Business Services are Changing Cable TV Strategies

Incomplete network coverage always is an issue for fixed network connectivity service providers selling to national and other multi-location businesses, for the simple reason that no service provider in the U.S. market has full coverage.

In principle, U.S. cable operators have just a couple major choices as they seek to sell services to multi-location enterprises. They can partner with other service providers out of region or they can build some of their own facilities. The former strategy is necessary most of the time, but cuts margins; the latter is possible some of the time, but means competition with other cable operators.

That is not an issue in the broader telecom industry, but is a cultural switch for the cable industry, which has historically operated with a "you do not compete with another cable operator" ethos.

But that attitude has to change, in some ways. Some lines of business beyond consumer triple play services necessarily require either national scale or operations outside of region.

In addition to multi-location enterprise services, mobile services at scale require a national footprint, while profit margins for services sold to smaller and mid-sized local businesses eventually require the use of owned facilities as well.

Even incumbent service providers with local assets use a standard “edge out” strategy to expand service beyond present boundaries. That is true for incumbent telcos, cable operators or even new CLECs with core metro networks. Though sometimes leased facilities are the only available means of supplying service, such firms move as swiftly as possible to build their own facilities.

source: NITCO

That has been true for decades as business-oriented service providers have moved out of region. The typical initial approach is to buy wholesale capacity. That gets a foothold, but almost never works at scale, pushing competitive local exchange carriers to build their own fiber backbone facilities, at a minimum, with direct optical access facilities to larger buildings.

That need for scale outside of region (to serve small and medium businesses; enterprises or mobile customers) is what is driving cable operators to violate a historic industry courtesy of never competing head to head with another cable operator.

That worked for consumer triple play services. It does not work well for SMB services, once existing markets are saturated in-territory. Nor does that approach work in the multi-location enterprise market, where service might be needed almost anywhere in the United States or internationally.

Also, leadership in the mobile market necessarily requires a national footprint.

For such reasons cable operators will find they have to choice but to compete with other cable operators, on a limited basis, at least, to continue growing their enterprise and SMB business segment revenues.

Eventually, Comcast and Charter Communications might find they must take similar steps in the mobile business as well. For the moment, the effort is simply to protect the existing triple-play revenue stream. So mobile service is an in-region marketing effort, even if customers expect national service.

It is possible that a facilities-based approach will eventually be tried, in region, where Comcast and Charter have facilities, with wholesale sufficing out of region. But if and when either firm decides it prefers a leading market share role, it will be hard to avoid a national facilities strategy that finds Comcast and Charter selling services in regions where other cable operators are incumbents.

So far, neither Comcast nor Charter has shown appetite for competing in the streaming video subscription market. But any shift of thinking, perhaps in a mobile video direction, as perhaps a couple of the leading national mobile providers now contemplate, will again find Comcast or Charter competing against other cable operators, in those service segments.

That probably does not mean a complete breakdown of industry collegiality. But it will fray.

IoT Spending to Grow 15.4% in 2019

Worldwide spending on the Internet of Things will reach $745 billion in 2019, an increase of 15.4 percent  over the $646 billion spent in 2018, according to International Data Corporation. IDC expects worldwide IoT spending will maintain a double-digit annual growth rate from 2017 to 2022 and surpass the $1 trillion mark in 2022.

The United States and China will be the global leaders for IoT spending in 2019 at $194 billion and $182 billion respectively. They will be followed by Japan ($65.4 billion), Germany ($35.5 billion), Korea ($25.7 billion), France ($25.6 billion), and the United Kingdom ($25.5 billion). The countries that will see the fastest IoT spending growth over the forecast period are all located in Latin America: Mexico (28.3 percent CAGR), Colombia (24.9 percent CAGR), and Chile (23.3 percent CAGR).

The industries that are forecast to spend the most on IoT solutions in 2019 are discrete manufacturing ($119 billion), process manufacturing ($78 billion), transportation ($71 billion), and utilities ($61 billion).

source: IDC

IoT spending among manufacturers will be largely focused on solutions that support manufacturing operations and production asset management, IDC predicts.  In transportation, more than half of IoT spending will go toward freight monitoring, followed by fleet management. IoT spending in the utilities industry will be dominated by smart grids for electricity, gas, and water.

The industries that will see the fastest compound annual growth rates over the five-year forecast period are insurance (17.1 percent), federal/central government (16.1 percent), and healthcare (15.4 percent).

Consumer IoT spending will reach $108 billion in 2019, making it the second largest industry segment, IDC says. The leading consumer use cases will be related to the smart home, personal wellness, and connected vehicle infotainment, IDC forecasts.

The IoT use cases that will see the greatest levels of investment in 2019 are driven by the industry spending leaders: manufacturing operations ($100 billion), production asset management ($44.2 billion), smart home ($44.1 billion), and freight monitoring ($41.7 billion).

The IoT use cases that are expected to deliver the fastest spending growth over the 2017-2022 forecast period provide a picture of where other industries are making their IoT investments. These include airport facility automation (transportation), electric vehicle charging (utilities), agriculture field monitoring (resource), bedside telemetry (healthcare), and in-store contextualized marketing (retail).

