Customers Do Not Care About, Will Not Pay for 99.999% Availability

Verizon Communications says “very few” of its customers purchase battery backup features for fixed network phone service. With widespread use of cordless telephones, that also means that when local electrical power is interrupted, so is phone service.

Consumers do not seem very bothered by that state of affairs, in part because of widespread mobile phone use, and also because they long ago discovered that unless they use corded phones, they lose use of the phone service when power goes out, even if the circuit stays up.

For those of you with long memories, that is a big change. Fixed line phone service used to be required to function in the event of local power outages, with availability at the old 99.999 percent uptime standard.

These days, in practice, most communication services probably have availability of only one nine.

Devices crash and need to be rebooted with some frequency. And there are more devices to fail, with operating systems and apps that crash rather frequently. So whatever the reliability of circuits, end user experience is affected by all the devices in the delivery chain, with cascading impact on system reliability end to end.

In fact, most people assume some degree of instability, and have protocols to compensate. “I’ll call you back;” “I’ll switch to landline;” I’ll switch to another app” or I’ll reboot” are all ways of compensating for less reliability--of apps, devices, operating systems or networks.

The same applies to user expectations about app quality. Now used to mobile audio quality, VoIP audio wasn’t a shock.

Without battery backup, most devices will fail with local power outages. Few consumers seem to care, anymore. Most apps, devices and operating systems are assumed to be a little flaky. People know what to do in the case of momentary failure.

The point is that customers do not experience, do not especially mind, and will not pay for, 99.999 percent availability. “Good enough” seems to be the new standard for most products.

You Cannot Predict the Future

The reason we all use so much bandwidth these days: video represented 64 percent of all consumer Internet traffic and 55 percent of all mobile traffic in 2014.

And that trend is going to increase. In the U.S. market, time spent interacting with digital media has been growing on mobile, if flat on PCs and other devices, since 2008.

Of course, it sometimes helps to remember where we have come from. In 1995, the year before the Telecommunications Act of 1996, the first major reform of U.S. communications law since 1934, only about 10 percent of Americans used the Internet at all.

At the time, the key to spurring innovation and competition was thought to be allowing access into the voice business. It might sound crazy, but that’s what people thought.

The point is that some of us learned from that experience. And what we learned was that it is hard to impossible to predict the future, because the framework one is using is going to be proven wrong.

Imagine you are in 1995, and assigned to a research project, as I was, in 1995. The task was to examine the impact of a range of new technologies on communications pricing and therefore industry revenue.

Consider the challenges. This was a time when only 10 percent of people used the Internet, a time when mobile usage was about the same.

We were making forecasts three years before the founding of Google. The web browser many of us were using was “Alta Vista.” We were about a year after the creation of what became the Netscape Mosaic browser.

It wasn’t clear whether voice over frame relay, voice over ATM or voice over IP was going to become widespread, at least in the business markets.

We were two years from the start of the Internet bubble and five years before the top of the Internet bubble, six years before the crash, which ultimately destroyed $5 trillion in telecom asset value.

The Telecommunications Act of 1996 had not yet been passed.

And we were just nine years after the AT&T monopoly had been broken up, creating eight firms, none of whose brand names--with the exception of AT&T-- continue to be used today. And the firm using AT&T’s name is not the former AT&T.

We were forecasting 17 years before the iPhone and 15 years before the iPad.

The main point is that our forecasts were based on an extrapolation of present trends. We could not correctly model the Internet, ubiquitous mobile adoption, smartphones, applications using Internet Protocol.

We could not model an unprecedented wave of telecom  investments and then massive destruction of communications wealth and assets, within just a few years.

The clear lesson some of us learned was that things we are not looking at are going to have more impact on the future course of things than the things we are looking at. We also learned the futility of linear forecasts.

Messaging Apps are Becoming Hubs

Messaging apps are trying to become communications “hubs” for commerce, identity applications and context-driven actions, argues Mary Meeker, Kleiner Perkins Caufield Byers general partner.

Meanwhile, mobile service providers are trying to protect “messaging” revenue by dropping prices, bundling messaging and voice as a “network connection” fee and in some cases creating branded over the top messaging apps.

That is “fighting the last war.” The messaging apps already have moved on.

Video Dominates Mobile (55%) and Consumer Network Traffic (64%)

The reason we all use so much bandwidth these days: video represented 64 percent of all consumer Internet traffic and 55 percent of all mobile traffic in 2014.

And that trend is going to increase. In the U.S. market, time spent interacting with digital media has been growing on mobile, if flat on PCs and other devices, since 2008.

2015 Internet Trends Report from Kleiner Perkins Caufield & Byers

Competitive Markets Enable and Cause "Cherry Picking"

Since 1996, in U.S. telecom markets, it has been lawful for telecom providers to cherry pick   the areas where the service providers wanted to compete, and where they wanted to invest.

Initially, that was primarily an issue for competitive local exchange carriers serving business customers in metropolitan areas. There is, for example, no requirement to serve all potential customers in an area, or to build facilities in all areas.

Since the launch of Google Fiber, it also has become possible to build advanced facilities (gigabit networks) serving consumers, in the same way. In other words, service providers can choose neighborhoods or parts of a city to provide advanced services, without the requirement to reach 100 percent of potential customers.

Granted, that will seem like an assault on the notion of universal service. But the key concept is the difference between basic levels of service, often with universal service requirements, and advanced services not every customer wants to buy.

Those developments illustrate the fact that competitive telecom markets are different from monopoly markets in key ways. Basic services might be “universal.” Advanced services can be delivered whenever there is a business model.

Mobile Broadband is Cheaper than Fixed Broadband in 111 Countries

The global average price of a basic fixed broadband plan (1 Gbyte) is 1.7 times higher than the average price of a comparable 1 Gbyte mobile broadband plan.

Fixed high speed access costs $52 on a purchasing power parity basis (a way of normalizing prices across countries). Mobile high speed access costs $30 on a purchasing power parity basis

That is why mobile broadband has become the typical way people get access to the Internet.

In at least 111 countries the price of a basic (fixed or mobile) broadband plan corresponds to less than five percent of average gross national income per person, the threshold of affordability used by the International Telecommunications Union.

In developing countries, average monthly fixed broadband prices (in PPP$) are three times higher than in developed countries. Mobile broadband prices are twice as expensive as in

developed countries, the ITU notes.

Spectrum Futures

A Billion People: Dozens of Ways to Connect

Over the next decade, a billion people in Asia will start using the Internet for the first time.

Nearly all of them will do so using a mobile or other untethered device, and nearly all of them live in South Asia and Southeast Asia.

Spectrum Futures, a new Pacific Telecommunications Council conference to be held in Singapore from 10—11 September 2015, will examine how all that will happen, who will do it and what key obstacles must be eliminated along the way.

Now in its second year, the two-day conference includes sessions on business models, backhaul, new spectrum, new satellite constellations, regulatory policies and mobile strategies to rapidly reach the unserved.

Spectrum Futures

And even if mobile operators still are favorites to connect most of the additional users, new satellite constellations, balloons, drones and Wi-Fi are new platforms that aim to have a role as well.

Regulators will, as always, have a private half-day session to share ideas about what they plan to do, would like to do, and have done, to rapidly extend Internet access.

Learn more and register at www.spectrumfutures.org.