Back to the Future for AT&T Technology Development?

The “telecom” business has gotten tougher over the last couple of decades, in ways large and small.

The big things have to do with maturation and now decline of the legacy revenue sources; new competitors with different business models and lower cost structure; and a fundamental shift in the way applications and services get created.

In voice services, even firms that had been growing now are shrinking. Comcast’s voice revenues, for example, shrank in the most recent year, even as it added more accounts, suggesting that Comcast is merchandising its voice services to protect revenue and margins for other products.  

A decline in voice revenue, in fact, is a global trend.

The same trend actually can be seen for fixed networks supplying high speed access, which will decline, over time, in favor of mobile Internet access.

One small change is AT&T’s way of adapting to supplier risk, especially the risk that a key supplier might go out of business.

When working with key small suppliers, AT&T now “expects to increase the depth of understanding of our core technologies held by our staff to the point that they can integrate, and even design the systems from scratch,” AT&T says. “AT&T expects to develop key software resources in a way that they can be openly used, and cannot be lost through the acquisition or insolvency of a vendor partner.”

The AT&T system used to develop its own technology (Bell Laboratories and Western Union). That began to change with the AT&T breakup in 1984, and today the tier one providers source their core technology from third-party suppliers.

That might change in the future, as virtualized networks are developed, running on common and commodity hardware, using more open approaches, and with a core commitment to develop strategic systems in a way that allows AT&T to survive even the bankruptcy of any key suppliers.

So we might see something of a shift back towards service provider knowledge of, creation of, and maintenance of, core technology services and systems.

We haven’t seen that since before 1984. To make that work, service providers must have the ability to develop core technology themselves. For some of us, that harkens back to an older time.

Broadband : fixed and mobile Percent market shares ¹
Date	Fixed (wired) broadband		Active mobile broadband
	Actual %	Forecast %	Actual %	Forecast %
2005	100	100
2006	100	100
2007	56.4	54.2	43.6	45.8
2008	49.3	49.6	50.7	50.4
2009	43.2	44.6	56.8	55.4
2010	40.4	39.4	59.6	60.6
2011	33.7	34.2	66.3	65.8
2012	29.1	29.2	70.9	70.8
2013	24.9	24.8	75.1	75.2
2014		20.9		79.1
2015		17.8		82.2
2016		15.4		84.6
2017		13.5		86.5
2018		12.1		87.9
2019		11.1		88.9
2020		10.4		89.6
Annual average growth rate	-12.7%	-11.9%	9.5%	5.3%
source: ITU

source: Telecompetitor

Comcast Rolling Out Gigabit Service Commercially in 5 Metros in 2016

Comcast plans to introduce the world’s first DOCSIS 3.1-powered gigabit Internet service to residential and business customers in Atlanta and Nashville in early 2016, with Chicago, Detroit, and Miami to follow in the second half of the year.

Keep in mind that the Concast deployments are "whole city" deployments, not "neighborhoods." Every location will get gigabit capability, not just locations in selected neighborhoods.

The new technology will, for the first time, make it possible for Xfinity and Comcast Business Internet customers to receive gigabit speeds over existing hybrid fiber coax networks already installed to support current service, and will not require a fiber upgrade.

Last year, Comcast launched its residential fiber-based multi-gigabit service--Gigabit Pro--in metropolitan Atlanta, making it the first market to receive the company’s 2-gigabit symmetrical service.

Chicago, Detroit, Miami, Nashville, and several other markets were added over the following months, and Gigabit Pro is now available to 18 million homes across Comcast’s national footprint.

Gigabit Pro does require installation of a direct to location fiber connection, unlike DOCSIS 3.1.

Comcast also has increased Internet speeds for residential customers 16 times in the last 14 years, at rates equivalent to Moore’s Law, Comcast has said.

Internet Access Growing Faster than in Asia or Africa

Internet adoption in Latin America is growing faster than Asia or Africa, on some measures, slower than Asia or Africa, on other measures. On the other hand, Internet access adoption already is higher in Latin America than in Africa or Asia.

Between now and 2019, Latin America Internet usage growth rates should be at 7.4 percent every year. That is lower than for Africa or Asia, where compound rates of rate will be 8.7 percent for Asia and 10.3 percent for Africa.

Of course, as always is the case, statistics must be viewed in context. Brazil and Mexico have much larger populations than most other countries in Latin America, so Internet users, traffic and other metrics have to be filtered.

Some six countries will represent 81 percent of all Latin American Internet users by 2020: Brazil, Mexico, Argentina, Columbia, Peru and Chile. The four countries bordering the Pacific will represent 38 percent of all Internet users.

Across Central America, Mexico dominates existing, and potential customer connections. Across the globe, a few large countries have disproportionate impact on such metrics.

At the moment, about 70 percent of all Internet users in Latin America do so using their mobile phones and networks. By 2020, perhaps 95 percent will do so, according to RecargaPay.  

As is the case elsewhere, though, fixed networks play a muted role. By 2014, fixed-network broadband penetration reached almost 10 percent globally, while mobile Internet adoption was about 32 percent, according to the International Telecommunications Union.

Perhaps 57 percent of the Latin American population will be connected by about 2019, Cisco estimates. In some countries, that is already has become the case. In Argentina, as early as 2011, 67 percent of people were connected. In Columbia, 56 percent were connected; in Chile, 59 percent; in Uruguay 56 percent.

source: Digital Strategy Consulting

source: Geonet Central America Internet Usage and Population Statistics Country Population ( 2014 Est. ) Internet Usage, 30-Jun-2014 % Population (Penetration) Belize 340,844 108,048 31.7 % Costa Rica 4,755,234 4,028,302 84.7 % El Salvador 6,125,512 1,742,832 28.5 % Guatemala 14,647,083 2,885,475 19.7 % Honduras 8,598,561 1,602,558 18.6 % Mexico 120,286,655 59,200,000 49.2 % Nicaragua 5,848,641 906,539 15.5 % Panama 3,608,431 1,899,892 52.7 % Total 164,210,961 72,373,646 44.1 % source: Internet World Stats

Latin America also is different some ways. Compared to Asia and Africa, the population to connect is largely urban, not rural. In principle, that means different access technology choices and platforms might be important, compared to markets where the challenge substantially involves connecting rural users.

