So Far, 5G is Mostly about Entertainment

It is a little hard to determine at this point how the mass market will ultimately find value in 5G networks. Right now most 5G customers, in most markets, remain either innovators or early adopters. The former just want to have the latest thing; the latter typically are looking for some productivity advantage. 

So far, according to Ericsson research, early 5G users have increased engagement with some applications or use cases. Gaming, streaming music and video, virtual or augmented reality app use has increased. 

source: Ericsson 

None of that yet suggests a mass market trend, however, beyond the consumption of more entertainment content. 

Whether mobile service providers do a good or poor job marketing; despite initial coverage or battery life issues; before clear new use cases emerge for most users, 5G adoption eventually will reach more than 85 percent. Every next-generation mobile network has done so. 

Eventually, value propositions will be clear. But there perhaps remains a “crossing the chasm” challenge that has not yet been overcome: we have yet to make the leap from the “innovator” stage of uptake to most “early adopters.” Though 5G adoption has moved into the “early majority” phase in a few countries, globally 5G remains in the “innovator” stage. 

source: Geoffrey Moore 

At least 300 million smartphone users could take up 5G in 2021, Ericsson believes. But compared to global mobile subscriber count of five billion, 5G adoption remains far below one/tenth of one percent. 

Across the 20 lead markets where 5G commercial networks are available, an average four percent of consumers own a 5G smartphone and have a 5G subscription, Ericsson notes. That suggests markets in those 20 countries remain in the early adopter stage, and have yet to cross the chasm into the mass market. 

source: Ericsson

Sales of 5G-capable phones is misleading as well, as perhaps a fifth of 5G phones are used on 4G subscription plans, Ericsson notes. 

With a vested interest in rapid 5G uptake, Ericsson notes some early behavioral changes, but also suggests consumers are still waiting for viable new use cases and value. 

“5G users spend two hours more per week using cloud gaming and one hour more on augmented reality (AR) apps compared to 4G users,” Ericsson says. Some  20 percent say they have decreased their usage of Wi-Fi usage after upgrading to 5G. 

But indoor coverage limitations and a lack of compelling new use cases inhibits consumer uptake, Ericsson says.

Some 70  percent of consumers polled on behalf of Ericsson say they are dissatisfied with the availability of innovative 5G services and expect new applications making use of 5G.

One possibly important caveat: satisfaction metrics for 4G and 5G occur across very-different market segments. At this point, 4G is used by nearly everyone in mature markets. 5G serves an innovator or early adopter customer in most markets. Those customer segments have very different expectations. 

Innovators seek out novel technology; it’s like a hobby for them. Value, price and ease of use are not very important. Novelty is the driver: “it’s new.”

Early adopters, though quick to understand the benefits of new technology, do not value technology for its own sake. They value what new technology allows them to accomplish. In most markets, we are still in the early adopter stage. Already, though, value has become a more-important driver of adoption. That is likely why “what can it do for me?” has become something of a barrier to faster adoption. 

The early majority customer, in contrast, is practical. If a product seems useful, they will try it. But value has to be clear. Also, this type of customer will not tolerate “difficulty of use.” The technology has to be easy to use. And by this point, value--and therefore price and terms of use--matter. 

Late majority consumers are not confident in their ability to deal with technology and often buy from big companies, only after people they know use new products. 

Laggards are those consumers who, for personal and/or economic reasons, are not looking to buy new technology.

That likely accounts for the amount of interest in “innovative” features and use cases those surveyed on behalf of Ericsson express. 

The survey identified five jobs or outcomes that consumers hope 5G will accomplish:

• To be productive and efficient

• To be creative

• New ways of connecting and socializing

• The need for novelty (thrill, surprise, discovery)

• Rewarding me-time.

