Rational Asset Use Does Not Drive Sharing

Subscriptions are a major business theme. So are various forms of asset sharing sharing. (short-term rentals, ride sharing, bicycle rental) that monetize little-used assets. 

It often is said the car ownership paradigm is challenged by ride sharing or car sharing “since cars sit idle 95 percent of the time.” All that might be true, but also irrelevant to many consumers, whose other “owned” goods also sit idle most of the time. 

Think of showers, toilets, most of your kitchen utensils, seasonal recreational equipment, much of your clothing, most of your content (books, music, videos) or gardening equipment in areas where there is a winter. 

The point is that consumer behavior does not necessarily change because an alternative becomes available. Convenience and overall cost of ownership make ownership a favored choice even if usage statistics suggest it is more efficient to rent capabilities. 

source: Ericsson

Some 10 percent to 20 percent of urban users expect to be using ride sharing for regular commutes to work in 10 years, Ericsson surveys have found. Higher percentages expect “other people” to do so. 

In other words, respondents say they will not be ride sharing, but expect others to do so. Of course, automobiles and other vehicles are deemed useful for purposes other than getting to work. Many consumers would still want to own their vehicles for other life pursuits. 

“Renting rather than owning” as a trend will likely continue to grow. But change will not happen because higher utilization of assets is rational.

How Much 5G Revenue Lift?

A new report issued by the by BCG for the European Telecommunications Network Operators’ Association suggests new use cases enabled by 5G will generate nearly 66 percent of total “telco” revenues by 2025.

source: ETNO 

It is not entirely clear what that claim means. In the context of an argument for government financial support, it seems to suggest that “new 5G use cases” will drive overall telecommunications revenue. 

That seems unrealistic in the extreme. For starters, mobility services in Europe account for about half of total revenues. Were 5G to displace 100 percent of telecom revenues, 5G would account for about half of total revenues, best case.

Even the more-focused argument that 5G might drive 66 percent of “mobile revenues” by 2025 is plausible only if one assumes that 5G replaces most existing mobile revenue and adds substantial new fixed wireless, internet of things revenue, despite the existence of competing networks and use of premises wireless that does not necessarily create substantially higher connectivity revenues. 

Do you really believe IoT drives 35 percent of total mobile revenue by 2025? Were that the case, do you not believe revenue forecasts would incorporate that expectation? Of course, there is a rational explanation. 

Legacy telecom revenues could drop so much that new IoT revenues simply allow the industry to tread water. The larger problem is that the typical firm in the telecom industry has to expect to lose about half its current revenue about every 10 years. 

That means the mobile industry has to expect to replace about $500 billion in recurring revenue, while fixed network operators have to expect to replace $400 billion in recurring revenues, within 10 years, assuming global revenues in the $1.8 trillion range by perhaps 2025. 

Those are daunting numbers. 

source: Statista 

In Asia and much of the Pacific, mobile revenues account for something closer to 70 percent of total revenue. In the Middle East, mobile revenues account for as much as 80 percent of total revenue. In such regions, one might argue that the impact of incremental new IoT revenues could be substantial. 

source: IDATE 

But that remains a tall order. GSMA has estimated service provider IoT connectivity revenue at less than $45 billion globally by 2025. In a global business of $1.6 billion, IoT at that level would represent less than three percent of total industry revenues, but possibly six percent of mobile revenues. 

That the report is issued at all reflects the importance communications regulators have in creating and shaping the business model. It is deemed necessary, from time to time, to “remind” regulators and politicians of the economic contributions an industry makes.

In that regard, the ETNO report argues that 5G and gigabit fixed networks can provide enormous economic benefits. No surprise there. What would be surprising is an argument that no financial help is required and that 5G is such a lucrative thing that service providers cannot wait to deploy it.

How Much Will Remote Work Continue to Shape Enterprise Spending Priorities?

Over half (59 percent) of the respondents to a survey by Aryaka said they expect 25 percent to 50 percent of their workers to remain remote at the end of 2021, and a further 21 percent with more than 50 percent remaining remote, the study found.

That will have repercussions for connectivity service provider revenue, possibly capital investment and architecture planning, if the trend continues longer term. 

Performance issues, for example, will be a bigger issue if a substantial portion of the work force is remote for significant amounts of time. 

source: Aryaka

Global WAN Business has Bifurcated

The global capacity business has bifurcated. Hyperscale data center operators, media and content providers have one set of needs while enterprises have different sets of needs. 

Hyperscalers need to connect with other data centers (including cable landing sites, internet points of presence, owned and third party data centers). The hyperscaler requirements are almost exclusively internet data volumes, and video entertainment represents the bulk of that demand. 

source: Cisco 

Enterprises not in the content business, on the other hand, need to connect headquarters locations with branch offices and workers with cloud or premises-based applications. 

source: Aryaka 

Hyperscalers require optical transmission and IP bandwidth. 

