Peak PC in 2011, Peak Fixed Network Connections in 2000 or 2001

Fixed network connections in the United States peaked around 2000. It now appears that sales of PCs peaked in 2011.

In Access Business, Demand Won't Change Very Much; Supply Will. You Know What That Means

In addition to the possible issues (lower value, commodity status) caused by business model inversion, telco service providers also face further disruption on a range of other fronts.

We can assume high levels of competition for all current and future products and services that drive revenue, from traditional sources (other service providers) and new contestants (over the top app substitutes).

What comes next is likely additional forms of competition from non-traditional places, something that arguably can be seen in recent and expected developments in areas ranging from fifth generation (5G) standards to use of millimeter wave frequencies, use of unlicensed and shared spectrum, as well as moves to create more open source access platforms (Facebook OpenCellular, unmanned aerial vehicles, Google Project Loon).

Where in the past it was fairly easy to figure out “who the competition is,” it will be less easy to categorize in the future. Developments such as “network slicing,” for example, will allow app and service providers to buy attributes of networks that are optimized for the particular applications and business models those providers wish to offer.

In a functional sense, network slicing is a form of “wholesale access” to network features. It allows any enterprise or app provider to bundle network access and features with services and apps that drive the revenue model.

Spectrum sharing and unlicensed spectrum, plus new access platforms likewise represent new ways for all sorts of business models combining apps, services and then network access.

As all disputes over spectrum policy are rooted in perceived business advantage, so too are debates over shared spectrum and unlicensed spectrum.

That is normal. What is atypical is the vast potential amount of new spectrum to be made available in many markets, plus the unprecedented effort to create open source models and therefore costs across data center and now access platforms.

To some extent, all ISPs and access providers will benefit from lower platform costs. But that’s the rub: the same shift to lower costs that helps incumbents also enables new potential roles for attackers.

“Dumb pipe” poses the same sort of contradictory implications. On one hand, dumb pipe Internet access now drives revenue growth for mobile and fixed service providers alike, as traditional revenues earned from voice and messaging fall.

On the other hand, such commoditized access does not necessarily drive the same level of profits as the former managed services once did (though there is room for true argument on that score, at least for the moment).

The longer-term strategic issue is simply that there will be so much new spectrum, available at potentially lower costs, plus advances in access network platforms, that new competitors are expected. Adding more supply, in any market, has clear impact on demand. Just as clearly, lots of new supply has predictable impact on profits.

It is hard to see how the access business can avoid further commoditization.

Telco Business Models are Inverting

Telco, mobile and cable TV business models are becoming inverted. Traditionally, revenue was earned by consumers using apps and services, though there always has been some “access to the network” revenue as well.

The inversion has everything to do with “dumb pipe” business models.

Perhaps transfer payments to support rural access are the purest forms of “access to the network” revenues (flat fee providing ability to use the network for local calling, for example), while international or other long distance services traditionally were the purest form of “use the application” revenues (usage).

Traditionally, cable and satellite TV providers have earned zero revenue from access, bundling the cost of network assets and operation into the overall price of a content subscription.

In business customer markets, data services have been a mix of apps and access, as frame relay, ATM and MPLS for example, arguably are services, while a T1 or DS3 line might have been an access service.

But all that started to change with the advent of Internet access as a driving, and arguably dominant driver of entity revenues.

That is, after all, the primary meaning of network neutrality: consumer Internet access is defined as a “dumb pipe” service, with no class of service differentiation and no value add from quality of service assurances.

Where providers earned most of their money when users bought and used “voice minutes,” or sent text messages, the future will be based on customers consuming Internet access gigabytes.

But note the key differences. Voice and texting, plus MPLS, frame relay and ATM, are “services” using the network. Simple consumer connections to the Internet represent “network access,” with no assumptions or bundling of apps using that access. You get access to third party apps you want to use; all you are buying from the Internet service provider is the access to the Internet and its resources.

So the business issue is clear enough. App providers represent the value of the Internet. ISPs provide the means to get to, and use, those apps. When network neutrality rules are in place, the ISP, legally, is a “dumb pipe,” by design.

That explains, simply enough, why access providers are working to create new owned value-added services using their networks. Doing so creates application revenue, in addition to access revenues.

The issue is not “vertical integration” on a wide scale, as that simply is not possible. What might be possible is creation and ownership of a few applications owned by the access provider. That model is akin to cable TV providers owning programming networks: you own some of the content you deliver to customers.

Globally, 27 percent of consumers currently receive some form of value added service from their mobile operator, a study conducted by KAE on behalf of Nokia suggests.  

Such services include over the top messaging services,  streaming content, security services, cloud storage, handset insurance, or offers of free or discounted services (cinema tickets, music or video subscriptions).

Value-added services are more prominent in transition markets 34 percent of consumers in transition markets currently receive value-added services, the study suggests.

The growing provision of value-added services is largely driven by markets such as Turkey and Mexico, where 43 percent and 42 percent of consumers respectively claim to receive them.

In comparison, just 25 percent of consumers in mature markets receive value-added services. This trend is driven by markets such as the UK and Japan, where only 18 percent of consumers receive value-added services.

Business model inversion (app to access) already is happening. What remains unknown is the degree to which the process can be reversed. To what extent can primacy of access revenue revert to the older model (access to app)?

That is what Verizon is attempting with its mobile advertising and content efforts (AOL), what AT&T has done with DirecTV, and what both are attempting with Internet of Things or connected car services.

But here’s the strategic issue: under what conditions might the revenue model flip, with “access” services  less than half of total revenue?

Ironically, as mobile or fixed network operator revenues move from reliance on voice, messaging and content to “Internet access,” they also invert their business models, moving from being application providers to becoming access providers.

In India, where voice still drives 80 percent of total revenue, most of that process remains ahead, as mobile Internet access revenues will drive revenue growth.

But that’s the conundrum: to grow revenues means to emphasize the dumb pipe access role, not the former applications-lead revenue model.

What do App Developers Need to Know about Working with ISPs?

Shrinith V, consultant and Google Developer Expert

Telecom now is part of the computing industry, and that the computing industry increasingly is about apps and services, not hardware. Also, since “access” and “apps” are structurally separated, access providers are providers of dumb pipe services (that is what network neutrality is all about).

That means applications and services can be developed by anyone, and any company, without owning access pipes and facilities.

Just as clearly, that means most service providers now realize they must “move up the stack,” in some way, and own at least some of the applications delivered over their access facilities.

Not every app provider will want to partner with telcos or ISPs. There is no inherent reason why that must be done. Some app and service developers will want to partner, for their own commercial reasons.

But how does an app developer create a service that will get traction, and also be valuable to an ISP partner? How is the “go to market” strategy shaped and conditioned by the partnership strategy.

And what should developers know about working with ISPs? Those are some of the major issues to be discussed by speakers at Spectrum Futures.

Shrinath V, consultant and Google Developer Expert is among speakers at Spectrum Futures who will address the way app developers get commercial traction and “go to market.” The event will be held 19-21 October, 2016 in Singapore.

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