There's a Reason You Don't Hear Specifics About Gigabit Take Rates

Back in the days when cable TV operators first were rolling out consumer Internet access at speeds of 100 Mbps, it was virtually impossible to get subscriber numbers from any of the providers, largely because take rates were low.

In the United Kingdom, then planning on upgrading consumer Internet access speeds to “superfast” 30 Mbps, officials complained about low demand. In fact, demand for 40 Mbps was less than expected.

In 2010, for example, about 40 percent of U.S. consumers were buying Internet access at about 6 Mbps.   

It is possible the same remains true for gigabit access services. No Internet service provider of any size actually releases the number of accounts, though most are happy to cite cities and neighborhoods served, or homes able to buy the service (passings).

Those are significant indicators, but still do not address the question of how many customers actually buy.  

Early in 2016, Paul de Sa, Bernstein Research equity analyst, predicted Google Fiber would reach roughly 2.4 million homes by the end of 2017.

MoffettNathanson at roughly the same time predicted that AT&T would reach 5 million "customer locations" by the end of 2017. CenturyLink estimated in late 2015 that it would have 700,000 households passed by gigabit access networks in operation by the end of 2015.

Comcast, for its part, plans to upgrade 100 percent of its consumer base to gigabit access over the next few years.

The issue will still remain the take rates.

CenturyLink executives, for example, have said that gigabit marketing primarily drives new sales of accounts buying 20 Mbps or 40 Mbps service.

It is clear that price matters. When Internet service providers drop the price enough to create a really-compelling value-price offer, consumers respond.

If ISPs do not readily announce the number of gigabit accounts they have in service, it likely is because relatively few consumers are buying those services.

Municipal gigabit access provider NextLIght expects a take rate of about 37 percent after five years, selling gigabit service at a charter rate of $50 a month ($100 a month is the standard rate).

Based on experience from other markets, NextLight will have the best chance to reach those adoption goals if it sells at the $50 price, not the the $100 price.

New Special Access Rules Could Lower Frontier Revenue Modestly

Lower price caps for special access services (“business data services”) will be the result of proposed Federal Communications Commission rules. The moves will mean lower prices for enterprises and service providers who do not own fixed network assets, and lower revenues for firms with such assets.

AT&T will suffer the most, with Verizon, CenturyLink and Frontier Communications also losing revenue.

The proposed rules call for a one-time downward adjustment of 11 percent, phased in over three years, beginning in July 2017 (three percent in year one, four percent in year two, and four percent in year three).

As always, there are trade-offs. Enterprises will get rate relief. But lower investment in new facilities will happen, says Zacks Equity Research.

Though Frontier Communications once argued the FCC rules would not affect its revenue, Frontier now estimates the rules, if implemented on July 1, 2017, will have a revenue impact of approximately $10 million in 2017, $20 million in 2018 and 2019, with subsequent annual impacts declining after that.

Some estimate the rules will reduce overall industry revenue by $1.6 billion or so, per year.

The Communications Workers of America also anticipates lower investment and lower revenue will mean lost jobs as well.

Perhaps the biggest long-term impact will be felt by cable TV operators who supply such services, as the new rules appear to bring the cable TV industry into the framework for the first time.

The FCC has received confidential information on service provider revenues, without releasing that information, so it is difficult to predict precisely how much revenue might be affected the proposed rules, beyond what Frontier estimates.

source: Bloomberg

Workplace Launches Facebook into Enterprise Collaboration

Workplace by Facebook, its enterprise tool for companies that allows workers to chat and collaborate with each other. Aside from the move into the enterprise collaboration space, Workplace is a subscription service, not an ad-suported service, representing a new business model for the product.

Available at no cost to educational or non-profit entities, Workplace is priced per user, based on the number of users at an organization, with fees ranging from $3 a month for entities with up to 1,000 active users, to $1 a month for entities with 10,001 users or more.

Workplace by Facebook started life as the internal system used by Facebook employees to share information relevant to their projects.

One of Workplace by Facebook’s core differentiators is the fact that it works well on smartphones and other mobile devices.

249 Billion Euros ($277 Billion) Needed to Deliver Fixed Network Gigabit in EU, Study Suggests

As you would guess, a study of gigabit Internet access costs, conducted by Analysys Mason for the European Community, suggests targeted enterprise connections cost the least of the fixed access alternatives, while ubiquitous fixed network gigabit networks cost most.

