Common Carrier Regulation Might Have Helped Reduce Telco Capex, Though not Cable Capex

It’s hard to have fruitful discussions when we do not agree on the “facts” of the matter at hand. So it is with the amount of capital investment in access networks in the wake of regulation of such investments under common carrier rules.

According to economist Hal Singer, common carrier regulation has depressed investment, even if many claim the reverse to be true. Singer compares the first six months of 2016 with the same period in 2014, the last year in which ISPs were not subject to Title II regulation, and finds a decline of eight percent.

Still, it is not a simple matter to determine the specific impact of the rules, as distinct from background economic factors or changes in company strategies. Generally speaking, big economic shocks (the popping of the internet bubble in 2000 and the Great Recession of 2008) will drive capex declines.

Also, it is an undeniable fact that most U.S. telcos have shifted capex to mobility, and away from the fixed networks, so that is another factor. Prior to imposition of the rules, fixed network capital investment had dropped very sharply from 2000 peak levels.

Conversely, mobile networks clearly were the drivers of firm revenue growth since 2000, and saw generally higher investments, especially compared to fixed network investment.

http://marketrealist.com/2015/01/key-costs-wireless-wired-telecom/

You can see that telcos generally spent less, while cable companies spent more. In fact, those who argue that common carrier regulation did not depress investment invariably point to higher levels of investment by cable companies.

You might argue that flows form a correct understanding that those investments would generate incremental revenue for cable companies and a similar understanding by telcos that even high investment would not produce favorable financial returns. In fact, those simple understandings largely would account for high cable investment and low telco investment, for basic reasons related to return on investment.

It still remains difficult to say what might have happened, in terms of telco investment, if telcos had seen much higher revenues from doing so.

“Aggregate capital expenditure (capex) declined by nearly $2.7 billion relative to the same period in 2014,” Singer argues.

While Title II can’t be blamed for all of the capex decline, it is reasonable to attribute some portion to the FCC’s rules, he argues.

The rules bar ISPs from creating new revenue streams from content providers, and (needlessly) expose ISPs to price controls, Singer argues. Both measures truncate an ISP’s return on investment, which makes investment less attractive at the margin he argues.

source: Hal Singer

Automation Will Affect 60% of All Jobs, Representing $16 Trillion in Wages, Says McKinsey

McKinsey Global Institute researchers estimate that automation (artificial intelligence) will affect as much as 60 percent of all occupations, defined as those in which at least 30 percent of present activities can be automated. To put some context on that prediction, McKinsey Global Institute says “almost half the activities people are paid almost $16 trillion in wages to do in the global economy have the potential to be automated by adapting currently demonstrated technology, according to our analysis of more than 2,000 work activities across 800 occupations.”

While less than five percent of all occupations can be automated entirely using demonstrated technologies, about 60 percent of all occupations have at least 30 percent of constituent activities that could be automated, McKinsey analysts say.

More occupations will change than will be automated away, in other words. But the study also suggests that half of today’s work activities could be automated by 2055, with a 20-year plus or minus likelihood.

McKinsey notes that the scale of shifts in the labor force over many decades that automation technologies can unleash is not without precedent.

The order of magnitude impact will be similar to the long-term technology-enabled shifts away from agriculture in developed countries’ workforces in the 20th century.

“Those shifts did not result in long-term mass unemployment, because they were accompanied by the creation of new types of work,” McKinsey notes. That’s the positive spin on the matter.

“Long term” is not the same thing as “near term,” in terms of the specific individuals involved in the change, which often shifts jobs from some regions to others; from some age groups to others; and with many changes in employability attributes that are ill addressed, if at all addressed. As with all major shifts of industry model and fortunes, the impact will be highly disruptive, at the level of discrete workers.

The activities most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. In the United States, these activities make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages. They are most prevalent in manufacturing, accommodation and food service and retail trade.

And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential, McKinsey says. As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa.

Even if just five percent of current jobs are totally eliminated, perhaps 60 percent will be reshaped.

Source: McKinsey

Top 10 Internet Themes for 2017

The 10 top internet themes for 2017, as outlined by Brian Fitzgerald, Jefferies equity analyst, mostly center on enterprise apps, advertising and media and internet of things.

