What Happens to Typical Usage When 5G Replaces 4G?

What will happen to mobile network customer usage patterns when 5G becomes mainstream, boosting average mobile speeds per device up into the hundreds of megabits per second range?

Past experience suggests overall usage will grow, as there is a correlation between faster speeds and greater data consumption. In India, that was the case when 3G speeds were widely available. The same happened when 4G replaced 3G. The reason is simple enough.

When higher speeds are available, a single minute of usage transfers more data on a faster network than on a slower network. Also, with faster speeds comes better user experience, generally, which creates an incentive to spend more time interacting. Both those trends will lead to higher usage.

source: Nokia

source: GSMA

Even with network offload from mobile to Wi-Fi, it is likely that 5G will keep more traffic on the mobile network, for several reasons. If tariffs create no disincentive to offload, users will simply stay "on the mobile network" more than they have in the past.

Also, faster speeds historically mean more consumption per minute of use.

For telcos with a significant base of customers on unlimited plans, the shifting of traffic from Wi-Fi to cellular will continue to drive an unnecessarily higher cost-to-serve model—one that puts them at a disadvantage relative to telcos with capped data plans.

In the U.S. market, as all four of the largest U.S. mobile operators now offer, and are marketing, some form of “unlimited” usage plans (even if there are actual limits in place), we ought to be alert to potential changes in usage patterns.

It simply stands to reason that a customer moving from a fixed-usage plan of some sort to an “unlimited” plan might be inclined to consume more data, especially if that customer previously had purchased relatively smaller usage buckets.

It also stands to reason that this might not actually occur for at least some customer segments who previously had been on “big” usage plans. In other words, a customer on a data plan with lots of permitted usage (a “big bucket of usage”) might not necessarily increase usage in a material way, when converting to an unlimited plan.

Indeed, that is what analysts at BCG argue: “Unlimited plans do not increase usage; they shift usage to cellular,” BCG says.

Asking the question of whether subscribers on unlimited plans actually use more data than those on capped plans, BCG finds the  answer is “no.”

Perhaps surprisingly,  “overall usage is roughly the same.” So for at least some customer segments, mobile operators can benefit. They can offer plans that offer “more,” but might confidently predict that many consumers--though pleased that they now can buy plans that offer more usage--might not actually change their behavior.

In that case, the mobile operator is able to offer “more value,” arguably creating a happier customer, but without fear that at least some key customer segments will actually increase usage in any significant way. So the mobile operator can offer higher value, but without the cost of actual increases in usage that eventually drive up capital spending to supply additional network capacity.

Or maybe not. “What unlimited plans do appear to do, however, is steer more—significantly more—of that usage to the cellular network,” BCG also says.

The implication is that even if “unlimited plans” do not alter total data usage, they still affect ntwork load, because “customers on unlimited plans use twice as much cellular data as customers on limited plans.”

source: BCG

So, at least so far, widespread adoption of unlimited usage plans will change usage patterns, but not because actual usage increases.

Instead, there is a shift of usage from Wi-Fi to the mobile network, the opposite of the prior trend where consumers offloaded more of their usage to Wi-Fi, and off the mobile network.

LTE Reaches 32% Market Share, But Here Comes the Next Network

Long Term Evolution 4G now has about 32 percent share of the mobile market, according to 5G Americas. In part, that explains the intense work going on to create 5G. New mobile generations appear about every decade or so, and follow a rather standard product life cycle, from birth to decline.

For better or worse, and despite some skepticism about whether “we need 5G,” 5G will come. Though 4G still is in its growth phase globally, it already is mature in developed markets, and the successor already is coming.

The simple reasons is that, eventually, any specific mobile platform runs out of things to sell to human users. So new platforms, with new features, are needed to drive a new wave of growth.

source: 5G Americas

The adoption rate seems to be exceeding many earlier projections. The main point, however, is that mobile networks continue to follow a clear product life cycle.

source: Telegeography

source: Geile/Lyon

56.6 Million Potential OTT Video Subscription Customers

Some over-the-top subscription video suppliers (Netflix) are thrilled around the declining demand for linear video services, as it is the business problem that creates their revenue streams.