All that suggests there is yet work to be done in creating clear new use cases of value for most people. 

source: Ericsson

 

The Allen Curve and Hybrid Work

The Allen curve and the Ikea effect (sunk costs increase commitment) suggest why permanent hybrid work models will be tricky and possibly even difficult to sustain. The Allen curve suggests that physical proximity really matters for team building and communications. 

source: WeKnowScreens 

People seated within 10 meters of one another have the highest probability of communication. Employees who sit more than 25 meters apart have a low probability of communication. Team members sitting within the 10-meter to the 25-meter zone are likely to communicate at least once per week.

The issue is how to apply Allen principles to remote workers. 

In his 1977 book, Managing the Flow of Technology, Thomas J. Allen was the first to measure the strong negative correlation between physical distance and frequency of communication. 

The “Allen curve” estimates that we are four times as likely to communicate regularly with someone sitting six feet away from us as with someone 60 feet away, and that we almost never communicate with colleagues on separate floors or in separate buildings.

The Allen curve holds, some argue. In fact, as distance-shrinking technology accelerates, proximity is apparently becoming more important. Studies by Ben Waber show that both face-to-face and digital communications follow the Allen curve.

In one study, engineers who shared a physical office were 20 percent more likely to stay in touch digitally than those who worked elsewhere. And co-located coworkers emailed four times as frequently as colleagues in different locations. 

 

source: Harvard Business Review 

“We do not keep separate sets of people, some of whom we communicate with by one medium and some by another,” Allen said. “The more often we see someone face-to-face, the more likely it is that we will also telephone that person or communicate by another medium.” 

In the hybrid office, where some people are in person and others are remote, working from home has serious implications for being recognized and appreciated and getting bonuses and promotions, the concern might be.

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Concentration of Power is Ubiquitous in the Internet Ecosystem

One need not attribute especially “greedy” motives to the behavior of firms, organizations or people to recognize that competition creates restraints on any such impulses, whether the actors are people, firms or industries. 

In that regard, we might argue that the assumptions about concentration of power and inability to use markets to discipline firm behavior have changed over the past two decades. 

source: Oberlo 

It might once have been somewhat reasonable to assume that access provider unchecked power was most dangerous in the internet ecosystem. It might now be considered more important to address application provider and platform power, as competition seems less developed there than in the access business.

source: Digital Information World 

These days, market power might be seen in browser share, app store share, platform share, social media, e-commerce, cloud computing, search and just about anywhere else one wishes to look within the internet ecosystem. 

The point is that potential or actual monopolists or oligopolists can be found everywhere within the internet ecosystem. Furthermore, the power arguably is concentrated most significantly at the higher levels of the value or protocol stack: applications and platforms more than devices; devices more than operating systems; operating systems more than access providers.

Are App Store Revenue Splits Really Unfair? Maybe Not

Developers always complain about the revenue share they must make with distribution partners such as Apple and Google. But another way to look at the cost is to consider what it might cost developers, especially the small developers that dominate app supply, to create their own marketing and sales channels.

Keep in mind that is the real issue here: what does it cost a small developer to create its own sustainable marketing and sales programs--which also cost money--if developers chose not to use either Apple or Google for marketing and sales fulfillment. 

Perhaps you believe 30 percent of sales or 15 percent of sales is oppressive. But that must be evaluated against the cost of creating other channels. 

Market intelligence firm Sensor Tower estimates that global end-user spending from the Apple App Store and Google Play totalled US$111 billion in 2020, with the App Store accounting for 65 percent of the total and Google Play 35 percent, says Greg Sigel, Docomo Digital VP. 

In other words, Apple and Google accounted for virtually all sales of mobile apps globally. Apple and Google are the growth engines for the entire mobile app industry, and its primary sales channel.

So whether 30 percent or 15 percent is considered a fair compensation for a firm’s total marketing, distribution and sales strategies is not the issue. The issue is whether, and at what cost, one’s own direct distribution, marketing and sales infrastructure could be created and operated. 

