Digital One Rate Changed the Industry

Few now recall it, but AT&T Wireless once drove rapid mobile adoption by consumers by revolutionizing the way consumers paid for--and how much they paid for--long distance calling.

Back in 1998, AT&T unveiled a major new pricing plan for mobile users that priced all domestic calls for 10 cents a minute. That Digital One Rate plan effectively erased the distinction between local and long distance calling and provided a major incentive for consumers to buy mobile service.

Even many astute industry watchers did not appreciate the revolutionary nature of the plan. Technology pundit Walt Mossberg once called Digital One Rate “marketing hype.”

“It promises to make your cell phone as simple and affordable to use as a landline phone, so that you'll use it even for casual calls without a second thought,” said Mossberg. “The actual service behind the marketing isn't good enough to really allow that. I've been frustrated with it again and again.”

Digital One Rate was anything but hype. It really did revolutionize the way consumers and businesses made calls. It really did begin the mass adoption of mobile phones and the demise of landline service.

Beyond that, Digital One Rate changed the key profit drivers in telecom, from long distance revenue to mobile service. Within a decade, the industry profit driver changed from long distance to mobility. The shift from voice to data would follow.

In the ensuing years after Digital One Rate was introduced, long distance revenue plummeted, as did use of landline phone services. Digital One Rate was the driver, as the whole industry shifted pricing and packaging.

source: Technology Policy Institute

Could such a shift occur again, in a new context?

One of the obvious commercial ramifications of virtualized networks featuring network slicing is the ability to create customized features related to bandwidth, latency, security and quality of service. Prices and service levels for mobile internet access should be an early place to look for evidence of such customization.

At the most basic of levels, standard practices in fixed networks, such as the ability to buy faster or slower services, with bigger or smaller usage allowances, are commonplace. That has not been possible in the mobile segment of the business, but will be. We refer here not to the setting of tariffs for 5G than might be higher than 4G, for the same amount of usage.

What likely will be new is the ability to create speed and usage tiers on an account-by-account basis. That is new. But so far, the leading mobile service providers announcing 5G service have chosen not to introduce such plans.

To be sure, Verizon charges about $10 a month extra for data plans with comparable 4G usage allowances. And since 5G is faster than 4G, there is an effective price premium for 5G. What Verizon has not done is create speed tiers for mobile access that resemble fixed network access.

In other words, customers cannot buy 5G plans with “speeds up to 150 Mbps” as one plan, and “speeds up to 300 Mbps” as a different plan, as is the norm for fixed network access.

But AT&T might choose to do so, at least eventually. So, too, will Verizon, in all likelihood.

“I will be very surprised, if as we move into wireless, the pricing regime and wireless doesn’t look something like the pricing regime you see in fixed line,” said Randall Stephenson, AT&T CEO.

“If you can offer a gig speed, there are some customers that are willing to pay a premium for 500 meg to a gig speed and so forth,” he said. “So I expect that to be the case.”

But it will not happen right away. “We are two or three years away from seeing that play out,” said Stephenson.

Network slicing most often is thought of in the context of customized virtual networks for enterprise customers. It might also be the way mobile operators create, for the first time, speed tiers for mobile internet access that are differentiated by speed, not just usage allowance.

Whether other quality of service metrics also become standard features of some plans or not--for consumers--remains to be seen.

But this is a big potential change, and will likely create higher revenue potential for the firms that offer such speed-differentiated or possible QoS-based service plans.

Perhaps that will not be as revolutionary as Digital One Rate was. But few innovations are.

Give Verizon Credit for Knowing What it Has to Do in Terms of 5G Capacity and Coverage

Sometimes we do not give Verizon enough credit for knowing precisely what it has to do, capacity-wise, and for having a rational strategy to deal with those challenges. Observers have noted for years that Verizon “needs more spectrum.”