Legacy suppliers are worried because they face a decline of their large existing businesses, as well as the danger that if they create OTT streaming alternatives of their own, they will simply accelerate abandonment of linear services.

This is a familiar problem. Telcos faced the problem when pondering the way to respond to the rise of OTT voice and messaging services. Sure, they could create and heavily market their own OTT services, but only at the risk of cannibalizing their existing high-margin, high average revenue per user legacy services.

Still, as the abandonment of linear services grows, so does the opportunity to create new OTT services--mobile, especially--that cater to the swelling numbers of consumers who have no appetite for $100 a month linear services.

In 2017, in the U.S. market, there will be 56.6 million people who do not buy a linear service. If one assumes 2.5 people per household, that represents 22.6 million U.S. homes that are candidates for one or multiple OTT streaming subscriptions.

In the mobile realm, the opportunity arguably is greater: fully 56.6 million people customer accounts with multiple potential sources of business value.

In some cases, there is a direct revenue subscription opportunity. In other cases there is indirect value, in the form of reduced churn and increased ability to attract new customers. For mobile service providers, there is the ability to create a huge base of targeted advertising opportunities.

source: emarketer

AT&T to Launch Mobile OTT Service in 2018

AT&T plans to launch its own mobile-centric, over-the-top streaming solution that is access provider agnostic, with a planned commercial launch in 2018.

AT&T is going to build on its DirecTV Now service and then have it available as “the primary service” in a home.

Operationally, customer acquisition costs could be lower than linear services. Provisioning costs will absolutely be lower. There will be no need for truck rolls, drop cable installation, decoders and outlet installation. There will be virtually nil trouble tickets created because customers have decoder problems.

Also, in the same way that DirecTV allowed AT&T to sell linear video virtually nationwide, for the first time, so mobile streaming service will be available nationwide, without the specific need to add new facilities, as the service will use a “bring your own broadband” approach.

At least initially, the mobile OTT offer will aim to please potential customers who do not wish to buy a traditional linear video service. That target audience is about 20 million U.S. households. One virtually-certain feature is a skinnier bundle, with a lower price, possibly between $30 a month and $60 a month. Linear “big bundle” packages tend to cost between $80 and $100 a month.

There will be other upside as AT&T deepens its media activities.

For many participants in the media business, advertising is the sole or primary revenue source. For others it is a key revenue source, even if direct end user subscriptions are the major revenue driver. Both Verizon and AT&T now believe advertising will be a significant revenue contributor.

AT&T believes a key advantage of its content plus distribution strategy is the ability to create a new targeted advertising capability, according to Randall Stephenson, AT&T chairman and CEO.

“Within AT&T and DirecTV, we have an inventory of advertising that we sell every year, about 200 billion impressions that we sell every year,” said Stephenson. “Time Warner has 750 billion impressions that they sell every year predominantly through Turner networks.”

In other words, AT&T soon will have about a trillion impressions per year to sell. Just as important are the new targeting possibilities. AT&T says it is able to sell about two to three times the targeted advertising that Time Warner is able to sell. So simply creating a targeted ad capability for Time Warner inventory could yield big returns.

Comcast's distribution business (cable TV operations) generates about two percent of total revenue from advertising. On the other hand, its NBCUniversal unit (which contains the programming networks) generates more than 31 percent of total revenue from advertising.

New Telecom Infra Project Team Effort on Fixed Wireless, Backhaul, Smart City Use Cases

Facebook’s work on “Terragraph,” a fixed wireless  network using millimeter wave spectrum, multiple input, multiple output radios (MIMO), mesh networking and open source licensing now forms the foundation for a new development group called the Millimeter Wave (mmWave) Networks Project Group, co-chaired by Deutsche Telekom and Facebook.

Lead applications include:

• Fixed wireless access
• Mobile backhaul
• Smart city applications

The mmWave group will use data and lessons learned from Facebook’s Terragraph solution, a proof-of-concept system that overcame the signal range and absorption limitations that previously confined the 60GHz frequency to indoor use, Telecom Infra Project says.

