5G Seen as "Game Changer" by Wide Range of Mobile-Using Industries

source: Ericsson

The headlines about 5G networks are about speed: data rates up to two orders of magnitude faster than 4G (100 times) or supported data volume three orders of magnitude higher than 4G (1,000 times).

But network latency also will be five times lower. And battery life of remote cellular devices is expected to reach 10 years or more.

source: Ericsson

The big story is potential impact for many industries. In a recent survey, Ericsson  found that executives in a wide range of industries expect serious disruption of their businesses from machine-to-machine communications, cloud-based apps and mobile networks.

Just as significantly, executives believe next-generation mobile platforms provide strategic advantage. Some 99 percent of respondents in public safety believe that will be the case, while 98 percent of respondents in health care believe next-generation mobile platforms will provide strategic advantage.

Some 94 percent of financial services respondents, 92 percent of media or gaming respondents, 94 percent of high-technology manufacturing executives and 90 percent of automotive industry respondents believe strategic value will be gained.

Though executives might be wrong about those perceptions, they clearly believe there is big upside, as well as new competition, on the way.

In fact, 87 percent of all respondents believe next-generation mobile networks will be “game changers.”

“Industries that will benefit the most from 5G are those that connect something in the physical world to the internet in order to create innovative products or services, provide a better customer experience, increase efficiency, or improve safety,” Ericsson believes.

Take Rates Still Key for FTTH, Fixed Wireless Business Models

Among the biggest changes in modern fixed network economics is the assumption of competition, rather than monopoly. That shift from “I serve all potential customers” to “I serve a fraction of potential customers” radically offers the business model.

In a monopoly model, the business model is based on revenue generated from most locations (80 percent to 95 percent adoption, in the U.S. market, for example).

In a competitive model, revenue is generated from as few as 20 percent of locations (for single services), up to perhaps 40 percent of locations (locations taking at least one service).

That strands a majority of outside plant assets.

Though estimates vary by area, $1,500 per passing is a reasonable estimate for U.S. distribution plant costs, including network elements, but excluding drop cabling and customer premises equipment, for a gigabit access network.

That amortization of “per-passing” network costs is recouped only from paying customers. And that is where it gets tricky. Assuming 35-percent take rates, revenue is generated from a bit more than a third of passings.

So amortization of the outside plant network essentially involves a per-customer cost of roughly $4286.

Those costs are the “common” elements. But there are incremental costs incurred on a per-customer basis.

Cost per customer depends on take rates, as some capital is invested only to turn up a paying customer.

Drop costs and customer premises equipment are incremental, installed only for active customers, but $455 might be a reasonable estimate for active customer CPE and install costs, which vary based on what specific services the customer is buying.

Also, CPE might vary based on other details of the customer’s usage (single TV decoder or multiple decoders, for example).

It is difficult to project future fixed wireless network costs, based on use of new millimeter wave unlicensed or licensed spectrum, or shared spectrum, in urban settings using small cells, simply because such networks have never been built.

Nor have traditional fixed wireless networks been designed for gigabit speeds. But better antenna technology is being developed to support small cell networks that support those bandwidth targets, and accommodate use of millimeter wave technology.

What is not clear is the degree to which fixed wireless might be a more-affordable way to build gigabit networks, instead of using fiber to the home.

In addition to the construction costs, customer behavior can be an issue. Traditionally, smaller independent competitors have found that acquiring customers has often proven more difficult than anticipated.

It is hard to say how big brand names will fare, should fixed wireless become a major platform.

Acquisitions Drove Most Telco Growth Since 2000

source: Deloitte University Press

Looking only at markets in the United States, Canada, France, Germany, Spain, UK, Italy, Singapore and Taiwan, researchers at STL Partners have estimated core revenue losses of 25 percent to 46 percent between 2012 and 2018, potentially.

In other words, to stay where they already are, in terms of revenue, service providers will need to create between 25 percent and 46 percent more new revenue over the six-year period. Big acquisitions are almost certain to be part of the answer.

AT&T’s acquisition of DirecTV, for example, instantly made AT&T one of the biggest providers of video entertainment in the U.S. market, and changed its revenue profile by about $7 billion per quarter, or potentially $30 billion annually.

It would have been virtually impossible to add that much revenue, so fast, by any organic means.

source: Deloitte University Press

In similar fashion, Verizon spent $130 billion to buy the minority stake in Verizon Wireless owned by Vodafone, boosting annual revenue by about $22 billion.

Still, even that will not be enough, long term. Voice, messaging and linear entertainment video already are flat or declining.

