Many Large Public Hotspot Networks Will Be Carrier Grade (and Use QoS) by 2020

It would have been easy to predict, in advance of the promulgation of network neutrality rules, that such rules would simply push suppliers in other directions, either to improve business models or introduce differentiated new services.

That appears to be happening.

Despite the existence of network neutrality regulations--which apply to consumer access services--it appears quality of service mechanisms are going to be quite a prevalent feature of end user experience on many public hotspot networks, as such rules are enablers of new services and revenue streams.

Some important consumer applications actually benefit from, and under conditions of congestion, might require, quality of service (packet prioritization) mechanisms. And public Wi-Fi hotspot networks now are emerging as one expression of support for such QoS-enabled services.

That apparent contradiction is easy to explain, if one thinks about the matter. Though retail consumer Internet access services are covered by present network neutrality rules, business services are not covered.

A public hotspot is a business service, not consumer service. Whether the buyer is a hotel or coffee shop, or part of a network of public hotspot services, amenity Wi-Fi is a business service, not “consumer Internet access.”

So there is no violation of network neutrality rules, if a public hotspot is used to support QoS-enabled services such as carrier voice.

Juniper Research estimates that Wi-Fi networks will be carrying 60 percent of mobile data traffic by 2019. Cisco estimates that Wi-Fi will handle 63 percent of all traffic that year. And some of those services will benefit from quality assurances.

Separately, says the Wireless Broadband Alliance, among operators with hotspot networks in place, 57 percent have a timeline in place to deploy a next generation hotspot (Passpoint) standard network. By definition, Passpoint employs quality of service mechanisms.

Some 61.5 percent of respondents already have NGH or plan to deploy it over the coming year, while a further 29.5 percent will roll it out in 2017 or 2018.

The dominant business driver is the need to enhance or guarantee customer experience for revenue streams such as  TV everywhere or enterprise services.

source: Wireless Broadband Alliance

The Wireless Broadband Alliance, which created the Passpoint standard, also has promulgated quality of service mechanisms. Wi-Fi Certified WMM added quality of service (QoS) functionality in Wi‑Fi networks.

With WMM, introduced in 2004, network administrators and residential users can assign higher priority to real-time traffic such as voice and video, while assigning other data traffic to either best-effort or background priority levels.

Introduced in 2012, WMM-Admission Control further improves the performance of Wi‑Fi networks for real-time data such as voice and video by preventing oversubscription of bandwidth.

Prioritization of traffic includes categories for voice, video, best effort data, and background data, managing access based on those categories.

And many large hotspot network operators presently believe carrier-grade hotspots will represent 57 percent of all their locations, with carrier-grade hotspots accounting for 90 percent of locations by 2020.

Despite network neutrality rules, support for such apps likely is coming. All the technology tools are there to do so on big Wi-Fi hotspot networks.

Most Incremental Revenue Opportunities are Enterprise Focused, Not Direct Consumer Services

With one notable exception, a panel of global service provider executives surveyed by E&Y expects enterprise services--not consumer services--to drive future revenue growth.

That notable exception is video entertainment services, expected by 54 percent of respondents to be the service with best opportunities for incremental revenue growth. Among the more-promising fields identified by the executives, 51 percent saw enterprise cloud opportunities as most promising.

Also notably missing from the list of expected revenue contributors are Internet of Things apps. In large part, that might speak to a structural fact of life, namely that most IoT apps driving significant revenue might require sponsorship and involvement by third party app providers. Also, even most large service providers will not have the scale to drive significant success.

There was much less consensus about many of the other services deemed drivers of future revenue growth. And though some of the services could be marketed directly to consumers, most of the opportunities seem logically to involve an enterprise partner.

Competition is Top Service Provider Concern

Competition in general, and competition from over the top providers in particular, are the top two challenges global telecom executives say they face.

Fully 73 percent of service provider executives surveyed by E&Y say disruptive competition is the leading industry challenge.

But 64 percent of respondents also say regulatory uncertainty is an issue, as well. No other concerns are cited by more than 45 percent of respondents.

