Australian Regulators Question Mobile Market Consolidation, Possible Impact of 5G

Mobile market consolidation from four to three now is an issue in Australia. At least partly at issue is whether the combination is a vertical merger between companies that operate in different parts of the communications business, or a horizontal merger that combines firms in the same lines of business.

But regulators also are signaling they might consider the merger in the context of converged networks combining fixed and mobile elements, something rather new in such competitive evaluations.

Also, the change in markets potentially caused by 5G seems a clear issue as well, as the ACCC believes 5G has potential to create a single functional market where traditionally there have been two.

The Australian Competition and Consumer Commission says the proposed merger of Vodafone and TPG will lessen competition, as it will remove a competitor from the mobile market and because Vodafone might be removed as a competitor in the fixed services market.

“A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers,” said ACCC Chairman Rod Sims. “Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor.”

“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base,” said Sims.

TPG has approximately 1.9 million retail fixed broadband subscribers and  421,000 mobile subscribers.

Vodafone is the number-three mobiler service provider and owns a network approximately half the size of Optus (number two by market share) and one quarter that of Telstra, the mobile market leader.

“In summary, the ACCC is concerned that the removal of TPG as a significant competitor for mobile services will result in higher prices and lower quality for retail mobile services,” the ACCC says.

Will 5G, Network Slicing Help Create New Services?

One can hope that 5G, network slicing and private 5G bring new opportunities to create and sell services that are not based simply on usage or best effort speeds; that are 

Video Streaming Increases Content Fragmentation

In the streaming era, ability to offer unique content, and lots of new content, has emerged as a strategic advantage. And that has lead to a new emphasis on production of new and unique content.

About $43 billion is spent every year by Disney and Comcast to create new content. Altogether, some $116 billion is spent to produce new video content in the United States each year, according to Ampere Analysis.

Such spending on unique content matters now that Netflix has dramatically changed the economics of the content business.

For decades, virtually all suppliers of linear subscription video services offered the same fare: a big bundle of channels. Differences were at the margins, namely the specific mix of channels offered to customers on each tier of service.

In the video streaming business, content exclusivity is the norm. And that emphasis on unique content is going to increase in the future.

source: Reelgood.com, Business Insider

The same pattern holds for TV series content. There is some overlap of programs, but most of the video is unique to Netflix, Amazon Prime or Hulu, for example.

Netflix spent about $13 billion in 2018, about 85 percent devoted to creation of new series and original content. By way of comparison, all “Hollywood” investment in new movies might be about $10 billion in 2018.

source: Ampere Analysis

Eventually, consumers faced with a huge palette of streaming services with mostly-unique content are going to be buying multiple subscriptions to assemble the mix of content they prefer. So aggregation services are sure to arise. Ironically, increasing fragmentation is also likely to increase the perceived value of traditional big bundles, if providers of those services can win rights to offer much of their content in both linear and on-demand fashion.

Internet Access Speeds Increase 36% in One Year

Fixed broadband speeds in the United States are rapidly increasing, according to Ookla. Over the last year, average (mean) download speeds grew 36 percent, while upload speeds increased 22 percent.

In the third quarter of 2018, the average download speed over U.S. fixed networks in the U.S. was 95.25 Mbps. Average upload speed was 32.88 Mbps, Ookla says.

“On average, U.S. consumers should have few complaints about recent increases in internet speeds,” says Ookla. Of course, rarely is anything “average” relating to the internet. There are wide variances by state, rural and urban areas, anyone would note.

source: Ookla

Comcast was was the fastest provider in the United States as a whole, in nine states and in 17 of the country’s largest cities. Cox tied for second fastest at the national level and was fastest in three states and 19 cities. Charter Communications tied with Cox at the country level and was fastest in six cities, tying for a seventh. Charter was also the fastest provider in 19 cities.

Comcast was the fastest provider in the U.S. with a “Speed Score”  of 104.7 Mbps. Verizon and Cox are close behind in a tie for second with a Speed Score of 102.57 and 101.84, respectively. Spectrum was next, followed by AT&T and CenturyLink.

The Speed Score incorporates a measure of each provider’s download and upload speed to rank network speed performance (90 percent of the final Speed Score is attributed to download speed and the remaining 10 percent to upload speed).

