Rural Internet Access Will Always be Tough

Reality generally is more complicated than many would prefer, and supplying internet access to highly-isolated locations provides a clear example, even if some casually misunderstand the enormity of the problem. 

The big problem is that, at least for traditional fixed networks (fixed wireless is the exception), there literally is no business case for a communications network. Without subsidies, such networks cannot be sustained.

Assuming a standard fixed network investment cost, no positive business case can be produced over a 20-year period, the Federal Communications Commission has suggested. 

source: FCC 

That is why satellite access traditionally has been the only feasible option for highly-isolated locations, with subsidized access the only way most networks can survive in rural areas. 

There is a direct relationship between housing density and network cost. Most of the coverage problem lies in the last two percent of housing locations. Consider many U.S. states where rural population density ranges between 50 and 60 locations per square mile, and ignore the vast western regions east of the Pacific coast range and west of the Mississippi River, where population density can easily range in the low single digits per square mile.

source: FCC

Assume 55 locations per square mile, and two fixed network suppliers in each area. That means a theoretical maximum of 27 customers per square mile, if buying is at 100 percent. Two equally skilled competitors might expect to split the market, so each provider, theoretically, gets 27 accounts per square mile.

At average revenue of perhaps $75 a month, that means total revenue of about $2025 a month, per square mile, or $24,300 per year, for all the customers in a square mile.

The network reaching all homes in that square mile might cost an average of $23,500 per home, or about $1.3 million.

At 50 percent adoption, that works out to roughly $47,000 per account in a square mile, against revenue of $900 per account, per year. Over 10 years, revenue per account amounts to $9,000.

The business case does not exist, without subsidies. 

It remains unclear whether new low earth orbit satellite constellations can attack the cost problem aggressively. What does not seem unrealistic is that revenue expectations remain in the $100 per month range, for internet access.

Facebook Creating its Own Operating System Points to Telco Strategy as Well

Some might argue operating systems now are irrelevant, or nearly so, as barriers to consumer use of applications and services. Operating systems clearly continue to matter for app, device and platform suppliers, though. Which might explain why Facebook is now working on its own operating system, apparently for use with virtual reality or augmented reality products.

As Apple now designs its own chips and Google and Amazon design and market their own hardware, so Facebook is thought to be readying its own chip designs to support the new operating system and might design its own eyewear computing appliances.

Apple long has had its own audio services and now has moved into the video streaming business as well, as well as long having its own operating systems. 

Such moves into other parts of the ecosystem are hardly new. Google the supplier of leading consumer applications also became a hardware supplier, an internet service provider and an operating system platform as well. 

Amazon designs and builds its own hardware, is a cloud computing services supplier, provides its own video and audio streaming services and builds its own servers and server chips. 

The strategy of moving into new parts of the internet and consumer products ecosystems therefore has been underway for some time. 

There are implications for connectivity providers, whose historic and unique role in the ecosystem--network connectivity--is under assault by others in the internet ecosystem. Others in the ecosystem are gradually occupying multiple roles in the value chain, sometimes to reduce costs, sometimes to create product distinctiveness, sometimes to gain strategic leverage over potential or present competitors. 

At least in principle, such moves might also make future “breakup” efforts more difficult for regulators and policymakers, or at least create potential new revenue streams in the event of any successful breakup efforts. Licensing of core technology might be a necessary part of any such efforts, even if key applications are separated. 

Connectivity providers have not been comatose in exploring ways to enter other parts of the value chain, but it has proven quite difficult. The existential danger is that, over time, value in the ecosystem will continue to shift to appliances and devices; applications and platforms; marketplaces and commerce. 

That is why some believe “connectivity alone” will not continue to be a viable revenue model for telcos, despite the obvious danger in attempting major transformations. As the old saying suggests, telcos are between a rock and a hard place; certain decline or demise and possible decline and demise. 

Even as 5G, edge computing, internet of things, augmented, artificial reality and network slicing create new potential roles and revenue streams, the decay of legacy connectivity provider revenue streams is obvious and significant. 

