Why Telecom and Internet App Cultures are So Different

Those of you who have spent any appreciable amount of time in and around both the telecom and application industries recognize there are cultural differences between practitioners in both types of industries, beyond any differences in age, gender, educational attainment or any of the other “protected class” categories human resources people deal with.

There are good reasons for those differences. The fundamental business models that drive each industry are quite distinct, and in some ways polar opposites. Ubiquitous access and mobile networks are capital intensive and based on use of “scarce” licensed spectrum resources. Internet-based application businesses are asset light and based on abundance (nearly zero costs to product an incremental unit).

And though the direction of change in the access business is towards more abundance, retail access facilities remain relatively expensive and capital intensive, where it comes to scaling operations. “Web scale” providers also have to make heavy capital investments upfront, but the cost of supplying incremental units of supply is quite low.

In fact, it would not be incorrect to say that whole Internet application business model is based on abundance: universal access by anyone, on any device, from anywhere, for any reason, at any time.

In other words, to a great extent, application business models are based on Moore’s Law, and the abundance Moore’s Law brings to computing. As with coding, resources are so abundant (compute cycles and memory) that resources can be “wasted.”

Rarely are access network professionals so casual about “wasting” resources. In fact, much effort goes into finding ways to minimize the need for additional investment in capability.

source: MIT Sloan Review

Cable Dominates U.S. Internet Access at Higher Speeds

One reason a perhaps-growing number of observers believe U.S. cable TV companies will continue to dominate the fixed network internet access market is their domination of accounts sold at higher speeds. In mid-2015, for example, Comcast had about 41 percent share of accounts operating at speeds faster than 50 Mbps. Verizon, along among U.S. telcos, had 11 percent of such accounts. Cable companies as a whole had 88 percent of accounts offering service at 50 Mbps or faster. All telcos collectively had 12 percent share of such accounts.

source: Free Press

What Will New FCC Do?

Though it is hazardous to make too many predictions even before the U.S. Federal Communications Commission is reformed under President Donald Trump, it is safe to presume that a "lighter" touch on regulation  and likely a better chance for merger approvals could be in the offing. Just how much change is possible remains the issue.

Economist Jeff Eisenach and former Sprint Corp. lobbyist Mark Jamison now lead the Trump administration transition team to oversee hiring and policy for the FCC, and both are opponents of robust interpretations of network neutrality.

It is not yet clear how the new FCC will view existing rules such as Title II common carrier rules for internet access services, but it is likely the new Commission will not agree with that framework for internet access.

What is less clear is the type of network neutrality policies the FCC might consider. The present FCC had embraced “strong” forms of neutrality. The next FCC might opt for “modest” forms of neutrality. That might include the “no blocking of lawful apps” stances, or perhaps equal treatment of providers and apps within classes, but not a strict prohibition on optional access services that feature higher quality of service.

It is possible--in fact likely--that “best effort only” access (one functional definition of network neutrality) for consumer internet access would be retained, although various forms of managed services, zero rating and perhaps other packaging practices would be allowed to proceed, as well.

As it is lawful for an application provider to use content delivery services that actually do act to speed the delivery of some packets, but not all, it is possible optional tiers of service that include quality of service mechanisms might be allowed.

Still, the Commission might wait for Congressional direction on that matter.

SIP Market Still Fragmented

A survey of about 560 enterprise or business communications professionals shows that the Session Initiation Protocol market remains fragmented. Some 57 percent of respondents using SIP say they use an MPLS (quality managed) connection, while 50 percent use internet (unmanaged) connections. About 18 percent use a metro Ethernet connection.

That raises a key question. Traditionally, many argue that “managed” access is required to maintain quality or security. It appears that half the users are willingness to take those risks Also, with the coming shift to software-defined connections (SD-WAN), there might be a shift further in the direction of “unmanaged” connections, where more reliance is placed on edge devices to route packets across networks to optimize availability, load, delay and jitter performance.

Avaya (42 percent) and Cisco (37 percent) are the leading IP PBX suppliers.

