Will Amazon Get into the LEO Constellation Business?

Connectivity service providers, at a practical level, have to define their competition as “other connectivity providers” in a tactical sense. When assessing market share, they benchmark against other firms selling the same products.

At a strategic level, few really believe their main competition is “other connectivity firms,” anymore. Instead, the key strategic challengers are big application and platform suppliers who supply the end user value enabled by networks.

But, sometimes, the strategic foes become tactical realities. So it is that Amazon plans to launch a constellation of low earth orbit satellites, which will instantly make Amazon a global internet service provider.

Project Kuiper is the code name for a “big, audacious space project” involving satellites and space-based systems. Filings made with the International Telecommunications Union provide some outlines.

The proposed constellation will feature 3,236 satellites in low Earth orbit — including 784 satellites at an altitude of 367 miles (590 kilometers); 1,296 satellites at a height of 379 miles (610 kilometers); and 1,156 satellites in 391-mile (630-kilometer) orbits.

One might question whether all the major LEO constellations will be sustainable. So far, the big ventures include SpaceX, OneWeb, Telesat and Leosat, though a few other firms, including Boeing and Facebook,  also have been talking about the possibilities.

Virtually nobody thinks the market is big enough to support all those ventures. So consolidation will happen, and some of the ventures will not launch.

Still, the point is that sometimes a strategic rival (firms generating lots of value and revenue in the ecosystem) also becomes a very-tactical rival (firms actually competing in connectivity services).

The emergence of such competition is one reason long-term revenue and profit margin prospects for connectivity providers are decaying.

Some estimate there could be a radical 85 percent reduction in tier-one and tier-two firms globally.

Consolidation lies ahead for most telcos in Asia, according to J.P. Morgan, and possibly for most telcos globally, according to Nokia Bell Labs.

Where there now are 810 telecom service providers, there will be but 105 by 2025, says Bell Labs. That consolidation of about 87 percent in seven or eight years would be beyond comprehension, for most of us, and would be an apocalypse for most in the industry.

Capgemini calls an era of massive consolidation  on a “spectacular” level. New competition from one or more global LEO constellations is just part of that basic story.

Winning the "5G Race" Will Not Matter, Long Term

5G often is positioned as a “race,” with winners and losers. That way of looking at information and communications technology has been repeated over and over again over the last several decades about any number of consumer-facing innovations.

The “race” metaphor is no more relevant today than it was then.

It was probably inevitable that some would claim the United States is falling behind in the “race” to 5G.

After all, it has been argued that the United States was behind, or falling behind, in use of mobile phones, then smartphones, use of text messaging, broadband coverage, fiber to home, broadband speed or broadband price.

Some even have argued the United States was falling behind in spectrum auctions.  All of those prior characterizations have proven temporary, or wrong. What such observations often miss is a highly dynamic environment, where apparently lagging metrics quickly are closed.

And even when national comparisons are made, there often is not a terribly good correlation between high rankings in use of a technology and ability to produce value, at scale, from such adoption.

National rankings of adoption of any access technology are likely to prove ephemeral. And even when not ephemeral, there is not a very good correlation between supply, adoption and economic value.

Consider voice adoption, where the best the United States ever ranked was about 15th, among nations of the world, for teledensity.

For the most part, nobody really seemed to think that ranking, rather than higher on the list, was a big problem, for several reasons. Coverage always is tougher for continents than for city states or small countries. Also, coverage always is easier for dense urban areas than rural areas. The United States, like some other countries (Canada, Australia, Russia) have vast areas of low population density where infrastructure is very costly.

On virtually any measure of service adoption (voice or fixed network broadband, for example), it will be difficult for a continent-sized market, with huge rural areas and lower density, to reach the very-highest ranks of coverage.

For such reasons, no continent-sized country with vast interior and sparsely-settled areas will reach the top of any list of countries with fastest speeds. Nor is it ever easy to “know” when speeds, prices or availability are a “problem.” Disparities between rural and urban areas almost always are viewed as a problem.

Prices are harder to characterize. When all countries are compared, such prices must be adjusted for purchasing power. In other words, price as a percentage of income provides a better measure of price. In developed markets, for example, internet access costs about 1.7 percent of per-person gross national income.

