Value is What the Customer Says It Is

Value, in the end, is what a customer says it is.

With all of the marketing hype now underway in the U.S. mobile market, you might think any of the four largest U.S. mobile service providers have a lead on some metric deemed important to customers.

And with the caveat that end user perception of value includes both performance (or “quality” proxies of various types) and price, plus other terms and conditions (bundle offers, discounts, contracts, usage limits, exemptions from usage charges for entertainment video, device availability), customers keep saying that Verizon has the best network, while other networks have less consistent performance.

All marketing hype aside, Verizon customers across the United States consistently say they have fewer network problems, according to J.D. Power.

Performance by other tier-one providers varies by region.

In the Northeast and West regions, AT&T scores worse than all the others. In the Mid-Atlantic, Southeast, North Central and Southwest regions, T-Mobile US scores the worse. Sprint is not at the top, or at the bottom, in any region.

But Sprint finished number two in the Southwest and West regions.

Customers, rightly or wrongly, keep saying Verizon has the best network.

Ignore Marketing Hype About Network Quality: Here is What Customers Say

All marketing hype aside, Verizon customers across the United States consistently say they have fewer network problems. Performance by other tier-one providers varies by region, according to J.D. Power surveys.

In the Northeast and West regions, AT&T scores worse than all the others. In the Mid-Atlantic, Southeast, North Central and Southwest regions, T-Mobile US scores the worse. Sprint is not at the top, or at the bottom, in any region.

But Sprint finished number two in the Southwest and West regions.

As big a problem as rural mobile coverage might be, most people--and the most demanding customers--live in urban areas. For that reason, the sheer volume of coverage or capacity problems will happen in urban areas.

That explains both moves to “densify” mobile networks, use of distributed antenna systems, use of small cells and moves to release new spectrum, share spectrum and make better use of unlicensed spectrum.

Customers living in urban areas experience the highest number of overall network problems, at 15 problems per 100 connections (PP100), compared to 12 PP100 among those living in rural areas and 10 PP100 among those living in suburban areas.

Customers living in urban areas experience more calling problems than those living in rural or suburban areas (19 PP100 compared to 13 PP100, respectively); messaging problems (eight PP100 compared to five PP100); and data problems (20 PP100 in urban areas, 15 PP100 in rural areas).

Urban areas have a much higher proportion of younger mobile subscribers who are heavier users.

The overall number of network quality problems is 17 PP100 among customers 18 to 34 years old compared to 10 PP100 among those 35 years and older.

J.S. Power looked  at 10 problem areas, including dropped calls; calls not connected; audio issues; failed/late voicemails; lost calls; text transmission failures; late text message notifications; Web/app connection errors; slow downloads/apps; and email connection errors.

Marketing, Not End User Demand, Drives Gigabit Internet Access

Competitive dynamics, and not actual end user demand, frequently drive investment and marketing decisions in the telecom business. The gigabit Internet access trend provides an example.

Gary Bolton, Adtran VP says that two years ago, service providers told him that the biggest reason for deploying gigabit service was to satisfy future customer demand.

That's still a big reason today, but now the threat of competition is an even bigger one, with close to 70 percent of respondents surveyed by Adtran indicating competition is a top reason for deploying gigabit services, up from fewer than 50 percent in 2014.

In other words, gigabit Internet access is necessary for competitive reasons--to match other market offers--instead of being driven by actual end user demand.

You might argue that Google Fiber was the immediate catalyst for a change in marketing context in the U.S. market. But it now is Comcast, rolling out gigabit services to all of its consumer locations, that is the biggest competitive driver, given that Comcast is the biggest supplier of Internet access in the United States.

We sometimes also forget that among the other changes, the new gigabit push shows the importance of “non-traditional” or new platforms. Comcast, of course, bases its attack on hybrid fiber coax, a different platform from that used by telcos globally.

And other options are coming.

Starry is but one of the service providers attempting to prove that modern, fixed wireless networks are a better way to deliver gigabit Internet access to consumers and businesses, without necessarily building fiber to home networks.

Both Facebook and Google are developing or investigation use of platforms based on use of fixed wireless. AT&T has told the U.S. Federal Communications Commission that it is going to deploy many millions of fixed wireless access paths, while Verizon also has said it is looking at fixed wireless, especially as a result of its early 5G network deployment.

That said, there still are many--mostly smaller--service providers basing their gigabit networks on fiber. Cable TV hybrid fiber coax networks soon will be the main U.S. suppliers of gigabit services.

Consumer Satisfaction Seems Directly Related to Consumer Demand

You might not be surprised if told people who are most enthusiastic about a particular product are most satisfied with their purchases, while people who are less involved with that same product will report they are less satisfied.

That essentially is what a J.D. Power video entertainment satisfaction survey suggests.

