5G Will Accelerate Mobile and Wireless Substitution for Internet Access

Up to this point, 4G has been a primary method of internet access for a substantial, but still minority of usage in developed markets, though it arguably has been a primary or exclusive form of access in developing markets.

But the 5G era is likely to accelerate those trends in a major way. For the first time, mobile or 5G-based fixed wireless networks will offer speeds and retail prices as good--or better--than fixed alternatives, with latency performance that is better .

Many of us would not be at all surprised if wireless substitution as much as doubled over the first decade of 5G commercial service. In some developed markets, that could mean that wireless access takes as 20 percent share of the residential internet access market. In other markets, wireless internet access could reach 30 percent or higher.

source: Deloitte

You might be tempted to think that it mostly is lower-income people who use their mobile devices as the sole means of internet access. In many countries, substantial numbers of people--rich and poor--do so.

While it is true that, in the United Kingdom, relatively few people actually are “mobile only for internet access (2.5 percent of the richest consumer households; perhaps seven percent of the poorest  households), in Canada, 20 percent of the richest households are mobile only for internet access, while about 30 percent of the poorest households are mobile only.

Households in rural areas also are more likely to rely on mobile networks for their internet access requirements as well.

Single-person households and households with younger consumers also are more likely to be mobile only for internet access.

Less than a tenth of people in France and the UK were mobile-only, but in Turkey the figure was more than three times higher.

In Latin America, for example, Deloitte Brazil believes that over a third of all homes in Brazil were mobile data only. And in China, a fifth of the online user base (rather than households) were mobile-only as of 2016.

In Tokyo, where fiber optic connections are widely available, hundreds of thousands of homes (or about five percent) are relying on only mobile in 2017.

In Latin America, Deloitte Brazil believes that over a third of all homes in Brazil were mobile data only.

Better mobile networks, especially 4G LTE, have made mobile internet user experience more like fixed access.

Deloitte Global predicts that 20 percent of North Americans with internet access will get all of their home data access from mobile networks in 2018.

Deloitte Global further predicts that a mixture of mobile and fixed wireless access technologies could lead to 30 percent to 40 percent of the population relying on wireless for data at home by 2022, an increase from 10 percent in 2013.

source: Deloitte

source: Deloitte

What is unclear is how wireless access might change over the next five years. Deloitte argues that, by 2022, wireless home internet solutions will grow both at the low end of the market (homes using relatively little data) and portions of the market that otherwise might have purchased a fixed connection.

source: Deloitte

Full Duplex for Cable TV is Another Example of Virtualization

Virtualization is becoming a core feature of next-generation networks. Consider how the cable TV industry is looking to use a form of virtualization in its access networks. Traditionally, cable TV networks have used frequency division for both upstream and downstream communications.

Telco networks have used time division. But the latest development is that cable TV networks are looking at a way to use “full duplex” techniques in place of frequency division, a capability that could reduce the cost of rebuilding physical networks to boost bandwidth.

To use full duplex, a hybrid fiber coax network would have to operate in “passive HFC” mode, which means no use of active signal repeaters in the distribution network, in all likelihood.

It is hard to see how full duplex could work through any set of bandpass filters, standard in a radio frequency amplifier.

Full duplex would allow all spectrum to be used for upstream or downstream communications at the same time. And that would be a form of virtualization, separating logical channels from underlying physical network frequencies and channels.  

Today’s Technology Duplex: Time Division Duplex

source: CableLabs

Today’s Technology Duplex: Frequency Division Duplex

source: CableLabs

source: CableLabs

How Does Private LTE (CBRS) Affect the WAN Business?

It is by no means clear how the availability of private (enterprise) 4G Long Term Evolution will affect the broader mobile market.

The ability to create indoor or campus LTE networks essentially complicates some elements of enterprise premises communications strategy. Where the typical network has been a cabled local area network, now supplemented with Wi-Fi and mobile access, the future might also include Wi-Gig as well.

source: Nokia Bell Labs

On one hand, enterprise indoor 4G, based on use of small cells, could help provide better mobile coverage indoors, with less capital investment than might otherwise be required. In other cases there might be some incremental increase in operating costs, especially when mobile operator access to the indoor networks is a lease arrangement with the private LTE operator.

On the other hand, the indoor LTE network could well, over time, build beyond support for mobile phones and include internet of things sensors. That could affect mobile business revenues in a variety of ways, from displacement to sharing to augmentation.