Broadly speaking, that means platforms offering low cost coverage are relatively less important than platforms offering low cost capacity. Where mobility or fixed wireless platforms are concerned, that tends to mean higher-frequency platforms arguably are more important than lower-frequency platforms that are better for coverage, less valuable for capacity.

Retail local access can cost an order of magnitude more, on a price per megabit per second (price per Mbps) basis, than similar costs for countries of the Organization for Economic Cooperation and Development, which clearly is an issue.

Backhaul and long haul prices also are issues.

Source: RecargaPay

source: Forrester Research

source: Cisco

source: Statista

source: Oxford Analytica

source: GSMA

India 700-MHz Spectrum Reserve Prices Will Discourage Bidders

Minimum prices set for an auction of 700-MHz spectrum in India are so high (two to four times higher than prior auctions)  that many of the leading mobile companies will not bid. And, according to Fitch Ratings, the eventual spectrum winners might well regret having won. That “winner’s curse” has happened before, often with 3G spectrum auctions.

India's telecom regulator recommended a reserve price of INR115bn (US$1.7 billion) per MHz for nationwide 700MHz spectrum.

Fitch Ratings “believes that efficiency gains from deploying 4G services on 700MHz will be insufficient to offset the relatively high price.”

The reserve price is about twice the price set for 800-MHz spectrum, 3.4 times the reserve price for 900-MHz spectrum and four times the minimum prices set for 1.8 GHz spectrum.

Winning therefore “could exert further pressure on participating telcos' balance sheets and cash flow, and limit their ability to invest in capex over the medium term,” say Fitch Ratings analysts.

In fact, the top four telcos, including Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications may hesitate to bid, as balance sheets already are “stretched,” while available cash is expected to become an issue once Reliance Jio enters the mobile market in the spring of 2016.

Instead, the leaders might choose to rely on spectrum they already have acquired. Bharti Airtel will use 900 MHz, 1.8 GHz and 2.3 GHz.

Reliance Jio, after having invested about US$15 billion on spectrum and networks, will use 800MHz and 850MHz spectrum.

Every single cost in any telecommunications or other ecosystem ultimately is paid for by customers or business partners, it goes without saying.

That is true of all infrastructure costs, including the cost of spectrum, which is why many observers favor increased use of shared spectrum and unlicensed spectrum as a way of expanding capabilities while minimizing end user cost.

The cost of licensed spectrum, typically a major expense, now is an issue in India, which is preparing to issue licenses for 700-MHz spectrum. High costs were an issue in earlier spectrum auctions as well.

After a massive auction where incumbents essentially had to pay whatever was required to retain use of frequencies they already were using, “the industry simply does not earn enough to support the bids,” some have argued.  

In that spring 2015 auction, India’s mobile companies bid Rs 1,10,000 crore for spectrum across four bands that were substantially above the reserve (minimum) prices.

Buyers paid 1.79 times the reserve price for 800MHz spectrum and 1.95 times the reserve prices for  900 MHz.

Operators paid less of a premium for higher-frequency spectrum, just 1.16 times the reserve price for 1800 MHz spectrum and 1.05 times the minimum for 2100 MHz spectrum.

John Giusti, Chief Regulatory Officer, GSMA, is among observers urging the Indian government to lower minimum prices for the 700-MHz auction.

“The GSMA is very concerned by TRAI’s recommendation to set a starting price of US $1.7 billion per MHz for pan-Indian 700MHz spectrum,” said Giusti.

source: Live Mint

India has one of the lowest average revenue per user (ARPU) metrics globally (US $2.45 at the end of 2015).

High spectrum costs, combined with limited revenue contribution from data services, new competitive pressures and high capital investments to upgrade to 4G, mean it will be difficult to sustain business models, if high spectrum prices hold, Giusti argued.

“The more mobile operators have to pay for a spectrum licence, the less capital is available to roll out new mobile networks,” Giusti said. “We encourage greater focus on the long-term benefits of connecting more people in India to affordable mobile broadband, rather than on short-term financial gain.”

“High reserve prices and an unrealistic predetermination of spectrum value could also reduce the willingness of potential bidders to buy the spectrum,” he noted. “For example, in Australia, an unrealistically high reserve price resulted in a valuable portion of the 700MHz spectrum left unsold and unused.”

“Setting reserve prices at reasonable levels will be key to achieving the Digital India objectives, allowing operators to focus their resources on building the necessary infrastructure to deliver high-quality mobile services for Indian citizens,” Giusti said.

Verizon Will Sell Keeper Enterprise to its Business Customers

Keeper, which says it is the leading enterprise password management software platform, has announced a new distribution partnership with Verizon.  AT&T and Orange also supply Keeper to consumers and enterprises.

Beginning in January 2016, Verizon will begin selling Keeper Enterprise to its corporate customers as part of  the Verizon Partner Program.  

That is one example of how app providers and service providers can work together. As now generally is the case, apps get developed by third parties. But service providers can act as key distributors, while enhancing their core products by doing so.

Keeper Enterprise is a software platform that provides both password management and secure digital file storage for corporate customers. Keeper Security is a privately-held company based in Chicago, Illinois.