India and U.S. Decide More Communications Regulation is Needed

Whenever new substitute products arise in the Internet and communications ecosystem, and especially when the new products threaten to cannibalize the legacy products, regulatory strife is inevitable. And the issue always boils down to one question: more or less?

Should existing regulatory burdens on legacy services be lightened, or should challengers be brough under the existing frametworks?

What is not inevitable are the solutions, which broadly fall into several buckets. In the Internet era, substitute products tend to be over the top apps or services, while legacy products tend to be carrier managed services.

So one solution that always seems “obvious” to regulators and policymakers is to impose legacy regulations on the new products and services.

The equally-plausible, but comparatively rarely chosen path is to remove regulations from carrier managed services, and let consumers decide the outcome.

In India and the United States, regulators seem to prefer the former approach rather than the latter: extending legacy regulations to new platforms rather than removing restraints from legacy platforms.

In India, one example is a preference for regulating OTT messaging under legacy telecom regulations, while likely rejecting a Bharti Airtel plan to offer streaming video as a managed service.

In the United States, one example is a recent Federal Communications Commission proposal to bring cable TV operators under common carrier rules for wholesale special access for the first time in history.

There are effects--on investment, revenues, market shares, innovation--no matter which course is taken. But if one policy goal is innovation, extending regulation arguably reduces the amount of innovation, because incentives to do so are reduced.

source: Celcom

Usage-Based Billing Removes One ISP Concern About Growing OTT Video Consumption

Advocates and suppliers quite often differ about the need for usage-based billing of Internet access services. Some argue all usage should be unlimited. Suppliers often argue that is an unsustainable policy.

MoffettNathanson analyst Craig Moffett argues that usage-based billing is important for Internet service providers in one sense because it removes one reason for ISPs to “fight” over the top video apps.

The reason is drop dead simple: ISPs make more money, almost on a linear basis, as more OTT video is consumed by their customers. That aligns usage, network investment and revenues.

SpaceX Successfully Lands Rocket Booster at Sea

SpaceX successfully landed a Falcon 9 rocket booster at sea, the second such successful landing, and a major step on the way to commercializing reusable booster rocket technology. 

That, in turn, will help lower launch costs, an important development for lowering the cost of satellite communications and earth-orbiting manned space stations. 

Lower costs are important for suppliers of satellite high-bandwidth Internet access services, since coming market demand will require cost-per-bit performance orders of magnitude beyond what has been required in the past.

 

China Authorizes 4th Mobile Operator

China has authorized a fourth mobile operator, allowing state-owned China Broadcasting Network--which was created in 2014 to consolidate cable TV and broadcast operations in China--to enter the mobile services market.

Two angles are noteworthy. First, CBN marks the entry of the cable TV industry in China into the mobility business. Second, the move illustrates a continuing divide among communications regulatory authorities about the “best” market structure for mobile communications.

Given a choice, most seem to believe “four” providers a better structure (at least in terms of competition) than “three.” French regulators are foremost among proponents of a “three supplier” structure, largely to bolster the climate for more-robust investment.

The tension illustrates the problem regulators face. On one hand, they would likely prefer both vigorous competition and robust investment. On the other hand, excessive amounts of competition will choke off appetite to invest.

source: Light Reading

source: China Internet Watch

On a long term basis, some argue any structure with two suppliers, though not generally considered to be as good in terms of innovation, is the most stable market structure, the reason being that it is difficult for three providers each to maintain a minimum market share of about 30 percent.

That is a level many believe correlates with a minimum cash flow capability required to sustain long-term viability. By that test, China’s mobile operator market already is unstable, as only China Mobile has at least 30 percent market share.

Globally, profitability of operations for individual players correlates strongly with in-market scale measured by achieved revenue market share, McKinsey consultants have noted.

Sustaining an EBITDA margin of 30 percent can be considered a minimum proxy value for achieving capital returns above the weighted cost of capital, McKinsey says.

Entrants unable to capture a significant revenue share of their market--more than 25 percent-- will be unlikely to achieve EBITDA margins above 30 percent.

