Google, Facebook Antitrust: Correlation is Not Causation

For some, it might be clear that the Microsoft antitrust action lead directly to the rise of Google and Facebook. Others are not so sure. Some argue the Telecommunications Act of 1996 “succeeded” in bringing innovation and competition to the U.S. telecom market. Others might argue most of the change came from mobile and internet sources.

Those precedents are more relevant today, now that calls are made for antitrust action against Google and Facebook.

The problem, some might argue, is that it is not entirely clear that any of those earlier “pro-competitive” actions actually were the drivers of innovation and new competition.

There arguably remains significant disagreement about the actual effect of the antitrust action against Microsoft, which prohibited Microsoft from bundling its browser with its operating system. Some argue the action created the climate that lead Google and Facebook to emerge. Others dispute that notion.

The precedent matters as many now argue Google and Facebook now are stifling the emergence of big new application firms. As was the case in the Microsoft situation, competitors are among those who protest the most, arguing that Google and Facebook are stifling innovation.

That does not mean claims raised by would-be competitors to Google and Facebook are irrelevant. The problem is that we cannot be sure the arguments about stifled innovation are correct.

In some part, firms that say they want to challenge Google and Facebook simply do not get funding. That does not mean either Google or Facebook are stifling innovation. It does mean that potential investors are doing so.

On the other hand, some argue, tying practices by Google and Facebook arguably do make it hard for new competitors to emerge, for products Google and Facebook are tying. Antitrust actions have been taken in the past to prevent such tying of products in a bundle.

Much will ultimately hinge on what new end user demand could develop in the future, and whether that demand emerges in new ways. Some might argue that the Microsoft antitrust action “failed,” rather than succeeded, as control of the browser has failed to have unique value-creating power.

Others will argue that it was precisely the blocking of any tying of Internet Explorer with Windows that allowed Google to emerge, even if Google’s rise was based on search, not its command of the browser market.

Others would point to Chrome browser share and argue that preventing the tying of Windows to Internet Explorer did, in fact, lead to Google Chrome market share dominance. The issue is “why” Chrome rose to dominance.

source: StatCounter

These big regulatory changes are not science experiments. We cannot claim that correlation is causation. It is not completely clear that Google and Facebook rose for reasons directly related to Microsoft antitrust.

The internet “changed everything,” including the relative value of app, platform and device products. Some would argue that Chrome won out because it was a superior product to Internet Explorer.

But some also argue that because of the antitrust action, Microsoft moved slower, while competitors moved faster. In that sense, the antitrust action might have aided Google.

There are arguments to be made about creating incentives for more innovation in a market where a few providers have such dominance. Regulators rightly believe they can play a role.

Barring a big business from growing in new areas is an almost-certain prescription for producing a slower-growth profile for the proscribed businesses. That might, or might not, aid other new firms in rising to dominance in new categories.

What remains unclear is whether, in markets with scale effects (ad-supported business models, for example), the emergence of scale leaders is inevitable. Our choice could well be scale leaders in more categories, but not an end to scale leaders.

Will New Internet Access Platforms Disrupt the Market?

Among the bigger questions coming to the fore in the internet access business is whether 5G can become an effective replacement for the fixed network, and whether fixed wireless can do the same to the cabled networks.

The corollary is that some contestants have more motivation to ask such questions than others. Verizon, for example, has the smallest fixed network footprint among tier-one internet access suppliers in the U.S. market.

Comcast, for example, passes (can actually sell service to these homes) about 54 million homes. Charter Communications passes some 50 million home locations.

AT&T’s fixed network passes perhaps 62 million U.S. homes. Verizon, on the other hand, passes perhaps 27 million locations.

If fixed wireless proves to be a more-affordable way to create high-speed internet access at gigabit rates, Verizon can use the platform inside and outside its present fixed network territory. That is important in several ways.

Use of 5G fixed wireless could allow Verizon to offer fiber to home speeds without the cost, in major urban areas where it has not yet ubiquitously deployed Fios FTTH.

Just as important, out of region fixed wireless offers a brand new, and sizable, revenue opportunity. Today, Verizon is unable to compete, out of region, for perhaps 102 million fixed network internet access locations it cannot reach today. Verizon itself has argued the 5G fixed wireless opportunity is about 30 percent of U.S. household locations, or perhaps 43 million locations.

