6G as Industrial Policy

It has been quite some time since the idea of national “industrial policy” has had much currency in the United States, but 6G mobile network platforms seem to be shaping up as one area where attitudes could change, especially in the areas of indigenous supply chain. To be sure, 3G and 4G have been viewed as arenas for industrial policy in other parts of the world, and 6G is viewed as an area of policy for China. 

Despite the growing interest in 6G standards, it might not be so clear how leadership leads to advantage that can be reaped by countries, suppliers, service providers or consumers. The Alliance for Telecommunications Industry Solutions speaks of  “core technologies and recommended government actions,”  “rapid innovation and development” and  “common national purpose.”

Referring to 5G, ATIS notes the advantages of “development and early deployments” that, in a 6G context, might also confer leadership of “ideas, development, adoption and rapid commercialization of 6G.”

The idea is to focus on ways to “complement–not abandon or usurp–global standards in the ICT sector.” Key is “leadership of ideas.”

ATIS says “leadership begins with identifying a vision for the next decade,” although some related competencies include AI-Enabled Advanced Networks and Services, advanced antenna and radio systems, multi-access networks and likely a few key use cases. 

As a practical matter, that means “defining the technological breakthroughs that can lead the U.S. to sustainable technology leadership, with incentives for research and development and early investment.

Those steps, in turn, are viewed as vital to promoting time to market and “wide scale commercial adoption.”

More tactically, ATIs suggests tax credits for development in areas where U.S. firms might lead, continued spectrum policy support and support for efforts to commercialize 6G use cases. 

None of that would sound unusual, in the context of government policy in the 3G, 4G and now 5G eras. It is a mix of policies to spur supply and demand. Similar approaches arguably were common when many other nations--China, Singapore, South Korea, Japan, Israel--likewise chose to target economic growth in leadership, and as many others now also intend (Malaysia, Thailand, India and others). 

The methods will vary, but the idea is to focus effort, perhaps always easier on the supply than the demand side, but both have roles. 

It also is not too soon to argue what ultimately will matter most is not standards, which, by definition, will be global, but the ability to usefully deploy technology. By definition, every firm and nation will have access to the standards. 

But some firms, nations and regions might hope to create competencies in supply, or advantageous demand profiles. Scale, experience curves and intellectual property will matter. But so will skill at the application of new technology and leverage of existing assets.

Were that not the case, we should never see significant differences between productivity gains, for example, among any countries. As we used to say, tele-density and economic development should be directly related. And yet benefits are differential, even when tele-density, or internet usage, or network speeds, are identical or similar. 

The point is that what matters is the ability to leverage technology for economic advantage. High rates of deployed technology are only proxies for what benefit those deployments are expected to bring. 

That is not to say standards are unimportant. 

Technology standards in computing and communications are said to provide benefits for enterprises by reducing cost, minimizing risk, increasing the range of suppliers and making possible standardized training for employees. Such standards historically have been crucial in the hardware realm, much more than in the applications arenas. 

For consumers, standards are expected to produce the best goods and services, more value, lower cost and therefore wide availability. 

Benefits might also accrue to particular suppliers when proprietary standards become consumer or enterprise commercial “standards,” as was true for IBM and become true for Microsoft and Apple, Cisco and others. 

“Open” standards have also grown more important in the hardware and firmware spaces, as Linux, Android and Transmission Control Protocol/Internet Protocol suggest. 

The world of applications is much less dependent on international standards. In the internet era, Google, Facebook, WeChat, Amazon, Alibaba, Netflix and other solutions have not established themselves so much through standards as because consumers simply prefer to use them. 

Broadly speaking, broad global standards reduce risk for infrastructure suppliers, as they create larger markets and create more niches for original equipment manufacturers. 

What matters is productivity; the ability to wring value from investments. Industrial policy might help. Still, success will ultimately be determined by demand, not supply.

Short, Shallow Dip in Service Provider Revenue Because of Covid-19?

Though it might seem counter-intuitive, connectivity service provider revenue might not change all that much because of the Covid-19 pandemic, and a revenue rebound might be quite swift, in some markets.Some product lines and some geographies might not fare that well, but there are historical reasons to believe any dip will be shallow and short lived.

By way of comparison, that is what happened to telecom service provider revenue in the wake of the global Great Recession of 2008.

