Will Mobile Ultimately Become the Commercial Standard for IoT Connections?

There might be 30 billion to 50 billion Internet of Things (IoT) end-points by 2020, driving a total IoT market of up to $8.9 trillion, according to the GSA.

That represents huge numbers of new communications links, some of which might happen over non-paid connections such as Wi-Fi, but many of which will require mobile or other paid wireless connections. which explains the huge interest in IoT on the part of the mobile industry.

New developing markets, driving new communications standards and formats, typically begin with many different protocols contending, before markets pick commercial standards. That was true for videocassette recording formats, PC and smartphone operating systems, WiMAX and LTE mobile standards, for example.

GSA believes the same sort of winnowing process will happen for wireless IoT connections. Though it is conceivable that some new platforms will survive as niches, GSA believes mobile-based platforms ultimately will emerge as the mass market standards, for most applications.

With the caveat that one would expect GSA to say such things, mobile operators globally should be able to leverage their scale, over time. That is not to say mobile narrowband IoT standards will have the majority of sales in the early going. It is quite possible they will not.

Still, over time, scale should matter, as it typically does in the communications business.

The largest segments for IoT are consumer electronics, automotive and healthcare, GSA argues.

Telecom Infra Project Reaches 300 Members

The Telecom Infra Project, a wide-ranging effort to create open source telecom infrastructure, now has 300 members, according to Lance Condray, Facebook infrastructure strategist.

Those members include Axiata, EE, Deutsche Telekom, Globe Telecom, Indosat Ooredo, MTN, MyRepublic, SK Telecom, Tata Communications, Telefonica and Vodafone.

Acadia Networks, Accenture, Adva Optical Networking, Amdocs, Broadcom, Ciena, Equinix, Facebook, Gilat, Infinera, Intel, Juniper Networks and Nokia are some of the suppliers also working with TIP.

Facebook, Intel, and Nokia have pledged to contribute an initial suite of reference designs, while other members such as operators Deutsche Telekom and SK Telecom will help define and deploy the technology as it fits their needs

“A few years ago, Facebook was faced with a data center problem familiar to many scale companies: We depended on proprietary systems and hardware that were inflexible and expensive,” said Jay Parikh, Facebook Global Head of Engineering and Infrastructure. “We realized quickly that this approach would not be sustainable; we needed to find a new way.”

Note the language: traditional rack and stack approaches were “unsustainable.”

“We recognized that telecom infrastructure could benefit from the same innovations taking place in the data center,” Parikh said.

“It was clear that the raw building blocks of what we were developing for our own infrastructure could be applied to telecom networks with great benefit,” he said.

At first, “TIP will focus on disaggregating the components of network infrastructure that are traditionally bundled together and vendor-specific,” said Parikh.

As one early example, Facebook has been working in partnership with Globe, deploying a low-cost, solar-powered network-in-a-box solution, bringing mobile coverage to a village. “In the first week alone, we connected more than 60 percent of the community,” said Parikh.

Project groups also have been created to address “the most pressing industry needs including connecting the unconnected or underserved populations, and augmenting the development of powerful new technologies like 5G.”

The access system integration and site optimization group is chaired by SK Telecom.

The unbundled solutions group is co-chaired by SK Telecom and Nokia, and will seek cost-effective, low-power and low-maintenance solutions.

Media-friendly solutions, chaired by Intel, will focus on mobile experience, especially for close-to-edge solutions.

In the backhaul area, Facebook heads the effort to develop “thin and extensible software stack to autonomously coordinate routing, addressing and security related functions in packet-switched IPv6 networks.”

The open optical packet transport project is co-chaired by Facebook and Equinix, and is working on Dense Wavelength Division Multiplexing (DWDM) open packet transport architectures that avoid supplier lock-in.

The core network optimization project is chaired by Intel, and seeks to disaggregate

core network components.

The greenfield telecom networks group is co-chaired by Nokia, Facebook and Deutsche Telekom, and will work on IT-based network architecture.

Public Internet WANs for Branch Office Networking?

Can the public Internet support reliable enterprise wide area communications. Yes, it now seems. And data center networking seems to be a key driver.

