In U.K., FTTH Payback Remains a Key Issue

As always, financial payback remains a key problem for service providers building fiber-to-home networks, in the United Kingdom as elsewhere.

Aside from prosaic issues such as construction labor availability, the bigger issues remain the business model. Some wonder whether U.K. consumers will gladly pay the higher prices fiber to home networks might require.

The business model is complicated even more in competitive markets where there might be two or even three fixed network providers of high speed access, at least two of which offer hundreds of megabits per second to gigabit speeds.

In such instances, any single provider can reasonably expect take rates in the 20 percent to 40 percent range. That obviously means there is a danger of stranding (network is built but there are no paying customers using that infrastructure) as much as 60 percent to 80 percent of core distribution assets.  

That is why the build only in some neighborhoods approach is so important. That method avoids stranding so much capital in facilities that will never earn a return.

But progress will continue.  

Core communications infrastructure costs have improved over several decades, meaning it now costs less to deploy a modern, Internet Protocol based application, access or transport network.

Mobile networks and cable TV hybrid fiber coax networks cost less than fiber-to-home networks, for example. But all networks have increased their capacity on a cost-per-bit basis over the last few decades.  

Different network architectures, physical media, lower cost computing and storage, open source code, virtualized networks and Internet Protocol itself have helped. Additional spectrum has been a key enabler as well.

But greater cost reductions are expected. One new initiative, the “Telecom Infra Project,”  aims to to “develop new technologies and approaches to building and deploying telecom network infrastructure,” according to Jay Parikh, Facebook global head of engineering and infrastructure.

Facebook, Intel, and Nokia have pledged to contribute an initial suite of reference designs, while other members such as operators Deutsche Telekom and SK Telecom will help define and deploy the technology as it fits their needs, said Parikh.

Telecom Infra Project  members will work together to contribute designs in three areas including  access, backhaul, and core and management.

Significantly, the effort will apply Open Compute Project models of openness and disaggregation as methods of spurring innovation. In other words, in addition to relying on open source, the Project also will rely on use of standard, “commodity” hardware.

“In what is a traditionally closed system, component pieces will be unbundled, affording operators more flexibility in building networks,” Parikh says.

Facebook, in collaboration with Globe, recently launched a pilot deployment based on Telecom Infra Project principles to connect a small village in the Philippines that previously did not have mobile coverage.

In addition, EE is planning to work as part of TIP to pilot a community-run 4G coverage solution that can withstand the challenges presented by the remote environment of the Scottish Highlands to connect unconnected communities.

Testing new technologies and approaches and sharing what we learn with the rest of the industry will enable operators to adopt new models with full confidence that they will be sustainable.

Without much doubt, the Project will help service providers build networks at lower cost. The Project also continues to show the importance new providers and suppliers represent in the communications market.

As Google Fiber represented both a challenge to thinking about how to build fiber to home networks, and a challenge to conventional thinking about access provider market share dynamics, so too investment in unmanned aerial vehicles and unmanned balloons for Internet access are bringing new possibilities to Internet access infrastructure.

Now Facebook will try and leverage the principles behind its Open Compute Project for data center infrastructure to the problem of access and transport networks.

As always, in competitive markets, the low cost provider tends to win. Just as certainly, overall access and transport costs are going to keep dropping.

Telecom Infra Project Aims to Reduce Telecom Infrastructure Costs

Core communications infrastructure costs have improved over several decades, meaning it now costs less to deploy a modern, Internet Protocol based application, access or transport network.

Different network architectures, physical media, lower cost computing and storage, open source code, virtualized networks and Internet Protocol itself have contributed.

But greater cost reductions are expected. One new initiative, the “Telecom Infra Project,”  aims to to “develop new technologies and approaches to building and deploying telecom network infrastructure,” according to Jay Parikh, Facebook global head of engineering and infrastructure.

Facebook, Intel, and Nokia have pledged to contribute an initial suite of reference designs, while other members such as operators Deutsche Telekom and SK Telecom will help define and deploy the technology as it fits their needs, said Parikh.

Telecom Infra Project  members will work together to contribute designs in three areas including  access, backhaul, and core and management.

Significantly, the effort will apply Open Compute Project models of openness and disaggregation as methods of spurring innovation. In other words, in addition to relying on open source, the Project also will rely on use of standard, “commodity” hardware.

