What Does "Winning" Look Like for Telco Fixed Internet Access?

What does “winning” look like for telco internet access? Many tier-one U.S. telcos, for example, have about 40 percent market share. Is that winning? It depends on one’s perspective.

Share of 40 percent means one thing if share previously was 35 percent. It means something else if share formerly was 50 percent.

Many independent telcos other than AT&T and Verizon have been losing market share to cable operators for some years, and might well have less than 40 percent share. Cincinnati Bell seems to have been in that category, and seems to find that its fiber to premises program is allowing it to regain market share.

“Our results demonstrate that we continue to compete and win against cable with fiber,” said Leigh Fox, Cincinnati Bell CEO. The caveat is that Charter Communications has not yet launched its DOCSIS 3.1 gigabit service in Cincinnati. That will be the test of whether Cincinnati Bell can continue taking share from Charter.

“Competing” in this case means having 40 percent market share, and gaining about three share points in the year.

“During 2017, we added both video and Internet subscribers despite continued intense marketing and advertising efforts from our primary competitor,” said Fox. “In the fourth quarter, we added 5,400 Fioptics Internet subscribers and ended the year with approximately 227,000 total subscribers with penetration rates reaching 40 percent and ARPU increasing three percent year-over-year.

Will Mobile Users Still Rely on Wi-Fi in the Future?

You might not be surprised to learn that U.S. Android users consume most of their mobile data using Wi-Fi. But you might be surprised that customers on unlimited usage plans also rely mostly on Wi-Fi for data access. But that is what happened in January 2018, according to Strategy Analytics.

Android customers buying unlimited usage plans consumed only about 28 percent of total mobile device data using the mobile network, 72 percent on Wi-Fi.

That seems counterintuitive, if most users also are on 4G networks offering performance often better than Wi-Fi  (especially on public hotspots). In fact, behavior should already be changing.

“Customers are rational,” says Craig Moffett, MoffettNathanson analyst. “When pricing incentives favor Wi-Fi, customers use more Wi-Fi. When pricing incentives shift, so does behavior.”

In fact, some studies suggest that nearly 40 percent of U.S. “at home” access uses the mobile internet, not a fixed connection. In part, that might be because most internet sessions now happen on mobile devices. In part, that might be because many users do not buy fixed internet access, or do not pay for it.

source: Reportlinker

Many of those users say they are on unlimited usage plans and therefore do not need to offload to Wi-Fi to save money.

Of course, it also is possible that self-reported usage actually does not reflect actual usage. Respondents might have been connected to a Wi-Fi connection at home, and not known it. The sample might be include an unrepresentative universe of respondents who do not buy, or have access to, fixed internet access, and must rely on mobile network access.

source: Reportlinker

source: Strategy Analytics

source: Strategy Analytics

Still, Wi-Fi usage could fall in the future, as more users opt for unlimited plans, as 5G networks start to offer speeds equivalent or faster than fixed connections and as the cost of mobile access starts to near parity with fixed network prices.

Look to Google, Apple for Emergency Location Innovation

Here are two examples of innovation in the telecom industry that come from “outside” the industry. First, Amazon’s Alexa and the line of Amazon voice appliances has created a new platform for consumer voice. Basically, Alexa is becoming a voice-activated “home phone.”

The other example is emergency calling, where it is Google that is innovating in location services. In recent tests, Google tested emergency call location at 911 call centers with West Corp. and RapidSOS.

RapidSOS said its portion of the trial involved about 50 911 centers covering some 2.4 million people in Texas, Tennessee and Florida.

Location data in more than 80 percent of the 911 calls using Google’s technology were more accurate than the carrier data in the first 30 seconds of a call, according to RapidSOS.

Google’s data provided an average location estimate radius of 121 feet, RapidSOS said, while carrier data averaged 522 feet. Carrier data also took longer to reach 911 centers, RapidSOS said.

Google has said it hopes to deploy the technology broadly across the U.S. some time this year. Apple also is said to be developing such location technology.

There are lots of reasons why innovation, research and development have largely moved outside service provider purview. Profits to support such research no longer exist, for starters. Telco research also was outsourced to industry suppliers and in some cases to third party research outfits.

In that absence, and because of profound changes in ownership of key data stores, key device and app suppliers appear to be moving into the breach.

Is Telecom Like Airlines, or Autos?

Analogies sometimes are helpful when trying to understand the underlying dynamics of the “telecom” industry. In past centuries, telecom might reasonably have been likened to roads, pipelines, electrical or water utilities. They were considered “natural monopolies” not amenable to competition, with state ownership quite common.