That implies a sustainable long-term structure featuring just two providers.

source: McKinsey

There is an important caveat, however. If, somehow, the average cost of creating a mobile business should change in an important way, reducing especially infrastructure capital investment and operating costs, then it is possible sustainable market structures could change.

It might be possible, long term, for more than two major suppliers to be profitable. But that might hinge on major changes in capital requirements and operating cost. That is why all developments in network virtualization, access to shared and unlicensed spectrum, and networks based on use of unlicensed and shared spectrum, are important.

Such developments can change the industry cost profile.

Telecom Outsourcing Will Grow 3% Annually Through 2020

It never is easy for any executive to clearly identify a company’s “core competence.” Asked to do so, most people cite a list of “things we think we do well.”

That is not core competence. To the extent a firm has such competence, and it is possible many firms do not, it is the singular capability that competitors cannot replicate. It is not “things we think we do well,” if other competitors also can make a credible claim in those areas.

As it turns out, many mobile operators find that operating access networks really is not a core competence, or at least adds little value.

Still, outsourcing is rather a subtle thing. About 52 percent of carrier outsourcing revenue in 2015 was in the areas of network maintenance, build, planning and design, not core operations.

Managed service revenues for outsourced operations, network maintenance and network planning and design s expected to grow at a three percent CAGR from 2015 to 2020, driven by a mix of full operation outsourcing and radio access network (RAN) sharing, according to Infonetics estimates.

In 2015, global outsourcing services revenue increased three percent over 2014 to reach $69 billion.

In 2014 worldwide telecom outsourcing and managed services revenue decreased 0.4 percent from 2013, falling to $66.6 billion, according to IHS Infonetics Research.

Network maintenance, build, planning and design accounted for over half of service provider outsourcing revenue in 2014.

Managed service revenue—the sum of operations, network maintenance and network planning and design—totaled $36 billion in 2014.

Telecom outsourcing services will reach $76 billion by 2020, growing at a compound annual growth rate of two percent and driven by mobile network outsourcing deals as more and more mobile operators try to keep their opex under control by removing non-core tasks.

source: Infonetics

Europe, Middle East, Africa remained the world’s largest outsourcing and managed services market in 2015 and is expected to do so through at least 2020.

Survey Shows Heavy Industry Leading IoT Deployments

In 2016, 43 percent of organizations will either already be using the Internet of Things or be implementing it within their environments, according to Gartner's survey of 465 IT and business professionals.

Some 29 percent of respondents already have deployed IoT technologies. Some 14 percent expect to do so in 2016.

"Heavy" industries, including utilities, energy suppliers and manufacturers are lead users at present, with 56 percent of businesses in those categories indicating that they will have implemented IoT by year's end.

"Up until now, the leading adopters of IoT have been more the industrial, heavy-industry-type businesses" involved in mining, manufacturing and the like, Gartner research Chet Geschickter, said.

Manufacturing and utilities are currently the top industry verticals currently driving the Internet of Things (IoT), says Jim Tully, Gartner VP.

In 2015, manufacturers had an estimated 307 million installed devices while utility companies had deployed 299 million. Those two verticals are responsible for over 600 million of the IoT devices currently in use.

"This makes intuitive sense; control systems using sensors have always been an integral part of manufacturing and automation processes, and we certainly see a lot of smart meter deployments by utilities leading to energy efficiency improvements and operations like automatic billing, energy management and monitoring," said Tully.

Geschickter noted that demand from consumer- and service-oriented companies in "light" industries is picking up. By the end of the current year, 36 percent of these businesses will have implemented IoT technologies.

CenturyLink "Between a Rock and a Hard Place"

CenturyLink, the third-biggest “telco” fixed network services provider is "caught between a rock and a hard place,” according to Jennifer Fritzsche, Wells Fargo senior analyst for telecommunications services.

Basically, CenturyLink is not competitive with cable TV offers, so it either must step up investment or admit defeat and hope to make up revenue losses elsewhere.

Operating revenues for first quarter 2016 declined to $4.40 billion, compared to $4.45 billion in first quarter of 2015.

In its business customer segment, revenues of $1.58 billion declined 3.4 percent year over year. Total consumer segment revenues of $1.49 billion declined 0.5 percent, year over year.

source: CenturyLink

source: CenturyLink