Wednesday, May 29, 2019

Net Neutrality Starting to Look Like a "Solution" to a Problem that is Going Away

BT fixed network broadband customers now can sign up for a new “Stay Fast Guarantee” that assures consumers their service will be optimized, automatically and remotely, with a quality of service guarantee.

For a few of you who might immediately recognize this, such quality-of-service features are chief among the practices supporters of strong forms of network neutrality always decry. But advancing technology (packet encryption, application requirements, edge computing and much-faster speeds) also undercut the need for strong network neutrality laws, it can be argued.

In other words, best-effort, everyday performance is getting good enough (on mobile and fixed networks) that the “need” for quality of service mechanisms, or even access to higher-speed tiers of service, is largely moot. There is little need for “fast lanes” when “every lane is a fast lane.”

Bluntly, fast, low-latency networks kill the consumer need for QoS-assured tiers of service, as well as killing the service provider market opportunity to sell such tiers of service.

The new BT QoS offer for consumer broadband is among the growing number of reasons why such laws arguably are not needed, in some part because it is becoming impossible for internet access “bad actors” to intentionally speed up or “degrade” a consumer’s connection.

For example, in a market where 5G latency is so low, and typical best-effort speeds so high, what advantage is gained by services that are optimized for latency or speed?

Doing so normally is thought to require use of deep packet inspection, but that becomes quite challenging to impossible when traffic is encrypted, and that is getting to be the case for 80 percent of all traffic, already.

That is not to deny some utility for the BT QoS guarantee. In the U.S. fixed network market, consumers own their in-home wiring. So when that network malfunctions, it is the consumer who pays the cost of the repairs. Such in-home wiring might not malfunction or degrade very often, but it does happen.

That might be especially true for wiring that is on the exterior of a home or building.

When BT customers sign up to a new BT broadband plan or extend their existing contract, they will be given a guarantee of speed based on the estimated capability of the line. If it’s believed a broadband customer could get a faster line speed, BT will remotely optimize broadband performance without the customer having to do a thing, or will dispatch a technician, the company says.

If BT has not managed to get a customer’s broadband speeds back to where they should be after 30 days of a fault being identified, customers will be eligible to receive £20 back, up to four times a year, BT says.

BT will also ensure customer broadband speeds are being monitored and optimized remotely 24 hours a day, every day.

Some will complain that the Stay Fast offer violates net neutrality principles. Others might argue it should not be illegal to sell a quality-of-service-assured access service. In principle, BT’s Stay Fast offer only offers consistency of service, not a fast lane.

Beyond that, it might be argued that such offers offer less value than might once have been the case. Faster fixed network speeds and low-latency, high-bandwidth 5G, plus packet encryption, all combine to reduce the potential value of QoS-assured services.

When problems are resolved, it makes little sense to continue trying to “fix” them. It is beginning to look as though strong forms of network neutrality are proposed solutions to problems that are going away. Time to move on?

SD-WAN Interest Seemingly Jumps in 1 Year

About 46 percent of information technology executives surveyed by Cato Networks indicated that they had, or were considering, deploying SD-WAN in 12 months, up from about 25 percent with such intentions in 2018.

Another 33 percent of respondents are considering SD-WAN but have no current plans to deploy the technology.

The primary motivations for considering SD-WAN include:
  • Improved Internet access (46 percent)
  • bandwidth (39 percent)
  • improved last-mile availability (38 percent)
  • excessive WAN related costs (37 percent).

As argued by Cato Networks, the advantages of SD-WAN over MPLS include:
  • Secure, direct Internet access from branch offices
  • Predictable, responsive global application performance without
  • Lower cost than MPLS
  • Easy and affordable optimized cloud access
  • Optimized and secure mobile experience worldwide

But connectivity providers (telcos) still seem to face mixed reviews from enterprise users.
Respondents said  telcos provide “average service level.”

“There is nothing about our telco which makes us like or dislike them, they are just ‘as expected,’” Cato Networks summarizes.

On a numerical ranking, telcos got ratings of 54 out of 100, when respondents were asked if they thought network service pricing was fair.

On other measures telcos arguably scored better. Respondents gave high marks for the overall
experience with cloud providers (3.71 for cloud application providers, 3.70 for cloud datacenter providers), while global telcos scored 3.24.

Cato Networks calls that performance by cloud service suppliers “high,” while telcos scored “lowest.” It is not possible for me to determine how significant those differences are, as Cato did not provide the range of possible scores. I would guess the range was 1 to 5. In that case, though telcos scored lower, the difference between cloud providers and telcos, while clear, might not be a gulf.

Tuesday, May 28, 2019

Revenue Per Square Mile: Population Density Really Matters

The relationship between population density and network investment is clear in this table illustrating revenue per square mile for a fixed network supplying internet access at $50 per month.

