Will 5G Enable New Birth of Fixed Wireless Business?

Fifth-generation mobile networks might be more strategic than you might think, boosting both the value of wireless access and the fixed network. It is easy to focus on the "gigabit per second to every mobile device" 5G is designed to support, with higher speeds up to 5 Gbps or 10 Gbps conceivable in some scenarios.

In addition to making mobile access speeds competitive with--or higher than--fixed networks in many instances, 5G might also allow some Internet service providers to rethink access architectures, in region and out of region.

Verizon, for example, now is studying ways to use fiber backbone networks, especially out of region, to anchor fixed wireless access, in much the same way that competitive local exchange carriers long have operated. 

The same approach could work in region, where Verizon does not intend to build dense optical access networks, but might have greatest value out of region, allowing Verizon to leverage fixed network facilities in new ways.

Looking only at "out of region" opportunities, Verizon might be able to leverage new core optical networks acquired from XO Communications, with fixed wireless, to reach many business customers, at lower costs, than ever before.

The access services business model, in other words, could change with the advent of 5G, especially for business customers out of region, or for some consumers, in region, where Verizon does not intend to build FiOS fiber to the home networks.

5G fixed access might also allow Verizon to serve some customers, even where it does build FiOS, who cannot be reached by fiber to home facilities, for cost reasons.

When you have firms including Facebook, Google, Verizon and AT&T all looking at fixed wireless, and AT&T publicly committed to adding as many as 13 million new connections using fixed wireless, you know something has changed.

Fixed wireless is not new, as a concept. It has been seen as the solution for any number of business models, ranging from multi-channel video delivery to Internet access to consumer and business voice. It never has gotten much traction, as a percentage of industry connections.

That could change, dramatically, over the next decade, for several reasons. First, most Internet service providers now acknowledge that fiber to the home is not always the best “use everywhere” platform for high-bandwidth (gigabit) services. In areas where demand is spotty or light, fixed wireless will be a better option, in terms of a sustainable business case.

Second, suppliers--notably the potential ISPs themselves--are working on ways to make fixed wireless work better, at higher frequencies, at lower cost, and have gotten significant support from traditional equipment and platform suppliers, in some cases.

Third, the strategic role of fixed networks now is evolving in a way that makes them backhaul networks, allowing more-affordable “fiber to where you can make money” deployments that, in turn, can use fixed wireless instead of cabled drops.

That strategy is not new, either. Many metro fiber businesses long have built fiber rings to underpin access operations, gradually extending spurs off the rings to reach actual customers.

In a clear sense, fiber networks (metro ring or transport and access) now are going to play the same function in the consumer business. Fiber backbones will have subtending fiber distribution rings or spurs, which will in turn terminate close enough to customer locations that fixed wireless can be the drop (access).

That, fundamentally, is a variant of the hybrid fiber coax network design, fiber to the curb or fiber to the neighborhood architectures, perhaps beginning with services aimed at business customers, especially small or mid-sized businesses.

Now Verizon has begun to talk about using 5G networks in a fixed mode, supported by optical fiber backhaul.

“I think the problem that the telcos have had is a DSL service is really not going to keep up with DOCSIS and so we’ve had to do fiber, and fiber is expensive for all of us,” McAdam notes. “So if you think about it if I can get we than say a 1,000 meters of a business and I give them a router, a basic router that has a 5G service inside it, and I’m up and operating immediately.”

“If you look at 5G in a fixed wireless environment we've demonstrated for some of our shareholders in our Basking Ridge facility putting 1.8 gigs into the house without a wire,” said McAdam. “Think about the difference for the carrier and the cost structure.”

In principle, assuming the acquisition of XO Communications is approved, Verizon will be positioned as a competitive local exchange carrier “out of region,” as XO Communications has fiber rings in 45 of the top 50 U.S. markets.

“That gives you the ability to be out into those markets and then you just run your extensions off of them,” said McAdam.

Though we are early in the process, it appears fixed wireless might be poised for its biggest-ever role in U.S. access operations.

