Telecom a "Zero Billion Dollar" Market?

Will the “zero billion dollar market” strategy become a relatively widespread reality for telecom providers across much of the rural United States?

The "zero billion dollar business" is an artifact of near zero or actual zero rating of services and products made possible by marginal cost pricing.

Think about Craigslist. Because it could rely on a fraction of the revenue that newspapers needed to operate profitably, it also was able to change the retail cost of placing “classified” advertising.

Media executives have a saying about the revenue potential of their businesses in an Internet age: revenue is a matter of “analog dollars, digital dimes and mobile pennies.”

In other words, the marginal cost of many Internet-based businesses actually destroys markets, making them smaller. That accounts for the fortunes of newspapers, magazines, travel agencies, physical forms of recorded music or video, bank branches, the postal service, long distance calling and most other products where digital substitute products are possible.

The thing about zero billion dollar businesses is that they are highly disruptive. They can vastly reshape wholesale costs and retail prices; features and benefits; and so capture leadership of new markets that are vastly smaller than the markets they displaced.

Hence “analog dollars, digital dimes, mobile pennies.

Consider the growing phenomenon of various governmental or third party and “close to non-profit” Internet access ventures in the United States.

WiredWest is a telecommunications cooperative designed to bring broadband to rural communities in Western Massachusetts.

Some 22 WiredWest communities have passed bond authorizations totaling $34.5 million for their towns’ portions of costs to build a fiber-optic network.

So far the WiredWest Coop has received over 6,700 deposits for service, representing a third of potential subscribers, and 15 towns have more than 40 percent of premises presubscribed.

WiredWest hopes to eventually wire a total of 32 towns in the state.

Granted, such Internet access networks do not neatly represent marginal cost pricing or near zero pricing. Access networks are quite physical, and do not scale as Internet apps can add users.

But there some analogies. It might be argued that third party networks partially funded by governments can sustain themselves at lower revenue levels than private firms can manage.

In part, that would be an instance of “zero billion dollar” mechanics: new firms creating sustainable models for themselves that nevertheless have the effect of shrinking the size of the existing access market.

In other words, should the implications not be clear, new third party contestants, partially funded by government entities, could recreate the Internet access market. Though total service provider revenue would decline, the new contestants might thrive in the remaining market.

And should the Internet access market become smaller, traditional telcos and cable TV companies might find their voice, video and other revenue streams insufficient for them to remain viable providers.

True, access is an “atoms” business, not a “bits” business. But that is why marginal cost pricing is so profoundly important.

In many cases, pricing at marginal cost does not recover the sunk costs of network investment, especially when stranded asset rates are high.

Zero billion dollar markets are transforming many other industries. One has to wonder how much of that effect eventually will affect the access business as well.

Has UC Finally Crossed the Chasm?

After decades of availability and sales efforts, a majority of small and medium-sized businesses have not yet migrated to IP communications, a new study sponsored by Edgewater Networks and Metaswitch Networks has found.

“But the chasm has just been crossed,” the study argues. That is quite important, if true, as it means adoption will shift rapidly, as bleeding edge buyers who buy “the latest technology” are replaced by pragmatic buyers who want business results and easy-to-use solutions at a reasonable price.

source: 4inno.com

If the chasm indeed has been crossed, we could be at the start of the steep part of the adoption curve--the “growth” phase--when most of the total sales occur.

Some of us would be willing to bet the big new force driving sales will be U.S. cable operators, who increasingly are relying on sales to the SMB segment for revenue growth.

Business services, in fact, now represent the highest-growth revenue source for U.S. cable TV operators. That also is true for a number of U.S. telcos, if not for AT&T and Verizon Communications.

While adoption rates are higher in larger organizations are as high as 36 percent, smaller SMBs with less than 100 employees have adoption rates less than 25 percent, the survey found.

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In fact, fewer than 20 percent of the smallest SMBs have moved off of their time division multiplex legacy systems. But adoption rates are low even for the largest SMBs, one might argue.

A majority of SMBs still are using aging TDM phone systems and the average age of in-service TDM systems is six years, respondents reported.

Generally speaking, adoption rates for IP solutions are higher in larger companies with more evolved IT departments, the study suggests. There are logical reasons for such outcomes.

First, many service providers prefer to target larger SMBs with IP offers. In other words, marketing has focused on bigger accounts in the SMB market, as sales efforts tend to focus on larger potential accounts in other market segments, study authors says.

Also, many UC and IP telephony providers have a distinct “technology” focus to their messaging that obviously resonates more with the technical audience in an IT Department.

As often is the case, IP Communications services were first adopted by larger companies with the technical staffs, budgets and large enough “pain points” to drive deployment.

Solutions then typically are refined for sale to smaller entities. That is important since more than 80 percent of all businesses in the United States, for example, have fewer than 20 employees.

As you might expect, key systems dominate the low end of the market ( organizations with 50 employees or fewer) while private branch exchanges (PBX) have the majority share among larger SMBs, the study of 1,250 respondents found.

The low adoption rates mean that the market for IP services is extremely large; perhaps as large as $26 billion annual sales in the U.S. market, for example. That is substantially larger than some had forecast in the past.

In 2008, Unis Lumin estimated global unified communications revenue potential at less than $40 billion by 2010.

But others have projected U.S. UC revenues as high as $15.4 billion by about 2017.

Much depends on what who chooses to include within the definition of  “UC,” though.

The largest forecasts occur when aggregating a number of market segments including business phone systems and services with communications app segments.

Buyer interest in IP Communications is extremely high, the study suggests. In companies with more than 20 employees, over 95 percent say they are interested, for example.

Alcatel-Lucent Signs Contracts Worth $1 Billion with China Mobile and China Unicom

Alcatel-Lucent  has signed deals with China Mobile and China Unicom, representing more than $1 billion in value, for a variety of next generation technologies.