Similar questions will be raised about the use of unlicensed spectrum to support commercial access operations. Though a proven approach, tier-one service providers traditionally have eschewed that approach.

That does not mean every potential contestant will have the same predilections. Wi-Fi obviously has been deemed commercially feasible in a number of deployment situations. Other access platforms of a non-traditional nature are theoretically possible as well, and arguably will be studied much more seriously by potential new challengers to tier-one access providers.

Just as obviously, the tier-one providers will move to deploy their own solutions that obviate the “need” for other solutions.

That means choices made by some would-be competitors can, and likely will, be different from choices made by tier-one providers. Typically, no single choice is “best” for every deployment scenario. So mixed platform choices are common, even one platform is preferred.

Small rural ISPs have used fixed wireless. Tier-one telcos have used cabled networks (all copper, fiber to node or fiber to home). Cable companies have used hybrid fiber coax. Mobile operators have used radio networks. Satellite operators use those networks.

Platform possibilities are multiplying, though. Wide availability of new radios, lots of new unlicensed spectrum, ways to aggregate licensed and unlicensed spectrum and commercialized millimeter wave frequencies all will make a difference. The ability to create private access networks could well emerge as well, especially for venue access.

The point is that we likely to see new debates about the “best” access technology, or at least debates about “commercially viable” access platforms.

The context there is the extent to which any platform choice works well enough to support the existing business model, is flexible enough to evolve, while offering a hook to better platforms that will be needed in the future.

Platform and standards wars are anything but unusual in the technology business, and quite common in the telecom and networking businesses as well.

In recent decades, we have seen big debates about:

• fiber to home versus fiber to curb versus hybrid fiber coax
• Whether metro Wi-Fi can compete with mobile access
• Value of CDMA and GSM in the U.S. market
• Wi-Fi as an access technology to rival a mobile network
• whether a 5G network can be an effective substitute for fixed network access
• fixed wireless using unlicensed 60-GHz spectrum (Terragraph) as cable substitute
• Whether low earth orbit satellites and perhaps other methods (unmanned aerial vehicles, balloons) can be substitutes for traditional cabled networks.

In all likelihood, the outcome will not be decided on technological grounds. Virtually always, the business model (deployment cost; fit with existing operations; user acceptance) drives the decision.

Amazon is Key to Selling Direct-to-Consumer Premium Channels, Study Finds

One traditional concern of programming networks pondering a shift to streaming distribution is the additional cost of marketing direct to consumer. In a linear environment, that marketing effort is undertaken by the distributors (cable, telco, satellite).

As it turns out, the solution for retailing video services is akin to the retailing of many other consumer products: Amazon.

Amazon Prime Channels account for more than half of all direct-to-consumer premium-channel subscriptions, according to The Diffusion Group (TDG).

More than 53 percent of HBO direct-to-customer accounts were purchased from  Amazon Prime Channels. Some 72 percent of Showtime direct-to-consumer accounts were sold that way. Some 70 percent of Starz DTC accounts also were sold by Amazon Prime.

source: The Diffusion Group

The Era of Zero-Touch, One-Touch and Low-Touch Activation is Coming

It is possible that mobile revenue, globally, will peak as soon as 2021, a fact that drives mobile operator and fixed line telco interest in possible internet of things revenue streams, to say nothing of video entertainment and advertising revenues.

In fact, so much will revenue sources have to change that we might call the coming eras starting with 5G the post-mobile era, in the sense that consumers using phones will not be the growth engines any longer.

In fact, much 5G consumer revenue will simply displace existing 4G account revenue, which is why the emphasis has to be on entirely-new sources of revenue coming from someplace other than demand for mobile phone usage.

So connectivity revenue growth, for any tier-one mobile operator, will not, in the future, be driven by consumers and businesses using mobile phone service and mobile internet access.

That same trend can be seen in the Wi-Fi space, where the new WPA3 Wi-Fi security protocol is expected to include features that enables one-touch setup of devices with no screens. In fact, many devices might require zero-touch activation.

If you have had to set up a smart speaker recently, you understand the issue of configuring an appliance with no screen or other obvious direct input features.

That implies something important about where device and usage growth might occur, namely in the internet of things area. For Wi-Fi interests, growth also is seen as shifting to new areas such as IoT and sensor connections that are part of the move towards pervasive computing.

Some people refer to that as the “internet of everything.” The point is that sensors and computing appliances will be ubiquitous, and connected.

