Concerns about About Need for 5G Bandwidth are Substantaily Correct; Also Irrelevant

As often happens, important new technologies and products have a “hype cycle,” where high expectations then encounter fatigue, and only later is the value obvious. So it is not surprising that some are skeptical about 5G.

To be sure, there also is a certain amount of what amounts to posturing, as always happens. Firms and countries that fear they will not be able to move as fast have good reasons to downplay the importance of early 5G deployments. Other firms, in a position to do so, obviously will tout their leadership.

As a matter of industrial policy, rightly or wrongly, policymakers also see potential “leadership” in various industries is seen as contingent on early leadership in 5G deployment.

There are some obvious challenges, especially related to the capital cost of creating a much-denser network, with more-sophisticated cell sites, to support the strategic millimeter-wave spectrum that 5G will bring, in huge amounts. Aside from the new investments in platform, 5G is going to require smaller cells than has been possible for 2G, 3G and 4G. The reason is physics: millimeter wave signals do not travel as far, and do not penetrate obstacles such as glass and concrete.

One recent study by Rethink Research, for example, suggests that the obstacles range from the typical (sites) and site approvals to backhaul. But there are lot of issues. And that refers only to the physical challenge of creating the 5G access network. Ultimately more challenging is the business model for 5G.

Specifically, will 5G actually lead to creation of huge new businesses, and revenue streams, that not only justify building 5G, but also are substantial enough to offset legacy revenue source declines. In a nutshell, the key issue is that revenue from sales of services to human beings will be under pressure. The big hope is that new services to support enterprise applications will be huge new drivers of revenue and growth.

One can argue that human beings, as consumers do not “need” 5G bandwidth. That is substantially correct. But bandwidth is not the issue. Aside from latency performance, and the changes in core networks (virtualization), the paramount issue is whether 5G creates a platform for new machine-to-machine services.

source: Rethink Research (chart shows perceived issues on a base of 75 respondents)

Verizon Upgrades to 750-MHz Internet Access, "Everywhere" FiOS is Available

There is no such thing as “sustainable advantage” in the broad access business. Consider that

Verizon finally will be upgrading its fixed network internet access speed to symmetrical 750-Mbps service, offering what will be seen by some as an important marketing advantage against cable TV operators, Verizon’s primary competition.

Cable TV operators, the leading U.S. internet service providers, cannot, at present offer such symmetrical speeds, so several segments of the customer base will see clear advantage for the new Verizon offers.

You might argue that the primary value will be for consumers with high uploading requirements. But the biggest single segment of the audience are consumers who want a triple-play bundle (or even an “internet-plus-linear video” bundle and are willing to add fixed network voice if it doesn’t cost much) for a reasonable price.

Priced for consumers at $149.99 a month for standalone service and $169.99 a month for a triple-play bundle with TV and landline phone voice service, the packaging likely creates a new way of establishing value.

The price differential between internet-only service and the triple-play bundle is just $20 a month. Without question, the triple-play bundle offers much higher value, compared to buying 750-Mbps on a stand alone basis.

To be sure, consumers will be evaluating the new offer carefully, as Verizon currently is running a triple play offer including symmetrical internet access at 150 Mbps, TV, and home phone all for $80 a month for the first year, with or without contract. Contract customers pay $85 a month for the second year.

Verizon also sells a $50 a month double play including local TV and symmetrical 50 Mbps  internet. Some would argue that those price points and included services represent a rather-significant amount of value for the price.

By way of contrast, it is easy to pay $80 or more per month to buy a single service such as DirecTV, or $130 for a dual-play asymmetrical internet package with downstream speeds of 100 Mbps. For perhaps $150 a month a consumer can buy a triple-play package (asymmetrical internet) with reasonable speeds.

Initially, the symmetrical 750-Mbps service will be available to about seven million Verizon customers in greater New York City, northern New Jersey, Philadelphia and Richmond, with more markets to follow in 2017, Verizon says.

For a firm that always touted the superiority of its network, the emergence of gigabit offers from Comcast, Google Fiber, AT&T and other independent ISPs is a challenge, as those offers undermine Verizon’s “best network” positioning. So it always was inevitable that Verizon would change its offers.

Now the issue is how the new offer encourages new customers to buy Verizon services, and what percentage of existing customers will see the top-end offer as worth buying.