Ubiquitous 50-Mbps mobile access costs less than any fixed method, though not providing the same amount of bandwidth. That assessment could change over time.

Analysys Mason expects that by 2025, it will be possible for 1-Gbps peak speed to be provided from the macro cell network, with average speed around 180 Mbps.

The study authors note that other alternatives, including fixed wireless, cable TV technology and satellite will be capable of delivering gigabit speeds by 2025.

Still, Analysys Mason was asked to model only the “enterprise” deployment, mass market gigabit access (functionally limited to fiber to home or node) and mobile connectivity.

Fixed wireless, satellite and hybrid fiber coax were not modeled. Some of us might argue that might be reasonable for many of the European Community nations, if not necessarily the model that will develop on other regions.

source: European Commission

source: European Commission

Webscale Telcos?

Moving “up the stack” will be necessary and possible for the webscale global giants. Beyond some limited scenarios, smaller providers will lack the scale to create viable new application or services.

That implies rather significant consolidation. It might also mean significant service provider failures.

Few tier-one service providers recover cost of capital, studies have found. That is one way of suggesting that capital borrowed to provide telecom services actually does not make enough money to repay the loans.

That has clear strategy implications. Only a handful of firms will credibly have a shot at remaining among the 10 or so global providers. For as many as 100 other firms, strategy will consist in remaining the best-possible local partner.

Industry or firm strategy in a new or growing market is fundamentally different from strategy in a declining market. You can draw your own conclusions about which fundamental paradigm is most relevant.

But some conclusions are simple enough. In a young, growing industry, a firm or industry wants to grab new customers as fast as possible. In a declining industry, a firm or industry wants to limit the rate of decline.

Firms in young industries need to focus on growth within the new business. Firms in declining industries must harvest revenue while they search for new businesses to create.

Beyond those key frameworks, the range of potential strategies has increased, compared to options 100 years ago, when telecom was universally a regulated monopoly.

One clear outcome of a massive global wave of asset privatization, deregulation and the shift to Internet as the framework for applications is that service providers are becoming more different from each other, as firms are free to pursue a nearly unlimited number of paths.

So there now likely is no universal “best” strategy for any telco, tier-one, regional or local. Nor, it might appear, will most service providers emerge as major suppliers of new apps and services.

How Many Service Providers Can Escape "Dumb Pipe" Status?

One universally hears service provider executives arguing they want to avoid becoming “dumb pipe” connectivity providers. What is not so clear is how many service provider entities will actually be able to do so in a significant way.

For many--perhaps most--suppliers, being an efficient dumb pipe provider is possibly the only viable path forward. The problem is that most proposed new services and applications require scale.

Whether it is entertainment video, mobile banking and payments, connected car, connected health or other Internet of Things apps, viable suppliers must achieve scale. Almost by definition, most smaller providers will be unable to do so.

That will mean an industry dominated by 10 global service providers, some predict. Those handful of firms can become branded suppliers of applications. Smaller providers will struggle to reduce costs enough to remain viable primarily as suppliers of access services.

In other words, the advice to “move up the stack” will be viable for a relative handful of firms. Most service providers will focus primarily on access. In the Internet era, that means being suppliers of “dumb pipe” Internet access.

Moving “up the stack” will be necessary and possible for the webscale global giants. Beyond some limited scenarios, smaller providers will lack the scale to create viable new application or services.

Reliance Jio Gets 16 Million Mobile Accounts in a Month

Reliance Jio Infocomm has signed up 16 million customers (net new accounts) in its first month of full commercial operations since September 2016.

Reliance Jio has been offering free services for free to anyone signing up before the end of the year, including four gigabytes (4 GB) of free 4G data each day, as well as unlimited voice calls until December 31, 2016.

Customers will begin paying for data charges in 2017 but domestic voice calls will continue to be free.

Also, subscriber identification modules (SIMs) are being given away for free to customers of the 4G-only new service. So the issue for Jio is how many of its customers will stay with Jio once the free data period ends.

There already are more than one billion mobile subscribers in India, so Jio potentially has gotten something like 1.6 percent market share, assuming it attracted no “mobile for the first time” accounts, and only shifted demand from the other existing carriers.

Observers are watching to see how much market share Reliance Jio will take in the first year and first few years after that. Some believe Reliance Jio will get about 10 percent to 12 percent mobile subscriber share over three to four years.