Overall satisfaction with paid streaming video service is highest among cord stackers—customers who subscribe to a traditional cable/satellite service in addition to streaming video service—according to J.D. Power, and lowest among consumers who have abandoned linear video subscriptions, or people who never have bought a linear video subscription.

Conversely, overall satisfaction is lowest among cord cutters (802), followed closely by cord nevers (807), while satisfaction is highest among cord stackers (826) and cord shavers (822).

Satisfaction in all measures is lower among customers who do not have cable/satellite TV than among those who do, J.D. Power reports.

In other words, people who buy the most entertainment video tend to be more happy with streaming video, while people who buy the least are less satisfied.

In common sense terms, people who value video entertainment buy more of it, while people who value it less buy less. People who value entertainment video also seem more satisfied. Those who value entertainment video less seem less satisfied with streaming video.

But that might simply reflect appetite for the product: car enthusiasts are likely more satisfied with any number of vehicles. People with little interest in car ownership likely are less satisfied with any number of vehicle choices.

TDM Network Operating Costs Rise, as Stranded Assets Grow

source: CenturyLink

With the caveat that carrier costs include lots of allocated expense that some would note is discretionary, CenturyLink makes the argument that operating costs per access line are climbing steadily, which is what one would expect for any network with growing stranded assets.

Simply, fixed costs are borne by a smaller number of customers over time. That does not necessarily mean that operating costs for each special access line are going up by the same amount, or at the same rate, but the principle should hold.

CenturyLink’ says its operating expense per access line increased by more than 50 percent from 2007 to 2015, from approximately $650 to nearly $1,000.

source: CenturyLink

CenturyLink’s ILEC operating expense per business data service (BDS) circuit also has increased, from $18,831 to $20,832, just from 2011 to 2015.

That should not come as a surprise. TDM service demand is falling, for all U.S. tier-one service providers in the "telco" segment.

source: Telco 2.0

For its part, AT&T has been reporting for some years distinctly different growth trajectories for “strategic business services” and legacy services based on time division multiplex.

Verizon has a bigger problem. Its business segment revenue is declining, period. In the second quarter of 2016, global enterprise revenue dipped 3.3 percent, year over year, for example.

The larger point is that business data services are a legacy service, delivered on a legacy network that will be completely decommissioned at some point in the not-too-distant future. As demand shifts to the next-generation networks, the stranded asset problem gets worse.

source: Telco 2.0

Verizon, AT&T are Top-Ranked Business Telecom Providers, Says J.D. Power

source: J.D. Power

Verizon is the top-ranked telecom services provider in the large enterprise segment, while AT&T leads in the small and medium-sized business segment, according to J.D. Power.

In the large enterprise segment, Verizon is the highest-ranked provider, with an overall score of 827 out of 1,000.

AT&T is the highest-ranked service provider in the small/medium business segment, with a score of 803 out of 1,000.

source: J.D. Power

Cable companies--with the exception of Cox--rank lower in all segments.

The 2016 U.S. Business Wireline Satisfaction Study is based on responses from 3,324 business customers of data and voice services at very small businesses (companies with between one and 19 employees, with a corporate service plan); small/medium businesses (companies with between 20 and 499 employees); and large enterprise businesses (companies with 500 or more employees) in the United States.

Small Business Spending Less on Telecom; Enterprises Spending More

Small business customers are spending less than they did in 2015, J.D. Power says. The average monthly amount spent on data service has declined from 2015 in the small/medium business segment (-$147).

But very-small businesses increased spending slightly, while large enterprise businesses boosted spending about $390 a month.

The top reason businesses chose their current telecom services provider is network quality and network speed (35 percent).

The core reasons for switching providers include obtaining better pricing (68 percent); better/more reliable service performance (28 percent); and favorable pricing options (24 percent).

The main reason businesses contact customer care is network-related: report an outage, service disruption/disconnected or poor/bad reception (26 percent). The next-highest contact reason is to inquire about a product or service (14 percent).   

Value-Added Services Double the Typical Business Customer Monthly Billing

Value-added services generate business customer monthly spending twice the average customer account size, according to J.D. Power. Security services and videoconferencing are among the services that increase customer recurring spending the most.

Value-added services increase the industry average customer bill of $322 to $582 among subscribers to cloud computing services; to $766 among subscribers to security solutions; and to $792 among subscribers to videoconferencing applications.

Service providers offering value-added services achieve higher overall satisfaction scores than do providers not offering such services, J.D. Powers reports.

For example, overall satisfaction among business customers who subscribe to videoconferencing applications is 816, which is 75 index points higher than the overall industry average score of 741.

Offering security solutions to protect against corporate hacking (812) and cloud computing (794) are other advanced technology services that lead to higher overall satisfaction, according to J.D. Powers.