Area
Population
(people/mile2)
Household Income
(median, 2017)
Broadband Adoption
Revenue
per mile2
Manhattan, New York
69,467.5
$85,071
81.9%
$347,337.50
City of Chicago
11,841.8
$55,295
73.5%
$59,209.00
Santa Clara County, CA
6,327.3
$106,761
89.4%
$31,636.50
City of Palo Alto, CA
2,696.5
$147,537
91.3%
$13,482.50
Carbon County, PA
171.1
$51,236
74.4%
$855.50
United States
87.4
$60,336
78.1%
$437.00
Campbell County, WY
9.6
$80,178
86.4%
$48.00
Loving County, TX
0.1
$ 80,938
64.5%
$0.50

5G Fixed Wireless Could Reverse a 20-Year U.S. Trend

There are roughly 99 million fixed network internet access accounts active in the U.S. market. If fixed wireless manages to shift about 12 million accounts, that is a potential gain of 12 percent.

If 80 percent of that shift is from cable operators to telcos, implying a shift of 9.6 million accounts, that would mean a loss of 15 percent cable TV market share in internet access.

Where cable operators now have some 66.3 million total accounts, they would drop to about 57 million customers.

Where U.S. cable operators have 66 percent market share, they would wind up with 53 percent share. Telco market share would grow from 34 percent to 44 percent.

If virtually all the losses came from cable, and went to telcos, cable would have 56.7 million accounts, telcos who now count 33.5 million subscribers would grow to 43 million accounts, or about 46 percent.


That would reverse a nearly 20-year trend of cable operators taking market sharein internet access.

Monday, May 27, 2019

Marginal Cost (Near-Zero) Pricing is a Major App Provider Advantage

“Near-zero pricing” (or the perhaps-better known expression of “marginal cost pricing”) is a business principle that underpins and complicates business strategy in a wide range of industries, ranging from internet apps to computing; retailing to media; communications and consumer electronics.

Marginal cost is a universally accepted pricing principle, representing the incremental cost to produce one more unit. The key idea is that it is profitable to keep producing additional units right up to the point where marginal cost and marginal revenue hit zero. At that point, one stops producing, as losses will occur.

But physical goods and digital goods have different marginal cost curves. For a communications service provider, at some point there is so much demand that a network has to be upgraded. That adds capital investment cost, so the marginal cost actually has to rise.

Digital products are different. Once the original is created, the marginal cost can actually remain infinitesimal, even with vastly-greater usage. That also implies that retail price can be very close to zero, and still yield a profit.

In fact, some believe zero marginal cost might be among the most-important business drivers in the early 21st century, though the idea remains controversial.

A company that is looking to maximize its profits will produce “up to the point where marginal cost equals marginal revenue.” In a business with economies of scale, increasing scale tends to reduce marginal costs. Digital businesses, in particular, have marginal costs quite close to zero.


In other words, the incremental cost of adding one more Gmail user or one more Facebook user are infinitesimally small.

But marginal costs also are immeasurably small even in some industries with high capital intensity. What, for example, is the incremental cost to supply one more megabyte of internet access capacity; one more minute of voice usage; one more text message, on a network that already is built and operating?

To be sure, additional sales help most businesses, digital or physical.


But the danger of pricing at marginal cost (increasingly a price very nearly zero) is that “where there are economies of scale, prices set at marginal cost will fail to cover total costs.”

Think of the “sunk cost” of building a mobile or fixed network. Retail pricing has to be set at a level that allows recovery of that initial network cost, plus profit. So overall pricing cannot be set at the marginal cost of the last units, but at a rate including recovery of sunk costs.

Add to that the possibility that product prices for the end user also include revenue generated by third party partners (advertisers, retailers on a platform) and end user consumption can actually be subsidized.

The point is that even if the incremental cost of supplying one more megabyte of data consumption, one more minute of a voice call or one additional text message is quite close to zero, a service provider cannot price at marginal cost, forever.

That accounts for the business advantage many app, content and services providers hold over a facilities-based connectivity provider selling apps and services. An over-the-top app provider does not have to recover a physical network’s sunk costs.

Mobile and Internet Subscriber Counts Can Drop, as Well as Rise

It is not easy to explain why the number of mobile and fixed network subscribers in India has been falling over the past two year . There are major share shifts--Reliance Jio gaining, virtually every other supplier losing--but the issue is that total accounts are reported to be dropping.

There are some statistical issues. It is possible that many users now do not need to buy multiple SIM cards, as a result of lower tariffs driven by Reliance Jio. But promotional activity has subsided as well, and that likely means incremental, cost-sensitive users are not being added at the former rate.

Also, Telecom Regulatory Authority of India counts each SIM as a subscriber. At least a couple of the leading mobile providers count “accounts” differently.


There also might be a growing amount of mobile substitution, where mobile broadband displaces fixed broadband use. That seems to be happening elsewhere.