“In what is a traditionally closed system, component pieces will be unbundled, affording operators more flexibility in building networks,” Parikh says.

Facebook, in collaboration with Globe, recently launched a pilot deployment based on Telecom Infra Project principles to connect a small village in the Philippines that previously did not have mobile coverage.

In addition, EE is planning to work as part of TIP to pilot a community-run 4G coverage solution that can withstand the challenges presented by the remote environment of the Scottish Highlands to connect unconnected communities.

Testing new technologies and approaches and sharing what we learn with the rest of the industry will enable operators to adopt new models with full confidence that they will be sustainable.

Without much doubt, the Project will help service providers build networks at lower cost.

Mobile Account Churn Drivers Vary, Globally

Though it is undoubtedly true that network performance is a significant churn driver, nothing is more important than price, for nearly a third of consumers who left one mobile service provider for another, according to 451 Research.

Other surveys show an even bigger price driver. “Price” was reported to be the churn rationale for 38 percent to 55 percent of polled consumers in Europe and the United States. Price was less an issue in Asia, the Middle East and Africa, where a variety of reasons other than price, service coverage or customer service contributed to churn decisions.

Yet other surveys suggest that mobile Internet access quality is a serious churn driver.

With the caveat that “why” consumers take actions can differ from the “reasons” they give for taking those actions, price seems always to be a paramount concern, if not the only concern, when consumers make a service provider switch.

By some measures, mobile churn rates, on an annual basis, are lower than for some other leading products. Mobile operator churn has recently been averaging about 14 percent or less for Verizon and as high as 16 percent for AT&T.

Churn has been about about 30 percent annually for T-Mobile US (T-Mobile US has significant numbers of prepaid accounts that churn at a higher rate than postpaid accounts) and possibly 33 percent annually for Sprint.

Recently, however, both T-Mobile US and Sprint have managed to get postpaid churn rates down to about 18 percent annually.

But churn rates vary significantly for different types of accounts. Multi-user or family accounts, for example, tend to have lower churn rates than single-user accounts.

American credit card companies typically have customer churn rates of around 20 percent annually. European cellular carriers experience churn of between 20 percent and 38 percent.

Many retail banks have annual churn rates of between 20 percent and 25 percent.

source: Analysys Mason

Regulators Cannot Halt OTT Trend, Though Some May Try and Slow It

Communications policy makers around the world have been grappling with thorny regulatory issues raised by over the top apps for more than a decade, with mixed results, one might argue.

In some cases, where IP-based alternatives function as full substitutes for legacy carrier services, many regulators have simply brought the new IP alternatives into the existing regulatory framework.

That is the “if it walks like a duck, and quacks like a duck, it is a duck” approach. It is not without merit.

The tougher issues are instances where over the top apps do not actually represent full substitutes for carrier services, as they often require opt in, and therefore cannot replicate the “any to any” communications typical of common carrier services.

"WhatsApp is competing with us, not only with messaging but with voice, too," Telefonica chief operating officer Jose Maria Alvarez-Pallete has said.  "The premise should be, same services, same rules."

It is possible to agree with those views, but also argue that WhatsApp is not an instance of “same service” as carrier voice and messaging.

The financial implications for service providers in most emerging markets are clear, since voice continues to represent as much as 80 percent of total revenue, where in developed markets data services already have taken the lead.

In December 2015 WhatsApp was temporarily suspended after telecom interests complained of unfair regulatory treatment. Egypt and India are other markets where restrictive measures have been taken.

Egypt has shut down several internet calling apps, while India has outlawed zero rating of Internet apps.

In South Africa, MTN and Vodacom contend that services such as WhatsApp, Skype, Google Hangouts and the Viber messaging app cost the country billions of rand in tax revenue and compromise security because their encryption makes it easier for criminals to avoid government surveillance.

South Africa's telecom regulator has begun an investigation into the impact of over-the-top services, and Nigeria is considering regulating them.

Most likely could agree that full substitutes should be regulated the same. The key issue is that many voice and messaging apps are, in fact, not full functional substitutes, but based on community membership.

It arguably is a losing battle, even if some would argue the rate of decline matters quite a lot.

Strategy Analytics, for example, predicts a 42 percent drop in carrier messaging revenue between 2001 and 2021.

