Lies, Damned Lies and Statistics

Nothing remains unchanged in the modern communications business, so we should not be surprised at how much, and how fast, “average” fixed network internet access speeds increased in the U.S. market in 2018.

To be sure, the actual value or meaning of most cross-country internet access statistics is nuanced and perhaps somewhat questionable.

“Do counties with mostly 25 Mbps broadband connections fare better economically than counties with mostly 10 Mbps broadband connections?” George Ford, Phoenix Center chief economist rhetorically asks. “I find no evidence of such an effect here, at least with respect to the growth in jobs, personal income, or labor earnings between 2013 and 2015.”

“Broadband (and higher speed broadband) is not randomly distributed across geography, but rather is deployed in areas where the ratio of demand to costs is favorable, complicating the task of discovering broadband’s influence on economic outcomes,” Ford notes.

To cite just one example, “population density in counties with predominately 25 Mbps service averages 603 persons per square mile, but only 32 persons-per-square-mile for counties with predominately 10 Mbps broadband service,” Ford notes.

According to measurements by Ookla, fixed network internet access speeds increased by nearly 40 percent in 2018 alone, largely on the speed boosts instituted by cable TV providers.

But that is not the only surprising statistic one might encounter.

A 2014 study of broadband adoption in the United States and European Union contained some surprising comparisons. On several key measures--including faster speeds, 4G service, fiber to home and cable modem service, the United States had a large lead over EU nations as a whole.

By 2017, the take rates for fixed network internet access remained at 75 percent, though coverage (ability to buy) was at 97 percent.

Perhaps significantly, a European Commission report recently said that “although fixed broadband is available to 97 percent of EU homes, 25 percent of homes do not have a subscription.”

One apparent reason is that although subscription growth “was very strong until 2009, but has slowed down in the last few years, partially due to fixed-mobile substitution," according to Techknowledge.

In 2017, about 15 percent of EU homes bought internet access at speeds of at least 100 Mbps. In 2016--a year earlier--about 23 percent of U.S. homes were buying service of at least 100 Mbps.

By the end of 2018 the average U.S. fixed network internet access speed was 95 Mbps, according to Ookla meaning half the customers had speeds faster, while half had lower speeds.  

The EC study also highlighted the importance of taxes when comparing retail prices for services such as linear video subscriptions. The posted retail prices are one thing; the actual costs--including all taxes--are something else.

As the study illustrates, even if posted retail prices for U.S. cable TV video are higher than Denmark’s prices, for example, the net cost of service in Denmark is higher, because of higher taxes.

The larger point is that although most casual observers would assume the EU has higher percentages of internet access connections running at 100 Mbps or faster, that is not true. Nor is it the case that customers actually buy services at such speeds, even when available.

It is good public policy to make quality broadband service available. It is a separate matter whether consumers want such services, how much they are willing to pay for it and--most importantly--what economic and social value can be wrung from such usage.

It is difficult to impossible to confirm that speed increases beyond 100 Mbps (or any other minimum speed) actually produce quantifiable economic or social outcomes.

Global Telecom Growth Less than Rate of Inflation

Telecom never has been classified as a “growth” industry, as equity analysts use the term. In fact, for most of its history, telecom was a “public utility,” viewed much as are electrical and water enterprises are seen.

That is to say, connectivity providers have often been government owned, highly regulated enterprises not expected to grow revenues more than the rate of inflation.

The era of mobile communications has shaped our perceptions in new ways, compounded by the privatization and deregulation waves that began in the 1980s.

As mobility has become the way we supply communications services in those parts of the world that never had robust communications in the past, it has seemed that telcos could become “growth” engines.

Once we reach saturation of facilities and services, the older framework is likely to reassert itself. The most-recent revenue forecast by STL Partners suggests revenue globally will grow less than the rate of inflation through 2022. That might, in fact, be the future and fundamental reality. Essentially, the global telecom business will begin to contract, in real terms, even as nominal revenue grows, albeit less than does inflation.

And even that outcome also hinges on service providers being able to discover and create enough new revenue sources to replace about half their current revenue every decade. Barring such success, revenue will contract faster.

  

source: STL Partners

That will be unsettling. A reasonable observer would safely make a few predictions. No industry that is contracting can avoid major waves of consolidation; some bankruptcies and business model changes for the survivors.

It will not be fun, for most.

Would You Build a Municipal Broadband Network Costing $23,000 Per Passing?

If you ran an internet service provider company, and you were looking at new markets to enter, would you attack where there are two suppliers of gigabit internet access already operating, with full-city networks and prices ranging from $65 to #110 a month?

