Which Parts of Ecosystem Will 5G Disrupt?

The 5G network should prove disruptive to participants in other parts of the ecosystem, as well as to new ecosystems. That arguably has been the case in the past, so we should be watching for what happens, to whom, and where.

The first generation of mobile created alternatives to fixed phone lines, triggering the huge mobile substitution trend that has decimated use of fixed voice services.

The 2G network created the text messaging business and also demolished the paging business.

The 3G network enabled mobile email and then mobile internet. Most likely would agree that 4G enabled tethering of PCs and other devices, plus video consumption and smartphones with pleasant user experience when accessing cloud data.

But 4G also largely displaced MP3 players and pocket cameras.   

It would be unusual indeed if the coming 5G network did not cannibalize some existing communications functions and roles; industry segments or participants.

Some will point to fixed internet access as a potential early casualty, as the mobile network--operating in fixed mode--could compete head to head with fixed services for the first time on a massive scale. Up to this point, some percentage of consumers already has learned to substitute mobile access for fixed access.

But that has been a limited phenomenon, generally favored by mobile-only users who do not watch much video. The 5G network might change all that. In fact, even unlimited mobile data, or exempting streaming video from usage charges, might already be creating such habits.

The 5G network should be different than prior mobile generations for many reasons. It should become the first generation of mobile networks to enable use by machines, sensors and servers, rather than humans. Faster and lower-latency mobile broadband will be a feature humans will notice, to be sure.

But the primary new categories of usage is expected to be by sensor networks of various types whose requirements are not so much bandwidth as low latency or low cost.

Also, 5G should be the first mobile network that integrates multiple networks, organically, for access (licensed and unlicensed; owned and third party assets). In other words, 5G will be more virtualized than prior generations.

HughesNet to Launch 25 Mbps Satellite Internet Access Service

The latest Federal Communications Commission report on broadband access suggests the potential for services such as HughesNet, which soon will be able to deliver 25 Mbps downstream speeds across the continental United States. Today, HughesNet can deliver up to 15 Mbps speeds.

Some 10 percent of all U.S. residents (34 million people) lack access to 25 Mbps/3 Mbps service. If one assumes an average of 2.5 persons per household, that suggests an addressable market of perhaps 13.6 million households.  

According to the FCC, up to 23 million of those people live in rural area. So 68 percent of the satellite broadband opportunity exists in rural areas, or about 9.2 million households.

Of course, internet speeds keep climbing, in the United States and globally, so neither HughesNet nor any other internet service provider can rest content with any present offer.

The global average connection speed increased 12 percent, quarter-over-quarter to 7 Mbps, a 26 percent increase, according to Akamai.

Year-over-year, on a global basis, the average connection speed increased 26 percent.

Year-over-year, the global 25 Mbps broadband adoption rate increased by 45 percent. Eight of the top ten countries/regions enjoyed gains, ranging from 34 percent in Japan to 201 percent in Singapore.

In the United States, average connection speeds were above 10 Mbps in the fourth quarter of 2016, in every state, with 34 states seeing speeds above 15 Mbps, up from 30 in the previous quarter, says Akamai.

In its report on U.S. internet access, the Federal Communications Commission found that median broadband speeds across the country increased 22 percent in the past year, from 32 Mbps to 39 Mbps. The study was based on 13 ISPs representing more than 80 percent of U.S. subscribers.

North American Consumers Prefer 20 Channels, at $28 to $29 a Month, Tivo Finds

When they are able to buy channels a la carte, U.S. consumers will pay about $29 a month for 20 favorite channels, while Canadians will pay $28 a month for their 20 favorite channels, TiVo’s latest report on video finds. And though it is only a one-quarter change, the price consumes in the United States and Canada are willing to pay dropped 12 percent.

	Q4 2016	Q3 2016	Quarterly Change
Price for Top 20 Channels - United States	$28.87	$32.92	- 12.3% q/q
Price for Top 20 Channels - Canada	$28.16	$32.00	- 12.0% q/q

In terms of specific genres, consumers say they watched 18 percent fewer National Football League games in 2016, compared to 2015, for a variety of reported reasons, including games that were not as interesting, too many commercials, but also 11 percent who said political issues were a turn off.

Use of “TV Everywhere” features (TVE) grew about nine percent in 2016, year over year, including viewing on PCs, tablets or smartphones.

Linear video is used by 83 percent of respondents. Of the 17 percent not buying, 20 percent reported cutting service over the last year. It is important to remember that is a “gross” figure, not a “net’ figure that offsets account closures with new accounts added. In most recent years, the net change has been less than one percent.

Of stated objections, 80 percent of customers abandoning service said the service was too expensive. Some 48 percent said they were using a streaming service, Tivo said.

Source: Tivo

Content packagers are likely quite right to assume that a shift to a la carte buying would disrupt the existing linear business. Some 64 percent of respondents suggested the ability to buy only channels they wanted would be a new reason to abandon linear service.

Also, in contrast to customer satisfaction surveys that show continuing unhappiness with video services, 78 percent of respondents reported they are “very satisfied” or “satisfied” with their service, while the number of respondents claiming “poor service” has declined 11 percent over the last two years.

