Will Connected Car be the "Next Big Thing?"

The broad trend in the information technology business, and for many consumer products, is that more value is generated from services rather than the core products. That is likely going to be true in the auto business as well, with revenues and profits shifting from hardware (cars) to software, from products (vehicles and accessories) to services.

Mobility services, though perhaps shrinking as a percentage of total ecosystem revenues, might well increase as a percentage of ecosystem profits. That is one reason some tier-one mobile operators are so focused on connected car services.

For AT&T and Verizon, the carrot is that the United States is expected to be the single largest connected car market in 2022.

source: pwc

source: pwc

source: pwc

Softbank OneWeb Investment Poses Challenges in Every Rural Market

Softbank’s big investment in OneWeb, taking a 40-percent stake for $1.2 billion, almost assures that the proposed low earth orbit satellite constellation will launch. There are some other direct and potential consequences, especially a change in the business models of some or all other existing internet service providers.

The revenue model for fixed networks has been getting worse for decades, as customers for voice desert, leading to a stranded asset problem that worsens. Also, in most parts of the world, most people get internet access using their mobile phones, not the fixed network.

In the United States, internet access has become a product segment dominated by cable TV companies. Video entertainment always has been a tough business for smaller cable operators or telcos, as they do not have the scale required to drive costs out of the business. And linear TV is, by every estimate, mature and declining.

You might think OneWeb, which plans to blanket every inch of the earth’s surface with internet connectivity, is of primary value in developing, rural or maritime settings. That might be true.

But it also is true that OneWeb also further erodes the business model for rural telcos, cable TV companies, fixed wireless operators and satellite internet firms alike. OneWeb might partner with, or compete with, mobile operators as well, rendering their existing platforms increasingly uneconomic.

For similar reasons, OneWeb might pose challenges for municipally-owned networks as well, providing another option and therefore shrinking the addressable market for a municipal internet operation. You might think that is an issue only in rural areas of developing countries. OneWeb makes clear it is an issue for potential customers in all rural areas.

OneWeb says it plans to market its service both to “rural areas across the United States and emerging markets.”

Even if one argues that 5G networks will not soon provide gigabit speeds to rural users--if ever--one must conclude that if OneWeb launches, it will immediately “overbuild” all rural areas of the United States and elsewhere, offering a new alternative to fixed and geostationary satellite, as well as fixed wireless access.

It remains unclear whether mobile operators will choose to partner with OneWeb, but the OneWeb terminals support LTE, 3G, 2G and Wifi, so the opportunity is there. It is conceivable that OneWeb becomes a wholesale partner for mobile operators, much as it is possible the Project Loon balloon fleet could become a wholesale partner for mobile companies across the United States, as Alphabet has been attempting in Asia, for example.

The point is that OneWeb further undermines the business model, in rural areas, for virtually all other internet access providers, with the possible exception of mobile operators. It also is true that some existing providers might also seek wholesale partnerships with OneWeb as well. The issue there is scale. If multiple suppliers buy wholesale access from OneWeb, what does that do for the existing assets (fixed telephone networks, cable TV networks, geostationary satellite services, fixed wireless, mobile networks)?

What Seems to Have Been Key Business Model Issue for Google Fiber?

To the extent that Google Fiber has found its business model unattractive, the issue remains “why?” Any number of issues could have been contributors, ranging from take rates to construction cost. But take rates are the most-likely source of trouble for the business model, both for the core internet access product and video services.

Expectations for Google Fiber once were much higher. A 2013 survey found that about a third of households had subscribed . A 2014 survey commissioned by Bernstein Research conducted a door-to-door survey of five Kansas City neighborhoods where Google Fiber was being sold, finding  take rates as high as 75 percent, in some neighborhoods.

In Wornall Homestead, the highest household median income neighborhood ($116,000 annual income) Bernstein surveyed in 2014, it found that 83.1 percent of respondents were taking Google Fiber service. About 15 percent were subscribing for the “no charge” 5-Mbps service, but all the rest were buying the gigabit service.

That is a historically-unprecedented take rate for an “overbuilder.” In the Community College, the neighborhood with the lowest median income neighborhood ($24,000 annually) 27 percent of respondents were taking Google Fiber service.

Some 26 percent actually bought the gigabit service, while seven percent subscribed for the “free” 5-Mbps service. That level of adoption, in the first year, would be in line with take rates seen when firms such as Verizon began offering FiOS, for example, and better than most overbuilders

have achieved in the first year.

Obviously such take rates were not widely replicated in other markets and neighborhoods. In fact, it appears take rates might have reached 20 percent in Kansas City, but far less than that in the additional markets Google Fiber entered. That is based on the assumption that

Assume Google Fiber had about 70,000 to 75,000 video subscribers by the end of 2016. Then assume those video accounts represented about 15 percent of total revenue-generating accounts.

That might imply that as many as 467,000 revenue-generating accounts, and perhaps 70,000 “free” accounts in service, for a total of 537,000 accounts in service. Some have estimated Google Fiber has about 450,000 internet access subscribers, for example.

