Connectivity and Cloud Computing are Merging: Danger for Connectivity Providers

One big strategic change in the era of distributed, competitive, virtualized computing and networking is that the demarcation between industry participants is becoming more porous. That is to say, formerly-distinct roles are becoming less distinct. 

To put it another way, firms that once were not direct competitors now are emerging in such roles. This is not a new theme in the connectivity business. Encroachment has been happening for close to 20 years,  

according to Michael Porter.

To be sure, product demand also has shifted. People prefer to use mobile networks and devices for voice and messaging. But voice over IP also has destroyed the gross revenue and profit margin of international calling. App messaging has replaced carrier-sold text messaging. 

 

And now mobile platforms are being leveraged for private networking. Non-carrier 5G and networking offerings are gaining momentum, says Dan Bieler, Forrester principal analyst. 

“All major hyperscalers showcased (at Mobile World Congress) how they are getting more heavily involved in the networking  arena,” says Bieler. 

Google is working on network slicing on Android 12 for providing access to Google Cloud. 

Microsoft’s Azure for operators is a 5G overlay on Azure cloud WAN where Microsoft’s internet backbone carries the customers’ traffic.

Amazon Web Services is offering  private 5G solutions and cloud WAN and edge application offerings. 

“A new threat for telcos is on the horizon,” says Bieler. Importantly, “the lines are blurring between cloud computing and networking.”

Data Consumption Will be Added to Speed and Cost as Drivers of Fixed Network Access Platforms

In the past, access platforms have been differentiated based on speed and cost per passing or cost per customer. Going forward, they might also have to be differentiated based on total bandwidth consumption, in addition to speed and cost per customer or cost per passing. 

In the past, hybrid fiber coax has proven more economical as a fixed network platform than fiber to the home. Fixed wireless has been more affordable than FTTH. But that changes as consumption increases, AT&T argues. 

And many service providers--including cable TV companies who have used HFC--concede that, eventually, FTTH becomes an affordable way to keep boosting speeds beyond multi-gigabit ranges. 

For AT&T, once sustained data consumption per user approaches 250 gigabytes per billing period, FTTH economics get progressively better, since FTTH costs less to continually upgrade for higher speeds. 

source: AT&T 

As always, that assumption is based on AT&T’s total cost structure, the scale of its operations, capital structure and business model. Other internet service providers might have different options, for a longer period of time. 

That is especially true for some firms such as T-Mobile and Verizon that have no realistic opportunities to install FTTH nationwide, and whose prospects in the home broadband market are based on use of fixed wireless. 

Consumer willingness to pay, plus consumption profiles, do vary quite a lot. So for some, the issue is which segments of the market can be served by wireless, and which require FTTH. 

For T-Mobile and Verizon, the issue is how well, and how long, fixed wireless and mobile access platforms can  keep growing speeds and capacity fast enough to continue serving half the market. 

For cable operators the choices are how long to keep enhancing the HFC platform and when the switch to FTTH makes financial sense. 

AT&T passes about 57 million homes and considers about 50 million of those locations suitable--eventually--for FTTH. But that still leaves seven million locations where FTTH might not make sense. By 2025, AT&T expects to pass about 30 million consumer locations using FTTH, a bit less than 53 percent of total home locations. 

But even AT&T, which focuses on fiber for business customers, will see fixed wireless growth. AT&T cash flow from fixed network business customers is expected to rely heavily on cash flow from FTTx and fixed wireless services.

New Business Model Imperatives as Data Consumption Keeps Growing

For AT&T, once sustained data consumption per user approaches 250 gigabytes per billing period, FTTH economics get progressively better, since FTTH costs less to continually upgrade for higher speeds. 

source: AT&T 

As always, that assumption is based on AT&T’s total cost structure, the scale of its operations, capital structure and business model. Other internet service providers might have different options, for a longer period of time. 

That is especially true for some firms such as T-Mobile and Verizon that have no realistic opportunities to install FTTH nationwide, and whose prospects in the home broadband market are based on use of fixed wireless. 

Consumer willingness to pay, plus consumption profiles, do vary quite a lot. So for some, the issue is which segments of the market can be served by wireless, and which require FTTH. 

For T-Mobile and Verizon, the issue is how well, and how long, fixed wireless and mobile access platforms can  keep growing speeds and capacity fast enough to continue serving half the market. 

For cable operators the choices are how long to keep enhancing the HFC platform and when the switch to FTTH makes financial sense.

5G Will Not Drive the Next Great Wave of Innovation; Neither Will the Internet

These days it is hard to clearly delineate where 5G from edge computing begins and ends. The same thing might be said of 5G and the internet of things; or IoT and artificial intelligence or  machine learning; or 5G and AI. 

