How Much Connection Revenue Will IoT Drive?

By 2020, nearly two billion devices with mobile connections capability, 2.7 billion devices that can connect to one or another low-power communications network and 3.3 billion devices with Wi-Fi capability will be shipped, or more than eight billion total devices in one year, according to IHS Markit.

If correct, and if all those devices are connected to networks, then perhaps 4.7 billion devices will likely represent new “public” potential network connections. The 3.3 billion Wi-Fi connected devices will mostly use existing public network connections.

Public network revenue will feature lower average revenue per device than public telecom network services providers have been used to when serving “humans,” however. If a mobile phone account might represent roughly $40 per device in monthly revenue, an IoT device might represent about $1 or $2 a month or less, depending on the amount of data any particular sensor has to transmit, over a month’s time.

That is one important reason why larger tier-one telcos will be focusing on IoT systems, services and platforms, not simply connectivity. Most of the revenue will be in devices, software and applications, not connectivity.  

source: IHS Markit

source: Cisco

source: Jasper.com

Telecom Failure Within 10 Years is Possible if Carriers "Do Nothing"

The telecom industry is on course to becoming “unrecognizable” within 10 years in a “do nothing” scenario, say researchers at McKinsey. That might seem alarmist. It is not, McKinsey seems to argue.

Over the past five years, the telecom business has entered a period of slow decline, with revenue growth down from 4.5 percent to four percent, EBITDA margins down from 25 percent to 17 percent, and cash-flow margins down from 15.6 percent to eight  percent, McKinsey says.

Just a few years ago, over-the-top messaging represented nine percent of revenue, OTT fixed voice 11 percent and OTT mobile voice two percent.

Forecast alternatives prepared by McKinsey & Company suggest that, in the most aggressive scenario, OTT messaging could be 60 percent share, OTT voice could be 50 percent of fixed voice revenue and 25 percent of mobile voice revenue.

In the “best” outcome, OTT messaging share of revenue would be 40 percent, share of fixed network voice 25 percent and mobile voice share could be seven percent of total.

Growth will continue globally, in newer markets. An additional billion middle-tier customers will likely be added, mainly in emerging markets, by 2025. But  revenue growth and profit margins will be low, McKinsey says.

Globally, the compound annual growth rate (CAGR) for traditional telcos is estimated at only 0.7 percent through 2020. For many telcos, largely in developed markets, the outlook is worse.

Telcos in Western Europe and in Central and Eastern Europe are facing –1.5 and –1.3 percent average growth, respectively, over the next four years, while those in North America are expected to barely tread water with growth at only about 0.3 percent, McKinsey says.

So twin challenges lie ahead: to “create a super slim and efficient core business” and then “to strategically define and aggressively pursue growth areas.” That is why internet of things, machine-to-machine services and even artificial intelligence or deep machine learning will be so important: they are among the key ways to find growth and also run the core business efficiently.

Network technologies need to become IT-centric and more software driven, allowing service providers to reduce baseline costs by 30 to 70 percent. So do not be surprised if carrier capital investment declines, even as next-generation networks are built. The new networks will cost more than the older networks, so the dramatic cost savings will be necessary.

source: McKinsey

source: McKinsey

Sure, AT&T and Verizon are "Unfocused" on Mobile; They Have to Be

Some argue that T-Mobile US is focused; AT&T and Verizon unfocused, where it comes to mobile services, and that explains why T-Mobile US is gaining share, while AT&T and Verizon struggle to add net new subscribers.

As with all observations, there is some grain of truth. T-Mobile US is a mobile-only operator attacking the  market to gain share, and does not have to worry about its future in the same way as AT&T and Verizon do, for one key reason.

T-Mobile US is a strategic seller, while AT&T and Verizon are strategic buyers. That has implications. T-Mobile US only has to add accounts and grow market share. It essentially knows it will eventually be acquired; it only does not know, yet, who the buyer will be.

Even profitability, and the ability to pay dividends, is not an issue for T-Mobile US: growing market share and cash flow are the actual objectives.

