Wednesday, August 17, 2016

Role of the Fixed Network is Backhaul, it Seems

"Over the past year, cable companies have added about 3.5 million broadband subscribers, while telcos have had net losses of about 500,000 broadband subscribers," says Bruce Leichtman, Leichtman Research Group president.

One has to wonder whether that is a sign of coming structural change in the fixed network markets.

For some time, it has been clear that the role of the fixed network is changing. Specifically, it can be argued that the primary strategic value of the fixed network is its role as the backhaul mechanism for wireless, untethered and mobile services.

Wi-Fi offload of mobile device data traffic provides one example. The universal use of Wi-Fi as the in-building distribution system for fixed Internet access and much voice traffic provide other examples.

The use of cable TV, telco and other Internet service provider distribution networks to support backhaul of traffic from coming small cells provider yet other examples.

In other words, it might be argued that the primary function of the fixed network is to act as the backhaul for untethered traffic and apps.

But the shift of market share also might mean a historic shift in the structure of fixed network communications markets, where policymakers always seem to begin their work with a perspective on “dominant” providers in any market.

Traditionally, it has been the legacy telcos that were viewed as the sole “dominant” providers. But the functional definition of “competition” in any market is that the former leader loses lots of market share. And telcos have seen that happen.

Looking strictly at fixed network services, cable companies now are the market share leaders in the foundation Internet access service, seem to have about a third of the voice market share, and remain ahead in video entertainment account share.

So in two of three anchor services, including the “growth” business of Internet access and the “revenue volume” leader of entertainment video, cable is the leader.

With cable’s success in the small business market now complemented by serious efforts to gain share in the mid-market and enterprise segments, we should expect to see further share losses by telcos, with cable gains, in those segments as well.

To be sure, in 2014 telcos still had about 85 percent business market share. But everyone expects cable to keep gaining share in the business market segment.

Eventually, cable is going to get into the mobile business as well, and virtually all observers believe cable will take share in that market as well.

At some point, assuming legacy telcos can hang on to leadership of the mobile segments of the business, we will have to assume that in the fixed networks business, cable is the leader, not the telcos. All our assumptions about regulatory policy will by then be quite outdated.

U.S. Internet Access Subscribers, 2nd Quarter 2016
Firms
Subscribers
Net Adds
Cable Companies


Comcast
23,987,000
220,000
Charter*
21,815,000
277,000
Altice**
4,105,000
24,000
Mediacom
1,128,000
14,000
WOW (WideOpenWest)
725,700
3,400
Cable ONE
508,317
(107)
Other private firms
4,745,000
15,000
Total Top Cable
57,014,017
553,293



Phone Companies


AT&T
15,641,000
(123,000)
Verizon
7,014,000
(83,000)
CenturyLink
5,990,000
(66,000)
Frontier^
4,552,000
(77,000)
Windstream
1,075,800
(16,200)
FairPoint
311,440
117
Cincinnati Bell
296,700
4,300
Total Top Phone Companies
34,880,940
(360,783)



Total Broadband
91,894,957
192,510

Tuesday, August 16, 2016

Stranded Assets Always are a Legitimate Reason for Shuttering a Network

Somewhat curiously, as much as many policy advocates want the fastest-possible transition to all-fiber or other equivalent networks, some also seem to want preservation of old copper networks, even when mandating use of those older networks delays the transition to advanced, next-generation facilities. Some seemingly argue that copper is better.

As always, the business model seems the issue. During every network transition, some specific business interests are helped or harmed.

So it is that sellers of high-capacity services want to move as quickly as possible to next generation services, while many buyers of lower-capacity services want to keep buying those services as long as possible, and at lower prices if they can get them.

The problem with legacy networks is that they get more expensive to operate almost in direct proportion to the speed with which customers abandon them. We call that the stranded assets problem: assets deployed that produce no revenue.

That might not be a critical problem when stranded assets are less than 40 percent of total facilities. Beyond that, survival becomes an issue, as borrowed capital spent on those assets cannot be repaid.

That is a growing problem for Incumbent telcos, which have been losing lines since 2001, for example.


The issue is where the trend extends. The US Telecom association estimated in 2014 that telcos would have 18 percent market share in 2015.

Others suggest that could mean as few as 20 million voice lines left out of an original base of 188.5 million lines. That essentially represents stranded assets of nearly 90 percent.

A rational executive would argue that a service provider cannot sustain a whole network when stranded assets are that high.



That stranded assets problem could be a serious issue globally.


At some point, shutting down legacy networks makes sense, if stranded assets become too high a percentage of total deployed capital. 

Ford To Sell Autonomous Vehicles in 2021: IoT Analogy for Mobile Applies

Ford has announced its intent to sell a high-volume, fully autonomous vehicle in 2021.


That big stake in the ground comes with an equally big caveat: the vehicle will only be sold to operators or ride-hailing or ride-sharing services, and not to consumers.