Verizon’s answer has been to use millimeter wave spectrum, small cells and spectrum sharing, in addition to acquiring new millimeter wave assets and refarming 3G spectrum. There is an unsaid ability to possibly augment with other assets as well, but Verizon is moving ahead on the assumption it must do so without spectrum asset acquisitions from other service providers.

“One of the most important features that I have talked about is of course the dynamic spectrum sharing that will come during next year, where you basically also can use, deploy wherever you are with 5G and then you don't need to allocate certain spectrum to certain technology,” said Hans Vestberg, Verizon CEO.

An important point is that there are a growing number of ways to increase effective bandwidth beyond buying spectrum licenses. Small cells, dense fiber networks, spectrum sharing and spectrum aggregation all can expand capacity.

That said, both AT&T and Verizon have committed to lots of new spectrum in the millimeter wave regions. Some have criticized such moves, arguing that volume production of radios and devices eventually be strong in the mid-band spectrum areas. There is some merit to such arguments.

But it also is true that future 5G capacity growth will have to come from the millimeter wave region, and that this will be a global trend, not something mostly limited to the United States.

Verizon realizes millimeter wave spectrum “is not the coverage spectrum,” Vestberg said. That is one reason why “spectrum sharing will be the next step for us to see that we have all the assets to deploy our strategy on 5G to meet the different type of use cases.”

No 5G service provider in the mobile business can escape an iron law of bandwidth, namely that lower frequency spectrum is better for coverage, while higher frequency spectrum is better for capacity, and mobile service providers need both.

That means operators always must balance coverage and capacity. But there are lots of moving parts. End user demand always changes, but most of the demand for capacity happens when users of smartphones are stationary, at home or at work. So most of the demand for capacity happens at home and at work.

“Remember, the majority of all the traffic is in dense urban areas, where we are now initially are focusing” its millimeter wave deployments, said Vestberg.

The point is that observers sometimes do not give Verizon strategists enough credit for having thought through capacity expansion alternatives and approaches.

New use cases might require significant amounts of additional bandwidth when users are fully mobile, but that will occur over time. For the most part, mobile bandwidth has to grow, but not at the same rate as “tethered but not moving” bandwidth demand. And that appears to be where spectrum farming and spectrum sharing will be crucial.

If Sprint and T-Mobile US do not talk as much about that, at the moment, it is because they face different challenges and own different assets.

AT&T and Verizon have heavily-loaded networks and require more bandwidth because they have more customers.

T-Mobile US and Sprint networks are relatively lightly loaded, and therefore can get by with less incremental bandwidth.

Service providers also tend to own distinct blocks of spectrum. AT&T and Verizon have more lower-band spectrum than T-Mobile US and Sprint, but that spectrum also is heavily loaded. T-Mobile has more flexibility in that area. Sprint has lots of mid-band spectrum, but not enough customers to justify aggressive deployment of those resources at the moment.

Some have noted that Verizon has less capacity per account than does AT&T, and “needs” more mid-band spectrum. Verizon technologists have run the numbers and concluded that small cell architectures--always a practical way to expand bandwidth--will do much of the job. Millimeter wave spectrum and spectrum sharing will help: the former with capacity needs, the latter for coverage.

Beyond that, there are additional mid-band resources potentially available. Dish Network’s spectrum remains a wild card. It always is possible that a T-Mobile US merger with Sprint is approved with significant spectrum sales. That remains a possible source of additional Verizon spectrum.

But none of that is essential. Every 5G service provider eventually has to supply both coverage and capacity. Capacity has to come in different ways than coverage. Verizon knows that.

Millimeter Wave Performance Will Keep Getting Better

It would be fair to say that U.S. mobile operators deploying millimeter wave spectrum remain in a learning mode. So far, it seems there is evidence of signal attenuation worse than expected as well as better than expected.

T-Mobile US, which has significant low-band assets with which to deploy 5G, argues that millimeter wave will never be used in rural areas for 5G support. But we are just at the beginning of commercial use of millimeter waves for mobile communications.

