Will Verizon Sell its Fixed Network, After Buying Vodafone's Verizon Wireless Stake?

Verizon and Vodafone might once again be talking about allowing Verizon Wireless to acquire all of Vodafone's stake in Verizon Wireless. For some of us, the big question is not whether the deal finally will succeed. 

Instead, the big question, assuming Verizon Communications is able to take full equity ownership of Verizon Wireless, is what Verizon might later decide to do about its fixed network assets.

Though it might come as a shock, in its most recent quarter, Verizon Communications earned only a bit more than 14 percent of its total revenue from fixed network services. 

About 86 percent is earned from mobile services.

That is one good reason why Verizon Communications has wanted to acquire full ownership of Verizon Wireless. Doing so funnels all of the revenue growth and profit back to Verizon Communications, instead of just 55 percent of the growth.

But some of us do wonder whether it actually makes good sense for Verizon to own assets that contribute 14 percent of revenue, and less growth or profit margin, when it might be able to sell the assets and then purchase other mobile assets in new markets.

So, for some of us, the big issue is not whether Verizon Wireless will be fully owned by Verizon Communications. The huge implication is whether Verizon might get out of the business of being a fixed network services provider.

That could have huge implications for any number of competitors and allies.

Verizon Communications owns 55 percent of Verizon Wireless and has wanted to buy the rest for years. The deal might involve something north of $100 billion, up to perhaps $130 billion. “Why now?” is a good question, as rumors about a sale of the Vodafone stake to Verizon Communications have been held on and off for years.

Some would say the expectation of rising interest rates is a very good reason for moving

now. Most expect any Verizon Wireless purchase of the Vodafone stake would involve a combination of stock and cash. And that cash would be borrowed.

Hence, moving now would save Verizon quite a lot of interest expense. Some believe Verizon would have to borrow about $60 billion. At a five-percent annual interest rate, interest would initially amount to $3 billion or so. At six percent interest rates, annual interest payments would grow $600 million. At seven percent interest, annual interest payments would rise to perhaps $4.2 billion.

From Vodafone’s perspective, the big issue is what to do with the proceeds of the sale, after tax payments of perhaps $10 billion. Most observers have assumed Vodafone would use some of the proceeds to reduce its own debt, and part of the funds to make capital investments or buy additional assets.

For observers of the U.S. communications market, the big issue is how Verizon might view the value of its fixed network assets. As crazy as it might seem, Verizon might consider selling off its fixed network assets. Those assets contribute 14 percent of revenue and likely will continute to drop as a percentage of total revenues.

Comcast to Launch 250 Mbps in Provo for $80 a month

Can an offer of 250 Mbps for $80 a month compete with an offer of 1 Gbps, symmetrical, for $7-0 a month? Comcast will find out sometime over the next year or so, as it launches a new 250 Mbps service for $80 a month that resets teh value-price relationship for access bandwidth and pricing. 

Debate over "Fiber to Home" Versus "Fiber to Node" Erupts Again in Australia

Oddly enough, for some of us, a debate over access network architecture, specifically fiber to the home or fiber to the node, appears to be an issue in upcoming Australian elections.

The reason is that the two main contenders disagree on which network architecture to use for the National Broadband Network.

One might argue that, given escalating demands for bandwidth, and national policies aiming to boost speeds to 100 Mbps by 2020, for example, that fiber to the home makes more sense. But others argue that the less-expensive fiber to node architecture will suffice.

The argument is an old one. Verizon Communications opted for fiber to the home. AT&T opted for fiber to the neighborhood (essentially, fiber to the node). U.S. cable operators likewise have opted for a fiber to the neighborhood approach.

But those older debates are more complicated than in the past, because of huge changes in revenue expectations. It never was necessary to build fiber access networks to support voice. All-copper networks work just fine for that application.

The other problem is that the voice business is shrinking, as users opt for mobile phones as their preferred way of calling. Mobile also is the preferred platform for messaging.

So the argument for fiber to the home explicitly relies on an assumption that new revenue sources can be found. In that respect, the argument is that fiber to the home works better, long term, for high speed access, and that video services also can be supported.

The former argument makes sense, but has not yet proven to be a show stopper, though Google Fiber’s symmetrical 1 Gbps for $70 a month could help settle the argument.

The latter argument, that fiber to the home is required for linear TV, likewise has not proven decisive, as both Verizon and AT&T are able to deliver linear TV services using either architecture.

Beyond that, there are concerns about the longevity of the video revenue stream, and questions about how much speed consumers will really want to pay for. Of course, Google Fiber hopes to upset those expectations.

Given all that, ironically, the debate over network architecture remains unsettled. Some rationally will argue the best policy is to invest as little as possible in fixed networks and emphasize mobile networks.

Under either scenario--fiber to home or fiber to node--the NBN would be a wholesale network. The fiber to home network has been estimated to cost A$44.1 billion and be finished about 2021.

The FTTN network could be finished by 2019, at a total cost of A$29.5 billion.

The FTTN network will provide download speeds of 50 Mbps network, while the fiber to home network will initially provide download speeds up to 1 Gbps.

But the analysis is more complicated than that. Under either scenario, rural areas will be served by satellites. But the access in other areas is mixed. The “fiber to home” proposal actually uses fixed wireless in many moderately-dense areas while only urban areas get fiber to the home.

Under the “fiber to the node” plan, satellites still would be the only viable option in rural areas, while fiber to the node would be used for retrofit areas, and fiber to the home deployed in all areas of new home construction.