Of regulatory issues, access to new spectrum is cited by 78 percent of executives as the top concern.

OTTs (app providers) represent the chief competitive challenges--even more than traditional firms within the telecom business--the study finds. The reason is that app providers now set pricing environments, cannibalize legacy revenues and create new consumer expectations.

App providers, such as WhatsApp, are viewed as the top driver of new consumer demands by 61 percent of respondents.

In developing regions, 67 percent of executives say device suppliers are likely to be key shapers of end user demand.

Service providers overall get about 55 percent of ecosystem revenue.

Survey respondents believe that app provider share of industry value chain revenues reached the 10 percent mark in just a few years according to EY estimates. That underestimates impact, however.

The challenge is that OTT apps redefine consumer price expectations. So the revenue impact on legacy providers is not so much loss market share but lower profit across the board.

SIP Trunking at 45% in North America

About 45 percent of North American respondents use Session Initiation Protocol (SIP) today for a portion of their voice connectivity requirements, a survey conducted by IHS finds.

By 2017, the number of enterprises using SIP should rise to 62 percent.

Though businesses are migrating to SIP trunking, few have done a full cutover. Of those surveyed who already use SIP trunking, SIP represents about 50 percent of voice trunk capacity.

“SIP trunking’s been around for a while, but our survey shows inertia on the part of businesses tied up with existing contracts and services is inhibiting growth,” said Diane Myers, IHS research director.

The supplier market is fragmented and no single provider dominates. SIP trunking connections also are currently dominated by native support on the PBX rather than edge equipment such as enterprise session border controllers (SBCs) or gateways

Special Access Battle Heats Up, Again

Some of us cannot remember a time when “special access” was not a contentious issue. The reasons--irrespective of all valid public policy concerns--are that special access has been, and remains, a major product for business customers.

The other issue is that most sellers of special access do not own their own facilities, and lease access--for their own use or for resale--from a few companies that do own facilities. So disputes over wholesale pricing typically are at the center of dispute.

So it is not surprising that special access once again is on the docket of the U.S. Federal Communications Commission, and not surprising that prices are at the center of the dispute.

By some estimates, annual sales of special access circuits (T1 and DS3, for example) are about $24 billion.

To be sure, access is transitioning to Ethernet, but smaller customers and sites frequently rely on time division multiplexing (TDM) access.

In some ways, continuing debates about legacy TDM access, at a time when everybody agrees the legacy network needs to be shut down in favor of modern IP infrastructure, is curious.

In fact, some might argue it is silly to stupid to delay rapid network modernization to protect a $24 billion business that is shrinking and as much a part of the legacy infrastructure as “all copper” access media.

To be sure, many advocate a logical approach, namely preserving TDM access as IP infrastructure is turned on, at the legacy prices. There is room to debate the notion of fair” prices.

After all, new optical infrastructure and all-copper legacy infrastructure have different cost recovery requirements. New infrastructure is not fully amortized. Copper infrastructure might be nearly fully amortized.

There is less room to argue about the scarcity of high-capacity access, as access networks are scarce, and only one of two ubiquitous fixed network access suppliers in each market is subject to mandatory access requirements in most markets (some telcos, not any cable TV companies).

In 2013, incumbent local exchange carriers sold roughly 75 percent of the approximately $20 billion in annual revenues from the sales of DS1 and DS3 channel terminations, and received nearly 66 percent of all revenue from TDM sales.

That finding, in and of itself, might not be surprising, since only one provider in each market has both ubiquitous access assets and mandatory wholesale obligations (the underlying carrier makes money from its own retail sales and wholesale sales as well).

Only special access sales made by cable TV companies or independent providers with their own owned networks do not create revenue for the underlying carrier.

The latest inquiry centers on contract terms competitors say are unfair.

Some might also note that, no matter what is done, TDM-based access is going to keep declining, as do all legacy access methods do, when the next-generation network becomes ubiquitous and as end users switch from legacy to next-generation access equipment and software.

That is not to deny a transition period of some length. But TDM-based special access is going away, as IP access takes its place.

