FCC Says Common Carrier Regulation Depressed Investment

From 2012 to 2014, the two years preceding the Title II Order, fixed terrestrial broadband Internet access was deployed to 29.9 million people who never had it before, including one million people on tribal lands, the Federal Communications Commission says.

In the following two years, new deployments dropped 55 percent, reaching only 13.5 million people, including only 330,000 people on tribal lands.

source: FCC

My own analysis suggests there was a sharp drop off in 2015, with growth in 2016, but clearly at lower levels than had been seen in 2012 to 2014 periods.

New Fixed Network Connections Added 2012 to 2016
growthrate		1.20%	1.22%	1.81%	2.11%
up to 10 mbps	2012	2013	2014	2015	2016
passings	290.7	294.2	297.8	303.2	309.6
net adds		3.5	3.6	5.4	6.4
25 Mbps		2013	2014	2015	2016
passings	254.4	263.9	284.3	286.9	297.8
growthrate		3.73%	7.73%	0.91%	3.80%
net adds		9.5	20.4	2.6	10.9
50mbps
passings	155.7	187.4	270.8	282.4	292.8
growthrate		20.36%	44.50%	4.28%	3.68%
net adds		31.7	83.4	11.6	10.4
total net adds		44.7	107.4	19.6	27.7
source: analysis of FCC data

From 2012 to 2014, mobile LTE broadband was newly deployed to 34.2 million people, including 21.5 million rural Americans. In the following two years, new mobile deployments dropped 83 percent, reaching only 5.8 million more Americans, including only 2.3 million more rural Americans.

And from 2012 to 2014, the number of Americans without access to both fixed terrestrial broadband and mobile broadband fell by more than half—from 72.1 million to 34.5 million.

source: FCC

Sometimes Uber is Cheaper than Owning a Car for Getting to Work

If you have to pay for parking, Uber can be almost as affordable as driving your own car, analysis suggests. Generally speaking, Uber is not a substitute in many western and less-dense areas, but cheaper than driving and parking in many metro areas.

source: NerdWallet

Back to the Future for Networking

It now is rational to argue that the cost of supplying bandwidth, the amounts of bandwidth offered and the cost of building access networks of very-high bandwidth (gigabits per second, with a business model that works) are improving fast enough that orders of magnitude of new demand can be met with orders of magnitude of new supply, at costs far lower than possible in the past.

It also is rational to argue that roles within the access ecosystem are about to become more  heterogeneous, allowing new actors to supply bandwidth, with new business models.

In large part, past is prologue. Recall that the historic division in networking has been at the demarcation point between the wide area “public network” (telcos, cable, satellite, fixed wireless) and the “inside the building” network (local area networks).

To wit, the WAN has been the place where most customers buy service. The LAN has been the realm of private networks owned by the enterprise, the tenants of a building or owners of a business.

In the coming era of heterogeneous networks, that fundamental distinction will remain. The logical preserve of WAN networks (mobile, fixed, satellite, fixed wireless), while the “indoor” space will largely remain the preserve of end users--consumer and business--who “own” their local networks.

That historic distinction has been harder to envision in the era of mobile communications, as “inside the building” use of mobiles has been a contested space. People expect mobile networks to reach inside buildings, but most people and organizations also realize that is an issues, and have learned to lean on their own networks (Wi-Fi, mostly) to improve data connectivity.

Voice connectivity has been a bit more challenging, but IP voice eventually will fix that problem as well.

New protocols will help, allowing entities to build their own 4G or 5G indoor networks  for boosting mobile performance. Other developments, including shared spectrum, will allow privately-owned inside-the-building networks to support 4G and 5G mobile connectivity.

That will allow new thinking about how internet access and mobility services are supporting inside buildings. But that is simply a return to historic practice, where WAN service providers added greatest value outside the building, while owners and tenants essentially built and operated their own internal networks.

Back to the future, in other words.