Also, at a high level, connectivity budgets--consumer or organization and business--are not unlimited. Even if new products are developed that replace older products, customers are unlikely to spend much more than they do at present, for all such services. 

Big new revenue opportunities therefore almost by definition must come from outside the traditional connectivity ecosystem. It will be risky. But it might be a necessary risk.

Mobile Voice Revenues to Fall from $380 Billion to $210 Billion in 2024

Mobile operator revenue from voice services will fall from $380 billion in 2019 to $210 billion in 2024, at least in part because of  increasing usage of over-the-top apps, including WhatsApp and Viber, says Juniper Research. 

Precisely what can be done about that remains a big question. 

source: Juniper Research

Juniper Research recommends that operators sign partnerships with hosted services providers, notably through Communications-Platform-as-a-Service. Some might simply call CPaaS “wholesale” access, allowing third party customers or partners access to mobile subscribers for voice and messaging services. 

source: Juniper Research

That advice, commonly offered, seems questionable as a way of arresting the decline of mobile voice revenues. Telcos--both fixed and mobile--have been encouraged by some to partner with third party VoIP suppliers since the early days of IP telephony. 

The problem is that partnering with OTT voice and messaging providers is problematic, for a number of reasons. For starters, profit margins are low. Also, there is no reason WhatsApp or other OTT messaging providers “need” to partner with connectivity providers. They can go direct to end users, and do, routinely.

That, in fact, is the meaning of the phrase “over the top.” App providers do not need permission from connectivity providers to deliver their services to end users. Also, consumers continue to abandon fixed line telephony. It is hard to see how allowing third parties to use wholesale telco services can reverse that trend. 

Mobile operators might lose $157 billion in voice revenue between 2018 and 2023, Juniper Research forecast in 2018.  The latest forecast is that operator revenue from voice services will fall from $380 billion in 2019 to $210 billion in 2024. 

source: Ovum

It remains to be seen whether wholesale markets will present greater opportunities as smart speakers become ubiquitous, and if some suppliers seek to add public network calling to their devices and services. 

Still, it seems a stretch to think that demand for this type of support (calling to public network customers using smart speakers) will generate significant profit for telcos, even if some amount of gross revenue might be earned by supporting third party customers who want to support public network calling that originates and terminates on smart speakers. 

So far, it seems unclear whether public network calling using smart speakers will become a feature smart speaker suppliers will wish to add. 

Still No Scientific Evidence that Mobile Phones or Cell Towers are Dangerous

According to the Institute of Electrical and Electronics Engineers, there is no scientifically validated evidence that chronic exposure to radio waves at frequencies between 0 and 300 gigahertz are connected to adverse health effects. 

Likewise, the World Health Organization has found nno adverse health effects associated with mobile phone use. 

Much of the research is inconclusive, in part because a good portion of studies rely on participants to self-report their experience and because there are too many environmental factors that could play a role in the health effects that do appear. And faulty research has been an issue in the past. 

Power levels for cell phones and even cell towers are quite low. Consider that a cell tower radio emits energy 100 to 5,000 times lower than a TV transmitter, for example. Some liken the power level to that of a light bulb.

Radio signals weaken (attenuate) logarithmically, by powers of 10, so the power levels decay quite rapidly.

Basically, doubling the distance of a receiver from a transmitter means that the strength of the signal at that new location is 50 percent  of its previous value. Just three meters from the antenna, a cell tower radio’s power density has dropped by an order of magnitude (10 times).

At 10 meters--perhaps to the base of the tower, power density is down two orders of magnitude. At 500 meters, a distance a human is using the signals, power density has dropped six orders of magnitude.

And that is for macrocell towers that transmit at higher powers.  Small 5G cells will have lower output powers, and have to be characterized as well. But the general rule of thumb is that output power really matters: high power is of more concern than low power. 

If you are concerned about exposure, phones are the issue, not cell towers.

FTTH, Fixed Wireless, Mobile Substitution Will Shape Market Share in Home Broadband Business

The viability of 5G fixed wireless and mobile substitution are possibly the biggest wild cards in the U.S. fixed network internet access business. For the most part, where telcos and other internet service providers have fiber-to-premises networks, market share of about 50 percent for the telco is possible, with cable TV operator share capped at about 50 percent.

