Some Customers Need More Fiber, Some None

Sometimes the truth emerges even when not intended; at times even when the opposite argument is being made. Consider the argument for gradual introduction of more optical fiber into hybrid fiber coax networks, which is sound thinking.

Though making that case, one optical supplier executive has said that “connectivity is increasingly transforming from static wireline to mobile or wireless delivery,” said Cate McNaught, Corning Optical Communications emerging applications market development manager.

That is not to say fixed network access is going away, or will not underpin wireless or mobile network backhaul (fronthaul, anyhaul). It is to acknowledge that content and video consumption on mobile and untethered devices seems to be the main trend right now, with mobile over the top video services proliferating, and more content supplied by all OTT services being consumed on mobile devices.

The issue then is not the need for more optical fiber in access networks, but the business models and rationale for doing so. The problem is stranded assets Today, fiber to the home networks in the U.S. market strands as much as 60 percent of the deployed FTTH capital. That creates a bigger return on investment problem.  

Consumer spending on communications and entertainment services has not changed all that much, in most countries, although the specific products purchased have changed.  

At the same time, the profit margin from many services also has compressed. Prices per gigabyte for consumers using internet access services have declined by about an order of magnitude since 2012, in the U.K. market, for example.

source: Department for Digital, Culture, Media & Sport

The stranded assets problem simply is that when a ubiquitous network is built, not every single home or business buys every service. Not every consumer buys fixed network voice, entertainment video or internet access. Not every business buys the same mix of voice and data services, or mobility.

The problem really is compounded, however, as multiple suppliers compete. If the demand for any single product is 95 percent, and there are three competent suppliers, on average, any supplier can only expect to get revenue from 32 percent of locations passed by the network.

In other words, 68 percent of locations passed earn no revenue.

Such problems can intensify when the demand curve changes, as when consumers abandon use of fixed network voice in favor of mobile voice. The remedy, up to this point, has been product bundles.

One set of numbers from the Comcast third quarter 2017 results is instructive: Comcast details the number of customers taking single, dual-product and three-product or four-product packages.

About 30 percent of consumer customers buy just one product, a third buy two products, while 37 percent buy three or four products as a bundle. Looking at each buy as a “unit sold,” those figures help service providers deal with stranded assets.

If 37 percent of Comcast customers buy an average 3.5 products, that equates to an average of 1.3 products per home passed. If 33 percent buy two products, that equates to one unit sold across 66 percent of the homes passed. The 30 percent of homes that buy only a single product, when added to the dual-product homes, equate to one product sold to 96 percent of homes passed. Altogether, those figures mean Comcast sells an average of two products per home passed.

And that is how the economics work, even when stranded assets range from 40 percent to 60 percent.

The business model will come under more stress if and when mobile alternatives emerge more strongly. So two apparently contradictory claims can be made: there will be a growing need for more access optical fiber, and there also will be less need for some of it.

The remaining customers will need optical fiber advantages more; but fewer customers will buy.  

Is Network Slicing the Key to Mobile Speed Tiers?

Speed tiers are commonplace on fixed internet access networks, while they have been impossible on mobile networks. But that could change.

Virtually nobody seems ever to have suggested that network neutrality outlaws speed tiers, where different service plans are available on fixed networks, featuring differing speeds (25 Mbps, 100 Mbps, 300 Mbps and 1 Gbps, for example).

That might seem odd, since much of the language around network neutrality has been opposition to the creation of fast lanes on the internet. In principle, we might agree that the specific objection is to blocking or slowing lawful apps, not fast lanes as such.

Network neutrality often is said to allow internet service providers to “block” lawful content or charge additional fees to content providers when quality of service mechanisms are applied to service tiers.

Were the real objection fast lanes, then net neutrality supporters would have objected to differential speed tiers, where consumers can choose to buy slower or faster tiers of service. They did not. So the issue really is blocking or otherwise “slowing” some lawful apps.

It is even more complicated than that, though. As a practical matter, what net neutrality supporters tend to object to is any ISP ability to create business arrangements with content or app providers that ensure better quality of end user experience by reducing latency.

As many have pointed out, that is precisely what happens every day, when content delivery networks are used. CDNs cache content at the edge of the network to reduce latency and improve experience.

That necessarily is “unfair,” since app and content providers pay money to use a CDN.

So consider 5G networks that assume the use of a core network that inherently can create many virtual private networks, all the way to the radio edge, that have different performance characteristics.

This already is envisioned as a way of supporting enterprise networks with distinct use cases. Might the same approach be taken to support several speed tiers of mobile access?

source: sdx central

In principle, such a network can create “network slices” or virtual private networks that might include a “bronze, silver, gold” approach to access speed, something that has not been possible on mobile networks, up to this point.

At least in principle, three VPNs (network slices) could be created to support access by customers on bronze, silver or gold plans, with two of the plans featuring higher speeds than the standard level of service.

A routine retail offer on fixed networks, that form of service differentiation has never been practical on mobile networks. That could change.

