5G Will Cost More than 4G, But How Much More?

It is fair to note that the cost of building a 5G network hinges on several key inputs: which spectrum bands are available; what bandwidth can be refarmed and whether millimeter wave bandwidth is used.

The costs of using millimeter  spectrum bands to build 5G networks across Europe could be astronomical, according to Bruno Jacobfeuerborn, Deutsche Telekom CTO, costing between

€300 billion ($318 billion) and €500 billion ($529 billion).

Other estimates suggest far lower radio costs. But it might be reasonable to assume 5G will cost more than 4G, based simply on historical trends, where each new generation of networks is more capable than the earlier networks, in part because greater numbers of cell sites have been necessary, over time, to account for signal propagation of higher-frequency signals and greater need for frequency reuse.

source: European Commission

Much of the cost comes from radio infrastructure, since the assumption is that small cells will be required, perhaps requiring an order of magnitude or more cell sites.

Barclays reckons the return on capital employed, or ROCE (a common investment measure), needs to be at least 8% for operators to be able to finance 5G rollout. Incumbents like Deutsche Telekom are likely to have a higher ROCE, according to its research, but Tier 3 mobile network operators fall well short of the mark, and the overall industry barely hits the 8% target.

Will SD-WAN Eventually Displace MPLS and Other Legacy Services?

You can often get a good debate going, with no chance of settling the argument, yet, about whether SD-WAN complements or displaces other services such as MPLS. As you would expect, existing suppliers nearly always say there will not be much product substitution, which might disrupt existing revenues.

“It's not going 100 percent from MPLS to SD-WAN,” said CenturyLink CEO Glen Post.” It's usually a hybrid network solution.” But will there be some cannibalization. There almost has to be, as Post acknowledges. “Our concern is it's more of a competitors' advantage.”

AT&T’s position also is about what you might expect from a firm that stands to lose if substitution is what eventually happens at its enterprise accounts, and gains if it can hang on to what it already has, and then adds new accounts in the smaller business area.

According to AT&T CEO Randall Stephenson, SD-WAN “tends to be real down-market” (smaller accounts, not enterprise).  But there already is a small impact on the more-traditional products. “We're seeing some effect from it.”

“Up-market, the traditional VPN capability is always, we think, is going to be the enduring capability,” Stephenson says. “But down-market, we're going to have to be prepared to compete with this kind of offering.”

The strategic problem is that, quite often, the selling point for SD-WAN is that it is a less-costly, easier-to-manage VPN.

In the near term, it will be hard to discern how much SD-WAN is a replacement for MPLS (it is) and how much it also represents a new product category that represents incremental growth (the “down market” segment AT&T believes exists).

Long term, it is hard to see how software-defined networking does not, in fact, displace one or more legacy product categories. Can you think of any enterprise, mid-market, small business or even consumer data products that have not been replaced by newer offerings?

source: Siemon

Unlimited Usage Plans Accelerate Pressure on Operators Trying to Monetize Usage

Unlimited mobile internet plans, whatever qualifications are placed on use of those plans, strike at the heart of hopes to monetize increased mobile internet usage. That is a huge tactical problem, even if--strategically--”everyone” has known for some time that significant future revenue growth could not be driven by consumers using smartphones or other devices.

Price wars do not help. Nor does ability to monetize higher usage by levying higher per-unit (consumption-based) prices. “Nobody” would seriously propose that consumption of fresh drinking water, electricity, heating fuels, groceries and other consumer goods be charged on an “all you can eat” (unlimited) basis.

Supply and demand clearly matter. The scarce asset, for any communications network supplying “access” now is internet usage (gigabytes instead of voice minutes of use).
For a “best effort” service, contention and network loading therefore become key issues.

Ironically, as consumers have chosen to consume less voice, less text messaging, less long distance calling, network load has lessened enough, for such low-bandwidth apps, to allow “unlimited consumption of products nobody wants to use much of.”

The problem Verizon, AT&T and others clearly face is that if unlimited-usage plans remain in effect, and if they become the “dominant” plans consumers purchase, then higher usage cannot be monetized directly.

That comes against a backdrop of “slow to no growth” globally.

Mobile operator revenue and cash flows at the largest 250 global companies have dropped by an average of six percent a year since 2010, according to McKinsey analysts.

From 2010 to 2014, the telecom business entered a period of slow decline, with revenue growth down from 4.5 percent to 4 percent, EBITDA margins down from 25 percent to 17 percent, and cash-flow margins down from 15.6 percent to eight  percent.

Among US telecom companies, for instance, landline and mobile voice now account for less than a third of total access, down from 55 percent in 2010, while data revenue has risen from 25 percent of total revenues in 2010 to 65 percent today.

source: McKinsey

It likely is worth noting that the greatest driver of consumer internet bandwidth is video. If usage cannot be monetized directly, it will make sense to try and monetize in other ways, such as owning the video service assets consumers pay for, video assets that can be monetized by advertising, or other apps for which consumers will pay an additional fee.