Under the one-year  agreements, valued at up to RMB4.53 billion (Eur 656 million) and RMB3.59 billion (Eur 520 million) for China Mobile and China Unicom respectively, - Alcatel-Lucent will deliver its mobile and fixed ultra-broadband access, IP routing, agile optical networking and network functions virtualization (NFV) capabilities, as well as Nuage Networks’ software defined networking (SDN) technologies

China Mobile and China Unicom plan, as part of the “Broadband China” initiative to extend full broadband coverage across the nation’s rural and urban areas by 2020.

China’s Ministry of Industry and Information Technology has set the target for all the country’s municipalities, city districts and most non-urban households to have access to 100 Mbps fixed network Internet access by 2017.

Within the same timeframe, China also expects residents of major cities to have an average access rate of 30 Mbps, 80 percent of administrative villages to have fiber coverage, with full 4G mobile access in urban and rural areas.

Alcatel-Lucent will provide technologies that include:

• 4G TD-LTE and LTE FDD mobile ultra-broadband access
• Gigabit Passive Optical Networks (GPON) and Ethernet Passive Optical Networks (EPON) fixed ultra-broadband access
• Optical transport network and private telecommunications network (PTN) data transmission
• IP routing and switching technologies
• Voice over LTE (VoLTE)
• NFV cloud technologies
• Nuage Networks SDN

Orange Targets 5% Annual Revenue Growth in Africa, Middle East

Orange aims to grow revenue from its Africa and Middle East operation by about five percent a year through 2018 and is looking for expansion opportunities in the region, Chief Financial Officer Ramon Fernandez said.

That is key since the long-term trend for Orange revenue in France and Europe has been negative since at least 2012.

Orange sees Africa and the Middle East as key to the French company's future.

Orange has about 100 million subscribers in Egypt, Morocco, Tunisia, Senegal and Mali among other countries, and they brought in nearly 10 percent of group sales last year. Revenues from the region rose by seven percent to reach 4.29 billion euros, generating operating profit of 1.4 billion euros.

Number Portability Rules Take Effect in India

Mobile number portability, mandated by the national government, has begun in India on July 3, 2015.  The new rules mean that Indian mobile users can move from one part of India to another without having to change phone numbers.

Consumers also can change mobile operators and keep their phone numbers.

Service provider policies related to number portability are likely to change over time, as one or more operators decides to use portability as the opportunity to change the structure of roaming fees.

BSNL has made national roaming free. As competitive as the Indian mobile market is, others are likely to follow.

India had 973.35 million mobile accounts in service at the end of April 2015.

In April 2015, a total of 3.17 million subscribers submitted their requests for intra-circle mobile number porting, or about three percent of the total base of accounts.

Stranded Assets are a Growing Problem

Stranded assets are a growing problem in the facilities-based fixed network business (cable TV or telco).

There are several issues. A growing percentage of potential customers choose not to buy any services at all.

A bigger percentage of homes passed by the networks do buy services, but from another network.

AT&T has said  that it will add 11.7 million additional fiber to the home locations within four years of the closing of its acquisition of DirecTV. That’s a lot of locations.

Keep in mind, however, that AT&T’s network in 2012 passed as many as 76 million consumer and small business locations.

AT&T might have about 30 million homes in its fixed network coverage area.

In 2015, AT&T sold service to about nine million consumer customers, nine million business locations and also two million wholesale lines, representing about 20 million locations. If AT&T sold services to nine million consumer locations, it is deriving revenue from about 30 percent of locations passed by its network.

In other words, 70 percent of consumer locations passed the AT&T fixed network now are stranded assets

Verizon serves about 27 million locations. FiOS passes nearly 19 million of those locations. It is likely Verizon has about the same level of stranded consumer assets as AT&T experiences.

Fiber to Home Increases Home Value, Gigabit Access as Much as 3%

A fiber to home connection increases home value by about $5,437, according to a report written by researchers from the University of Colorado at Boulder and Carnegie Mellon University and funded by the Fiber to the Home Council.

Single-family homes in areas where gigabit fiber service is available have a median value that is 3.1 percent higher than homes without fiber, researchers found.

“When evaluated at the sample median house price of $175,000, that access to fiber may be associated with about a $5,437 increase in the typical home’s value,” the researchers argue.

Researchers based their findings on a nationwide sample of real estate transactions from 2011 to 2013, including  data from 520,931 homes from 116,300 census block groups (CBGs) and 1,634 counties.

Home values get a lift of 1.3 percent when a local network operator has deployed fiber infrastructure capable of supporting speeds of at least 100 Mbps, researchers found. The value grows to 31 percent when gigabit service is available.

What to make of the results might be the issue. The correlation between fiber access and home value does not mean the correlation is “causal,” and there is no way to prove causation.

Gigabit networks, for example, are built in areas where demand is perceived to be the highest, generally also areas where household income is above average to well above average.

So fiber access can simply mean home values are higher because the people in those neighborhoods can afford more expensive homes.

Also, fiber to the home tends to exist in urban and suburban areas more than in rural areas, and home values and incomes tend to be higher in urban and suburban areas.

In that sense, though there is a correlation between the presence of fiber to the home and home value, other inputs might be responsible for the correlation.

The study also apparently studied 55 communities in nine states, finding a positive association between economic activity and fiber access in the 14 communities where gigabit services are widely available.

That is no slam on the research. It’s just that with no actual way to create either a sizable control group or determine the causal chain. Obviously, the argument here is that fiber deployment creates economic growth. It also is possible to argue that economic growth and wealth “create” fiber access.

One also can argue there is some possible mix of causal effects, even if the precise impact cannot really be measured.