“The Speed Score uses a modified trimean to demonstrate the download and upload speeds that are available across a provider’s network,” says Ookla. “We take speeds from the 10th percentile, 50th percentile (also known as the median), and 90th percentile, and combine them in a weighted average using a 1:2:1 ratio, respectively.”

“We place the most emphasis on the download speeds and median speeds as those represent what most network providers’ customers will experience on a day-to-day basis,” says Ookla.

Ookla says the speed upgrades has had a significant impact on global speed rankings. The United States now ranks about seventh globally in terms of download speed.

App, Content Providers Have Invested $300 Billion in Internet Infrastructure Last 4 Years

In the four years since 2014, app and content providers have invested over US$300 billion in internet infrastructure. This amounts to US$75 billion per year, which is more than double the 2011– 13 average annual investment of US$33 billion, says Analysys Mason.  

Some 90 percent of that investment has been for hyperscale data centers and third-party data center colocation.

The balance of investment includes including terrestrial transport networks and international submarine cables and edge content caching.

The goal of the growing investment in infrastructure is to move content and services ever closer to end users, which helps to optimise service quality while controlling costs, Analysys Mason says.

There is a good reason why all wide area and local access network have become computing networks: most computing now occurs at cloud data centers, which requires communications with edge devices.  

source: Cisco

source: Cisco

In substantial part, content and app performance also drives demand for edge caching. Also, since most cross-network traffic now is video, including entertainment video, edge caching reduces the amount of traffic that has to be carried over the wide area networks.

Over time, enterprises (content and app providers) also are building their own private content delivery networks, instead of buying service from third parties.

source: Cisco

App and content providers do, however, buy a substantial amount of hosting space from third parties. Amazon, for example,  holds more leased square footage than it owns, Analysys Mason says.

IoT Devices Already Half of Global Connected Devices

Most observers might agree that the internet of things is a future opportunity for most participants. But at least by the measure of “devices in use,” IoT already constitutes a huge share of connected devices. In fact, IoT devices might already represent half of all global connected devices, far outstripping mobile phones, according to StorageNewsletter.

source: RBC Capital Markets

Appliance-Based SD-WAN Market Perhaps $2 Billion in 2019

Appliance-based SD-WAN suppliers sold about $284 million in the third quarter of 2018, according to IHS Markit, implying an annual market in excess of $2 billion in 2019.

If managed SD-WAN services are about half the market, that also implies a service provider SD-WAN market of about $2 billion in 2019.

If the U.S. market accounts for about a third of global activity, then U.S. service providers might expect 2019 sales of perhaps $667 billion.

source: IHS Markit

8% of U.K. Customers Buy Fastest Internet Services

Supply is different from demand. Though perhaps obvious, it is an often-confused principle when looking at the ways people buy and use internet access services. This illustration of actual fixed network internet access take rates in the United Kingdom, sorted by speed tiers, provides an example of the demand picture.

In every market, it seems, the percentage of customers who buy the fastest tier of service--typically the most expensive as well--is a small percentage of total buyers. In the U.K. market, about eight percent of buyers choose the fastest tier of service, perhaps 14 percent buying the fastest tiers.

Still, 42 percent buy the slowest tiers of service, with 21 percent paying for 10 Mbps or slower service, while another 21 percent buy speeds between 10 Mbps and 20 Mbps.

In the U.S. market, those 42 percent of customers, though buying internet access service, are not buying “broadband” service, defined as a minimum of 25 Mbps. About 44 percent of U.K. customers buy services with speeds ranging from 20 Mbps up to 100 Mbps.

source: Ovum

The point is that, to the extent speed and price are directly related, customers generally do not buy the most-expensive product, but instead other products are are deemed good enough (enough value for the price).

Increasingly supply of the most-expensive product does not necessarily translate into an equivalent amount of buying, especially as speeds tend to increase over time, while price declines or remains the same.

How Big a Deal is Video in 5G Era?

Just how big a revenue driver mobile video will be for mobile operators in the 5G era is an open question.

That video will drive mobile data consumption seems not to be contentious. By perhaps 2024, 75 percent of mobile data consumption will be video, most would agree. Of course, consumption and revenue for various participants in the ecosystem is not the same thing.