International Data Corporation estimates global SD-WAN revenues will exceed $6 billion in 2020 with a compound annual growth rate (CAGR) of more than 90 percent between 2015 and 2020.

Gartner predicts 30 percent of enterprises will actually deploy SD-WAN technology in their branch offices by the end of 2019.

SD-WAN is a networking technique that uses the public Internet to connect dispersed sites within an enterprise network, including branch offices.

Unlike earlier WAN technology that typically involves fixed circuits and proprietary hardware, SD-WAN is a cloud-based service.

source: CenturyLink

source: CenturyLink

LS Networks to Build Rural Gigabit Networks in Pacific Northwest

LS Networks will deploy a high-density fiber-optic broadband network in 25 rural communities in Oregon and Washington over the next two years.

The program will offer simple broadband plans at 100 Mbps ($40 per month) or 1 Gbps speed costing $70 a month.

The $1.2 million “Connected Communities” project launched in Maupin, Oregon, in July, and the first services will begin in January 2017.

LS Networks is a competitive local exchange carrier that will leverage the backbone and access facilities it has built for business customers to be used for consumer Internet access. LS Networks has built more than 7,500 route miles of high-capacity fiber broadband in Oregon.

That approach might illustrate a continuing reality of the rural Internet access business, namely that it is difficult to supply high-quality services in isolated areas without revenues generated some other way.

Historically, service providers have used profits from business customer segments to support networks serving consumers; and profits from urban customers to support services for rural customers. LS Networks will use profits generated by its CLEC operations to build the rural consumer Internet access networks.

Peak-Hour Data Consumption Dominated by Video Entertainment, Globally

Peak hour data consumption in the Asia-Pacific region is driven by the use of real-time entertainment, representing 49.6 percent of total downstream traffic during peak period, and up from 47 percent in 2015.

Asia- Pacific’s traffic composition is for the most part similar to that of leading networks in Europe and North America. After streaming audio and video, web browsing and social networking round out the top-three traffic categories in the region.

In most regions around the world, real-time entertainment is the most dominant traffic category. That observation tends to correlate with use of 4G networks: as 4G usage rises, so does consumption of entertainment video.

Real-time entertainment in Africa now accounts for 18.1 percent of peak downstream traffic, an increase from 8.6 percent in 2015, according to Sandvine.

That is a result of wider availability of Long Term Evolution 4G networks, and use of smartphones, Sandvine suggests.

Web browsing accounts for 31.4 percent of downstream traffic in Africa.

WhatsApp now generates over seven percent of network traffic, while Viber represents 3.2 percent of traffic. Within 18 months, YouTube could become the lead application across Africa.

Across the Middle East, real-time entertainment is the leading source of traffic, accounting for over 37 percent of peak downstream traffic. Social networking accounts almost 20 percent of traffic in the region.

During evening hours. Facebook and web browsing are among the top three applications. an identical order to that observed on North American networks.

Internet Access: "We've Gotten the Easy Ones"

Lower-cost new networks, better business models and creating more usable spectrum to “connect everyone across South Asia and Southeast Asia to the Internet” were key themes at the Spectrum Futures conference held in Singapore, Oct 20 and 21, 2016.

Creating sustainable business models--as always--was a key focus.

“We have gotten the easy ones,” said Chris Weasler, Facebook director of global connectivity. So connecting the next couple few billion users will be challenging.

Speakers included communications regulators from Egypt on the west to Indonesia on the east; Internet service providers; app providers and enablers; venture capitalists; wholesale capacity partners; policy advocates and platform developers.

New ways of supplying and using spectrum; new models for deploying infrastructure and new ways to reduce the cost of Internet access facilities were discussed. New business models also were highlighted. “5G is completely different,” said Bob Horton, consultant.

Will huge new allocations of millimeter wave frequencies for 5G work? Simple answer, “yes,” said Reza Arefi, Intel director of spectrum strategy. Are infrastructure costs coming down? “By an order of magnitude,” said community networking specialist Jonathan Brewer.

Are regulator and industry expectations out of alignment? “Yes,” said Mohammed Shafi, Multinet Pakistan CEO. Is much more spectrum required? Without question, said Rajan Mathews, Cellular Operators Association of India director general.

