Virtualized Networks Will Disrupt Supplier Business Models

The shift to virtualized networks, as you would expect, will disrupt the telecom infrastructure supplier market. That pattern already is happening in the data center market as well, as open source, virtualized and “do it yourself” approaches to data center infrastructure have taken hold.  

"Part of the challenge for the vendors is that it certainly upset the vendor business model, because instead of buying boxes we were now going to buy software and buy it in smaller chunks, and we've been vocal about having open source play a key role in the ecosystem," says Krish Prabhu, AT&T CTO.

More is coming. The Telecom Infra Project, initiated by Facebook but now supported by a number of leading telecom infrastructure suppliers, also is working to essentially commoditize hardware and create more functionality on an open and “computing-style model.”  

The 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.

The net result is that telecom networks will cost less in the future. Not only are service providers moving to adopt virtualized approaches to network gear, with firms such as Facebook pushing that model, but rival platforms, including cable TV networks and coming fixed wireless and mobile networks already are suggesting that lower-cost access models are possible.

The AT&T  Domain 2.0 program, based on use of software-defined networks (SDN) and network functions virtualization (NFV), is part of that shift.

India Authorizes MVNOs, Will New Business Models Emerge?

Allowing operation of  mobile virtual network operators in the Indian mobile market will be a game changer, says Ravi Shankar Prasad, Communications, and IT minister.

Others are not so sure, given the intensely-competitive nature of the Indian mobile market and the entry of Reliance Jio into the market.

Perhaps paradoxically, the Telecommunications Regulatory Authority of India believes the new MVNOs will primarily focus on services for customers in rural areas, since that is an underserved niche.

Much could depend on the full details of the enabling regulations, which appear to allow a significant amount of owned facilities, though MVNOs will not be allowed to be assigned spectrum by the underlying carriers or build or least their own “core network” facilities.

It is not immediately clear whether MVNOs will be allowed to separately acquire spectrum.

The definitions will matter.

In any scenario, it appears India could be part of a new  trend for MVNO business models.

Traditionally, MVNOs have rented virtually everything they need from an underlying carrier, without building their own facilities or acquiring spectrum.

But new possibilities are emerging as cable TV operators, for example, explore “Wi-Fi first” models that are a blend of rented capacity and owned infrastructure.

So the interesting angle in India will be whether new forms of wholesale services and owned facilities will emerge.

For example, would a fiber connection from a village to the furthest optical node operated by an existing facilities-based mobile operator be considered “core” or facilities allowed under the rules for MVNOs?

That, of course, assumes MVNOs can own their towers, radios and associated infrastructure, something that typically is not part of the MVNO licensing regime in other countries. But such nuances would not be new.

As in the past, the difference between resellers and MVNOs was sometimes hard to define with precision. In some cases, the distinction turned on such nuances as whether the MVNO had its own billing system, while a reseller used the underlying carrier’s billing system.

So, too, might the difference between an MVNO and a facilities-based mobile operator become a bit more porous.

Mobile "Is Not Yet" a Functional Substitute for Fixed; Emphasis on "Not Yet"

Sometimes the key phrase in any sentence is “not yet,” as in the observation by Strategy Analytics that “mobile broadband is not yet replacing fixed services.”

"The reality is, fixed broadband is continuing to grow in the US, and not being replaced by mobile broadband as some have reported," said Jason Blackwell, Strategy Analytics director.

Some parsing clearly is called for. Some of us would say we are not aware of any analyst or researcher actually claiming that mobile Internet access is substantially or completely displacing fixed connections in the U.S. market.

Unlike the case with voice services, there has not been widespread substitution of mobile for fixed access, taking the form of customers terminating fixed connections and substituting mobile connections, though there has been speculation about what “could” happen in the future.

But most observers consistently say mobile is not a substitute for fixed Internet access. In fact, some observers only suggest that could happen in the future.

The point is that virtually nobody argues that mobile broadband access “already” displaces any substantial amount of demand in the U.S. market, in the same sense that voice lines have literally been abandoned in favor of mobile voice.