The International Telecommunications Union has argued that U.S. fixed network internet access prices are among the lowest-priced globally. Mobile internet access provides another view: in perhaps a hundred countries, mobile internet access already costs less than fixed access.  

According to the latest survey by Cable, U.S. average speed ranks it 20th globally for internet access speed. As always, a significant number of the countries with the highest speeds are small.

Just what winning or losing the 5G race could mean is not simple. Some people think “winning” is a matter of which countries deploy and obtain high adoption first. Others would argue that access does not matter as much as the ability to innovate and create in terms of connected business models, apps, services and processes.

On that score, very few observers would challenge the claim that innovation leadership in the next phase of applications and technology development is going to happen in China and the United States, at scale. That is not to discount the formidable work going on in Israel, Japan or South Korea. It is simply to note that, globally, at scale, few would doubt that the at-scale progress will happen either in the United States or China.

What matters with 5G is not the speed or ubiquity of supply or demand, though that is not immaterial. Instead, what always matters is the ability of people, firms and nations to harness those innovations for economic growth.

Edge Computing Facilities Look Different, Depending on Where the "edge" Is Located

Where is the edge? All over the place, one might say, based on the perceptions of various participants in the content and data ecosystem.

"Web scale players think the edge means regional colocation data centers, hundreds or even thousands of kilometers away from the user,” says Joe Madden, Mobile Experts principal analyst.

Mobile operators see the edge as a location between 2 km and 100 km away from any end user.

REITs and micro data center supporters see the Edge close to the radio towers, less than 5 km from most users. Enterprises think that the edge needs to be in-building or at the client device.

All those definitions might have relevance for different edge use cases.

And that also means edge computing real estate can have very different footprints. An infrastructure edge data center at the base of a cell tower might look like this Vapor.io deployment.

source: Colocation America

At other locations, where computing demand is expected to be higher, one might see more than one cargo-container-sized physical buildings.

Enterprise sites might use a relatively standard cabinet with server racks on the premises.

source: Mission Critical Power

Much hinges on the business model and the use case. Advertising apps might well be just fine with a regional approach, as latency is not much of an issue for many advertising requirements. Infrastructure edge will make sense for latency sensitive apps outside of main enterprise locations.

Large enterprises often will be able to use on-the-premises edge computing. Right now, it is impossible to quantify the size of revenue opportunities for edge computing “as a service” providers. Lots of servers will be installed, of course. Lots of electrical power will be used. New structures, with racks, air conditioning and electrical supply, will be needed.

So the picks and shovels will be busy. Revenue for edge computing services will take a longer time to build.

Some Possibly Good News for the Communications Industry

As far as analyses go, this positioning of the communications business, by consultants at Accenture, is somewhat reassuring. Unlike some other industries, including the postal service, energy and transportation, the communications business is less volatile.

On the other hand, communications also is more durable and less vulnerable. On the other hand, communications is not among the more viable, most durable of industries either, such as the software and high tech industries.

source: Accenture

The point, Accenture argues, is that connectivity providers need to move beyond connectivity towards orchestration (up the stack). For the past decade or so, consultants and analysts have been telling retail-focused connectivity providers they had to choose: either be an efficient bit pipe or become a value-added solutions provider.

source: Accenture

This latest argument by Accenture consultants is in that same vein. There are, fundamentally, not too many choices. Service providers can “stick to their knitting” and become more efficient providers of voice and data services. Or they can move up the stack into applications.

One big question, though, is what that means. Some, including Accenture, seem to argue for becoming a platform, more than becoming a solution provider. “Simply orchestrating vendors in a connectivity network will not add value—moving to a more open and different platform-based play, based on a modern IT architecture, will be the key to enabling growth,” they say.

It seems obvious that managerial skill, and a bit of luck, will be required over the next decade as the industry continues to morph into something different.

Ecosystems and Growth

"Orchestration" as the Connectivity Provider Platform of the Future

As far as analyses go, this positioning of the communications business, by consultants at Accenture, is somewhat reassuring. Unlike some other industries, including the postal service, energy and transportation, the communications business is less volatile.

