Telecom is a Tale of 2 Markets Now; Ultimately Just 1 Market

Revenue growth in the global telecom business is a story of two different types of markets. On one hand, service providers are challenged in developed markets, while subscriber and revenue growth mostly happens in “emerging” markets.

Sooner or later, many predict, the end of growth will be a problem for all service providers, in all regions, for the same reasons. Two of the huge revenue drivers--voice and messaging--are in decline, even in emerging markets (in terms of revenue per unit). One of the new revenue drivers--entertainment video--has passed maturity and is set to begin declining. One of the important newer revenue sources--internet access--does not yet face actual revenue decline, but does face rapidly-falling prices per unit sold.

All that means that in addition to hunting for, discovering and creating big new revenue sources, something big will have to happen in infrastructure and operating cost areas. If revenue is challenged, then costs also have to be controlled.

That is why innovation of all sorts is necessary. Virtualized or software-defined networks are part of the answer. Open source is part of the answer. New backhaul and access networks also must be part of the answer.

source: Oracle

Fixed Wireless is Necessary, Getting Much Better

No matter what limitations you presently believe fixed wireless networks suffer from, progress now is proceeding at stunning rates. An order of magnitude increase in spectrum efficiency is one example. An order of magnitude decrease in installation labor provides another example.

To be sure, predictions about wireless access adoption have been wrong in the past. But the promise of high capacity networks costing a fraction of traditional fixed networks especially is important.

Though there is disagreement about fundamental prospects for fixed and mobile network businesses (some still believe the big tier-one providers are dangerous monopolists), there is growing evidence that the ability to wring revenue out of even advanced fixed or mobile networks is challenging.

Stranded assets are one problem. As the number of leading providers in a single market grows, stranded assets also grow. Where, in a monopoly environment a service provider might reasonably hope to reach 80 to 95 percent penetration, in a competitive market, customer adoption rates might only reach 40 percent.

In the next wave of development, it even is possible that mobile networks (operating in both mobile and fixed contexts) will actually begin to take share from all fixed network providers.

Also, all the legacy revenue services are declining, forcing suppliers to create or develop big new revenue sources to replace those lost revenues. That never is easy. Indeed, most observers will tend to agree that big telcos have been fairly poor to awful at such innovation.

It would help if service providers could avail themselves of vastly more efficient network technologies.

source: Tarana Wireless

source: gigaom

source: STL Partners

Autonomous Vehicles and Job Loss

Productivity--the ability to produce more with fewer resource inputs--is important because it is directly linked to a rise in living standards. While that might be true at the macro level (whole economies or countries), it is not automatically true at the micro level (particular workers in particular industries and regions).

So consider the impact of autonomous vehicles, perhaps just one example of a worrisome trend, namely technology-caused job destruction.  

The US Bureau of Labor Statistics estimates that 758,220 people are employed in general freight trucking, with another 493,870 in warehousing and storage, 457,010 as couriers and express delivery drivers, and 337,530 as specialized freight trucking.

Morgan Stanley estimates that the freight industry stands to save $168 billion annually as a result of autonomous vehicle technology, and that $70 billion of that will come from a reduced wage bill.

There are an additional 173,770 school and employee bus drivers, and 180,960 taxi drivers and chauffeurs.

In total, the Transportation and Material Moving Operations section of the US economy accounts for 9.54 million people, with a mean annual wage of $35,160 – accounting for an estimated wage bill of $335.3 billion.

Autonomous vehicle systems could indicate a 50 percent reduction in that wage bill. As always, a “cost” to one participant in an ecosystem is “revenue” to another.

Churn Reduction Often More Valuable Than Direct Revenue

Not many mobile or fixed network service providers are likely to make huge amounts of direct revenue, or profit, from mobile banking services. Instead, value is going to come from indirect mechanisms, such as reducing churn.

The total transaction value of mobile financial services in emerging markets (including domestic money transfers, deposits on loans, insurance products, and savings accounts) will approach $500 billion in 2021, up from an estimated $198 billion in 2016, according to Juniper Research.

The Telenor Suraksha life insurance offer in India, for example, has seen nearly 50 percent of its 45 million user base sign up since its December 2015 launch. That might help with customer acquisition, but it certainly will help with retention.

Decreasing churn by one percent can yield a revenue improvement of 0.6 percent to 0.8 percent, some argue.