Service reductions (cord shaving) also is happening. Some 52 percent said they

“reduced” levels of service in some way, such as reducing buying of premium channels, or reducing the number of outlets in the home.

Rapid Technology Cycles in Mobile Business Will Lead to Consolidation

It would not be unusual for any executive in a capital-intensive and highly-competitive industry to worry about rapid market changes that drive technology obsolescence, necessitating additional rounds of investment.

So some might point to the Indian mobile market, where the standard has been 2G, with relatively-slight investments in 3G, disrupted by a huge shift to 4G that essentially meant a leapfrogging of 3G.

Now operators confront coming 5G platforms just over the horizon, as well. Even before the capital investment hurdles become ruinous because of intensifying technology requirements, competition is driving smaller operators out of the market.

To support higher levels of investment, operators will need more scale, especially if payback periods are shorter than desired.

The other issue is a possible change in formerly-linear relationships between investment and revenue. You might argue that, in the voice era, additional usage brought incremental revenue at levels which were roughly in balance with the additional investment.

Some might argue that formula breaks down in the internet era, where investments in additional capacity do not produce anywhere near linear increases in incremental revenue. The net result is a process of consolidation that has multiple drivers (competition, capital intensity related to spectrum and network platform, faster pace of required investment).

All those trends tend to increase needs for scale, which is driving operator consolidation. More markets, aside from India, might face similar pressures, if not because competition is especially intense, then because the 5G upgrade cycle might be coming so soon after the 4G deployment.

Also, there is the nagging issue of wringing revenue out of mobile data services where increased usage does not grow revenue as fast as the consumption is boosted. That, simply stated, is why internet of things is so important. Such new services might well be the only way to sustain revenue growth.

source: Alcatel-Lucent (Nokia)

Need for Scale is Reshaping India Mobile Market

It would not be unusual for any executive in a capital-intensive and highly-competitive industry to worry about rapid market changes that drive technology obsolescence, necessitating additional rounds of investment.

So some might point to the Indian mobile market, where the standard has been 2G, with relatively-slight investments in 3G, disrupted by a huge shift to 4G that essentially meant a leapfrogging of 3G.

Now operators confront coming 5G platforms just over the horizon, as well. Even before the capital investment hurdles become ruinous because of intensifying technology requirements, competition is driving smaller operators out of the market.

To support higher levels of investment, operators will need more scale, especially if payback periods are shorter than desired.

The other problems include plunging profit margins, caused by Reliance Jio's market entry, which is leading to sharply lower retail prices. [\

The other issue is a possible change in formerly-linear relationships between investment and revenue. You might argue that, in the voice era, additional usage brought incremental revenue at levels which were roughly in balance with the additional investment.

Some might argue that formula breaks down in the internet era, where investments in additional capacity do not produce anywhere near linear increases in incremental revenue. The net result is a process of consolidation that has multiple drivers (competition, capital intensity related to spectrum and network platform, faster pace of required investment).

All increase needs for scale, which is driving operator consolidation.

Leading India Mobile Operators Could See 40-50% Drop in Revenues from Best Customers

With Reliance Jio saying it will meet and beat any other mobile data offers from its competitors, the Indian mobile market is in at least a momentary race to the bottom, in terms of mobile data pricing. Acting as the market disruptor, Reliance Jio has said it will beat any new public competitor offers, in terms of usage allowances, by 20 percent.

Some predict that  Bharti Airtel, Vodafone India and Idea Cellular revenues  from its best customers might plummet 40 percent to 50 percent as a result. That 30 percent of the customer base typically generates 70 percent of an incumbent’s total revenue, according to Kotak Institutional Equities.

Two decades ago, some observers of the Internet argued that was exactly what should happen, and would happen. “Information wants to be free,” many argued, a development with clear implications for media companies and content providers.

These days, zero rating of video and other content is a live issue. Other related activities, including Wi-Fi access, free use of software, retailing and transactions, open source computing and software, as well as much internet content show the trend is rather extensive.

Some have argued that mobile wants to be free, technology  wants to be free, For communications service providers, “communications wants to be free” is the fear.

That is a rational fear, as it turns out. Skype and WhatsApp provide examples of “free” (no incremental cost) substitutes for carrier voice and messaging. In many other areas--long distance calling, international calling, under-ocean capacity--prices have plummeted, on a cost-per-bit basis, and often also in absolute terms.

To be sure, many trends globally have driven down prices, ranging from deregulation and competition to technology improvements (Moore’s Law and its application) to the emergence of the internet.

source: Strategy &

To this point, retail telecommunications service prices have not plummeted, despite all those trends. But as the mobile marketing wars in India illustrate, margin compression is the rule, not the exception.

Half of U.S Mobile Consumer Time is Spent with "Communitainment" Apps

About half the time U.S. consumers spend with mobile apps is spent  with social, messaging, media and entertainment applications, according to researchers at Flurry. In fact, a goodly portion of “communications” now is communitainment: communication for the sole purpose of entertainment.

That category includes Facebook, Whatsapp, YouTube and Snapchat.

Flurry data suggests that U.S. consumers continue to increase their time-spent on mobile devices,   the average U.S. consumer spending five hours a day on mobile devices.

source: Flurry