Are there still big cultural gaps between service providers and app providers who can help access providers move up the value chain? Yes, said VC Dennis Wong, with Golden Gate Capital.

Telcos and app developers “speak a different (business) language,” said consultant Srinath V. So telcos should invest in app providers “as limited partners,” said Kenrick Drijkoningen, Golden Gate Ventures expert in residence.

Major work on business models also is necessary, argued James Sullivan, J.P. Morgan equities analyst.

“Even after accounting for Wi-Fi and new technologies and alternate business models, there will be still significant global wireless data demand that is not economically possible to serve,” said Sullivan. Simply, emerging markets “ don’t have nearly enough revenue opportunity to bridge the gap.”

Attendees learned about a number of initiatives, large and small, to bring lower cost Internet access efforts to bear, ranging from the Telecom Infra Project (TIP) to community-owned cellular.

TIP in an open source telecom platform effort presently supported by 300 organizations, ranging from tier-one mobile operators and equipment suppliers to Facebook itself. Few recognize that TIP wants to create open source access, backhaul, core network and management platforms.

Google’s Project Loon, using fleets of balloons to provide Internet access across rural areas, is working with all four Indonesian mobile operators and is awaiting approval from the finance ministry to proceed, said Leo Sugandi, Ministry of ICT, Indonesia.

Steve Song, Network Startup Resource Center associate, does not necessarily believe large national service providers are “required.” Villages and communities can be encouraged to create their own access networks, either mobile or Wi-Fi.

We“Solutions that blur the lines between licensed and unlicensed are possible and represent lower risk for regulators and operators,” Song said. “We need new models for spectrum access.”

Telekom Malaysia Ordered to Double Access Speeds, Cut Prices by 1/2 Over 2 Years

Telekom Malaysia Berhad (TMB) fixed network Internet access services--by order of the Malaysian government--must deliver a higher speed for the same price, starting in January 2017.

The objective is to double speeds and reduce prices  by half over the next two years.

"Lower prices and the potential for an increase in capital expenditure to support this plan are credit negative for TMB as they may pressure cash flows or raise debt levels in 2017," said Annalisa DiChiara, Moody VP. "At the same time, the financial implications for TMB in 2017 and beyond are unclear at this stage.”

TMB's adjusted debt/EBITDA was two times at June 2016 and the company expects capex/revenue of around 30 percent to 35 percent in 2016.

AT&T Might Already be Poised to Disrupt Video Markets

AT&T argues its acquisition of Time Warner will help it disrupt video markets. Even in advance of the proposed acquisition, AT&T appears to be doing so. DirecTV Now, the new steaming service, will offer 100 channels for $35 a month, a price point that is disruptive for the streaming video market.

In significant part, the price point seems to suggest one key advantage for over-the-top services, compared to traditional linear services. DirecTV Now will not require a technician visit, a dish installation or use of in-home customer premises equipment.

The truck roll along represents costs upwards of $100. The traditional install also requires the installation labor, hardware and then in-home decoders (one to several). It might not be unreasonable to suggest such costs represent $600 or more, in operations and capital investment, for each new install.

DirecTV Now will have none of those costs.

Google Fiber Head Departs, What Will Google Fiber Do?

There are at least a couple conclusions one might draw from new developments at Google Fiber. Some suggest Alphabet has given up on Google Fiber. Others argue, based on Google Fiber’s own statements and actions, that it instead is looking at business models that include  fixed wireless.

As Google Fiber has been saying, as it “paused” the extension of Google Fiber to new cities, the organization is looking at “new technology and deployment methods.”

It seems clear enough that actual uptake of Google Fiber was less than Google Fiber, and many other outside observers, expected to see. So given the cost of fiber to the home, a look at alternate access platforms would make sense, at a time when a number other leading entities, including AT&T and Verizon, plus Facebook, have signaled they are actively researching the use of such technologies.

It remains possible that even the new fixed wireless business models and deployment methods will not work to Google Fiber's satisfaction.

But it might be fair to suggest Google Fiber has learned one important lesson. In competitive local access markets, when market share can top out below 20 percent to 40 percent, the business model is extremely difficult, and might not often support three sustainable, facilities-based providers.