To be sure, some believe global telecom revenue will fall by 3.4 percent in 2020 compared to 2019, before returning to growth (0.8 percent) in 2021, according to Analysys Mason. Analysys Mason had previously forecast growth of 0.7 percent in 2020 and 0.8 percent in 2021. 

International Data Corp., on the other hand, predicts that global telecommunications and subscription TV services revenue will dip less than one percent in 2020. Most observers might agree that a dip of some size will happen. What is likely more contentious is the size of such a dip, or its duration. 

With all the talk about a new normal caused by the Covid-19 pandemic, where life in many ways will be permanently altered, it is worth keeping in mind that past traumatic events such as the Great Recession of 2008 can be very hard to detect in time series data where it is possible to track trends over time. 

So even if it seems too optimistic, the IDC prediction is well within historical expectations. The Great Recession of 2008 caused a momentary flattening of revenue growth, with the prior pattern asserting itself quickly afterwards. A modest dip would not be without precedent, even if we fear greater damage. 

And though it is reasonable to expect a dip in business customer spending (with economies shut down and significant bankruptcies expected), consumer spending on telecom services might well increase, as it did in the United States in the aftermath of the 2008 Great Recession. 

source: Statista

IDC estimates global service provider revenue at nearly $1.6 trillion in 2020, a decrease of 0.8 percent compared to 2019. IDC expects the decline to continue in 2021, but at a somewhat lower degree. 

The mobile segment, the largest segment of the market, will post a slight decline in 2020 due to lower revenues from roaming charges, less mobile data overages due to the stay-at-home situation, and slower net additions, especially in the consumer segment, IDC argues.

Fixed data services spending will increase by 2.9 percent in 2020. Spending on fixed voice services will continue to decline.

Subscription video services will be boosted by the lockdown, but also affected by the economic downturn, so the spending in this category is expected to decline slightly, says IDC.

The Americas market will see a tiny decline of 0.04 percent. Europe, the Middle East, and Africa (EMEA) and Asia/Pacific (including Japan) will dip more. Growth is not expected in EMEA or Asia/Pacific before 2022 as the users in emerging markets are expected to remain cautious about spending for some time, IDC estimates. 

source: IDC

Most Connectivity Service Providers Do Not Rank High on Customer Satisfaction, and Never Have

Connectivity service providers tend not to score high on customer satisfaction surveys, though it appears satisfaction with mobile services has improved over the last decade, according to the latest report by the American Customer Satisfaction Index (ACSI). 

Internet service providers still score near but not at the bottom of all industries for customer satisfaction. Linear TV subscription services, video on demand services hold that baleful distinction. Fixed line services are near the bottom of industry rankings as well. 

source: ACSI

Yesterday's Power User is Today's Light User

Definitions always matter. What is “fast” or “slow” changes over time. How much data a “power user” consumes also changes over time. The cost of supplying a bit likewise changes over time. 

That means we move the goalposts over time. Yesterday’s power user is today’s light user. 

For most potential U.S. internet access customers back in 1995, dial-up access ran at 56 kbps, tops. In 2002 or so, AOL had more than 26 million customers buying its dial-up service, for example, and speed had increased to perhaps 128 kbps, using better modems. At least, that is what I seem to remember. 

Pre-1996, the speed of a fiber-to-home internet access connection was 10 Mbps. When Verizon launched FiOS in 2005 speed was 30 Mbps. Now FiOS offers speeds up to a gigabit per second. 

One sees the same progression for digital subscriber line and cable TV hybrid fiber coax networks, or U.S. average speeds.  

source: NCTA 

source: Alcatel-Lucent

With static reference points, over time, all users become power users. So we adjust the definitions upward. 

The latest OpenVault data shows the power user category grew to about 10 percent of subscribers, the definition of power user being the consumption of more than 1 TB of data per month. 

source: OpenVault

Can Challenger ISPs Compete When They Do Not Offer Gigabit Speeds?

