Most of the Time, Wideband--Not Broadband--Satisfies Consumer Needs

Internet access matters. Wideband internet access also matters. But “broadband” sometimes does--and sometimes does not--really matter to end users. The easiest example is mobile internet access, which often runs at far less than the 25 Mbps U.S. minimum to be called “broadband.”

One rarely hears anybody complain about their mobile internet access preventing them from actually doing something. Sure, there are dead spots. But wideband mobile internet access is sufficient for consumer smartphone use cases.

Think about the ways people use their smartphones. Do most users of 4G networks in the United States routinely get 25 Mbps downstream speeds? No. Does that prevent them from using all the apps they want, with satisfactory experience? In nearly all cases, yes.

For most users, access speed no longer is an issue preventing them from using the apps they want.

That might be less true for fixed connections supporting multiple users, to be sure. And many U.S. connections actually purchased by consumers are wideband, not broadband.

By definition, U.S. satellite internet, many fixed wireless offers and mobile connections are “not broadband.”

But 10 Mbps to 20 Mbps for mobile users seems to work just fine for consumers. And while more speed arguably is needed for any multi-user household, the actual end user experience often hinges on how many users or devices are using the shared connection at any single point in time. Obviously, the types of apps make a difference as well.

People often confuse internet access “availability” with “buying choices.” And there is a lot of nuance to be sorted through.

One hears it said that some number of people do not have access to broadband, using the 25 Mbps definition. Fair enough.

Since the U.S. Federal Communications Commission defines broadband as a “minimum of 25 Mbps downstream, some 24 million U.S. residents (though not that many locations) do not have the ability to buy “broadband” internet access.

That is not the same as claiming those consumers and citizens do not have access to internet access. They do. But it now is defined as wideband (less than 25 Mbps), not broadband.

Over time, as we keep redefining the minimum for “broadband,” some of those consumers will still be disadvantaged, compared to urban dwellers. Still, you get the point. When, in the future, broadband is defined as 50 Mbps, and then 100 Mbps, some of those people might still not be able to buy broadband internet access.

Will it matter? Will wideband be enough? For most people, probably. At some point, for any single user, additional speed does not actually improve experience. For most people, the minimum practical standard is enough bandwidth to watch Netflix. And that only requires wideband speeds.

Can Any Tier-One Service Provider Survive on Connectivity Revenues Alone?

Virtually all analysis of the telecommunications industry includes key challenges to the business model. Chief among those issues are declining prices and migration of value elsewhere in the ecosystem.

The issue is what can be done about that threat, and for at least some tier-one service providers, the answer is to “move up the stack” into platforms, apps and content.

For smaller providers, that may not be an option. In fact, some service providers might well find themselves acquired by a tier-one content, app or platform provider. In the U.S. market, an example could be Google, Apple or some other firm acquiring Sprint or T-Mobile US.

Some observers would argue that an eventual acquisition of either or both of those firms by a major app, content or platform provider would make better strategic sense than simply creating a bigger mobile service provider operation, as useful as that might be in the near term.

Eventually, all surviving tier-one service providers are likely to have moved “up the stack” in some way, as it will be nearly impossible to survive on the strength of connectivity services alone.

“By 2020, it is likely that one or more major telecom companies will be acquired by a content company,” argues Christopher Surdak, JD, Global Subject Matter Expert, Analytics, Governance, and eDiscovery, HP Software.

“Being connected continues to become cheaper and cheaper, adhering rather slavishly to Moore’s Law of diminishing costs,” says Surdak. “The cost of providing such a service keeps falling, and competition means that the price keeps getting smaller and smaller in a strong, negative feedback loop.”

One aspect of that trend is that average revenue per account or user keeps falling. Another element is the ability to substitute other products for legacy communications.

“Connectivity is capturing an ever-smaller proportion of the information value chain, while content, service, and product deliverers capture ever-more,” Surdak says.

Competition is an issue, but arguably not the principal challenge. The bigger problem is that virtually all legacy telecom products have reached product maturity and are going to decline. In addition, there is great uncertainty about  proposed new revenue sources.  

5G Might Lift Thai Mobile Revenue 22% by 2026

Thai telecom operators can add US$2.6 billion (83.3 billion baht) or 22 percent in revenue by 2026, above and beyond existing revenues, on new 5G networks supporting the internet of things, media services and digital transformation in such verticals as energy, manufacturing and utilities, argues Nadine Allen, president and country manager of Ericsson Thailand.

You would expect that from Ericsson, but the important angle, if it proves correct, is that 5G services would be incremental revenues on top of existing 4G revenues, and not based on cannibalizing 4G revenue streams, even if there is some substitution of consumer 4G access that simply shifts to 5G.

source: Ericsson, AD Little

That is a key prediction. Even now, it is clear that most of the 5G upside from new use cases and revenue streams will come from services beyond consumer use of smartphones.

source: Ericsson

source: Ericsson

Where are "Up the Stack" IoT Opportunities for Mobile Operators?

No matter how many billions of  internet of things sensors you believe will be in service by 2025, a great proportion are likely to generate zero direct revenue, as they will use Wi-Fi or some other short-range communications network.