Non-content enterprises need quality of service networking (MPLS) and virtual network support (SD-WAN and VPNs), plus voice services. 

Much of the hyperscaler need is met by owned facilities. Nearly all the non-content enterprise demand is met by retail services. Very little hyperscaler bandwidth demand is access network related (connections to end users), while almost all non-content enterprises require access network connectivity.

Hyperscalers require relatively less collaboration support (in terms of bandwidth volume or spending). Enterprises always need significant amounts of unified communications support.

So MPLS and SD-WAN are important non-content enterprise concerns and purchases. That is virtually never true for hyperscalers and content enterprises (in terms of bandwidth demand and spending).

Singtel and Optus Partner with AWS for Edge Computing

By 2022, more than 50 percent of enterprise data will be created and processed outside the data center or cloud, up from less than 10 percent in 2019, Gartner predicts, which partly accounts for hype around edge computing as well as connectivity provider hopes for a role in edge computing. 

The issue is what roles mobile operators will choose to pursue.

Singtel and Optus, for example, have chosen to embed Amazon Web Services capabilities into their Multi-access Edge Compute (MEC) infrastructures using AWS Outposts. It is not immediately clear why Singtel chose to use the AWS Outposts platform, rather than the AWS Wavelengths platform. 

Outposts was built to reside on a customer’s premises, while Wavelengths was designed to reside in a telco edge computing facility. Outposts equipment is managed directly by AWS, but that should also be true for Wavelengths deployments. 

AWS Outposts provides the full suite of AWS tools and services on the premises in a self-contained rack. AWS Wavelengths puts AWS servers inside a telco facility. Perhaps Singtel simply preferred the footprint, capacity and ease of using Outposts, rather than using Wavelengths. 

Outposts supplies a rack of servers managed by AWS but physically on-premises. In Singtel’s case that is its own facilities. 

Presumably Singtel provides the power and network connection, but everything else is done for them. If there is a fault, such as a server failure, AWS will supply a replacement that is configured automatically. Outposts runs a subset of AWS services, including EC2 (VMs), EBS (block storage), container services, relational databases and analytics. S3 storage is promised for some time in 2020. 

Use of AWS Outposts also requires certain loading dock, connectivity and other physical requirements that Singtel and Optus might have concluded was easier to standardize if provided at telco facilities. 

Perhaps ensuring adequate facilities also is a requirement. But Singtel also says it can deploy the MEC with AWS Outposts to the customer’s location, especially for use cases where confidential data must be kept, or preferably is retained, on the customer premises.

The shift to edge computing is part of a historical oscillation between centralized and decentralized approaches, and the virtualized 5G network core essentially requires use of edge computing capabilities. It is not yet clear how much synergy might be developed between a mobile operator’s core 5G network edge computing requirements and retail customer requirements. 

source: GSMA Intelligence 

But many argue that 5G-based private networks, edge computing, and network slicing represent the best chance for mobile operators to boost revenues. Those use cases “present network infrastructure vendors and telcos with the best chance to capture the next wave of wealth that will be generated by 5G,” said Raj Yavatkar, CTO at Juniper Networks. 

source: Gartner 

Video Calling Used by 82% But Voice Calls Decline, Metrigy Finds

Metrigy’s “Workplace Collaboration 2021-22” study, Metrigy found that 82 percent of survey participants now use video for all or most meetings. Almost 44 percent of respondents say phone utilization declined in 2020 by an average of 34.6 percent. 

Fully 28.6 percent say that calls have shifted to video-enabled meeting apps, while 17 percent say that they shifted to using personal mobile phones for voice. On the other hand, given the Covid-induced shift from field sales to inside sales, neither is it surprising that 25 percent of respondents reported higher phone usage. 

Also, inbound calls to customer support centers arguably increased during the pandemic. 

source: Metrigy

CFOs are Likely to Demand More Inside Sales than Field Sales

Before the Covid-19 pandemic, international business travel was a $1.5 trillion annual expense, growing about seven percent a year. So among the questions to be asked is whether such business travel spending rebounds to former levels, or changes.

According to researchers at Growth Lab, business travel and spending has grown far faster than global gross domestic product. So it might be reasonable to expect executives to consider whether such spending--and how much--is required, post Covid. 

To be sure, much such travel arguably is related to the emergence of global firms that must coordinate across geographies, creating a need for personal relationships best developed face to face, rather than virtually. 

source: Growth Lab 

As a matter of necessity, business-to-business sales and support operations have had to move to virtual modes during the pandemic, when international travel was unlawful. As was the case for much office or knowledge work, productivity arguably has not suffered from enforced virtual work modes. 