 

source: IET 

All that matters because it will be hard to “prove” whether it is 5G, edge computing, AI or IoT that has had some benefit for consumers, producers, firms or society. In many cases, it is the interworking of several technologies and services that create the benefit.  

source: Medium 

In more subtle ways we can argue that metaverse and blockchain--though perhaps independent variables, also will provide value for 5G, edge computing, AI and IoT that is hard to separate. 

It is the complex of technologies, not any single technology, that drives the wave of innovation. 

source: Medium 

The key takeaway is that we might now be in a transition of waves, where the growth drivers shift. Some proponents of 5G might argue that is the key innovation. Those in the computing industry will say it is cloud and edge computing. 

Others will point elsewhere, to widely-applied artificial intelligence. 

source: Visual Capitalist 

A key observation is that it is the complex of technologies--not a single driver--that underpins an innovation cycle. And, as always, we might be mistaken about the complex of technologies that fuel the next wave. 

Some of us have seen “robotics” on the “next wave” list for almost 50 years, and it has arguably not happened. So we might be wrong about the actual drivers of the next wave. 

source: The Geography of Transport Systems 

By definition, it will not be 5G, as we replace mobile networks every decade or so. Nor is the “internet” per se likely to continue as a driver.

People Might be Your Greatest Resource and Greatest Impediments as Well

Career resilience might be defined as the ability to recover from setbacks, adapt well to change, and keep going in the face of adversity. Strikingly, a survey by U.K. consultants Sarah Bond and Gillian Shapiro consultants suggests difficult relationships and organizational politics are paramount at work, respondents indicated. 

In other words, co-workers were the “biggest problems” women faced at work, causing the most setbacks. .

Fully 75 percent of respondents said that the biggest drain on their resilience reserves was “managing difficult people or office politics at work.” 

source: Bond, Shaprio, HBR 

It often is said that “people are our greatest resource.” It may also be the case that “people are the greatest sources of friction” within organizations.

Top End U.S. Broadband Speeds Now Range Between 2 Gbps and 5 Gbps

Multi-gigabit speeds now are becoming the top-end broadband offers in the U.S. market.  Comcast has introduced 3-Gbps services for business. Ziply has introduced symmetrical 2-Gbps service. Google Fiber has added 2-Gbps as well. 

Frontier Communications is doing the same. Verizon offers 2-Gbps Fios service. AT&T sells both 5-Gbps and 2-Gbps service. Many of those offers feature symmetrical bandwidth. 

That is not to say most consumers will ever buy the top-end service packages. Indeed, whatever the top end, most consumers buy plans in the middle ranges of performance and price.   

None of that should come as a surprise. U.S. internet bandwidth increases at just about the rate one would expect from Moore's Law. In the broadband business we have Nielsen's Law, which suggests speeds have a growth rate nearly 50 percent per year at the top end. 

Nielsen’s Law has operated since the days of dial-up internet access. Even if the “typical” consumer buys speeds an order of magnitude less than the headline speed, that still suggests the typical consumer--at a time when the fastest-possible speed is 100 Gbps to 1,000 Gbps--still will be buying service operating at speeds not less than 1 Gbps to 10 Gbps.  

source: FuturistSpeaker 

So top end speeds in the terabits per second are virtually inevitable by about 2050. The emergence of offers between 2 Gbps and 5 Gbps now is simply evidence that the trend continues.

U.K. Gigabit Internet Often Costs Between $72 and $83 Per Month

Gigabit-per-second home broadband prices in the United Kingdom vary by internet service provider and location, but Virgin Media O2 costs about £62 (US$82) per month. BT sells its gigabit service for £55, or about US$72. 

source: Point Topic

Content Drives Capacity Investment

50 years ago investment in transcontinental communications cables was driven by telcos. These days investment is driven by content providers, especially those supplying video content. And that trend has escalated since about 2020, according to TeleGeography data. 

source: TeleGeography 

Video content drives bandwidth demand, and also creates the owners’ economics that incentivize content providers to own, build and operate their own transport networks. 

source: TeleGeography 

In a similar way, data centers frequently now are built specifically for a relative handful of anchor tenants who are hyperscale cloud computing suppliers. 

