IP Really Has "Changed Everything"

The way “communications” problems are perceived, markets created and business models are created has undergone a fundamental shift, enabling all  “over the top” business models.

That creates big new opportunities for all sorts of firms that do not “own facilities” or physical networks. The existence of mobile virtual network operators, huge Internet app businesses, wholesale-based telecom companies and platforms to support business operations on a virtual basis provide examples of the new approaches.

The shift in business possibility is hard to grasp using old categories in the value chain.

In the pre-Internet era, all networks were purpose built and ownership of the apps and services  were integrated with the ownership of the networks that delivered those services.

By definition, Internet Protocol networks are general purpose networks, and by design, IP separates the ability to create apps, services and business models from the need to tightly integrate apps with network ownership.

Think of “cloud computing” as another example of the separation of physical facilities from creation and delivery of apps and services. Wi-Fi provides yet another example of app access divorced from ownership of access facilities.

So “loosely-coupled” value chains allow value chain participants to pick and choose the places they wish to focus. That explains why Facebook, Google, Amazon and others create apps, provide Internet transport or access, build and market devices, finance the creation of content and function as content distributors.

In other words, at a fundamental level, “over the top” is the way all applications are designed to operate, even if, in some cases, the owners of physical networks also create and distribute such OTT apps.

Think of the other implications. The fundamental difference between a telco, cable TV company, satellite network or fixed wireless network, and virtually any other retail provider in the  content and communications business, is whether physical access networks are owned.

source: Frank Rayal

MVNOs, OTT app providers, Wi-Fi hotspot network aggregators, cloud-based services, content producers, studios, neutral co-location exchanges, competitive local exchange carriers, system integrators and others all use or buy services from networks, but do not own them.

The application layer truly is separate from the physical and transport layers.

The other obvious implication is that suppliers now have huge amounts of freedom to create complex or specialized offers; geographic scope; customer segments; marketing strategies and business roles.

A logical corollary is that although some of the new contestants are huge and global; many more are regional or national; while most are “smaller” and more specialized. Almost by definition, specialization implies niches.

Niches, in turn, imply more-limited scale. In global markets, scale is essential; lack of scale dangerous. In regional, national or local markets, scale is less a requirement.

The key take-away, from a business model perspective, is that most contestants, in most markets, will be smaller, and lack scale, compared to global suppliers we used to think of as “tier one” telecom providers, or Fortune 500 companies, by way of analogy.

Though lack of scale is a weakness for a global supplier, scale is more nuanced matter for most

companies. Most OTT participants across every value chain can build a sustainable business without scale (in a global sense).

What is difficult, though, is a way to create more value, and find partners, when the number of potential roles and suppliers is overwhelming. If you want to know why specialized marketplaces, conferences, trade shows and other venues exist, that is why.

Most smaller OTTs cannot find potential partners using the same venues dominated by tier one suppliers with scale.

The biggest take-away, though, is that nearly every company, in every value chain or market, now operates “over the top.”

That also implies that any participant can create new roles and enter new market segments by partnering with other OTT suppliers. Look around, that is a hallmark of business strategy for nearly all providers in the broad communications and content sphere.

21% of U.S. Residents are Online "Almost Constantly"

About 21 percent of Americans now report that they go online “almost constantly,” according to a Pew Research Center survey.

Overall, 73 percent of Americans go online on a daily basis. Along with the 21 percent who go online almost constantly, 42 percent go online several times a day and 10 percent go online about once a day.

Fully 36 percent of 18- to 29-year-olds go online almost constantly and 50 percent go online multiple times per day.

source: Pew Research

For Most, Gigabit Doesn't Matter; Neither Does 2 Gig Access

If you happen to want to pay for symmetrical 2-Gbps Internet access, and you live in a location served by Comcast, within about a third of a mile from the nearest optical node, you can buy it for about $300 a month, after paying the Comcast Gigabit Pro $500 activation fee, a $500 installation fee, and a $1000 early termination fee.