Rural Markets Remain Best Niche for Municipal Broadband

Generally speaking, specialists occupy niches in the telecom business that tier one suppliers find difficult to address. Value added resellers in the small business information technology space provides one example. Metro fiber access or transport providers provide other examples. Culture or language focused mobile virtual network operators also do so. Telecom cooperatives, independent rural telcos and municipal internet access providers provide other examples of niches.

For the most part, municipal ISPs and triple-play providers operate in small community niches where either the local telco is capital constrained. Generally speaking, cable TV companies manage to compete against municipal providers better than telcos.

In Opelika, Ala., Opelika Power Services serves 11,000 households with a triple-play services that has about 30 percent market share. Loma Linda Connected Community Program operates in a California community of 9,000 households and has about 1600 customers, representing market share of about 18 percent.

The Vernon Gas & Electric Department Fiber Optic Division reaches about 31 households in Vernon, Calif. It is hard to see how that ever produces much revenue, and scant profit, if any.

NextLight, serving Longmont, Colo., selling gigabit internet access for $50 a month to some potential 33,400 homes, claims to have gotten take rates  of 56 percent, extremely high for any overbuilder. The caveat is that NextLight sells both voice and internet access, so it is not clear whether the 56-percent take rate means homes buying at least one service, or the total number of units sold, divided by homes passed.

OptiLink serves Dalton, Ga., with a triple play service, and some argue OptiLink has take rates as high as 70 percent, having been in operation for more than a decade. It never is completely clear what “take rate” means, in this context, as OptiLink does not disclose its take rate, or how it measures.

Oftentimes, take rates are measured in terms of “services purchased” rather than “account homes.” In other words, a take rate of 70 percent could mean 23 percent of homes buy a triple play or that 70 percent of homes buy at least one service.

In Bellvue, Iowa iVue, the internet and video provider owned by the municipal utility, passes 966 homes. The key point is that these municipal ISPs mostly operate in rural and other hard-to-reach areas where neither the local telo or cable TV company has been willing to invest in higher-speed internet access or more-robust video services.

Google Fiber’s recent experience demonstrates how much harder the business model might be in larger cities where cable TV and telco providers are willing to invest.

Though many are hopeful that these experiences can be replicated more widely, the business model seems to remain a challenge, as few overbuilders in major markets are able to get enough market share, and sustain that share, to successfully challenge cable TV providers, the market leaders in most areas. It might arguably be easier to displace a local telco, as possibly has happened in a few instances.

Still, so far, no independent ISP has been able to displace either a cable company or a telco in a major market.

Public Cloud Spending Accelerates

Though software as a service remains the biggest single segment of the cloud computing market, infrastructure as a service might have the highest growth rates.

If one counts both hardware and software spending to support cloud computing, plus actual services sold to retail customers, the cloud computing industry generated $148 billion of revenues between August 2015 and September 2016, growing by 25 percent, year over year.

According to Synergy Research Group, that period was the first when industry revenues were generated more from actual cloud computing services than spending to create that capability.

In early 2017, cloud service markets now are growing three times faster than cloud infrastructure hardware and software investments. Part of the reason for that is that most spending on private cloud services involves enterprises buying and deploying their own facilities.

From the fourth quarter of 2015 to the third quarter of 2016 total industry spending on hardware and software to build cloud infrastructure exceeded $65 billion, with spend on private clouds accounting for over half of the total spend.

Investments in infrastructure by cloud service providers helped them to generate almost $30 billion in revenues from cloud infrastructure services (IaaS, PaaS, hosted private cloud services) and over $40 billion from enterprise SaaS.

source: Synergy Research

source: Software Strategies

MPLS Approaching Maturity?

It is not yet clear whether developing software-defined wide area networks (SD-WAN) will represent the next generation data network, displacing MPLS, but that is a logical argument for enterprise branch network connections.

Global enterprise spending on WAN business services represents about $40 billion in annual spending.

Included in that bucket are MPLS virtual private networks (VPNs), virtual LANs, Ethernet connections, digital subscriber line, cable TV and LTE connections as well. The arguments for using SD WANs, in place of MPLS, is that recurring costs are lower, while provisioning intervals potentially are much better.