Consumers are rational about their internet access purchases. At any given point in time, most consumer customers buy service plans in the middle of the range (price and speed), instead of the fastest or slowest tiers of service. Of U.S. and Western European accounts tracked by OpenVault, for example, about four percent of consumers are power users. 

source: OpenVault

Perhaps two percent to three percent of customers actually buy the gigabit speed tier. Globally, the 64 percent of customers buy service between 50 Mbps and 300 Mbps. 

source: OpenVault

Marketing claims by service providers notwithstanding, that is a good pattern to remember. When Verizon launched its fiber-to-home FiOS service in 2005, top speeds were 30 Mbps. Earlier FTTH deployments had a top speed of 10 Mbps. 

I recall saying, back then,  that if I ever was able to buy the product, I would do so. Fast forward to 2016 or so, when I could buy gigabit per second service, but still have not done so. 

So the clear question is “why” that has not happened, and the clear answer is that the apps I use do not actually require 1 Gbps, or even 500 Mbps. There is, in fact, no perceivable experience advantage to buying such services, at the moment. Beyond perhaps 25 Mbps to 50 Mbps per user, I am not convinced I could discern any advantage from higher speeds. 

I am fairly convinced that no application I use actually benefits from speeds faster than 100 Mbps on my end of the access connection, whether I can experience the difference or not. 

That could have implications for would-be challengers in the residential internet access business. As a practical matter, most of the addressable market--as much as 95 percent of all potential buyers--will actually buy service up to about 300 Mbps. 

So most of the market can be contested when an internet service provider provides speeds up to perhaps 150 Mbps to 300 Mbps.

Execution Risk or Mssing a Transition: Which is Worse?

Which would you rather face: execution risk or execution? Not to overplay the thesis, but the former is what telcos face in trying to move up the stack or into new parts of the value chain; the latter is the danger connectivity providers face in a world where dumb pipe (low margin) operations increasingly are the norm and legacy services are shrinking.

With the caveat that smaller specialty firms have different constraints and opportunities, tier-one telcos face big choices. 

Much hinges on one’s assessment of the ability to sustain a business on connectivity services alone (voice, messaging, internet access, internet of things), or whether sustainability eventually requires new revenue sources beyond connectivity. 

The matter is more confused than is typical at the moment because, though all connectivity providers face some risk in economies that have been largely shut down, connectivity providers with content production,  linear video, theme park and cruise operations also face the revenue -disruption from those lines of business. 

In other words, it can seem safer, at the moment, to have only connectivity lines of business. We will only know the outcome--stick to connectivity or diversify-- after a decade or more. There will be substantial execution risk. Telcos have not proven especially adept at seizing leading roles in new lines of business. 

And even early approaches by telcos towards edge computing arguably have been more “dumb pipe” than “new roles in value chain.” For most tier-one telcos, that is rational. We are early in the shift to edge computing, so opportunity and risk really have to be balanced. And, for most tier-one telcos, the upside from edge computing might not extend too far beyond the possibility of new connection revenue. 

source: PwC

Some would argue that the firms that diversified into content ownership (Comcast and AT&T, for example) have not fared as well, in the context of the Covid-19 pandemic, as did firms that are not in those parts of the business, and still make nearly all their revenue from connectivity services. 

Whether that remains the pattern after the pandemic is among the key questions. Perhaps edge computing or the internet of things will allow some telcos to create big new connectivity businesses substantial enough to replace lost legacy revenues. 

But it could also happen that, in the core connectivity business; subscription growth remains muted; average revenue per user continues to drop; profit margins remain slender or drop and product substitution continues. 

In that case, firms with more-diversified portfolios, elsewhere in the internet ecosystem, could well do better than firms limited to connectivity roles. 

What is a "Small Business?" The Definition Matters

Small business is a challenging category, as it includes self-employed people who work out of their homes, as well as the  “gig economy” self employed, So most small businesses might not qualify for assistance as part of the U.S. Payroll Protection Program, which is designed to help small businesses avoid layoffs. 

By some estimates, there are 30 million small businesses in the United States. By some estimates six million businesses have gotten PPP loans. The implication is that the program has not reached most firms. That might not be the case. 

According to the U.S. Census Bureau there are about 27.6 million total U.S. businesses and about six million companies. But only about 7.9 million locations have “employees.” Keep in mind that those figures are for all businesses, not just small businesses. 

Put another way, those 7.9 million locations of all sizes represent 131 million employees, and most small businesses have no employees.