A couple of  important changes will affect the U.S. industry, including network neutrality rules and foreign  earnings repatriation.

Among the enterprise themes, fulfillment and last mile logistics, the travel sharing economy are key.

In the advertising and media area, online advertising, mobile sports,  video games and virtual reality are top of mind.

In  the IoT area, personal technology and autonomous driving are important.

Big Telecom Horizontal Mega-Mergers Likely Would Not be Approved, Hope Notwithstanding

There is giddiness in some quarters about big merger prospects in the U.S. telecom market under a new federal administration. Some of that optimism is realistic, as a reasonable person would expect at least some amount of regulatory rollback. On the other hand, some of the touted or hoped for deals seem to so badly violate a basic antitrust formula related to industry concentration that the horizontal mergers (providers in the same industry segments merging) remain unthinkable.

One can argue that the rules will be changed, and that antitrust tests will shift. If so, the

Herfindahl-Hirschman index (HHI), a commonly accepted measure of market concentration, will have to be discarded. Lots of things might change. But some of us would guess that the HHI will not be made irrelevant to big merger reviews. And by the HHI tests, nearly every horizontal mega-merger touted (Comcast-Verizon, Sprint with T-Mobile US, Comcast with Charter Communications) would so badly fail the HHI antitrust screen that the mergers would fail to be approved.

Hope, as they say, is not a strategy. Most who tout such mega-mergers undoubtedly know the odds of HHI-busting mega-mergers are slim to non-existent, but might hope to shape the climate for other deals.

The HHI is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers, and can range from close to zero to 10,000. The U.S. Department of Justice uses the HHI for evaluating potential mergers issues.

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. Clearly, all the horizontal mega-mergers now floated would so grossly skew toward the higher range as to make the combinations untenable, in antitrust circles.

As a general rule, mergers that increase the HHI by more than 200 points in highly concentrated markets raise antitrust concerns, as they are assumed to enhance market power under the section 5.3 of the Horizontal Merger Guidelines jointly issued by the department and the Federal Trade Commission.

So look at one obvious generic example.

Consider a “hypothetical”  industry segment with four total firms, where the market leader has 40 percent share, provider number two has 30 percent share, the number three provider has 15 percent share and the fourth provider also has 15 percent share.

The HHI for that market (HHI = 40^2 + 30^2 + 15^2 + 15^2 = 1,600 + 900 + 225 + 225) yields an HHI score of 2,950, a level already deemed ‘highly concentrated.”

That hypothetical example roughly corresponds to the U.S. mobile market. The application to the fixed network segment is a bit more complicated, but that market also would be deemed highly concentrated, albeit on the lower ranges of that determination, as is the case for the U.S. mobile market.

The fixed network internet access provider market and fixed network communications markets tend to exhibit the “hypothetical” highly-concentrated markets.

So unless HHI, used globally as a test of market concentration, is ignored, the big horizontal mega-mergers are almost certainly precluded.

source: Sizlopedia

Zimbabwe Rolls Back New "Higher Price" Rules for Mobile Voice and Data

Raising minimum prices can sometimes appear a logical policy to protect a domestic industry of any type. POTRAZ, the Zimbabwe telecom regulator was set to establish new minimum prices for all voice and data services provided by Zimbabwe’s mobile network operators in January 2017, and now has reversed that decision.

Minimum prices, viewed as a way of protecting telcos from competition and protecting mobile operator revenues,, would have created a minimum  12 cents per minute rate for voice services and two cents per MB for data usage.

Such policies likely are ineffective long term. Many regulators have banned use of VoIP, for example, but that does not seem to have worked, longer term, in any market where it has been attempted.

So far, it arguably has not been possible to “protect” incumbent communications service providers from the effects of the internet by using such protectionist measures. It might be argued that such measures allow incumbents more time to adjust business models, however.

Such “keep prices high” measures also conflict with other goals, such as allowing consumers to use more communications apps and services by lowering the price of such usage.

5G to Create $500 Billion in U.S GDP Over 7 Years?

5G networks could create up to three million jobs and add approximately $500 billion to U.S. GDP through direct and indirect potential benefits, while anchoring the development of smart cities initiatives, according to report authored by Accenture, commissioned by CTIA, predicts.

