Why Telco OTT Partnerships Rarely Succeed

“Moving up the stack” is about as key a concept in the telecom business as “dumb pipe” likewise is notable. “Up the stack” is a phrase that means an access services company (cable TV, satellite, telco, capacity supplier) moves from being a supplier of “pipe” services (network access and transport) to being an application provider.

In other words, such a firm returns to its roots. Recall that, historically, telcos made their business by providing voice communications. Communications (voice, originally) was the value and the business driver. To do so, telcos had to build networks.

They did not necessarily want to do so, but the product (communications) could not be sold without doing so. The same has been true with most products telcos sell. The product consumers and businesses often buy is some application with value, and the network is required to use those apps.

Broadly speaking this is now true for most consumer and business applications. What matters is the app and the value it provides. To use those apps, internet access is required.

This leads to an idea telco executives often are exhorted to act upon, namely “partner with over the top app providers” to re-establish a position in one or more applications areas with clear value for customers.

There is one big problem with such advice. It almost never works very well, from the telco’s perspective. There is a simple reason. The structure of modern communications, content and computing separates “infrastructure” (infra) from application.

Simply, access to the network is logically separated from application supply. Application providers need to direct business relationship with a network access provider to make their features available to potential users.

Internet access is required, but not the business relationship. Any user requires only some form of internet access, supplied by somebody, to use any internet app.

And that is why “partnering” with over the top app providers rarely works every well. Access providers simply do not offer enough value in an ecosystem where, by definition, any lawful app can be accessed by anyone on any connection, with not business relationship between the app provider and the internet access provider.

When Uber engineers look at how they design software, infra has to be assumed, of course. But Uber does not have to own, manage or operate any internet access infrastructure to create its software solutions.

So even if an infra services provider might like to partner with Uber, what value can it really deliver that Uber might find worth paying money for? All partnerships require value obtained by both or all parties. But no access provider “needs” a business relationship with an infra services supplier to build its business. That is what the internet is all about.

And also why “partnering” is rarely a successful or feasible strategy.

source: Uber

5G Use Cases: Few to None Involving Voice

With the caveat that I find “e-book” formats unpleasant and unnecessary, IHS has produced an “e-book” examining 5G use cases. Actually, it is more akin to a slide deck, so if you want a really quick and high level issue of timelines and concepts, that is what you will find.

One point is worth noting, when looking at 5G: it is all about connecting computing devices. Asked whether any serious work really is being done on “voice,” as part of the 5G standards effort, Reza Arefi, Intel director of spectrum strategy, simply says “no.”

Dean Bubley, founder of Disruptive Analysis, also notes that voice was an afterthought when 4G standards were created.

That speaks volumes about the expected use cases and revenue drivers for 5G.

source: IHS Markit

Will 5G Fixed Wireless Be the First Important New 5G Revenue Source?

Will the first significant 5G “new revenue sources” come from 5G fixed wireless? Many of us believe that will prove to be the case. As 5G new radio (5GNR) is deployed, mobile operators, in some instances, will be able to supply gigabit internet access to customers who in the past could only get such speeds from a fixed network connection.

Assuming tariffs are comparable to fixed network prices, 5G fixed wireless might, for the first time ever, allow mobile operators to cannibalize fixed connections. In other cases, 5GNR might mean some operators with mobile and fixed assets will be able to supply gigabit internet access to consumers in areas where fiber to the home is not financially viable.

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.