5G Projections are Likely to Be Wrong; Only Issue is How

Whether fifth generation mobile networks actually will develop as some expect is a big question. Few of the digital generations of mobile actually have developed as originally foreseen.

Supporters of 2G missed the appeal of text messaging.

When proposed, 3G was supposed to lead to a wave of application development. Eventually, it arguably did, but not in the way supporters had forecast. Originally, it had been hoped the big wave of innovation would substantially benefit carriers. Instead, the applications largely were developed by third parties.

Now 4G might be said to be in search of the “killer app” that will define it. It might be safe to say we do not yet know, and that most present guesses might turn out to be as wrong as earlier expectations about 2G or 3G were mistaken.

It might also go without saying that prognosticators frequently have been mistaken about companion developments on the handset or infrastructure sides of the business. Some might have assumed that the European leadership in handsets during the 2G and 3G eras would continue in the 4G era, and that has not proven to be the case, so far.

Application development, meanwhile, has largely shifted to the United States and Asia. For that reason, industrial policy around 5G is growing heated. Success in that realm probably also is uncertain, if only because there is so much uncertainty overall.

Most projections of mobile service provider future revenue tend to show many new types of services beyond basic Internet access or connectivity. What tends to vary is the precise combination of new services and revenue streams that will drive results.

The unsettling background, from a service provider perspective, is the end of the closed telecom market, and the need to operate in an open Internet ecosystem. Almost by definition, serious innovation will be necessary.

Many would agree with the notion that mobile service providers and telcos might have to replace as much as half their present revenue in about a decade.

Traditionally, however, telcos also have tended to push for regulatory change seen as helpful.

How much help potential regulatory changes could provide also are issues. European service provider executives believe regulations have been too stringent, and must be relaxed.

Executives also tend to believe European markets are too fragmented, and that consolidation is required to build scale.

But service provider executives in Europe also want more regulation of over the top competitors.

None of that will prove decisive unless the business model issues are successfully dealt with.

"Certified" Android Loses Share in Q4 2014; Apple Erupts

“Certified” Android smartphone shipments fell quarter over quarter for the first time in the fourth quarter 2014, in part because of gains by Apple IoS and partly because “forked” versions of Android are gaining market share.

Certified Android shipments fell from 217 million in the third quarter of  2014 to 206 million in the fourth quarter of 2014.

Apple iOS had share growth of 90 percent. Where Apple shipped 39.3 million devices in the third quarter, Apple moved 74.5 million iPhones in the fourth quarter of 2014.

“Google’s Android is being attacked by Apple’s iOS at the high end and forked Android and AOSP at the low end in high growth emerging markets,” said Nick Spencer, ABI Research senior practice director.

Such changes are far from unusual. In 2007, Nokia was far and away the global leader in handsets. By 2014, Apple had surged to the lead, Nokia had fallen far back and some 2007 suppliers either had exited the market, or were on the verge of irrelevance. Sustainable advantage in the mobile device market seems unlikely.  

"You Have to be Part of Mobile"

The undersea capacity business is not generally viewed as a part of the telecommunications business where intimate knowledge of end user behavior makes a big practical difference.

That behavior is aggregated to a high level, so what a carrier really must know is “how much is needed,” from “one point to another.”

But that doesn’t mean there are no differences between today’s business, and yesterday’s. The model is “old business, new revenue,” according to Andrew Kwok, Hutchison Global Communications president, international and carrier business.

Talking recently about future revenue for his company and others in the space, Kwok said that “without mobile, you are in trouble: you have to be part of mobile.”

Internet traffic now dominates global bandwidth requirements, and content--especially video content--dominates Internet traffic. Increasingly, mobile also drives Internet traffic, growing 45 percent annually.

Much the same impact can be seen in data center traffic, which increasingly shapes global traffic glows.

Dish Network is Surprise Winner in AWS-3 Spectrum Auction

AT&T spent $18.2 billion to acquire AWS-3 spectrum; Dish Network won $13.3 billion; Verizon bought $10.4 billion worth of rights and T-Mobile US committed $1.7 billion in recently-completed auctions of 700-MHz spectrum.

AT&T seems to have won most of the 10 MHz by 10 MHz allocations nationwide, while the other bidders mostly won the 5 MHz by 5 MHz allocations.

Dish Network perhaps was the surprise, committing the second-largest amount of money in the auction. The issue now becomes whether Dish Network will commit to building a new mobile network, or will sell the spectrum rights to another company.

By some estimates, Dish Network’s mobile spectrum is worth perhaps $20 billion.

The huge unanswered question is "what happens next," where it comes to Dish Network and its mobile strategy. Some skeptics have been willing to believe, all along, that Dish Network ultimately would simply try to monetize its spectrum assets by selling them or leasing them to another existing mobile service provider.

The success of that strategy hinges on whether one of the leading providers is willing to pay what Dish Network wants, in terms of price. Most observers looking at that scenario would see Verizon as the likely buyer.

But Verizon has sent some signals it does not need to buy Dish Network's spectrum. Perhaps that is because it always is possible that Sprint might sell some of its excess spectrum to Verizon, instead.

Dish Network's chairman is, quite literally, a gambler, so the gamble is not unusual. Some might prefer that Dish Network create a new network and get into the mobile market. 