In the Cloud Era, All Plumbing is Commoditized

The idea of what we now call cloud computing is not new, with the concepts dating back more than a half century. But it was largely an idea, back then. Over the past 20 years we have moved faster, though.

Remember “application service providers?” Those turn-of-the-century efforts to supply remote versions of enterprise shrink-wrapped software mostly failed. Salesforce was the successful model. Amazon Web Services was the modern precursor, launched in 2002. So the cloud era--as a commercial reality--is less than two decades old.

Most consumers use cloud computing without knowing it, every time they use an Internet-delivered app. That is a key point: use of software and “applications” now is something users invoke from remote servers, not a bit of software locally resident on their appliances.

In parallel fashion, the move of computing resources “into the cloud” has had key implications for use of computing infrastructure by enterprises, government, schools, hospitals, smaller business and and consumers.

Less hardware is needed “on the premises.” More money is spent on services and access. Local area networks no longer are primarily about structured cabling and local servers, but Wi-Fi, for example.

To a large extent, that has meant hardware is commoditized. Local area networks now simply involve ensuring that Wi-Fi is available. “Computing” or “application access” now increasingly means enough bandwidth to reach the cloud-based app sources. All that means less capital is spent on local hardware and software; more on cloud-based replacements purchased as services.

In the telecommunications business, the implications have been vast, as well. Applications once created and sold by service providers have become--in large part--applications consumers or businesses can consume as cloud apps (Skype displaces voice; OTT messaging displaces SMS; Netflix replaces HBO or increasingly, linear video).

Cloud computing means more demand for bigger pipes. But the retail cost declines, either on a cost-per-bit basis or in absolute terms.

In other words, most computing infrastructure and communications has been, and will keep being, commoditized.

The fortunes of firms and the fate of industries will be shaped by that fundamental reality.

Would You Rather Sell Locally or Globally?

Global versus local, or “outside footprint versus inside footprint,” now is becoming a bigger strategic issue in the communications business, in ways beyond the obvious move of carriers into new international markets.

In fact, the “sell outside my existing footprint” trend has been seen for the last 20 years, even for suppliers who operate only regionally in the U.S. market.

The basic change is simple to describe. In the past, service providers have sold services to potential customers only in certain defined geographic areas. That limitation was imposed by regulators who authorized operations within a city (cable TV franchises, for example); regions (the seven Baby Bells created in the wake of the Bell system breakup in 1984) or parts of a city or community (competitive local exchange carriers who sell only to some business customers).

Increasingly, in the cloud computing era, apps and services are sold nationally or internationally, with fewer restrictions than in the past, even if national regulators still are important.

When incumbent telcos created CLEC business units to sell outside their geographic footprints, that is one example of the trend. Cable TV companies traditionally do not compete with each other.

But mobile is going to change that relationship, for the first time. In principle, a Comcast or Charter Communications selling mobile service, even if initially focused on “in region” customers, is in a “national” business, and eventually will move in that direction, by necessity.

AT&T and Verizon both believe they will be able to leverage new 5G network capabilities to sell “fixed network services” even outside their geographic footprints, operating as CLECs.

So the strategic context changes. In the past, the effort has been to create services to sell to potential customers “who live or work in my footprint.” We are moving increasingly towards a market where it is possible and desirable to sell apps and services to people and businesses “outside” the legacy geographic areas.

AT&T 3Q 2016 Results Illustrate Why Time Warner Ownership Matters

AT&T’s third quarter 2016 financial results might be confirmation that the DirecTV acquisition, heavily criticized in some quarters, is working for AT&T. To wit, AT&T consolidated revenue grew 4.6 percent, year over year, principally because of DirecTV revenues, AT&T said.

More significantly, some might say, the generally flattish growth profile in the quarter shows why AT&T is moving into new lines of business, and how ownership of Time Warner matters.

Net income also grew four percent, year over year.  Operating income grew 8.2 percent, year over year.

Most of the mobile segment account gains of 2.3 million net subscriptions came from connected devices, the Mexico market and Cricket additions.

U.S. mobile postpaid churn was 1.05 percent. AT&T says it gained 700,000 U.S. branded smartphone accounts and 323,000 U.S. DirecTV net adds and 171,000 IP broadband net new accounts.

AT&T also reiterated confidence that it will meet its full-year guidance.