To be sure, MPLS prices are dropping about five percent to 10 percent per year, but so are internet access costs, with faster declines expected as 5G comes online.

In the separate content delivery networks business, SD WANs might also have a role, allowing private network (MPLS) performance over public internet connections.

The next generation CDN should move beyond caching and include client self-management and quality of experience capabilities, especially playing a role for mobile CDN applications, some argue.


source: Ovum

More "Free Mobile Data Offers" in India?

Idea Cellular may soon launch promotional mobile data offers lasting one to 1.5 years that offer unlimited free mobile data for 4G customers. Idea also might offer free international incoming calls.

Those moves would counter Reliance Jio’s free mobile data offers, which run until March 2017. Bharti Airtel already has matched Jio's offer by providing 3 GB extra data every month till December 2017.

Such promotional offers should never be mistaken as indicating direct shifts in the level of  “permanent pricing.” On the other hand, rarely--if ever--do such promotional offers allow “every day” pricing levels to climb back to prior levels. Such offers are indicators of increased competitive pressure, leading to pricing declines, over the longer term.

Average revenue per account in the Indian mobile market has, in fact, been declining for some years.

The Indian mobile service provider market has been in a state of disruption for several years, with Idea Cellular displacing Reliance Communications as the third-largest Indian mobile company, ranked by subscribers. The next big changes will involve mergers that could again reshape the leader ranks, and the emergence of Reliance Jio within the top-10 ranks in 2017.

Longer term, most observers believe Reliance Jio will be a threat to the mobile market leaders.

source: TRAI

source: Datareign

OTT Voice and Texting to Cost Telcos $104 Billion in 2017

At the risk of seemingly downplaying the danger of declining voice and text messaging revenues globally, that is the lesser problem global telcos face. The trend is real.

On a global basis, over-the-top (OTT ) voice and text messaging alternatives displaced more than $84 billion in 2016. In 2017, another 23 percent erosion will happen, representing nearly $104 billion, according to Juniper Research.

Telcos globally might have lost about 19 percent of their text messaging revenues to over-the-top (OTT) alternatives between 2013 and 2015, according to Juniper Research.

In Spain, for example,  text message volume peaked as early as 2009, at 9.6 billion messages. By 2015, less than 2.3 billion messages were sent.

In the Netherlands, KPN experienced a 60 percent decline in average text message volume between 2011 and 2013. Similar declines have also been reported in South Korea following the widespread adoption of KakaoTalk, while similar trends have been seen in China.

Though it clearly matters that global service providers are losing voice and text messaging revenue, the bigger question is what suppliers do about that situation. One proven strategy is simply to harvest legacy revenues as long as possible, at the highest rate possible, while making other plans.

In the near term, in developing nations, mobile data is the immediate solution. In developed markets, where mobile data adoption already is robust, acquisitions are the near term solution, while the long term solutions involve creating big new markets in the internet of things and machine-to-machine industries.

Those, and other initiatives are likely to be jarring in some cases. As with the move by Mars from packaged goods into pet services, the range of applications and services businesses telcos and other internet service providers will seek to own and offer will be controversial.

At first glance, it might seem incongruous that Mars, a company perhaps best known for candy brands, is big in the pet services business.

But Mars owns pet food brands Pedigree, Iams and Nutro. Mars also owns the biggest U.S. veterinary operation in Banfield Pet Hospitals. Mars also owns the BluePearl emergency and specialty clinics, and also is buying VCA, the operator of veterinary offices. That represents a diversification away from consumer packaged goods and towards services.

Juniper Research suggests big data and analytics packages for both consumer and IoT (Internet of Things) devices will be fruitful. Juniper also suggests carrier billing, mobile money and mobile identity services will drive new opportunities.

Some of us might argue that even if such initiatives develop, they will be too small to fundamentally reorient service provider revenue streams. Core telecom service revenues in 2016 were about $1.93 trillion. Smaller service providers might have earnings before interest, taxes and depreciation of less than one percent. Tier-one carriers might have EBITDA of as much as 15 percent. So 15 percent of $1.93 trillion is about $285 billion, less than the capital investment carriers will make of about $350 billion.

At the revenue level, replacing lost voice and messaging revenues requires annual new revenues in the range of $100 billion. That might  be tough to achieve on the strength of billing services, mobile money and analytics services.