Would you see unmet demand where 84 percent of households already buy service, and service at 40 Mbps costs $45 a month; 140 Mbps costs $65 a month, 250 Mbps service costs $60 and where lower prices are available in bundles?

None of that stopped the Tallahassee city council from voting to study the feasibility of a

municipal broadband network, in a city where adoption rates already exceed 84 percent and where 19 competitors offer service.

The city early estimated it would cost $280 million to $300 million to establish a city-run broadband utility. That works out to a cost of more than $23,000 per household.

For the sake of argument, assume that network eventually got 33 percent market share. That would be capex of $69,000 per account. In other words, there is no payback, as the typical customer pays $30 a month for service.

It is hard to see how there is a payback on such an investment. Nor does there evidence of big market gaps.

Comcast sells stand-alone internet access operating at 100 Mbps for $50 a month and gigabit service for $110 a month.  CenturyLink sells 40 Mbps service for $45 a month, 140 Mbps service for $65 a month and gigabit service for $65 a month.

Economic rationality does not always win out against political rationality. Bad ideas get funded when the benefit does not outweigh the cost. But one of the council members now will rescind her "yes" vote on proceeding with the feasibility study, perhaps after realizing how big the risks were.

The city of Tallahassee provides an example of economic reality creating a brake on an almost-fanciful public policy initiative to create a municipal broadband network where there is almost no evidence of need.  

Next-Generation Networks Might Cost Less Than You Might Think

Lots of people remain concerned about the cost of building new 5G mobile networks. But capital investment plans, the way 5G is built on 4G and open, dynamic, virtualized and lower-cost platforms all combine to reduce cost.

That is important because it means our existing notions of what it costs to build an advanced next-generation platform are less than once supposed. Also, the new platforms tend to be more efficient, wringing more value out of any specific asset.

And that leads to lower service costs, lower app creation costs and potentially higher financial returns and lower cost per bit.

Consider use of existing 4G spectrum.

In all prior generations, frequency division was used to add new mobile platforms while the older platforms continued to operate. In the 5G era, time division is possible, allowing 4G spectrum to support 5G devices--using the same spectrum--as demand requires.

Discussions of spectrum sharing have so far centered on innovations such as Citizens Broadband Radio Service, where multiple license modes are available to users sharing a single block of spectrum.

That provides huge economic benefits, since new users can take advantage of new spectrum resources without the cost and complexity of migrating legacy users off those bands.

Discussions of dynamic spectrum use have centered on innovations such as TV White Spaces, where cognitive radios sense where unused spectrum is and tune to those frequencies when transmitting.

Now dynamic spectrum sharing will be used in the transition from 4G to 5G, allowing existing 4G spectrum to support 5G devices, in the existing 4G spectrum. That is one more example of the way 5G builds on 4G, as well as the growing importance of new ways of allocating spectrum that are far more efficient than past methods.

source: Ericsson

"Dynamic sharing just allows you to use the same spectrum for both LTE and (5G) NR," says Igal Elbaz, AT&T SVP.

The Ericsson Spectrum Sharing software, for example, dynamically shares spectrum between 4G and 5G within the same frequency band, based on the actual traffic demand. The solution is available on all Ericsson Radio System products shipped from 2015 onwards.

More Enterprises Adding LTE 4G for Fixed Connections

Advanced LTE and emerging 5G services are set to become bigger substitutes for fixed network access over the next three years, a survey conducted by IDC of 505 mid-size and larger enterprises with 500 to 10,000 employees suggests.

Mobile network access is increasing as enterprises connect more IoT devices, vehicles and temporary network endpoints.

On average, enterprises connect 2.7 different type of endpoints, including branch locations (77 percent), IoT devices (68 percent), fleet vehicles (51 percent) and pop-up networks (50 percent). Nearly a quarter of respondents (22 percent) are connecting all of these different endpoints.

About 62 percent of the respondents plan to increase LTE usage within their WAN in the next three years.

Gigabit LTE and 5G will increase usage, the survey suggests. Fully 90 percent of respondents say gigabit LTE and 5G would lead to increased usage.

Volumetric Video as NFL and Verizon Might Use It

There are volumetric video applications for sports-themed video games, virtual reality and possibly live sports. 

51% of Seattle Homes Can Buy Gigabit Internet Access

Residential gigabit broadband internet service is available to more than 170,000 Seattle households, according to the City of Seattle.

There are about 335,000 households in Seattle. So roughly 51 percent of homes in Seattle can buy gigabit internet access service.

Beyond that, the absolute lowest rate of buying of fixed network internet access is 93 percent of homes. Keep in mind, those are take rates, not “availability.”

source: City of Seattle