IoT Use Cases for 5G Networks

Investment or Competition: "Choose One"

Almost every important regulatory decision in the telecommunications industry is directly related to investment and competition, as regulators and policymakers, in principle, want more of both. The big problem always is that those goals often are mutually exclusive. In the short term, it always is possible to boost consumer welfare by policies that promote competition, using policies such as mandatory wholesale and mandatory healthy price discounts for such services.

In the longer term, those same policies tend to depress facilities investment, as profits are not attractive. The problem arguably is worse for legacy services in clear decline, as no amount of investment changes the demand curve for products consumers are abandoning.

So virtually every strategic decision made by every larger access provider these days relates to harvesting of legacy revenues and development of replacement revenues. That is especially true for legacy mobile and fixed service providers, as attackers often can add revenue simply by taking market share from incumbents, even if markets are mature.

For more than a decade, U.S. policymakers have debated whether price controls need to be maintained for special access (T1, DS3) sold to enterprises. Among the issues other than presence or absence of competition in such markets is the fact that demand is shifting away from special access and towards Ethernet replacement services, even as prices for such special access services have dropped substantially over the past few decades.

Among items the Federal Communications Commission will start to address at its April 2017 meeting is a potential change of course on special access (business data) regulations.

The last FCC chairman and commission favored more regulation of special access services, though no action was taken, as the change of presidential administration also clearly meant leadership of the FCC would change.

But the FCC had seemingly been on course to institute lower prices for millions of small businesses, schools, and libraries, with an 11 percent reduction in prices phased in over three years. Critics argued the new price caps would further diminish investment, as demand already is moving away from special access and towards Ethernet access alternatives.

In principle, what is at stake is the proper regulatory stance for an important legacy service that nevertheless is in a declining state, with lots of competition in many--if not virtually all--larger markets.

In fact, executives of independent business data service providers have noted for some years the fact that cable TV operators have taken leadership of the special access market away from independent providers who used to compete with the legacy telcos (primarily AT&T, CenturyLink and Verizon).

Telecom is Mature; Is it Declining?

Every legacy retail access service supplied by cable TV and “telco” providers in most developed markets arguably has passed its product cycle “peak.”

U.S. voice lines peaked in 2000 or 2001, for example, as did long distance minutes of use. Text messaging revenues also are falling. Fixed network internet access markets are reaching saturation as well (in terms of accounts). The degree to which mobility services will limit further growth, and then possibly cause fixed network internet access decline is among the next big issues.

The offsetting trend is data access to support internet of things apps and services, which will add accounts and revenue, though not with the same level of average revenue per account. On a per-device basis, IoT devices might represent monthly revenue an order of magnitude lower than services for smartphones, for example.

Still, demand for internet access connections “for humans” is reaching saturation, in either fixed or mobile realms. That trend remains latent in many emerging markets, where net growth of accounts and revenue is possible.

Eventually, though, even burgeoning mobile adoption and mobile internet access in emerging markets likewise will peak.

That is why internet of things is considered so strategic a development in the access business: it represents the single biggest new revenue driver to replace lost legacy revenues over the medium term.

source: FCC  

source: Turk Telecom

At the same time, value and revenue within the communications and internet ecosystem are shifting to the application layer. That, in a nutshell, explains the key strategic problem for every tier-one access services provider, and the danger for small access providers.

Over time, tier-one providers must become significant owners of new application assets that are used by digital appliances and delivered over access networks. That will be the case even if IoT develops robustly as a new market for access connections.

As one forecast by ABI Research suggests, as important a market as internet of things could be, more revenue will earned by app and service providers than by connectivity services (about three to five times more app/service revenue than “connectivity” revenue).

source: ABI Research

India Landline Accounts Fall 22% Last 5 Years

The number of landline telephone connections in India has shrunk 21.6 per cent in the last over the last five years, falling to 25.22 million in 2016, compared to 32.17 million lines in 2012, By the beginning of 2017, connections had fallen further to 24.34 million.

That “drastic” fall should come as no surprise. That trend has been in place since 2012, when analysts at Gartner predicted that, from 2012 to 2016, fixed voice revenue would decline by 25 percent. And the same trend has been seen in many other markets.

In substantial part, that is because--as happened in other markets--consumers switched to use of mobile phones for voice communications. In the U.S. market, voice lines peaked in 2000 or 2001, and the only issue now is whether a stable base eventually will be reached.

Such declines in voice are not unusual. It is easy to argue that peak messaging (the carrier text messaging market) likewise is past peak adoption. Some might warn that although mobile service provider revenue continues to grow, it now expands at less than the growth of gross national product.

Verizon to Launch New Streaming Service

Verizon Communications plans to launch a new over-the-top streaming live TV service service that would compete with Hulu, Dish and DirecTV Now, Bloomberg reports. The service would not compete directly with Netflix or Amazon Prime, whose catalog largely is built on movie and other pre-recorded content accessed on demand. The Verizon service would instead compete in the “live streaming” segment of the market that is a replacement for linear TV.

