"Internet as Platform" Still Challenges Telcos

It has been some time since there was any serious industry debate about the "next generation network." That is a bit odd, if you trace the amount of time the industry has spent trying to define and create that next generation network. 

True, some of the quiet has to do with industry coalescence around "IP Multimedia Subsystem" and "Rich Communications Suite" as the practical answers to the question of what the industry will do about next generation networks.

The notion of "platform" comes into play in that regard. You might argue that traditional telecom networks were, albeit limited at times, "platforms" in the current sense for applications. The analogy is imperfect, but industry suppliers of switches, routers, other operating software, billing, operations support systems and so forth were the equivalent of today's third party developers. 

The fundamental issue is that the public Internet has usurped much, perhaps most of the role of next generation platform. Some might go further and argue that some devices, especially smart phones, now have become application platforms as well. 

In a nutshell, that is the strategic problem for telecom, cable or other access networks. The Internet, and devices that use the Internet, actually have become the next generation network platforms of choice for most apps. 

That doesn't mean cable, telco, satellite, fixed wireless or other networks cannot operate as platforms. But it does mean they now have limited utility in that regard. 

The difference between the public Internet and use of IP on private networks remains important, not to mention the continuing interest national regulators everywhere have in their communications infrastructure. 

But it is hard not to argue that the Internet now is the next generation network platform of choice, even if what we now call the public switched telephone network continues to operate, in parallel, as a platform as well. 

That might seem obvious, but it was more contentious a decade  or so ago, when debates about next generation networks tended to revolve around use of protocols such as asynchronous transfer mode or Internet Protocol. 

There are business implications. Platforms have tended to standardize around a single dominant provider, such as Windows in PCs, Facebook in social, Google in search. 

The more dominant the platform becomes, the more valuable it becomes and the harder it becomes to dislodge, as a network effect kicks in. Developers want to create for the platform "everybody uses."

And that illustrates the problem telcos and other access providers still have. The platform of choice increasingly has become the Internet. Developers who specialize in apps for the public network are far fewer in number than those who build Internet-compatible apps. 

It is still true that the public Internet is distinct from the public switched telephone network. That will remain true even after the legacy PSTN is replaced by the next-generation IP network. 

The Internet has not actually become the "next generation telco network." But it is the bigger platform. And in those areas, such as mobility, where the network actually retains more relevance, the mediating role of the device now is usurping more of the actual value of the mobile platform. 

Global Telecom Revenue Grows Unevenly

Though the global telecommunications business is predicted by virtually all analysts to be growing, that is not necessarily the case in every region. Global telecom revenue is one thing. The fortunes of service providers in specific regions are another matter.

The European telecom service market decreased for the third year in a row, by 1.5 percent, the European Telecommunications Network Operators Association reports. You might blame a tough economy for the contraction, but ETNO points out that in the most-recent year, in a context of moderate economic recovery (+4.2 percent for current gross domestic product in the region), the lagging performance suggests structural changes, not just cyclical economic impact.

But some observers might argue that economic woes are having an impact. And some might predict more turmoil in 2013.

The decline in European fixed telephony revenues is accelerating (-8.3 percent in 2011 and –31 percent over the last five years), driven in part by a negative five percent growth of fixed lines in service. Since 2005, fixed line subscribership is down 22 percent.  The bad news is that mobile revenues, long the driver of industry growth, also are declining (-0.6 percent)

Mobile voice revenues were down 4.7 percent in 2011 (–13.2 percent over the past three years), a decline driven by significant drops in some large countries: Spain (-8.3 percent),
France (-8.2 percent) and Germany (-7.1 percent).

Fixed network broadband revenue is the bright spot, as revenues were up 6.5 percent in 2011.

Mobile services, though, remain the bulk of telcos revenues, accounting for 52 percent of the total market (142.7 billion EUR in 2011).

