Intangible Products Become "Tangible" in the Process of Delivery

Selling services generally is more difficult than selling a product. By definition, services--including communications--are intangible. Like marketing advice, crisis management and other services, communications can be very hard for buyers to evaluate, in advance of purchase.

These sorts of goods are not physical objects consumers can see, hear, taste, smell or touch.

There is no physical object to inspect, so a potential buyer has to try and determine value some other way. Buyers must rely on evaluations, third party testimony, advertising or other proxies for value.

There being no way the buyer actually can determine “quality” in any direct way, until the services are provided. Consider the use of Amazon, for example. Customers might in that case be buying tangible products. But some important part of the experience is the delivery.

Was billing accurate? Was payment secure? Were delivery communications timely and accurate?

Did actual delivery happen when expected (within two or some other promised number of days), where expected (the right address) and how expected (on the day promised, within a four-window, at a place at the delivery location expected)?

Communication products likewise are mostly intangible, There arguably is no "product" until consumption begins. And that is why "trust" often looms so large in the sale of communication products. Customers do not actually know what they will get until after they buy and start using the product. 

The Last Frontier of Radio Communications

The U.S. Federal Communication Commission has adopted new rules allowing experimental licenses of 10-year duration for services in the 95 GHz to 3,000 GHz spectrum, intended to allow innovators to create potential new use cases.

The move might be deemed notable for several reasons. For starters, 3,000 GHz is about the absolute limit of the radio wave spectrum, the place where energy exists as infrared light, not radio waves. We can communicate using light, that is what fiber optics is about. The point is that we have been beyond widespread and cheap free space communication platforms once we are in the realm of light-based communications.

Among the other implications is the near-certainty that commercial use of frequencies this high will be part of the eventual 6 G standard, as every new generation of digital mobile platforms has added new spectrum higher in frequency.

source: RF Page

And since communications in the radio domain start to become “particle-like” or “wave-like” as frequency increases, “line of sight” becomes a major constraint, suggesting the highest ranges of radio frequencies will be best suited for near-field communications, indoor communications and other settings where line of sight is not a big problem.

source: K.B. Kiran  

Ericsson, Telia, Volvo Operate Industrial 5G Network

5G might not be a full replacement for Wi-Fi in all settings, but it is likely to happen in at least some industrial settings where manufacturers want greater control over latency performance of their local area networks when using sensors, automated equipment and production processes.

Ericsson, Volvo Construction Equipment, and Telia, for example, now are operating Sweden’s first 5G network for industrial use, using 5G to control excavation equipment (loaders)

source: Volvo

The 5G network uses Ericsson commercial hardware and software, including 5G New Radio (NR) and Core products from Ericsson’s 5G Platform,  at Volvo CE's research and development facility in Eskilstuna, a municipality approximately 90 kilometers west of Stockholm.

The partners aim to develop solutions for remote control of construction machinery and fully automated solutions.

It has been a couple of decades since serious questions were raised about the respective roles of Wi-Fi and mobile networks as platforms for consumer data access. But the debate is emerging again.

Two decades ago, observers debated whether Wi-Fi was a substitute for mobile access. The latest debate flips the question. Now we debate whether mobile is a substitute for fixed network internet access, or whether 5G can replace Wi-Fi.

To be sure, many are sure that will not happen on a widespread basis, just as Wi-Fi and mobile became complements, not substitutes.

source: Deloitte

But it seems almost certain that, in some use cases, 5G networks will displace Wi-Fi networks. Private networks using 5G seem attractive to some industrial customers because of the built-in latency performance, for example. Some auto manufacturers also are looking at 5G as a replacement for Wi-Fi.  

Others believe 5G could replace consumer home internet access, as yet the latest form of mobile substitution. To a large extent, the feasibility of using mobile platforms to replace fixed internet access, or 5G to replace Wi-Fi, hinge on tariffs and bandwidth.

Until 5G (especially using millimeter wave assets; spectrum aggregation and other tools), it would not have been feasible--either for reasons of capacity or prices--to consider using mobile networks as a full product substitute for fixed networks.

Bulk access at low prices is among the key issues. Many would still argue that mobile substitutes (including fixed wireless) cannot match the cost-per-bit profiles of fixed networks. But mobile data prices have been dropping steadily, though some fixed network services continue to hold an order of magnitude advantage in cost-per-bit.

Of course, all cost-per-bit metrics are statistical. The effective price per bit actually depends on the actual amount of data consumed by any particular customer.

Others argue that price, capacity and speed of 5G networks could in fact offer competitive offers for many customers.

The most-reasonable assumption is that 5G will displace Wi-Fi or fixed networks in specific use cases, and not generally. There will be some industrial settings where 5G might well substitute for Wi-Fi.

Some consumers will find they can "cut the cord" on fixed network access because mobile offers enough speed and usage, at the right price, for the actual use cases some customers have.

In other cases, 5G fixed wireless might offer a full product substitute for some households.

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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.  

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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.