Eventually even Internet access revenues will stall, then decline, at some point. Long term, big new revenue sources must be found.

source: Telco 2.0

Near Term, Telcos Need Acquisitions to Grow Revenues Fast

source: Telco 2.0

Looking only at markets in the United States, Canada, France, Germany, Spain, UK, Italy, Singapore and Taiwan, researchers at STL Partners have estimated core revenue losses of 25 percent to 46 percent between 2012 and 2018, potentially.

In other words, to stay where they already are, in terms of revenue, service providers will need to create between 25 percent and 46 percent more new revenue over the six-year period. Big acquisitions are almost certain to be part of the answer.

AT&T’s acquisition of DirecTV, for example, instantly made AT&T one of the biggest providers of video entertainment in the U.S. market, and changed its revenue profile by about $7 billion per quarter, or potentially $30 billion annually.

It would have been virtually impossible to add that much revenue, so fast, by any organic means.

In similar fashion, Verizon spent $130 billion to buy the minority stake in Verizon Wireless owned by Vodafone, boosting annual revenue by about $22 billion.

Still, even that will not be enough, long term. Voice, messaging and linear entertainment video already are flat or declining.

Eventually even Internet access revenues will stall, then decline, at some point. Long term, big new revenue sources must be found.

Telcos Need to Place Big Bets

source: Infonetics

It is not yet clear how well some tier-one service providers will fare, as providers of enabling services

for business partners. It is clear that many observers believe future revenue sources will depend more on partner relationships and services than telco-created apps and services.

Some might argue that voice, Internet access, messaging, wholesale and enterprise services are the “core,” while virtually everything else must be developed.

Those pressures arguably are most intense in the European markets, where virtually every legacy service has declining revenues.

source: Ali Saghaeian

If global telecom revenues were about $2.2 trillion in 2015, and one assumes that half of that revenue from legacy sources will be lost over 10 years, then new services will have to grow by $1.1 trillion over that same decade simply to replace lost current revenues.

source: Telco 2.0

For the largest global service providers, that implies discovery and creation of huge new markets. For NTT, some $70 billion in annual revenue has to be found. AT&T would  need to discover $65 billion, Verizon perhaps $59 billion, Telefonica $40 billion, Deutsche Telekom $38 billion.

In some cases, a significant portion of the gain could come from acquired firms in new geographies. Still, with all legacy services in decline, or destined to decline, that strategy is a short term solution only.

One might be skeptical about Verizon’s prospects in mobile advertising, for example, or AT&T’s move into entertainment video. Whether IoT winds up being as big a revenue driver for mobile companies as some anticipate also is open to question.

What is not open to question is that mobile firms need to make big bets on replacement revenue sources, as difficult as it might be. The largest mobile firms will need to create new businesses and revenue streams worth scores of billions.

Smartphone Infection Rate Up 96%

The smartphone infection rate averaged 0.49 percent in the first half of 2016, according to Nokia, up about 96 percent from the 0.25 percent experienced in the second half of 2015.

The infection rate rose steadily in the early months of 2016, reaching a new high of 1.06 percent of devices in April.

Smartphone infections accounted for 78 percent of the infections detected in the mobile network, while 22 percent are related to Windows/PC systems connected using dongles or tethered through phones.

In April 2016, 0.82 percent of smartphone devices exhibited signs of malware infection.

The overall monthly infection rate in residential fixed broadband networks averaged 12 percent in the first half of 2016. This is up from 11 percent in late 2015.

source: Nokia

Mobile Apps are More than Half of All Media Consumption

comScore

Smartphone apps now account for more than half of all Americans’ time spent online, according to comScore. That provides some insight into the primary role mobile devices now play in the content ecosystem.

But that fact also might illustrate one more way the “open Internet” is being reshaped, as well as illustrating why “open” continues to compete with “closed” as an approach to Internet-related devices, apps and services.

In fact, some might argue that “open” is not always the “best” approach. One downside of “open” Android is fragmentation, compared to the closed, walled garden approach taken by Apple.

And it is very hard to argue that consumers are worse off when they have convenient access to “walled gardens” such as Free Basics. In fact, even critics must concede that consumers are better off when they have access to such “walled gardens” because free-to-use Internet access is available.

The same argument applies for many other types of sponsored usage. Consumers often benefit from offers that are bounded or customized, rather than “open.”

comScore

Some might argue that a world dominated by apps is more a “walled garden” than a world where web pages are the way most people use Internet content and apps.

Some nations ban some apps. That’s one angle. But should consumers be prevented from choosing products they prefer, even if more “closed” or “packaged” than might otherwise be the case?

Choice itself always leads to winners and losers. We might rightly object to external constraints on “choice,” such as application bans. It is harder to object to consumer choice. And sometimes that choice is for a more “closed” approach.