Wednesday, June 22, 2016

In Every Ecosystem, One Segment's Cost is Another Segment's Revenue

Ecosystems always are contentious, since one segment’s revenue is another segment’s cost.
We saw an obvious example of that when Verizon’s fixed network workers went on strike for higher wages and benefits.

We see the conflict often when various parties argue about rights to use spectrum; whether spectrum can be shared; whether spectrum should be available license exempt, or not; whether zero rating should be allowed.

We also will see that principle in action as the Indian government auctions a prodigious amount of mobile spectrum--as much as 2300 MHz-- later in 2016. Consider that the whole Indian mobile industry presently uses between 200 MHz and 300 MHz of spectrum. So the upcoming auction represents an order of magnitude (10 times) increase in spectrum.  

To put that into perspective, the potential spectrum rights could cost more than double the industry's gross revenue and more than 20 times the annual free cash flow of the entire mobile industry.

The expected spectrum payments also represent a sum four times higher than the last auction.

Shockingly, projected spectrum payments in this one auction could represent a sum as high as twice as much spending as in all prior mobile spectrum auctions put together.

So there you have a clear example of ecosystem tension because one segment’s revenue is another segment’s cost. The Indian government thinks it could raise a sum representing as much as 25 percent of the government’s total annual revenues.  

Some analysts would note that India already has some of the highest costs in the world, where it comes to spectrum rights.

In the end, all costs, everywhere in the full ecosystem, are paid by other parts of the ecosystem, with all ultimate costs borne by end users and consumers, or parties subsidizing use of ecosystem products (advertisers, for example).

Uber Requires Smartphones; Airbnb Arguably Does Not

It is probably not too early to speculate that smartphones now have been around long enough that people see new ways to leverage the technology. More accurately, people are coming to understand how apps, running on smartphones that people always have with them, are creating new possibilities.

Without smartphones, it is unlikely that Uber and other ridesharing services would be feasible. Airbnb likely would be conceivable, even without smartphones. But that obviously raises a question: in what other spheres of economic activity might smartphone-based apps be used to bring latent resources to market?

Let us be clear. People using smartphones to comparison shop, while they are out and about, and then ordering online, already is changing the face of retailing. But Uber is more profound than that.

What Uber did was revolutionize our thinking about the real-time use of assets that mostly lie fallow, even more than Airbnb did. Airbnb allows people to bring latent lodging assets to market, though not necessarily as a smartphone-essential function.

Uber really does require the ubiquity of smartphones to really demonstrate value. So the only question is what other areas of life have latent resources not brought to market because of friction, including the lack of a marketplace to monetize those assets.

Uber could not function without smartphones. Airbnb arguably can do so. So which potential spheres of economic life are smartphone-dependent, where it comes to commercializing latent assets that are underused?

Tuesday, June 21, 2016

"Impossible to Predict" How Consumers Will React to a Truly New Product, AWS Head Says

"What we've learned over time at Amazon, is that very often at the beginning of something really different and really new, it's impossible to predict how customers are going to react to the offering," says Andy Jassy, Amazon Web Services CEO.

That's why Amazon, as a company, doesn't focus on the first wave of feedback to any product,

Few firms have enough financial depth, or patience, to do so. But that approach resembles what Apple used to do, under Steve Jobs. Famously, Jobs believed consumers could not really judge whether they would like a new product they never had experienced, so market research was useless.

Access Providers Literally Cannot Own and Control IoT, So Partner

If current forecasts are correct, it literally will be impossible for access providers to dominate or control the broad Internet of Things business.

That might suggest it makes more sense to invest in stakes throughout the rest of the ecosystem--partnering, in other words--rather than staking everything on owning and controlling sizable portions of the value chain.

The Internet of Things, in all its forms--has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025, according to an analysis by McKinsey Global Institute. The biggest segments might well be industrial automation, smart cities and health apps.

At the top end, that level of value—including the consumer surplus—would be equivalent to about 11 percent of the world economy.

With the caveat that today’s access providers likely always will earn a majority of their revenue providing access services of various types (mobile, fixed, Internet access, Wi-Fi hotspot access,
Ethernet and other high-bandwidth connections), the key to future revenue is likely going to come from providing managed apps and services, as always has been the case.