The proposed architecture has many similarities to a “fiber to light pole” design, where highly-distributed radio sites (small cells) are the “access” network launch points. Verizon’s deep fiber design calls for extending the fiber trunking network to nearly every light pole, potentially.

The mmWave network architecture being developed by Telecom Infra will not require fiber distribution that extensive, as it is designed to rely on a relative handful of optical nodes, and primarily uses the mesh radio network to distribute signals to most small cells.

That feature is designed to minimize capital expenditure on fiber distribution.

The mmWave group will focus specifically on use of the 60 GHz frequency band, expected to remain unlicensed. That also helps minimize distribution network costs.

Disney Plans to Cannibalize Itself

As the video entertainment market shifts to over-the-top distribution methods, content providers will face a problem telcos are well aware of, namely revenue issues caused by product substitution.

Much of the cost to Disney of launching its new streaming services will come from increased operating costs, as it will have to market itself, instead of relying on its distribution partners to do that. UBS has estimated that cost at about $806 million annually.

That is not even the biggest cost, though. As many legacy product providers often find, new products often simply cannibalize existing products.

When an internet service provider using digital subscriber line shifts to newer platforms such as fiber to the home, it loses a DSL account for every existing customer it converts to a fiber access. So net gains are the issue, as a telco trades lost DSL accounts for new fiber accounts.

That problem is obscured a bit by the fact that few telcos in the U.S. market have completely replaced their copper access lines. So, in some areas, there is not an opportunity to even swap fiber lines for copper lines.

That is akin to the problem Disney will face in “going direct” to consumers with its content.

Unlike third-party distributors, Disney does not have a “cost of goods” line item, as it owns its own content. That is a huge plus.

On the other hand, Disney will have a huge “lost revenue” problem, as it loses licensing revenue presently earned by supplying third parties with Disney content. That is very much like the “fiber for DSL” problems faced by telcos. Creating the new platform necessarily causes losses on the old platform.

UBS estimates that Disney’s film TV licensing alone could suffer a $2.1 billion a year loss, and that its streaming licensing through services like Netflix might all $500 million in additional current revenues.  

source: UBS

So before the Disney streaming services can hope to achieve breakeven, they start with a potential loss of up to $2.6 billion in annual lost current revenues from licensees who will not be able to buy that content from Disney. It is a high hurdle.

UBS estimates Disney must find  32 million customer accounts, at a $9 a month subscription fee, to reach breakeven on an operating basis. Though Netflix has 100 million accounts globally, Netflix is unusual. Most of the network-specific streaming services have single-digit million accounts, at least so far.

HBO Go has perhaps 3.5 million subs, while all the CBS streaming accounts might number about four million.

So the biggest single business problem for Disney is the lost revenue it will incur when it stops licensing its content to other distributors.

U.S. TV Antenna Households Increase to Nearly 16 Million Homes

One sign that consumers are unbundling their video entertainment purchases is the increase in purchasing and use of over-the-air antennas, presumably then combined with subscriptions to one or more streaming services.

A study sponsored by Ion Media and conducted by Nielsen shows the number of broadcast-only homes has increased 41 percent over the last five years, to 15.8 million households.

That shift, in turn, is part of a larger rearrangement of buying preferences in the video entertainment business, which has consumers shifting buying to over-the-top streaming services, reducing or halting the buying of linear services and use of streaming services.

The report finds that broadcast-only homes have a higher percentage of young viewers (median age 34.5) than total TV households (39.6).

Some 39 percent of broadcast-only homes have children in the household, compared to 34 percent of total TV households.

The new reliance on over-the-air antennas is part of a range of other trends including a shift to mobile video, cord cutting of linear video subscriptions, a shift to skinny bundles and use of streaming services.

The shift to use of over-the-air TV is related to a larger problem in the communications business, namely the process whereby products and services become features. In the case of broadcast TV, the shift if from paying for a linear video subscription that also includes the local off-air channels, to buying an antenna to avoid paying for such content access.