Uh Oh: Global Mobile Service Revenue from IoT Might Not Move the Needle

Internet of things access revenue might be quite smaller than many expect, in part because many of the connected sensors are going to use existing connections. On the other hand, an incremental $28 billion worth of global Iot-driven access revenue (in 2025) will be helpful. At that point, IoT access revenue might represent about three percent of total service provider revenues globally.

The implied bad news is that even those incremental new IoT revenues will only replace lost revenues from legacy services.

Assume total mobile industry revenue grows about one percent annually between 2016 and 2025. On a base of perhaps $810 billion, that would imply $886 in 2025 service revenues.

That, in turn, assumes that mobile operators, on a global basis, will add $8 billion to $9 billion in annual revenues, every year.

Now consider internet of things revenues. If you assume global IoT connectivity revenue already is about $6 billion, and grows about 18 percent annually to 2025, then we might expect global IoT connections revenue to be about $27 billion by 2025, adding a $1 billion or $2 billion incremental access revenue lift in the the early years, and perhaps as much as $4 billion in incremental new revenues closer to 2025.

One has to assume that the global increase in mobile operator revenues of $8 billion to $9 billion annually already includes the expected contribution from IoT access revenues, all other sources, and includes erosion of existing sources as well.

Majority of U.S. Homes Now "Mobile Only" for Voice

It finally has happened: Fewer than half of all U.S. homes buy a fixed line voice service, the Centers for Disease Control reports. That “milestone” was expected, as the percentage of U.S. households buying fixed-line voice service has been steadily declining for more than a decade.

Preliminary results from the July 2016 to December 2016 National Health Interview Survey (NHIS) indicate that 50.8 percent of U.S.  homes did not have a landline telephone service.

Earlier studies had shown that even households with fixed line phone service have been using those services less. In the U.S. market, fixed network voice peaked either in 2000 or 2001, depending on which source one cites.  

source: Centers for Disease Control

Something similar likely is happening with linear video subscriptions, as cord cutting (customers abandoning service), cord shaving (customers reducing levels of service) and cord never (people who never had bought a linear video service)

"The first quarter is usually a seasonally strong one for pay TV. It wasn’t this year," said MoffettNathanson analyst Craig Moffett. Moffett said the drop of 762,000 video subscribers was the worst first-quarter loss ever for the U.S. linear video subscription business.

It is a fact that linear video is past its peak. Almost nobody would dispute the faster rates of decline are coming. Many would argue the rate of decline now clearly has accelerated. The issue is whether--or when--an inflection point is reached, where the rate of change happens very fast, over a relatively few years.

It is likely fair to point out that changes in some markets--internet access, mobility, mobile data, text messaging--show clearer signs of inflection points and discontinuous change. Change has tended to move in more linear fashion in the fixed network markets, although 2000 to 2003 marked a key turning point--and arguably inflection point--for voice revenue, lines and usage.

source: World Bank

source: eMarketer

source: eMarketer  

What Roles for Access Providers in IoT? Perhaps Not a Big as You Might Think

David Harding of Analysys Mason looks at opportunities and roles available to operators in the IoT space. 

Near-Zero Pricing Remains a Key Industry Issue

Near-zero pricing continues to remain an unstated background factor in the global telecom business. Consider internet access, voice, texting or just about any other service you wish to name.

Over time, the actual cost of connecting to the internet has dropped, a fact that has fundamental implications for all in the ecosystem, if you note what happened to the "telecom" industry as international and other long distance calls fell nearly to zero.

Simply put, the profit was ripped out of the business. Sure, voice still is a vital function of a mobile service, but has become an optional part of a fixed network service. The same now is true of text messaging, which not so long ago drove data revenue growth in the mobile business. 

That might happen for internet access as well. 

Internet.org has launches its Express Wi-Fi service, lighting close to 700 Wi-Fi hotspots across

the four Indian states of Uttarakhand, Gujarat, Rajasthan and Meghalaya, and making all-day internet access possible for a cost of about 15 cents to 30 cents, purchased as needed, per day, or $3 to $5 a month, purchased a month at a time.

Express Wi-Fi is currently live in five countries: India, Kenya, Tanzania, Nigeria and Indonesia.

Bharti Airtel will launch an additional 20,000 Express Wi-Fi  hotspots over the next few months.

In addition to its partnership with Airtel, Express Wi-Fi has been deployed with ISPs AirJaldi in Uttarakhand, LMES in Rajasthan, Tikona in Gujarat, and soon with Shaildhar in Meghalaya.

Internet.org “is part of Facebook’s global initiative to spread internet connectivity,” the organization says.

“Express Wi-Fi is designed to complement mobile data offerings by providing a low-cost, high bandwidth alternative for getting online and access apps, download and stream content,” Internet.org says.

Express Wi-Fi is a paid public Wi-Fi service, sold by local entrepreneur partners at Rs 10 to Rs 20 (15 to 30 cents) for a day-long access (Rs 200 to Rs 300 for a month). The vouchers will be available to purchase through online and offline stores.

Access to the internet is a necessary foundation for all value created by the internet. On the other hand, that role no longer is exclusive to traditional access providers; no longer platform specific (fixed, mobile, satellite, Wi-Fi) and arguably no longer a long-term driver of access provider financial success, as important as it remains.