By established rules of thumb, new firms should spend between 12 percent and 20 percent of gross revenue on marketing alone. Established firms might budget for marketing spend at six percent to 12 percent of gross revenue.

source: Cyclone Interactive  

But that is just marketing. Sales costs must include some combination of additional cost, especially sales wages and benefits and sales commissions. minimum of 15 percent to 30 percent and perhaps a maximum of up to 50 percent in some industries. 

So marketing plus sales could represent between 30 percent to 50 percent of gross revenue for younger firms. 

That is the context within which app store revenue shares need to be evaluated. “Build your own” is one way to evaluate sales and marketing cost, no matter which channel is preferred.

But to the extent that Apple and Google operate as efficient and effective marketing and sales channels, a revenue share between 30 percent and 15 percent is not out of line with other ways of building and maintaining marketing effort and sales results. 

The argument can be made that the app store revenue shares at 30 percent are less expensive for developers, especially small developers, than attempting to create their own marketing and sales channels. 

Too Much or Too Little Competition Can Depress Investment in Next-Generation Networks

Communications policy makers often face tough choices: policies that promote competition often decrease appetite for investment in new facilities. On the other hand, policies to incentivize investment often require or produce less competition. 

Maximum feasible competition, but also maximum feasible investment in next generation facilities often are preferred. But the two objectives lie in a state of tension. Too much competition dampens investment. But too little competition also dampens investment.

The trick is finding the balance between one monopoly supplier and some number greater than one, that produces a stable competitive outcome and sustained investment in next-generation facilities. Excessive competition drives companies out of the market because profits are not attainable. Too little competition reduces incentives for robust investment. 

As Federal Communications Commission staffers have argued, “private capital will only be available to fund investments in broadband networks where it is possible to earn returns in excess of the cost of capital. In short, only profitable networks will attract the investment required. 

A good example of this is the impact of competition on profit margins, average revenue per account and customer market share in facilities-based competitive markets.  

The first new facilities-based competitor in a market with a single provider reduces average revenue per user by four percent, but market share by 50 percent, FCC analysts calculated. 

source: FCC 

In markets with four competitors, potential market share is reduced 75 percent and ARPU falls 28 percent, according to FCC analysts.

Even in many wholesale-based markets, where retail competitors all use a single physical network, market share and ARPU reductions might mirror those of facilities competition markets. 

The point is that communications policy now also now is created under very different market circumstances than in the pre-1990s monopoly environment. Regulators want competition, but they also want investment. 

The problem is that too much competition tends to depress investment, as does too little competition.

Channel Conflict in Wholesale: Dish T-Mobile is an Old Story

T-Mobile agreed to provide major support for Dish Network’s emergence as a new “fourth provider” as a condition of gaining regulatory approval for its merger with Sprint. But no incumbent is especially keen on enabling its own competition. So friction between Dish and T-Mobile was inevitable. 

In a broader sense, channel conflict is a potential issue whenever wholesale mechanisms occur in the telecommunications business. Nearly two decades ago, as regulators were pondering methods to increase the amount of competition in local access markets, wholesale and facilities-based approaches were considered.

In most cases, because of the paucity of assets, wholesale has been the preferred policy approach. By allowing wholesale access to the dominant incumbent network, retail competition is increased, though often at the expense of facilitating new network investment by rivals. 

The salient exception has been the mobile business, which has been able to produce facilities investment while also spurring competition.  

As Federal Communications Commission staffers have argued, “private capital will only be available to fund investments in broadband networks where it is possible to earn returns in excess of the cost of capital. In short, only profitable networks will attract the investment required. 

A good example of this is the impact of competition on profit margins, average revenue per account and customer market share in facilities-based competitive markets.  

The first new facilities-based competitor in a market with a single provider reduces average revenue per user by four percent, but market share by 50 percent, FCC analysts calculated. 

source: FCC 

In markets with four competitors, potential market share is reduced 75 percent and ARPU falls 28 percent, according to FCC analysts.

Even in many wholesale-based markets, where retail competitors all use a single physical network, market share and ARPU reductions might mirror those of facilities competition markets.