Connectivity providers learned long ago that though a symbiotic relationship exists between demand for use of internet apps creates demand for internet access services, there is no necessary and direct relationship between use of the internet and revenue generated by provided connectivity.

Quite the reverse, in fact, is most often the case: supply has to be increased without incremental revenue being earned.

source: Cisco

Still, many service providers have found that the most-tangible new sources of significant present revenue--troublesome as growth trends might be--come from video subscription services. There simply are not many new revenue sources capable of generating $1 billion or more in incremental revenue for any tier-one service provider.

The problems are compounded for suppliers of fixed-network communications, as voice revenues are falling, while in most developing nations, internet access is slow growing, as nearly all the growth of internet access occurs on the mobile networks.

As Ovum analysts have outlined it, linear (SLIN) and on-demand (SVOD) accounts continue to grow, even if there are gross revenue and profit margin implications from faster SVOD growth.

source: Ovum

As this graph indicates, in developed nations, fixed internet access is saturated, or nearly saturated, implying slow future growth. Mobile broadband is reaching high levels in developed and now even in some developing markets.

Also, though it would seem that subscription video is fairly well adopted in many markets, total market statistics can mask the market share held by different suppliers. In some markets, most of the video share is gotten by cable TV operators, not telcos.

So where video is a big revenue stream, and mostly earned by cable TV, telcos can grow their own revenues by taking market share, as cable TV operators were able to grow in saturated voice markets or business services by taking share from telcos.

source: Ovum

The bottom line is that there are few “new” revenue streams as immediately large as subscription video (both linear and fixed) that have mass market demand and drive subscription or advertising revenue at high levels.

So though much remains to be seen, prospects for mobile subscription video, given the significant and growing consumption of video on mobile devices, is an obvious place to look for future growth.

source: The Diffusion Group

Denver, 1863 and Now

Denver in 1863, at the confluence of Cherry Creek and the South Platte River, looking west. 

The same area today, where Cherry Creek meets the South Platte, looking east:

Without Subsidies, Tough or No Business Model for Internet Access in Rural Areas

It often is easy to forget the low density of most places in the United States, defined as places where there are fewer than 15 locations (business and residential) per road mile, according to Steve Parsons, Parsons Applied Economics president and James Stegeman, CostQuest Associates president.

Such places cover nearly 86 percent of the area of the lower 48 U.S. states and most of Alaska. Those 86 percent of areas contain 12 percent of U.S. locations.

source: CostQuest Associates

The implications for building any sort of cabled communications network are stark. In such areas it can cost $17,400 per location to build a cabled communications network using standard telecom industry platforms.

If half the locations actually buy service, the network cost per customer is as much as $34,800.

Beyond the capital investment are the ongoing costs to operate the business. The bottom line is that, in rural areas, there is no sustainable business case without subsidies.

Capital investment per customer location, for conduit and poles, is approximately 5.6 times higher in rural areas as in suburban areas, the consultants say. For fiber optic cable, the capital investment is approximately 4.2 times higher in rural areas as in suburban areas.                                 

source: CostQuest Associates

The other issue is that across the U.S. west, there are many areas that are not populated (shown in grey). Areas shown in green (metro areas) are where terrestrial cabled networks have the lowest costs. Areas in yellow are medium cost, while areas shown in orange have high costs. Areas in red have very high cost.

source: CostQuest Associates

Such realities are why TV white spaces, unlicensed and shared spectrum, low earth orbit satellite constellations and 5G are viewed as possible solutions for rural internet access and other services.   

There are, of course, possible business implications for existing service providers (cable, telco, satellite, fixed wireless) in rural areas.

$773 Billion in 2018 IoT Spending on Hardware, Software, Services

Global spending on Internet of Things sensors, software and services will reach $772.5 billion in 2018, an increase of 14.6 percent over the $674 billion that will be spent in 2017, Gartner predicts.

IoT hardware will be the largest technology category in 2018 with $239 billion going largely toward modules and sensors along with some spending on infrastructure and security.

Software will be the fastest growing technology segment with a five-year CAGR of 16.1 percent. Services spending will also grow at a faster rate than overall spending with a CAGR of 15.1 percent and will nearly equal hardware spending by the end of the forecast.