“The weakening role of operators in the messaging value chain suggests that it is only a matter of time before SMS services are dislodged from their current default position on smartphones, analysts at Analysys Mason argue.

In a similar manner, voice revenue continues to drop as a percent of total fixed network revenue, as well.

source: Analysys Mason

That will happen, even as messaging volume grows dramatically, because most of the growth will happen using the OTT apps.

And though emerging market revenue continues to grow, as new accounts are added, the growth rate is slipping.

source: Analysys Mason

Concern about competition or substitution of carrier services from OTT apps is understandable. But nothing has halted the erosion so far.

More Amazon Moves into Ecosystem Adjacencies Shows Market Disruption Often Comes from "Outsiders"

Movement into adjacencies always is a key competitive issue within any ecosystem, as it turns former customers into competitors. That happens with chipsets, applications, access, transport, advertising and other support services.

Movement into adjacencies within an ecosystem also is common in retailing, as when major retailers sell “house brands,” for example.

Now it appears Amazon could introduce its own clothing brands, to sell merchandise some brands will not allow to be sold using Amazon channels. And some argue Google, for example, should buy AIG, the giant insurance firm, to create the basis for a financial tech business.

Such potential moves illustrate one key principle of markets that are disrupted either by technology, new pro-competitive regulations, or both.

It often is the case that the most-dangerous competitors come from “outside” the traditional domain.   

Skype, Amazon, Alibaba, Netflix, Google Fiber, cable TV entry into voice and business services, XBox, PayPal, M-Pesa, Amazon Web Services and iTunes are among the obvious examples.

They will not be the last entries into existing markets by “non-traditional” providers.

Some now think Amazon, for example, will make a big further move in the e-commerce business will happen, as logistics functions perhaps are internalized.

source: Bloomberg

No ecosystem now seems safe from movement into adjacencies. In the U.S. mobile market, entry by Comcast and other cable TV operators will be an important example. In the high speed access, growing presence of Google Fiber and other third party Internet service providers is going to challenge prevailing notions of how many providers are sustainable, long term, in the fixed network business.

We once widely believed the answer was “one.” Over the last couple of decades, the number has become “two.” What Google Fiber and others pose is a new question. In some markets, is the viable number actually “three?”

That would represent a major business model challenge for the incumbent suppliers, as any major change in market structure always entails.

In addition to the urgency of creating new revenue sources, operating costs have to be taken down even more than had seemed possible in the past.

The broad point is that market disruption, in the Internet era, typically is a result of entry by non-traditional entities into domains dominated by others.

That is why service provider executives, when asked about their key competitors, often say “Google,” rather than “other telcos” or even “cable TV competitors.” The perception is warranted.

India Start-Ups See Regulation, Taxation are Key Challenges, International Expansion a Key Opportunity

Indian startups cite regulation, taxation and human capital as their greatest challenges, according to InnoVen Capital.

The size of the internal Indian market is viewed as quite appealing. But some 27 percent also see “international expansion” as a key opportunity.

source: InnoVen Capital

App Developers Aren't in it for the Money

Developers often are quite different from Internet service provider or telecom executives, and that has implications for how ISPs work with developers.

Only about 34 percent of survey respondents say “money” is the primary motivation for developing. Non-material motivation accounts for fully 66 percent of the primary motivations for developing.

So, in working with developers, it might often be the case that the desire to be rich takes a back seat to creativity, peer recognition and fun. Unless ISPs emphasize recognition, fun and ability to be creative, they often will face cultural issues when trying to work with and woo developers.

Almost 75 percent of the developers surveyed by inMobi have been in the industry for less than three years. And most work solely or very small firms.

Just eight percent of firms have more than 20 employees. In fact, some 47 percent of respondents work by themselves. the inMobi survey suggests.

Games and entertainment are the two largest categories of developer interest, across all regions (Asia, North America, Europe).

Some 42 percent of app developers have one to three apps on Google Play, while 28 percent of have one to three apps in the Apple App Store.

Java, JavaScript, HTML5 are the most preferred languages for designing and developing apps.

And few make significant money developing apps. Some 55 percent of developers make $1000 per month.

Monthly average mobile app revenue globally is under $6,000.  

About 63 percent of developers say advertising is the revenue model for their apps, while a third say in-app purchases are the revenue model.

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