Projections will therefore be highly sensitive to possible market share shifts to fixed wireless or mobile substitution.

Internet access market share in the U.S. fixed network markets is becoming a “haves and have-nots” issue. Where telcos and other internet service providers operate fiber-to-premises networks, they will tend to get half the market.

Telcos only able to use digital subscriber line might be lucky to retain 27 percent market share, MoffettNathanson argues. 

                           source: MoffettNathanson 

"We expect there to be no meaningful functional difference, at least to end users, between FTTH and cable's DOCSIS 3.1 and, soon, DOCSIS 4.0, offerings," the firm believes. "In short, there is no longer a reason to assume that cable broadband is a disadvantaged technology even versus FTTH."

The firm does not believe 5G fixed wireless will be a material help for telcos and other ISPs, which might account for the more-robust estimate of cable market share. Of course, others believe fixed wireless could eventually get 15 percent market share. That is more than enough share shift to upset MoffettNathanson projections, assuming the bulk of that share is gained by ISPs other than cable. 

The other sensitivity is a significant further shift to mobile-only access, which in an era of unlimited usage plans and 5G speeds might prove attractive to a significant percentage of customers. 

MoffettNathanson believes Altice USA and Cable One are in position to keep growing their internet access market share, in large part because they will not face a big telco with fiber-to-home assets. 

AT&T competes in 42 percent of Altice’s network footprint, for example. AT&T competes with Comcast across just 34 percent of Comcast’s footprint; 30 percent of Charter’s network and only eight percent of and Cable One’s coverage. 

The Altice Suddenlink assets are where MoffettNathanson expects Altice to keep taking market share. 

Moffett sees Comcast's long-term share potential at 60 percent, with telcos and others getting the balance. Charter’s likely share limit is 61 percent.  Altice USA will peak at 60 percent, but ub the former Suddenlink areas, market share could reach 72 percent share. 

That will not be true where Altice competes against Verizon’s FiOS network. There, Altice might peak at 53 percent. 

  source: MoffettNathanson

How Fast Will 5G be Adopted?

Opinions about 5G adoption rates range from "about the same as 4G" to "slower" or "faster" than 4G. In the long term, 5G is virtualy certain to become as widespread as 4G, but observers disagree about near-term adoption--compared to 3G and 4G.

CCS Insight sees 5G adoption taking a broadly similar path to 4G LTE technology. Subscriptions to 5G networks will reach 2.6 billion in 2025.

But eMarketer, apparently quoting CCS Insight, is showing slightly-higher numbers, even though it bases its chart on the CCS Insight data. Perhaps CCS Insight has itself revised its projections since October 2019, when the original forecast was released. 

It is conceivable that the eMarketer estimate adds fixed 5G connections, but CCS Insight believes such connections will be about one percent of total 5G. That would not be enough to change the eMarketer estimates so much. 

source: CCS Insight

Other estimates suggest fewer than one billion 5G subscriptions by 20234. 

source: eMarketer

Telecom Customer Satisfaction Might Not be as Bad as Some Think

Customer satisfaction with telecom services often measures lower than in other industries. But that does not necessarily mean customer satisfaction with telecom services is “poor.” To be sure, one net promoter score survey scored video subscriptions at “zero,” on average. That sounds terrible, but net promoter scores, a measure of customer satisfaction measured by willingness to recommend a firm, are measured on a scale of minus 100 to positive 100. 

So a score of zero is actually right at the edge of a  “good” score. Many consider any score up to 30 to be in the “good” category. That is not to say many connectivity services generally are considered “very good” by most consumers. Connectivity services typically do not have the highest industry scores. But a “good” score is not a bad thing. 

Also, there is some evidence that connectivity suppliers naturally spend more effort on their larger--and higher revenue generating--customers. One survey of NPS by Analysys Mason shows precisely that trend. Larger firms--assumed to be larger accounts--are more satisfied than small businesses, for example. 