Still, connectivity revenue for IoT sensors, appliances and devices might represent about three percent of the annual value of IoT spending, most of which will occur for devices, installation services, apps and platform purchases.

source: Machina Research

And while better security for any internet-connected device is an obvious intended outcome of WPA3, the ability to easily configure devices shows the coming importance of many low-cost, small internet of things appliances and devices that will be using IP and the internet to connect with remote servers.

It is possible that, by about 2024, almost $1.3 trillion worth of IoT devices will be sold. That is a lot of appliances that will require zero-touch or one-touch activation.

More Evidence that Telcos Have to Replace Half Their Revenue Every 10 Years

Trends in global text messaging revenue nicely illustrate my contention that service providers have to replace about half their current revenue about every decade.

In the messaging area, over the top apps have displaced as much as half of the former mobile messaging revenue stream, and as much as 81 percent reduction in text message revenue in a little more than a decade, in some countries.

Between 2017 and 2022, global SMS revenue (person to person) is likely to drop about 42 percent, according to researchers at Ovum. “Unfortunately for most telcos, P2P SMS has become essentially value-less, since they have had to bundle unlimited SMS into mobile tariffs to remain relevant to their customers, an increasing number of whom use chat apps such as WhatsApp, WeChat and Facebook Messenger,” Ovum argues.

source: Informa  

The same sort of trend can be seen in fixed voice revenues. From 1984 to 1994, for example, the cost of a fixed network call dropped from more than 30 cents per minute to perhaps 10 cents. The cost of a mobile call dropped from more than 60 cents in 1994 to about seven cents in 2004, a decade.

source: Telco 2.0

The decline of fixed network voice is a direct result of mobile substitution, as consumers globally have chosen mobile phones as their method of choice for using voice services.

So it is not hard to make the argument that even mobile internet access, the big drivers of mobile revenue in recent years, will suffer the same fate. And as hard as it might be to fathom, fixed network internet access will likewise mature.

Wireless substitution remains a controversial prospect, as some argue that  5G is a substitute for the National Broadband Network, while others doubt that will happen, as fixed network access “is always better” than mobile.

But it is likely dangerous to make predictions based on past expectations. It is not at all clear to some observers that fixed network internet access speeds always and everywhere, to say nothing of speeds in many markets, will “always be better than mobile.”

In fact, some already say 5G will be faster than copper-based networks supporting the Australian National Broadband Network. If that proves true, then assuming 5G tariffs are set competitively, the mobile 5G network could well be faster than all but fiber to home networks.

And if history provides any guide, it is that, for some current use cases, mobile substitution for internet access already is a reality. Once 5G launches, the amount of substitution could skyrocket.

"I truly believe that 5G will be enough bandwidth for the average consumer, and you won't need a fixed line broadband service," said Boost Mobile CEO Peter Adderton . "You talk to some of the carriers in the U.S., they agree with that."

"You'll still need fibre to run offices and that kind of thing, but for the next generation, they're going to be entirely happy on 5G,” Akkerton argues.

Millimeter wave and small cells are the enablers. In fact, millimeter wave use to support mobile operations is the obvious rebuttal to the argument that mobile can replace fixed line.

Simply put, millimeter wave, used in small cells,  increases capacity so much that mobile operators actually can entertain retail tariffs competitive with fixed line alternatives.

At the same time, millimeter wave and small cells allows access speeds to climb easily within the range of fixed network alternatives (hundreds of megabits per second up to perhaps gigabits per second, eventually).

But many 5G observers also suggest that speed will not be the decisive change, where it comes to use cases. In fact, that might be a change that comes from 5G ultra-low latency, which might will be the killer feature for 5G, compared to other access networks.  

Source: The Australian

5G Skeptics are Not Wrong, Tactically

Dire warnings about 5G cost, and therefore the 5G business model, are not hard to find. Though it is easy to find broad suggestions of how new revenue streams will develop, there is no certainty, beyond the fact that, in the consumer market, 5G will displace 4G for current phone access use cases.

The stock answer for 5G use cases includes “enhanced” consumer mobile broadband, internet of things and mission-critical, ultra-low-latency applications.

Enhanced mobile broadband is mostly a matter of product substitution--5G in place of 4G--and might provide some momentary revenue lift.