AT&T and Verizon must think and act seriously about growing new products and lines of business beyond mobility, as they plan to be in business long after T-Mobile US has been acquired.

That necessarily means working hard on growing internet of things, connected car, video and international businesses, mobile advertising and content services.

So, yes, in some sense T-Mobile US really is more focused. It can do so because mobile is its only business, and a business it intends to sell, someday. Growth, more than profits, is the goal.

AT&T and Verizon must focus on growth outside their legacy fixed and mobile businesses, to survive a shift in the business that T-Mobile US will not survive.

Video is a Huge Deal, for Telcos and Cable

The most-important fixed network bundle for U.S. consumers might be the dual-play “internet access plus linear video” package. There are several reasons. TV has the highest average revenue, and therefore the greatest impact on potential service provider cash flow.

Internet access arguably is the foundation service; the single most-important single service sold by any access provider, and arguably is the service with the highest profit margin for cable TV providers.

Comcast, for example, earns perhaps 46 percent of total revenue in its cable communications segment from video, while internet access contributes 27 percent. Voice represents just eight percent of revenue.

For telcos, the math is different, but equally strategic. Even when telco video services represented only five percent market share in video entertainment, video drove 60 percent of net telco account additions.

source: Market Realist

source: McKinsey

First FCC Action Under Chairman Pai is to Fund Rural Broadband

In its first action under Chairman Ajit Pai, the Federal Communications Commission voted to provide up to $170 million from the Connect America Fund to expand broadband deployment in unserved rural areas of New York State.

The $170 million in federal funding will be coupled with at least $200 million in state funding and private investment to jump-start broadband deployment and close the digital divide in these unserved areas.

“This is a first step of many to fulfill my promise to empower Americans with online opportunities, no matter who they are and no matter where they live,” said FCC Chairman Pai.

U.S. Mobile Customers are Rational Consumers of Network Bandwidth

When evaluating the ways U.S. consumers use Wi-Fi or mobile networks, one must distinguish between sessions, data consumed and average session time.

Session time and data consumption tend to be directly correlated on Wi-Fi, while negatively correlated on mobile networks. In other words, mobile sessions seem to be bursty, short sessions, while Wi-Fi sessions seem to be used for more-data-intensive purposes.

A reasonable person would argue that is a direct result of consumer behavior in response to tariff levels. -

Consumers also seem to be rational. On networks with “lowest perceived cost,” consumers use the mobile network more.

On networks with “highest perceived cost,” users restrict network usage. T-Mobile US and AT&T customers are most likely to use the mobile network, in terms of sessions. Sprint customers use both Wi-Fi and the mobile network about equally, in terms of sessions. Verizon customers rely more heavily on Wi-Fi.

LIkewise, when looking at time connected to either Wi-Fi or mobile networks, customers on high-cost networks tend to rely on Wi-Fi for as much as 51 percent of time connected. On the lowest-cost network (perception), Wi-Fi represents only about 39 percent of connection time.

source: P3 Consulting

source: P3 Consulting

Enterprises, Service Providers Do Not See Eye to Eye on Enterprise Priorities

Service providers do not always meet enterprise expectations for security, cloud or mobility services, a study commissioned by Tata Communications found.

Enterprises consider service providers best equipped to increasing their network capacity or reach (73 percent), or delivering hybrid networking (66 percent) services, while around half (48 percent) of enterprises feel that their network service provider is best suited to address their cloud needs.

That makes sense. Connectivity is what communications carriers always have done. Cloud is not only something new, directly supporting computing functions--something telcos never have supplied on a major retail basis--but also a function that megascale suppliers (Amazon Web Services and others) do more efficiently and effectively.

Service providers logically believe (76 percent) supporting employee mobility is key for enterprise UCC strategy. Only 26 percent of enterprises rank this as a top priority.

Some 27 percent of enterprises say lack of employee readiness as a barrier for UCC adoption, a view not shared widely by service providers.