Nobody Knows What the Cost Structure of a Modern Network Will be in 10 Years

You cannot assume the cost of building a high-performance Internet access network is going to be the same, in 10 years, as it is today. How much different is the only issue. Some trends are easy to identify.

The cost of supplying a gigabit connection on a 5G network likely will be lower than on a fixed fiber to the home network, and possibly lower than a cable TV hybrid fiber coax connection.

But that is not all that will change. Google Project Loon is testing entirely new platforms for Internet access, using fleets of balloons. Both Google and Facebook are testing use of unmanned aerial vehicles. New fleets of low earth orbit satellites will change the cost of delivering Internet data by satellite.

Fixed wireless technology being developed by Facebook, Google and others such as Starry  likely will change that cost curve as well.

And that is not all. An effort to develop standards-based and open telecom platforms is underway by the Facebook-initiated Telecom Infra Project that has gained important support from mobile and fixed telcos and many equipment suppliers.

Followng on the heels of Facebook’s Open Compute Project (OCP) to create open standards for data centers, the Telecom Infra Project now seeks similar results for access platforms.

“A few years ago, Facebook was faced with a data center problem familiar to many scale companies: We depended on proprietary systems and hardware that were inflexible and expensive,” said Jay Parikh, Facebook Global Head of Engineering and Infrastructure. “We realized quickly that this approach would not be sustainable; we needed to find a new way.”

Note the language: traditional rack and stack approaches were “unsustainable.”

The end result, for Facebook, was that “we were able to...save billions of dollars in infrastructure costs over the last few years,” Parikh said. The obvious winner was Facebook and its users. The obvious losers were suppliers of traditional data center gear.

“We recognized that telecom infrastructure could benefit from the same innovations taking place in the data center,” Parikh said. So make note: the winners will be Internet access providers. The losers will include many suppliers of network platforms, or whole lines of equipment and software platforms.

“It was clear that the raw building blocks of what we were developing for our own infrastructure could be applied to telecom networks with great benefit,” he said.

The Telecom Infra Project “ is bringing together operators, infrastructure providers, system integrators, and other industry players to work together to develop new technologies and rethink approaches to deploying network architecture.”

Early founding members include Intel and Nokia, Deutsche Telekom and SK Telecom.

At first, “TIP will focus on disaggregating the components of network infrastructure that are traditionally bundled together and vendor-specific,” said Parikh.

TIP members will work across three areas: access, backhaul, and core network management.

As one early example, Facebook has been working in partnership with Globe, deploying a low-cost, solar-powered network-in-a-box solution, bringing mobile coverage to a village. “In the first week alone, we connected more than 60 percent of the community,” said Parikh.

New members include Axiata Digital, Indosat, MTN Group, Telefonica, Vodafone, Acacia, ADVA, BlueStream, Broadcom, Coriant, Deloitte, Juniper Networks, and Lumentum.

The TIP Board of Directors includes Dr. Alex Choi of SK Telecom (TIP Chairman), Axel Clauberg of Deutsche Telekom AG, Ashish Kelkar of Facebook (TIP Secretary and Treasurer), Lynn Comp of Intel, and Henri Tervonen of Nokia.

Project groups also have been created to address “the most pressing industry needs including connecting the unconnected or underserved populations, and augmenting the development of powerful new technologies like 5G.”

The access system integration and site optimization group is chaired by SK Telecom

The unbundled solutions group is co-chaired by SK Telecom and Nokia, and will seek cost-effective, low-power and low-maintenance solutions.

Media-friendly solutions, chaired by Intel, will focus on mobile experience, especially for close-to-edge solutions.

In the backhaul area, Facebook heads the effort to develop “thin and extensible software stack to autonomously coordinate routing, addressing and security related functions in packet-switched IPv6 networks.”

The open optical packet transport project is co-chaired by Facebook and Equinix, and is working on Dense Wavelength Division Multiplexing (DWDM) open packet transport architectures that avoid supplier lock-in.

The core network optimization project is chaired by Intel, and seeks to disaggregate

core network components.