The private LTE operator could be a buyer of access and transport; a competitor for IoT services; a partner for providing better indoor coverage or platforms, possibly all at once.

source: ThinkSmallCell

In other words, private LTE might simply be another form of indoor local area network that aggregates local traffic for transmission over wide area networks, as local area networks (Wi-Fi, for example) do. In this scenario, private LTE is simply a way of supporting employee, partner and customer use of existing services and networks.

source: Nokia Bell Labs

To some extent, especially in smaller venues, private LTE might be a service sold to building managers or tenants, much as airport or hotel Wi-Fi service is a business for some suppliers.

In all cases, private LTE could establish a new role for LTE networks in the role of local area network, as Wi-Fi now is used. If you think about how Wi-Fi affects the WAN service providers, there are stimulative effects, creating additional demand for internet access services.

Private LTE should also help solve indoor signal strength issues, as has been true for mobile internet access functions inside buildings.

If you think about private LTE networks supported by new spectrum such as Citizens Broadband Radio Service as a new form of local area network platform, akin to Wi-Fi, you can figure out how it might be used, and what the implications might be.

But it always is fair to remember the fundamental distinction between local and wide area networks. WAN services are fundamental for service provider business models. LANs such as Wi-Fi have become more important functional parts of the WAN business, though, allowing service providers to provide better service (data offload and signal strength).

Private LTE will probably have much the same effect, even as some incremental new business opportunities could be created for suppliers of indoor communications services.

What is AI Job Impact? What's the Best Balance?

One possibly hopeful predication about how automation (artificial intelligence and machine learning) and human jobs can coexist is that there will some job loss, some job redefinition and some job creation.

In fact, some might argue that an optimal balance is to apply artificial intelligence and machine learning to some degree, but not too much.

To be sure, some job categories will be more at risk, according to some researchers. As a rule, some believe, jobs most at risk to automation are those which are routine.

It probably also is fair to note that automation tends to redefine jobs as well, so overall impact is complex.

 

source: Gorlach and Wessel

source: Visual Capitalist

U.S. Will Adopt 5G Very Fast, Says GSMA

It is not hard to find skepticism about the size of 5G markets, for good reason. Not every market is equally well disposed to generate new revenue sources, at scale, and not every set of service providers in every market has the same level of actual need to find those new revenue sources.

That is why virtually everyone expects 5G to become a commercial reality first in just a handful of countries: the United States, Japan, European Union countries and China. Developed nations plus China, in other words. And some might question how fast most EU markets will adopt.

source: GSMA Intelligence

In part, that early deployment pattern is driven by expectations of financial upside from new applications not possible with 4G. GSMA Intelligence also notes some particularities of the U.S. market that also create a fertile environment.

In other words, opportunities might exist to drive aggressive 5G adoption in the U.S. market.

GSMA Intelligence notes that U.S. customers have been robust adopters of “digital” services using their mobile devices, ranging from internet-based messaging and social media to entertainment content, as well as using e-commerce.

That’s the “pull” of 5G. There also is the “push.” U.S. mobile service revenues have been steadily declining since 2010, and might go negative in 2019. That means the search for additional new revenues is imperative.

So all four leading U.S. mobile operators will be offering 5G mobile services in 2019, with AT&T and Verizon launching mobile 5G services in selected markets in 2018.

According to GSMA Intelligence forecasts, the United States will experience one of the fastest customer migrations to 5G in the world, with 5G reaching 100 million mobile connections in early 2023.

That will make 5G the leading mobile network technology in the United States by 2025, with more than 190 million 5G connections (accounting for around half of total mobile connections), excluding use of 5G to support fixed operations.

But more than supply will drive that deployment speed.

Aggressive millimeter wave spectrum allocations will be key enablers, especially for AT&T and Verizon.

But there are other fundamental reasons for the push into 5G. Simply put, the U.S. mobile market has exhausted its growth model, based on 4G. If one extrapolates from steadily declining revenue growth since 2010, it is possible revenue growth in the core mobile business might actually go negative in 2019.

Since revenue growth is a virtual necessity for firms that are publicly owned, that represents a crisis.

source: GSMA Intelligence

Though new revenue sources will have to be created, 5G offers some opportunity for services that actually have not existed on earlier platforms, including 4G. Though everyone expects early revenue upside to come in the area of “enhanced” (much faster) internet access, that expectation must be qualified.

Since 4G adoption is virtually ubiquitous in the U.S. mobile business, customers who adopt 5G access will, by definition, be replacing primary reliance on 4G. So there is substitution going on, replacing 4G accounts with 5G.

There may or may not be incremental upside from such substitution. In the early days, some incremental upside is likely.

Longer term, the hope is that brand new revenue streams can be created in the internet of things (sensor communications) area. There also is hope some new classes of apps can be created in the ultra-low-latency area. Connected cars or 4K and 8K video, plus other latency-dependent apps such as remote surgery come to mind.