But it would be correct to argue that “both and” was the intermediate stage in the voice replacement process: most people added mobile, but kept fixed line services.

Only over a process of decades did a growing percentage of people actually conclude that keeping a fixed line did not make sense. Several market changes drove the sentiment shift. First, once every adult in a family or household had a mobile subscription, the question of keeping a voice line became a real viable choice.

Also, only after the big change to “unlimited domestic” calling (no long distance charges) did mobile actually become a preferable option to fixed voice, allowing full functionality at lower prices. That process also took some time.

Too, the need to keep a fixed voice line for dial-up access disappeared, as separate high speed access connections became the substitute product for dial-up Internet access.

Nobody argues such a change already has happened in the U.S. Internet access business, only that it could happen, and that platform shifts to 5G networks, millimeter spectrum, virtualized networks and small cells, for example, will make wireless access a functional substitute in the future.

When and if such a transition begins to happen, it is likely to follow the same route as did the shift to mobile voice. In the interim “use both” will be the intermediate stage, since the price per bit and speed comparisons will not be fully equivalent.

Potentially, as more users have experience with both services, and if the packaging makes the products functional substitutes in a speed and usage allowance sense, some users will begin to shift, literally dropping the fixed connection.

Outside the United States and the “developed” world,  the choices are profoundly different.

In developing markets, substitution is a reality, though not in the sense of “replacement of a fixed connection by a mobile connection.”

Because of the unavailability of any fixed connections, most Internet users rely on mobile, not fixed connections.

The point: In virtually all developing nations, mobile is a substitute for fixed line access, as all data on mobile and fixed Internet access show.

source: Ovum

source: ITU

source: ITU

To be sure, the claim that mobile is, or is not, a functional substitute for fixed access becomes a public issue where mergers are proposed, leading market contestants to make one or the other argument. That is polemics, not analysis.

To the extent that Wi-Fi, though an untethered service, is a fixed form of access, not a “mobile” form, the argument is raised by cable operators and others who argue that dense Wi-Fi hotspot networks can underpin a significant part of the network access solution for some mobile operations and business models.

The Strategy Analytics report on U.S. Internet access methods, which points out that “cable operators added 3.3 million new subscribers in the 12 months from April 2015 through March 2016, helping drive total fixed broadband household penetration to nearly 80 percent.”

The study also points out that cable's broadband market share has increased to more than 62 percent.

Perhaps that is context for the assertion that “some” have claimed mobile, in the U.S. market, “already” is a functional and widespread substitute for fixed access.

To my knowledge, virtually nobody ever has made that claim, other than to say one could make that choice, in some instances. One could do so, though relatively few have done so.

Mobile Now is the Leading Media Platform Across Much of Asia

If you are familiar with the traditional indexes of TV usage, measured in hours per day of use, you might be struck by the similar role mobile apps and web access now play.

Across a wide range of countries, daily engagement with mobile apps and web ranges between three and four hours each day, for customers who have access to the Internet from their phones.

In Brazil, engagement is about 4.5 hours each day.

In Malaysia, engagement lasts nearly four hours per day, with users in Thailand, Indonesia and the Philippines not far behind.

In India, daily mobile Internet use occupies nearly 3.5 hours.

Basically, people in many nations now spend more time interacting with mobile online content than they do watching television.

source: Global Web Index

That is one major reason why most observers expect a continued migration of advertiser spending to mobile media. Eventually, advertisers go "where the eyeballs are," or where the consumer attention exists. 

Without question, digital platforms now already has become the dominant media platform in many countries in Asia.

Depending on how one measures usage, mobile engagement is either smaller or larger than time spent watching TV.

Reliance Jio Soft Launches New 4G Service in India

Reliance Jio has begun what we might call a soft launch of its 4G mobile service in India, now selling phones and subscriptions from its website, after a period of employee testing and employee referrals.

Many expect a full commercial launch late in 2016.

The key question, of course, is how Reliance Jio might reshape the Indian mobile market. Some believe Reliance Jio will vault into the top ranks of the market within a few years, perhaps emerging as the number-three provider in the whole market, in terms of installed base.

