Mobility as a Service Has IoT, Mobile, Smart City Implications

It is hard to envision any flexible, multi-mode transportation system supporting on-demand choice that is not based, fundamentally, on use of smartphones and apps. Nor is it hard to envision the role that could be played by smart city systems that contribute parking, congestion, transit schedules and price information, plus all available modes of transportation, right now.

You might argue that public transit and other for-hire transportation systems have been the full extent of Mobility as a Service (MaaS), primarily seen as a way of increasing public transit ridership and reducing traffic on the road. That might not be the case in the future, and that also will raise questions about investments in public transit , as use of public transit is falling in most major U.S. cities. In fact, ridership has been dropping for three years.

“The fundamental problem is that big-box transit--moving people in 60-passenger buses, 450-passenger light-rail trains or 1,500-passenger heavy-rail or commuter-rail trains--no longer works in American cities,” notes Randal O’Toole, Transportation Policy Center at the Independence Institute director.

So some argue that ridesharing and other new forms of transportation are part of the solution. And it goes without saying that such new forms of transportation will likely rely on use of smartphones and open data to enable real-time choosing of how to get from one point to another point, using all available means of transport.

source: U.S. Department of Transportation

In many parts of the United States, however, MaaS competes not with public transit, but with car ownership.  in 2017, consumer vehicles in service had reached a 64 percent penetration of the U.S. population, the highest of any country.

So in many cities and urban areas, users need to be convinced that MaaS is a suitable replacement for private car usage, not public transit.

Urban transport solutions in dense environments are easier to envision. In such cases, ridesharing, ridesourcing, use of bikesharing, other modes of conveyance, public transit and all other forms of on-demand transportation, integrated into a single platform, are conceivable.

Access to shared data platforms would allow users to determine the best route and price across several end-to-end travel services and modes, according to real-time data such as traffic conditions, time of day and demand, for example.

It is not yet clear whether MaaS reduces, increases or essentially simply shifts the total amount of traffic on city roads. Obviously, the hope is that MaaS could reduce traffic and pollution. But it is fair to say nobody yet knows what might happen if a fully-developed MaaS system were put into place.

New S&P Communications Index: 50% is Alphabet and Facebook

In December 2018, a major reorganization of the Standard and Poors Global Industry Classification System (GICS) will eliminate the “Telecommunication” sector of the system, and replace it with a new “Communication Services” sector whose biggest components--by equity value--will be Alphabet and Facebook.

And that, as much as anything, tells you how “communications” has changed, even if the move is prompted by other issues, such as the paucity of firms in the old Telecommunication index.

The communication sector will include stocks from the information technology,  consumer-discretionary, and telecom service provider areas. Alphabet, at 32 percent, will be the biggest entity in the index, followed by Facebook at 18 percent. Comcast, AT&T and Verizon will represent about eight percent each.

Disney and Netflix, at about six percent each, will also be in the index. But one might note that about half the value of the index is represented by Alphabet and Facebook.

source:  Ritholtz Wealth Management

source:  Ritholtz Wealth Management

Such numbers are among the reasons why many observers believe the old “connectivity revenues” business has to be augmented, in a powerful way, by involvement in new segments of the internet ecosystem. That is true for tier-one service providers in the retail business, but obviously might not be true for the many specialist roles within the connectivity business overall.

Such moves almost certainly will involve growth by acquisition, as organic growth alone will not suffice to replace perhaps half of all current revenue within a decade. In part, that is because legacy connectivity services revenues are flat or declining; in part because revenue per unit is declining; in part because those declines outpace the rate at which brand-new revenue sources can be created and grown, internally. Marginal cost pricing does not help, either.

Nor, in principle, can it be discounted that, eventually, connectivity providers will be potential acquisition targets themselves.  

Maybe Moore's Law is Not Dead

Moore’s Law, at least based on current technology, is slowing, most would agree. But some argue semiconductor technology could jump to a new curve, and thus sustain progress, if new designs, materials and approaches prove to be commercially viable.

