Will Higher Bandwidth and Data Consumption be Matched by Revenue?

Internet access prices always fall, over time, history suggests, just as the cost of computing or storage falls, over time. Since 1998, to note just one example, internet transit prices have fallen by four orders of magnitude. In the retail internet access  business, it also is possible to predict that prices are poised to fall further. That has been true, globally, since at least 2010, according to International Telecommunications Union figures.

The issue: what are the implications for the service provider business model. In the voice business, lower prices lead to higher usage, so lower price-per-unit was offset, to a large extent, by higher consumption.

That also is true of internet access services. As prices fall, consumption increases. But there arguably is a difference. Supplying voice services required some tweaks and some investment, but not wholesale upgrading of the networks on a continual basis. And that is precisely what internet access historically has required.

So the fundamental problem is not that unit prices fall, or that demand fails to increase, but that the supply increases faster than revenue at the new levels of consumption, while investment likewise has to grow substantially to support the new levels of consumption.

In simple terms, usage grows faster than revenue, while investment requirements also remain high. That is a crucial problem for legacy service providers with legacy cost structures, less a problem for new providers without such cost burdens.

Even Google Fiber seems not to have had as much success as expected. Cable TV operators have fared far better.

source: strategyand

http://drpeering.net/white-papers/Internet-Transit-Pricing-Historical-And-Projected.php

Virtually all studies of U.S. residential internet access services show declining “cost per megabit per second” trends, nearly matching the pricing and performance trends one would expect from any business driven by Moore’s Law.

Such radical revenue-per-unit declines arguably must be accompanied by other moves to reduce the cost of supplying bandwidth.

And that is precisely the challenge to be faced by many service providers.

Surprised that Gigabit and Competition Lead to Lower Prices for Legacy Products?

Would you be surprised--at all--if a study of internet access pricing finds that competition leads to lower costs? Would you be surprised if a study finds that new services and new competitors offering products sold at higher prices--but higher potential value--lead to lower prices?

Would you be surprised if new competitors, offering better value, for lower prices, take market share away from providers offering “inferior” products at higher prices than the new products?

Probably the only statement that might find even a bit of disagreement is that new products sold at higher prices lead to lower prices for legacy services.

“Broadband Competition Helps to Drive Lower Prices and Faster Download Speeds for U.S. Residential Consumers” is the title of a study by Dan Mahoney, associate, and Greg Rafert, VP of the Analysis Group. The study finds that when a new gigabit service is offered in a market, prices for slower speed offers decline.

The study of high speed internet access pricing by the Analysis Group was funded by the Fiber to Home Council.

“The presence of gigabit service in a Designated Market Area (“DMA”) is associated with a $27 per month decrease in the average monthly price of broadband plans with speeds greater than 100 Mbps and less than 1 Gbps,” the study says. “This is equal to a reduction of approximately 25 percent of the monthly standard price.”

In an area with two gigabit access providers, “we estimate that the standard monthly price for gigabit internet will decline by approximately $57 to $62, which is equal to a reduction in price of between 34 and 37 percent.”

When gigabit internet is available, prices of “slower” speed services also decline. The authors estimate that prices for plans of 25 Mbps, but less than a gigabit, drop about $13 to $18 a month, representing a cost decline of about 14 percent to 19 percent.

None of those developments should be surprising. Competition tends to lead to lower prices, which is why policymakers and lawmakers often prefer it, why studies of markets with new competition often confirm the dynamics and why it is possible to note that new competition--lead by gigabit offers--tends to reduce prices of existing access services.

Perhaps the basic point is simply that competition leads to lower prices across the board. Nor should be surprising that new offers lead to lower prices for legacy offers. As the launch of the latest model of a smartphone leads to lower prices for the model being replaced, so a new “lead” offer offering more value will tend to devalue legacy offers offering what now is “less value.”

5G Apps Might Require Order of Magnitude to 100 Times More Mobile Bandwidth

Even if relatively few industry professionals think “speed” will be a key use case for 5G, it probably is useful to understand what speeds are expected to needed. Of some 800 industry professionals polled about 5G by Telecoms.com, though there was no clear consensus, the range of 5G speeds expected to be required ranged from less than 100 Mbps (10 percent of responses) up to greater than 2 Gbps (15 percent of respondents).

Some 25 percent of respondents guessed apps would require 500 Mbps to 1 Gbps.

For networks that have in the past struggled to supply 50 Mbps to every device, most of the time, that is a big stretch.

5G Really is "Build it and They Will Come"

Though it always is possible that 800 industry professionals polled about 5G by Telecoms.com, on behalf of Mitel, are wrong, the consensus is that 5G will be in commercial operation, on a substantial basis, by 2020 (some doubt--or perhaps hope--that will happen). Fully 86 percent of respondents estimated that 5G will be in operation by 2020, with 21 percent believing that would happen in 2018, and 30 percent estimating commercial 5G operations by 2019.

And despite notable improvements in internet access speed, massive support for consumer internet of things is expected to be the key use case, 43 percent of respondents said. Another 39 percent suggested industrial IoT would be the most important use case.

Perhaps ironically, some 46 percent also believe that the industry has not yet figured out “what to do” with 5G.

Some 19 percent of respondents said increased download speed was a key use case, and another 19 percent suggested low latency would be an important use case.

At least so far, there is significant sentiment that what will make 5G so different from all other earlier generations of mobile networks is the role of new applications, use cases, revenue and business models, not sheer increases in speed.

That might seem a huge risk, with huge amounts of capital essentially being invested in “hope” that key new revenue sources will develop.