In the competitive era, beginning nascently about 1985, new analogies were more apt. Some have likened competitive telecom to the airline industry . Both were highly regulated in the past, were then deregulated, are capital intensive, subject to scale economics, with global and local business models.

Both industries now rely on multiple revenue streams, where in the past revenue was generated only from customers buying tickets or making phone calls. Airlines now generate revenue by selling miles to affinity and reward program providers, while telcos are moving into advertising-- where business partners, not subscribers--are the revenue model.

Consultant Martin Geddes says both industries actually deal in abstractions, or should.  The “value” is destination arrival or application performance--an outcome--rather than the underlying resource (capacity, seats).

In other words, the performance (specificity of arrival time) is the outcome and value. High-value, time-constrained arrival is one class of service, while best-effort arrival is another class of service. It might cost one amount to be guaranteed arrival on a specific day, at a specific time; it might cost quite a lot less to “get there” with some possible delay (the next day, eight hours later, and so forth).

There are some barriers to full competition, including ownership of local access facilities in one case and landing slots in the other. Both industries have been reshaped by low-cost competition. But the nature of the competition has changed. Back around the turn of the century we might have thought the competition would come from new service providers.

As it turns out, the new competition comes from “over the top” app providers. To be sure, facilities-based competitors do exist, mostly in the mobile segment of the business. But the primary assault as been by application providers whose products simply offer product substitutes that work on any internet-connected device.

Think of the analogy to business partner (advertising) revenue: app providers often make their money from advertising, not subscriptions and direct payments by users (customers).

But the next set of analogies might be to privately-owned autos. Fleets of self-driving vehicles might eventually obviate the need for private ownership of automobiles. Transportation still is provided (by fleets of self-driving vehicles available on demand), but not by one means (car ownership).

Some people might object: “there still will remain a need for access.” That is correct. Networks still will be needed. What is not clear is that “ownership of my own network” is required. Netflix is a major, tier-one provider of subscription TV. But it owns not retail access networks. Neither does Skype, Google, Facebook or Amazon or Alibaba.

In that new analogy, access networks are like fleets of self-driving cars. They are available to provide transportation as needed (over the top apps).  But the present “owned automobile industry” (telcos and other service providers) will suffer, as people will buy far fewer automobiles.

That is the inevitable consequence of adopting the internet and IP networks are the next generation network. Use of apps is decoupled from ownership of networks. So long as any user has internet access, internet apps work.

To use the auto analogy: people (app providers) will not have to “own” cars to satisfy many  transportation needs. Vehicles (network access) still will be necessary. “Owning” the networks (access facilities) will not be required.

As it turns out, the airline analogy was the least of the telecom industry’s problems. The self-driving auto--and its ability to support fleets of on-demand accessed transportation--is the real problem.  

Are Happy Customers Really Loyal? Are Loyal Customers More Profitable?

Loyal customers are “good” because they do not churn, conventional wisdom suggests. There are other ideas we tend to take for granted: Satisfied customers are loyal; customers who give a firm high “net promoter scores” are satisfied and loyal; loyal customers have longer “customer relationship lifetimes;” and are “more profitable.”

Sometimes those assertions are correct; often not. Customer satisfaction might not translate into customer loyalty, defined as unwillingness to desert a current provider for another supplier.

“What we’ve found is that the relationship between loyalty and profitability is much weaker—and subtler—than the proponents of loyalty programs claim,” say Werner Reinartz, Professor of Marketing at the University of Cologne, and V. Kumar,  executive director of the Center for Excellence in Brand and Customer Management at Georgia State University’s J. Mack Robinson College of Business.

source: Harvard Business Review

“Specifically, we discovered little or no evidence to suggest that customers who purchase steadily from a company over time are necessarily cheaper to serve, less price sensitive, or particularly effective at bringing in new business,” they argue. The researchers find “no evidence” to support such claims.

“In none of the four companies we tracked were long-standing customers consistently cheaper to manage than short-term customers,” say Reinartz and Kumar. “In fact, the only strong correlation between customer longevity and costs that we found—in the high-tech corporate service provider—suggested that loyal and presumably experienced customers were actually more expensive to serve.”

In business-to-business markets, that is perhaps easy to understand.  n business-to-business industries, high-volume customers often exploit their value to get premium service or price discounts from suppliers.

That arguably is not so true, if true at all, in business-to-consumer markets. “At the very least, the link between loyalty and lower costs is industry specific,” they say.

