U.S. Falling Behind in 5G?

It was probably inevitable that some would claim the United States is falling behind in the “race” to 5G.

After all, in the past, it has been argued that the United States was behind, or falling behind, in use of mobile phones, then smartphones, use of text messaging, broadband coverage, fiber to home, broadband speed or broadband price.

Some even have argued the United States was falling behind in spectrum auctions.  What such observations often miss is a highly dynamic environment, where apparently lagging metrics quickly are closed.

Nor is it hard to find observers worried that Europe is falling behind in internet businesses or 5G, as some argued Europe had fallen behind in 4G.

Just what winning or losing the 5G race could mean is not simple. Some people think “winning” is a matter of which countries deploy and obtain high adoption first. Others would argue that access does not matter as much as the ability to innovate and create in terms of connected business models, apps, services and processes.

International comparisons can be instructive, though sometimes not for the reasons one suspects. Consider voice adoption, where the best the United States ever ranked was about 15th, among nations of the world, for teledensity.

For the most part, nobody really seemed to think that ranking, rather than higher on the list, was a big problem, for several reasons. Coverage always is tougher for continents than for city states or small countries. Also, coverage always is easier for dense urban areas than rural areas. The United States, like some other countries (Canada, Australia, Russia) have vast areas of low population density where infrastructure is very costly.

On virtually any measure of service adoption (voice or fixed network broadband, for example), it will be difficult for a continent-sized market, with huge rural areas and lower density, to reach the very-highest ranks of coverage.

For such reasons, no continent-sized country with vast interior and sparsely-settled areas will reach the top of any list of countries with fastest speeds. Nor is it ever easy to “know” when speeds, prices or availability are a “problem.” Disparities between rural and urban areas almost always are viewed as a problem.

Prices are harder to characterize. When all countries are compared, such prices must be adjusted for purchasing power. In other words, price as a percentage of income provides a better measure of price. In developed markets, for example, internet access costs about 1.7 percent of per-person gross national income.

The International Telecommunications Union has argued that U.S. fixed network internet access prices are among the lowest-priced globally. Mobile internet access provides another view: in perhaps a hundred countries, mobile internet access already costs less than fixed access.  

According to the latest survey by Cable, U.S. average speed ranks it 20th globally for internet access speed. As always, a significant number of the countries with the highest speeds are small.

Singapore, which nearly always leads, is a city state. Others among the top 25 are small islands or countries that are relatively small in geographic area and more densely-populated “first world” states.

Most of the top 25 are in Europe, with the exception of Singapore, Japan, Taiwan, Hong Kong, the United States and Madagascar.  

That is not to dismiss the role of policy. Japan ranks 12th.

Rank Country Region Mean Download Speed

1 Singapore Asia & Pacific 60.39

2 Sweden Europe 46.00

3 Denmark Europe 43.99

4 Norway Europe 40.12

5 Romania Europe 38.60

6 Belgium Europe 36.71

7 Netherlands Europe 35.95

8 Luxembourg Europe 35.14

9 Hungary Europe 34.01

10 Jersey Europe 30.90

11 Switzerland Europe 29.92

12 Japan Asia 28.94

13 Latvia Europe 28.63

14 Taiwan Asia 28.09

15 Estonia Europe 27.91

16 Spain Europe 27.19

17 Lithuania Europe 27.17

18 Andorra Europe 27.14

19 Hong Kong Asia 26.45

20 U.S. North America 25.86

21 Slovakia Europe 25.30

22 Madagascar Africa 24.87

23 France Europe 24.23

24 Finland Europe 24.00

25 Germany Europe 24.00

Tracking broadband speed measurements in 200 countries, “the good news is that the global average speed is rising quickly,” Cable researchers say.

The average global broadband speed measured during the period from 11 May 2016 to 10 May 2017 was 7.40Mbps. The average global broadband speed measured during the period from 30 May 2017 to 29 May 2018 was 9.10 Mbps, a rise of 23 percent increase the authors say is “considerable.”