To be sure, data center business models can use either retail or wholesale models. But one salient difference is that some wholesale data center business plans are built on the assumption that there are a handful of potential customers, namely the hyperscale app providers. 

source: TechTarget 

That is not to deny that larger enterprises might be tenants at many wholesale data centers. It is to say that the anchor tenants will be a small number of hyperscalers. 

source: Equinix 

New wholesale data center investments will be significant in Asia, for example. 

source: TeleGeography 

Among the many changes to the connectivity industry over the past 40 years is a shift of capacity investment to content providers and hyperscale cloud computing suppliers; a shift of media types to video; emergence of remote computing and the impact that has on computing architectures, data center requirements and connectivity locations. 

Broadly, the internet ecosystem now drives capital investment in computing and connectivity. Connectivity providers are simply a part of that broader ecosystem.

Wholesale Business Models Will Dominate Much Data Center Investment

Data center business models can use either retail or wholesale models. But one salient different is that some wholesale data center business plans are built on the assumption that there are a handful of potential customers, namely the hyperscale app providers. 

source: TechTarget 

That is not to deny that larger enterprises might be tenants at many wholesale data centers. It is to say that the anchor tenants will be a small number of hyperscalers. 

source: Equinix 

New wholesale data center investments will be significant in Asia, for example. 

source: TeleGeography

Truth, Lies, Statistics

Language always matters. Definitions and assumptions always matter, because the truth matters. Methodology matters, in that regard. 

The NPD Group says only 50 percent of homes in the continental U.S. have “true broadband speed of 25Mbps download or higher.”

That can be--and will be--interpreted at least two ways. It could mean that internet service providers are way behind the curve in making quality broadband available, or it could mean that consumers choose not to buy it. 

The former is a failure of supply; the second is a consumer choice. It matters which we are talking about. In fact, Openvault test data does not support the NPD assertions. In the third quarter of 2021, for example, 9.8 percent of actual consumers had test data showing downstream speeds “less than 50 Mbps.”

The percentage of customers unable to get 25 Mbps obviously is less than that. 

Though “average” speeds change all the time, the Openvault data show that by the third quarter of 2021, about 66 percent of all U.S. internet access buyers were getting speeds between 100 Mbps and 400 Mbps. 

source: Openvault 

While it might have been true that half of U.S. consumers were buying services operating between 100 Mbps and 200 Mbps a year earlier, it was by the third quarter of 2021 very hard to determine how many were really buying services unable to meet the FCC definition of 25 Mbps downstream. 

What also is undeniable is that most speed tests are conducted by consumers using Wi-Fi. That means the tests understate speed, as Wi-Fi speeds often are many times slower than delivered ISP speed. 

The point is that ISP delivered speeds quite often degraded by performance of the in-home Wi-Fi networks, older equipment or in-building obstructions. Actual speeds delivered by the internet service provider to a router are one matter. Actual speeds experienced by any Wi-Fi-connected device within the home are something else. 

source: CMIT Solutions 

In practice, Wi-Fi speeds can be an order of magnitude slower than the speed actually delivered by the ISP. So when a consumer using Wi-Fi measures 25 Mbps, the delivered speed can be as much as 250 Mbps. 

NPD Group says about its methodology that “the report is based on a combination of sales data, speed test results, consumer surveys, FCC data and other sources.”

That implies demand side dales data and speed test results. Consumer surveys can be either demand or supply side based. The Federal Communications Commission data tends to be supply side (state of facilities and availability). 

To be clearer, what NPD likely means is that 50 percent of U.S. consumers choose to buy internet access at speeds less than 25 Mbps. But that cannot be true, if other demand side studies are correct. 

The storyline that U.S. internet access is slow or expensive seems irresistible, even if it is questionable. A study by Speedtest of 2020 internet access speeds showed the United States had the highest performance of all countries who are members of the G-20. 

 

source: Ookla

So much for the demand side. On the supply side, 

A recent study by the European Telecommunications Network Operators association says prices are not high.  

“In fact, 34 percent of homes receive internet access at speeds of less than 5 Mbps, including 15 percent  that do not have any internet access. The key phrase is “receive.” It is the speed they purchase. 

There are other important nuances. When do people take speed tests? Primarily when they are having a problem. Almost nobody routinely takes speed tests when performance is untroubling. So there is a bias to the taking of speed tests when networks are most congested. 

Is it possible that half of U.S. homes do not receive 25 Mbps? It seems highly doubtful. If there are 10 concurrent devices active inside a home, might each device see performance that looks like “less than 25 Mbps?” That is possible, if all 10 devices are simultaneously active and delivered speed is about 250 Mbps and all the devices use Wi-Fi.

But to argue that “half of U.S. homes” do not “receive” 25 Mbps seems contradicted by available data on actual usage. And that is just the demand side.

Between 60 percent and 80 percent of U.S. home locations can buy gigabit service if they chose to do so. Not all do so. 

