How Many Consumers Pay "Retail" for Internet Access?

It always is complicated to determine the actual cost of fixed or mobile network internet access prices. 

Absolute retail prices are one thing. Which products consumers typically buy is another matter. In other words, retail prices only matter if most people pay full retail. 

 And the whole point of bundles--multi-user or family plans, triple play or quadruple play--as well as promotional prices, is to give consumers discounts over the posted single-product rates. 

 What really matters, when assessing “typical cost,” is to look at the plans most people buy, not simply tariffs. 

It simply does not matter what the “most costly plans” happen to be, if few consumers buy them. Likewise, it does not matter what the “single product” price is if most consumers buy a bundle with effectively-lower real prices. 

 Access providers and consumers like triple play packages for different reasons. For access providers, such packages reduce churn, increase value and boost average revenue per account. 

 That is not to minimize potential or actual increases in retail prices. But what really matters is how consumers are able to pay less than “full retail” when buying internet access and what the realistic alternatives are. 

Consumers like the price savings. So it is good advice, when confronted by price hikes for any single consumer access product, to consider alternatives. That might mean buying from a different supplier, buying a different package or substituting one product for another. 

 If, as some predict, internet access single product pricing does increase, that search for alternatives will increase. 

There are other nuances. Per capita prices hinge on the typical number of persons per household, in various countries or areas. That was more an issue a decade ago, when internet access adoption was not as robust as today. 

The point is that even if some internet service suppliers try to raise prices, the higher price umbrella will increase incentives for rivals to attack.

AI, Deep and Machine Learning Matter, But How Much For Typical Telecom Professional?

It is difficult to explain why deep learning, machine learning or artificial intelligence is relevant for nearly all who work in the telecom industry, beyond the ranks of data scientists working at or with chip, app and platform suppliers creating services and products used directly by network operators.

That is not terribly unusual. Machine learning already is an underpinning of most major consumer internet apps (content, social networking, search) as well as a growing range of business apps.

That is similar to the way consumers have learned to use cloud computing, without knowing how their apps are based on use of the cloud. But that “invisibility” also makes hard the challenge of figuring out whether “most in the industry” actually need to know very much about machine learning, deep learning or AI.

“I have very little to say that would be of interest to a telecom audience,” one data scientist working on machine learning and deep learning told me, for example. He probably is quite right.

People who work in outside plant can do their jobs quite well without understanding much of anything at all about marketing, billing systems, business strategy or industry trends.

Executives who work in the undersea networks segment of the business really do not need to know much at all about consumer demand for retail apps.

Most people who work for fixed network firms do not encounter any real need to understand mobility issues and vice versa.

That arguably is less true for C-level executives, though, who arguably might have to understand AI implications for their cost structures and capabilities.

At a practical level, a goodly number of people might already have job responsibilities where machine learning already is at work. That might already be operationally correct for people who work with software defined networks, network virtualization, customer service and analytics, for example.

That might be the “problem” with general purpose technologies: they are ubiquitous (like electricity, batteries, steel, airplanes, voice or other communications), and hence are invisible. People only need to know how to use product built on them. They rarely, if ever, need to know how they work.

For “C” title execs, AI might actually matter, in terms of understanding how AI might help create and change revenue models, operating costs, product value and “up the value chain” opportunities. That is what general purpose technologies generally enable: disruptions of whole economic systems. I,

Do Bananas Cost Too Much?

Even if some observers seem always to complain about how much internet access costs, that is a bit like complaining about bananas costing too much. Costs now have gotten so low (consumer or business internet access) that it is cumbersome to even bother using a metric such as cost per kilobit (kilobits per second).

We moved more than a decade ago to cost per megabit per second. Now we are moving to measuring in hundreds of megabits per second. In the future we will measure in terms of gigabits per second.

Around 1995, the cost of buying a business connection supporting a kilobit per second might have been US$1.50 to $1.75. In other words, a 56 kbps connection might have cost as much as $98 a month.

By about 2006, even consumer internet access costs had dropped to about two cents per kbps. So a 10 Mbps connection might then have cost the same as the 56 kbps connection of 1995. In 2017, U.S. 100 Mbps connections cost about the same as a 56 kbps connection of 1995.

As speed has grown and apps have evolved, consumers now use more data (megabytes), so the cost per consumed megabyte also has fallen, even as people use more data.

Source: Boston Consulting Group

While complaints about high prices never seem to stop, in developed markets as well as the United States, the percentage of disposable income spent on fixed network internet  access  is about 1.7 percent of gross national income per person.

New Role for Fixed Network: Backhaul and Feeder Functions

Going forward, communications infrastructure is going to take a perhaps-predictable path, many will argue.

At a high level, retail communications--globally--has become “mobile.” Though the role of fixed networks as a retail platform will remain more significant, dwindling retail revenue will force changes, including a huge need for lower-cost infrastructure, as revenue potential will be less robust.

source: Ericsson

Investment and revenue growth, on a global level, will shift to developing regions. The fixed network increasingly will take on the role of backhaul and trunking mechanism for mobile and wireless networks.

And despite the historic preference of fixed network operators for “smart” infrastructure, much of the global transport and access platforms will become simpler, with more intelligence at the edge, and less in the core.

For that reason, fixed networks will have to cost less.

At the same time, dwindling legacy revenues will force service providers to create big new revenue sources, sell themselves to larger providers or take other steps to match lower revenues with higher stranded asset profiles.

Critics of moves by AT&T to buy Time Warner, or Comcast’s past acquisition of NBC Universal argue that too much power or control results. In fact, we are likely to find that such acquisitions only help access providers reposition themselves for a market where traditional access services no longer support the core business model.

