Telcos Not Good at Innovation, and it Doesn't Matter

It has generally been argued that big telcos are not good at “innovation.” It is less often said that companies are similarly situated, but an argument can be made that this also is true. Such assertions are hard to test.

The reason is simply that many big telcos and cable TV companies literally have grown by acquisition, not by organic growth. In other words, by design, it has proven impossible, as a practical matter, to test “how good” telcos or cable TV companies might be at innovation as a driver of revenue growth.

In the U.S. market, for example, the largest suppliers--AT&T, Verizon, Comcast and Charter--all have grown principally by acquisition. In other words, it is impossible to determine how good they might have been, had a different, organic growth path been chosen.

It therefore never has been a core or essential strategy to “get good at innovation.” It has been a core strategy to “get good at making acquisitions.”

That makes rather easy a prediction that future growth for these tier-one suppliers will continue to be lead by acquisition, not organic growth. Size alone makes that imperative. Big companies generally cannot grow fast enough strictly by “organic” means, and all the biggest U.S. communications and media firms have annual revenue between $60 billion and $160 billion. Charter Communications is  the latest member of the “$60 billion or more annual revenues” ranks, based on its acquisitions of Time Warner Cable and Bright House Networks.

One might well argue that the reason Sprint and T-Mobile US are strategic sellers, not buyers, is size alone. Neither of those firms has the aggregate revenue mass to match up with AT&T, Verizon, Comcast or Charter.

Nor, given the size of the biggest firms, will small acquisitions matter much. Moving the revenue needle just 10 percent means grabbing assets adding between $6 billion and $16 billion worth of revenue annually.

That is why, as important as incremental and tactical operations might be, the path forward, for the biggest U.S. firms, relies on growth by acquisition. The only issue is what directions those moves will take.

It also matters how antitrust authorities choose to define the relevant markets that stand to be reorganized. Even if executives behave in ways that suggest how they see their markets and customers (mobile execs pay close attention to other mobile competitors; cable and telco fixed network execs pay most attention to each other; video providers pay most attention to other video suppliers), major changes might well require a redefinition of “markets and competitors,” or else horizontal combinations will not be possible.

Vertical combinations likely will fare much better, as approval will not require bending of traditional antitrust metrics.

The bigger point is that it is possible to argue that telcos and cable TV companies never have been that good at innovation, but that it doesn't matter. They have grown by acquisition. And that is what they need to be good at.

source: Forbes

source:Comcast

source: Market Realist

source: NCTA

source: Wall Street Journal

souce: Wall Street Journal graphic

source: Deloitte

Verizon Introduces Unlimited Service Plans

Verizon Wireless has introduced an unlimited data plan, a move many will interpret as a response to growing competition in the U.S. mobile services market. In the past, such plan changes--increasing value while holding prices constant, or adding value while dropping prices, have been key supplier tactics in markets that are hotly competitive.

Both T-Mobile US and Sprint gained market share in the second half of 2016, presumably on the strength of  aggressive “unlimited usage” promotions. Verizon previously had stopped selling unlimited plans in 2011.

At the moment, all four leading U.S. carriers offer unlimited usage plans of one sort or another.

The Verizon Unlimited plan costs $80 a month, for unlimited data, talk and text, using paper-free billing and AutoPay features.

Multi-user plans cost $45 per line for four lines. Some nevertheless are going to complain. After 22 GB of data usage on a line during any billing cycle, Verizon says it “may prioritize usage” in the event of network congestion. That “throttling” feature always is criticized in some quarters as a violation of the “unlimited” feature, but others simply see that as “fair use” policies.

Also included are up to 500 MB per day of 4G LTE roaming in Mexico and Canada.

Most Shared Spectrum Will be in Millimeter Regions

How much actual spectrum sharing will be possible in existing communication bands below 1 GHz remains a key question, as most of the proposed and anticipated shared spectrum actually operates in the 2.5 GHz and higher ranges. Wi-Fi is the best existing example.

Most of the proposed U.S. spectrum sharing proposals start with 3.5 GHz and then might be considered in millimeter wave regions slated for commercial release. As a practical matter, it might therefore make more sense, at least in the early going, to focus on spectrum sharing in millimeter ranges, before trying to migrate more lower-frequency spectrum to shared approaches.

About half of all U.S. communications spectrum is allocated for use by government entities, and some argue that only a fraction of that spectrum is intensively used. Some studies suggest that most spectrum is lightly used or not used at all.

Consider mobile networks, which can be congested, at some locations, during the morning and evening rush hours, but are lightly used between 11 p.m. and 6 a.m., generally the pattern for fixed networks as well. But most cell towers--up to 80 percent--likely encounter relatively light peak loads.

