Will T-Mobile US Compete for Fixed Network ISP Accounts?

One of the biggest problems all of us have with business and life is getting transitions right, especially big disruptive transitions. Consider only the matter of consumer internet access; its retail cost, its value, speed and market structure.

To summarize, some critics complain (and always do) that consumer services are too slow, too expensive and are offered in markets that are not competitive enough.

Leaving aside for the moment that much of that is a judgment call, the rate of improvement, the cost per bit metrics (value), price that is inflation-adjusted and as a percentage of household income metrics are not out of line for any developed market, and are far better than in most developing markets.

And competition is going to intensify. Leave aside the coming future competition from constellations of low earth orbit satellites or more exotic delivery platforms (balloons or unmanned aerial vehicles).

In the near term, 5G is going to be used by mobile service providers to attack fixed network internet service providers, in some cases using 5G fixed access, in other cases simply by supporting mobile substitution.

Verizon has been the biggest, most aggressive proponent of using 5G in fixed mode to provide major new competition out of region to AT&T, Comcast and Charter Communications.

But T-Mobile US now says it expects to be a significant player in providing major new competition for internet access services provided by fixed network providers as well, if its merger with Sprint is approved. In truth, T-Mobile US is likely to do so even if the merger with Sprint is not approved.

Some might argue the purchase of video platform Layer3 works for T-Mobile US no matter what happens with the Sprint merger, as a way to provide “up the stack” video services, and also as an anchor feature for fixed internet access bundle.

“I don't think people have really thought through what's going to come,” says Mike Sievert, T-Mobile US COO, a prediction predicated on a Sprint merger with T-Mobile US.

T-Mobile US apparently expects to gain, by 2024, close to 10 million customers that formerly would have been served a fixed network. The company believes perhaps 75 percent to 80 percent of those accounts will be in metro areas, with 20 percent to 25 percent of them in rural America, Sievert says, when available speeds range from 150 Mbps to 450 Mbps or more, in some areas.

“What people haven't really connected to until recently is that with the new T-Mobile, by 2021, two thirds of the country will have greater than 100 megabit speed, so if you think about in the context of broadband, by 2024, it will be 90 percent,” he argues.

“in the underserved rural America segment, when you get out to 2024, we'll have 74 percent of them covered with greater than 10 megs, but with home CP and our in-broadband distribution opportunity that we see, you'll have 84 percent that can get greater than 25 megabits,”Sievert says.

We will have to wait and see what happens with the proposed Sprint merger, and what T-Mobile US decides to do if the merger fails. If approved, we get a new fixed network internet access competitor, in many U.S. markets, on top of what Verizon will provide. .

Let us assume that Verizon and T-Mobile US are going to be fierce and successful competitors, at scale.

That is going to reshape the fixed network internet access market in a fundamental way, removing the duopoly of “telco and cable” in markets that represent the bulk of potential customers. Where the fixed network duopoly exists, it might often be a market with four terrestrial providers and two satellite providers, with some markets where smaller independents also operate.

That is going to disrupt business models for all incumbents, terrestrial or satellite. As four to six providers is likely an unstable situation, the eventual number of leading providers is likely to eventually stabilize at some number greater than two and less than six. Mergers are possible, but antitrust concerns will exist, for any combinations of existing providers.

Still, it is hard to ignore the profound implications of full-on mobile substitution for fixed network internet access. The fixed network duopoly seems unsustainable, in some number of markets, in the near term.

In the medium term, mobile or wireless substitution is possible on a broader scale. We are gong to have to redo our spreadsheets on internet access market shares, average revenue per account and profit margins.

Telecom is Going to Resemble the Grocery or Retail Industry, in Key Respects

It appears retail communications services increasingly will resemble the retail business in becoming a place where customers buy a number of different types of services, with varying gross revenue and profit margin profiles. That is not a new trend, but will become much more the case in the 5G era.

The reason is that 5G is key to incremental revenue growth opportunities that, almost by definition, include services with very-low revenue profiles, some with moderate revenue implications ($10 to $40 a month per service) and some with high revenue per service.