The problem is that will boost revenues only for a short time, if 4G provides any guidance. But any potential revenue benefit (higher average revenue per user) is likely to be short-lived, if arguably still meaningful. Whether that is because of unique 5G capabilities, or mostly higher usage (on usage-based plans) or higher fees for unlimited or high-usage plans is unclear.

Also, higher initial revenue tends to be driven by initial adoption by power users, who are willing to pay more. Over time, with universal adoption by mainstream and lighter users, who tend to be willing to spend less than power users, ARPU might naturally tend to drop.

source: Strategy Analytics

IoT and other now-exotic use cases (VR, AR, ultra-low latency use case) are reasonable new use cases coming with new revenues, but are likely to take some time to develop at scale. Indeed, it is conceivable scale is not reached until near the end of the 5G life cycle, or, in some cases, not until afterwards.

Many new revenue-generating new use cases envisioned for 3G did not develop until 4G, and some 3G possibilities never developed to any significant degree. As the big revenue drivers for 3G might well have been mobile email access, while 4G enabled the mobile internet, 5G could well be driven by somewhat prosaic use cases. Substitution for fixed network internet access and mobile video consumption are likely examples.

Nor is it hard to find arguments that few mobile operators actually will benefit substantially from the new use cases and value created by 5G networks supporting internet of things, smart cities, connected cars, augmented and virtual reality apps and services, as those use cases might well require huge scale.

And most telecom operators will never have the requisite scale to participate elsewhere in the value chain, beyond connectivity.

It is somewhat likely that neutral host indoor connectivity, supplied by third parties or service providers, could emerge as among the bigger near-term trends, much as third parties often supply big venue mobile access or Wi-Fi.

Among the other oft-missed implications is that the ultra-low-latency 5G apps will be enabled by edge computing facilities. In its support of  immersive video apps tested during the Olympics, KT was able to support roundtrip latency of seven to eight milliseconds, required for such apps, but only by using edge computing.  

Edge computing is also likely to required to support autonomous vehicle services.

The point is that big revenue-generating new use cases will have to be discovered and developed. They are not inevitable. Almost nobody believes the 5G business model can be driven mainly by consumer phone use cases.

Small Business Will Buy 33% of Hosted PBX Systems in 2018

In 2018, roughly one-third of all hosted PBX systems will be purchased by businesses with between one and nine employees, according to Eastern Management Group.

Of course, that opportunity has to be qualified. Most supplier of hosted business phone systems likely would say the sweet spot is organizations with 500 or so employees at any single location.

There are reasons for that belief. Sales volumes and profits arguably are highest, and sales channels clearest, in that range. Bigger enterprises almost always find their large sites do better with a premises switch. Small customers often cannot be sold directly, so sales move through channel partners, in lowish volumes.

On the other hand, Eastern Management argues, the low-end market represents three times more sales than the entire market above 500 employees.

Among the advantages of sales to very-small businesses and organizations are closing times. Typically, a very-small organization can make a decision and close a sale inside of two weeks.

Eastern Management also argues that sales prospecting is easier, since “customers pre-qualify themselves.”

There arguably is less competition, as the leading unified communications as a service suppliers are focused on larger account.

At recurring revenue rates between $40 to $50 monthly, gross margins can reach 60 percent.

Though many channel partners in the very-small-business segment might disagree, Eastern Management argues that sales costs in the very-small-business segment are lower than faced by sellers of systems targeting the mid-market.

Also, sales to such small firms are less technical, and arguably easier, since such buyers need few features and unified communications apps. That means a less-complex sale.

Admittedly, I no longer follow this space closely, but sales in this part of the market would seem to lean in the direction of self service, as it is hard to justify any direct sales model, or even a channel partner strategy, when selling into this part of the market.

There is a reason tier-one telcos, to the extent they even try to sell into this segment of the market, are forced to use a “consumer” model (advertising, web sales, channel partners), for the most part.  It is hard to justify much “live sales force” cost, and still earn a profit.

The problem seems always to be that, as big as the potential buyer base might be, it is frightfully difficult to make a profitable sale unless the whole process is web-based and self-directed. Also, since the emergence of lower-cost retailers such as cable TV companies, much of the former market opportunity for some channel partners has diminished.

Cable modem service, for example, has largely destroyed the old T1 business access market, for example. That has harmed other sales partners (information technology resellers, telecom channel partners and independent telcos focusing on the business customer).

Opportunity might be substantial, but are sales obstacles.