That statement should be unremarkable, except for the fundamental change in business model since the advent of the Internet and IP communications.

In the past, one might have argued that most revenue came from selling apps (voice and messaging), and relatively less from “data access” connections (dumb pipe T-1, DS3 and so forth).

Even data access services such as frame relay, MPLS and ATM essentially were managed services, or “apps.”

These days, as apps are structurally separated from access, legacy communications providers are earning less revenue from fully-owned apps and lots more from data access (dumb pipe).

So the issue is how the revenue model might evolve over the next decade or two. Broadly speaking, it is clear that dumb pipe access and apps now are separate parts of the revenue stream. So the big question is how access providers can create viable and useful roles for themselves in the app part of the business.

Entertainment video is an early example of diversification. Other telco forays into new revenue sources have not been nearly that successful. Oddly enough, it is cable TV operators who have developed a model that should work for telcos, if telcos can create both the right internal mindset and consistently show a willingness to “make money without owning everything.”

The emphasis there is “making money,” not “owning everything.” All too often, new service initiatives seem to fail because the approach is too heavy handed and too controlling.

There is another approach, which is to “own some, but not all” of the apps used by consumers and end users of access services. No cable operator ever expects to own all or most of the relevant content being consumed by its video subscribers. But, where possible, it makes sense to own a few of those networks.

Some take matters even further. Liberty Global fully owns some assets--especially its access assets. But where it comes to app and content providers, owning parts of those operations, letting them run autonomously, and then participating in the equity upside, is a proven model.

The implications for former incumbent telcos, as their legacy revenue sources dwindle, is to cultivate a new approach based on maximizing total financial return, not return from internal branded services and assets.

In other words, owning--but not controlling assets--might provide a surer path to financial well being than controlling all the assets. To be sure, some mix of fully owned and minority investor models will likely be the path taken by most who can do so.

But the model of “owning access, but investing in apps” might be the most-logical way to create new asset value and revenue over the long term, compared to a strict “we own everything” model.

In that regard, the Internet of Things seems a promising area where partnerships, especially those where the access provider mostly has an ownership interest, but does not control IoT services and apps, seem logical.

For starters, there are simply too many market segments for a monolithic approach to work, too much domain knowledge required.

So even if “access” remains an obvious revenue generator, the volume of revenue still will lie in the apps. Better to own a small piece of that part of the business, than try and “own and control” very much of it.

Connectivity seems destined to a be a sliver of the total IoT market revenue.



By some estimates, there already are between six and 14 billion autonomous connected devices or “Things” that are connected via some form of communication mechanism, not including smartphones, tablets, computers and similar consumer devices. By way of comparison, there might be seven billion connected consumer devices in use today, including phones, PCs, tablets, TVs, game players and so forth.

As you might guess, the further out one goes, the more current estimates diverge. The number of connected devices by 2020 ranges between 18 billion and 50 billion devices. Some of us would argue the issue is not the number of devices in use, but the timeframe.

We will probably see less deployment up to 2020, then much more development after 2030.


A Towel is about the Most Massively Useful Thing an Interstellar Hitchhiker Can Have

“A towel is about the most massively useful thing an interstellar hitchhiker can have.” That line from the Hitchhiker’s Guide to the Galaxy illustrates well our perceptions of “technology.”

As author Douglas Adams, author of the The Hitchhiker’s Guide to the Galaxy,  once said, “I've come up with a set of rules that describe our reactions to technologies,” said Douglas Adams,

“Anything that is in the world when you’re born is normal and ordinary and is just a natural part of the way the world works. Anything that's invented between when you’re fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it. Anything invented after you're thirty-five is against the natural order of things.”

For Millennials, towels are not technology. Neither are computers, the Internet or smartphones. For Boomers, all that stuff often remains “technology.”

Monday, June 20, 2016

Is There a Spectrum Crunch, or is There Spectrum Abundance? Yes and Yes

According to Cisco, mobile data traffic has grown 4,000-fold over the past 10 years and almost 400-million-fold over the past 15 years, while global mobile data traffic will increase nearly eight-fold between 2015 and 2020 alone.

