Cost Structure Really Does Matter

British Internet service provider Gigaclear has gotten a €25 million (£19 million, $27.3 million) loan from the European Investment Bank, a move it reckons will help boost its rural broadband network for perhaps 40,000 homes.

Rough math: including overhead and debt service, that implies the cost of rural U.K. fiber to the home of no more than $682 per location. That appears breathtakingly low, and far less than BT costs to deploy fiber to the home.

With estimated average cost in excess of £2000, with a variable distance charge, an abandoned plan for fiber to home might imply BT transport and drop minimum costs of $2880, before the applied variable distance cost.

At an “average” distance of 1,000 meters to 1499 meters, that adds an extra £2500, for a total cost of £4880, or about $7,028 per location. Costs such as those explain why BT abandoned that particular plan.

source: BT

But those cost differences also explain why, in some cases, ISP with dramatically-lower embedded costs can build gigabit fiber facilities when a tier-one telco cannot. Cost structure matters.

Business Impact of E-SIMs: Friend or Foe, and Where?

Dynamic embedded subscriber information modules--something Apple introduced in 2014 for its iPad devices--are among the possible enhancers of competition in mobile markets.

The Apple SIM made it possible for iPad owners in the United States and United Kingdom to pick and choose a mobile connectivity provider, directly from the device (assuming multiple providers were willing to support the feature).

As Internet of Things devices and applications proliferate, the same basic concept--allowing an programmable electronic SIM to select from a number of potential mobile connections--could emerge on a wider scale, argue McKinsey and Company consultants Markus Meukel, Markus Schwarz, and Matthias Winter.

As you might imagine, mobile service providers were not keen on enabling that level of competition. But there is new thinking about IoT requirements, especially the ability to remotely activate IoT devices. And that requires use of an e-SIM.

So the difference in industry reception between the Apple SIM and e-SIMs is the role in supporting a big new revenue stream and business model. Where Apple SIM was a threat to existing business models, e-SIMs are a support for new and different business models.

The GSMA expects to finalize a technical architecture 2016.

In principle, widespread e-SIM capabilities could have marketing implications for wearables. Targeting new clients through promotional activities may be as easy as having them sign up by scanning the barcode of a print advertisement and activating the service immediately.

On the other hand, the ease of use and ease of operator switching has the potential to weaken the network operator’s position in the mobile value chain.

Customer touchpoints also could change. The e-SIM eliminates the need for customers to go to a store and acquire a SIM card when signing up for service. That might negatively affect the amount of upselling.

Churn and loyalty also could be affected, since customer may be able to switch operators and offers more easily. Churn could increase.

Prepaid versus contract markets. E-SIM’s impact may be greater in markets with more prepaid customers, as well.

There could be changes at the wholesale level. As Google’s Fi essentially has pioneered, wholesale service providers might buy capacity dynamically from multiple capacity and access providers. That could happen on price or quality or both dimensions.

High prices for global roaming might be just as important, allowing travelers to locally provision service when traveling internationally.

You can make your own estimates of possible advantages and disadvantages, for core mobile services sold to people and IoT devices.

Gigabit Internet Connections to Grow by 10X in 2016

Deloitte also predicts an order of magnitude increase in gigabit Internet, 70 percent of which will come from residential connections.

The number of gigabit Internet access connections will surge to 10 million by the end of 2016. 

By 2020, some 600 million subscribers may be on networks that offer a gigabit tariff, representing the majority of connected homes in the world.

That doesn't necessarily mean all 600 million will buy gigabit connedtions; only that they could.

OTT Could Claim 39% of U.S. Telecom Ecosystem Revenue by 2020; 21% in China; 12% in India

Over the top applications are going to keep taking a greater share of telecom ecosystem revenue, between now and 2020. That will be true in the United States, China and India, for example.

In the U.S. market, for example, OTT revenue might hit 39 percent of total ecosystem revenues by 2020, with telecom services representing 40 percent of ecosystem revenues, while device revenues (sold through all channels) account for 22 percent of ecosystem revenues.

In China, OTT revenues might represent 21 percent of ecosystem revenues by 2017, while service provider recurring revenues represent 60 percent of ecosystem revenues.

In India, by 2020, OTT will claim 12 percent of ecosystem revenues, while service provider revenues might contribute 66 percent of ecosystem revenues.

source: S. Saravanan

source: S. Saravanan

source: S. Saravanan

Between 2003 and 2015, Revenue Per Sub for 15 Biggest Telcos Dropped 69%

Globally, average revenue per subscriber for the largest 15 service providers has declined since 2003 to 2013 by about 69 percent, according to IBM.

Globally, average profit margins for the largest 15 service providers--operating in at least 10 countries each--has declined by four percent in the 2003 to 2013 period. For single-country operators, margin has declined 22 percent.

source: IBM

source: IBM

Telecom 2020:Preparing for a very different tomorrow from Rob Van Den Dam

Mobile Data Could Represent 57% of Total U.S. Service Provider "Service" Revenue

If total U.S. telecom service revenue is about $309 billion in 2019, and mobile data is $176 billion, then mobile data will represent fully 57 percent of total industry revenue.

It might be worth noting that over the top revenues might be as much as $292 billion in 2019, by some estimates.

If so, then OTT revenue might represent 38 percent of total ecosystem revenues, with service provider revenues amounting to about 40 percent of total ecosystem revenues. Device revenue might be about 21 percent of total.

source: S. Saravanan

source: S. Saravanan

Is Asymmetric Regulation "Unfair?"

Asymmetric regulation of like services, provided by competing industries or segments,  tends to cause problems, sooner or later, as different rules applied to different providers is “unfair.”

Think only of the arguments some make about “network neutrality” and you get the picture: “all bits and apps and providers should be treated the same.”

Leaving aside for the moment the issue of whether that makes sense, or is possible or desirable, the principle of “like treatment” for apps, services and providers is, at some important level, a “desirable” principle, in terms of fairness.

The problem is that industries with entirely-different regulatory frameworks now find themselves competing head to head, and some industries are far less regulated than others.

At least in the U.S. market, the traditional frameworks have varied from “no regulation” (magazines and newspapers) to “some regulation” (TV and radio broadcasting), “a bit more regulation than broadcast” (cable TV) and common carrier regulation (telcos). In addition, “dominant” telco providers have obligations small providers do not.

The situation screams for “harmonization,” some would argue. That always is more difficult than might be thought to be the case, as participants often will fiercely resist reclassification and new rules, especially when the new rules are deemed harmful to the basic business model.

Beyond that, policymakers face another fundamental choice: ease regulations on the more-regulated industry, or tighten regulations on the less-regulated industry. Recently, the U.S. Federal Communications Commission has chosen the latter path.

Others might argue the better path is to lessen regulations on the more-regulated industry, especially if “dominance” has eroded, and competing industries have grown both more powerful and influential, while “value” shifts away from the regulated industries and towards the unregulated industries.

To make the basic argument, value and profitability have shifted towards app providers and cable TV companies, and away from telcos. That can be seen in the dramatic changes in market share for high speed Internet access, arguably now the foundation service for any fixed network.

In 2015, for example, cable TV companies not only continued to add more net accounts than telcos, in several quarters cable TV had more than 100 percent of net additions.

source: American Consumer Institute

Also, from 2009 to 2015, telco share of high speed access lines has steadily dropped from more than 90 percent share to less than 40 percent share.

source: American Consumer Institute

One might argue "equal treatment of like services and providers," which is supposed to be a good thing where it comes to apps, might also be thought to be a good thing were it comes to access providers that most certainly are treated unequally.