Whether that remains true long term is another question. Most businesses can work, short term, off embedded social capital and relationships. How well they can do so long term is the unanswered question. Will new employees be able to socialize and learn each organization’s culture on a mostly-remote basis? Will human bonds be sustainable when they are created and sustained mostly virtually? 

Can business-to-business sales permanently shift to virtual modes on a permanent basis?

source: McKinsey  

There is evidence that although online traffic to company websites has grown substantially, sales close rates have fallen. In a business-to-business context, face-to-face interactions arguably are important. In other words, field sales became impossible and all sales became “inside sales.”

Most organizations selling B2B use a mix of field and inside sales, but inside sales has a bigger role for smaller customers and follow-on sales.

It remains unclear how the field sales roles can change, longer term. But there is some thinking that the distinction between field sales and inside sales almost vanishes when remote sales is ubiquitous. And, to be sure, financial officers will welcome the chance to reduce sales costs by emphasizing virtual and reducing the cost of field sales. 

Most buyers are comfortable with remote purchasing when sales amounts are relatively small. The issue is how big purchases must be handled or how to reshape sales funnels. 

Over the longer term, sales effectiveness will drive the balance of physical or virtual; field or inside sales. As always, larger sales with a longer sales cycle will be more apt to use physical processes. 

And since most organizations set operating budgets based on historical norms, a dip in sales expense in 2020 is likely to be followed by continuity in 2021 and at least a few years beyond. 

Face-to-face sales in B2B settings will get more attention as the pandemic ends. The issue is how much of a return can be expected. “Less” seems more likely than “more.” And “less” seems more likely than “return to 2019 levels.” Any organization that believes it can permanently change its sales cost metrics is going to try and continue doing so.

What 5G Might--and Might Not--Do to Boost Connectivity Revenue

Paradoxically, some apparently-contradictory statements can all be true. It is argued that “5G will not lift average revenue per user” and also that ARPU will climb. Some argue the revenue lift from 5G will be slight; yet others believe consumer revenue will climb. 

That belief is based on slow global revenue growth--despite faster growth in some regions--of about one percent a year, overall. Indeed, some believe global connectivity revenue is near a peak. 

Strategy Analytics, for example, predicts that “wireless service revenue will peak in 2021 at US$881 billion, just three percent above the level forecast for 2018.” 

Observers believe that 5G mostly displaces 4G, so most “5G” revenue cannibalizes 4G. But 5G also will create new consumer revenue streams. 

source: STL Partners 

Some argue 5G revenue will come from new enterprise use cases, and at the same time that consumer revenue still will drive the bulk of revenues. 

All of these apparently-contradictory views can be true, simultaneously. Perhaps it will prove generally true that use of 5G networks will not materially boost consumer mobility revenue. On the other hand, other packaging practices--such as offering 5G only on the most-expensive, unlimited access plans--will boost revenue. 

In other words, revenue is greater because consumers move to higher-priced plans that include 5G. The direct driver is unlimited usage and other features (including 5G) that come along with such plans.

As has been true for all prior mobile generations, 5G will replace 4G. On a one-for-one basis, resulting in little net revenue change. Still, 5G likely will create some new use cases--with revenue-- around use of virtual reality or augmented reality apps, use of internet of things for home security or in the form of 5G-optimized content services. 

In many cases, new access charges might be bundled with the cost of the service or app, or revenue is generated by software as a service or other recurring charges. 

And though a majority of total 5G connectivity revenue will come from consumer mobile phone accounts, new use cases are likely to come from enterprise or business-to-business use cases. T-Mobile is introducing new mobile-based business phone services, for example.

AT&T and Verizon supply connected car services. Comcast offers home security that uses connected sensors. 

And most observers believe there is revenue upside for connectivity providers in supporting private 4G and private 5G networks, for example, from system design, integration or operation or additional direct connectivity services. 

source: Mobile Experts 

Will Post-Covid Behavior Create Consumer Revenue Upside?

Most observers would agree that long-standing consumer habits—more money spent on services, greater digital adoption, and more time and money spent out of the home—have been interrupted, accelerated, or reversed during the Covid-19 pandemic. 

There likely is less agreement on the permanency of those changes. The question for connectivity providers is whether there are direct implications for revenue streams, if any. One might argue that the simple fact that data consumption grows 40 percent each year drives revenue upside. It does not.

Higher consumer data usage tends to drive capital expenditure, as networks must continually be upgraded, but consumer spending is quite resistant to upside changes. In the mobile or fixed business, average revenue per user grows over time only as users buy more-expensive usage plans. And such changes are relatively slow-moving and slight in magnitude.