Though mobile service provider satisfaction tends to be higher than that of fixed services, the same pattern holds: bigger organizations report higher NPS. 

source: Analysys Mason

Such low scores do not appear unusual. A 2018 analysys actually produced negative average net promoter scores for video subscription services, while mobile service providers averaged a 22 score.

source: Qualtrics

source: Qualtrics

AI Performance Now Exceeds Moore's Law Rates

Prior to 2012, artificial intelligence improvement closely tracked Moore’s Law, with compute doubling every two years. Post-2012, compute has been doubling every 3.4 months, according to the Artificial Intelligence Index Report 2019.  

The amount of computation used in the largest AI training runs has doubled every 3.4 months since 2012 (net increase of 300,000 times). The y-axis of the chart shows the total amount of compute, in petaflop/s-days, used to train selected results. 

A petaflop-day (pf-day) consists of performing1015 neural net operations per second for one day, or a total of about 1020 operations. 

Artificial Intelligence Index Report 2019

Early 5G is More Supplier Push Than End User Pull

We sometimes forget that multiple drivers can exist whenver a mobile operator deploys a next-generation network, and consumer "need" or "demand" is only one of those drivers. One value of 4G was that it lowered the cost per bit of mobile data. The same will be true of 5G.

One advantage of 4G small cells is the ability to supply more capacity at usage hotspots. 5G small cells are going to do the same. Again, the advantage only indirectly accrues to end users. The direct advantage is gained by the service provider.

Nor is it clear that 5G ultra-low latency actually directly leads to improved end user experience. Without additional investments in edge computing, app providers cannot actually change end-to-end experience, so end users can experience the changes.

Much early 5G adoption will be supplier push, not end user pull, in other words.

International Data Corporation projects the number of 5G connections to grow from roughly 10.0 million in 2019 to 1.01 billion in 2023, a compound annual growth rate of 217.2 percent over the 2019 to 2023 forecast period. By 2023, IDC expects 5G will represent 8.9 percent of all mobile device connections.

At this point, with the exception of 5G fixed wireless, which provides perhaps the clearest example of demand-pull, much of the 5G adoption will likely be demand-push. In the former case, customers drive adoption because they see some value in doing so. In the latter case, service providers convince consumers to buy 5G because it is in the service provider’s best interest to do so, irrespective of existing consumer demand. 

In large part, that is because many of the “5G” end user benefits actually hinge on simultaneous availability of other capabilities as well, ranging from edge computing to network slicing to artificial intelligence to internet of things use cases. 

It is one thing to tout the near-zero latency of the 5G access network. But that is not the same thing as end-to-end application latency. How much advantage 5G network speeds will provide also is somewhat conditional. 

On low-band networks there will be some improvement over 4G performance, but nothing like the order of magnitude gains from use of millimeter wave spectrum. But even any improvement in speeds must be evaluated against actual end user experience changes. In many, if not most cases, the additional speed, itself, will not lead to markedly-improved experience, except for big file downloads or some virtual reality or augmented reality use cases. 

IDG analysts sort of hint at this. Of the forces driving 5G adoption over the next several years, 5G will be adopted because “shifting data-intensive users and use cases to 5G will allow network operators to more efficiently manage network resources, improving performance and reliability as a result,” IDG says. 

The argument is not that users benefit, but that service providers benefit. 

Internet of things provides another example. “The need to support millions of connected endpoints at the same time will become increasingly critical,” IDG says. :5G's densification advantage be key for mobile network operators in providing reliable network performance.”

Again, mobile network operators gain, not end users directly. 

Low latency and higher speed likewise are said to potentially benefit enterprises. “Many of these use cases will come from businesses looking to leverage 5G's technological advantages in their edge computing, artificial intelligence, and cloud services initiatives,” IDG says.

5G Probably Benefits Mobile Operators More than Consumers, at First

Some complain that 5G is not being introduced fast enough in the U.S. market. But phased 5G service coverage is not the problem believe. Building one new continent-sized network always takes years. Building four simultaneously is harder. That is true of all next-generation mobile networks. It has been a decade since people lived through such a change--and some never have--so we tend to forget that. 