The report also shows the divergence between European and the United States market, where it comes to revenue growth. Since 2006, U.S. service providers have done better than their European counterparts.

Precisely why that should be the case is not always so clear. One might argue that European markets are more competitive. One might argue European markets are more fragmented. One might argue that calling and texting tariffs have been higher, since there is more international roaming across Europe, compared to the continent-sized U.S. market.

Certainly, regulators have been squeezing revenue by mandating lower charges for cross-border roaming. Those lower tariffs of course will put pressure on gross revenue.

Moreover, Europe's share of the global telecoms market has been declining regularly over the recent years, from 31 percent  in 2005 to just over 25 percent in 2011 as the gap between
global growth (+3.2 percent in 2011) and growth in Europe widens.

4G, Better Devices Mean Mobile Video Is Set To Explode

Over the last two years,the U.S. mobile video audience increased 77 percent to 36 million viewers. Plus, tablet sales are expected to explode as well. in the coming years. More mobile devices means more mobile video consumers, and more mobile video consumption. 

But that's only part of the change. Faster mobile networks, especially 4G Long Term Evolution, mean better video experience. Larger screen devices, including smart phones and tablets, likewise make video experiences far better. 

By some estimates, faster networks increase the likelihood that mobile users will watch a video on their smart phones. 

Fighting "Dumb Pipe" Won't Work

Fixed network service providers are trying to swim upstream in struggling against the notion that they provide “dumb pipe” or “big pipe” access to the Internet. Ignore for the moment the unstated “low gross revenue or low gross margin” adjectives that often accompany the phrase “dumb pipe.”

The simple fact is that a fixed connection provides the lowest-cost access method for an untethered device. In the case of a public Wi-Fi hotspot, the incremental cost can be “zero.”

In the case of a branded service provider hotspot, the incremental cost also might be zero, though the precondition for such “no incremental charge” access is that the customer already buys a fixed or mobile Internet access service.

Likewise, a fixed connection, equipped with Wi-Fi, provides the lowest cost bandwidth for consuming entertainment video on a variety of devices.

There are, to be sure, other services and applications that fixed network providers supply. But it seems unlikely any amount of marketing is going to persuade end users that the primary value of a fixed broadband connection is “lowest cost bandwidth.”

That does not mean fixed service providers will not have other, and new services and applications to sell. But it is hard to deny the obvious end user understanding that a primary reason for using a fixed broadband connection is the sheer cost advantage, compared to a mobile bandwidth alternative.

Traffic from wireless and untethered devices will exceed traffic from wired devices by 2016, Cisco forecasts, even though, up to this point, fixed connections have represented  perhaps 90 percent of all bandwidth consumed by end users. It is perhaps a shocking prediction, but has to be put into context.

In 2016, wired devices will account for 39 percent of IP traffic, while Wi-Fi and mobile devices will account for 61 percent of IP traffic. In 2011, wired devices accounted for the majority of IP traffic at 55 percent, Cisco says. That is a huge change, driven in part by a shift of Internet consumption away from “PCs,” the traditional driver of Internet traffic.

At the end of 2011, 78 percent of IP traffic and 94 percent of consumer Internet traffic originated from PCs. By 2016, 31 percent of IP traffic and 19 percent of consumer Internet traffic will originate from non-PC devices such as smart phones and tablets, gaming consoles and Internet-connected TVs.




Globally, mobile data traffic will increase 18-fold between 2011 and 2016, Cisco says. Mobile data traffic will grow at a compound annual growth rate (CAGR) of 78 percent between 2011 and 2016, reaching 10.8 exabytes per month by 2016.

Also, global mobile data traffic will grow three times faster than fixed IP traffic from 2011 to 2016.
Global mobile data traffic was two percent of total IP traffic in 2011, and will be 10 percent of total IP traffic in 2016.

One of the key observations is the difference between tethered Wi-Fi and mobile access. If 61 percent of all traffic is created by untethered and mobile devices, while 10 percent of demand is driven by mobile devices, then it is fairly obvious that Wi-Fi-based use of the fixed networks could represent half of all bandwidth demand.