Still, all public networks are built to serve “peak hour” demand, not average demand, and certainly not off-hours demand. In most cases, there are clear geographic differences in demand. Urban sites have more demand than rural sites. Mobile towers close to major highways and roads get more use than towers serving residential areas. Coast guard and other national defense usage tends to be higher near the oceans, not so much in the continental interior.

As always, there will be economic drivers. It might make more sense, for many users, to share spectrum in new regions (millimeter wave and unlicensed bands), compared to sharing in lower-frequency bands, simply because the cost and difficulty of doing so will be lower for new blocks of spectrum than for legacy blocks of spectrum.

Most of the lower blocks of spectrum are chopped up into slivers that would require much amalgamation to create the bigger contiguous blocks of spectrum now used by modern mobile and wireless networks.

source: Chitika

Federal government exclusive and shared bands account for 64 percent of all spectrum allocations below 3.1 GHz, the New America Foundation estimates.

At the same time, it is time-consuming and quite costly to move users out of one band and into another.

That is why some many no advocate less reliance on exclusive spectrum licenses and more reliance on unlicensed or shared spectrum approaches, especially in existing communication bands at lower frequencies, where “coverage” spectrum is nearly all licensed on an exclusive-use basis.

source: NTIA

source: NTIA

Supply and Demand Increases Drive Potential Value of Millimeter Networks

The millimeter wave regions (3 GHz to 300 GHz) mostly are unused today for communications purposes, mostly because, up to this point, they have been too difficult to harness. Because of distance limitations, line of sight requirements and infrastructure cost, millimeter waves have not been much used for end user access, though some firms always have used such frequencies for point-to-point services for some business customers.

Up to this point, only portions of the 24, 28, 31, and 39 GHz bands ever have been licensed to U.S. service providers, although many of those licenses have lapsed, as the primary business purpose has been point-to-point backhaul, and that market is relatively small, if important to some users.

But with rapid advances in signal processing, antenna technology, application sets and potential business models, much more attention is going to be focused on use of millimeter wave frequencies for communications.

The U.S. Federal Communications Commission, for example, is looking at commercialized use of a number of frequencies, including greater use of 24, 28, 31, and 39 GHz bands, plus new bands in the 37 GHz, 42 GHz, 60 GHz, 70 GHz and 80 GHz regions:

• 24 GHz Bands (24.25-24.45 GHz and 25.05-25.25 GHz)
• LMDS Band (27.5-28.35 GHz, 29.1-29.25 GHz, and 31-31.3 GHz)
• 39 GHz Band (38.6-40 GHz)
• 37/42 GHz Bands (37.0-38.6 GHz and 42.0-42.5 GHz)
• 60 GHz Bands (57-64 GHz and 64-71 GHz)
• 70/80 GHz Bands (71-76 GHz, 81-86 GHz)

Radio signals in those regions have variable attenuation (signal loss when passing through a medium), much as do light signals passing through an optical fiber. For that reason, some frequencies are better suited for communications purposes than others.

Millimeter wave signals perform better (have less attenuation) in the lower 20-GHz to 30 GHz regions; 60 GHz to 80 GHz and 200 GHz to 240 GHz regions, for example.

source: NYU Wireless

Optical attenuation is much better at 1300 nm and 1500 nm, for example, than at 1400 nm, which is why 1300 nm and 1550 nm are used for optical communication systems.

source: Invocom

Traditionally, millimeter wave frequencies have not had much widespread use because they were so difficult to monetize (propagation issues limited use to higher power point-to-point links). That is expected to change as better technology and architectures, plus new demand drivers, begin to emerge.

On the demand side, the inexorable climb of end user capacity demands matches nicely with the much-higher bandwidth capability of millimeter waves, compared to lower-frequency alternatives.

All of that should mean more capacity will be available for mobile and untethered communications, which also should mean lower spectrum prices, going forward.

Would We Issue Spectrum Licenses, If We Had to Do it All Over Again?

With the caveat that national communication regulators will have their own ideas, it certainly is possible to argue that if communications spectrum is beachfront property, then lots more beachfront is coming. That should significantly affect spectrum valuations; capital allocation for spectrum; new decisions on network investments; new roles for unlicensed spectrum and shared spectrum and therefore new implications for business models.

Some idea of the changes can be suggested by asking a question: if we had to do it all over again, and allow use of communications spectrum (with no legacy impediments), while we would certainly regulate such use (to protect consumers and avoid interference), would we actually rely on licenses at all?

There are corollaries. Would we restrict use of spectrum on technology grounds? Would we restrict use based on business models?

With the obvious objection in some quarters that avoiding licenses would also likely mean an end to the use of spectrum licensing as a way to raise government revenue, would we actually choose to allow exclusive use of any spectrum?

