Sunday, December 2, 2018

Size of Network Slicing Depends on How We Count It

The network slicing market might be relatively small if one considers the sales volume of network infrastructure, perhaps large if one measures “value” created by network slicing.

It all depends on how one counts. It might be reasonable to predict revenue in the hundreds of millions for the former; billions for the latter.

That is the same problem one faces when comparing the value of goods sold using the internet, and the “value” of the internet, or of various suppliers within the ecosystem.

The adoption of 5G network slicing for manufacturing alone is expected to create a US$32 billion of value, at a CAGR of 96 percent through 2026, according to ABI Research. “The second biggest revenue opportunity lies in the logistics sector, where the market is projected to increase from US$65 million in 2019 to US$20 billion in 2026, at a CAGR of 127 percent. “

Of course, value created for an industry is not the same thing as revenue for service providers. Nor will it be easy to separate out value created specifically by network slicing, from the associated value of mobile access, network transport, cloud computing and other connectivity contributors that play a role in creation of a virtual network using a network slice.

And even when looking specifically at value for a connectivity service provider, there are net revenue, capital investment and operating cost savings to consider. On the revenue side, “net” revenue often will matter when a “network slice” (virtual network service) actually displaces some other amount of current spending by a customer with a given service provider.

In other cases, the impact include higher incremental sales of existing or new products; churn reduction; longer customer lifecycle or other benefits that are harder to quantify.

Better customer experience, faster time to market, simpler resource management or greater flexibility are some of the contributors to value.


Saturday, December 1, 2018

Do You Need Gigabit Internet Access?

Marketing headlines aside, there is relatively little value to be gained, for a typical consumer internet access account, by buying a gigabit internet access service, over an alternative operating at 100 Mbps.

Granted, loading web pages is but one of a number of use cases. But the benefits of “more bandwidth” and “lower latency” show why gigabit internet access actually does not solve as many user experience issues as you might expect.

After about 10 Mbps, page load time does not improve with bandwidth. The one clear exception is any internet access account with multiple users who are using a shared connection at the same time. Then access connection requirements shown here are “per user,” not “per connection.”

Better latency performance arguably has more impact on page load times. That is one reason why 5G is seen as supporting many new ultra-low latency use cases. Design latency is one millisecond for 5G. That noted, 4G latency already is low, at around 10 milliseconds.





Friday, November 30, 2018

What AT&T Revenue Segments Suggest About its Strategic Challenges

One way of gauging the strategic value of various AT&T revenue segments is to examine either revenue or earnings contributions.

The Mobility business unit represents about 50 percent of AT&T’s adjusted cash flow (EBITDA). WarnerMedia represents about 17 percent of the company’s revenue and adjusted EBITDA.

Business Wireline represents about 17 percent of the company’s adjusted EBITDA. Entertainment Group represents about 15 percent of the company’s adjusted EBITDA.

In terms of revenues, mobility represents 40 percent, entertainment group 26 percent and business wireline about 15 percent of total quarterly revenue of $45.7 billion.

So 99 percent of cash flow comes from those four revenue segments. But what might really stand out is the 15 percent contribution from AT&T’s landline voice, video distribution and internet access products (the triple play suite). These days, consumer internet access, voice and entertainment video (recall that AT&T is the largest U.S. subscription video provider), contribute relatively small amounts of cash flow.

Also, keep in mind that DirecTV, for the moment, is delivered primarily by satellite, and likely represents $8.5 billion in revenue. So it is possible that consumer landline services now contribute only about seven percent of AT&T revenue.

That suggests one important strategic implication. Unless you believe AT&T can materially grow its landline voice and internet access revenue by investing heavily in optical access, and thereby taking significant share in the access business, the capital is arguably better spent elsewhere. But there is a caveat.

Some of us would argue that the ultimate fate of the present DirecTV business is its transition from satellite to over-the-top streaming delivery. If so, then AT&T has to ensure that its fixed network access lines can handle the data load of streaming DirecTV.

It is a delicate matter, as many believe total revenue from OTT delivery is going to be less than linear delivery. So investments in next generation networks will be made to support potentially less revenue than presently is earned.

But that is not a new strategic issue. Many fixed network executives have essentially operated on the assumption that such investments essentially must be made so “you keep your business,” and not because revenue upside is so great.

Such challenges often are downplayed by suppliers, service providers, financial analysts, consultants and others with business interests in the industry. These days, it is becoming more common to hear frank discussion, however.

“Operators have a choice,” Phil Twist, Nokia VP said. “Do you want safety and security, or the risk of new growth?” Twist characterized “safety” as a prison; growth as entailing “uncertainty.”

Others characterize the state of the industry as “unraveling” and “desperate.”

To be sure, virtually nobody but AT&T’s key competitors are likely happy about the huge debt load AT&T has taken on to diversify its revenue sources. But it is a rational, if controversial argument, that AT&T is hemmed in--in terms of revenue growth potential--in both its fixed and mobile business segments.