At one level, the issue is how to create policies that encourage faster transition while not disrupting legacy operations too much. At another level, the dispute is over relative commercial advantage. All valid public policy disputes always involve considerations of private interest.

Will Telcos Be Able to Compete in Triple Play Markets?

High speed access based on all-copper--and even fiber-reinforced hybrid networks--now poses a greater threat to AT&T and CenturyLink, says says Morgan Stanley analyst Benjamin Swinburne.

The reason is growing consumer dissatisfaction with slower speeds available on such networks, compared to services sold by Comcast and other cable TV firms, says Morgan Stanley.

That could be a growing strategic factor in many markets, though it appears mostly an issue in North America, at the moment. In most markets, there is no established cable TV alternative.

Keep in mind that cable TV providers already are the dominant providers in the U.S. market. Should a couple of proposed cable TV industry mergers get approval, no U.S. telco would rank higher than fourth among the largest providers of Internet access in the United States.

Cable TV firms are winning the overwhelming share of  net new accounts, as well. In the first quarter of 2015, for example, cable companies won 86 percent of the new accounts.

The other market change is the shift to gigabit speed access as the headline offer, even when most of the actual net additions come for services at lower speeds. Cable companies often can upgrade to gigabit speeds without a major physical revamp of their access networks.

That is not the case for telcos, who (in the U.S. market) will have to switch to fiber to home networks to compete.

If one believes high speed access is the strategic service in a triple play bundle, that has serious implications. In fact, some might even question whether telcos can compete, long term, in triple play markets.

In fact, it is conceivable that just three U.S. cable TV companies--Comcast, Charter and Altice--will soon have 75 percent to 80 percent share of the “25-Mbps and faster” portion of the market.

So it is that Swinburne argues there is yet further upside for Comcast, Charter, Time Warner Cable and Cox Communications. They already dominate the broadband market, but are positioned to gain even more market share.

Morgan Stanley surveyed 2,500 U.S. households during August 2015 and September 2015 on broadband and TV services, and found "U-verse and AT&T DSL had especially weak satisfaction results, and satellite pay-TV subscribers' broadband satisfaction fell materially year over year."

Cable customers reported an average speed of 38 megabits per second, while DSL subscribers said they had 21 Mbps service on average.

Verizon Communications FiOS customers on average had nearly 30 Mbps service and were happier, despite price hikes, says Morgan Stanley.

Two decades ago, one could have gotten a robust debate about the merits of fixed network access architectures using all-copper, hybrid copper-fiber or all-fiber access. The issue then, as now, was not over capacity as such, but the scalability of the business model.

Depending on typical loop lengths, it might still be possible to make a business case for all-copper access, but less so in the United States than in Europe.

Hybrid still works, but fiber-thin hybrid approaches do not work as well as fiber-rich hybrids. It is easier, in many cases, to make the case for all-fiber access, the Morgan Stanley survey suggests.

But in much of the world, the issue is not so much capacity as it is coverage. Any type of fixed access does not compete too well with a mobile approach.

Still, in some markets, one can fairly ask whether telcos will be much of a factor in tomorrow’s consumer markets.

If high speed access trends continue, if the voice business continues to dwindle and then the linear video market shrinks as over the top replacement markets grow, telcos lose even more.

Proposed India Call Drop Rules Already Have Produced Financial Damage

Whatever else happens as a result of new proposed dropped call credits for consumers, and penalties on mobile operators, equity prices for public Indian mobile firms initially have taken a hit, falling about three percent.

Concerned about call drop rates, Telecom Regulatory Authority of India has proposed a credit of about one rupee (about one U.S. cent) for as many as three call drops per day, paid to customers. In addition, there are penalties for the mobile service provider as well.

"Taking an average four-percent call drop rate, our analysis shows that the penalty could have three-percent hit on revenues and seven to eight percent hit on mobile EBITDA for Bharti and Idea," says Sunil Tirumalai, Credit Suisse research analyst.

Some might argue the potential damage could be higher than that. Though it is virtually impossible to quantify, the cost of billing operations to identify which calls actually dropped, and then apply service credits, might cost more than the one-rupee penalty itself.