So service providers always complain about the “spectrum crunch” that threatens to derail progress on the communications front.

On the other hand, many critics of the present spectrum allocation process say there actually is plenty of unused spectrum that could be put to use if we were smarter, and used new tools to allow use of fallow spectrum that already has been licensed.

In that view, hoarding of spectrum to prevent its use--intended or unintentional--is as big a problem as the total amount of usable communications spectrum.

The “unity of opposites” here is that both arguments are correct: there is a lack of available spectrum, as demand for communications soars, and “more” is needed.

On the other hand, there is plenty of available spectrum within the already-allocated 30 MHz to 3 GHz bands, if we could efficiently share its use, while protecting the existing license holders.

One way or the other, the simple answer for the capacity crunch is “more spectrum.”

Since most spectrum useful for communications--from 30 MHz up to about 3,000 MHz--already is allocated, spectrum sharing is the answer to gaining use of huge amounts of spectrum already licensed to existing users.

But spectrum sharing also is the key to efficient use of new spectrum in the millimeter bands (3 GHz up to 300 GHz). The notion is “use it or share it,” rather than the ability to squat on resources that nobody else can use, even if the licensee is not making any use, or only light use, of a resource.

In one important sense, spectrum sharing introduces a market mechanism for spectrum use that is efficient, and encourages licensees not to hoard valuable assets, but put them to work.

The traditional exclusive licensing of spectrum on an “exclusive right to use” basis  is inefficient. In fact, some policy advocates claim that as much as 95 percent of licensed spectrum is not used. Those claims appear to be based on a 2005 National Science Foundation study.  

Other studies of U.S. spectrum use between 30 MHz and 3 GHz did not always find that degree of fallow bandwidth, but the point is that much spectrum is not used much, most of the time.

That, plus the expected incremental demand for mobile and wireless communications, is driving innovations in network architecture (small cells), radio technology, mobile traffic offload, new spectrum (millimeter waves) and spectrum sharing.

All of that suggests the importance of two broad strategies: making better use of spectrum that is available, but lightly used, and opening up non-traditional bands of spectrum that traditionally have been very hard to use for commercial purposes.

And advancements in computing technology driven by Moore’s Law now are crucial to that effort. Simply, cheap and powerful computing makes possible lower-cost sharing of spectrum, as well as commercial use of millimeter waves (above 3 GHz and below 300 GHz) that have been too expensive and too difficult to use, in the past.

In the former case, sophisticated and cheap computing means we can allocate access in real time, in ways that literally were not possible in the past.

In the latter case, we also intentionally can design access systems, using those same techniques that allow robust sharing of resources among a number of potential users.

But just as important is the application of processing power to improve the usefulness of millimeter wave frequencies that are distance-limited (signals do not go so far) and signal propagation limited (signals cannot go through solid objects).

At the same time, the use of small cell networks helps overcome both distance and line-of-sight limitations. Better radio techniques also allow us to “bend” signals around solid objects and recover signals that have become weak or scattered.

“More spectrum” arguably is the single most important issue in communications. But spectrum sharing arguably is the most important tool for securing that needed spectrum.

As you would guess, incumbent service providers, including mobile and satellite firms, oppose sharing, while others, especially app providers, support spectrum sharing. But it seems inevitable that spectrum sharing, following the model of the 3.5 GHz Citizens Broadband Radio Service band, will be proposed.

The proposed CBRS service would use a three-tier access rights system, reserving priority access for existing licensed users, but allowing licensed secondary rights for commercial users where the primary licensee is not using the spectrum, with best effort licensing for other devices and services (on the model of Wi-Fi).

Spectrum (communications capacity) is a complicated matter. On one hand, there never seems to be enough spectrum to handle ever-growing numbers of users, the growing number of connected devices and higher-bandwidth applications such as full-motion video.


According to Cisco, mobile data traffic has grown 4,000-fold over the past 10 years and almost 400-million-fold over the past 15 years, while global mobile data traffic will increase nearly eight-fold between 2015 and 2020 alone.

So service providers always complain about the “spectrum crunch” that threatens to derail progress on the communications front.

