Pricing Models in Precision Agriculture (IoT-based Services)

Revenue models for precision agriculture (use of internet of things sensors, apps and services) might not be directly applicable in the connectivity business, but will have to be understood if service providers decide to explore roles in distribution (sales channels) of such services.

Retailers who offer precision agriculture programs often charge by the acre, per instance, percentage of yield or per unit sold.

That roughly corresponds to connectivity business pricing models based on flat rate, pay per use, revenue sharing or usage volume.

Pricing Model	Advantages	Disadvantages
Bundled Per Acre Flat per acre rate with all “precision services” offered by the retailer included in the plan.	Ease of billing Farmer knows cost up front Separates customers into two separate groups (participating in precision program or not). Allows for easier analysis of yield trends within each of the two groups. Allows group data analysis to be presented to entire group in the program to improve production within the group. Likely to create a closer relationship for all inputs with the grower (less shopping around). Easier to build in a call center/service center fee.	Large upfront commitment for producer Potential to be an expense that is cut during low profit margin years Each additional service outside of package requires surcharge Difficult to “dabble” with just a few acres. Farmer usually must commit to all or none. Machinery limitations of grower may not allow full implementation of program Accurate data analysis requires trustworthiness of grower and operators to properly adjust/calibrate equipment
Per pass or service Each pass across the field or individual service has a price associated with it.	Able to charge a higher total price vs. bundled model due to less “sticker shock” Allows producers to pick and choose their individual needs Allows company to analyze margins of each individual service Ease of entry/exit from use of specific services Grower and retailer work together to develop best plan for each operation	Bookkeeping becomes more challenging as each service needs to be tracked separately. Harder to prove benefits of the service as there is no “Large group” of producers doing same practices. Requires higher effort from salesforce as each individual product or service must be “sold” Easy for grower to say “not this year” on certain services
% of yield bump/gain (example: a ten bushel/acre yield bump was added to a grower’s average and they share four of those bushels with their service provider)	Places accountability with the service provider to deliver results.  “The saying put your money where your mouth is” applies here. Grower is more likely to commit as it is obvious that they only pay if they receive a yield gain Potential for higher adaptation by grower and producers Keeps service provider in closer contact with grower throughout the year as their paycheck depends on the grower’s success! This is a unique approach, sure to make conversation as farmers talk to farmers, making for self-advertisement.	Delayed collections as retailer must wait for harvest to be completed Determining baseline yield establishments Weather variability Measurement of yield (yield monitor, grain cart, certified scale tickets?), Is a yield monitor calibrated by the grower accurate enough? Determining a market price for the grain Risk of negligible or no yield bump equates to no payment to service provider May “discourage” growers to shoot for higher yields No consideration for reduced inputs. Model may not be sustainable long term
Per unit of product sold Service is bundled with each unit of fertilizer, chemical, seed, etc.	Ease of bookkeeping Services buried within the price of a retailer’s commodities Spreads the overhead cost of precision ag professionals and technologies over all customers	Encourages growers to cut back on inputs Easier for competition to undercut a retailer’s price if grower doesn’t see value of buried service charges

source: PrecisionAg

How do You Know a Process is Using Machine Learning?

Most of the time, the typical consumer or worker encountering any form of artificial intelligence is interacting with some process enhanced by machine learning. ML is based on algorithms and statistics to find patterns in massive sets of data.

These algorithms use statistics to find patterns in massive amounts of data. They then use those patterns to make predictions.

source: MIT Technology Review

AI is a Feature, Not a Product

Channel partner organizations in both communications and information technology industries already are trying to figure out what they can sell to business customers in the artificial intelligence area.

The problem is that, for most products, AI is an attribute or function, not a stand-alone product. As applied to information technology operations of various types, that means AI is a feature of a product, not the actual product that is viewed as the solution to a business problem.

source: Tractica

IS Cost of Internet Access a Problem? Yes and No

People sometimes complain about high prices for U.S. internet access. As a percentage of household income that is not true, in the United States or any other developed nation, but people believe the “high price” charge anyway.