So one cannot meaningfully assess whether Moore's Law is dead without specifying the conditions. Chips based on silicon will reach a physical limit. But other materials might replace silicon. Also, chip architectures can change. In other words, "how" chips and systems conduct computing can change.

And then there are tweaks such as creating specialized chips for specific purposes, or applying more-clever programming.

Also, many are working on ways to improve performance by using either custom designs or more-clever programming. In the past, nobody really bothered too much with those approaches because fundamental progress at the physical layer was prodigious.

In the past, silicon technology has driven Moore’s Law because components became smaller. But silicon-based approaches are getting near a physical limit of atomic size. “A Skylake transistor is around 100 atoms across, and the fewer atoms you have, the harder it becomes to store and manipulate electronic 1s and 0s,” scientists say.

So a growing constraint is the cost of manufacturing chips that are ever-smaller. That is one reason why GlobalFoundries decided to exit production of advanced processors, for cost reasons.

In that sense, commercial profit now is becoming a big issue. Intel recently has said that issues 10-nanometer fabrication would delay its shift to seven-nanometer production, for example. And some predict potential revenues for even-smaller chips will fail to cover investment costs. That is why GlobalFoundries got out of the business of making advanced processors.

Smaller transistors now need trickier designs and extra materials. And as chips get harder to make, fabs get ever more expensive.

In the future, to get Moore’s Law back on track, manufacturers will have to rely on new architectures and new materials. There is hope that human ingenuity can succeed. What matters is the economics of computing--its cost versus performance--rather than simply being a matter of physics and manufacturing costs.

source: The Economist

Will India Create Its Own Internet

Most things in life are complex. So it should come as no surprise that for every legitimate social or public policy issue, there are corresponding financial interests. That simply cannot be escaped.  Efforts to place obstacles in the path of firms such as Google, Facebook or Amazon are the result of concerns over monopoly, to be sure.’

But the opposition also comes from business competitors who hope to benefit, governments who fear their countries will once again be left behind as the internet ecosystem reaches its next stage, or that the economic benefits of leadership in any area related to advanced technology, computing, communications or applications will be concentrated in China and the United States.

That is the formal reason the Indian government will issue new policies to prevent foreign firms from dominating India’s internet ecosystem.

India, for a variety of reasons (huge internal market, developed state of its information technology industries) might be among the few countries that could hope to do so. India is big enough that it could effectively wall off its internal internet from the global internet, if it chose to do so.

That is why new rules on “privacy” also are weapons for countries that hope such measures will slow down the U.S. and Chinese firms.

Many worry about trade wars. This one is real, as viewed by many governmental leaders. There are legitimate public policy issues at stake, of course. But there also are perceived economic advantages at stake, as well.

India is among the few countries globally that could follow the Chinese model of walling of the global and open internet.

No Competitive Moats for Telcos, Cable,Satellite?

Financial analysts frequently do disagree about prospects for any particular public telecom, cable, satellite or other communications firm, as well as the suppliers to them. So it is not surprising that some are bearish on AT&T, Verizon, Vodafone and other tier-one service providers.

In a broad way, many could argue that business model changes now are starting to affect most telcos globally, even if there has been a growth divergence between developed market and developing markets for more than a decade.

The fundamental problem is market saturation, where it comes to all legacy services that drive revenue, leading many to predict a major wave of consolidation lies ahead, caused at least in part by spectacular change in revenue sources.

Much of that change is driven by changes in the value of access. At least some knowledgeable observers argue that massive consolidation, reducing the number of global tier-one carriers by about 90 percent is what some believe is coming.

One financial analyst worries because tier-one communications service providers appear to have no competitive "moats"  that protect it from competition.

Telcos, in fact, are considered low-growth dividend payers, but companies in low-margin, hyper-competitive industries tend to be risky payers that cut their dividends when times get tough, some argue.

Telcos also are not "future proof,” with business models impervious to disruption by technology or substitute products and revenue models.