Matching that growing gross revenue and profit margin picture is a more-complicated channel (distribution) picture. Many of the truly-new services have platform implications and requirements, vertical market distribution and product functionality profiles. By definition, that also means the marketing strategies must match the vertical use cases and customer bases.

That is going to make the grocery store a relevant analogy for perhaps the first time. For a mass market grocery, apparel or other consumer goods distributor, each category of products has a distinct gross revenue and ARPU profile, which is one reason grocers are adding products in the “ready to eat” category (delicatessen, for example, or in-store meals). That also is the thinking behind “store brands,” which tend to produce higher profit per unit than external brands.

At convenience stores, margins can range from a low of one percent up to 35 percent for various products.

source: Delek

So though it might seem far fetched, profit margins for various products sold by telecom firms and internet service providers are going to show more divergence. Also, many of the new revenue opportunities will be “enterprise” sales, not the consumer distribution pattern relying on mass media advertising and retail stores.

Some of the sales will go “direct to consumer,” using internal resources. In many other cases, partner retail sales entities or even asset ownership will be needed to sell products to businesses or consumers. In many other cases original equipment manufacturer (OEM) strategies wil make sense.

Overall, sales channels and methods are going to become far more complicated.

source: A. Saghaeian

As that diversification happens, each product line, and products within a line, will tend to develop more-unique gross margin profiles, but also varying cost structures.

source: Pw

U.S. Internet Access Speeds are Growing Fast, and Will Grow Faster

Major U.S. “cable TV and telephone” service providers (fixed network suppliers) can be divided into two groups: firms that might realistically consider expanding their service territories, and those that likely would not, or cannot, consider it.

For regulatory reasons, AT&T, Charter and Comcast likely would face antitrust opposition if they wanted to expand their fixed network footprints. CenturyLink likely does not wish to do so, and Frontier cannot afford to do so.  

Only Verizon has a glaring need to “catch up” with its major competitors, in terms of fixed network coverage, and likely would not face antitrust scrutiny. That explains the out of market expansion Verizon now plans, using fixed wireless as the access platform.

Comcast could in 2016 reach 110 million U.S. homes. Charter could reach 101 million homes. AT&T reached 122.5 million U.S. homes. Verizon could reach just 55.2 million homes. CenturyLink reached just 49.2 million homes; Frontier Communications only 32.6 million.

The big immediate wild card is 5G, which should, over the next several years, expand the number of providers able to supply 25 Mbps or faster service, for most of the U.S. population, using some form of 5G platform. In early 2018, 20 percent of U.S. homes are mobile-only for internet access.  

The point is that, over the next several years, access competition is going to change dramatically, with the number of suppliers selling 25 Mbps or faster internet access service growing by perhaps two to three in most markets (Sprint, T-Mobile or a combined company; plus either AT&T or Verizon in most areas as “new” suppliers).

That assumption is based on attacks by Sprint, T-Mobile US and Verizon in AT&T legacy markets; Sprint, T-Mobile US and AT&T in Verizon areas, and all of the above in CenturyLink and Frontier markets.

Also, both Viasat and HughesNet sell satellite-based internet access at minimum speeds of 25 Mbps nationwide, as well. And by 2018, speeds had climbed well above 2016 levels, for many of the largest U.S. ISPs, more than doubling over two years.

source: PCmag.com

source: PCmag.com

Competition, service quality and price are rarely what all observers would prefer, but competition and service quality (and possibly price) are going to change radically in the 5G era, when widespread mobile substitution for fixed internet services will be a realistic alternative for the first time.

No, service is rarely as fast, as cheap, and competitive, as some would prefer. But the history of internet access in the U.S. and most other markets is rapidly-falling costs (or cost per bit, if you prefer), faster speeds and more-capable competitors.

Why SD-WAN Matters

With the caveats that I do not primarily cover core networks or enterprise communications, I would still argue that importance of software-defined wide area networks (SD-WANs) is not that the market is so large, comparatively speaking, or even that SD-WAN eventually will displace legacy networking platforms.