Anchoring those benefits are direct investment by mobile operators of perhaps $275 billion nationwide over seven years to create the networks, Accenture predicts.

Job impact includes 350,000 new construction jobs and 850,000 other jobs in the United States created by network suppliers and other partners over a seven-year period of network build-out.

The multiplier effects could lead to an additional 2.2 million jobs in communities across the country, creating approximately $420 billion in annual GDP.

Accenture believes 5G also will potentially supply high-speed internet access to about five percent of U.S. residents who currently do not have access. That assumption is directly based on 5G being a direct substitute for fixed network connections.

If faster Internet connections allow users to utilize video applications for telecommuting, or participate in e-learning courses that give them additional skill sets or certifications, creating a more competitive workforce in different localities, that would, in turn, attract higher-paying jobs to these communities.

So If localities embrace 5G, and citizens who are not already online become adopters, an additional $90 billion in GDP could result, with 870,000 new jobs..

Communities of all sizes are likely to see jobs created. Small to medium-sized cities with a population of 30,000 to 100,000 could see 300 to 1,000 jobs created. In larger cities like Chicago, we could see as many as 90,000 jobs created.

“5G-powered smart city solutions applied to the management of vehicle traffic and electrical grids alone could produce an estimate of $160 billion in benefits and savings for local communities and their residents,”  These 5G attributes will enable cities to reduce commute times, improve public safety  said Tejas Rao, Accenture North America practice managing director.

The attributes of 5G that will benefit smart cities include higher speeds, more connections, wireless connectivity in unprecedented locations (street lights to sewer holes) quicker, more adaptive response times that support time-sensitive applications.

Ultra-low-power connections, such as sensors for leak detection in water mains, also will e key, since the replacement cycle is directly related to battery life, Accenture argues..

Smart Grid. 5G technology will help unleash the next wave of smart grid innovations. Across the country, those benefits could be as high as $2 trillion dollars over 20 years By allowing many unconnected, energy-consuming devices to be integrated into the grid through low-cost 5G connections, 5G enables these devices to be more accurately monitored to support better forecasting of energy needs.

Also, by connecting these energy-consuming devices using a smart grid, demand-side management will be further enhanced to support load balancing, helping reduce electricity peaks and ultimately reduce energy costs.

By automatically dimming public lighting when no pedestrians or vehicles are present, smart lighting can save power and reduce light pollution while still keeping neighborhoods safe. For example, San Diego believes it will save an estimated $1.9 million annually through the installation of smart  street lights. Across the U.S., the potential savings from this approach are estimated to be more than $1 billion per year, Accenture says.

Reduced traffic congestion of 40 percent, enabled by vehicle-to-vehicle communications, could save drivers and enterprises in medium-sized cities approximately $100 million annually. Smart parking could boost urban parking revenue by 27 percent.

Verizon 750-Mbps Symmetrical Access Will Still be About the Bundle

Verizon’s new 750-Mbps symmetrical internet access is going to illustrate the importance of retail packaging in the internet access business. Some might argue that the upgrade, while significant, still leaves Verizon trailing other offers by gigabit providers such as Comcast, Google Fiber, AT&T or other independent internet service providers.

Some might argue the potential impact is significant, since the bulk of activity is likely to happen around all triple-play offers sold by Verizon, not just the internet access product line. One of the lessons we seem to have learned in the still-early days of gigabit internet access is that such offers actually stimulate upgrades of the less-capacious tiers of service. In other words, the main revenue and subscriber impact of a new gigabit offer is likely to be higher sales of products offering less raw speed. Most consumers do not buy the highest tier of service.  

The other important issue is that most U.S. consumers buy bundles of various sorts. So the important upside is not sales of stand-alone internet access services, but sales of bundles (triple play or dual play).

Verizon sells what many would consider value-rich bundles that vary largely, but not completely, vary by headline speed. And while most consumers likely will find any of the lesser-speed packages fully functional, Verizon makes purchase of a full triple-play bundle, at any speed tier, a value-laden pick. So it will be with the symmetrical 750-Mbps

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. Verizon takes the same approach for its other packages, as well.

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.

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.