Where Might 5G be a Replacement for Wi-Fi?

What strategic challenges does Wi-Fi face from 5G? Dean Bubley, founder of Disruptive Analysis examines the opportunities and threats. 

WiFi Opportunities & Challenges: Positioning vs. 5G from Dean Bubley

Do Telecom Brands Matter? If So, How Much?

It is not clear how much brands matter in business, but few would dispute the argument that perception matters quite a lot, at times. What often is harder to ascertain is the degree of correlation between estimates of brand value and other metrics such as market share or profit.

Few might argue that brands are irrelevant in telecom or any other business. What is harder to ascertain is the degree of correlation and the degree of business value.

Nor are consumer surveys necessarily so helpful. Some polls have shown that U.S. consumers believe Apple is leading in 5G handsets, when Apple has yet to announce any specific devices, and likely will not do so for perhaps two more years, though Motorola and other suppliers are selling 5G devices now.

A recent PCmag poll (unscientific) found respondents believe Verizon will lead in 5G, though at this point it is not clear anybody actually does.

source: PCmag

But such associations are complicated. Some studies have shown that market share and customer satisfaction are not correlated, for example.  Neither, it turns out, are satisfaction scores directly correlated with loyalty.

In other words, satisfied customers are not necessarily loyal customers, willing to keep buying.

But brand perception sometimes is correlated with market share gains or declines.

Some will note that Verizon often leads in surveys of consumer perceptions of value or quality. On the other hand, some surveys of global telecom firms have found AT&T surpassing Verizon in brand value, with the caveat that it always matters what methodology is used.

That points to the business value of branding, which firms such as Nielsen continue to insist are correlated with business success. A recent Nielsen survey of retailer brands and share of wallet (consumer spending) showed there is a direct correlation between buyer perception of a retailer brand and consumer spending.

So the arguably harder to assess matter of leadership perceptions around 5G services and devices might represent the same sort of correlation between buyer perception of leadership and eventual spending.

source: Nielsen

Consumer perceptions are not always easy to correlate with brand value or supplier market share. Nor is the relationship between brand and market share always so clear. Nor is it always easy to correlate customer satisfaction with customer loyalty, or market share with profitability.

It might be reasonable to expect a correlation between brand value, market share, retention, profitability or other quantitative metrics most of the time. But it does not always seem linear, though research and common sense suggest there should be clear correlations.

The even-harder question is the degree to which correlation exists because there is causation.  

AI is Practical and Here Now, Google Scientist Says

The message is that artificial intelligence is practical and already happening, to support core business processes, according to Cassie Kozyrkov, Google Cloud Chief Decision Scientist. 

Will AT&T Capex Decline in 2019 or 2020?

Though many had feared runaway capex spending for 5G, more recent evidence suggests some mobile operators might not see a material increase in capex, even as 5G gets built. In fact, AT&T now says it could have lower capex in 2019 or 2020, in part because network virtualization now allows the firm to operate its network more efficiently.

But there are lots of other interesting ways AT&T might operate its platforms more efficiently. Consider the classic argument for upgrading all-copper telco networks to fiber to the home, fiber to the node or very high speed digital subscriber line networks: video entertainment.

At the risk of losing additional internet access market share, AT&T could hold or increase its linear video share by selling an OTT streaming service that can be bought by any household, bringing its own broadband.

To be sure, that risks the loss of, or inability to regain, millions of internet access accounts from cable and other competitors. But that might be a calculated risk AT&T is willing to take.

Consider that AT&T now gets 49 percent of its earnings from the mobile network; 18 percent from its content ownership interests; about 17 percent from enterprise services using the fixed network and about 15 percent from all consumer voice, internet and video subscription sources.

source: AT&T

Looking at the 15 percent of revenue AT&T earns from its consumer fixed network operations, AT&T earns 72 percent of revenue from entertainment video (largely from out of region), 17 percent from internet access and six percent from voice.

The point is that AT&T actually earns relatively little revenue from fixed network consumer internet and voice accounts. Likewise, AT&T earns relatively little linear video subscription revenue in region, on its own network.

Perhaps 3.7 million of AT&T’s total 24.5 million video connections are supplied using the U-verse fiber to node network, while nearly 21 million use the DirecTV satellite constellation.

FTTN or FTTH represent perhaps 17 million internet access connections out of 17.5 million total broadband accounts, and possibly 29 million passings, by about mid-year 2019.

Keep in mind that AT&T is going to transition its DirecTV satellite video service to an over-the-top streaming service that runs over any broadband network. So, in principle, AT&T does not “need” to upgrade its own fixed network access lines to sell linear video.

It could, in fact, sell the service to competitors operating in its own fixed network territories. So one way of quantifying the upside from new FTTH facilities is that if AT&T could boost its internet access share 20 percent to 30 percent in areas where it adds FTTH.

Whether that is sufficient to justify an FTTH build is the question, since voice is almost negligible and shrinking, while video arguably can be delivered OTT. That is how AT&T makes most of its linear video revenue already.

The other issue is whether alternative means would provide a better financial case, such as using fixed wireless or even mobile 5G to gain internet access account share.

The big takeaway is that AT&T’s business case for new FTTH is fairly narrow, given the potential upside from incremental revenue based mostly as gaining broadband share.

$36 Billion in AI Spending in 2019

Firms and agencies in the United States will represent nearly 66 percent of all spending on artificial intelligence systems in 2019, or about $23 billion, led by the retail and banking industries, IDC analysts predict.

Western Europe will be the second largest region in 2018, led by banking, retail, and discrete manufacturing, IDC says.

