Scale Does Matter

The Windstream acquisition of Broadview Networks illustrates a few important points about the fixed networks business in the U.S. market. Scale does matter. The largest tier-one providers have strategic options not available to service providers without scale. Few U.S. telcos could become important players in the content networks business, as Comcast and AT&T have done.

One tier down, some former independent telcos mostly operating in rural markets amassed enough scale to reposition themselves as business customer specialists. The smallest operators have very few good choices at all.

Windstream, for example, has shifted its revenue in the direction of business customers, especially small and mid-sized firms, and the latest deal only reinforces that strategy. Recall that Windstream, like Frontier and CenturyLink, once were known as “rural telcos” serving not only small markets but also mostly consumer accounts.

These days, CenturyLink has been transformed, earning more than 88 percent of revenue from business customers. Frontier had been earning nearly half its revenue from business customers until its acquisition of former Verizon accounts, which has tipped the company back into being a firm driven by consumer accounts.

That is not necessarily to say consumer revenue is unimportant. Consumer revenue still drives mobile operator revenue. Video entertainment--mostly a consumer service--now anchors AT&T’s fixed network revenue.

In the fixed networks business, it might be argued that, for some, strategy is to somehow reduce consumer segment exposure, since growth is gone. If that is the case, some might argue Frontier made a strategic mistake in making a bigger push in the consumer segment.

On the other hand, AT&T has gotten bigger in consumer media services, but not by using the fixed network, at least as a transitional step. Firm strategy, in other words, suggests tier one providers have a range of options not available to smaller providers without scale.

As CenturyLink and Windstream have tended to show, a shift towards business revenues is possible, for the largest rural telcos. That likely is not conceivable for most small rural telcos or cable operators, though.

In the competitive local exchange carrier segment, once dominated by many independent firms, cable TV firms have emerged as the leaders, while independents gradually are being absorbed. That is not unusual, as niches often are cultivated by specialist firms until the larger providers conclude they need more exposure in the niches and acquire the smaller firms.

One might also conclude that Broadview had reached a point where growth in its existing markets was exhausted, with revenues flat over the last three years.

That might lead one to conclude that, in the fixed networks business, for at least the larger remaining providers, revenues will shift to the business segment, after scale is achieved and accretive acquisitions are made.

The biggest single lesson is that scale really does matter. With scale, many growth paths exist (mobile services, media content, video services, business services, international expansion). Without scale, options are limited, and more limited the smaller the size of any firm’s operations.

Cloud Services Still are "Winner Take All"

source: Canalys

New data from Synergy Research Group shows that hyperscale operators are aggressively growing their share of key cloud service markets, a finding that should not come as a surprise. As with many application and access markets, “winner take all” of the “rule of three” tend to operate, with the consequence that only a few will lead in terms of market share.

Synergy' says 24 “hyperscale” companies in 2016 those companies accounted for 68 percent of the cloud infrastructure services market (IaaS, PaaS, private hosted cloud services) and 59 percent of the SaaS market.

Even that obscures the concentrated nature of leadership. In early 2016, for example, Amazon Web Services alone had about 33 percent share, while AWS plus Microsoft held half the market share. Add Google and IBM and four firms held about 66 percent share.

In 2012 those hyperscale operators accounted for just 47 percent share of each of those markets, says Synergy.

source: Synergy Research

In aggregate those 24 hyperscale operators now have almost 320 large data centers in their networks. The companies with the broadest data center footprint are the leading cloud providers – Amazon, Microsoft and IBM.

Each has 45 or more data center locations with at least two in each of the four regions (North America, APAC, EMEA and Latin America).

Australia Gets 4th Facilities-Based Mobile Operation

Where it is possible--where the business model works--many would agree that facilities-based competition provides faster innovation and higher consumer benefits than non-facilities-based competition.

Such facilities-based competition has been relatively rare in the fixed networks business, and arguably has gotten more difficult, while common in the mobile business. That arguably is mostly because of the high cost of fixed networks, but also because network costs are lower, and consumer demand has been higher, in the mobile segment.

And though the outcome is not yet clear, TPG Telecom has acquired 700-MHz spectrum to build its own 4G network in Australia, joining Singapore Telecommunications, Telstra Corp and Vodafone Group as facilities-based providers of mobile service in Australia.

At least for the moment, that means Australia will be among the many nations where policymakers (if not service providers) believe a four-provider mobile market is sustainable and provides the highest degree of consumer outcomes.

TPG had been the only major Australian mobile provider without its own network. TPG won two 10-MHz spectrum bands with a A$1.26 billion ($944 million) bid. It said it would spend another A$600 million building a 4G network to reach 80 percent of the population.

TPG’s ambitions are quite high, as it presently has market share in the range of just three percent.

source: mobilenetworkguide.com

%Share	Total Market June 2016
Telstra	41.8
Optus	21.8
Vodafone	15.2
Virgin	5.4
Boost	0.7
amaysim/Vaya	4.5
ALDI	2.2
TPG/iiNet	2.8
Other MVNOS	5.5

source: Kantar Worldpanel

Virtualized Access a Growing Foundation for Mobile

In both the core and access portions of the communications network, virtualization is becoming a fundamental building block for use of all network assets, owned and borrowed. Such sharing has been informal for some time, as exemplified by smartphone Wi-Fi access. But sharing mechanisms are becoming more formalized and integrated, as exemplified by

Wi-Fi calling.