The important point is that U.S. mobile operators are going to be aggressive about 5G because the 4G business model has become exhausted.

Internet Access Universal Service is Always an Issue for the Last 2% of Locations

Universal funding of “essential” telecom services always is difficult and expensive, since, by definition, there often is no private sector business model for rural areas. In large part, that is because there are too few potential customers, in relation to the cost of assets to serve those potential customers. In the continent-sized U.S. market, for example, the universal service problem largely is a matter of rural areas.  

Assuming a standard fixed network investment cost, that might not produce a positive business case over a 20-year period, the U.S. Federal Communications Commission has suggested.  And almost nobody makes investments with a 20-year payback in telecom, anymore. That is tantamount to “no investment return.”

In the United States, the cost of serving the last one percent of locations is astronomical, for example.

source: FCC

High infrastructure costs  are among the reasons wireless access is likely to play a bigger role in such universal service plans. Fixed networks cost too much in rural areas, in other words.

Consider many U.S. states where rural population density ranges between 50 and 60 locations per square mile, and ignore the vast western regions east of the Pacific coast range and west of the Mississippi River or 100th meridian,  where population density can easily range in the low single digits per square mile.

Assume 55 locations per square mile, and two fixed network suppliers in each area. That means a theoretical maximum of 27 customers per square mile, if buying is at 100 percent. Assume for the moment that buying rates really are at 100 percent. Two equally skilled competitors might expect to split the market, so each provider, theoretically, gets 27 accounts per square mile.

At average revenue of perhaps $75 a month (perhaps a generous assumption), that means total revenue of about $2025 a month, per square mile, or $24,300 per year, for all the customers in a square mile.

The network reaching all homes in that square mile might cost an average of $23,500 per home, or about $1.3 million.

At 50 percent adoption, that works out to network costs of roughly $47,000 per account in a square mile, against revenue of $900 per account, per year. Over 10 years, revenue per account amounts to $9,000. Over 20 years, revenue might be a bit more than $18,000.

The business case does not exist, without subsidies.

In the United Kingdom, Ofcom, the U.K. communications regulator, is planning a minimum 10 Mbps internet access floor for all locations in the United Kingdom. That probably is an issue for the last one to two percent or so of U.K. locations.

Ofcom estimates a per-location cost of £3,400, enabling coverage to around 99.8 percent of premises. Consumers outside this threshold will be able to get a satellite connection. That figure is a blend of higher-cost (and relatively speaking) lower-cost locations.

Long Term Revenue Growth of "Access" and Transport Cannot Exceed Low Single Digits, Annually

Despite current growth of mobile revenues in some markets (Asia, Africa in particular), it will be difficult to sustain long-term mobile operator growth at rates much higher than growth of gross domestic product (GDP).

Eventually, every customer that wants to use mobile services will do so. Eventually, every customer that wants to use the internet will do so, and will pay only so much for that privilege.

And competition will not lessen. New platforms and new suppliers, with lower price points, will keep coming.

source: GSMA

Subscriber growth in developed markets is largely over, and while there is some incremental revenue growth from higher mobile internet spending, long term growth will largely be limited to growth of gross domestic product, which tends to be in low single digits.

For public companies, and most tier-one telcos are public, that is insufficient to retain investor support at a level that drives up equity value.

source: GSMA

That means most public service providers will have to look beyond connectivity services to grow revenue faster. As hard as that will always be, there is no practical alternative.

Some might argue telcos are misguided in deploying resources to gain new positions in the content and applications parts of the ecosystem. Some regulators seem intent on preventing such vertical integration.

Those views arguably are misguided. Without investment beyond “dumb pipe,” providers of retail telecom services face a difficult future. A public company growing revenue at one to three percent annually is not going to get attractive valuations.

Beyond that, it is not clear that even those rates of revenue growth are possible on an organic basis. In other words, without major acquisitions, even low-single-digit rates of revenue growth might be difficult.

The old “telecom” business is changing. Survivors in the retail segment will have multiple revenue streams beyond data access.

Even in the wide area networks business, including the subsea segment, much of the revenue potential now (growth) now is capped by the growing reliance on enterprise owned and operated  private networks.

By 2016, more than 70 percent of all internet traffic across the Atlantic was carried over private networks, not on public WAN networks.

On intra-Asian routes, private networks in 2016 carried 60 percent of all traffic. On trans-Pacific routes, private networks carried about 58 percent of traffic.

That is one manifestation of how important it ultimately will be to move revenue streams away from a sole reliance on bit transport (internet access, WAN data transport) supplied to end users (business and consumer).