In other words,untethered devices--including mobile devices in Wi-Fi mode--become the key drivers of overall Internet demand.

What Will Dish Network Do if FCC Approves LTE Plan?

The Federal Communications Commission is close to approving the request by Dish Network to use its mobile satellite spectrum to build a terrestrial Long Term Evolution network. That would seem to be welcome news for Dish, but there is a catch, Wall Street Journal reports. 

To prevent interference, the agency is likely to bar Dish from using some portion of its bandwidth, a move that Dish CEO Charlie Ergen has said  "would be a game changer for us," making his bet to enter the wireless industry "increasingly risky." 

Basically, the limits on use of some spectrum at the high end of the frequency range would reduce uplink bandwidth about 25 percent. Dish also argues other relatively typical sources of link degradation would reduce bandwidth another 25 percent. 

So, if approved, the issue is whether the stated objections really would cause Dish to abandon its plans, modify those plans or proceed after making the strongest argument it could to use all the spectrum. 

Given the FCC's handling of interference issues posed by Lightsquared, Dish Network has to have known all along that some sort of guard band would be required. On the other hand, many carriers operate asymmetrical networks with more bandwidth provided downstream than upstream. How big a marketing issue Dish might have, with less upstream capacity, is unclear. 

Also, to the extent that the key innovation would be a mobile video service, which would be highly biased to downstream bandwidth, asymmetry might not be a killer issue.

What Does T-Mobile USA Mean by "Un-Carrier?"

T-Mobile USA, which has named Michael Sievert, a 20-year marketing veteran of the tech and telecom sectors, as the company’s new chief marketing officer, also comes with the cryptic comment that T-Mobile USA intends to "redefine wireless as America’s un-carrier,” said John Legere, president and CEO of T-Mobile USA.

The phrase "un-carrier" could have lots of meanings, none of which yet are clear. At some level, it could mean T-Mobile USA simply wants to try and behave in a way different than other major mobile service providers, in pricing, packaging, customer service, business strategy or some other dimension of routine market positioning and operations. 

More fundamental meanings could involved a redefinition of what "product" T-Mobile USA offers. That seems less likely, though some upstart contestants already are moving to a "data only" approach. 

Market structure seems poised for changes, to be sure. But one gets the feeling that equally significant changes in product definition and pricing are about to be tested, for a variety of reasons.  

We have been for at least a decade in a period of relative quiescence as far as the fundamental structure of the U.S. mobile market is concerned. That appears likely to be tested in the next several years. 

In Broadband Economy, Does Every Winner Have a Loser?

Economics has in the past been called the dismal science because of a fear that it describes a "zero sum" world where demand for resources will outstrip supply. That "Malthusian" perspective seems not to have such analytic power these days, in large part because human ingenuity has consequences. 

People are able to come up with solutions for new problems in ways that are not, in fact, zero sum. A new analysis of the economic impact of broadband suggests lots of ways people have saved money by using the Internet. 

But one might also note that major economic and technological innovations, while positive for society overall, rarely are "cost-less" in the sense of having no "losers." In fact, markets work because suppliers of products people prefer more survive, while suppliers of products less desired do not survive. 

To the extent that the Internet allows more efficiency in just about any endeavor of human life, that efficiency means there is less room for  "inefficiency" on the supply side of life. But one person's cost is another person's revenue. 

So broadband access, though not a zero sum game, also means there are some losers. Virtually any part of a supply chain involving "distribution" will see distribution costs decline, but that also means income of distributors declines.

Production is affected as well, though. That is easy to see in the media business, for example. Broadband does, one might argue, have powerful and positive social and economic impact. But there also are winners and losers. The correspondence is not one-to-one. There likely is no zero sum outcome. But that doesn't mean all we have is winners. We have losers as well.