The greenfield telecom networks group is co-chaired by Nokia, Facebook and Deutsche Telekom, and will work on IT-based network architecture.

If and when those solutions emerge as commercial realities, we must assume the cost structure of networks will be lower. So all current assumptions about business models will have to be revised as well.

Huge Shift in Local Government Thinking and Policy Leads to Gigabit Internet Access Investment

A really-major shift in thinking by municipal officials has occurred, where it comes to permitting, licensing or franchising high speed Internet access businesses.

In the past, it would have been impossible for any telco or cable TV company to get permission to build a network unless that network reached all homes in a city or town.

The new thinking--spurred by Google Fiber--is that Internet service providers should be allowed and encouraged to build gigabit networks wherever there is demand within a city, without requiring ubiquitous network builds.

That is the reason Verizon Communications now is building out gigabit connections in Boston, for example, when the original business case--assuming a ubiquitous build--was not deemed attractive.

"The past administration here wanted the sort of buildout we have done in other areas where you build everywhere and you go in and get penetration," Verizon CEO Lowell McAdam said. The new administration, on the other hand, is "more willing to help us get rights of way, help us push fiber into the neighborhoods, and do more pre-subscription a la the Google model."

In other words, by allowing ISPs to build only where there is a reasonable expectation of demand, high-performance networks are being deployed where they would not have been built before.

In part, that change followed the example of the competitive local exchange carrier business, which allows service providers to build facilities only in areas where there is business customer demand for high-bandwidth services.

That, in turn, was not lawful until passage of the Telecommunications Act of 1996. The new attitude by local government officials is leading to more intense deployment of gigabit facilities than would be the case if all builds had to be ubiquitous across a city.

That is a really big deal.

SE Asia is World's Fastest-Growing "Internet" Market

With 260 million users now and an estimated 480 million by 2020, Southeast Asia’s is the world’s fastest growing Internet market, adding 3.8 million new users a month, according to an analysis by Temasek, sponsored by Google.

E-commerce in the region could be worth $88 billion, growing at 32 percent per year, while

The online travel market could reach $90 billion, growing at 15 percent per year.

Online media such as games and advertising could grow to $20 billion, increasing at 18 percent per year, while the taxi on-demand service could hit $13 billion and 29 million monthly riders, up from an estimated 7.3 million at present, growing at 18 percent per year, the analysis suggests.

There are obstacles to overcome, ranging from a relative lack of human resources (engineering and managerial), access to capital and consumer mistrust about the security of online transactions.

But most of the obstacles are directly related to access and other forms of infrastructure. Logistics networks required for remote product delivery are underdeveloped. Some 60 percent to 70 percent of consumers are outside the traditional banking system.

Low Internet usage, especially for archipelago nations such as Indonesia and the Philippines, also are key obstacles to be overcome.

Smartphone-Only Internet Access in U.K. Grows to 16%, Up 10% in One Year

A study sponsored by Ofcom might suggest that 16 percent of U.K. Internet users rely on devices such as smartphones and tablets for online access, and do not primarily use fixed Internet connections.

In 2014, mobile-only access was at about six percent. Ofcom therefore suggests that use of computers for online access has decreased by 10 percentage points--from 81 percent to 71 percent--since 2014.

One might argue that a qualitative survey also sponsored by Ofcom shows the complexity and nuances of smartphone-based Internet access that could have implications for developing regions as well.

“The extent to which smartphones are liberating or limiting for these participants is complex, nuanced and highly dependent on their circumstances,” Ofcom says. “In addition, the perceived price of using data lead many users to limit usage.”

In fact, “heavy reliance on smartphones may inhibit users from developing alternative digital skills, such as typing,” the survey suggests. Perhaps that will not be a limitation, eventually, but Ofcom suggests lack of such skills is a job-affecting circumstance.

Also, many users who were mobile-only had more-limited skills in terms of technical troubleshooting and file and information management, Ofcom says.

Aside from other issues, the cost of mobile data was an issue. “The limitations of smartphones as a primary means of going online, across all parts of the sample, included the perceived pressure to complete tasks quickly to prevent the erosion of their data allowances,” Ofcom notes.  

