Bandwidth Charges Might Drive Edge Computing

Eventually, we might find that avoiding local access bottlenecks and high bandwidth bills is as big a driver of edge computing as the need for ultra-low latency processing speed, even if low latency always is said to be the driver for edge computing.

“If you need to analyze a large amount of data, your internet connection might not be able to cope with the data flow, and it would result in your inability to extract real value from data,” says Riccardo Di Blasio.

In other cases, WAN bandwidth charges might be the issue. “If you are an oil and gas company which is drilling in Angola and requires computing, today the alternatives are to either build your own data centers like in the 90s, (with all the cost, and scale limitations associated with) or to use a cloud provider (where the nearest data center will be probably in the UAE or South Africa, at least 5,000 miles away) with enormous costs and pretty lousy SLAs,” says Di Blasio.

By 2025, almost 20 percent of data created will be real-time in nature, rather than being sent to the core of the network for processing, says B.S. Teh, Seagate SVP. That is the sort of use case that benefits from local processing at the edge, or close to where the data actually is generated.

“We see edge as a big driver of growth,” he said. Some growing use cases, such as video surveillance will benefit from edge processing, sometimes not because latency is always so important, but simply to avoid wide area network transport costs.

The top reason for using edge computing is ultra-low latency. But there are other drivers, including use cases where processing at the edge alleviates the need to move bulk data generated by bandwidth intensive apps across the wide area network.

Wikibon compared the three-year management and processing costs of a cloud-only solution using AWS IoT services compared with an edge-plus-cloud solution, to support cameras, security sensors, sensors on the wind-turbines and access sensors for all employee physical access points at a remote wind farm.

At a distance of 200 miles between the wind-farm and the cloud, and with an assumed 95 percent reduction in traffic from using the edge computing capabilities, the total cost is reduced from about $81,000 to $29,000 over three years. The cost of edge-plus-cloud computing is about a third the cost of a cloud-only approach, Wikibon estimated.

source: Wikibon

Why AT&T Should Not Invest Too Heavily in FTTH

A telco executive once told me, nearly two decades ago, that the investment in fiber to the home was not intended to boost revenues or necessarily to gain market share on other key competitors, but instead simply to allow the firm to remain in business.

In other words, the rationale for FTTH was strategic, and not necessarily motivated by classic return on investment criteria. That arguably remains the case: it is not that FTTH upgrades are unnecessary, but that the return is thin enough that deployment cases have to be looked at quite carefully.

AT&T and Verizon, for example, now are flat in terms of net additions, with nearly all the telco segment losses coming from other telcos still heavily reliant on copper connections. In other words, at current levels of investment, AT&T and Verizon are holding their subscriber bases, but not gaining on cable competitors.

The big unknown is what happens if either firm were to dramatically increase investment. Verizon is largely FTTH already, so the issue is what happens if investments to boost consumer internet access speeds were to be made.

AT&T has added perhaps four million new FTTH lines over the past few years. AT&T says it will have connected 14 million U.S. homes with fiber-to-home facilities by the end of 2019.  If AT&T passes a total of 62 million homes, that implies FTTH will be about 23 percent of total passings.

Keep in mind that the entertainment group (consumer services including all internet access services) represents about 15 percent of the company’s adjusted EBITDA. In other words, earnings from 62 million homes generates just 15 percent of AT&T total. There is limited upside, one might argue.

At a high level, and for immediate purposes, AT&T has passed less than a quarter of consumer locations with FTTH. Still, while not growing its internet access market share, it is holding steady, overall. A rational executive might conclude that scarce capital is best deployed elsewhere, to reduce debt and build the 5G network.

Still, you might wonder why AT&T apparently has been so slow to upgrade, given recent evidence that, where it chooses to build optical fiber access facilities, it can get 50-percent take rates, as well as higher dual-play revenues (video entertainment plus internet access). The key is that those areas tend to be the areas of highest household income. So spot builds make more sense than full-town or full-city upgrades, given other demands for investment or debt repayment.

And AT&T has to prioritize mobility. Recall that mobility represents half of AT&T's revenue.

WarnerMedia represents about 17 percent of the company’s revenue and adjusted EBITDA. That’s more revenue and profit than AT&T makes from consumer fixed network operations.

And recall that WarnerMedia earns money from lots of customers and content and service providers not on AT&T’s network. It is an “app,” not a network service confined just to AT&T.

Business wireline represents about 17 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.