In large part, the move is designed to capture demand from consumers for lower-cost, skinny bundles of channels. Comcast seems also to be preparing to offer a skinny OTT bundle.

Pricing is expected to range between $20 and $35 a month, most expect, as that is the range for the competing services.

The Verizon move shows the “harvest linear, grow OTT” strategy the leading linear video subscription service providers are following. The launch also shows the importance of video entertainment services as a driver of consumer service provider gross revenue.

Beyond that, the OTT video launch also illustrates the strategy for larger tier-one service providers, which is to participate at the application layer of the media business in the consumer segment, and in the Iot, M2M and mobile advertising platform businesses in the enterprise customer segments.

OTT Video is a Challenge, But Not a Fatal Challenge for Access Providers

It goes without saying that the maturation of the linear TV business, and the growth of the streaming business, could have significant repercussions for revenue earned by telcos and cable TV companies in the U.S. and other markets from consumer customers, though not as great an impact as will the development of the internet access business.

The reason is that linear video has become a significant--in some cases very significant--contributor to fixed network telco revenues. Video represents a greater contributor to consumer account gross revenue per account than does voice, for example.

source: Telco 2.0

source: Deloitte  

So a clear and key strategic challenge for fixed network providers serving the mass market is how to finesse the transition from linear to OTT formats. Some will point to leadership by Netflix and others as evidence that linear providers cannot make the transition to OTT. We do not know that, for certain, as linear providers have huge incentives not to cannibalize their existing business by moving prematurely to OTT.

Some 13 percent of US homes (15.4 million)  now buy internet access but not linear TV services,  according to SNL Kagan researchers. Kagan estimates that such cord-cutting  homes will reach 28 million by 2021, and possibly more.

It is not a new challenge. Telcos faced the same problem with OTT voice and OTT messaging. Some urged telcos to embrace OTT fully. The problem is simply that the financial returns for doing so (matching OTT prices and plans, for example) would simply destroy most of the existing business, where a strategy of measured decline (the course virtually all telcos have taken) actually produces better financial results.

That, in fact, was the strategy used by AT&T earlier: harvesting a legacy business as long as possible, to buy time to create a new set of revenue drivers.

Nor is lack of leadership in OTT a show stopper. U.S. telcos--especially Verizon and AT&T--have grown more through acquisition than organic growth.  When the time comes, assets will be acquired.

So it might not, in that view, be too alarming that the number of U.S. customers relying solely on OTT for video entertainment keeps growing. That is the current pattern, and a pattern that is expected to continue. So the classic past pattern--harvesting the legacy revenue stream while building new revenue sources--will hold.

Steps will be taken to retain as much of the linear business as possible. Effective price reductions (skinny bundles and triple play) are part of that strategy. At the same time, efforts to organically grow the OTT business will be undertaken. Ultimately, the tier-one providers will buy their way into the business. They have done it before. They will do it again.

source: IHS

"Dig Once" Might Not Help Much

There arguably are all sorts of barriers to broadband deployment related primarily to infrastructure cost or underlying demand. Some recently have proposed duct placement whenever federal highway funds are used to build new highways. Of course, some might note that the potential upside might come at a cost: less money to spend roads. Most of the reason internet access is suboptimal is access infrastructure, not long haul transport. And, of course, most highways are “long haul” infrastructure, not “access” facilities such as urban streets.

To be sure, middle mile infrastructure is a definite problem for most rural communities. Ductwork placed in the ground when new highways are built might not help solve that problem, as highways generally run between large population centers (east-west or north-south), and long haul facilities likely already follow those routes, as long haul lines already follow railroad rights of way.

“Dig once” always sounds good. But it costs money, and might not typically actually result in more facilities-based competition. To be sure, so long as somebody else is paying for the conduit, there is a potential benefit, in principle, for any ISP needing to build new long haul infrastructure. It is not so clear that such conduit actually encourages service providers to build new access facilities, even if the long haul routes might prove useful for enterprise traffic purposes.

Indeed, there are advantages and disadvantages, the Government Accountability Office has said. Some enterprise customers (U.S. government, for example) do not allow their transport providers to use lease infrastructure. Capacity along the routes where conduit is available might not materialize, or develop robustly. Also, the nature of construction matters.

If conduit installation is required fro federal highway construction, one conceivably could end up with short sections of conduit laid (as the result of repair work, for example), with no actual connectivity, end to end, to anywhere. Also, redirecting funds to lay conduit might consume seven percent or more of the allocated road funds.

There are other practical issues, as when municipalities trade conduit access to internet service providers to promote access or metro communications builds.

The point is that “dig once” sounds good, but is likely to have almost no impact on additional internet access facilities, while stranding assets and reducing sums available to repair roads.

source: GAO