We Are All Part of the Computing Industry Now

By now, we all are familiar with a set of key business model transitions. Products are becoming services while services are becoming apps.

Jay Fajardo, venture capitalist, Philippines

Manufacturing companies selling elevators or jet engines can move from selling those products once to providing ongoing service, said Chuck Robbins, Cisco CEO. That is an example of the “products become services” trend.

Over the top voice, messaging, audio, video and most other content is an example of the latter “services become apps” trend. Those trends have clear implications for service providers.

In fact, one can say that telecom now is part of the computing industry, and that the computing industry increasingly is about apps and services, not hardware.

Just as clearly, people want Internet access only because they want to use the apps that Internet access enables.

And with big new markets developing in consumer and business domains, just about every stakeholder--from government to service providers to app developers and infrastructure suppliers--is looking for the next big thing.

Right now, the Internet of Things, broadly defined, holds the most promise for app development of interest to ISPs and service providers, just as investors continually look for the next big wave of money-making apps consumers will embrace.

For that reason, for the first time, venture capitalists will speak at Spectrum Futures, to be held 19-21 October, 2016 in Singapore.

Why IoT Matters for Rural Internet Access

Narendra Saini, TEC

Ubiquitous communication networks--including Internet access networks--always have multiple revenue segments, including consumers, small businesses and enterprises. Also, profit margins and revenue potential differ by geography, as well.

Most fixed and mobile operators earn a disproportionate share of revenue and profit from a relatively small number of locations and cell sites, for example.

The top 10 percent of total sites contribute over 30 percent of total revenue, whereas the bottom 50 percent of sites contribute under 10 percent of revenue, a Vodafone report says.

Of the top sites, just 10 percent are in rural areas.

Data revenues also represent a much greater proportion of revenue at the highest earning cell sites than at the lowest earning sites; the top 1,000 sites contribute 37 percent of total data revenues, whereas the bottom 2,000 sites contribute less than one percent of total data revenues.

That illustrates the importance of lower-cost infrastructure to supply communications and Internet access in rural areas. Also key: revenues and profits earned from some customers and areas that effectively subsidize users in other areas.

As always is the case for ubiquitous networks, more-profitable customers and portions of the network subsidize the less-profitable customers and portions of the network. Analysis of individual cell site revenues and costs suggests that around 30 percent of Vodacom’s cell sites would not be profitable on a standalone basis, for example.

That also suggests the importance of potentially big new revenue sources such as Internet of Things. Mobile and other network platforms will require the profit such services provider to business and enterprise customers to generate the surplus that allows more support of rural access facilities that will not generate much net revenue or profit.

Narendra Saini, of the Telecommunication Engineering Center (TEC) India, is among the speakers who will address smart city initiatives and the Internet of Things across South Asia and Southeast Asia at Spectrum Futures, to be held 19-21 October, 2016 in Singapore.

Google Fiber Launches Three Small Business Plans

Google Fiber now offers three classes of service for business customers, with speeds set at 100 Mbps for $70 a month; 250 Mbps for $100 a month and a gigabit for $250 a month, each offering up to 13 static IP addresses, and support teams available 24 hours a day, seven days a week.

Compared to a consumer symmetrical gigabit connection costing $70 a month, the business plans seem priced to support the additional customer service required for customers who might rather routinely be running servers on such connections.

source: Google Fiber

IoT Developers Grow 34% Year over Year

The number of developers currently working on IoT applications has increased 34 percent since 2015 to just over 6.2 million in 2016, according to Evans Data Corp.

In addition, the increase of development for mobile devices, up 14 percent since last year, has led to smartphones being the most commonly connected IoT platform.

For the general developer population, estimates and projections for growth to 2021 show Asia leading--especially in China and India-- with nine hundred thousand more developers than Europe, the Middle East and Africa.

The worldwide  developer population will reach 25 million by 2021 Evans Data also predicts.

The number of developers currently creating mobile applications is estimated at 11.9 million, while the number of developers who target Android first is 5.9 milliion, with 2.8 million developing for  iOS as a first platform.

In Asia, 2.2 million developers target Android first, while in North America iOS is targeted first.

How Competitive is the U.S. Special Access Market?

How competitive is the U.S. special access market? Apparently, more competitive than previously thought. Four of the largest cable providers now report they have 22 times more Ethernet-capable locations than the data on which the Federal Communications Commission based its May 2 further notice of proposed rulemaking.

A Comcast executive, for example, recently argued that the U.S. special access market is “healthy and competitive and the entry of cable companies shows that competition is growing," said David Cohen, Comcast senior EVP. "The government should step back and regulate less.”