Some say “safe” firms and industries have demand for the underlying products that is growing or at least very stable.

Safe dividend-payers also should pay out a relatively low percentage of its earnings as dividends, some critics argue.

On all those dimensions, some worry about the tier-one telcos.

The worries are not misplaced. Many could agree that big threats exist. But that is precisely why some observers are insistent that tier-one telcos act as though they will have to replace at least half their revenue over the next decade . Indeed, they likely will have to do so in every decade.

Few likely believe this will be easy. That is why so many believe massive consolidation is inevitable. But some firms in the industry have been able to achieve such transitions, once or twice over the last few decades.

Service providers whose revenue models once were driven by long-distance and business revenues then evolved to models based on mobile communications. Cable TV providers who once sold only subscription TV now drive their businesses on the strength of internet access revenues.

Consumer-focused cable now also will find its future revenue growth lead by services for business customers rather than consumers.

Firms that operated only in a single country now routinely operate in many countries. And a few now earn substantial revenues from content and related lines of business rather than communications services.

It will not be easy to sustain almost-perpetual revenue model transitions. But neither is it impossible.

How Many 5G Fixed Wireless Accounts in Service by End of 2019?

It is not easy to estimate use cases for the early 5G mobile network deployments (2018 and 2019) On one hand, since handsets will not be available until mid-2019 or so, it seems logical that the first wave of deployments could be lead by fixed wireless deployments.

On the other hand, it does not seem likely that use cases, after five to six years, will be lead by anything other than smartphone internet access, as large numbers of consumers swap 5G for 4G for internet access.

Total 5G connections will grow rapidly to 1.5 billion by 2025, with initial growth driven by fixed wireless access to replace or complement current broadband connectivity, analysts at Juniper Research now predict. But Juniper analysts also say 90 percent of 5G connections in 2019 will be used to support smartphone internet access.

It is not easy to reconcile those different statements and predictions. One way to do so is to assume that until volume production of 5G smartphones happens, 5G deployments will, of necessity, focus on fixed wireless or mobile wireless used as a replacement for fixed network internet access (using a dongle, for example, to create Wi-Fi hotspots).

“Complement” is easy to characterize: consumers will substitute 5G for 4G for their smartphone data plans. “Replace” is the more disruptive trend, as that means substitution of mobile access for fixed access. But compolement will be the bigger use case, over time.

There might be some 220 million 5G fixed wireless connections by 2025, representing perhaps 15 percent of 5G connections.

Juniper predicts that 43 percent of global 5G connections will be in Japan and South Korea in 2019. In the early going,  three regions (Far East & China, North America West Europe) are forecast to account for all 1.05 million 5G active connections in use by the end of 2019, and 90 percent of those will be used by smartphones, for mobile service. That implies about 105,000 5G fixed wireless accounts will be in commercial service by the end of 2019.

Some of us believe the fixed wireless total will be larger, if only because Verizon will push hard to get its own 5G fixed wireless accounts up into the millions, as quickly as possible. Verizon plans to have commercial 5G fixed wireless operating in perhaps five U.S. markets before 2019, and expects a 20 percent to 30 percent take rate in those markets.

There are perhaps 8.5 million homes in those five Verizon markets. If one assumes take rates for internet access at about 80 percent, that means an addressable market of some 6.8 million homes. And 20 percent take rates imply 1.4 million customer accounts, if Verizon can hit that figure on the initial marketing effort.

Verizon might ultimately market to some 33 million U.S. homes, of which, using the 80 percent figure, 26 million homes are targets. Were Verizon to get 20 percent adoption, it would have some 5.3 million fixed wireless internet access accounts.

Telekom Malaysia First Half 2018 Earnings Down 14%

Telekom Malaysia Berhad financial results for the first half of the year ended 30 June 2018 show a decline in voice, data and other telecom revenue. That is an issue most telcos globally wil have to deal with as well.  