So churn reduction might yield more benefit than direct mobile financial services revenue. Retaining a single voice customer in a $7US ARPU market with three percent monthly churn would preserve approximately $250 in lifetime value.

To generate the same amount of revenues from a mobile money user would require the user to conduct transaction value of  $350 every month for three years (the average lifetime of a voice customer) and pay the operator two percent in fees.

Open Source Core Networks?

The CORD Project (Central Office Re-architected as a Datacenter) now says its open source virtualized Evolved Packet Core (EPC), part of the broader 5G M-CORD suite, now is available, building on  the Radisys EPC framework. “Today, with Radisys’ transformative open source EPC contribution, M-CORD is on its way to becoming a completely end-to-end open source platform that will deliver the fundamental value of 5G with economies of scale in the mobile network and accelerated delivery of new services,” said Guru Parulkar, executive director of the Open Networking Foundation and ON.Lab.

Open source core network platforms are the objective of the CORD Project, supported by AT&T, China Unicom, Google, NTT Communications, SK Telecom, and Verizon, Ciena, Cisco, Fujitsu, Intel, NEC, Nokia, Radisys and Samsung.

CORD and its partners also are developing the open M-CORD platform for 5G including open source solutions for programmable Radio Access Network (RAN), disaggregated and virtualized EPC, mobile edge computing, and end-to-end slicing from RAN to EPC, the group says.

CORD intends to bring data center economics and cloud flexibility to the telco Central Office and to the entire access network.

21 Billion Connected "Things" by 2020

Some 6.4 billion connected things will be in use globally in 2016, up 30 percent from 2015. The number of connecting devices will reach 20.8 billion by 2020, according to Gartner.

In 2016, 5.5 million new things will get connected every day, Gartner predicts.

Connecting those IoT devices will support a range of services spending of $235 billion in 2016, up 22 percent from 2015.

Those services are dominated by the design, installation and operation of IoT systems.  Connectivity services and consumer services will grow at a faster pace, however. In 2020, it is possible that some 13.5 billion consumer-facing devices will be connected.

Internet of Things Units Installed Base (Millions of Units)

Category	2014	2015	2016	2020
Consumer	2,277	3,023	4,024	13,509
Business: Cross-Industry	632	815	1,092	4,408
Business: Vertical-Specific	898	1,065	1,276	2,880
Grand Total	3,807	4,902	6,392	20,79

source: Gartner

Internet of Things Endpoint Spending (Billions of Dollars)

Category	2014	2015	2016	2020
Consumer	257	416	546	1,534
Business: Cross-Industry	115	155	201	566
Business: Vertical-Specific	567	612	667	911
Grand Total	939	1,183	1,414	3,010

source: Gartner

Is IoT the Leader of the Next Mobile Product Cycle?

Once upon a time, I did not think voice was a product like any other, with a life cycle. Clearly, I was wrong. International voice, long distance and “calling” all are products with a life cycle. As it turns out, text messaging is a product with a life cycle. So is linear video entertainment. Soon, it will be clear, even mobile data--the recent driver of revenue growth--also is a product with a life cycle.

As with any industry, or any business, facing a maturing set of products, new revenue-generating products have to be discovered or created. And that is why, even if internet of things revenues are small at the moment, they are strategically important.

And, at least so far, it is fairly clear that scale is required to participate extensively in the IoT business. In the U.S. market, AT&T and Verizon dominate IoT revenue streams in the operator space.

AT&T’s connected car reached the 10 million connected vehicles milestone in the third quarter of 2016, the first mobile operator to do so, argues Chetan Sharma. AT&T reached that milestone in less than 12 quarters, compared to the 25 quarters it took for tablet connections to reach the same level.

For 2016 through the third quarter, non-phone net account additions represented about 71 percent of all such account adds, with vehicles and IoT dominating.

Verizon’s IoT and telematics revenue rose 25 percent, year over year, in the third quarter of 2016, to reach $217 million of revenue, close to an annual run rate of about $1 billion.

Service provider IoT revenue passed the $1 billion mark in 2013, roughly tracking revenue growth for mobile data. Few likely believe that can continue, as IoT is about solutions, not simple connectivity, and not as direct a value as “mobile access to internet apps.” Also, IoT is industry-specific, and therefore a “vertical” sales opportunity, rather than a horizontal “every firm needs this” opportunity, for the most part.

source: Chetan Sharma