Wi-Fi Value is High, Direct Revenue is Not

Even if roughly 70 percent of U.S. mobile consumers say they are interested in Wi-Fi-only data plans, there remains scant evidence that Wi-Fi-only is a big and present segment of the mobility market. Cablevision Systems Corp., for example, launched such a service in its territory, but appears to have found only modest interest.

Wi-Fi carries around 80 percent of mobile data traffic, says Mobile Experts Principal Analyst Joe Madden. He predicts that 90 percent of mobile data will be carried over Wi-Fi and other unlicensed spectrum by 2020.

Such statistics show the nuances of value in the access services space. One might be tempted to suggest that, with that much traffic offloaded to Wi-Fi, much more access revenue “ought” to accrue to Wi-Fi hotspot networks, or the fixed line Internet access services, than to the mobile network.

But, as so often is the case in telecommunications, usage and revenue are different matters. It often happens that usage is indirectly related to revenue. There is a connection, though. The business model impacts, for suppliers of mobile devices, fixed and mobile access services, are quite significant.

For many years, the primary value of a public Wi-Fi hotspot network was the incremental value generated for fixed Internet access services. Likewise, the ability to offload data consumption, as well as the ability to tether a mobile device to Wi-Fi, have been important contributors to the value of specific mobile service plans and devices.

That remains the case. The new issue is how much additional value can be wrung from Wi-Fi, as an access method supporting or replacing mobile access. Wi-Fi-only services have been quite rare. Cablevision Systems Corp. tried that, and will be shutting down its service.

On the other hand, Wi-Fi access, as well as the ability to “roll over” unused mobile data, might be quite important, at the margin, as features attractive to potential “switchers” in the U.S. market.

That is vitally important in any saturated mobile market, as most gains are possible only by taking a customer from another provider. So churn management is more important than ever.

“U.S. operators have ramped up incentives to lure subscribers from competitors and encourage their own to stay longer—their game plans have switched gears from ARPU growth to churn management,” said said Harry Wang, Parks Associates senior director.

Will Sales Channels Shift as a Result of "Product to Service, Service to App" Transition?

Nobody should be surprised if Cisco remains consistent in its belief that business models in technology as well as the broader economy are shifting from “products to services.” Cisco has been saying that for at least a decade or two, and pushing its sales partners towards a “sell services” mentality.

If one believes that the whole “telecommunications” and Internet service provider businesses, as well as the computing business, therefore now are part of the broader Internet ecosystem, there are some important potential implications.

In a broad sense, products become services, and services become apps.

Manufacturing companies selling elevators or jet engines can move from selling those products once to providing ongoing service, said Chuck Robbins, Cisco CEO. That is an example of the “products become services” trend.

Over the top voice, messaging, audio, video and most other content is an example of the latter “services become apps” trend.

The transition from selling products to selling services is an evolution Cisco is itself making, as some 28 percent of Cisco's revenue is now from recurring sources, said Robbins.

As a purely practical matter, business and industry fortunes will hinge, in substantial part, by how well each affected industry segment adapts to either, or both, challenges. Will cloud computing, for example, allow channel partners to “sell computing as a service” to traditional clients, or will online provisioning become so simple that the “sales” function is automated, to a large extent?

How far can suppliers push the “hardware as a service” model, where enterprise or mid-sized businesses rent hardware and services, rather than buying and owning such hardware?

As always, how much incremental value can be added, creating new revenue possibilities?

The existential danger for incumbent service providers, of course, is that the “connectivity role” becomes something akin to the “PC hardware” role. Some might argue that this “dumb pipe” role will be hard to escape, and that the future belongs to access providers able to transition to additional roles within the computing and Internet ecosystem.

At the same time, new possibilities will exist for providers in other parts of the ecosystem to “vertically integrate” access, functionally displacing the incumbent access providers. That might not emerge as the main trend.

Still, the “products become services, services become apps” trends will, at the very least, result in new pressures to realign cost structures, revenue models and ecosystem roles in new ways.

So gross revenue and profit margin pressures on incumbent suppliers are bound to remain in place.

One might speculate that the same business dynamics that have made indirect sales a foundation of computing and communications sales to smaller and mid-size businesses might be extended further.

Tier one providers might retrench in the parts of the business (global and enterprise services) where they have advantages. Suppliers with large enough potential audiences might extend their “content” operations.

On the other hand, specialists might come to play a bigger role in serving the needs of rural and small market customers, much as specialists have been necessary for information technology sales to the mid-market business segments.

The shift to services, and away from products, should actually make it easier to do so, as provisioning, for example, becomes far easier. It is going to be an interesting time.