Google et al Really are the Competition for Major Telcos, Not Other Telcos

For some time now, telecom executives have mentioned in surveys that their main competition  is not other service providers, but over the top app firms such as Google, which now lead markets for content, apps and platforms, and are emerging in devices and infrastructure.

Yet other surveys have executives citing device or other platform suppliers as the top threats, not other service providers.

And yet the typical executive or department head, on a day-to-day basis, likely continues to benchmark performance by other service providers. So mobile operators are obsessive about their market share, compared to other mobile operators. Cable operators tend to benchmark against telcos, fixed network telcos against cable.

Rival satellite providers consider other satellite providers to be the key share benchmarks.

All of that makes sense, yet obscures the primary challenge (some would say the existential threat) to the “telecom” industry, namely the shift of value away from access to applications, and the ability of app platforms and providers to subsume access functions and vertically integrate.

It would be correct to say that app provider strategy includes vertical integration, allowing the firms to better control both their supply chains as well as reducing cost.

For example, 60 percent of trans-Atlantic traffic now runs over privately-owned and operated undersea networks, not over public telecom networks. One way of describing this is to say that 60 percent of international traffic on those routes has been removed from the telco addressable market.

Google and Facebook already have moved into public Wi-Fi, fixed network access, mobile services, satellite services, access equipment standards and ways to subsidize internet access.

But that is only part of the story. The leading app and platform providers have emerged as the leading forces in cloud computing as well, with a growing role in devices.

Devices, in fact,  are among the building blocks of Google’s growth strategy, to be built on Google, cloud, hardware and YouTube, Google says.

Hardware revenue, though still included in the “other” revenue category, grew 38 percent in 2016 and seem to have doubled in 2017.

The commercial reason behind Google’s emerging business model appears to be the value that a single company can create if it combines content services with network hardware, many would argue.

One way to create this value is by aligning networks with content.

And that is the reason why Comcast’s acquisition of NBCUniversal was so instructive, and why AT&T wants to buy Time Warner. If your primary competition is app firms with network assets, then telcos likewise need to become app providers with access network assets.

That is seen first in entertainment video, but will deepen in other areas, such as internet of things. In that sense, the U.S. Department of Justice effort to block the AT&T acquisition of Time Warner is misguided. That would block a necessary step AT&T must take to survive the competition with the leading app providers.

In other words, the “relevant market” is no longer “telecom services.” The walls between content, media, access and communications are evaporating. Firms such as AT&T must vertically integrate, as their most-important competitors are doing.

Will Cable Have 72% Fixed Network Internet Access Share in 2022?

Some 37.2 million U.S. households will buy only internet access, and drop subscription TV services by 2022, according to Kagan Research, a media research group owned by S&P Global Market Intelligence. Some 19 million U.S. households already are broadband-only, the firm says.

By 2022, about 38.4 percent of cable or telco households buying internet access will rely mostly on a combination of broadband and over-the-air broadcast signals for home video entertainment, Kagan Research estimates.

Kagan expects broadband-only homes will grow at a 14.4 percent compound annual growth rate from 2017 to 2022, representing about 29 percent of U.S. occupied homes.

But more than 60 percent of occupied U.S. homes still will buy multichannel video packages, Kagan estimates.

Kagan also estimates that U.S. cable operators will have some 70 million internet access accounts in 2022. That is an interesting figure.

Assume there will be about 136 million U.S. homes in 2022. Assume 95 percent are occupied, leaving a base of about 129 million occupied housing units.  Assume fixed network residential internet access adoption is about 75 percent in 2022.

That makes the total market about 96.75 million locations. If the Kagan forecast is correct, then cable might have 72 percent market share in 2022.

At the moment, cable has about 64 percent market share.

That requires some interpretation, though.

It is unlikely that cable operators facing Verizon or AT&T will do that well. At a high level, cable market share--where the cable operator faces AT&T or Verizon,  could stabilize at about 60 percent.