On a related front, buyers report their suppliers of hosted communications are quite diverse.

U.K. to Fund Up to 2 Million Small Provider High Speed Internet Access Lines?

Even if BT is expected to supply most of the wholesale  fiber to home or “superfast” connections used by retail internet service providers, the U.K. government seems set to award funds to smaller independent ISPs in the next round of funding, representing coverage of perhaps two million households. The funds should amount to £400m.

The Broadband Delivery UK organization, dedicated to funding rural high speed access, already has been funding pilot projects using satellite (Avanti and Satellite Internet) fixed wireless (Airwave, Quickline and AB Internet)and hybrid networks using fiber and fixed wireless (Call Flow and Cybermoor).

Some smaller suppliers, including Gigaclear and Call Flow, already have gotten funding for commercial rollouts.

There are 27 million U.K. households, so the new funding for smaller providers potentially could reach about seven percent of U.K. households. Virgin Media, operating its own facilities, probably has about 20 percent share of the U.K. fixed network internet access market. If other smaller providers are able to reach seven percent of U.K. households, and sign up perhaps half of those locations, then facilities-based fixed network providers might have something in excess of 23.5 percent share of the terrestrial internet access market.

source: Point Topic, 2013 data

source: Financial Times   

Global Telco Revenue Growth and Capex Roughly in Balance in 2016

Global telecom service revenue declined four percent year-over-year in 2015 and likely will grow about one percent in 2016, according to  Stéphane Téral, IHS Markit senior research director, mobile infrastructure and carrier economics. The good news is that revenue growth and capex are roughly in balance, at least on an aggregate global level.

Total global revenue of US$1.93 trillion will be drive by the Asia Pacific region, the world’s single biggest region, followed by North America, he says. Earnings (EBITDA) for smaller telcos often are less than one percent. For tier one telcos, EBITDA can reach 15 percent. Applying the higher 15 percent level produces global EBITDA of something less than $300 billion, compared to capex of about $340 billion.

Global telecom capital investment will be mostly flat in 2016, with significant regional differences.

Low-digit growth in North America, Europe, the Middle East and Africa (EMEA) and the Caribbean and Latin America (CALA) will have been offset by a China-driven decline in the Asia Pacific region.

Asia Pacific, though, has become the world’s largest telecom spender and revenue contributor, says Téral.  

Asia Pacific will drive 42 percent of global spending, while North America stays roughly even, followed by EMEA and CALA.

Global service provider capex will grow 0.7 percent to US$341 billion in 2016, with a significant boost in European fixed network investment.

Spending on every type of hardware equipment except wireless and time-division multiplexing (TDM) voice will grow in 2016. Software, on the other hand, will expand in double digits.

Australian NBN Gets Government Loan to Finish Build

Rare is the major capital construction project that finishes on schedule and on budget. The Australian National Broadband Network (NBN) apparently is not exempt. The NBN is getting a loan of A$19.5 billion ($14.3 billion) to finish up the wholesale access network.

The loan is expected to be repaid upon the planned future privatization of NBN Co after 2020.

The NBN expects to provide wholesale access to 11.9 million premises, and also expects its retail customers to actually connect eight million homes and businesses, generating annual revenue of $5 billion.

The NBN is investing in a number of access platforms, ranging from satellite to fixed wireless, hybrid fiber coax and fiber to home. That is not an unusual choice, as there always is debate about which platforms are sustainable for different customers in different settings.

To be sure, fiber to the home is touted as future proof, and that arguably is true, where the investment is feasible (urban and dense areas). The big problem is that there are many scenarios where that investment is quite risky (lots of competitors, including facilities-based competitors)  or physically impossible (oceans, mountains, very rural areas).

That will not be the key issue for the NBN, which essentially is a monopoly wholesale provider of access capabilities. So take rates should not be a major issue.

Instead, the issue is the level of services consumers decide to buy. Some argue that unless large numbers of consumers choose to buy higher speed services that generate more gross revenue, the business model will suffer.