The business issue is whether any massive expansion of FTTH would produce revenue gains great enough to justify the move, and what the opportunity costs might be.

In fact, opportunity cost probably is the bigger issue. With capital limited, does it make more sense to invest in 5G and the mobile platform, or put lots more capital into the fixed networks business that drives a minority of revenue for both AT&T and Verizon.

Verizon earns 87 percent of its profits from its mobile network.  

But it is not clear how much upside exists for AT&T, in terms of fixed network internet access revenue. You might argue that the best case for AT&T, for a massive upgrade of its consumer access network, is about 10 percent upside in terms of consumer market share.

That is by no means insignificant, depending on the assumptions one makes about the cost of the upgrades. Still, given that as important as it is, fixed network internet access now is a mature business, there are limits to how much capital a telco “ought” to invest, compared to deploying capital elsewhere.

Realistically, a major telco has to expect it will, under the best of circumstances, and in a two-provider market, split share with a competent and motivated cable TV provider. If cable now has about 60 percent share, and AT&T about 40 percent share, that implies a sort of share ceiling of 50 percent. That is one driver of revenue. The other is revenue per account.

But typical account revenues have not risen as much as one might expect, given consumer shifts to higher-speed services that tend to cost more.

Basically, internet access prices in the developed world have tended to move roughly in line with growth in gross domestic product, and are flat to declining in terms of spending as a percentage of gross national income per person, according to the International Telecommunications Union.  

So there are important reasons why scarce capital has to be put places other than massive consumer FTTH upgrades. Consumer fixed network operations produce relatively little revenue or profit for AT&T.

So a rational executive would invest just enough to hang on to most of the revenue, as long as possible, while investing for revenue growth elsewhere. Just saying.

5G Business Models Might Look a Lot Like 4G, Early On

The 5G business model is not so different from what mobile operators faced when introducing 4G less than a decade ago.

LTE promised new use cases and new revenues. Released commercially in the United States in 2010, carriers expected LTE to provide an immediate boost to smart cities, asset tracking, retail, manufacturing, health care, and many other industries.

That sounds like the promises for 5G as well. One might note that some anticipated new use cases for 3G also sounded an awful lot like what was expected for 4G.

Many assumed that if carriers played an integral role shaping the ecosystems that comprised these use cases, then profits would follow. That is not exactly what happened. To be sure, 4G has enabled capacity growth to match demand, which was driven by application providers.

Mobile operators facing rapid traffic growth from average revenue per user (ARPU) from intense price competition also discovered that most of the financial value of 4G was reaped by app providers.

Basically, 4G provided concrete value as a way of reducing cost per bit. The same thing is going to happen with 5G, even if hopes for incremental revenue eventually will be realized from enterprise use cases and apps dependent on edge computing.

Connectivity service providers could become key suppliers of such edge computing. In consumer markets, 5G will be important partly because it enables faster speeds and lower costs per bit.

source: Deloitte

Facebook is Becoming a Bigger Replacement for "Communications"

We are by now well into the process of non-traditional communication modes disrupting telco products. Now Facebook is taking moves that move it more centrally into person-to-person messaging.

“I believe the future of communication will increasingly shift to private, encrypted services where people can be confident what they say to each other stays secure and their messages and content won't stick around forever,” said Mark Zuckerberg, Facebook CEO. “We plan to start by making it possible for you to send messages to your contacts using any of our services, and then to extend that interoperability to SMS too.”

“With the ability to message across our services, however, you'd be able to send an encrypted message to someone's phone number in WhatsApp from Messenger,” says Zuckerberg. “You can already send and receive SMS texts through Messenger on Android today, and we'd like to extend this further in the future, perhaps including the new telecom RCS standard.”

“In a few years, I expect future versions of Messenger and WhatsApp to become the main ways people communicate on the Facebook network,” he said.

“We plan to build this the way we've developed WhatsApp: focus on the most fundamental and private use case -- messaging -- make it as secure as possible, and then build more ways for people to interact on top of that, including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other kinds of private services,” said Zuckerberg.

That moves Facebook more centrally into communications, and away from a “social network.” “But one great property of messaging services is that even as your contacts list grows, your individual threads and groups remain private,” he said. “This is different from broader social networks, where people can accumulate friends or followers until the services feel more public.”

It is not as though Facebook services replace the “telco” completely, but it is a major expansion of Facebook presence as a platform for communications that otherwise might be thought the purview of a telecom company.

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