On the other hand, many critics of the present spectrum allocation process say there actually is plenty of unused spectrum that could be put to use if we were smarter, and used new tools to allow use of fallow spectrum that already has been licensed.
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About Spectrum Futures
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In that view, hoarding of spectrum to prevent its use--intended or unintentional--is as big a problem as the total amount of usable communications spectrum.

The “unity of opposites” here is that both arguments are correct: there is a lack of available spectrum, as demand for communications soars, and “more” is needed.

On the other hand, there is plenty of available spectrum within the already-allocated 30 MHz to 3 GHz bands, if we could efficiently share its use, while protecting the existing license holders.

One way or the other, the simple answer for the capacity crunch is “more spectrum.”

Since most spectrum useful for communications--from 30 MHz up to about 3,000 MHz--already is allocated, spectrum sharing is the answer to gaining use of huge amounts of spectrum already licensed to existing users.

But spectrum sharing also is the key to efficient use of new spectrum in the millimeter bands (3 GHz up to 300 GHz). The notion is “use it or share it,” rather than the ability to squat on resources that nobody else can use, even if the licensee is not making any use, or only light use, of a resource.

In one important sense, spectrum sharing introduces a market mechanism for spectrum use that is efficient, and encourages licensees not to hoard valuable assets, but put them to work.

The traditional exclusive licensing of spectrum on an “exclusive right to use” basis  is inefficient. In fact, some policy advocates claim that as much as 95 percent of licensed spectrum is not used. Those claims appear to be based on a 2005 National Science Foundation study.  

Other studies of U.S. spectrum use between 30 MHz and 3 GHz did not always find that degree of fallow bandwidth, but the point is that much spectrum is not used much, most of the time.

That, plus the expected incremental demand for mobile and wireless communications, is driving innovations in network architecture (small cells), radio technology, mobile traffic offload, new spectrum (millimeter waves) and spectrum sharing.

All of that suggests the importance of two broad strategies: making better use of spectrum that is available, but lightly used, and opening up non-traditional bands of spectrum that traditionally have been very hard to use for commercial purposes.

And advancements in computing technology driven by Moore’s Law now are crucial to that effort. Simply, cheap and powerful computing makes possible lower-cost sharing of spectrum, as well as commercial use of millimeter waves (above 3 GHz and below 300 GHz) that have been too expensive and too difficult to use, in the past.

In the former case, sophisticated and cheap computing means we can allocate access in real time, in ways that literally were not possible in the past.

In the latter case, we also intentionally can design access systems, using those same techniques that allow robust sharing of resources among a number of potential users.

But just as important is the application of processing power to improve the usefulness of millimeter wave frequencies that are distance-limited (signals do not go so far) and signal propagation limited (signals cannot go through solid objects).

At the same time, the use of small cell networks helps overcome both distance and line-of-sight limitations. Better radio techniques also allow us to “bend” signals around solid objects and recover signals that have become weak or scattered.

“More spectrum” arguably is the single most important issue in communications. But spectrum sharing arguably is the most important tool for securing that needed spectrum.


14,000 MHz More Unlicensed Spectrum? Yes, Says FCC

The  Federal Communications Commission expects to vote July 14, 2016 on a proposal to free up frequencies above 24 GHz for 5G applications. The Notice of Proposed Rulemaking is prodigious, involving new “flexible use service rules” (spectrum sharing in licensed bands) in the 28 GHz, 37 GHz, 39 GHz, and 64 GHz to 71 GHz frequency ranges.

Part of the plan apparently will call for allocating “Our plan proposes making a massive 14,000 more megaHertiz of unlicensed band,” says Federal Communications Commission Chairman Tom Wheeler.

Compare that to the 100 MHz allocated in the United States for Wi-Fi at 2.4 GHz frequencies, and the 150 MHz allocated in the United States for Wi-Fi at 5.8 GHz frequencies. THe FCC is proposing to release two orders of magnitude (100 times) more unlicensed communications spectrum than presently is available to support Wi-Fi.
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About Spectrum Futures

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Directv-Dish Merger Fails

Directv’’s termination of its deal to merge with EchoStar, apparently because EchoStar bondholders did not approve, means EchoStar continue...