Some might argue Dish Network will launch a bid to buy all or at least majority control of T-Mobile US. Others think Dish Network does not have the capital or borrowing power to do that.

Many have suggested Dish Network could lease network facilities from Sprint, for example, rapidly gaining the network infrastructure it requires.

Beyond all that, there is the question of business model. Would Dish Network have much success competing as a traditional mobile service provider? Or must it gamble on creating a whole network primarily to deliver mobile video entertainment? And, if so, does the business model work?

Dish Network's most-recent spectrum winnings do not settle the matter, one way or the other.

Would Verizon and AT&T Consider a "Use Best Network" Approach on Steroids?

It looks as though we might relatively soon get new tests of the value of network agnostic access.

If Google launches its own mobile service, relying on Wi-Fi, Sprint and T-Mobile US networks we might start to get a sense of how 5G mobile networks will operate, aggregating the best access “available right now.”

Whether that devalues or enhances the value of any specific retail operator’s offering remains to be seen, though 5G supporters obviously believe such “any network” access will enhance value for any retail mobile services provider.

Comcast is expected to do something along those lines, using a “Wi-Fi first” approach. Cablevision Systems Corp., in one sense, is using the “legacy” approach, relying on an owned network solely. Granted, it might be odd to classify a “Wi-Fi only” mobile network as a “legacy” approach, but that is what a sole reliance on an owned Wi-Fi network represents.

The long-term business issue is whether leading mobile networks would agree to allow a “use the best access” approach that includes roaming onto the networks of key competitors. An example: AT&T and Verizon customers having reciprocal rights to access either network, depending on which network has the strongest signal or the least congestion, right now.

That might have seemed crazy in the past, as both firms have competed fiercely to build and operate the “best” network, in terms of signal strength and coverage, as well as bandwidth.

But the emergence of new competitors, including Google, Comcast, Cablevision and Dish Network, on top of competition from Sprint and T-Mobile US, might change the strategic rationale.

If customers of AT&T and Verizon were able to automatically access the best network--AT&T, Verizon or Wi-Fi--that might add value to both carrier offers, compared to all the others.

As unthinkable as cooperation between AT&T and Verizon might be, it is not unthinkable.

BT to Lean on G.fast to Boost High Speed Access to 500 Mbps

BT plans to boost high speed access to as much as 500 Mbps, to most U.K. homes, within a decade, with fiber to home gigabit service also being made available.

By about 2020, BT expects to have boosted speeds to “a few hundred megabits per second to millions of homes and businesses by 2020,” BT says.

Speeds will then increase to around 500 Mbps as the new “G.fast” implementation of digital subscriber line technology improves.

G.fast deployment will start in late 2016 or early 2017, BT now believes.

Since 1998, DSL speeds have grown by two orders of magnitude (100 times), so long as copper drops are short enough. In essence, that is the same principle used by cable TV hybrid fiber coax networks, which also combine fiber backbones with copper drop media.

If drop lengths are short enough (less than about 300 feet), speeds to 1 Gbps are theoretically possible. That implies a deployment of fiber almost to the premises. In urban areas, that might mean fiber to a cluster of two detached houses, for example.

G.fast is the latest implementation of a technology many observers, early on, had believed would be quite problematic.

What Does Market Signal About Need for Heavier AT&T Regulation?

Are tier-one telcos behemoths with power to stifle other competitors, or business-challenged entities barely able to cope with the magnitude of changes in their core businesses?

It is a question that goes to the heart of assessments about “what is to be done” about supplying and enhancing high speed access, mobile and other essential services.

The reason is simple: if tier-one telcos are dangerous potential monopolists, regulators have to be on guard against abuse of market power. But if tier-one telcos are fundamentally challenged, different policies are called for.

European regulators arguably have held both positions over the past couple of decades. Two decades ago, the emphasis was on restraining tier one service providers to enhance competition.

Today, the concern essentially is that there is too much competition in European markets, and that service providers are not able to justify investing enough to upgrade networks as regulators and others believe is necessary.

Perhaps ironically, that situation might be developing in the U.S. market as well, even if the largest U.S. service providers have been performing, financially, much better than many peers.

Consider that AT&T revenue has grown from about $43.9 billion in 2005 to $132.4 billion in  2014. Some might point out that represents compound annual growth of 13 percent.

Little of that growth came from organic growth, however. Also, earnings per share actually decreased from $1.42 to $1.19 over that period, at a  -1.94 percent compound annual rate.

And some might note that the stock price has grown from about $27 to about $33 since 2008, a gain of about $6 per share, or about 22 percent, in seven years.

The Standard and Poors 500 Index, by way of contrast, stood at about 1454. In 2014 the index had reached about 2000, a gain of 546 points or about 38 percent, in inflation-adjusted terms.

In non-inflation-adjusted terms, the SP 500 index is up about 70 percent since 2005, while AT&T is up about 38 percent. The Dow Jones Industrial Index and American Stock Exchange (AMEX) are up more than 62 percent over that same period.

The point is that AT&T has appreciated about half as much as the SP 500 index, and underperformed both the AMEX and Dow Industrial index.

That might suggest significant pressure in the business. Of course, opinions will differ. But looking only at equity price appreciation, one might argue AT&T has significantly underperformed.

Some would take that as a clear sign the market signals relative weakness. And that is why some of us would argue increasing regulatory burdens are unwarranted.