Thailand Makes Big Broadband Jump

Thailand makes a big jump in broadband, both internationally and across Southeast Asia. Of the top 10 countries globally, ranked for typical speeds in December 2020, Singapore was first, Hong Kong was second and Thailand was third, according to Ookla. 

source: Ookla

Power Laws and Bell Curves

The Pareto principle, or 80/20 rule, is an example of a power law, and stands in contrast to a bell curve distribution. The former rule suggests 80 percent of outcomes are produced by 20 percent of actions. The latter rule suggests most outcomes are produced by “average” people or instances. 

The power law can be illustrated using the 80/20 principle. 

source: Visual Capitalist 

source: Visual Capitalist 

Contrast that with the bell curve, where most instances or outcomes cluster. That is why a bell curve is known as a standard distribution.  

source: Cate Bakos 

Which curve you believe applies to any endeavor suggests where to apply additional effort. Large social networks, for example, show a heavy tail distribution rather than a bell curve. 

Your organizational or personal outcomes might be affected by which distribution you believe applies. If most people and organizations can expect most of their results from a bell distribution, then broad measures might be conducive to higher performance. If, on the other hand, a power law holds, then it might be better to focus only on a relative handful of instances, actions or priorities. 

I was recently interviewed by a news outlet about the content of the Pacific Telecommunications Council’s annual conference. “Everything we do is about computing these days,” I said. You might say that is an example of a bell curve. There are a relatively small number of members whose concerns are not primarily digital services, infrastructure or products. 

But if you look at membership growth, a power law emerges. The fastest-growing category of firm members over the past half decade or so has been firms in the data center business. But that is because a bell curve also applies. 

Most member firms are in the global capacity business, either as enterprise end users or suppliers of capacity. And, by volume, global capacity demand is generated by hyperscale applications and data centers. 

And much of the value of data centers now comes from connectivity: within each data center and between data centers; between application providers, networks and ecosystem partners. In other words, the bell distribution installed base enables the power law growth.

Service Provider Revenue Flat, Overall, During 2020

Global telecommunications service provider revenues totaled $1.53 trillion in 2020, representing flat year-over-year growth, according to the International Data Corporation. Asia/Pacific service provider revenue was flat, while revenue grew in the Americas region and declined in Europe and the Middle East region. 

IDC expects worldwide spending to increase by 0.7 percent in 2021 reaching a total of $1.54 trillion. 

IDC had predicted in May 2020 that Covid would wind up having little impact on service provider revenues. In past recessions, even severe recessions, though telecom service provider revenues have dipped a bit,  revenues tend to hold up better than for many other industries. Revenue also tends to bounce back quickly once a recovery begins.

Many will note the big jump in data usage during the pandemic. But usage and revenue do not correlate in a highly-linear fashion. In fact, many service providers essentially switched to “no extra charges” during the pandemic, which broke the possible connection between higher usage and higher revenue. 

Global Regional Services Revenue and Growth (revenues in $B)
Global Region	2020 Revenue	2019 Revenue	20/19 Growth
Americas	$583	$579	0.7%
Asia/Pacific	$482	$482	0.0%
EMEA	$467	$471	-0.8%
WW Total	$1,532	$1,532	0.0%

source: IDC 

Segment trends varied.  Consumer fixed network data services arguably got a boost as workers were forced to stay home and students were kept out of school.

Aggregate business fixed data demand likely was stable in the enterprise segment, but it seems almost inevitable that small business bankruptcies will reduce demand from the small business segment. Enterprise locations likely saw a fall in usage, but multi-year contracts likely preserved revenue generation. 

Fixed voice demand has been falling for a couple of decades and it is unlikely Covid-related changes in demand will change the direction or magnitude of demand. 

Mobile services spending declined slightly, partly because marketing suffered from retail store closing; in part because consumer lockdowns meant less need for out of home communications; and partly because roaming revenues fell. With workers and students at home, more data demand likely was shifted to Wi-Fi, and off the mobile networks. 