Committed to a financial strategy built on ever-increasing dividend payments, AT&T essentially has no choice but to risk expansion beyond connectivity services, as its opportunities to take significant market share in mobile or fixed network connectivity services in its core markets are slim to none.

Wednesday, November 28, 2018

Streaming Services With Biggest Customer Bases Have Lowest Churn

Customer churn is a big concern for any supplier of a consumer application or service, and it generally is recognized that much churn happens in the early days of any engagement with a new customer. Conversely, churn tends to be quite a bit lower for accounts with some longevity.

That is fairly easy to explain. New customers without prior experience with any given service or service provider, appliance or app have a learning curve to climb before most of the value of the product is grasped. For many software as a service products, most of the churn happens in the first 90 days.


So it is probably not surprising that U.S. customers of streaming video services seem to churn least on services that have the longest tenure and the greatest number of accounts.

Basically, most of those customers have had time to decide whether they value the services enough to keep paying for them, have concluded that the value-price relationship is satisfactory and have learned how to navigate the services.

Many of the newer or smaller services arguably have a higher percentage of brand-new users, with the obvious risk of higher abandonment early in the relationship.
source: Juniper Research

Tuesday, November 27, 2018

Double Down on Connectivity or Diversify?

What tier-one communications service providers should do about revenue growth is a matter of huge disagreement. Some favor a “stick to your knitting” approach. Others believe connectivity growth prospects are so limited that movement into new lines of business, to create new revenue sources, is imperative.

It is not hard to find critics of the Time Warner or DirecTV acquisitions that argue AT&T should have invested in its fiber to home capabilities or its 5G network. Many prefer the “pure play” approach taken by Verizon or T-Mobile US, for example.


That might or might not be strategically wise. Globally, revenue growth in the mobility and fixed network segments is flat or slowing. Significantly,  revenues in developed markets are declining, and have been since perhaps 2011.


Nor has AT&T or Verizon been able to budge market share too much since about 2012. To be sure, where AT&T had 17 percent share in 2000, it had 31 percent share in 2012. Where Verizon had 25 percent share in 2000, it had moved up to 35 percent share in 2012, as both service providers made big acquisitions to bulk up.


Verizon’s buys included the portion of Verizon Wireless purchased from Vodafone, but also Cellco and Alltel. AT&T grew by acquiring Cingular and Dobson.




Since 2011, AT&T and Verizon market share, as measured by accounts, has been flat. So there are reasons to believe that even alternative investment in 5G would not move the revenue needle very much.




The other argument is that there are very few ways incremental cash flow or revenue from investing in the fixed network (more fiber to home) or investment in faster 5G.


In 2018, U.S. cable companies had 65 percent internet access market share, More importantly, cable companies have been getting virtually all the growth for several years.




To be sure, it is rational for any equity analyst to doubt the wisdom of the additional debt AT&T took on to buy DirecTV and Time Warner.

But it is not clear how much revenue upside exists for AT&T in its fixed networks business, especially given cable operator market leadership.  

Access Network Traffic Gets More Asymmetrical

Though an argument can be made that a shift to symmetric internet access will lead to applications being created to take advantage of bandwidth symmetry, present traffic trends do not favor heavy internet service provider investments in symmetrical bandwidth for consumer connections.

With the caveat that a big shift to peer-to-peer distribution of consumer entertainment would have a big effect, growing internet distribution of content has intensified the asymmetric pattern of internet access traffic. That matters since video dominates core, metro and access network traffic load.

Globally, IP video traffic will be 82 percent of all IP traffic (both business and consumer) by 2022, up from 75 percent in 2017.

Upstream traffic has been slightly declining as a percentage of total for several years, Cisco says. It appears likely that residential Internet traffic will remain asymmetric for the next few years, at the very least.

Global IP video traffic will grow four-fold from 2017 to 2022, a CAGR of 29 percent. Internet video traffic will grow fourfold from 2017 to 2022, a CAGR of 33 percent.

The sum of all forms of IP video, which includes Internet video, IP VoD, video files exchanged through file sharing, video-streamed gaming, and video conferencing, will continue to be in the range of 80 to 90 percent of total IP traffic, Cisco says. Globally, IP video traffic will account for 82 percent of traffic by 2022.

User-generated content and security camera video have not affected the asymmetric traffic pattern, downstream and upstream.

Global IP traffic by application category
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Internet of Things (Machine-to-Machine) Drives Connected Device Growth

Internet of things (machine-to-machine) devices will underpin global connected device growth through 2022, Cisco says.

Machine-to-machine (M2M) connections (internet of things sensors, cameras, monitors) will be more than half of the global connected devices and connections by 2022, Cisco says.

The share of M2M connections will grow from 34 percent in 2017 to 51 percent by 2022. There will be 14.6 billion M2M connections by 2022.

source: Cisco

The number of devices connected to IP networks will be more than three times the global population by 2022, Cisco now predicts.  There will be 3.6 networked devices per person by 2022, up from 2.4 networked devices per capita in 2017.

Globally, there will be 28.5 billion networked devices by 2022, up from 18 billion in 2017, Cisco forecasts.




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