If six million small businesses have gotten PPP funds, and there are but 7.9 million total U.S. locations with employees (enterprises and mid-sized firms plus small businesses), then it is quite possible that most actual small businesses with employees have gotten assistance. 

Assume 88 percent of all firms have fewer than 20 employees. That implies 5.3 million firms out of the total. If six million PPP grants have been made, that could imply that every firm with 20 or fewer employees has gotten a grant. 

Not having looked at the rules, it is hard to say, but since 72 percent of all businesses have zero employees, they might not qualify at all for PPP support. The latest U.S. Census Bureau data “show that more than three-fourths of U.S. businesses may be run out of someone’s home and have zero employees. 

The more-disturbing conclusion might be that many small businesses have decided not to risk accepting the PPP loans, and have instead laid off their employees, while many firms getting the PPP loans might still be considered “small,” but perhaps have more employees than 20. 

About 10.8 million U.S. business locations have fewer than 20 employees, and nearly half of those have fewer than nine employees each. 

The percentage of businesses that are home based has grown over the last decade. In 2007, more than half of all U.S. businesses were home based. By 2017, 38 million businesses were said to be home based. 

Right now, it is hard to say what percentage of “small businesses” have chosen to apply for or accept PPP assistance.

Demand for Internet Access Appears to be a Bell Curve

In 2019, about two percent of fixed network internet access accounts operated at 300 Mbps or higher, according to Ofcom. Some 16 percent of subscriptions offered speeds between 100 Mbps and less than 300 Mbps.

Fully 53 percent of accounts operated at rates between 30 Mbps and 100 Mbps. About 25 percent offered speeds between 10 Mbps and less than 30 Mbps. 

source: Ofcom

The takeaway is that U.K. consumers do not buy the fastest-available speeds and service plans. Fully 80 percent of customers buy services in the middle of the range, between 10 Mbps to less than 100 Mbps. 

That has clear implications for internet service providers and policymakers: headline speed races notwithstanding, most consumers buy services well short of the highest advertised rates. 

To the extent that infrastructure cost and speed are correlated, it might not always make sense to require or deploy facilities that push the speed boundaries. Most consumers probably will not buy them.

How Big is 5G Fixed Wireless Opportunity?

Fixed wireless based on 5G might have very different economics than older fixed wireless networks, if firms such as Verizon and T-Mobile actually can supply fixed access using the same radio network as they are building to support mobility services. 

That is the same logic behind “multi-purpose” rather than “single-purpose” networks: sell multiple products using one network. Some early modeling suggested skepticism about the business model, but there was similar skepticism about the cost of 5G networks in general, which has proven incorrect, as 5G network capex is far lower than many feared. 

Basically, if the capital investment to support mobile 5G also can be used to support fixed access, using customer premises gear only, and with no modifications to the mobile infrastructure, then the incremental cost of fixed access is “success-based.” 

We have seen this before. The economics are similar to those of optical fiber business networks in business areas, where each additional customer is served by construction of a short lateral. Most of the capex is invested in the core access network, with only modest additional costs to connect new customers. 

source: Verizon

In past years, that would have seemed quite impossible. Mobile networks could not support fixed network bandwidths at comparable retail prices. In principle, that is possible when 5G uses millimeter wave, shared or unlicensed spectrum. 

Nor must 5G fixed wireless necessarily fully replicate fixed network speeds, as most customers do not buy the “fastest” tier of service. 

By the end of 2019, for example, just  three percent of customers tracked by OpenVault purchased gigabit per second internet access. Nearly four percent bought service at between 500 Mbps and 900 Mbps. Some 11 percent purchased service running between 200 Mbps and 400 Mbps. 

About 37 percent bought service operating between 100 Mbps and 200 Mbps, while 24 percent had services running between 50 Mbps and 75 Mbps. 

“Most” consumers buy plans with features, compared to price, broadly “in the middle” of available plans. “Most” buy neither the most-expensive nor the most-affordable plans; neither the “highest usage” nor the “sharply limited” usage plans. 

source: OpenVault

source: OpenVault

The point is that a 5G fixed wireless service can be pitched to “most” customers without having to supply the fastest expected fixed network speed. 

Looking at slightly-older data 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, Openvault data shows. 