According to the International Telecommunications Union, prices adjusted to reflect purchasing power parity across nations suggests mobile broadband cost perhaps $15.90, in 2015, in developed nations, compared to a world average of $26.70 and far lower than the $30.80 paid in developing countries or $39.90 in lesser developed countries.

Looking at fixed broadband prices, customers in developed countries paid about $27.80 in 2015, compared to the world average of $56.30, the developing country cost of $67.30 and the lesser developed country average of $134.

LIkewise for mobile broadband, which in developed countries costs one percent of gross national income per person, compared to the world average of five percent, the developing country average of perhaps 7.5 percent and the lesser developed country average of about 16.5 percent of GNI per person.

source: ITU

Population density and country size do play a role in the cost of providing service to customers. Large countries and countries with large rural areas will find high costs to serve customers in rural areas. In Canada, 90 percent of people can be connected using facilities that cover just 3.3 percent of the land mass.

In Australia, 90 percent of people can be connected using facilities that cover just 4.32 percent of the land mass. In the United States, connecting 90 percent of people can be connected using facilities covering about 31 percent of the land mass.

The point is that costs to connect rural customers will be quite high in countries with huge areas of sparse population.

source: Deloitte

Could, Should Telcos Invest More in Fixed Networks for Consumer Services?

Among the “in the hall” discussions I had at the PTC’19 conference was one extended discussion about whether U.S. telcos simply did not want to invest in better fixed network access infrastructure, or whether they actually could not do so, for business model reasons.

“They could do so, but do not want to” was one pole. The assumption here is that heavier access network investment would generate sufficient financial return to justify the spending.

“They cannot justify the business case” was the other pole. The assumption here is that revenue upside--while it exists--is not great enough to offer a payback.

That there is a challenge many would accept. “Wireless substitution and cable competition have taken a toll on most wireline carriers’ customer base, leading to challenging economics and limited funds for fiber deployment.” researchers at Deloitte have said.

Some argue that fiber-to-the-home networks have allowed at least some fixed network telcos to hold market share against their cable TV operator rivals. Still, on a national level, “wireline telecom carriers account for about 37 percent of consumer broadband customers compared to 63 percent for cable,” Deloitte notes.

And cable has been gaining more than 100 percent of all net new accounts for at least a decade. In 2012, telecom companies enjoyed 44 percent broadband market share.

source: CableLabs

Nor does it seem likely that telco investments in fiber to the home can do much other than try and keep up with cable operators, who keep pushing faster speeds, with a gigabit being the standard headline offer, and 10-Gbps speeds being on the roadmap, already. Even when fixed network telcos do deploy new FTTH, it is to support gigabit speeds that only match cable.

The other problem is simply that profits to plow back into the fixed network business are thin, and getting thinner. Having lost leadership in the internet access market to cable TV operators, telcos also have lost half or more of their voice accounts, and now are seeing erosion of their linear video business as well.

There is, in other words, no revenue growth sufficient to drive big FTTH investments. There are limits to how much market share can be gained back from cable, and the investments will not slow voice and linear video erosion.

source: Deloitte

AT&T became the largest linear video supplier in the U.S. market not by upgrading its fixed networks but by acquiring DirecTV.

To be sure, the additional and continuously-expanding bandwidth requirements are an issue. One way or the other, higher bandwidth must be supplied or the fixed network business eventually collapses entirely.

But it increasingly seems likely that the solution is not ubiquitous optical fiber but use of mobile and wireless access. Mobile is the way to supply consumer voice. Linear video is declining, and AT&T uses satellite, at least for the moment.

Cable TV operators have the lead in internet access, and given their own need to rely more on internet access as video revenues contract, they are not likely to allow telcos to win back extensive share in the consumer internet access market.

Fixed network telcos need to find some way to keep extending bandwidth, to be sure. The problem is that it simply is difficult to make the business case, anymore, for ubiquitous FTTH. The revenue upside simply is too small, compared to the investment.

Still, “more bandwidth” will be required. Either that, or fixed network telcos must find ways to exit the consumer fixed network business. In essence, that is what CenturyLink has begun to do. Its revenues now are generated mostly by business customers. About 70 percent of CenturyLink revenue comes from that segment of the business. All nationwide consumer operations generate only 25 percent of total revenue.