What is the Killer App for 5G?

Early on in the 3G era, video calling was a hoped-for new “killer app.” That did not happen. But it has become commonplace on 4G networks. In a similar way, content services were expected to flourish in the 3G era. That did not happen until 4G.

Augmented reality apps were supposed to develop on 3G networks. That still has not happened.

In fact, many would find it hard to point to a killer app  for 3G. Eventually, new apps do emerge. And some might say the early value of 4G was just speed.  

You might argue text messaging was the new killer use case for 2G. You might suggest mobile email and Internet access was the legacy of 3G. Video entertainment is developing as the singular new app that defines 4G.

Internet of things is expected to drive the futuristic new use cases for 5G. Many believe 5G fixed wireless, though, will represent the early new use cases, beyond bolstering consumer internet access speeds and augmenting 4G capacity in geographic areas where congestion is an issue on busy cell sites.  

Still, it is fair to say we are likely to be surprised by what 5G brings, or fails to bring, as has been the case for the other next G mobile networks.

Among the possible surprises could well be that hoped-for new use cases do not flourish in the 5G era, but take longer to reach near-ubiquity. That is why some believe 5G will wind up being more like 3G--a platform whose innovation lagged expectations--than 4G, a network platform that some would argue largely developed on the promise of new apps enabled by greater capacity.

As was the case for 4G, which provided significantly faster speeds, making video consumption feasible, 5G will boost access speeds, by an even greater margin. But the bigger long-term change is the shift to ultra-low latency.

It would be a reasonable supposition that use cases for higher speed will develop sooner, with greater scale, than use cases for ultra-low latency. And that is why some believe 5G might be more like 3G than 4G.

The wild card is the role of enterprise apps and use cases. Some of us argue that what makes 5G clearly different from all prior mobile generations is that brand-new use cases are more likely to emerge in the enterprise segment of the market.

In the case of prior generations, growth and use cases were lead by consumer applications. That is unlikely to be the case for 5G, if internet of things actually emerges as the killer set of apps.

Will 5G New Use Cases Flourish Only in 6G Era?

If past patterns hold, 5G will reach its peak of adoption in a bit more than a decade, while having a useful life as long as 20 years. So we will know, within a decade, how well 5G lives up to its promise as a platform for new use cases related to internet of things, and how well new ultra-low-latency applications have developed.

There is precedent for something else as well. Many innovations hoped for in the 3G era arguably flourished only in the 4G era. So it is conceivable that although 5G will see the early years for many new use cases, those applications will thrive only in the 6G era.

source: Chetan Sharma

Despite clear evidence that mobile operators in the United States, Japan, South Korea and China are charging fast into 5G, with firms in each of those countries believing 5G leadership will lead to broader benefits, many operators in other nations are less optimistic about the near term business case.

In some cases, that skepticism or agnosticism also has other roots: recent and major investments in 4G, uncertain spectrum allocations or the general state of the mobile business (very low growth) in general, which raises the risk of big new investments in 5G.

Add to that divergence the sense in early-adopter countries that 5G is about industrial policy, while perhaps not a plausible possibility in most countries, and the split of opinion is easy to explain.

Optimists might point out that business model fuzziness also was a characteristic of both 3G and 4G, so some amount of uncertainty is perhaps typical of next-generation mobile platforms in recent eras that have seen revenue growth drivers migrate from voice to messaging to internet access for revenue growth, and which now will have to depend on additional new growth drivers in the 5G era beyond internet access for people on smartphones.

It also is fair to say that early adopters in 5G vary by continent, with mobile operators in the United States, Japan, China, South Korea moving early and aggressively into 5G, while European, African, South American and broader Asian operators are more circumspect.

In some instances, the hesitation is related to the recency of 4G investments. In other cases the difficulty of the mobile business model in general makes a major upgrade cycle unpalatable.

There are divides, by continent, on the matter of internet of things upside as well, possibly because many observers see the biggest early revenue cases developing in North America and parts of Asia.

source: Research Nester

So it might not be surprising that mobile operators in the United States and East Asia are more optimistic about the near term 5G and IoT business cases (as IoT upside will be dependent on 5G, in important cases).

In Europe, the IoT opportunity often is included in discussions of the “fourth industrial revolution.”

One hears the term of art used less in the North American markets, perhaps suggesting different perceptions of where opportunity lies. In a broad sense, users of the term fourth industrial revolution seem to use it in a sense similar to “digitalization” and a bit more reliant on applying artificial intelligence to business processes.

Other touted revenue platforms such as edge computing are simply early in development, as edge computing requires new lead apps such as autonomous vehicles to drive such requirements.

Some observers also note the nebulous discussions and status of artificial intelligence within the service provider community at the moment, though, perhaps surprisingly, AI is seen by some as having more relevance for mobile operators than 5G, IoT or edge computing.

The point is that near-term optimism about 5G, internet of things and edge computing--if not complete conviction at the same level--is higher in a few markets than across most of the globe.