The reason for that belief is that AT&T and Verizon appear not to be losing market share against cable, and that is before the upgrades by AT&T to gigabit networks, and before Verizon starts to launch new assaults out of region.

It might also be within reason that as AT&T and Verizon increasingly offer gigabit access across broader footprints, and independent providers also take some share, that cable’s share could drop to 50 percent or maybe less, as Comcast, Charter, Cox and a few others find themselves competing against both Verizon and AT&T in some markets, plus a handful of other independent providers.

That development would also assume that new bundles marketed by AT&T and Verizon, plus use of new forms of wireless access, also were successful ways both firms potential grew share.

Researchers at PwC have estimated U.S. fixed network revenues will reach about $60 billion in 2021. That might be low.

Even if the average account generates only $50 a month, or $600 annually, 129 million accounts implies a market of about $77.4 billion. If one assumes average prices (gigabit and higher speed tiers) might sell for $70 a month, or $840 annually per account, then revenue could reach $108.36 billion.

source: PwC

AI Might Have High Impact in Telecom Networks

It often is difficult to explain how and why  artificial intelligence, as used by telecom and internet service providers, matters. But AI has been used in telecom, in some ways, for as much as a decade.

AI seems essential for operating virtualized networks and already is being used for customer service applications and call centers. Self optimized networks that can reconfigure themselves for better performance without manual intervention are a prime example.

That noted, most professionals in the industry will have little immediate need to make decisions about AI, or perhaps even encounter applied AI in their daily activities.

Beyond that, decision makers who must authorize spending on AI also face issues.   

One problem is that  AI most often is a process or feature used by applications and networks, not ever a retail end user service or app. End users and customers cannot actually discern when and how AI improves their service, apps and experiences.

The other problem is that applied AI does not actually lead in a direct way to incremental revenue growth, either. As with other features such as voice control or Wi-Fi access, AI can enhance existing products, provider higher perceived value,  improve stickiness, reduce churn or ease new customer marketing efforts.

But it is difficult to quantify those effects. AI, when applied to processes, apps or services, does not produce a direct uptick in sales or revenue.

Over time, fee-based services could develop, but it always has been difficult to move customers or users from free products to higher-value paid products. That will be true in both for-profit and nonprofit settings.

That noted, AI might have some of the highest possible impact in the telecom industry, McKinsey consultants believe.

source: McKinsey

source: McKinsey

A La Carte Seems to Work, Despite Business Model Concerns

One of the more dangerous statements in the internet or telecom businesses is that something “cannot be done.” That was said about the business model and demand for gigabit internet. We now routinely do lots of things once believed to be impossible.

One has to translate. When a talented engineer says something is "impossible," it means the speaker honestly believes something cannot be done, because "we cannot, with our known technology, do so."

That might not be the same thing as saying "nobody else can do this."

I once heard a proposal made that a high-definition TV signal could be squeezed into 6 MHz of bandwidth. At that time, it was believed something like 20 MHz or more would be required.

The room literally exploded with verbal disbelief. As it turned out, the proposal was right, and HDTV now is delivered in 6 MHz.

On another occasion, I was quietly informed by some very senior Bell Laboratories engineers that an analog fiber optic access network "could not" deliver 40 cable TV signals, as cable industry engineers were saying was a minimum requirement for cable network fiber optic access systems. The reason for the belief was that lasers capable of doing so could not be produced.

As it turns out, it was entirely possible to produce lasers with characteristics that would allow delivery of 40 channels of analog TV on a single laser, at reasonable distances. When those engineers said "it could not be done," what they meant was that "we cannot do so."

The point is that lots of things we once believed were impossible are, in fact, quite possible. Among those impossibilities is the financial success of single a la carte TV networks, delivered direct to consumers.

Many argued that the business model would not work. As it turns out, that seems to be incorrect. So far, HBO Now, Starz, Showtime and CBS seem to be growing subscription volumes significantly. At some volume, the economics of “going direct” will work.  

source: Business Insider