In fact, the real cost of broadband and communications has--in many cases--dropped over the past two decades. Upside arguably exists for owners of content streaming services and possibly some connectivity providers who also are partners in healthcare delivery services using connected consumer devices, especially when using new dedicated access accounts (internet of things access, for example). 

McKinsey consultants have argued, for example, that e-grocery shopping, virtual healthcare visits, and home nesting were likely to stick while remote learning, declining leisure air travel, and decreasing live entertainment would likely revert closer to pre-pandemic patterns.”

source: McKinsey

Orchestrator or Platform?

Rather than the term platform, which implies that a company creates an orchestration role or marketplace, systems of delivery might be a better way of explaining a path forward for connectivity providers trying to supply more value for their customers and create new roles within the value chain. 

In the enterprise software as a service space, some argue for approaches that are more agile because something akin to an operating system can be envisioned: a way of breaking down silos and allowing horizontal integration. 

The problem is either too much integration (too “tight” and therefore not flexible) or too loose (little to no effective integration). Think of the way application programming interfaces are used to allow systems to work together, in a more loosely-coupled manner. 

The analogy for connectivity providers is to become something of a process orchestrator, integrating various functions on behalf of a customer. The older model of system integrator comes to mind, but in the context of orchestrating the use of resources, more than creating the resources. 

Creating a system of delivery arguably is far easier than creating a platform. One arguably sees this in the software as a service business. “SaaS is upping its game with a growing number of vendors downplaying 'best of breed' and talking instead of a 'rising tide' where they become centralizing hubs in which an ecosystem of other apps are operationalized,” notes S&P Global. 

source: 451 Research 

That sounds akin to “platform,” but might be better characterized as “orchestration.” Agility and alignment arguably are parts of it. Integration might arguably be part of it. Overcoming silos is part of the idea. 

The key observation is that almost every effort made by connectivity firms to increase value for customers will require some orchestration of value to create a solution. Though not easy, it is perhaps easier to envision a large connectivity provider becoming an orchestrator of value than becoming a true platform.

Fixed Wireless Could Reverse a 20-Year Trend

Cable operators and many observers say they do not believe fixed wireless is a threat in the home broadband market. The argument is that speeds will not match what hybrid fiber coax or fiber to the home is capable of; usage allowances will not match that of cabled networks and price discounts will not be significant enough to attract switchers. 

T-Mobile and Verizon are enthusiastic for perhaps equally-compelling reasons: $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

But even most business accounts could be candidates for fixed wireless, including smaller businesses as well as larger entities using fixed wireless as a backup service. 

source: S&P Global 

Beyond all that, fixed wireless is interesting for attackers in the home broadband market, simply because the easiest possible business model is “same service, lower price” in a market with proven demand characteristics. And the “lower price” part of the value proposition is powerfully enhanced by fixed wireless.

Fixed wireless does not have to compete with the high-end FTTH or cable gigabit services. As history has shown, most competitive attacks in software or communications happen at the low end: a product that is “not as good as that provided by the leaders, but still useful.” 

Fixed wireless only has to shift a bit of market share to become a significant revenue driver for T-Mobile, and allow Verizon and AT&T to reverse a 20-year loss of market share to cable operators in the home broadband business. 

And since at least half of all U.S. home broadband customers buy services operating in the 100 Mbps to 200 Mbps range, a fixed wireless service only has to provide about that level of performance, with adequate usage allowances and a lower price, to be competitive. 

Most likely, the center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. The reason is that that pricing level and downstream bandwidth fits the profile of 5G fixed wireless using mid-band spectrum.

The other issues are coverage and infrastructure cost. T-Mobile has had zero market share in home broadband because it is not in the fixed networks business. Verizon has a small geographic footprint and has never been able to compete in 80 percent of the U.S. home broadband market. Fixed wireless, provided by the same 4G and 5G networks they must operate in any case, provide a platform for doing so.

Look for Expedited FTTH Investment in U.K. Because of "No Price Controls" Rule

Regulated prices in the connectivity industry generally result in less investment. Pricing freedom, on the other hand, tends to lead to more investment. That was true in the U.S. market and seems to be shaping up in the U.K. market as well. U.S. policy, early in the wake of the Telecom Act of 1996 focused on robust wholesale pricing. 

Wholesale discounts as high as 40 percent encouraged lots of new competitors to buy wholesale capabilities, while also leading the providers of facilities to complain that they had few incentives to invest robustly in optical fiber infrastructure, given the existence of robust mandatory wholesale policies. 

“We currently do not expect to introduce cost-based price controls (on new fiber to the premises) facilities until at least 2031,” said Ofcom. 

That is expected to lead to faster investment by OpenReach and BT, since a higher return is possible.