“Long-term customers consistently paid lower prices than the newer customers did—between fiver percent and seven percent lower, depending on the product category,” said Reinartz and Kumar. “What was surprising was that we found no evidence that such loyal customers paid higher prices in the consumer businesses.”

In fact, they argue, loyal customers--business or consumer--are more price sensitive than less-loyal customers.  That might help explain higher churn in telecom markets. If consumers believe loyalty should be rewarded with lower prices, then raising prices after an introductory period runs completely counter to that belief.

source: Harvard Business Review

Churn, to be sure, is a key issue for most service providers, as getting new customers costs money. By some estimates, postpaid subscriber acquisition costs run about four months recurring revenue, while a new prepaid account might cost about one to two months’ revenue.

What is not so clear is the direct linkage between service provider programs and customer behavior (lower churn, less call center traffic).  Should service providers aim to “delight” customers, or only prevent and fix problems quickly? Should providers invest in relationships or not? If so, in which segments? The research is not so clear on such matters.

AT&T to Attack Verizon MDUs in Boston

Anybody who thinks internet access competition is reaching a nadir might need to rethink those assumptions in the wake of new out-of-region assaults by Verizon, now countered to some extent by AT&T.

The important development is that markets traditionally lead by a telco and a cable operator, sometimes supplemented by competition from Google Fiber or other independent internet service providers, now will become markets where two tier-one telcos, a tier-one cable operator and often other ISPs also compete.

In other words, competition still is increasing, not shrinking, as some believe.

AT&T is offering internet access to multiple-dwelling units in Boston. The move is one example of a new trend in the fixed network business: large tier-one competitors moving out of region for the first time at scale.

Verizon, for its part, already has launched an assault on the AT&T market in Sacramento, and seems likely to attack another dozen or so markets as well. Most of the new 11 launch markets are out of region for Verizon, including Ann Arbor, Atlanta, Bernardsville (NJ), Brockton (MA ), Dallas, Denver, Houston, Miami, Sacramento, Seattle and Washington, D.C.

Of those markets, Washington, D.C.; Brockton and Bernardsville are inside Verizon’s fixed network footprint. The other markets are AT&T or CenturyLink domains.

Those moves outside the fixed network footprint by Verizon indicate thinking about growth prospects outside the core fixed network service territories, and probably also show that fixed wireless in the millimeter wave bands offers a new business case that did not exist before.

It remains unclear how much--if at all--the Verizon deep fiber architecture will play a key role in those out-of-region assaults. At least initially, the targets of opportunity likely will be locations reached by the metro fiber assets, using fixed wireless for access. That tends to suggest urban core targets of opportunity.

Essentially, AT&T and Verizon are becoming competitive local exchange carriers, at some scale, for the first time, attacking other tier-one telcos in their home markets.

The business case likely also includes the ability to use those assets to help with backhaul operations to support 5G small cell deployments as well.

T-Mobile US Deploys AI-Based Customer Care

T-Mobile US has deployed an automated customer care resolution tool supplied by Tupl.

The ACCR tool provides T-Mobile US customer care reps with detailed and easy-to-understand cause reports and technical resolutions, Tupl says. The ACCR tool is said to be 100 times faster and up to four times more accurate than legacy resolution practices support, automating as much as 90 percent of such interactions.

A TM Forum survey suggests service providers already are using artificial intelligence to support chatbots for customer service, network automation and service management, while 70 percent of service provider executives are conducting “proof of concept” trials.

At least so far, improving customer experience is top reason for AI interest, followed by reducing operating expenses.

The survey of 187 executives from 76 communications service providers operating in 51 countries, and 115 executives from supplier companies also suggests some problems.

Since AI is designed to augment human intelligence and processes, reaping value presupposes that organizations actually understand their core processes well enough to augment them, and can do so, as a practical matter. The history of enterprises applying information technology and reaping rewards is spotty, though.

source: TM Forum

Service Providers See AI Helping Most with Customer Interactions

A TM Forum survey suggests service providers already are using artificial intelligence to support chatbots for customer service, network automation and service management, while 70 percent of service provider executives are conducting “proof of concept” trials.

At least so far, improving customer experience is top reason for AI interest, followed by reducing operating expenses.

The survey of 187 executives from 76 communications service providers operating in 51 countries, and 115 executives from supplier companies also suggests some problems.