Strategically, all core networks are evolving towards virtualization, which means all core networks will define, create and support virtual private networks as a basic assumption.

In other words, all WANs eventually become virtual private networks.

There are some related advantages for service providers, ranging from the possibility of offering differentiated classes of service as a core feature of such networks, to allowing more-efficient use of networks, to reducing operating cost and capital investment.

Customers might gain from ability to buy customized network features that match user core business models (whether there are requirements for latency, quality of service or bandwidth.

In a larger sense, we move closer to the ideal next-generation network we have been talking about--and moving towards--for several decades: a network that can supply not only bandwidth but features on demand, dynamically.

source: Nokia Networks

Top Global Tech Execs "Favorite Apps" are Highly Fragmented

One hears quite a lot these days about monopolies enjoyed by app firms such as Google, Facebook or Amazon, with many calling for antitrust action. So it might come as quite a surprise that top global technology executives have highly-fragmented "favorite app" profiles, with scores generally in low single digits, even for the "favorites."

In other words, as concentrated as consumer use appears to be, at least some consumers (top technology execs) show no comparable concentration of "favorites," though of course that does not answer the question of the amount of usage the favorite apps get.

Top tech executives globally have highly-fragmented sets of “favorite apps,” at least when asked to name them, unaided. Use of LinkedIn in India, at 11 percent, is the highest reported mention of a “favorite app.” Globally, LinkedIn is tops at four percent.

In China, Baidu gets seven percent mentions. In Japan, Gmail gets seven percent, while BBC is tops at eight percent. In the U.S. market, Amazon is highest at five percent.

survey of 850 global technology executives suggests.

source: KPMG

Walmart Weighs New Video Streaming Service

A possible Walmart video streaming service aimed at rural and Middle America viewers is something of a “Fox News” strategy, aimed at a large segment of the potential audience whose cultural, religious and social views are distinct from those of urban viewers in big cities on the east and west coasts.

It is a risky thought. The U.S. online video subscription market is nearing saturation, so growth would have to come from taking market share. It will be an expensive proposition if Walmart produces some original programming. As Amazon Prime seems to have found, it is hard to create audience-attracting original programming.

Aiming for a cost that is less than Netflix or Amazon Prime, it is not yet clear whether the service would license content solely, or mostly; nor is it yet clear whether the service would include some original content.

Even if “free two-day shipping” is the main reason people subscribe to Amazon Prime, consumers still indicate that the video service is “very important.” Walmart obviously will try and leverage the stickiness of subscription video to reinforce its own retail strategy, which increasingly relies on online distribution.

source: Strategy Analytics

On the other hand, Amazon Prime is starting to generate significant direct revenue, even if the video service is a way to boost value for the Prime membership overall. Lots of consumers arguably join Prime just for the shipping benefits, with the online video a way of justifying the subscription’s value.

source: CB Insights

Also, there is evidence that online video viewers shop more using online services. That is another potential value for Walmart: it positions itself to grab a bigger share of active online shopping users.

So the point is that a potential Walmart streaming service provides a mix of value, including direct revenue, a potential boost for its online retailing business and a chance to create a new advertising and promotion vehicle.

source: Compete

In some ways that mix of value is true even for AT&T, whose DirectTV Now service primarily aims to generate direct subscription revenue, but also creates bundling opportunities for the rest of AT&T's subscription businesses, as well as an advertising opportunity.

source: Beyond Devices

App and Platform Providers Move into Health

It arguably is easier to “move up the stack” when a business already operates at the platform, app or device level. And that could be the case for Alphabet, Amazon, Apple and Microsoft as they seek to create new roles for themselves in the health business.

Alphabet wants to leveraging its extensive cloud platform and data analytics capabilities in the health area, including health records, for example.

source: Business Insider

Amazon is moving towards distribution of  medical supplies and pharmaceuticals. Alexa could become an in-home health concierge.

Apple logically sees itself as a medical device supplier. Microsoft operates Microsoft Health.