Speeds are growing faster at the top of the ranking, while there is little change in availability or uptake of faster infrastructure in the bottom half of the rankings. That particular trend is not new.

On average, the top 100 countries in the table have gained 5.43 Mbps while the bottom 100 in the table have gained by an average of only 0.41 Mbps, Cable says.

In part, that is an artifact of the existing speed differentials. The top 100 countries have increased their average broadband speed by 29 percent, while the bottom 100 countries have increased their average broadband speed by 24 percent.

Indoor Services Could Drive Many New Revenue Niches

We do not typically think of the internet and mobile business as a matter of “indoor” and “outdoor” business models. Rather, we tend to look at the ecosystem as an “edge provider” and “service provider” dichotomy, or sometimes in a broader context, including chips, infrastructure, devices, apps, connectivity and sometimes other categories such as retail distribution.

The point is that the whole internet ecosystem contains many segments, and opportunities for any stakeholder to grow by occupying adjacent niches. The other issue is that the share of ecosystem revenue might well change, over time. In many cases, growth is not so much the issue as rates of growth.

Still, businesses and revenue built on “indoor” parts of the ecosystem are substantial, and have offered most of the opportunities for businesses that are not tier-one service providers.

That always has been the case, if you think about it. Phone interconnects, value-added resellers, system integrators, venue Wi-Fi, cable TV and the device business all rely principally on solving indoor problems, not “access.”

Many believe such opportunities could grow as new platforms, such as Citizens Broadband Radio Service (CBRS) emerge. CBRS and private LTE could underpin a new wave of business models that drive revenue by solving indoor connectivity problems and create new value propositions.

The existing models include Wi-Fi, local areas networks, the distributed antenna system business, Wi-Fi offload and small cell deployments (which can take carrier, venue or end user forms).  

Boingo says it has 54 distributed antenna system (DAS) venues live, with another 73 venues in backlog. Boingo, which already is heavily in the DAS and indoor venue Wi-Fi business, believes the addressable market for DAS is about 20,000 more locations (in addition to the sites already installed).

While there are five million commercial buildings in the United States, more than 90 percent of those buildings occupy 200,000-square-feet or less, according to the U.S. Energy Information Administration. That might imply that 30 percent, or roughly 1.5 million sites, are the best candidates for lower-cost CBRS systems providing indoor coverage.

In terms of all small cell venues, there are perhaps 400,000 such potential locations where CBRS provides the same benefits as DAS.

So one way of setting parameters is to assume the number of U.S. venues where either DAS or CBRS makes sense ranges from a low of 20,000 locations to a high of 1.5 million locations, with 400,000 possibly representing reasonable CBRS potential.

Boingo’s business opportunities point up the role of indoor mobile coverage in the mobile ecosystem.

But that is not a new issue, since the advent of deregulation and the end of the monopoly era. Since the breakup of the AT&T Bell System, when indoor and outdoor networks were owned by AT&T, “indoor” or premises networking has been the province of private networks owned by consumers or businesses, while “outdoor” networking has been the province of the service providers.

That is why consumers own their phones and PCs, why Wi-Fi exists, why distributed antenna systems and coming in-building small cell networks, as well as private mobile networks, will exist.

Traditionally, service providers have been essentially barred from owning facilities infrastructure, terminating their networks at a demarcation point on the property. Mobility was the new wrinkle, as mobile networks, to be valuable, must provide service everywhere, indoors and outside.

Still, mobile service providers shy away from investing in in-building infrastructure, for cost reasons. Wi-Fi has eased those concerns to a large degree. And some service providers, especially firms such as Comcast, see new value in “owning” the indoor Wi-Fi experience.

So a big new business question is what new opportunities might exist, in the indoor networking environment, for service providers and others in the ecosystem.

Though it now seems “natural,” virtually all the businesses now associated with private networks, end user equipment and software, consumer and business applications, Wi-Fi and other local area networks have been created only as the end of monopoly phone service era began.