Since AI is designed to augment human intelligence and processes, reaping value presupposes that organizations actually understand their core processes well enough to augment them, and can do so, as a practical matter. The history of enterprises applying information technology and reaping rewards is spotty, though.

source: TM Forum

The Internet Era is Fundamentally Different

The internet era is fundamentally different from all prior eras of telecommunications. “Telecom” once was the center of its own universe. These days, telecom is part of the internet ecosystem. And some of us would argue telecom essentially is a tail on an internet ecosystem dog.

In large part, that means the industry cannot independently determine its own destiny, but supports, reflects upon and builds on other key trends in consumer behavior, device use, app use and enterprise priorities.

For that reason, argues the GSMA, “it is no longer appropriate to develop corporate strategies, or to assess policy situations, with a narrow focus on a single segment of the value chain.” In other words, the business context has changed. Boundaries between formerly-distinct industries have become porous, and actors in one part of the value chain now routinely expand into additional roles.

The implications for service providers--at least tier-one providers--are clear: movement beyond the access and transport function are within the realm of necessity and reason. You might compare such options to the older notions of vertical integration. The business logic is the same.

Sometimes revenue growth, profit or cost control is enhanced when firms operate across more of the value chain.

source: GSMA

There is an important caveat, though.

It might not be possible for small service providers to contemplate strategies that include operations across multiple parts of the ecosystem. Large entities, whether app providers, device suppliers or access providers, can reasonably expect to have the scale necessary for success across multiple roles.

Smaller providers, for reasons of scale (or lack of scale), will have to adapt to more specialized roles, as smaller participants in the core telecom ecosystem always have done.

That does not mean awareness of the trend is unimportant. Small providers have to understand where opportunities exist within the larger ecosystem, and as potential partners for tier-one actors who do operate across multiple roles.

Precisely how many tier-one telcos actually might envision a substantial role across multiple areas of the ecosystem (apps, services, devices, access, advertising) is unclear, but it will be a relatively small subset of the universe of service providers.

When researchers at Nokia Bell Labs predict a consolidation of some 810 global service providers to perhaps 105 within a decade, that gives you some idea of the universe of possibilities. As only the largest app providers are able to occupy meaningful positions across the ecosystem, so only a few of the largest service providers can contemplate similar moves.

source: GSMA

The internet value chain has almost trebled from $1.2 trillion in 2008 to almost $3.5 trillion in 2015, a compound annual growth rate of 16 per cent, according to the GSMA. So the ecosystem has grown substantially. So has the gross amount of revenue earned by the global service provider industry. But the percentage of total value earned by service providers is dropping.

The implications are perhaps obvious.

We sometimes forget that the global telecom business had, for most of its history, been about the sale of apps (services), not “access” to such apps. In other words, consumers and businesses bought the right to make phone calls, and not the right to access a network to make phone calls.

The difference is subtle, but crucial. “Phone companies” were in the “make a phone call” business, not the “network access” business. In the internet era, the value proposition flips.

If access to the internet now is among the primary values, if not the exclusive value, service providers now are in several businesses. “Access to the internet” (dumb pipe) drives significant revenue. But so do “apps” (voice, messaging, video entertainment).

So a core part of strategy is to grow the portion of the business related to apps or services, compared to lower-value “access.” That especially is true if one believes there are clear limits to the amount consumers ever will spend on access services.

The point is that growth options for providers that remain in the access services business (voice, messaging, video, internet access) are probably limited, going forward. Gaining scale (making acquisitions, especially outside the existing geography) will help, for a while. The limit there is the availability of capital and acquisition targets.

As always, that will spur a search for niches. As in the past, those niches will tend to be smaller or specialized segments that a tier-one service provider simply cannot support and make a profit. Rural geographies, local geographies and specialized business services have provided opportunities in the past. That should continue.

In the internet era, successes in other areas are harder to identify, with few clear sustainable advantages for carrier-supplied voice or messaging apps or app stores. There might be new advantages for some carrier-supported devices in some markets, especially where a service provider can use its own branded handsets to drive market share gains.

Language-specific content also could be promising.

The larger point is that, in the internet era, opportunities often are shaped by what other segments of the value chain will allow.

Vint Cerf on Where the Internet is Going

Internet pioneer Vint Cerf talks about where the internet might be going.

Are We in the Pipe Business? If Not, What?

Dean Bubley, Founder, Disruptive Analysis, and Connie Wightman, CEO and Chairman of Interserra Consulting Group, interviewed by Gary Kim, trying to think seriously about the future. Sources of value, roles and functions, prices trending to zero and other hairy challenges.

Part of the problem is that customers "want as little as possible, and don't want to pay for it," said Bubley.