On the other hand, communications also is more durable and less vulnerable. On the other hand, communications is not among the more viable, most durable of industries either, such as the software and high tech industries.

source: Accenture

The point, Accenture argues, is that connectivity providers need to move beyond connectivity towards orchestration (up the stack).

source: Accenture

Supply and Demand for Internet Access

Demand matters when we discuss and evaluate the state of consumer broadband access. A recent survey of U.K. consumers found that 15 percent rely solely on their smartphone for internet connectivity. That is not to say better fixed network service and lower prices are unimportant.

But we always are looking at two different things: supply and demand. In the supply area, regulators want fast access, with ubiquitous coverage. But supply is not demand. Even where gigabit access is available, most customers actually buy some some other--and slower--speed access.

What ultimately matters is not simply that quality broadband is available, but what services people actually value and buy. Since there are virtually no applications in the consumer realm that require gigabit access, consumers often freely choose to buy services in the middle of the range of available choices.

Sometimes they choose to rely exclusively on mobile access. Most often they use both fixed and mobile access.

In the U.S. market, though internet use is perhaps 89 percent, fixed network internet access is reported in some studies at only about 65 percent, somewhere in the 70-percent range in other studies, and over 80 percent in other studies.

source: Pew Research Center

Some 19 percent of U.S .households are mobile only for at-home internet access. Add the fixed and mobile-only households together and perhaps 84 percent to 99 percent of U.S. households buy some form of internet access service.

The point is that that nearly 20-percent mobile-only demand suggests fixed network demand is close to saturation.

Beyond that is something more important: the ability to wring value out of broadband internet access. In principle, and likely in fact, different users, populations and countries are able to produce more value from internet access than others. In other words, they are able to turn internet access into productivity gains.

In the final analysis, value is what matters, not speeds, not even always coverage. What humans and firms are able to do with internet access is what matters.

5G is Like "Fourth Industrial Revolution"

You know 5G "is a thing" now that the phrase pops up so much in the consumer media. But much of the characterization is like our understanding of fourth industrial revolution: a high level complex of many changes beyond the narrow understanding of the term.

Among the reasons 5G sometimes is hard to understand is that it has become a verbal shorthand for several relatively independent changes in the computing, applications, infrastructure, private and public networks areas. The changes are linked and often dependent upon each other.

At one level, 5G is the next generation mobile platform.

At another level it is a part of a complex of changes including edge computing, internet of things, commercialized millimeter wave spectrum, access methods and business model changes.

source: Gemalto

When observers or supporters talk about the advantages of 5G, they sometimes actually are referring to the advantages of edge computing or internet of things. If one looks at the specifications for 5G, one sees quickly that it is application-focused in a few key ways.

The network is optimized to support devices with extremely long battery life, a characteristic of many internet of things use cases. The network is far more dense, supporting orders of magnitude more devices per local area, again an anticipation that many more devices (not phones) are going to be connected.

The ultra-low latency design means some new use cases requiring such performance will be supported in the network for the first time. But ultra-low latency also implies local computing, within a device, on the premises or very close to it. The 5G network latency only helps so much if intensive data operations must be performed at remote cloud data centers.

Ultra-low latency applications sometimes will require both edge computing and 5G. Connected vehicles might require extensive new vision and sensing systems; robust edge computing and ultra-low-latency communications.

Edge computing might involve devices, local area networks, enterprise mainframes, off-premises but local computing and cloud computing as well, with a mix of wide area network connections.

Nor are all the use cases necessarily built on 5G access. Sometimes the local connections will use Wi-Fi or some other short-range wireless technology. Local access can be by optical fiber, cable modem, fixed wireless, mobile network, satellite, low power wireless networks, TV white spaces or other platforms.

New ways of using spectrum (sharing, aggregating), license modes (unlicensed, shared, licensed) and commercial use of previously-uneconomic spectrum (millimeter wave) also are part of the broader changes colloquially called “5G.”

And while 5G will enable some new consumer apps, it might be most distinctive for enabling new enterprise use cases.

So welcome to the somewhat-confusing world of 5G, where much of what is talked about is not just 5G, or sometimes not 5G, but something else.

In other words, 5G as a popular concept is more than the next generation mobile network. It often includes edge computing, internet of things, applied artificial intelligence; different or new roles in the infrastructure ecosystem; commercialization of previously-unusable spectrum; new ways to access and use spectrum and new business models.