Will U.S. Fixed Wireless Access Revenue Be Bigger than U.S. Consumer Satellite Revenue by 2021?

Will the U.S. fixed wireless business generate more consumer service revenue than the U.S. satellite industry by about 2021? Possibly, if fixed wireless grows as much as some predict, and if one does not double count AT&T revenue.

Keep in mind that both fixed wireless and satellite are tails on a big telco dog. Total U.S. mobile service revenues are on the order of $256 billion annually, with fixed telco revenues perhaps $100 million and cable TV revenues roughly $60 billion, representing annual industry revenues of at least $455 billion. Others might prefer higher figures.

Any industry segment with annual revenues in the single-digit billions represents a fraction of a percent of total industry revenues.

U.S. fixed wireless revenue will double from $2.3 billion to more than $5.2 billion, according to the Carmel Group. Accounts also will grow from four million at the end of 2016 to eight million by 2021.

source: The Carmel Group

Depending on how one chooses to count revenue, the fixed wireless industry might then rival satellite service provider revenue. One big issue is whether “DirecTV” revenue should be counted as “satellite” revenue or “telco” revenue. In fact, both industries claim that revenue.

Assume DirecTV generates about $36 billion in annual revenue for AT&T. Assume all U.S. “satellite services revenue” is about $52 billion, including $40 billion of satellite TV revenue. Take out DirecTV and U.S. satellite revenue (booked in the telecom industry as well) is about $16 billion, with perhaps $7 billion in consumer service revenues.

In that scenario, the U.S. fixed wireless business would generate as much, if not more revenue, than does the “consumer satellite” business.

source: SIA

Why Price Anchoring and "Price Per User" Might Explain Antipathy to Linear Video

In the internet era, where the expected price is "free," prices north of zero might be one reason why many people complain about linear subscription video prices. There is a big difference between $10 a month for Netflix and $80 for linear video, even if the products are not full product substitutes.

It is hard to tell whether perceived value or price anchoring are bigger drivers of dissatisfaction with linear TV services, even if the stated reasons for unhappiness tend to center on “customer service” issues, in addition to price.

People often complain about price increases for cable TV services that go up more than the general level of inflation. Yes, that is an issue. But consumer prices have been climbing since 1970 or so.

source: Bureau of Labor Statistics

I cannot remember a time (over three to four decades) when consumers actually reported “liking” their cable TV services. Most often, they tend to rank them very low, when compared to most other consumer products.

These days, there are differences between providers. In recent years, telco TV and satellite TV services actually have produced more satisfaction than cable TV video services.

But the service as a whole still ranks quite low, along with internet access. Perhaps price anchoring explains some of the unhappiness. Most children growing up these days experienced internet access, mobility and video as “being free,” since their parents paid for those services.

So the anchoring price is “free.”

On the other hand, many adults who have been buying internet access for decades might have distinctly-different price anchoring experiences.

I recall paying AOL perhaps $15 to $20 a month for 56 kbps dial-up access using the voice line I already was buying.

I can remember paying more than $100 a month but less than $200 a month for a 756-kbps internet access connection. Recall that about 1996 a T-1 line supporting 1.5 Mbps cost as much as $2500 to $3000 a month.

Now I expect to pay $50 or so for 100 Mbps. So my price anchoring is $150 for 756 kbps in the past and now 100 Mbps for about $50 a month.

That is a different set of expectations from many others who have moved from “free in the past” to $50 a month now.

Perhaps the same experience now anchors pricing expectations for potential customers who are moving from “free” to $80 a month.

So I suspect, “value” explains the hostility many single people seem to feel about buying any linear video product (“cable TV”). In other words, the price-per-user is far lower, in a four-person family, than in a single-person household.

In other words, an $80 a month subscription “costs” $80 per viewer in a single-family household, but only $20 per viewer in a four-person household. Though use of streaming services is growing in all age brackets, that might be one reason why families, larger households or households headed by older persons tend to buy linear video streaming services at higher rates.

Also, despite the fact that linear video prices have risen faster than the background rate of inflation, lots of other products have risen at “above inflation rates” as well.

Consider the cost of college educations.

source: Mybudget360

source" Bureau of Labor Statistics

Medical care and housing are other products whose prices have increased more than the general level of inflation, as well.

source: BLS

IoT Networks Will Be Many-to-One

The architecture of coming internet of things networks is going to be radically different from the voice, consumer internet or business data network architectures. Those networks were built to support “point to point” communications from any node to any other node.

Irrespective of the access mechanism (mobile, Wi-Fi, other), the fundamental networking architecture of a sensor network (and therefore of  the internet of things) is “sensor to server,” not “point-to-point,” as was the architecture of the voice network or the early internet.

source: Aeris

That is going to have consequences. The IoT networks will be the inverse of the point-to-multipoint satellite TV, cable TV, radio and TV broadcast networks.

In contrast with point-to-point, any-to-any networks, these broadcast or multicast networks are optimized for one-to-many communications in the downstream direction.

IoT networks will be optimized for many-to-one communications upstream to servers. If there are scores of billions of devices using such networks, then such many-to-one networks will be optimized for collecting data from remote locations, not distributing information to many remote locations, and not for any-to-any communications.

That is new, really new.

Much of the upstream data will be simple: where are you; what is the temperature; what is the pressure; what is your speed. Some of the data might require more bandwidth, supporting camera feeds, for example. But almost none of the requirement is for downstream communications to sensors.

source: Cisco