At a 20-percent take rate, that implies Google Fiber passes some 2.68 million homes. Varying assumptions about video take rates as a percentage of total, one could derive paid accounts ranging from 318,000 to 638,000, or homes passed between 1.6 million and 3.2 million.

It’s guesswork, as Google Fiber never has released any information about either subscribers or homes passed.

One has to assume that adoption rates were less than 20 percent, or that costs were much higher than forecast, with the single most-significant sensitivity being the take rate.

A take rate of 20 percent in the first year would be considered a success by virtually any other internet service provider entering the market for the first time, and there is no particular reason to believe Google’s network and construction costs were too much different from any other ISP doing a new build.

While make-ready costs conceivably were lower, the business case is not so sensitive to those costs. Construction costs, and then materials (cable, customer premises gear) and drop activation are the dominant drivers of expense.

Canada Wants 50 Mbps Internet Access in Rural Areas

As has been obvious for some time, internet access now is the primary “basic” function of a fixed communications network serving consumers. So it is that the Canadian Radio-television and Telecommunications Commission (CRTC) has “declared that broadband access Internet service is now considered a basic telecommunications service for all Canadians.”

As a practical matter, that now means the CRTC is shifting its regulatory focus from wireline voice to broadband services, including shifting universal service funding from voice to internet access. In addition to focusing the annual $100 million universal service fund from voice to internet access, the CRTC also is creating a new fund that will invest up to $750 million over and above existing government programs, for a period of five years.

The CRTC also has set targets for the basic telecommunications services requiring speeds of 50 megabits per second  downstream and 10 Mbps upstream for fixed broadband Internet access services.

As you would guess, rural areas are where the problem is most acute.

About 82 percent of Canadian consumer already can purchase service at 50 Mbps to 99.99 Mbps, but only about 29 percent of Canadians can buy such service in rural areas.

Source: CRTC report

Source: CRTC report

Alphabet Now is a Big Spender on Federal Government Lobbying

It is common for telecom attorneys--in the context of any discussion of spending by AT&T on lobbying--to make jokes about "that's all they spent?" But lobbying is big business for any number of industries and associations whose members are directly affected by federal government decisions. Most recently, internet application firms have climbed into the top ranks of spenders, a reflection of the new importance national policies affect the core technology business.

Alphabet spent about $16.7 million lobbying the U.S. Federal government in 2016, a level that likely exceeds spending even by heavily-regulated telcos such as AT&T. Other leading technology firms also were in the top ranks of spending on lobbying, even if people more often assume it “must” be AT&T that is spending the most. AT&T and other access services firms also spend a significant amount at state levels as well.

Some argue that lobbying spending is even more intense in the defense, pharma and tobacco industries. That might be true for pharma, but trade associations and business groups also are big spenders.

It is a bit perverse, but one obvious result of concentrating regulatory power at the national level (even for the best of reasons) is that the targets for lobbying are highly visible, and the returns also relatively easy to ascertain.

source: Open Secrets

source: Center for Responsive Politics

source: ibisworld

source: U.S. House of Representatives

source: Open Secrets

Windstream to Discontinue DSL Service for a Few Accounts

Windstream plans to discontinue local exchange and digital subscriber line (“DSL”) services for some 300 residential and small business customers in the states of Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Mexico, North Dakota, Ohio, Oregon, South Dakota, Tennessee, Texas, Utah, Washington and Wisconsin, because “the services are being provided on equipment that is at the end of life, it is no longer supported by vendors and replacement would be cost prohibitive.”

It would be wrong to imply too much more than that Windstream has concluded it simply cannot earn a profit from serving those 300 customers. Any consumer customers served by Windstream in those “out of market” areas virtually certainly do not generate a profit.

Few competitive local exchange carrier operations using leased access could do so, either, which is why so few CLECs (except for cable TV companies) serve consumer accounts anymore. That has been the case since about 2005 when wholesale rates upon which the CLEC business rested were raised.  

Many small business accounts likewise generate relatively scant revenues, and at low volumes almost certainly also are unprofitable. Those 300 customers imply an average of 25 accounts per state, and are served on all-copper lines leased from another carrier. As you can well imagine, there is scant to any profit in such low-volume ventures, with no owner economics from the network.

That is why competitive service providers mostly have switched to facilities-based services on their own fiber networks.

400 Million M2M Modules to Exceed 400 Million in 2021?

Mobile machine-to-machine module shipments--including modules using the narrowband Internet of Things (NB-IoT) platform--will exceed 400 million in 2021, ABI Research forecasts.

DT, Vodafone, China Mobile and China Unicom, for example are planning NB-IoT network availability as early as 2017,

Tracking, as well as simple thing monitoring and control, will be the primary application segments for NB-IoT, ABI Research estimates. Those apps likely will include parking and supermarket checkout apps.

KPN, Orange, SK Telecom, and Softbank also are building rival LoRa networks first, though not on an exclusive basis, as those carriers likely also will support Category M Long Term Evolution or NB-IoT standards.

North American mobile operators are focusing on Cat M platforms. Longer-term forecasts for M2M deployment have been robust. As typically is the case, the forecasts will prove too optimistic in the near term, but possibly even too conservative longer term.

source: Connected World

source: M2M Daily