Most people are not power users, either. Perhaps 60 percent of internet users consume less than 250 gigabytes a month. Perhaps 34 percent consumer more than 250 GB but less than 1,000 GB per month. Perhaps four percent of users consume more than 1,000 GB per month. 

source: OpenVault

The market for 5G fixed wireless might be more attractive than many suppose, even if it does not routinely offer gigabit speeds.

Most Consumers Buy Service Plans "in the Middle" of Offers

By the end of 2019, nearly three percent of customers tracked by OpenVault purchased gigabit per second internet access. Nearly four percent bought service at between 500 Mbps and 900 Mbps. Some 11 percent purchased service running between 200 Mbps and 400 Mbps. 

About 37 percent bought service operating between 100 Mbps and 200 Mbps, while 24 percent had services running between 50 Mbps and 75 Mbps. 

“Most” consumers buy plans with features, compared to price, broadly “in the middle” of available plans. “Most” buy neither the most-expensive nor the most-affordable plans; neither the “highest usage” nor the “sharply limited” usage plans. 

source: OpenVault

source: OpenVault

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, Openvault data shows. 

Most people are not power users, either. Perhaps 60 percent of internet users consume less than 250 gigabytes a month. Perhaps 34 percent consumer more than 250 GB but less than 1,000 GB per month. Perhaps four percent of users consume more than 1,000 GB per month. 

source: OpenVault

3% of Consumers Buy Gigabit Internet Access Service

Median monthly usage by broadband subscribers in 2020 is on a trajectory to surpass 250 GB for the first time, according to the OpenVault Broadband Industry report. 

By the end of 2019, nearly three percent of customers tracked by OpenVault purchased gigabit per second internet access. Nearly four percent bought service at between 500 Mbps and 900 Mbps. Some 11 percetn purchased service running between 200 Mbps and 400 Mbps. 

About 37 percent bought service operating between 100 Mbps and 200 Mbps, while 24 percent had services running between 50 Mbps and 75 Mbps. 

source: OpenVault

A 24.4 percent  increase in average provisioned speed, from 103.1 Mbps to 128.3 Mbps, in 2019 was slightly outpaced by a 27.3 percent  increase in average consumption, from 270.2 GB to 344 GB, OpenVault says. 

A median usage of 250 GB would represent a 24.9 percent increase from the 2019 median of 190.7 GB, OpenVault says. 

In late 2018, perhaps 1.85 percent of subscribers purchased gigabit-speed service. Nearly 66 percent bought services running  between 50 and 150 Mbps. Close to half of all subscribers (46 percent) bought service at speeds of 100 Mbps or higher. 

source: OpenVault

New Number-Two in U.K. Telecom Market

The press release announcing the proposed merger of Liberty Media’s Virgin Media and Telefonica’s O2 says the “50-50 joint venture brings together Virgin Media, the U.K.’s fastest broadband network, and O2, the country’s largest mobile platform.” And though such releases often are filled with hype and hope, the release literally describes reality. 

Though BT leads for U.K. mobile account installed base, O2 has been close behind, in recent years. Likewise, BT leads for U.K. fixed network accounts and internet access, but Virgin Media is a strong number-two and actually leads in the highest-speed lines in service. 

source: Point Topic

What happens next is the issue. Point Topic had formerly predicted flattish growth for Virgin Media, based in large part on its more-limited network footprint. That could change, as the firm continues to invest in network coverage. If Virgin Media’s network expands, so should its market share. 

source: Point Topic

The firms also expect operating and overhead savings. 

Mobile Broadband Now Used by 83% of All People on the Planet

Fixed networks, though vital, have not proven to be the answer to connecting the unconnected globally, as mobile networks have proven to be the way most people in the world use voice services, messaging and internet apps. In 2019, growth rates for fixed network internet access grew at about a half percent growth rate, down from two percent in 2018, according to Point Topic. 

source: Point Topic

By 2019 there were 108 subscriber accounts per 100 persons globally, with 83 percent use of mobile internet. In comparison, there were 15 fixed network broadband subscriptions per 100 persons and 12 fixed network voice subscriptions per person the same year, according to the International Telecommunications Union. 

source: ITU

Much of the fixed network broadband installed base is in China.

source: Point Topic

The highest fixed network broadband net additions are in a handful of countries including the United States, Iran, Indonesia, Viet Nam and Russia. 

source: Point Topic