Here’s how Comcast displays, in a general sense, which states it serves with Gigabit Pro service.

Unless you are a business customer, someone who does not pay his or her own Internet access bills, or simply a person who wants to pay for the service for any other reason, the offer  might not make any sense.

While it often is possible to detect a performance advantage (website loading, for example) when upgrading from a sub-10 Mbps connection to any other faster connection, most consumer will not be able to actually experience a change when moving from any connection above perhaps 20 Mbps to any other faster speed, no matter how “fast” that new connection happens to be.

It is not clear that a typical consumer end user will actually be able to detect any application performance advantage when buying the 2-Gbps service, compared to the 1-Gbps service, or even a 300-Mbps service.

According to a study by Mike Belshe, “if users double their bandwidth without reducing their Round Trip Time (RTT), the effect on Web browsing will be a minimal improvement (approximately five percent).”

“However, decreasing RTT, regardless of current bandwidth always helps make web browsing faster,” Belshe argues.

Faster local Internet access connections do help, up to a point. After about 10 Mbps, no single user is likely to see much improvement, if at all, in page load times, for example. The U.S. Federal Communications Commission and Ofcom agree: beyond 10 Mbps per user, experience is not measurably improved--if at all--by faster Internet access speeds.

With the caveat that a business customer’s use of bandwidth differs from the pattern typical of a consumer customer, small business customers of Cogent Communications tend to use about 12 Mbps of the 100 Mbps services bought to replace T1 connections of about 3 Mbps, said BTIG researchers.

According to Cogent, only about 12 to 24, out of perhaps 17,400 customers ever have reached 50 percent utilization of the 100 MB pipe.  Likewise, customers who buy gigabit connections have usage that does not likely differ materially from 100 MB customers, according to Cogent.  

One might well argue that consumer consumption is growing faster than business customer usage, certainly. But Sandvine data suggests U.S. median household data consumption over a fixed network connection is about 20 Gb a month. Granted “Gbps” is a measure of speed, while “Gb” is a measure of consumption, but monthly consumption of 20 Gb does not suggest most households likely are taxing their access downlinks.

To be sure, households with faster connections tend to consume more data. But that might be because households consuming more data disproportionately buy the faster connections. As more locations are able to use connections operating from 40 Mbps up to 1 Gbps, we should get a better idea of how much a “typical” user consumes, when access speeds exceed the ability of far-end servers to respond.

Bandwidth (in Mb/s)	Page Load Time via HTTP
1	3106
2	1950
3	1632
4	1496
5	1443
6	1406
7	1388
8	1379
9	1368
10	1360

Although there is a considerable jump in the early bandwidth speed increases, the returns as the pipe gets bigger continue to diminish until they are almost negligible.

The important observation is that the measure of a digital experience isn’t just--or primarily--about the speed of download.

Latency, or round trip delay, is more fundamental, beyond a minimum amount of access speed.

source: DSL Reports

The point is that few consumers or even businesses will experience a perceivable benefit when upgrading to gigabit connections from connections in the 20-Mbps to hundreds of megabits per second ranges.

But lots of people also buy luxury goods for reasons other than sheer performance, eh?

Voice Down, Fixed Broadband and Cable TV Flat, Mobile Data Spending Up, Since 2010

U.S. consumer spending, since 2010, shows steadily-increasing spending on mobile data, slightly-growing spending on cable TV and fixed network broadband, and declines in spending on mobile voice and landline voice.

Mobile data alone now accounts for a third of total U.S. spending on communications services.

Not much surprise there.

source: Chetan Sharma

"All Consumer Trends Involve the Internet," Ericsson Says

“All consumer trends involve the internet,” argues Ericsson’s 10 Hot Consumer Trends. A corollary is that “prosumption,” where consumers participate in the production process now is routine and widespread. Online user reviews, opinion sharing, petitions and instant crowd activities are now becoming the norm more than an exception.