That is not unusual. The same uncertainty--or hope--was present when 3G and 4G networks were launched. Rarely have industry professionals accurately predicted what important new apps would develop, or how revenue upside would be created.

Some 85 percent of respondents agreed that “5G will be defined by its use-cases and what the end-user requires of it.” In fact, about 75 percent of respondents acknowledged that a “build it and they will come” approach will also drive 5G development.

What arguably is new is the business context within which 5G will be deployed.  “It is a generally accepted belief that operators are in need of updating their revenue streams to ensure they stay relevant in an age of competing communications providers in the form of OTT players or rival IoT network suppliers such as Sigfox,” the report notes.

In other words, such high hopes are pinned on IoT apps enabled by 5G because, if that does not happen, tier one service providers are going to encounter even-worse trouble with their business models.

Will History Repeat for IoT Platforms?

One of the recurring themes in the communications and computing businesses is the deployment trajectory of new platforms.

And there are two big contradictory trends. More common in the computing or application sphere is the winner take all ” shape of new markets. That might not always imply that the “first mover” is the eventual winner, simply that outcomes now seem uneven or unequal. Somehow, in most app markets, scale is grabbed disproportionately by one firm, as in the tendency for the market leader to have market share as high as 90 percent.

The access or communication business never has behaved that way. Instead, communications markets tend to develop into oligopoly structures (two dominant providers), though many markets seem to have a total of three to five providers, albeit with markedly-different shares of market.

The question is what tends to happen when new platforms or technologies develop. And in that area, there arguably have been some similarities between computing and communications, at least in pre-internet eras. At least historically, the first mover has not necessarily risen to dominate a market. That can be seen in personal computer operating systems and mobile operating systems.

We now will see how platforms for Internet of Things communications will develop. As often happens, early contenders have stolen a march on traditional mobile platforms (LoRaWAN and others). But mobile operators are developing rival solutions based on existing 4G platforms, for example (narrowband LTE and others).

One possible path of development is that dedicated IoT platforms gain early share, but that leadership eventually is captured by incumbents. Early in the development of digital subscriber line (DSL), the market was pioneered by upstarts (Rhythms, Covad, NorthPoint). It is too early to predict how the variety of platforms will fare, as the IoT market develops.

Will Fiber to Home Really be a Viable Option for Much of South, SE Asia in the Coming 5G Era?

Countries across South Asia and Southeast Asia need to make big investments in fixed network infrastructure, a new report by the International Telecommunications Union suggests.

In fact, the white paper suggests, it now is time to put the emphasis on fixed access networks, not the mobile networks that have, to this point, brought voice and moderate-speed internet access to people across much of the region.

To be sure, the paper tends to focus on backbone and “fiber to cell tower” investment, less clearly on ubiquitous fiber to the home. “The overall growth in broadband use (both mobile and fixed) significantly increases the requirements for backbone and backhaul bandwidth,” the report says.

But the report also hedges, one chart suggesting that fiber to the home, fiber to the node and 5G all serve the same segments of the market. Some of us also would argue that some other obvious platforms are not mentioned in the report. Hybrid fiber coax and fixed wireless, for example, are absent.

The report suggests that the APAC8 nations (Bangladesh, Cambodia, Laos, Myanmar, Sri Lanka, Thailand and Vietnam) that are the focus of the white paper may benefit from a “leap to fiber” platforms. One presumes that means more than optical backbones and fiber to the cell tower.

That might, in some ways, be a curious conclusion, given the high cost of fiber to home networks, in the South Asia and Southeast Asia markets, as well as elsewhere. Perhaps the ITU has various forms of platform sharing and wholesale in mind, for it does not seem as though facilities-based competition in the fixed network segment of the market will prove financially viable.

Much could ultimately depend on the adoption of 5G platforms. It is at least conceivable that multiple facilities-based mobile platforms, able to operate as fixed wireless platforms as well, will close a market opportunity for fixed networks, for much of the potential access market.

source: ITU  

source: ITU  

Different Quarter, Same Story: Cable Gets All the Net High Speed Access Account Gains

It is not yet clear whether U.S. tier-one telcos actually can reverse the cable operator domination of high speed access services.

"Over the past year, cable companies added more than 3.5 million broadband subscribers, accounting for 118 percent of the 2.995 million net broadband additions," said Bruce Leichtman, Leichtman Research Group president. Telco providers have had net broadband losses in five of the past six quarters.

In the first three quarters of 2016, cable companies added about 2,440,000 broadband subscribers, while telcos lost about 475,000 subscribers

Cable companies represented all of the net account growth in the third quarter of 2016 as well.

Broadband Internet	Subscribers at End of 3Q 2016	Net Adds in 3Q 2016
Cable Companies
Comcast	24,316,000	329,000
Charter	22,202,000	387,000
Altice	4,122,000	17,000
Mediacom	1,145,000	17,000
WOW (WideOpenWest)*	728,400	2,700
Cable ONE	510,573	2,256
Other Major Private Company**	4,765,000	20,000
Total Top Cable	57,788,973	774,956
Phone Companies
AT&T	15,618,000	(23,000)
Verizon	7,038,000	24,000
CenturyLink	5,950,000	(40,000)
Frontier^	4,404,000	(99,000)
Windstream	1,063,000	(12,800)
FairPoint	309,547	(1,893)
Cincinnati Bell	299,800	3,100
Total Top Phone Companies	34,682,347	(149,593)
Total Broadband	92,471,320	625,563

Source: Leichtman Research Group