Google Fiber Costs Do Not Appear to Have Been Materially Better than Any Other Telco

One key issue since the advent of Google Fiber, as well as market entry by any number of other independent Internet service providers, is whether Google Fiber had uncovered some cost advantage over all other leading providers that would allow it to make a profit selling gigabit Internet access connections at $70 a month, when other major ISPs were selling services operating at far lower speeds, at comparable prices.

To be sure, getting streamlined permitting processes from cities arguably helped a bit. Building networks neighborhood by neighborhood was an important innovation municipal regulators decided to allow.

But it never was clear that Google Fiber had material advantages in construction costs that represent perhaps two thirds of the total cost of building a new fiber to home network.

A decade has passed since the first FTTH network deployments, yet the cost of building
a network remains the primary obstacle to ubiquitous fiber connectivity for every household,” says Commscope.

From 2005 to 2015, the cost per home passed dropped from $1,021 to just under $700, Commscope notes. Those costs likely are fairly standard, no matter how big or small a firm might be.

The problem is that most of the cost of building a fiber-to-home network comes from civil engineering, not network elements.

Construction, civil works engineering, obtaining permits and right-of-ways account for roughly 67 percent of total cost, while the equipment accounts for about 33 percent.

So while GPON and fiber equipment costs have indeed fallen, skilled labor rates have risen.

In other words, a fiber-to-home network mostly represents construction costs, not network element cost.

My simple way of explaining this is that most of FTTH cost comes from “digging holes, then closing the holes back up.”

If so, then the cost of FTTH cannot be reduced too much more.

That rather suggests that Google Fiber has no particular business advantage in construction costs.

Consider that Dycom Industries, whose main business is network construction for tier-one telecommunications providers, counts AT&T, Comcast, CenturyLink, Verizon and a “customer who has chosen to remain anonymous” among its top-five customers.

Most everyone believes the unnamed customer is Alphabet (Google Fiber).

If so, it is unlikely Google Fiber has material advantages in either network elements or construction cost. It might have some marginal advantages in permitting and other sorts of make-ready work, but those are not the primary cost elements.

Perhaps Google Fiber has saved a bit by making its own set-top boxes for video, as well as network interfaces for Internet access services. But not necessarily. At low volumes, Google Fiber might well have spent as much, or more, than it would have spent buying gear off the shelf.

Nor is there any particular reason to believe Google Fiber has gotten network element prices very different from what AT&T, Comcast or Verizon might pay. In fact, if volume discounts apply, then Google Fiber might be paying higher prices than AT&T, Comcast and Verizon.

With rumors that Google Fiber has fallen quite short of its subscriber forecasts, and might be getting ready to cut its workforce in half, it might be reasonable to assume that whatever else might be the case, Google Fiber did not uncover some new cost-saving way of building a fiber to home network.

One might have hoped for lower overhead costs, something that seems key to success for small, independent ISPs. But Google Fiber probably did not have overhead costs materially better than Verizon or AT&T, and perhaps had overhead higher than that of Comcast.

Even if Google Fiber had some marginal cost advantages in a few areas, it does not appear that the cost side of the network build was materially different from any other bigger providers.

Google Fiber Falling Short of Expectations?

Google Fiber does not seem to be achieving as much success--measured by subscriber growth--as it originally expected. Though nobody outside Google can say for certain, many believe accounts now number only in the couple of hundred thousand range, not the five million many had hoped would be signed up by now.

Google Fiber also seems to be planning major staff cuts.

Oddly enough, Google Fiber clear has succeeded in one goal everyone agreed was an objective: spurring other Internet service providers to dramatically boost access speeds.

Many speculate that new interest in fixed wireless is partly driven by expected lower infrastructure costs. But that does not directly speak to the issue of less-than-anticipated account growth.

Perhaps Google Fiber’s marketing efforts have been less than required to make serious inroads into cable TV or telco customer bases.

Perhaps the incumbents have showed they still have the moxy to fend off even stout challengers, using price promotions and bundling, as well as unexpected consumer inertia, to fight off the challenge.

In markets where Google Fiber clearly was a superior offer (in terms of speed), one might have expected Google Fiber to get 20 percent to 25 percent adoption relatively quickly, growing to as much as 40 percent over three or four years.

Verizon FiOS, for example, was able to achieve numbers in that range, for its high speed Internet access offer.

Ting, the gigabit fixed network service run by Tucows, expects 20-percent take rates in the first year, growing to 50 percent within five years, for example.

But maybe three-provider markets really are that much more difficult than two-provider markets, even when the latest challenger has a disruptive offer. Maybe market selection really does make a difference.