That suggests the business model for most mobile service providers, though including connections revenue, is likely to spur thinking about other roles in the IoT ecosystem. Many of those roles require global scale, and so will not be realistic possibilities for smaller mobile operators and their retail distribution partners.

That means the roles of device supplier, vertical market platform or solution provider are unlikely roles for most, if possibilities for some tier-one global operators.

That is going to leave system integration and installation as the most-logical way to enter other segments of the business.

Those of you with long memories know just how hard that is going to be. Simply put, most telcos have struggled to develop system integration businesses and scale them, for many decades. System integration, almost by definition, is a fragmented business.

And fragmented businesses are hard to scale.

Obviously, the greatest area of use case suitability for mobile operators are those applications where sensors must communicate from moving vehicles.

Where connections to mobile or other IoT-specific networks are used, the annual revenue could be as little as US$1 a year. Even in volume, that will not drive a lot of incremental service provider revenue.

source: Ericsson

Also, note that early and perhaps wild estimates of IoT revenues now are being pulled back down, as often is the case for brand new and big markets.

Although IoT connectivity revenue will grow, it will only account for five percent of the total IoT revenue opportunity by 2025, GSMA has said.

Platforms, applications and services segment will represent 68 percent of total revenue by 2025.

This category spans multiple IoT layers such as platforms; application services; cloud; data analytics; and security. IoT professional services such as system integration also are included in that 68 percent.  

Managed services and consulting will account for the remaining 27 per cent share of total IoT revenue by 2025.

Keep in mind that much of that spending will come in the form of IoT devices and installation services, as well.

So even if the global Internet of Things (IoT) market is  worth $1.1 trillion in revenue by 2025, most of the money will be made elsewhere, when there are more than 25 billion IoT connections (connected using mobile and other networks). The GSMA forecast, unlike some others, is based on growth lead by industrial IoT apps.

Hard or Soft Landing for Linear Video Business? And Why That Matters

Many observers thought AT&T should not have purchased DirecTV. Others oppose the Time Warner acquisition. Some might be skeptical about whether Verizon and AT&T can create digital advertising platforms built on their content assets.

There are a range of objections. These include arguments that it was the wrong acquisition. Others might say it was a reasonable acquisition, but came at too high a price. The former argument is that there were other places to invest capital; the latter argument is that debt burdens were too high, relative to the value obtained.

But it is possible to argue that DirecTV is having positive impact on AT&T’s mobile business, while throwing off needed cash flow, and setting the stage for a bigger role in the video business “up the stack.”

And though some might criticize the DirecTV move as allowing AT&T to become the biggest video subscription provider in the United States without upgrading all of its fixed network lines to handle video, others would say that makes sense, if the fixed network business is itself dwindling, and therefore cannot justify expensive upgrades.

That is not to say upgrades are unnecessary; simply that more-affordable ways must be found to supply higher-speed internet access.

In that regard, much hinges on whether the decline of the linear video business is a “hard or soft landing.” If the decline is gradual, then AT&T has time to create a new streaming-based business to replace the legacy revenue stream. A rapid collapse would be much harder to stomach.

Some data suggests a softer than expected landing is quite possible.

Daily Minutes Watching TV vs. Digital Video
Year	TV (Minutes watched)	Digital Video (Minutes Watched)
2016	245	49.5
2017	238	54.3
2018	230	58.7
2019	222	62.5
2020	219	65.3

source: Visual Capitalist

Courtesy of: Visual Capitalist

Are Application Markets Already Changing?

As Mary Meeker’s latest “Internet Trends” report suggests, search has changed. These days, when consumers use search, they often are searching for products to buy. And those searches start with Amazon, about half the time.

Users start with a search engine 36 percent of the time.

All that should remind us that trends and market advantage change fast in the internet apps and platforms space. For regulators and antitrust authorities, that suggests caution is called for.

It almost never makes sense to apply new regulations to industries that already are declining. We have made that mistake in recent decades, deregulating the voice business just before the voice business entered what some would call terminal decline.

It is possible that changes in demand already are at work to disrupt the leaders of the application market as well.

Internet Trends Report 2018 from Kleiner Perkins Caufield & Byers

source: Kleiner Perkins

Teens Have Abandoned Facebook, as a "Most Often Used" App

Ignoring for the moment issues about privacy and content fairness and accuracy, there already are signs that web giants such as Facebook--facing mounting calls for antitrust action--already are losing favor.

A new study by Pew Research finds Generation Y (the generation after Millennials) already largely has abandoned Facebook. The most-often used app platforms among U.S. teenagers include Snapchat, YouTube and Instagram.

source: Pew Research

Over the last three years, teen social media preferences have changed dramatically.

In the Center’s 2014-2015 survey of teen social media use, 71 percent of teens reported being Facebook users. Some 52 percent of teens said they used Instagram, while 41 percent reported using Snapchat.

That clearly has changed. Facebook usage dropped 20 percentage points. More significantly, Facebook is “most often used” by just 10 percent of teens.

Such rapid changes in app preferences are one reason hasty antitrust action might best be avoided. In fast-changing markets, it arguably does not make sense to apply antitrust to businesses that already are being supplanted by rivals.