IoT services will be the largest technology category in 2019 with $258 billion going toward traditional IT and installation services as well as non-traditional device and operational services.

Hardware spending will be close behind at $250 billion led by more than $200 billion in module/sensor purchases. IoT software spending will total $154 billion in 2019 and will see the fastest growth over the five-year forecast period with a CAGR of 16.6 percent. Services spending will also grow faster than overall IoT spending with a CAGR of 14.2 percent. IoT connectivity spending will total $83 billion in 2019, IDC predicts.

Will 5G Enable New Value Propositions?

Among the bigger questions for 5G service providers is whether the business model is going to be better than 4G and 3G, or worse. Perhaps that should not be a key question, but global service provider business models arguably have been getting more difficult, compared to 2G.

In brief, here is the thesis laid out by James Sullivan, J.P. Morgan head of Asia equity research (all of Asia except Japan): emerging market mobile now is revenue challenged, unable to generate new revenues at rates that justify current investments.

Since revenue cannot be increased, “asset restructuring” is necessary, to adjust the cost base. In emerging markets, that means surviving competitors will not be able to own their own facilities.

Emerging market mobile has faced several challenges, all based around limited revenue growth and higher capital investment that have grown faster than incremental revenue.

As mobile data revenues have grown, they have cannibalized voice revenues. Rapidly-increasing capital investment and operating expense have lead to declining earnings.

Growth without profits is the issue in many parts of Asia. The bigger issue for U.S. mobile service providers is the ability to create more value for 5G services, as that, in principle, allows service providers to earn more revenue.

There is an interesting bit of data from a survey conducted by HarrisX, and commissioned by T-Mobile US, about technology innovation and consumer attitudes about 5G networks and services.

Apple, by far, is top of mind for respondents, followed by Google and LG. Mobile service providers are lower on the perception of leadership. That might speak to some confusion on the part of consumers, since Apple has not yet committed to introducing 5G capability on its devices and Google benefits only indirectly.  

But those impressions might be key, eventually. If Apple can come up with something quite interesting in its 5G-capable devices--enough to entice service providers to subsidize its purchase, for example--5G adoption rates could get quite a boost.

A possible companion issue is whether service providers--working with Apple--can create something new in the value proposition. Perhaps a new retail sales model rebundling the device, apps and services could shake up retail market expectations.

HarrisX and T-Mobile 5 G Consumer Index Study from EniJucja

Apple Faces a Classic Telco Problem

Apple used to be viewed as a “technology” company. Many now view it as a consumer electronics company. But Apple faces an issue very common in the connectivity business, namely the challenge of finding a brand-new, sizable revenue stream to replace its lead product.

For telecom service providers, that problem has been the challenge of replacing voice revenues (actually long distance profits in the 1980s and 1990s, followed by access lines in the first decade of the 21st century).

A look at Apple’s revenue sources shows the magnitude of the challenge. At least so far, a growing services business is too small to move the needle. If any new hardware product is to emerge, it has not done so, yet.

source: ZDnet

U.S. Fixed Network Homes Passed Now Increasingly is Guesswork

With the caveat that there are wide areas of the United States where population density is exceedingly low, no single fixed network service provider has a geographic footprint that covers “most” of the landmass.

Here is Comcast:

source: Comcast

Here is AT&T:

source: AT&T

Here is Verizon:

source: Verizon

Here is CenturyLink:

source: Wikimedia

Here is Charter Communications:

source: Value Ventures

Of course, many will note that what really matters is not landmass but potential customer locations, such as homes and businesses. The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Comcast has (can actually sell service to ) about 57 million homes passed.

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to.

Smart Speakers Might Set a Record for Adoption

It looks like smart speakers might be the fastest-adopted product in consumer electronics history. By some estimates it took about five years for smart speakers to be adopted by half of U.S. homes.

By other estimates, adoption reached 41 percent only in 2018. Either way, that is fast.

source: Xapp Media

The Science Behind the Definition of Broadband as 25 Mbps

Some criticize the Federal Communications Commission for wanting to keep a minimum 25 Mbps broadband definition instead of boosting it to some other figure.  Keeping in mind that figure is a minimum floor, not a ceiling, there is clear science behind the chosen definition.

After about 20 Mbps, there is little to no improvement in user experience when using webpages, for example. The key caveat, however, is that multiple users on any account make a difference, if multiple users or devices are used simultaneously.

source: FCC

Generally speaking, even in a household with multiple users, only 4K ultra-high-definition streaming will stress the connection.

source: High Speed Internet

That noted, even in many rural gigabit speed service is available at levels that would surprise many.

And typical speeds in cities routinely are far above the minimum. “The median download speed, averaged across all participating ISPs, was approximately 72 Mbps in September 2017,” according the most-recent Federal Communications Commission report on U.S. broadband service.

Platform continues to matter. “While cable and fiber providers had median speeds ranging from 78 to 120 Mbps (with only one outlier provider with 56 Mbps median speed); the DSL and satellite providers had median speeds that ranged from 2 to 20 Mbps,” the FCC notes.

source: FCC