“Voice mail is irrelevant,” says Wightman. “I don’t think telecom is a separate sector, anymore.” And eventually, app interfaces will be as ubiquitous as electrical outlets.”

“There are many more blurred boundaries,” says Bubley. “That makes it hard to classify things with a bright line.” Basically, the old monopoly on creating “telecom services” is over, and “anybody” can create communications features. In other words, private communications networks will be possible and common.

“Telecom is a tail on an internet dog, and cannot determine its own fate,” Kim said. “What drives value,” in that context?”

Cable Dominates U.S. Internet Access

It is hard to overestimate the impact cable TV companies have had in the U.S. internet access business. At every speed tier, cable operators have overwhelming market share, as you immediately can tell from the following graph, where “red” represents cable market share at various speeds. At the higher end, cable has well over 80 percent of sold connections operating at a minimum of 100 Mbps.

But even at the low end, at speeds less than 3 Mbps, cable has 60 percent share.

For better or worse, those adoption statistics reflect deliberate capital investment decisions by U.S. telcos other than Verizon. Basically, many independent telcos have been financially unable to invest faster, while AT&T arguably has made a priority of mobile capital investment.

Verizon “benefits” from having made most of its fiber to premises investments a decade ago.

What comes next is not so clear. Some argue cable operators are in position to leverage their market control to raise prices.

Others might argue that telco fixed wireless is part of the strategy for catching up with cable. And AT&T recently has stepped up investment in gigabit services where it believes their is a business model.

Others might argue that at least AT&T and Verizon are looking past fixed segment competition and hoping to lead in the future mobile and untethered markets. That is part of the interest in both mobile video and fixed wireless built on the mobile network.

Yet others might argue that  apps and services beyond internet access will drive revenue in a decade, not access, per se, reducing the value of access investments, in any case.

Still, the market impact cable TV has had is foundational. Its reliance on its own facilities, using different platforms than telcos use, has allowed it to upgrade faster, at lower cost, than telcos have been able to do using fiber to the home.

But most of the share losses have come from telcos other than AT&T and Verizon, which in recent years have been holding their own. In other words, you might argue both those firms have invested enough to get by, while prioritizing investments in mobility that clearly has driven revenue growth for both firms.

The issue now is how much investment has to be tweaked to maintain the “just enough” capex. Many would argue it does not make sense for either AT&T or Verizon to overinvest in fixed network internet access, as the financial return simply will not be there.

source: FCC

At this point, the fixed network internet access market is nearly a zero-sum game. That means most of the market share gains will have to come from other competitors. Such markets are tough.

The total number of U.S. internet connections increased by about six percent between December 2015 and December 2016, reaching 376 million, the Federal Communications Commission reports. So there was growth, but at low and slowing rates.

source: FCC

With the caveat that speeds offered by some providers seems to be increasing about 50 percent per year,  the 106 million fixed connections at the end of 2016 included 37 percent (39 million connections) operating between 25 Mbps and 100 Mbps, while 23 percent (or 25 million connections) offered speeds of at least 100 Mbps.

That suggests the policy of gradually investment by AT&T, for example, is largely defensive. That makes sense, one might argue, in the context of a business driven by mobility or video services, not internet access.

In the fourth quarter of 2017, for example, AT&T earned 85 percent of revenue from apps, not internet access.

Keep in mind that the FCC  figures also represent consumer buying choices, not the services available to buy. Consumers make rational choices about internet access, buying services that provide the best perceived value proposition, not necessarily always the “fastest available” tiers of service.

They buy what is “good enough,” more often than they buy what they deem “best.”

So 62 percent of consumers chose to buy services running faster than 25 Mbps.

Some 38 percent of consumers bought services operating at slower speeds, though it is impossible to say for sure whether those customers were unable to buy faster services, or chose to buy slower services even when faster alternatives were available.

Some four percent of consumers (four million connections) bought services operating slower than 3 Mbps downstream.

Some 14 percent bought  (15 million connections) services operating between 3 Mbps and 10 Mbps. Some 22 percent (23 million connections) purchased services running between 10 Mbps and 25 Mbps.

The median (half of connections faster, half slower) downstream speed of all reported fixed connections was 40 Mbps and the median upstream speed was 5 Mbps.

For residential fixed connections, the median downstream speed was 50 Mbps and the median upstream speed was 5 Mbps.

Most of the growth in total Internet connections is attributable to increased mobile Internet access subscribership. The number of mobile Internet connections increased 7% year-over-year to 270 million in December 2016, while the number of fixed connections grew to 106 million – up about 3% from December 2015.