Nokia Hopes its Future is Software

Execution will matter, but Nokia believes it can create an important new role for itself at the intersection of three big industries: telecom infrastructure; enterprise software;  and webscale, open source, do it yourself software.

It will not be easy, but it is bold. Basically, Nokia hopes a relatively small contributor to present revenue can eventually become a big revenue driver: big enough to offset the hardware business that is going away.

As Nokia explains it, the objective is to “build a strong, standalone software business” that moves the company “beyond our current product-attached software model and create a software business with the margin profile of large software companies, focused on areas including enterprise software and IoT platforms.”

CEO Rajeev Suri believes that suppliers of access services might include traditional telcos, new entrants, big internet companies or governments.

source: Nokia

Will Telcos Ever Again Grow Fixed Network Internet Access Accounts?

It always comes as a bit of a shock when an analyst suggests a core product will never grow again. But that is precisely what Jeffrey Wlodarczak, Pivotal Research CEO, says about U.S. fixed network telco chances to make net additions to their high speed access accounts.

“With cable aggressively ramping their speeds (boosted by the widespread rollout of DOCSIS 3.1 technology [and its promise of widespread 1 gig + download speeds]) it is a reasonable assumption that the telcos may never generate positive net fixed data subscriber growth again," he says.

In fact, U.S. cable companies have been taking market share in the fixed network high speed access market for years. In 2016, for example, U.S. cable TV companies will capture all the net account growth in the internet access market.

That happened in 2015 as well, when cable got all the net growth in high speed access accounts. In fact, cable companies have outgained telcos every year since 2007, in terms of net additions.  

DirecTV Now: Analog Dollars to Digital Quarters

One enduring observation made by content business executives about the gross revenue or profit margin impact of digital content is that companies exchange analog dollars for digital pennies. That might be overstating the problem, but the general direction of the analogy probably continues to be correct.

For AT&T, the biggest provider of linear video in the U.S. market, the new DirecTV Now streaming product will clearly represent much less gross revenue. The gross revenue and profit margin changes is more on the order of digital quarters for analog dollars, though.

Where a linear subscription might generate $118 a month, DirecTV Now might generate about $35 a month in subscription fees. Gross margin for the linear product might be as high as 45 percent, while gross margin for DirecTV Now might be as low as four percent, on subscription revenues, and perhaps as high as 18 percent, after adding in advertising revenues.

chart from Deutsche Bank that shows how DirecTV Now will likely compare to linear TV:

Deutsche Bank

source: Deutsche Bank

Can Hackers Infer Smartphone Key Strokes from Wi-Fi Signals?

A study suggests hackers can infer user keystrokes by analyzing Wii-Fi signals. The ability to estimate keystroke information uses Wi-Fi multipath signal analysis.

Still, most small business owners and managers believe they are safe from hackers.

source: Small Business Trends

Telecom Infrastructure Industry is in a Cyclical Lull; Is it a Secular Trend?

With the caveat that industry trends are one thing and individual company fortunes can diverge from the overall trends, Ericsson now says its total addressable market expected to grow by one to three percent in 2016 from 2018, despite expected decline in mobile infrastructure market by 2 to 6 percent in 2017.

Some softness in the mobile infrastructure market might well be expected, as operators largely complete their 4G upgrades, with a lull until the advent of mass market 5G upgrades.

So it is that Ericsson expects a decline in its networks business, with an addressable market of US$100 billion in 2016, with -2 to zero percent compound annual growth rates.

The information technology and cloud segment represents an addressable market of US$100 billion in 2016, with five percent to seven percent CAGR.

Media represents an addressable market of US$12 billion in 2016, with nine percent to 11 percent CAGR.

Still, networks represents 75 percent of total sales. IT and Cloud produces 20 percent of total net sales. Media drives five percent of sales.

That noted, it is not crazy to argue that markets are shrinking. Mobile and fixed network infrastructure is subject to the same performance-price trends that have affected other IT industries, ranging from PCs to smartphones to servers. Open source and “do it yourself” trends also mean users can create their own products at lower cost than buying from third parties.

Also, upstart providers are taking share, creating pricing pressure on infrastructure prices globally.

U.S. Net Mobile Account Growth Now Driven by IoT

Of the 5.38 million net account additions gained the top-four U.S. mobile service providers, about 1.79 million were of the postpaid smartphone type that are prized by carriers. In other words, about 66 percent of the net account gains were devices of other types, such as tablets, connected cars or machine-to-machine links. Included in that bucket are wholesale accounts, such as net adds by mobile virtual network operators.

One common feature of all those types of connections is lower average revenue per account than smartphones represent.

Note that connected car and IoT accounts represented about 57 percent of the total retail net additions in the third quarter of 2016, vastly more numerous than the 10 percent of tablet adds.

To the extent that MVNOs continue to exist, it is as niche specialists, many serving credit-challenged or language and culture minorities.

source: Chetan Sharma

source: Strategy Analytics

Verizon	AT&T	T-Mobile	Sprint
140,100,000	130,400,000	65,500,000	58,800,000
Operator Brands
	Cricket Wireless	GoSmart Mobile	Boost Mobile
		MetroPCS	Virgin Mobile
America Movil US MVNO Brands 25.7 million subs
Tracfone	Tracfone	Tracfone	Tracfone
Net10	Net10	Net10	Net10
StraighTalk	StraightTalk	StraightTalk	StraightTalk
Page Plus Cellular		Simple Mobile
Total Wireless		Telcel America
Other MVNOs
GreatCall	Consumer Cellular	Consumer Cellular	Republic Wireless
Red Pocket Mobile	H2O Wireless	Ultra Mobile	Ting
Selectel Wireless	Airvoice Wireless	Ting	Credo Mobile
ROK Mobile	Red Pocket Mobile	Lyca Mobile	iWireless (Kroger)
		Red Pocket Mobile	Red Pocket Mobile
		TPO Mobile	TPO Mobile
		Univision Mobile (Ultra)	Kajeet
		Family Mobile	Text Now
		Project Fi	Project Fi

source: MVNO Blog

Quality, Not Just Quantity, is Required for Sustainable Consumer Internet Access

One can argue that ever-increasing capacity expansion, combined with relatively inelastic willingness to pay, pose either a challenge or a crisis for the internet access industry, at least at the tier-one level. Conversely, openings in the market for local, small specialists should increase.

Consultant Martin Geddes always talks about the need to emphasize quality, not just quantity, where it comes to internet access.

“The broadband industry is presently caught in an insane ‘fat pipes’ model that simultaneously fails to deliver predictable and consistent experiences, whilst also wasting huge amounts of capital and thus inflating costs,” he says. “In this model, the central belief is that the job of a network is to create as much data throughput as possible, which is (wrongly) conflated with enabling good user experiences.”

In effect, “quality of experience” issues underlie thinking about network neutrality (outlawing direct measures to improve quality in favor of measures to increase quantity). At the same time, measures that make “experience” possible within a sustainable business model (zero rating, for example) likewise are viewed strictly through a “restraint of trade” lens, ignoring the alternative issues of “experience that also is sustainable.”

In virtually all other product categories and industries, products can be developed and marketed within a framework that includes both price and quality. Consumer internet access often outlaws any dimension but quantity.

Those issues will begin to cause increased friction as the driver of internet access and bandwidth clearly shifts to video entertainment apps.