Telekom Malaysia posted revenue of RM5.78 billion year-to-date, 2.7 percent lower from RM5.94 billion in the corresponding period last year. In part, one might argue, that results from market saturation.  

Group Reported Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for the first half of 2018 was RM1.61 billion as compared to RM1.80 billion in the first half of 2017 mainly due to the lower revenue.

Stripping off non-operational items, such as unrealized forex loss on trade settlement, group normalized EBITDA was 13.9 percent lower, at RM1.60 billion.

Group EBIT for first half of 2018 was RM444.5 million as compared to RM560.9 million in the first half of 2017.

Stripping off some non-operational items, including foreign exchange loss on international trade settlement, normalised EBIT stood at RM433.0 million.

“The first six months of 2018 has been very challenging for us, from rapid developments in the market to increasing regulatory pressures,” said Datuk Bazlan Osman, Telekom Malaysia Group CEO.

In the second quarter, group revenue stood at RM2.94 billion, lower by 1.5 percent year over year.

Group EBIT stood at RM248.9 million, lower by 3.2 percent, year over year.

On a normalized basis, EBIT was lower by 25.6 percent year over year, dropping to RM226.4 million from RM304.5 million in the second quarter of 2017.

In fact, at least think a major wave of consolidation lies ahead, caused at least in part by spectacular change in revenue sources. And much of that change is driven by changes in the value of access.

Massive consolidation, reducing the number of global tier-one carriers by about 90 percent is what some believe is coming.

As Line Between Platform and Publisher Blurs, We Need More Freedom for All

It is not so easy these days to clearly and unmistakably delineate what a “platform” is and what “media” is. Facebook says it is a “technology” company, not a media company. And Facebook execs sometimes have said the difference is between telling stories and building tools.

Others might point out that business models sometimes play a role. “Media” companies sometimes have business models based on business-to-business sales (advertising or content or products) and sometimes on business-to-consumer subscriptions, or a mix of those models.

It is not so clear that one can delineate based on revenue model. Amazon is a commerce platform, but also makes revenue selling advertising, and that role seems to be growing. And one might argue that Facebook’s hosting of a platform for people to communicate is akin to the communications platform provided by AT&T or Verizon, where end users supply their own content.

In principle, a platform is supposed to be content- and content-creator-agnostic, allowing end users to produce content that the platform then distributes.

“Publishers,” on the other hand, make their own decisions about what content to create or distribute. Publishing is not classically about “user generated” content, but “professionals creating content.”

So telcos and social media outlets are both platforms. And platforms are not responsible (legally) for the content that is posted.

Publishers, on the other hand, do create or curate content, and are responsible, but with the major caveat that publishers also have free speech rights in terms of their content. They are not “regulated” as common carriers, for example.

Everything has gotten fuzzier, and the lines between the two roles are less clear and the actual activities undertaken by platforms are fusing with content creation as well. And some entities already seem to be hybrids. Firms such as BuzzFeed, Huffington Post, Bleacher Report and so forth combine “professional” and “user generated” content.

And that poses new problems. If it becomes less possible to clearly separate platform from publisher, and if the roles use different regulatory models (unregulated for data services or traditional publishers; a bit of regulation for broadcasters, radio, cable TV; heavily regulated common carrier (telcos), when those industries fuse, we have to figure out which model to apply.

And the fundamental choices always are “more or less.” We can use the lighter-regulation approach to all, or the heavier-regulation to all. And that is where, in the U.S. policy framework, “freedom of the press” plays a key role.

Some might approve of greater restrictions on freedom of expression, typically for “good reasons.” Some might argue we can clearly separate when the platform model makes sense, and when the publisher model makes sense, even when those are co-mingled roles.

Personally, as hard as it might be, I’d argue for greater freedom for all. That is a better framework than “less freedom for all.”

Asia is Next Big Netflix Challenge

For over-the-top video subscriptions, Asia is the next big challenge for big global providers, as Asia has been the growth engine for mobile generally, and is the big opportunity for mobile internet access and new Internet of Things apps and services as well.