Ericsson also predictably argues that mobile broadband and Wi-Fi mean “we may not be physically more mobile, but our online activities are less restricted by our surroundings than ever before.”

Ericsson also notes that adoption cycles are faster, with a key implication: early adopters are less important, since mass market adoption happens faster than ever, and the period where adoption is driven by early adopters is shorter than ever.

Ericsson argues that artificial intelligence and virtual reality are perceived by consumers as realities as soon as five years hence.

Universal Log-In Might be a Feature, Not a Service

The value of many useful innovations is hard to measure. We aren’t really able to measure the value of improving computing power in consumer devices beyond its price per unit, or price per function.

We might note that a personal computer costs N units of currency now, and used to cost more than N three decades ago. But today’s appliance is vastly better, despite lower prices.

We have similar issues for many Internet apps and services. Many apps that are quite valuable are hard to quantify in terms of direct revenue, even when they indirectly create revenue opportunities.

For example, Juniper Research estimates that mobile operators will generate $700 million  annually by 2020 from new universal log-in and mobile identity services, up from $20 million in 2015.

Under other circumstances, that forecast would simply indicate a market way too small for mobile operators to bother with.

Among the likely business model issues is the fact that device and app suppliers are likely going to be competitors for biometric and other forms of security, and it is not so clear that their business models require the traditional subscription fee mobile operators and other service providers tend to lean on for the overwhelming bulk of their revenue.

Juniper Research also notes that, for such an approach to achieve widespread adoption, all mobile operators in a single market might have to collaborate.

Universal sign-in using a subscriber phone number, like all other universal sign-in methods that offer better security than passwords, is useful, no doubt. What is not clear is whether it is a revenue opportunity for mobile operators, or better approached as a “feature” with indirect revenue benefits (lower churn, higher distinctiveness and value).

Dish Network Mobile Spectrum Value Will Avoid "Zero," But How, When Still are Questions

Dish Network--somehow, some way, some day--will avoid a "zero" valuation of its spectrum assets. We just do not know what will occur, with whom, or when.

Back when regulatory and antitrust authorities blocked the merger of Sprint and T-Mobile US in 2014,  some of us speculated that, ironically, that deal could happen, albeit not until one or both carriers had become more damaged than they had been when the deal was proposed.

Developments since 2014, though, suggest other alternatives would be received more favorably, such as a change of ownership that has Sprint assets going to another entity (Comcast, Charter Communications, Suddenlink or a name-brand app or device supplier), not T-Mobile US.

Policymakers and antitrust authorities would not be able to easily justify any combination of T-Mobile US and Sprint assets, when other financially-viable bidders have both the strategic need for such assets, the ability to finance a deal and the willingness to consider such a move.

Some, such as analyst Mark Lowenstein, might suggest such a merger, with Dish Network assets thrown in, as well, is feasible.  

Some of us might suggest the market hasn’t yet worsened enough, for Sprint, to make regulators change their minds about reducing the number of leading U.S. mobile providers from four to three. Also, T-Mobile US arguably has gotten stronger since the Sprint merger bid was dropped.

Dish Network, and possibly LightSquared, also figure into the picture. Dish Network has licenses for 50 MHz of downlink and 20 MHz of uplink spectrum to support a mobile network.

Whether Dish would do better delaying any deals regarding its spectrum until after the 600-MHz spectrum auction is unclear, but some might argue its options would be better if a clear decision about deploying those assets is made before the auction process begins, since nobody bidding in the auction would be able to move until after the auction.

On the other hand, Dish Network management obviously believes the 600-MHz auction would only boost the valuation of its spectrum, as arguably was the case for the 700-MHz auctions.

Even though nearly 100 percent of Dish Network revenue comes from its linear video business, the Dish spectrum holdings are valued at $35 billion to 50 billion, representing some 80 percent of the company’s current valuation.

Of course, failure to deploy that spectrum on a timely basis reduces its value to zero. Something will happen, but what, and when, remain unclear.