"By 2021, more than 55 percent of spending on IoT projects will be for software and services,” said Carrie MacGillivray, IDC VP.

Global IoT spending will grow at a 14.4 percent compound annual growth rate through 2021, Gartner predicts.

Asia/Pacific (excluding Japan) will be the geographic region with the most IoT spending in 2018 ($312 billion) followed by North America (the United States and Canada) at $203 billion and Europe, the Middle East, and Africa (EMEA) at $171 billion.

China will be the country with the largest IoT spending total in 2018 ($209 billion), driven by investments from manufacturing, utilities, and government.

IoT spending in the United States will total $194 billion in 2018, led by manufacturing, transportation, and the consumer segment.

Japan ($68 billion) and Korea ($29 billion) will be the third and fourth largest countries in 2018, with IoT spending largely driven by the manufacturing industry.

Latin America will deliver the fastest overall growth in IoT spending with a five-year CAGR of 28.3 percent.

source: IDC

The industries that are expected to spend the most on IoT solutions in 2018 are manufacturing ($189 billion), transportation ($85 billion), and utilities ($73 billion). IoT spending among manufacturers will be largely focused on solutions that support manufacturing operations and production asset management, IDC said.

In transportation, two thirds of IoT spending will go toward freight monitoring, followed by fleet management. IoT spending in the utilities industry will be dominated by smart grids for electricity, gas, and water.

Cross-Industry IoT spending, which represent use cases common to all industries, such as connected vehicles and smart buildings, will be nearly $92 billion in 2018 and rank among the top areas of spending.

Consumer IoT spending will reach $62 billion in 2018, making it the fourth largest industry segment. The leading consumer use cases will be related to the smart home, including home automation, security, and smart appliances.

U.S. SD-WAN Managed Service Revenue $282 Million in 2018

U.S. managed SD-WAN revenue will reach $282 million in 2018, according to Vertical Systems Group. The big takeaway is not the present volume of service provider sales, but the projected growth of SD-WAN as a replacement for legacy wide area networking choices.

In principle, SD-WAN services could take a growing share of MPLS and other networking services.

Service providers actively selling Managed SD-WAN services in the U.S. include Aryaka, AT&T, CenturyLink, Cogent, Comcast, Fusion Connect, GTT, Hughes, Masergy, MetTel, Sprint, Verizon, Windstream and Zayo.

Other network operators throughout the world offer or plan to offer Managed SD-WAN Services in the U.S. market, Vertical Systems says.

source: Cisco

AWS Launches Edge Computing Service

Mobile and fixed network connectivity service providers believe edge computing is an opportunity for them to leverage their real estate and connectivity assets.

But it was only a matter of time before today’s cloud computing giants began to show their migration path to edge computing. AWS seems to have gotten there first.

source: Market and Markets

AWS Outposts enables native AWS services, infrastructure, and operating models at “virtually any data center, co-location space, or on-premises facility,” AWS says. “You can use the same APIs, the same tools, the same hardware, and the same functionality across on-premises and the cloud to deliver a truly consistent hybrid experience.”

source: AWS  

The obvious applications are enterprise-driven use cases where low latency is a paramount concern, or where local data processing is essential for the use case. Industrial internet of things, high-definition video or security, for example.

AWS Outposts come in two variants, the first being VMware Cloud on AWS Outposts, which  allows customers to use the existing VMware control plane and application programming interfaces.

The AWS-native variant of AWS Outposts allows customers to use the same APIs and control plane used to run in the AWS cloud, but on-premises.

AWS Outposts infrastructure is fully managed, maintained, and supported by AWS to deliver access to the latest AWS services, the company says.

Mobile, Internet, P2P Apps and Elderly Care

“Aging in place,” allowing the elderly to remain in their homes even after they require caregivers, could well reduce the cost of living at home, compared to care in an assisted-living situation.

At least according to one study, mobile, peer-to-peer and other apps can allow the elderly to remain in their homes, saving more than half the amount required to live in an assisted living home.

That speaks to the value of mobile and internet apps, if not directly to the business opportunities available to connectivity suppliers.

source: National Institutes of Health