 

The more important long-term observation is that global revenue growth now is quite flat.

source: IDC

Black Swans in Action

The Covid pandemic was a vivid reminder to all of us who create models, build scenarios or make predictions that we are unable to accurately account for all possible influences and outcomes. By definition, we are unable to account for highly-improbable, very rare events that have high effect on whatever it is that we are modeling. 

The pandemic also was a reminder of how difficult it is to create organizations that respond better to unexpected stresses. One tactic for reducing fragility is to possess more cash. That is akin to reducing reliance on "just in time" supply chains, which, as the pandemic showed, increases risk and fragility.

Many businesses and non-profits assume there will be times when revenues slow or increase. Cash reserves or contingency funds are one way to create "antifragile" capabilities. But I know of no organization that prepared for a sudden and complete shutdown of all operations--and a virtual ban on customers buying--extending for months to nearly a year.

Though for many of us the Covid pandemic is the biggest black swan event we have ever seen. A black swan event is unpredictable and unprecedented in scale and retroactively explainable, according to Nassim Taleb. 

Nassim actually states the case more dramatically: "nothing in the past can convincingly point to its possibility.” By that standard, some argue Covid is not a black swan; perhaps neither is the Great Recession of 2008; nor the emergence of the internet. We have seen major pandemics in human history. We have experienced severe global recessions and seen the impact of computer technology on human life. 

Perhaps the definition does not matter much. After all, Talib’s whole point is resilience; the ability to create organizational ability to adapt to low-probability and high-consequence events. Whether one believes Covid, for example, is a black swan or not, what might we have done to prepare for it. More to the point, what should we be doing to prepare for some unknown future black swan?

Retroactively, we can put into place mechanisms to deal with pandemics. But we cannot spend unlimited amounts of resources doing so. Nor, as a practical matter, can we easily design better systems to account for threats we cannot presently imagine. Yet that is what Taleb counsels. He calls such resilience “antifragile.”

Exercise is one antifragile practice, he argues. Perhaps cash in the bank also is an antifragility measure. Some might say this is  “resilience.” Taleb rejects that notion. Antifragility as Taleb views it is a property of systems that get stronger in the face of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures. 

“Antifragility is beyond resilience or robustness,” he argues. “The resilient resists shocks and stays the same; the antifragile gets better.” Antifragility is the ability to demonstrate a non-linear response to events. 

“You have to avoid debt because debt makes the system more fragile,” he says. “You have to increase redundancies in some spaces. You have to avoid optimization.” In a real sense, Taleb says antifragility is enhanced by being deliberately less specialized and less structured. 

The concept was developed by Nassim Nicholas Taleb in his book, Antifragile, and in technical papers.[1][2] As Taleb explains in his book, antifragility is fundamentally different from the concepts of resiliency (i.e. the ability to recover from failure) and robustness (that is, the ability to resist failure).  

Others might say it is disaster preparedness.   

One might well argue that there is a normal human resistance to spending too much time, effort or money on preparing for unpredictable; low-probability events with massive impact. By definition, we cannot foresee the sort of event we are preparing for. 

No forecaster, therefore, can predict or model the impact of a black swan event: it is, by definition, unpredictable. 

 We simply assume that present trends will continue, within some zone of variation. 

A positive black swan might be the internet; a prior negative black swan was the global Great Recession of 2008. We can all agree that one essential element of a black swan event is that it has a sudden and unexpected magnitude outside our models. 

source: Alex Danco 

The main idea is that black swan events are extremely unpredictable and have massive impacts on society. 

A corollary might be that black swan events are “preemptively ruled out” in human mental models or forecaster predictions.

“For an event to really be a Black Swan event, it has to play out in a domain that we thought we understood fluently, and thought we knew the edge cases and boundary conditions for possible realm,” argues Alex Danco. 

Immediate "economic curtailment worse than the Great Recession of 2008" was outside the thinking of anybody I have encountered.