Just remember that not everything that happens is 5G, even if that seems to be the easy catch phrase to describe a whole bunch of changes.

The fourth industrial revolution, of which 5G is, by design is a high-level concept describing a range of technology changes that is blurring the lines between the physical, digital, and biological spheres.

Such a characterization calls the First Industrial Revolution the time when water and steam were applied. The Second revolution used used electric power. The Third used electronics and information technology.

The fourth industrial revolution is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres, some say.

source: Principa

Such a characterization calls the First Industrial Revolution the time when water and steam were applied. The Second revolution used used electric power. The Third used electronics and information technology.

The main point is that we are moving beyond "information technology" and "mobility" and even the "internet" to some new phase where artificial intelligence, sensors and augmented reality play key roles underpinning the economic system and life.

The analogy is that 5G is used in a broad sense (5G mobile, IoT, applied AI, edge computing, virtualized networks, millimeter wave spectrum, new ways of using spectrum, new use cases and business models) as well. Many who speak of the 5G "revolution" actually refer to one of the other linked changes, more than 5G the access platform.

It is big, complicated, hard to quantify. 

FTTH has Not Changed U.S. Broadband Market Share

With U.S. telcos and cable TV companies competing in the same lines of business, our traditional nomenclature long ago ceased to reflect reality. “Telcos” are not in the “voice services” business and “cable TV” companies are not in the “video” business.

The anchor service now is internet or mobile access, no matter which type of provider supplies the feature.

source: US Telecom

But the two industry segments remain largely distinct in terms of supply chain, network platform and culture, and we still have no elegant and clear way of describing both types of firms, much less the way to characterize business-focused or specialty providers of connectivity and infrastructure services such as metro fiber providers.

It still is meaningful to speak of the different business dynamics in different key segments. By and large, “cable TV” contestants are moving into lines of business long dominated by “telcos,” while the reverse process applies to traditional communications suppliers. But even some former cable TV firms are moving towards a largely post-video future based on becoming largely providers of communications services.

But it remains a clumsy matter. “Tier one” also remains a relevant way of categorizing firms in the business. And at least for a while, it appears the distinction between mobile-only, fixed line and firms with both kinds of assets will remain relevant. But even those categories are in motion.

Nor can we yet determine how to fit new access platforms into the framework. Low earth orbit satellite constellations, TV white spaces or other more-novel platforms will get some market share. And fixed wireless providers might become more important, though perhaps moving market share statistics mostly in rural areas.

Is a 50-50 Revenue Split for Apple News+ Unreasonable?

Content suppliers for Apple’s news-based subscriptions complain about revenue splits (as did app and game suppliers about similar distribution costs in the App Store). The channel conflict is real enough: unless a content supplier can go direct to consumer, distribution represents  a healthy chunk of total cost to deliver a product.

In principle, distribution costs include direct sales; advertising; packaging; incentives for distribution partners; credit and bad debt costs; market research; warehousing; shipping and delivery; invoice processing; customer service and returns processing, for example.

In some industries, the “cost of goods” can range from 30 percent to 80 percent of total retail cost. That might be likened to the digital content Apple will distribute.

source: McKinsey

Granted, traditional distribution operations have been oriented around physical products, not software, streaming and non-tangible products. One study suggests direct supply chain costs  represent four percent to 10 percent of cost; direct transportation costs a couple of percent to 10 percent of revenue; warehouse or distribution center costs perhaps two percent to 16 percent of revenue. The larger point is that distribution can range from a low of 10 percent to a high of 35 percent of total retail cost.

source: R. Pinon

The point is that any content supplier can go direct or indirect. Apple’s News+ is an indirect distribution or sales channel. What that is worth is a matter of perceived value and market power, played out in contract negotiations.

So much of the disagreement about revenue splits harken back to the older arguments between content owners and distributors generally. In the U.S. linear video business, some argue sports content alone represents half of the retail cost of the service.

It might therefore be the case that distribution (everything required to get the content to the end user) represents 40 percent or so of total end user price.  

source: Pocket Gamer

The point is that a 50-50 split of revenues between Apple and any specific content owner might seem out of whack. The alternative is the cost to sell the product direct versus indirect, using Apple. And that is far from an insignificant cost for any supplier, even of digital goods.