Friday, May 24, 2019

Is 2019 the Year of Peak Satellite?

It appears 2019 could be the peak year for satellite TV services globally, as Rethink Technology Research believes subscribers will begin a permanent decline in 2020, with a loss of about 15 million accounts by 2024, on a current base of about 225 million.

Still, that represents a cumulative loss of about six percent to seven percent over five years, a rate of attrition executives in the telecom industry have dealt with before. In other words, the transition away from linear TV services--using fixed or satellite networks--will be a longish, slowish transition reminiscent of the decline of international long distance revenue, fixed line voice or text messaging.


Consider a simple five-year estimate of revenue changes in the U.S. telecom market. Revenue changes less than one percent, but the volume of revenue from growing and declining contributors changes from negative five percent to positive 24 percent.

Basically, voice and messaging revenues drop, while data revenues, business segment and video entertainment revenues climb.

As former Cisco CEO John Chambers was always fond of saying, transitions are the key to success. “Market transitions wait for no one,” Chambers said. In 2011, perhaps it would have been thought unremarkable to assert that “voice will be free.”

In 2000, at the very peak of U.S. long distance revenue, it might have seemed more outlandish.

Of course, that was only part of his thinking. "It wasn’t just voice that will commoditize and be free. Data transport will commoditize and be free and then video will commoditize and be free,” Chambers has argued, referring to the transmission business, not the content business.

Thursday, May 23, 2019

How Big is the SD-WAN Market?

One clear issue for markets with enterprise (customer-owned) and service provider (network service) segments is that overall combined forecasts can mislead. That has been very clear with the software-defined wide area network (SD-WAN) market, which has a distinct enterprise segment (organizations buy their own equipment to provision) and a managed service business (carrier supplies the service).

Forecasts of the balance between the private and managed service portions of the SD-WAN market vary substantially. Some believe most of the business will be private.

Between now and 2020, the service provider managed SD-WAN business will grow, but the enterprise-owned SD-WAN business might grow faster. By some estimates the managed services business will be about six percent of the total market by 2020.

Others think the SD-WAN business will be a mix, roughly in equal parts, of private implementations and managed services. Yet others believe managed services will represent most of the revenue, eventually.  


Average Household Data Consumption Reaches 274 GB

The OpenVault Broadband Industry report, a quarterly report that reflects broadband usage based on the aggregate consumption of millions of subscribers in the United States and Europe, shows that overall average monthly data usage reached a new high of 273.5 GB in the first quarter of 2019, a year-over-year increase of 27 percent over the first quarter 2018 monthly average of 215.4 GB.

Internet-only subscribers consumed 395.7 GB, more than 120 GB more than the average subscriber and almost double the 209.5 GB consumed by households that purchase a bundle of video and Internet services.

The percentage of power users, defined as subscribers who consume 1 TB or more of data per month, doubled to 4.2 percent of all subscribers in Q1 2019 from 2.1 percent in Q1 2018.

“Power users of the future,” described as tusers exceeding 2 TB of consumption each month,  more than doubled to 0.38 percent in Q1 2019 from 0.16 percent the year prior.

Western Europe Telco Subscription TV Share Will Reach 56% in 2024

Telcos will account for 56 percent of Western Europe’s linear subscription TV subscribers by 2024, according to Digital TV Research.

Digital TV Research predicts that cable TV will have 40.28 million subscribers by 2024; IPTV 38.72 million; and pay satellite TV 20.33 million subs. IPTV is the only one of these expected to make gains over the forecast period.

Half of the 18 countries covered by the report are tipped to lose subscription TV subscribers between 2018 and 2024 with Italy and the UK to see the biggest declines, losing 728,000 and 621,000 subscribers respectively.

By 2024, Germany is expected to account for 25 percent of Western Europe’s subscription TV subscribers, the UK for 15 percent and France for 14 percent.

Wednesday, May 22, 2019

About 2% of Consumers Tracked by OpenVault Buy Gigabit Service

Looking at internet service provider data generated by OpenVault in the United States and Western Europe, about 1.85 percent  of subscribers tracked by OpenVault buy gigabit-speed service.

Some 3.5 percent buy services running between 300 Mbps and 500 Mbps, while seven percent buy service at speeds between 200 Mbps to 300 Mbps.

About 65 percent buy services running  between 50 Mbps and 150 Mbps.

A reasonable person might guess that the percentage of customers buying speeds of at least 200 Mbps, up to 1 Gbps, is higher in the United States than Western Europe, largely because cable TV operators, which sell the highest speeds, dominate the U.S. market.

The mid-range Comcast Xfinity services, for example, seem to run at speeds up to 200 Mbps or 250 Mbps  across most of its markets.



On the Use and Misuse of Principles, Theorems and Concepts

When financial commentators compile lists of "potential black swans," they misunderstand the concept. As explained by Taleb Nasim ...