“Creating, editing and sharing any document of length in office software applications (e.g. MS Office) was seen as almost impossible for most participants,” the report notes.

Those issues were largely experienced by users who were smartphone based by circumstance (low income, no at-home fixed network access, no home PC, for example), not choice (some users have jobs where they are highly mobile, so phone-based access is seen as an advantage).

The implication might be that smartphone-based access, which will be the way most people, in many regions, will use the Internet, does pose some challenges.

The cost of using mobile data is an issue. The difficulty of creating and manipulating documents and files are other issues.

Is "Zero" a Price?

Is “zero” a price? The answer matters, because there are many instances where regulators insist they are not in favor of rate regulation, at least when markets are competitive.

In other words, whenever a regulation mandates, or prohibits a “zero” price, that is an instance of rate regulation.

This matters since banning or enabling zero pricing is rate regulation, even when rate regulation is expressly not within policy guidelines. That recently has become an issue where zero rating of mobile Internet access is outlawed.

The essence of rate regulation is that some prices are not allowed, while other prices are mandated. Generally, we are accustomed to prices being limited to keep them low.

What is different with bans on zero rating is that the restriction applies in the other direction: governments make illegal the offering of “no incremental charge” or “free” access.

Generally, price regulation is used when an entity has a monopoly or a dominant market position that gives it excessive market power. So prohibiting “free” as a price implies concern about monopoly power.

Regulators sometimes insist they are not engaged in rate regulation when mandating that prices of zero are not lawful. That is wrong. Zero is a price, and mandating or prohibiting zero rating is rate regulation.

The answer also matters because rate regulation--whatever its other suggested benefits, also tends to depress investment.

That means rate regulation, all other things being equal, leads to lower investment by competitors in a market who own facilities, even if it increases demand by customers who want to use that rate-regulated network.

To the extent that bans on zero rating impose price rules, it is a form of rate regulation, even if not formally a matter of formal “rate setting.”  While paid services have prices that are acknowledged to be “rates,” it is much less obvious that “zero” also is a price.

How Will AT&T's Virtualized Network Affect its Suppliers and Retail Sales Partners?

It isn’t as easy to describe the likely impact of network functions virtualization (NFV) on the retail end of the business as it is to envision the implications for network infrastructure supplier impact.

By definition, virtualization means new and existing apps can run on a single hardware platform, rather than having dedicated equipment for each app. That should mean less spending on network equipment, so less capital expense, and arguably lower operating expense.

At a high level, that also implies lower revenue for telecom network equipment suppliers.

This will be a big deal for AT&T and many of its networking equipment suppliers.. “We are now forecasting that by the end of this year 30 percent of our network functions will be virtualized,” said Ralph de la Vega, AT&T vice chairman. “ And by 2020, it will be 75 percent.”

“we’re moving all of our service to this on-demand platform over time,” he said.

In principle, there should be implications for retail sales, or on-going customer support operations. As AT&T rolls out “Network On Demand,” retail enterprise customers will be able to  dial up, or dial down, bandwidth on demand. “If the customer has a five megabit per second circuit and they want to go a 20, they go to the portal, they make a change and in less than 90 seconds, the new service is provisioned,” said de la Vega.

“There is no need to call a sales person, there is no need to order equipment, there is no need to setup another connection it happens in 90 seconds,” de la Vega said.

For AT&T, that could often translate into higher revenue, if the direction of changes by most customers is “up,” rather than “down.”

“And what I love about it is my revenue cycle is 90 seconds,” said de la Vega.

In principle, that same bandwidth on demand feature could be available to medium-sized or smaller businesses as well.

De la Vega used the example of a small cancer center with 12 locations. That sort of mid-market customer can, assuming the bandwidth is available at all locations, dial up and then dial down bandwidth, allowing it to send big files episodically, at any of the locations.

That could have some impact on retail sales channels, if the “moves, adds and changes” revenue becomes a matter of customer self service.

That could drastically limit the amount of MAC revenue any retail agent--or AT&T itself--earns from bandwidth services.