In many cases, Wi-Fi calling is a way to overcome mobile network signal issues indoors, with sessions maintained even when a connection switches from mobile to Wi-Fi, for example.  

There are, in fact, a growing number of ways to  virtualize spectrum and access assets, both formal and informal. Several methods for bonding licensed and unlicensed spectrum assets are available, including LTE-U, license assisted access and license shared access.

In a growing number of instances, both direct and indirect revenue models might be involved, with a growing amount of integration of owned and third party access assets.

Of course, in other cases, Wi-Fi is a feature of a service the buyer actually does pay for directly. The best example is consumer fixed network internet access, where Wi-Fi typically is the physical mechanism used to connect devices. In that sense, Wi-Fi replaces physical cables and outlets.

Wi-Fi calling also represents an early and informal method of spectrum sharing, in this case treating licensed mobile operator assets and owned or third-party Wi-Fi assets as interchangeable parts of the physical network access infrastructure.

That virtualization of the details of network access already is a building block for service providers

Such as Republic Wireless and Google's Project Fi, and is different from Wi-Fi-only calling offered by over-the-top apps such as Skype, Google Hangouts, Facebook Messenger and WhatsApp.

In the future, MulteFire, a method for creating Long Term Evolution 4G networks entirely using unlicensed spectrum, might be an important platform.

Consumers Still Do Not Have a Good Grasp of Value, Price in Internet Access

It never has been easy for consumers to figure out “how fast, or how good” their internet access services are, how much they consume, or how much that consumption actually costs. Matters are complicated by the fact that value keeps climbing, while costs per unit keep dropping.

In 2009, the median consumer internet access speed was just 7 Mbps, according to the Federal Communications Commission. But by 2016, speeds had increased by an order of magnitude or even two orders of magnitude, among the tier-one providers.

And even if prices dropped, consumers have changed behavior, upgrading to faster tiers that cost more.

source: Ookla

All that matters, as a recent survey of consumer attitudes suggests most U.S. residents support building of municipal broadband networks when service is deemed inadequate.

A substantial majority of the public (70 percent) believes local governments should be able to build their own broadband networks if existing services in the area are either too expensive or not good enough.

Of course, there also is evidence that U.S. residents are ill-equipped to make such determinations.

When asked what download speed they have for their own home internet service, 47 percent were not able to provide an answer. Though 73 percent of U.S. homes have fixed network access, and probably 13 percent are mobile-only for internet access (implying that possibly up to 86 percent of the population buys internet access), about 25 percent of respondents guessed that less than half of U.S. residents had fixed network internet access.

On the matter of retail cost, everyone agrees that cost per gigabyte (consumption), or cost per Mbps (speed) have declined over time, and continue to do so. Beyond that, effective cost per gigabyte depends largely on how much any particular user consumes, compared to the posted rates. In other words, if a consumer buys 10 Gbytes of usage per month for $30, but uses only one GB, then the effective cost is $30 per used GB, even if the nominal cost is $3 per GB.

Volume also makes a huge difference: buy more and price per unit drops sharply.  

Typically, retail pricing in the U.S. mobile market is about $10 per GB or less for plans with moderate usage buckets, though pricing for small buckets can reach $15 per GB.

The new unlimited plans make such determinations even more problematic. But it would not be unusual for one GB to cost between $3 and $4 per GB, when a plan has some volume.

Fixed network prices tend to be lower than that, often by an order of magnitude (10 times). The point is that U.S. consumers cannot easily figure out whether value and prices are in line, appropriate or reasonable.

source" The Next Platform

FCC Does Not Plan to Allow in-Flight Calling

The Federal Communications Commission looks to continue its present policy of no in-flight phone calls. Chairman Ajit Pai said  “I stand with airline pilots, flight attendants, and America’s flying public against the FCC’s ill-conceived 2013 plan to allow people to make cellphone calls on planes.”

“I do not believe that moving forward with this plan is in the public interest,” Pai said. Pai plans to take that policy off the agenda, terminating the FCC’s 2013 proceeding to relax the rules and allow in-flight calling.

“Taking it off the table permanently will be a victory for Americans across the country who, like me, value a moment of quiet at 30,000 feet,” Pai said.

5G Networks Will be More Expensive

Business models in the 5G era are likely to be more complicated for a number of reasons, including the likely higher cost of infrastructure. 

For starters, millimeter wave frequencies will require use of small cells, which means many more sites and therefore lots more backhaul locations. Support for new internet of things apps might require--or benefit from--overlay networks of the low power wide area type. So one network might not “do it all.” 

 Radios are likely to feature “massive” multiple input, multiple output (MIMO) technologies, which are more complex than today’s mobile radios, and incorporate new beam-forming technology as well. 

 Also, in addition to designing new mobile networks incorporating millimeter wave frequencies, at least some access providers might choose to build fixed wireless networks that coexist with millimeter-wave mobile networks. 

That will require more frequency coordination. On the revenue side, new business models and roles in the internet of things and machine-to-machine communications areas will have to be created, as services sold only to human beings might not represent all that much incremental revenue.