Analysts at Macquarie Research expect Reliance Jio will gain at least 15 percent market share over four years.  

Macquarie predicts Idea Cellular will lose as much as seven percent of its market share. If that happens, it is likely Reliance Jio will vault into the top ranks of mobile service providers in India, trailing only Bharti Airtel and Vodafone India, while knocking Idea Cellular out of the number-three spot.

Will "Computing" Model Disrupt "Telecommunications" Leadership for the First Time?

Up to this point, the market dynamics of the "telecommunications" business have had a profoundly different pattern from dynamics of the computing industry.

To summarize at a high level, computing has gone through clear eras, with clear shift of market leadership. That, arguably, has not happened in "telecommunications." 

But one has to wonder whether that will remain the case, as the "access" function, and separation of apps from access, begin to morph. Already, in some markets, incumbent market share has dropped by more than half. In a few market segments, incumbents no longer are the leaders. 

In the U.S. market, cable TV providers already are the leading providers of high speed access services, for example. 

Some board members at Microsoft, though happy about Microsoft’s shift to cloud services, worry that the market could shift suddenly. 

Chairman John Thompson, for example, is said to recount what fellow director Chuck Noski, a former chief financial officer of AT&T, has said about the suddenness of technology-driven (and end user value perception) market shifts. 

Noski is said to have “watched the telecom carrier’s traditional wireline business evaporate in just three years as the world shifted to mobile.”

At the same time, one has to be mindful of history. So far, in the history of the computing industry, not one firm that has dominated the industry in one era has retained that leadership in the succeeding era. None.

Apple might be thought an exception, to the extent that it never “lead” the market during the PC era, even though it surged to prominence in the smartphone era.

But even for Apple, the issue is what comes next, in the coming era of computing. 

Historically, we have not seen similarly clear “eras” in the telecommunications business, even if key switch and access technologies have evolved. But one has to wonder--as “access” becomes part of the Internet ecosystem--whether we might see a huge break from the traditional pattern. 

The implications will be painfully clear, if so: tier-one telcos will not be the leaders of the access business in the next era, if the computing model applies. The leaders of every public company always face a huge problem: they must be truthful about prospects for their businesses. 

At the same time, they must protect the equity value of their firms. The two requirements can conflict, especially in rapidly-changing markets.

EU Tries to Balance Disruption, Incumbent Protection

A new EU policy framework document strikes a "balanced" approach to regulating new ride-sharing or lodging-sharing services. That stance suggests regulators think the economic benefits warrant the risk of some economic disruption.

When one sees the phrase “balanced and sustainable” as an approach to regulatory policy, it means policymakers are trying to encourage innovation, while also maintaining some regulations.

A new European Union  document on the “collaborative economy” that underpins ride sharing, room sharing and other forms of what many call “sharing” shows an effort to allow innovation that might harm the interests of established economic interests.

“The success of collaborative platforms are at times challenging for existing market operators and practices,” the EU policy document says, acknowledging the potential for economic damage to existing businesses.

Significantly, the suggested framework calls for what some would call a relative “light touch” to regulations.

That has not always been the approach--in Europe or elsewhere--to new developments in the economy that are potentially disruptive.

All too often, regulators have applied legacy rules to new technologies and business models that have the effect of protecting incumbents and harming challengers.

Application of legacy common carrier rules to over the top voice or messaging services provide clear examples.

“The collaborative economy is part of the digital economy but also overlaps with other economic sectors, mainly those providing services,” a supporting document says. The point is that the new businesses are significant enough in potential size that banning the new business models is deemed unwise.

Collaborative platforms operating in five key sectors of the collaborative economy generated revenues of EUR 3.6 billion in 2015 in the EU.18 In terms of gross revenues flowing to providers and platforms, the EU says.

it is estimated that collaborative platforms facilitated EUR 28 billion of transactions in 2015 in the EU.

The largest collaborative economy sector by revenue is the peer-to-peer transportation sector, which includes ridesharing and carsharing.

The peer-to-peer accommodation sector is the largest on the basis of commerce generated.