Netflix’s penetration of subscription OTT video users in Asia-Pacific will increase from 11.8 percent in 2017 to perhaps to 14.3 percent in 2020, says eMarketer.

Local content remains a big challenge in countries where English is not the main language.

Asia  is home to one of the most competitive OTT over the top video markets in the world, eMarketer notes, with subscriber growth rates in 2018 of possibly 35.2 percent.

In India, high prices and a lack of localized content on OTT platforms have deterred adoption. Both Netflix and Amazon Prime Video primarily provide content in English and Hindi.  In 2018, only 1.7 percent of internet users in India will watch Netflix.

In Japan, Netflix launched in September 2015 and amassed more Japanese titles than U.S. titles on its platform. Yet subscription OTT penetration in Japan has reached only 16.0 percent of internet users, eMarketer notes.

In Western Europe, though Netflix still is growing, it is reaching a point of near saturation, as might be the case in the United States as well.

source: eMarketer

If nothing else, Netflix has changed strategy for other big content owners and distributors, creating a new imperative to expand globally.

More Competition Coming in U.S. Internet Access Market

To the extent that cable TV industry fortunes now rely on internet access revenues, and to the extent that new competition emerges from 5G fixed wireless, that growth engine is exposed.

“We see 5G fixed wireless broadband as the biggest existential threat to broadband providers (by far),” say equity analysts at Cowen. Assume, for example, that T-Mobile US actually throws significant effort at 5G fixed wireless, and gets anywhere near its goal of 10 million accounts by about 2024.

“That would be a large majority of the entire cable industry’s broadband adds over the next six years,” Cowen analysts say.

Verizon, for its part, is targeting 30 million or perhaps 35 million homes passed, in metro markets where it has lots of fiber (places where XO has big footprint, for example) and outside its legacy fixed network territory.

That suggests Verizon could wind up competing most with AT&T, Comcast and Charter. Making a further assumption that in its chosen markets it will be Comcast and Charter that have the most market share, and already have the greatest share of faster-speed accounts, that logicall suggests the cable competitors might be at more risk than AT&T or CenturyLink.

You might argue that the telcos generally sell lower-speed services, so their customers would be most at risk from a fixed wireless entry by Verizon or T-Mobile. But most of those customers already could have switched to cable providers, were internet access speed the big consideration.

What might be the case is that customers of slower-speed telco services think those services are good enough, when bundled with other telco services, to inhibit switching behavior.

source: Cowen

Verizon has significant metro fiber in 17 of the top “NFL” U.S. markets where it is not the incumbent.

Assuming the cable competitor in those markets has 45 percent share, IComcast could have 2.1 million homes exposed to loss, about (eight percent of its base).

Charter might be at risk to share loss of perhaps 1.1 million homes, about 4.7 percent of its base.

Assuming a 25 percent Verizon take rate when it enters those new markets, perhaps two percent of Comcast customers and one percent of Charter customers could go to Verizon. That might be a manageable loss.

T-Mobile US might take a different tack. T -Mobile expects to become a viable in -home broadband alternative especially in rural areas. The carrier believes it will, by 2021, it provide data rates in excess of 100 Mbps to 66 percent of the U.S. population, reaching coverage of up to 90 percent by 2024.

T-Mobile US execs have suggested that a service offering 100 Mbps would be a competitive alternative for perhaps 19 percent  of the population. By 2024, as much as 35 percent to 45 percent of the U.S. population might be candidates for a mobile substitute product.

Looking at fixed wireless, T-Mobile US estimates it could provide service to 9.5 million households early on. By 2024 T -Mobile expects to be able to reach 52 million rural residents with a fixed wireless solution.

source: Cowen

Some who decry the lack of competition in the U.S. internet access space might be surprised to see growing competition, at scale, when 5G arrives. Google Fiber once was thought to be a catalyst for such competition. Now it appears Verizon and possibly T-Mobile US will assume that role.

Sometimes it takes scale to disrupt a market.