Apple’s device business, the Android ecosystem, Wi-Fi ecosystem, local area networks, cable and satellite TV, the phone interconnect and computing system integration and value-added reseller businesses all exist because the public network was deemed to end at a demarcation point on every customer’s premises.

Though in a regulatory sense the rise of Facebook, Google, Amazon and all other app providers (edge providers) was not enabled by telecom deregulation, they were enabled by legal frameworks that left computing services completely unregulated.

To understand why many firms work to create new roles for themselves, consider that, in the monopoly era, AT&T supplied not only connectivity services, but also the network’s equipment and software; the customer equipment (phones) and owned the inside wiring as well as the rest of the network.

In a revenue sense, AT&T made money building and selling infrastructure (as Nokia, Ericsson and others now do); building and selling the CPE (as Apple, Samsung and others now do) and providing all the connectivity (instead of retaining only a fraction of such revenues).

These days, service providers mostly must rely on connectivity revenues alone, in competitive markets, to generate revenue.

So one way to look at efforts to create additional roles in mobile banking; entertainment services; applications and computing is to understand them as ways of recreating the once more-robust involvement in greater portions of the communications ecosystem.

It is not exactly “back to the future,” but it is close.

Historically, only the public network existed. When U.S. consumers or businesses purchased a phone service, the wiring inside the home and the phones were owned by the telco.

That began to change in 1968, when in the Carterphone decision, people gained the right to use their own equipment on the AT&T network.  

With the breakup of the Bell system in 1984, inside wiring became the property of the building or homeowner. That, in turn, lead to the creation of  private networks (local area networks, for example).

The in-building or campus communication systems, equipment and software became the province of private networks. Where in the monopoly era, all customer premises equipment was produced and owned by AT&T itself, today all sorts of companies produce CPE, and AT&T has gotten out of the business of building either network infrastructure products or CPE.

Ironically, the strategic imperative many telcos embrace is an effort to recreate the “multiple roles in the ecosystem” position they once had in the monopoly era.

After 50 years of shrinking roles in the communications ecosystem, major service providers seek to create new roles offering higher revenues, greater profits and diversified revenue streams, as once was the case.

That does not mean firms want to recreate roles in most of the former areas, such as becoming manufacturers of network infrastructure or end user devices. But firms now seek roles beyond connectivity.

Firms whose roles were legally prohibited, curtailed or opened to competition, are trying to find additional and profitable roles in many parts of the ecosystem that were curtailed or forbidden by the deregulation process of the 1980s and earlier.

But indoor coverage and services might well create many new opportunities for service providers and specialists in the ecosystem as well.

What Eventually Takes the Place of Mobile Revenues?

As a rule, I expect that any given communications service provider will have to replace half of current revenue about every decade. Among the best examples (because we have the data) is the change in composition of U.S. telecom revenues between 1997 and 2007.

Back in 1997, nearly half of total revenue was earned from “toll” services (long distance, including international and domestic long distance voice. Profits also were disproportionately driven by long distance services.

A decade later, toll service had dropped to 18 percent of total revenue, while mobile services had risen to about half of total revenues, up from about 16 percent of total.

source: The Economist

A similar trend can be noted for European Union mobile revenues between 2010 and 2018, a period of less than a decade, but still a time when voice revenue dropped from about 80 billion euros to about 45 billion euros, while messaging dropped from about 19 billion euros to perhaps 10 billion euros and mobile internet access grew from about 18 billion euros to perhaps 42 billion euros.

source: FCC

There is some good evidence that computing industry suppliers must replace half of current revenues every 10 years. That is true for chip maker revenues as for computing services providers.

That pattern is clear in telecommunications as well. Messaging revenues provide a good example. Voice revenues provided an earlier example.

source: Chetan Sharma    

Mobile services have been the industry driver for most of the past couple of decades, but new sources still must be found.

The cable TV industry likewise has had to replace about half its revenue over a decade.

Similar trends can be seen at AT&T, where mobile revenues replaced fixed revenues as the big driver of overall results.

source: Deloitte