But that reflects a consumer choice, not a failure of supply. 

It is highly likely that at least 80 percent of U.S. homes can buy internet access at speeds no lower than 500 Mbps and 1 Gbps if they choose to do so. Over time, as average supplied speeds climb, they will eventually do so. 

Blockchain Reduces Connectivity Business Friction

Blockchain has many uses in the connectivity business, ranging from settlements to privacy to spam reduction to roaming payments. Unlike some public blockchain networks, telecom blockchain is more likely to use private blockchain where all the participants are verified in advance.  

Essentially, blockchain is designed for ecosystems, with multiple, decentralized sources of identity that mean every participant in the network has the ability to verify the correctness of transactions. 

 source: Deloitte

One thing should be obvious: using blockchain, ecosystem partners gain the ability to trade and transact with any member with less friction. Most of the time and effort required to create “trust” and avoid dangers such as fraud, billing errors, privacy breaches or non-payment are avoided. 

Information friction--increasing transaction cost and risk--can result from imperfect information.  Participants in a transaction may not have access to the same information, giving one party an unfair advantage. 

Another source of cost is that Information might be incorrect or inconsistent, leading to bad decisions or delays.

Also, some information is Inaccessible. That can produce more than friction and risk: it can lead to inability to fulfill an order. 

Finally, security risks increase friction, whether from hacking attacks and cybercrime to privacy concerns and identity theft. Those dangers might be more frequently a reality for retail customers, but even wholesale and business-to-business transactions can be affected. 

The other implication is that blockchain helps enable something resembling an e-commerce platform, allowing partners to complete transactions faster and with less danger of fraud or error. 

Think of this as one more example of the industry’s decades-long desire to create on-demand delivery mechanisms. Altogether, blockchain is one tool of several that connectivity providers will be using to reduce friction in the value chain, often boosting profits in the process.

Blockchain and On-Demand Provisioning

Telcos have desired on-demand fulfillment mechanisms for at least 50 years. Blockchain now will allow them to do so more widely, especially in the area of settlements between transacting parties, whether connectivity or computing and storage suppliers.

“End to end paperless” processes in the air freight industry are designed to reduce costs, improve traceability and enhance efficiency. 

source: IATA 

In principle, the same sort of process might be implemented in the connectivity business for billing and settlements. If e-freight is based on a bilateral transaction between a shipper and a recipient, so too connectivity or computation services are built on transactions between customers and suppliers, usually conducted as a bilateral agreement. 

Essentially, blockchain is designed for ecosystems, with multiple, decentralized sources of identity that mean every participant in the network has the ability to verify the correctness of transactions. 

 source: Deloitte

One thing should be obvious: using blockchain, ecosystem partners gain the ability to trade and transact with any member with less friction. Most of the time and effort required to create “trust” is avoided. 

The other implication is that blockchain helps enable something resembling an e-commerce platform, allowing partners to complete transactions faster and with less danger of fraud or error. 

Think of this as one more example of the industry’s decades-long desire to create on-demand delivery mechanisms. 

Communications "Just an API?"

“Bits are bits,” many used to remark during the early days of transition from single-purpose to multi-purpose networks. 

“Communications” is “just an application programming interface," some now argue.

Both statements are true to an extent, and wrong to an extent. It is true that the advantage of multi-purpose networks is that they can carry any media type. In that sense, bits are bits. But various applications require different support. 

Video requires consistent packet delivery and hence created a need for content delivery networks, which reduce latency and jitter artifacts that mar video experience. 

source: Global Dots 

Various forms of extended reality or process control  will likely require intensive data processing very close to the end user, hence creating a need for edge computing. 

Likewise, what tends to be meant by “communications is just an API” is that communications capabilities (voice, messaging, unified communications) can be added to any application using an API. 

It is meant to mean the abstraction of a great amount of complexity and infrastructure that the actual end user need not worry about. 

Comcast Boosts Speeds, Adding 3 Gpbs Symmetrical Service

Comcast has increased speeds for its most popular Xfinity Internet tiers for residential customers across 14 northeastern states from Maine through Virginia and the District of Columbia.

In October 2021 Xfinity increased Gigabit Pro speeds from 2/2 Gbps to 3/3 Gbps symmetrical nationwide. That service is offered using a fiber-to-home connection. 

source: Comcast

Also, the 800 Mbps tier will have speeds boosted to 900 Mbps, with an additional 5 Mbps added in the upstream. The 400 Mbps tier will be boosted to 600 Mbps, with a 10 Mbps increase in upstream speeds.

The 200 Mbps tier will be upped to 300 Mbps, with 5 Mbps faster upstream speeds.