In part, that is because 5G business cases are part of the broader IoT and edge computing trends. Without significant IoT growth, it is hard to make the case either for 5G or edge computing.

At the moment, 5G and IoT are a Rorschach test. Different people see different things.

Amazon, Content Suppliers Wrangle Over Prices

Amazon is looking to increase its cut of revenue from some subscription services available through Prime Video by 10 to 20 percentage points to as high as 50 percent, The Information reports.  

Amazon’s share from services such as HBO almost certainly parts with less of the gross amount of subscriber fees. Smaller and niche services might pay half of their sales to Amazon.

Amazon’s attention likely is focused on its share of revenues from channels that currently pay less than 50 percent to Amazon when a sale is made.

Disagreements about revenue splits are commonplace in the entertainment video business. That is especially true for streaming video services, which have difficult business model unless scale is obtained.

To be sure, garnering greater share of subscription revenue makes business sense for ecosystem partners when revenues are growing or shrinking. It matters not which way the trend is pointing.

And though the economics of linear and over-the-top subscriptions are quite different, the OTT model can make sense even for internet service providers who sell linear and OTT products. At a retail level, zero rating of video consumption, or big usage buckets, are necessary.

5G Can Improve Rural Connectivity if Spectrum is Free

It is far from clear how well 5G networks might help improve or supply quality internet access in rural, mountainous and thinly-populated parts of the United States. Almost by definition, such areas do not support sustained business models for fixed networks, and require subsidies.

That is why hundreds of independent wireless internet service providers now are the way many people in rural areas get internet access services. Those firms also tend to rely on use of unlicensed spectrum to make the business model work.

The same sort of economics work for Wi-Fi. Low entry cost, as spectrum is available at no cost, is key.

source: Saankhya Labs

One might argue that should continue to be the case in the 5G era: networks will have to be wireless, and will require unlicensed spectrum access.

It probably matters less whether the unlicensed spectrum is gotten using shared or dedicated mechanisms (Citizens Broadband Radio Service, which is shared; or new unlicensed spectrum in the millimeter wave bands). The point is that tough business models require no-cost access to spectrum.

Whether 5G networks can make a big difference in providing good rural coverage hinges on access to no-cost and low-cost spectrum.

Over the past few years, some have worried about the cost of 5G spectrum, although spectrum prices are dropping, generally speaking, in part because there is a huge increase in supply, and because mobile operators must now more carefully weigh the cost of new spectrum against expected financial return.  

Also, firm strategies now vary. Some firms believe use of unlicensed spectrum will be more important. Others substitute small cells for additional spectrum. Some need additional spectrum more urgently than others, based on present holdings.

Recent auctions of 3.5-GHz spectrum have no clear pattern, especially since the various auctions featured different amounts of total spectrum and different license allotments (bigger or smaller amounts of spectrum per license), and there always are local market drivers (some contestants have greater needs for spectrum).

The point is that supply and demand issues affect price, as always. Finland offered the most 3.5-GHz spectrum, at 390 MHz. Spain and Italy each sold 200 MHz. U.K. regulators auctioned 150 MHz.

Finland’s prices wound up at 0.04 euros per megaHertz pop (a MHz POP represents one megahertz of bandwidth passing one person in the coverage area).  Spectrum sold for 9.07 euros per MHz POP in Spain, but a whopping 0.51 euros per MHz POP in Italy. U.K. spectrum sold for 0.17 euros per MHz POP.

On the other hand, at least one Australian official worries that a recent big merger between TPG and Vodafone will reduce demand and lead to lower prices.

source: GSMA

One might simply argue that supply and demand will  work. Whatever the limits on new spectrum at 3.5 GHz, regulators simply must make more spectrum available in other bands. More supply takes care of pricing pressures. Releasing more unlicensed spectrum, spectrum sharing, spectrum aggregation and additional spectrum in the millimeter wave bands all will help ensure there is plenty of 5G spectrum and that prices will not be onerous.

Supply in the 3.5-GHz auctions will be something of an issue, in most countries, as there is not lots of spectrum available there.

source: GSMA

French regulator Arcep’s chief Sebastien Soriano announced it will be challenging to keep prices low for a 2019 spectrum auction, especially when supply cannot keep up with demand, but said it wants to find a way to do so.

Traditional government views of spectrum auctions as easy ways to raise government revenues also are issues. Policymakers have to balance the need to make lots of spectrum available with the desire to raise revenues.

As you would expect, firms that have paid high prices justify their actions by arguing the new spectrum will help reduce costs per gigabyte, as well as supporting all the new end user demands for capacity.

High spectrum prices, though, have been big problems for mobile operators. Recall the high prices paid for 3G spectrum in many countries, which nearly bankrupted several firms in Europe, the high prices paid in India and in some other countries.

More supply will help keep prices within reasonable ranges.

The deadline to apply for one of the PTC Innovation Awards is Nov. 2, 2019.

The categories include networking, app, emerging technology, quality of life, satellite, cloud/data center, mobile, network intelligence and subsea innovations.