffic, and then maintaining full control over the half of radio assets that represent those portions of the network carrying 90 percent of traffic.

As always, such practices might appeal most to non-dominant or smaller service providers, since the capex savings could be significant over the approach of building an entirely-owned network. Network slicing would save the costs of negotiating site leases, not simply the cost of facilities, for example.

While useful for traditional MVNOs, the advantages are even clearer for specialized vertical-oriented MVNOs operated by non-traditional providers, who might see network slicing as a way to source a full network, instead of acquiring capacity the traditional way.

Major app or service providers whose main business is not “general purpose communications might well see many advantages to doing so.

Different actors will have differing views of the value of such arrangements. Dominant providers with leading market share might continue to favor retail operations of their own, and favor network slices for enterprise customers running their own private networks, over enabling competitors in the retail general mobile service markets.

But in some markets, new entrants might envision market entry as resource brokers, with what is essentially a “wholesale-only” model, something quite rare in the mobile business so far. In the U.S. market, that might fit some suppliers such as the proposed network being built by Dish Network.

Were that network to become a sustainable operation (if the assets are not sold), it is conceivable the network could adopt a “wholesale only” platform, using network slicing or traditional methods to support retail customers.