None of that is going to be top of mind, though, as the focus now is on prospects for AT&T’s acquisition of Time Warner. That move sometimes is said to be an effort to lower AT&T’s content acquisition costs, but is incorrect.

Owning Time Warner will not cut the fees AT&T pays to Time Warner for use of its content. AT&T would get price discounts based on volume, as will all other distributors who buy Time Warner content.

During the recent Spectrum Futures conference, mention was made of the fundamental strategy U.S. cable operators will take to “move up the stack (value chain).” Simply, the idea is that “you have to own at least some of the content that flows over your pipe.”

The Time Warner deal appears to be a perfect example of that same strategy, employed by a telco instead of a cable company.

The issue is that all triple-play providers sell a mix of services, ranging from “dumb pipe” Internet access (“tickets to Disneyland”) to applications such as voice, messaging, video entertainment or home security.

But to avoid being reduced simply to a “dumb pipe,” an access provider has to own at least some of the content, some of the apps, some of the services its customers want to use.

In other words, in addition to selling “dumb pipe” Internet access service, which under competitive conditions is subject to price per unit reductions and price competition generally, service providers must become owners of at least some of the new apps and services that its customers want to use.

It is not complicated: that is the strategy for “adding value” and “moving up the stack.” To be sure, there are some tangible benefits. As a major buyer of content from Time Warner, AT&T now at least is able to “pay itself.”

AT&T also now earns more from video than voice services.  

How AT&T benefits from owning Time Warner is a complicated question. Some might think AT&T could win by changing Time Warner content distribution, and making that content exclusive to AT&T.

AT&T will not be able to do so, at least for those networks routinely sold on linear video services.

U.S. rules force content networks that sell content to linear video distributors to sell to all such providers. There is no exclusivity. On the other hand, there are some content services--largely selling only online, that are not covered by the rules.

The interesting example is DirecTV’s NFL Sunday Ticket service, broadcasting football games. NFL Sunday Ticket is not covered by the rules pertaining to programming networks, presumably in large part because the NFL is not directly a programming network, and simply licenses the rights to show games.

Likewise, some new mobile streaming services do not seem to fall under the rules covering linear video programming networks.

At least in principle, some content (programming, rather than networks) could be developed for “direct-to-consumer” delivery, not using the linear video distribution system, and therefore be free of mandatory wholesale rules that pertain to linear video distribution.

But AT&T does not seem to prefer the “unique content” strategy in any case, at least for the moment. That strategy is very expensive, and AT&T seems to prefer the sale of “widely-viewed content” on networks that are themselves widely viewed.

There is some benefit in the area of content acquisition costs, but not direct impact. As programming fees rise, AT&T has to pay more for such content. Owning Time Warner will not change that. But AT&T will gain--as a content owner--from the fees it earns from all other distributors.

But AT&T does seem determined to acquire additional content assets as well, just as it intends to create connected car or eventually other Internet of Things applications and services that also use its network.

What is important, though, is to note that the objective is to “own at least some of the content and applications that flow over the access pipe,” not the desire to create unique walled garden assets available only to AT&T customers. That is a crucial distinction.

The same strategy would seem to apply to other services, in other industries. Connected car services, for example, where AT&T supplies the actual end user service or platform to a car manufacturer, provide one example.

Instead of supplying simple mobile network access, AT&T will seek to become the owner and supplier of connected car services (content, security, vehicle monitoring).

There is a clear strategy here, pioneered by cable TV companies. In a business increasingly anchored by “dumb pipe Internet access,” where there is much competition for any app--voice, messaging, video, utilities, content, transactions--an access provider has to own at least some of the useful apps people want to use.

Exclusivity is not required. Branding is not constrained to the “service provider” brand, in all cases. If people want to use a particular app or service, and that is widely used, it makes sense to retain the retail brands, and not force the use of the access brand.

This is a shift in model. In the past, all services were branded under the parent’s name--AT&T X, Y and Z. In the future, what will matter is the revenue, cash flow and profits generated directly by the end user services and apps, even when--or especially because--those apps and services are in high demand by end users.

In essence, AT&T and Comcast become multi-industry conglomerates, to an extent, making money in several different industries whose common focus is that they require Internet or mobile access.