The strongest spending growth over five years will be in Japan (58.9 percent compound annual growth rate) and Asia/Pacific (excluding Japan and China) (51.4 percent CAGR). China will also experience strong spending growth throughout the forecast (49.6 percent CAGR), according to IDC.

source: IDC

Worldwide spending on artificial intelligence (AI) systems is forecast to reach $35.8 billion in 2019, an increase of 44 percent over the amount spent in 2018, IDC predicts.

IDC also expects spending on AI systems will more than double to $79.2 billion in 2022.

Global spending on AI systems will be led by the retail industry where companies will invest $5.9 billion this year on solutions such as automated customer service agents and expert shopping advisors and product recommendations.

Banking will be the second largest industry with $5.6 billion going toward AI-enabled solutions including automated threat intelligence & prevention systems and fraud analysis & investigation systems.

The industries that will experience the fastest growth in AI systems spending over the 2018 to 2022 period are federal/central government (44.3 percent CAGR), personal and consumer services (43.3 percent CAGR), and education (42.9 percent CAGR), IDC believes.

The AI use cases that will see the most investment in 2019 are automated customer service agents ($4.5 billion worldwide), sales process recommendation and automation ($2.7 billion), and automated threat intelligence and prevention systems ($2.7 billion).

Five other use cases will see spending levels greater than $2 billion in 2019: automated preventative maintenance, diagnosis and treatment systems, fraud analysis and investigation, intelligent process automation, and program advisors and recommendation systems.

Software will be the largest area of AI systems spending in 2019 with nearly $13.5 billion going toward AI applications and AI software platforms. AI applications will be the fastest growing category of AI spending with a five-year CAGR of 47.3 percent.

Hardware spending, dominated by servers, will be $12.7 billion this year as companies continue to build out the infrastructure necessary to support AI systems.

By the end of the forecast, AI-related services spending will nearly equal hardware spending.

AT&T Shift to Streaming Linear TV Has Numerous Advantages

As some had speculated or feared, AT&T’s purchase of DirecTV is leading to a major change in video entertainment delivery, away from linear service based on the fixed network, away from satellite delivery, and towards streaming.

There are all kinds of implications. Not the least of the advantages are operating cost reductions. “The biggest cost we have it that is so to speak, the truck role and getting that installation out,” said John Stephens, AT&T CFO. So AT&T has been testing a self-install decoder “called Osprey,”  which is a “self-installed, full linear product.”

So “the only truck roll is the UPS truck,” he quipped. “It dramatically reduces our install cost; dramatically reduces our subscriber acquisition costs.”

So the standard linear video product shifts from U-verse to DirecTV to DirecTV Now, using a self-install decoder and “bring your own broadband.”

The Osprey is said to be an Android-TV-powered streaming player that will offer the same linear service contracts and channels but without the use of a satellite dish.

That deployment model keeps DirecTV’s national footprint, but shifts the platform to streaming. In principle, that also gives AT&T more options about how to upgrade internet access bandwidth inside its fixed network footprint.

The shift to streaming eliminates the need for a dedicated linear video network. By unbundling access and app, AT&T also gains the ability to use any access platform (its own, or others) to support linear streaming video. Where U-verse video segregates linear video from internet access, the streaming platform shares the access pipe.

Oddly enough, AT&T might have to provision less bandwidth for linear streaming than for U-verse video, as U-verse video used separate logical networks over the same access cable.

As was the case for cable TV operators migrating from analog video to digital video, one important advantage was that additional bandwidth was freed up for internet access purposes.

What are Comcast's Mobile Objectives?

Not everyone might agree that Comcast has no intention of ever competing with AT&T and Verizon, as Comcast now claims.

Cable has in the past used a “crawl, walk, run” approach to new services, ranging from voice to business services. So it makes sense to disavow larger ambitions in the early going.

Nor might it ultimately matter that Comcast now is losing money on mobility services, as all observers seem to agree. The Xfinity mobile service is not profitable at the moment.

Of course, initial losses are not uncommon for any service provider launching new services of any type in the telecom business.

Some of that arguably is due to scale. Profits are hard to come by whenever a mobile service provider has a small subscriber base, and Comcast says its mobile service is not yet profitable.

And though Comcast might be growing its gross additions at up to a 20-percent rate per quarter (Comcast has not reported net gains), it had something more than 1.2 million accounts at the end of 2018.

Though some estimate cable operators might by perhaps 2020 be getting half of all industry net account additions, that is a ways off.  

Startup costs likely also are an issue (marketing, phone installment plans, wholesale capacity purchases and operations).

But scale might not be the chief initial issue. Actual acquisition costs might be running between $1600 and $1800 per new account, even if Comcast has reported acquisition costs of about $1260 per new account, according to one analysis by BTIG.

Consider that Tracfone, which also operates an a mobile virtual network operator, with perhaps 21.7 million subscribers, generates earnings (cash flow) of about 10 percent on that base of customers.  

Eventually, owner’s economics are going to look more appealing. And that means a move away from operating as an MVNO, and towards facilities in some way. So though Comcast and other cable operators might be adding to MVNO numbers right now, it remains unclear whether they will do so in the future.

Some researchers believe the U.S. mobile virtual network operator business will grow in coming years, while others suspect it will decline. It might be argued that the biggest influences will be cable operator entry into mobility and the level of competition within the U.S. industry, which seems to encourage former MVNO customers who are price conscious to switch to one of the leading four national service providers.

Global MVNOs seem to be losing accounts, overall, though growth continues in some markets.

Most can agree that MVNO accounts peaked in the U.S. market about 2012, and in 2018 represented less than five percent of all U.S. mobile accounts. One supplier, Tracfone has perhaps 65 percent market share of MVNO accounts.

source: One Development  

source: Grand View Research

source: Strategy Analytics