There is a bit of an analogy to the mobile services business. Today, mobile services are sold to human beings, for use by human beings.


Tomorrow, sales will be to operators of industrial and other businesses, to support machine communications. Today, users are “people.” Tomorrow, users will be “sensors, computers and other machines.”,


Today, Ford sells autos to people, to be driven by people. Tomorrow, Ford will sell to businesses that sell transportation to people, but the vehicles themselves will be the drivers.


That is a big change. Today, mobile and auto products are sold directly to end users, for their own use, or to entities that use cars as part of their business processes (auto rental companies, trucking fleets).


Tomorrow, Ford will sell autonomous vehicles only to entities that provide transportation services, and “drive people around.”


To a greater extent in the mobile and communications businesses, but in Ford’s autonomous vehicle business, buyers might not change as much as “users.” Buyers will still be individuals or enterprises.


But users will be sensors, machines and servers.


We have seen such impact before. Fixed network services were sold for use to places. Mobile phones are sold to people, not places. There are many more people than places.


Likewise, autonomous vehicles and Internet of Things devices are much more potentially numerous than either places or people.

As mobility has meant many more potential units to be sold, so will IoT.

Access Network Costs are Going to Fall

Core communications infrastructure costs have improved over several decades, meaning it now costs less to deploy a modern, Internet Protocol based application, access or transport network.

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.

Different network architectures, physical media, lower cost computing and storage, open source code, virtualized networks and Internet Protocol itself have contributed.

But greater cost reductions are expected. One new initiative, the “Telecom Infra 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.

Telecom Infra Project  members will work together to contribute designs in three areas including  access, backhaul, and core and management.

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.

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.

Telecom Infra Project was inspired, in large part, by Facebook’s Open Compute Project (OCP), which created open standards--and hence lower costs--for data centers.

“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.

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 bottom line is that access costs are going to fall.

Will U.S. Cable TV Industry Also Need to Replace 1/2 Current Revenue Over Next 10 Years?

The most-recent SNL Kagan analysis of cable TV industry revenues predicts cable TV revenues will decline by $2.7 billion over a decade.

But SNL Kagan also predicts the cable industry will also generate $11 billion in new residential broadband revenues.

There is room to question the SNL Kagan optimism on linear video. The product could decline much faster than that. But the substitution of new Internet access revenues for former video revenues illustrates an important point about service provider revenues.

It is becoming something of a rule that leading service providers must replace about half their revenue every decade or so. Assume SNL Kagan is about half right. That could mean video losses of perhaps $5.7 billion, and Internet access gains of about $5.5 billion.

That would be almost a one-for-one revenue substitution.

Total residential video revenue for Comcast, Charter Communications and other American cable operators is projected to fall from $57.7 billion in 2016 to $55.0 billion annually in 2026, declining at a compound annual growth rate of 0.5 percent over the next 10 years, according to SNL Kagan.

Some observers think that is far too modest a projection, as second quarter losses in 2016 would suggest a decline as high as three percent on an annual basis. Granted, the second quarter is the toughest reporting period of the year. Still, the point is that SNL Kagan arguably is being much too optimistic about linear video losses.

Basic video subscriptions are projected to drop from about 53 million today to 45.4 million by 2026.

Internet access subscribers, on the other hand, could grow as much as 13 percent, SNL Kagan estimates.

Remember When 10 Mbps was Really Fast?

AT&T has launched its GigaPower gigabit Internet access service in the Sacramento market, in parts of Placer County (Roseville, Rocklin, Lincoln, and their surrounding communities).

These communities are in addition to the parts of the Bay Area where we initially launched service in 2015, and expanded in parts of Fresno, Clovis, and other areas of the Central Valley in June.

That is notable in some ways because the Roseville market was one of the first in the United to get fiber to the home services from SureWest Communications, formerly Roseville Telephone Company, back in 2002.

It might seem quaint now, but back then SureWest was selling access at 10 Mbps over its fiber to home network. It was symmetrical, but at 10 Mbps. With Comcast and AT&T both upgrading to a gigabit in the Sacramento region, the former SureWest offer no longer is so unique, or so fast.

Monday, August 15, 2016

How Many Telco Voice Lines Will be Left by about 2018?

How many telco fixed network voice lines will still be in use by about 2018? Not too many, industry associations and the Federal Communications Commission tend to suggest. Some have in the past forecast as few as 20 million total residential voice lines sold by telcos by about 2018.

That does not necessarily mean only 20 million lines will be in service, but that the number sold by former telcos could well be that low.

It is easier to note that “peak voice” happened around 2000, and that lines have been falling ever since.



Content Does Not Monetize Itself: Others in the Value Chain are Necessary

Businesses virtually never take positions that undermine or threaten their own interests. So how does Cloudflare benefit from its new emphas...