Moving up the value chain does not always require full branding under the legacy access provider name. It does require ownership of some of the assets.

Strong T-Mobile US 3Q Results Aren't Even the Story

T-Mobile US reported what CEO John Legere calls “historic” results for its third quarter of 2016, adding two million total net adds, including 851,000 branded postpaid phone net adds as well as 684,000 branded prepaid net adds.

Long term, as well as T-Mobile US performs, it will not, in one major sense, actually matter for the broader dynamics of the U.S. mobile industry. That is likely to be true even if T-Mobile US continues to gain subscriber share.

But the quarterly performance was quite strong. T-Mobile US branded postpaid phone churn was 1.3 percent.

Service revenue of $7.1 billion service revenues was up 13.2 percent, year over year.

Total revenue was up $9.2 billion total revenues, up 17.8 percent, year over year. Net income was up 165 percent, year over year.

Forward guidance--what is expected to happen--is in many ways more important than the quarterly results. On that score, T-Mobile US now predicts it will gain more branded postpaid net adds than previously expected, and has increased its forecast to 3.7 to 3.9 million net postpaid adds, up from the prior estimate of 3.4 to 3.8 million.

But T-Mobile is not forecasting net income, though it raised its adjusted EBITDA target to $10.2 to $10.4 billion from $9.8 to $10.1 billion.

Those results are in keeping with strong results over the last few years. Predictably, Legere suggested AT&T was in danger of losing its focus in mobile, that T-Mobile US would be very active in the 600-MHz spectrum auctions (in large part because it will not face competition from Verizon and AT&T for much of the spectrum it wants to buy), and that T-Mobile US can achieve many of the same synergies AT&T seeks by its acquisitions, in other ways.

One might argue Legere easily can make those arguments, for reasons related to the expected changes in market structure for the mobile industry in coming years. The biggest coming change is that at least a couple of cable TV operators will enter the U.S. mobile market.

Since “owner’s economics” matter, it is expected by some of us that neither Sprint nor T-Mobile US will survive, long term, as independent entities. In that sense, neither Sprint nor T-Mobile US can afford, nor need to, spend time, capital and effort creating the multi-product new entities that Verizon and AT&T are working to build.

Both essentially will become the mobile arms of other triple-play providers, probably owned by cable TV operators.

Also, In a CNBC interview, Legere pointed out that coming 5G mobile networks will represent fixed broadband substitution. That suggests a growing view that fixed Internet access networks will face new competition, directly from mobile networks, on a relatively wide scale basis, for the first time, once 5G launches.

That is likely one reason why a couple of the largest U.S. cable operators (Comcast and Charter Communications) will want and need to own mobile assets of their own.

Value of $1 of Revenue is Why Access Providers Want to Own Content, App Assets

If you had a choice, would you rather “be Facebook” or “be AT&T?” In terms of revenue growth, equity value or physical asset intensity, many would choose to be Facebook. In other words, many would rather operate an over-the-top application business than an Internet access business.

Globally, a “telco” might be valued at 4.4 times enterprise value divided by earnings (EBITDA). Content companies might be valued at 11 to 12 times EV/EBITDA. Facebook might be valued at 16 times EV/EBITDA.

Netflix, the over-the-top streaming service, has a price-earnings ratio as high as 398. At the same period of time, cable TV operator Time Warner Cable (a separate firm from Time Warner) had a 28.7 P/E multiple. Comcast had a 17.4 P/E multiple.

You can see the huge disparity. A dollar of revenue earned by Netflix is worth nearly 14 times that of a dollar generated by Time Warner Cable, or 23 times the value of a dollar earned by Comcast.

In other words, a rational person would rather own an asset worth four times that of a telco, when there is a choice.

Telco executives have limited options, unless they want to sell their assets and go out of business as independent entities. But there is one obvious strategy if they wish to stay in current lines of business, and yet reach for higher-valuation revenue streams: they can own more assets of the higher valuation type.

In other words, they can augment lower-multiple access businesses with higher-multiple content or application businesses. That “move up the stack” or “move up the value chain” strategy is simple enough, if execution risk exists.

And that explains why AT&T would want to own Time Warner.

source: Netflix