Increasingly, the value of the fixed network is driven by mobile backhaul and enterprise services. Smaller business and consumer revenues are thin, and getting thinner.

So, in the end, it might not matter which side of the debate one believes. The statement that telcos could invest more in fixed networks, but choose not to, is correct.

Whether that is because the business model is not there, or because the business model is better if they do not invest, is somewhat secondary.

Will 5G Change Fixed Network Business Model?

Do industry executives increasingly believe 5G will change the economics of the fixed networks business? This diagram suggests they increasingly believe that is possible. As 5G networks are built, today’s fixed network access (copper, fiber to home or hybrid fiber coax) will be faced with new competition from fixed wireless and mobile wireless alternatives.

That will happen as deep fiber architectures enable use of lower-power microcells and small cells with access to an order of magnitude more spectrum, in addition to better radios and using the frequency reuse principle (cell site division) to historically-dense levels.

source: L-Com Global Connectivity

By some estimates, 4G has lead to cell tower density of perhaps 2 kilometer (1.25 miles) spacing. Some believe the 5G network using millimeter wave spectrum will require small cells placed about every one-third of a mile. In other words, 5G using millimeter wave spectrum might require about eight times the number of transmitting sites, compared to 4G using towers spaced at about 2 km (1.25 mile distances).

That is probably a high-end forecast, assuming an equally-dense network in all deployment scenarios  in dense urban and suburban settings. Virtual nobody believes that is possible in rural areas.

Some might note that such densities, while perhaps common in more-dense urban areas, are not so common in suburban settings, and nonexistent in rural areas, for the most part. Also, the simple assumption here is that optical backhaul to one macrocell in point to point fashion also applies to more-dense networks.

In other words, if one site requires a single point to point connection, then 25 small cell sites require 25 total point-to-point connections. But density itself changes the topology, leading to “more tree and branch off a ring” topology that does require lots more fiber, but not as much as point-to-point links would require.

source: Fiber Broadband Association

Still, the business model impact on fixed line network operators will possibly be significant. Think of 5G as a new overbuild operation. Where today a cable operator and telco compete for the consumer internet access customer, tomorrow it could well be the case that those two competitors face a third or maybe even fourth competitor for a market that is very close to saturated.

That means market share losses will happen. The degree of business model disruption then turns on the amount of share the new competitors can take, and from which current suppliers.

3G to 4G to 5G: What is Common?

In one sense, it might be easier to envision 5G primarily as a way to supply increased bandwidth for consumer mobility, as one might see 4G as a way to increase bandwidth supply for mobile internet access demand.

Ignore for the moment the lower costs per unit 4G offered over 3G, or the similar benefits 5G will offer over 4G. Ignore for the moment the lower latency 4G offered over 3G, or the lower latency 5G will supply, compared to 4G.

Look only at 5G as a platform for supplying increased bandwidth at lower costs per bit, as was true for 4G as well. So long as there is a transparent fallback from 5G to 4G (as was true of 4G fallback to 3G), and so long as 5G experience and 4G experience are matched closely enough, then 5G can be added more gracefully than some expect.

source: Ruckus Wireless

In fact, one good reason for marketing and supplying bandwidth more incrementally when adding 5G is precisely so the 4G fallback is graceful. In my own experience, the fallback from 200 Mbps or 100 Mbps to 20 Mbps or 14 Mbps is quite graceful, per concurrent user.

In fact, unless there are some latency effects, I typically cannot tell you whether my current connection is running at 14 Mbps, 20 Mbps, 100 Mbps, 150 Mbps or some higher figure. Granted, I do not download big files very often.

My typical use cases range from web surfing to cloud-based communications to streaming video. None of those apps is overwhelmed or unpleasant if my connection is anywhere from 14 Mbps to some other three-digit rate. In other words, if I switch from a cable modem connection to mobile 4G, my experience does not suffer.

The point is that, even if I buy a 5G service with higher headline speeds, defaulting back to 4G is not going to be a problem.