That such a question actually can be asked is testament to the vast revolutions happening in untethered and mobile network technology, especially the ability to create networks and devices that avoid interference by sensing, and avoiding, potential interference; the ability to bond unlicensed and licensed spectrum; and the ability to create quality of service mechanisms using unlicensed spectrum.

At the same time, a dramatic increase in total available spectrum also helps, even if unhelpful for goverrnment regulators seeking to maximize the value of spectrum licenses.

The end of a penultimate stage of the 600-MHz spectrum auction will release 70 MHz of high-value, completely clear low-band spectrum for mobile broadband on a nationwide basis, plus 14 MHz of new unlicensed spectrum. Still to be decided are which specific frequency blocks are assigned to each of the winning bidders.

After that, the spectrum has to be vacated by TV broadcasters, before mobile operators can begin to use the spectrum. Some estimate it will be 2020 before the spectrum actually is ready for commercial use.

Before that happens, it is highly likely that much more spectrum than 84 MHz will have changed hands, as an expected wave of telecom industry consolidation shifts assets and therefore spectrum license rights.

A reasonable person might predict that all spectrum held by Sprint, T-Mobile US and Dish Network will be in different hands by 2020. Not counting the new 600-MHz holdings T-Mobile US is likely to win, some 359 MHz worth of licensed spectrum should trade over the next couple to few years.

Add to that the 11 GHz of brand new spectrum the FCC plans to allocate, and some will argue the reason spectrum bids  in the 600-MHz auction was far less robust than originally expected is that so many more ways will be available to satisfy commercial needs. Small cell architectures, better radios, bonding of licensed and unlicensed spectrum and vast new amounts of unlicensed spectrum will play a role in expanding spectrum supply.  

Eventually, as much as 29 GHz of new spectrum for communications purposes will be made available in the U.S. market. That is 29 GHz of new capacity, now capacity at 29 GHz frequencies, between an order of magnitude (10 times) and two orders of magnitude (100 times) more capacity than presently is available in the mobile market.  

To be sure, potential bidders in the 600-MHz auction also had other places to spend money, including existing and possible acquisitions. So spectrum bidding might also have been muted for those relatively-tactical reasons.

Still, it is hard to escape the conclusion that, although communications spectrum is likened to  beachfront property, there is a lot more beachfront property coming.

source: Allnet Insights

If Spectrum is Beachfront Property, A Lot More Beach is Coming

The end of a penultimate stage of the 600-MHz spectrum auction will release 70 MHz of high-value, completely clear low-band spectrum for mobile broadband on a nationwide basis, plus 14 MHz of new unlicensed spectrum. Still to be decided are which specific frequency blocks are assigned to each of the winning bidders.

After that, the spectrum has to be vacated by TV broadcasters, before mobile operators can begin to use the spectrum. Some estimate it will be 2020 before the spectrum actually is ready for commercial use.

Before that happens, it is highly likely that much more spectrum than 84 MHz will have changed hands, as an expected wave of telecom industry consolidation shifts assets and therefore spectrum license rights.

A reasonable person might predict that all spectrum held by Sprint, T-Mobile US and Dish Network will be in different hands by 2020. Not counting the new 600-MHz holdings T-Mobile US is likely to win, some 359 MHz worth of licensed spectrum should trade over the next couple to few years.

Add to that the 11 GHz of brand new spectrum the FCC plans to allocate, and some will argue the reason spectrum bids  in the 600-MHz auction was far less robust than originally expected is that so many more ways will be available to satisfy commercial needs. Small cell architectures, better radios, bonding of licensed and unlicensed spectrum and vast new amounts of unlicensed spectrum will play a role in expanding spectrum supply.  

Eventually, as much as 29 GHz of new spectrum for communications purposes will be made available in the U.S. market. That is 29 GHz of new capacity, now capacity at 29 GHz frequencies, between an order of magnitude (10 times) and two orders of magnitude (100 times) more capacity than presently is available in the mobile market.  

To be sure, potential bidders in the 600-MHz auction also had other places to spend money, including existing and possible acquisitions. So spectrum bidding might also have been muted for those relatively-tactical reasons.

Still, it is hard to escape the conclusion that, although communications spectrum is likened to  beachfront property, there is a lot more beachfront property coming.

source: Allnet Insights

India, Indonesia will be Economic Powerhouses by 2050, With Positive Implications for Service Providers

Though some might still be skeptical, India and Indonesia are likely to emerge as economic powerhouses by about 2050, based on gross domestic product, adjusted using the purchasing power parity method, which adjusts prices between countries so that comparisons can be made on a like basis.

That is likely to have important ramifications for communications service providers, as domestic Indonesian consumers and businesses will have lots more money to spend on a variety of services.

source: PwC