Still, compared to the introduction of 4G, phased deployment might not matter so much, for reasons of end user experience, service provider economics and ecosystem dynamics. We tend to forget that major device suppliers, such as Apple, historically lag the networks. 

The first Apple iPhone launched using 2G. A 3G iPhone was not launched until 2008, the year 4G launched in the U.S. market. A 4g iPhone was not available until 2013, about five years after 4G first appeared. It appears the iPhone 12, expected, in 2020, might feature both 4G and 5G models.  

The point is that the most-rapid-possible adoption is not always meaningful, nor harmful. 

That might be especially true in the 5G era, when many so-called 5G impacts actually are enabled by edge computing, internet of things, artificial intelligence or other correlated developments, not 5G itself. 

Are there network effects? Yes. Whenever an app, a process or a service or a product requires scale to provide value, it is said to be an example of network effects. Phone service, use of facsimile machines, social networks and online marketplaces of all sorts provide examples. 

Some point out that 5G is no different: 5G phones are most valuable when there is 5G service available, and 5G networks make 5G phone purchases more valuable. It’s a bit of a nuance, but what is not true is that 5G phones make mobile networks valuable, or that 5G networks make devices valuable. 

A 5G device can use a 4G network, and vice versa. So with the exception of any device features specifically related to 5G (access, mostly), all the other device value is obtainable, even when a user decides not to use--or cannot use--a 5G network. 

The point is that the speed of the 5G rollout might not matter to consumers so much. It will matter for mobile network operators, who can gain subscribers or lose them, based on the completeness and availability of their 5G offers. 

5G also will matter for mobile service providers with limited spectrum resources, as 5G will allow customers to shift usage to a new network featuring lots of bandwidth (millimeter wave, especially) and little contention, at the moment. As each user switches off 4G and on to 5G, experience for all the remaining 4G users improves, as there is less network loading. 

5G ubiquity also matters for developers of 5G use cases, apps and services, since there scale really does matter. And 5G device manufacturers also benefit from greater demand as customers actually can generally use their devices on the 5G networks. 

There, the actual performance advantages arguably are less important than the customer “knowing they can use a network they are paying for (in terms of new device purchase and possibly new service plan). 

Faster networks are “better” than slower networks, generally speaking. But that is conditional. If the user cannot benefit from the additional speed, does faster speed really matter? 

It matters most for service providers, who have to keep increasing capacity, but must realistically expect to do so for roughly the same prices as at present, best case. Lower cost per bit, in other words, is the key value, but for service providers, not consumers, directly. 

AT&T Expects to Reach 50% Internet Access Market Share in FTTH Areas

AT&T believes it will eventually get take rates for its fiber-to-home service, across 14.5 million households, “to a 50 percent mark over the three-year period” from activation, said Jeffery McElfresh,  AT&T Communications CEO. 

AT&T bases that forecast on past experience. “As you look at the fiber that we built out in the ground in 2016, at the three-year mark, we roughly approach about a 50 percent share gain in that territory,” said McElfresh.

Adoption levels at that level would be historically high for an incumbent telco, as Verizon has in the past gotten FiOS adoption in the 40-percent range after about three years. 

Take rates for FTTH services globally vary quite a lot, and may be an artifact of network coverage. U.S. FTTH accounts are low, but mostly because perhaps 66 percent of fixed network accounts are on cable TV hybrid fiber coax plant. Telcos collectively have only about 33 percent market share. 

South Korea seems an odd case. In South Korea, FTTH  take rates seem to be only about 10 percent, for example, though network coverage is about 99 percent. 

source: IDC

In Japan and New Zealand, take rates have reached the mid-40-percent range, and network coverage might be about 90 percent. But in France and the United Kingdom, FTTH adoption is in the low-20-percent range. 

That is why AT&T’s expectation that its FTTH adoption will reach 50 percent is important. It would reverse the traditional market share of a telco in the fixed network internet access market from 33 percent of customers to perhaps half.