Would Massive FTTH Help Telcos Gain More Broadband Share?

In the fourth quarter of 2018, US cable operators got 841,000 net new internet access accounts, while telcos lost 145,000 accounts. The entire industry gained 724,000 net accounts. So cable operators once again accounted for virtually all of the net gains.

Satellite broadband service providers added 28,000 net accounts.

Some observers think telcos would do better if they spent lots more capital on upgrading their networks to fiber-to-home platforms. Maybe not.

MoffettNathanson's Craig Moffett notes that AT&T's expanding fiber-to-the-premises footprint hasn't swung market share. AT&T lost subs in 2018 even as the FTTH footprint expanded by four million during the year.

Of course, that could change as AT&T has more time to market services, as take rates often climb for the first several years after marketing begins. And AT&T also has to deal with the older digital subscriber line base, which is uncompetitive with cable offers, for the most part.

You Cannot Tell the Ecosystem What to Do

Vertical integration worked fine as a business strategy for telcos in the monopoly era. “You don’t need it (flexibility, agility) when you have a very predictable environment because you can organize and orchestrate things neatly,” says Jacobides. Cost reduction works, as a strategy, when markets are stable.

Ecosystems are useful when there is market variety or there isn’t a predictability of demand. And that is why connectivity providers, who now are part of the internet ecosystem, have to become more agile. Telcos and connectivity providers are not at the center of their own stable industries.

So why the premium on agility? When a firm is in an ecosystem, even when you are the the ecosystem orchestration agent, you cannot tell the ecosystem what to do. In fact, you have to rely on the ecosystem because there is no way any single firm can figure out how to produce all the value produced by the ecosystem.

source: MIT Sloan Management Review

 ”If I’m Android or if I’m Apple, I don’t know, which part of this variety is going to work for you,” said Michael Jacobides, London Business School professor. “Neither am I good in producing all this variety.”

And it is not clear if, and when, connectivity providers actually can be the orchestrating agents of some part of the ecosystem. It seems unlikely a connectivity provider ever can create a full ecosystem around itself.

On the other hand, “services have extremely fast cycles where you have much smaller bets, where you have much more rapid developments, where you need to be making decisions and changing your decisions a few weeks at a time,” said Jacobides. And connectivity is nothing if not a services business.

So ambiguity is the essential price of operating in any ecosystem: no single firm can produce most of the value, or anticipate what end user demands are going to be.

The thing that is new is the extent to which ecosystems are more important than traditional firms are today,” argues Michael Jacobides, London Business School professor.

The reason virtualized networks are viewed as strategic is agility; the ability to create and try new services and features very rapidly.

FTTH Adoption Exceeds 50% in New Zealand

Consumer adoption of ultrafast broadband in New Zealand has exceeded 50 percent, according to a report by the Ministry of Business Innovation and Employment. UFB is defined as “fiber to home” offering 100 Mbps downstream.

source: New Zealand Commerce Commission

How Will Robots in the Enterprise Change Executive Roles?

A recent PwC study estimates that, on average, the proportion of jobs at high risk of automation will be roughly 20 percent by the late 2020s, and 30 percent by the mid-2030s. Most expect the bulk of changes will happen across lower and middle levels of an organization. But roles of firm leadership will have to change as well.

source: PwC

"Growth is Hard"

I leaned a long time ago in management classes that the most-important decision an executive ever will make is the choice of which market to enter (assuming one has a choice). In other words, longer-term success hinges on whether your chosen market has high growth rates, or slow growth rates; is a bigger market, or a smaller one; tends to feature high profit rates or low rates.

And “growth is hard,” say consultants at Bain and Company. About nine percent of firms studies by Bain actually have sustainable and profitable growth.

source: Bain and Company

source: Bain and Company

What is Your Firm's Core Competency?

What are your firm’s core competency or “unique selling proposition? A core competency is the one thing, or small number of related things, that a particular firm does better than any other firm in its industry, not simply “things we do well.”

Granted, in most industries there might be an actual “unique” competence. There are, to be sure, many who would argue core competence does include “things we do really well,” but always with the implication that those things allow one firm to do better than its competitors.

A truly-unique and core competence is likely to be quite rare.

The same sort of thinking underlies the notion of the “unique selling proposition,” the value one firm’s offer represents that cannot be duplicated by any other firm in the same market. A core competency is a deep proficiency that enables a company to deliver unique value to customers.

It’s tough.

source: Bain and Company

Can Three Fixed Network Suppliers All Survive?

In most parts of the world, ubiquitous competition in the fixed network business is not considered viable. In a smaller number of cases, a duopoly exists, but some observers believe telcos cannot long compete successfully against cable operators.

The reasons for that belief are several. Cable hybrid fiber coax networks cost less than fiber-to-home networks to upgrade and build. That especially is true when stranded assets are considered. Stranded assets are facilities that generate no revenue. And that is a major business model issue in a competitive market.

Assuming two equally-skilled competitors, competition roughly doubles the cost-per-customer of the network. Under conditions where demand is high (95 percent) and one contestant has 65 percent market share, all remaining competitors must fight for perhaps 33 percent of remaining locations. For a new FTTH network, that means customers might be found on only about one home out of every three passed.

Keep in mind that, in most markets, 80 percent of profit is earned by two firms.

source: Bain and Company

That poses daunting financial return issues. So, sure, many fixed network telcos are reluctant to invest robustly in FTTH networks. But there are huge barriers to doing so, not the least of which is the paucity of revenue that could be gleaned.

Some do not believe that argument, and instead think telcos could earn a return if they invested more heavily. And some analysis of potential upside is therefore required. The numbers are daunting. Challengers often attack niches--parts of metro markets or smaller and rural markets where it is easier to grab market share.

Incumbents have other problems, as they most often are required to serve all parts of a city, and cannot simply choose not to serve some parts of the city. Beyond that, revenue from legacy revenues is challenged, and the revenue upside from consumer fiber to the home is mostly internet access.

The business case for full-city overbuilds can be made. But it probably cannot be made universally.