The differences are exacerbated by uncertainty about future demand. The average Internet connection speed in Australia is currently 4.2 Mbps, for example.

But usage also seems to climb over time. For that reason, some believe broadband customers will be buying services of more than 100 Mbps by 2020 and about 1 Gbps by 2035.

Some argue that it simply makes more sense to put in fiber to the home now, even if it costs more.

Will End of Moore's Law Impair ISP Ability to Rapidly Grow Bandwidth?

Theoretical physicist Michio Kaku believes Moore's Law has about 10 years of life left before ever-shrinking transistor sizes smack up against limitations imposed by the laws of thermodynamics and quantum physics.

Signs of the coming end are already here, according to AMD. AMD Chief Product Architect John Gustafson believes AMD’s difficulties in transitioning from 28-nanometer chips to 20-nanometer silicon shows we’ve reached the beginning of the end.

"You can see how Moore's Law is slowing down," Gustafson said. "We've been waiting for that transition from 28nm to 20nm to happen and it's taking longer than Moore's Law would have predicted.”

The coming limits mean processing power will not double every 18 months, Broadcom believes.

Some say we will postpone hitting the wall by tweaking architecture. Others think a non-silicon approach might shift us to a new curve.

Maybe it will be proteins or other molecules or something else that provides the physical basis for a new wave of computing advances.

Some think chip manufacturing economics will be a bigger problem. At some point, it might not make financial sense to produce a faster processor or denser memory, because buyers will not pay what that latest group of devices would cost, at retail.

Whether an end to Moore’s Law will have dire consequences for access and transport providers is not clear. Much of the cost of communications infrastructure comes from construction, not the cost of processing and storage.

90% of Republic Wireless Traffic Moves Over Wi-Fi

Almost 90 percent of mobile service provider Republic Wireless data traffic goes over Wi-Fi, leaving 11.5 percent traveling over Sprint’s 3G network. 

That does not mean a mobile service provider can provide service using only Wi-Fi, only that most of the consumed bandwidth can be shifted to Wi-Fi and stay off the mobile network.

About 50 percent of Republic Wireless customers appear to be able to use Wi-Fi for 93 percent of their total data consumption, Republic Wireless says.  

    Cellular Data Usage Across Republic Wireless Members

Cox Communications Offers Wi-Fi Hotspot Access

Cox Communications says its customers with its Preferred, Premier or Ultimate High Speed Internet service now have access to the nation's "largest Wi-Fi network,"  with public hotspots strategically located in high-traffic areas such as restaurants, malls, sports arenas, parks and beaches in cities like Washington D.C., Boston, Richmond, Philadelphia and San Francisco.

Some would argue that Wi-Fi hotspots have become the preferred way U.S. cable operators attain relevance in the untethered access business, even if they do not directly own full mobile networks.

To be sure, enabling such public hotspot access also creates additional value for the high speed access services cable operators have relied on for revenue growth.

But today’s proliferating tablet and smart phone installed bases, all enabled for Wi-Fi access, create potential new revenue models for any number of ISPs. Though creating direct revenue models remains a challenge, ownership of extensive public Wi-Fi hotspot networks creates at least a potential business for mobile and untethered device data offload, even when a cable company does not own the actual direct revenue relationship with the mobile customer.

The issue, as always, is to create a viable revenue model for a public Wi-Fi hotspot business. Some of the benefits are indirect and valuable, even when not creating a direct revenue model. Lower churn, higher customer retention and higher retail rates for one ISP service compared to another are some typical value drivers for an ISP.

And some think it also increasingly will be possible to create Wi-Fi-dominant untethered access models, especially as Internet access becomes a dominant underpinning for Internet application businesses.

For cable companies, extending the range of any future video business beyond the home could provide a direct or important indirect value driver.

Why U.S. Cable and Telcos are Chasing Home Automation and Home Security

There are a couple of reasons why telcos and cable companies in the U.S. market are putting sales effort and development effort into the home automation and security businesses. First, such businesses, while perhaps not of so much interest in a pre-Internet era, and in an era where other revenue opportunities simply were vastly larger, have become more important as legacy revenue sources have begun to wither.

As a line extension using the core features of telco and cable access networks, home automation and security offer a logical way to add more application value to an access network.

Also, the change in access from narrowband to broadband mean some new features, especially the use of cameras, now are possible.

At the same time, the availability of tablets and smart phones might dramatically affect the ease of use, as well as value of home automation and home security systems.

At the same time, the better technology now available to support alarm systems, surveillance systems, intercom systems, access control and energy management services are key changes on the supply side of the business.

Simply, broadband access, Internet Protocol and easy to use mobile and untethered devices increase capabilities and ease of use in new ways.

Security, as such, is becoming a huge market worldwide, as well.

And the U.S. market is among the most lucrative globally. In terms of revenue generation as of 2011, North America held the highest share of revenue, at about 56 percent, followed by Asia-Pacific at 28 percent, according to Marketsandmarkets.com.

Among the various end-products used for home security solutions (electronic locks, sensors, alarms, cameras, panic buttons), cameras are observed to be the most potential product market with a market share of approximately 27 percent as of 2011.

By definition, camera security requires a broadband connection. Revenues for suppliers of security systems, energy management systems are estimated to grow between 25 percent and 31 percent annually between 2012 to 2017, Marketsandmarkets has estimated.

The global home security solutions market is expected to grow from $20.64 billion in 2011 to $34.46 billion in 2017 at a compound annual growth rate  of 9.1 percent from 2012 to 2017.