Perhaps it really is harder for a third major ISP to get traction in a tier-two market, compared to smaller tier-three towns. Some of us cannot understand why Google Fiber would not have done about as well as Ting expected, in the first year of active marketing in any of its markets.

Perhaps the marketing effort has been flawed.

But maybe customers themselves are not yet clearly convinced that a symmetrical gigabit service for $70 a month really is “better” (in terms of the value proposition) than a $50 a month service offering 100 Mbps, symmetrical.

Perhaps consumers are proving once again that a “good enough” product, offered at a reasonable price, is preferable to a “best in class” product offered at a significantly higher price.

It’s curious.

Gigabit Internet Access Now Drives Telecom Network Construction

In a strategic sense, one might argue that the value of a fixed telecom network (cable TV, telco,  ISP, metro fiber specialist) is backhaul for mobile traffic. That obviously is most true for consumer apps and customers, less true for enterprise apps and customers.

One anecdotal way of illustrating that concept: “There are some industry experts who have said that for a 4G LTE network, about 90 percent of the communication path is wired, and for a 5G millimeter-wave communication path, it could be 95 percent or more of the path is actually wired,” said Steven Nielsen, Dycom CEO.

Still, any changes in access platform choices (use of fixed wireless instead of fiber to home; small cell architectures) should materially affect Dycom’s prospects.

Dycom's main business is contracting services (network construction, principally) for telecommunications providers and enterprises.

The company's five largest customers are AT&T, Comcast, CenturyLink, Verizon and a “customer who has chosen to remain anonymous.” Most everyone believes this customer is Alphabet (Google Fiber).

AT&T represents 28.1 percent of total revenue or $221.6 million. Revenue from Comcast was $112.7 million or 14.3 percent of revenue.

Revenue from CenturyLink was $110.7 million or 14 percent of revenues.

Verizon was Dycom's fourth-largest customer for the quarter at 12 percent of revenue or $95.1 million. Revenue from Windstream was $43.5 million, or 5.5 percent of revenue.

Charter Communications was sixth largest,  at 4.8 percent of revenue. Customer seven (believed to be Google Fiber) drove 3.6 percent of revenue.

Frontier Communications was the eighth-largest customer  at 1.4 percent of revenue.

Without question, gigabit Internet access services are driving current business activity.

Entertainment Video Drives 62% of Data Consumption on North American Android Devices

In North America, on Android smartphones, entertainment video represents about 62 percent of total data consumption.

The typical North American household now has over seven active devices in use each day, with six percent of households having more than 15 active devices, according to Sandvine’s Global Internet Phenomena Spotlight: Inside the Connected Home report.

As you might guess, that also means traffic is fragmenting. PCs now account for less than 25 percent of total traffic on fixed access networks.

Conversely, mobile devices (tablets and smartphones) now account for almost 30 percent of North American fixed access traffic.

Looking at applications, the big change is video streaming, which now accounts for 65 percent of bandwidth consumption, across all devices.

Game downloads drive about 25 percent of  bandwidth consumption.

30% Smartphone Adoption in Philippines

Mobile data will drive mobile revenue in the Philippines: just about 30 percent of people already use a smartphone, even if most people use feature phones. 


source: Pawn Hero

What is a Good Wave Worth?

What is a wave worth? By one estimate, waves ridden by surfers represent $51 billion in economic activity.

source: Save the Waves

That is the result of a study of 5,000 locations by Oxford University economists Thomas McGregor and Samuel Wills, who studied night-time light emissions as a proxy for economic activity.

“We find that high-quality surfing waves boost activity in the local area (<5km 0.15-0.28="" 18-22="" 1992-2013="" amounts="" between="" billion="" by="" comparable="" from="" globally.="" his="" locations="" log="" low="" million="" or="" per="" points="" ppp="" quality="" relative="" researchers="" say.="" span="" the="" to="" us="" wave="" waves="" with="" year="">

Another study of Australian activity over a two-month period of about $20 million for local economies.

The notion of applying market forces to conservation or preservation of natural assets sometimes is criticized as applying a market test to non-material values. Surfers who think about it might agree that highlighting the value of waves can contribute to preservation, conservation, cleanliness and other non-material values.

$45 per day is an estimate of the economic value of surfable waves found near the coastal community of Huanchaco, Peru, the non-profit Save the Waves organization has estimated.

In Pichilemu, Chile, for example, the average surf tourist spends $168 per day.  In Uluwatu in Bali, Indonesia, the typical surf tourist spends $150 per day.

Google Researchers Apply Artificial Intelligence to Image Compression

Google has applied artificial intelligence to the problem of optimizing energy usage in its data centers, and researchers now say they have developed a way to use AI for compressing  images more efficiently than using JPEG.

Such practical applications for artificial intelligence will be needed to push machine learning into the mainstream of business processes.