Historically, one would have been more accurate being an optimist than a pessimist about microwave signal propagation, it is fair to say. And we will have to use millimeter waves, to increase the amount of bandwidth mobile networks can supply.

Ignoring the vested interests and assets each mobile service provider possesses and touts,  many note there is a lack of available U.S. lower-band spectrum to devote to 5G.

In this illustration by Anokiwave, the orange blocks represent the 11 GigaHertz of new spectrum to be allocated by the U.S. Federal Communications Commission, and most nations eventually will do something similar. The big takeaway is how much more new spectrum will be available, compared to all mobile spectrum available up to 4G.

The skinny blue bands to the far left show currently-allocated mobile spectrum. Basically, more than an order of magnitude (10 times) more mobile bandwidth is being commercialized. And that new bandwidth is more efficient, in terms of bits per Hertz, than in the sub-3 GHz bands by perhaps three times, based on antenna techniques, alone. Modulation also makes a difference, but sheer bandwidth also matters.

The Nyquist rate  

source:  Anokiwave

The red and green blocks show spectrum already allocated to defense entities, for satellite or aerospace purposes.

Even as some argue 5G will be spectrum agnostic and can use “all frequencies,” some insist there is a real disadvantage to using millimeter "versus" lower-frequency spectrum. Ignore for the moment the obvious marketing stances taken by firms with different assets. Firms will tout what they have.

Some larger realities are not changed by 5G. There always is a trade off between capacity and coverage, when using wireless spectrum at any frequency. Networks always can get more-extensive coverage using lower frequencies, at the expense of potential bandwidth. Conversely, they always can get greater capacity, at the expense of lesser reach, with higher frequency spectrum.

And since “everyone” agrees a wide variety of low, medium and high frequency spectrum will be used by 5G operators, it makes sense to figure out what use cases (beyond coverage and capacity in general) are best suited to which frequency bands.

The area of greatest discovery will be in the millimeter wave bands, which have never been commercially viable for mobile services in the past. Millimeter wave spectrum will enable the greatest changes in capacity (bandwidth), and likely will be the area where the greatest number of new use cases will be developed.

Generally speaking, the gigabit speeds touted by 5G backers will be possible only when using millimeter wave assets. Generally speaking, lower-frequency spectrum will offer speeds higher than 4G, but perhaps not typically more than twice as fast.

That might suggest it is fruitful to look at 5G using lower or mid-band spectrum as important for supplying faster mobile internet for smartphone users, but not, in itself, a huge driver of new applications. One might argue that the higher bandwidth will make visual apps more compelling, and that is correct, so long as tariffs allow the higher usage.

In other words, much-faster speeds will not lead to as much innovation unless tariffs for usage are low enough that barriers to usage are not created. As one example, 5G might enable mobile TV. But consumers will constrain usage unless tariffs and usage plans encourage--or at least do not discourage--such usage.

Different use cases beyond “faster consumer smartphone access”  will tend to require millimeter wave. It will be hard to make a decent business case for fixed wireless--as a substitute for fixed network internet access--without using millimeter wave assets. There simply is no way to replicate the low cost per bit of fixed network services without millimeter wave capacity gains.

Latency performance should not vary between services at any frequency, but will be affected by the presence or absence of infrastructure edge computing facilities. Enterprises using their own edge computing platforms and private 5G will not generally have to worry about latency.

Visual applications and real-time control operations likewise are areas where millimeter wave should have relevance, often in conjunction with edge computing to control overall latency when analytics must be applied.

What sometimes is overlooked in discussions of “millimeter versus lower-band spectrum” is that many new use cases depend as much on edge computing as they do on bandwidth or latency. Millimeter wave communications will have a huge advantage where bandwidth intensity is high, but also will tend to be use cases where local processing also is necessary, hence edge computing will be necessary.

And many use cases said to be candidates for millimeter wave and edge computing (virtual reality, augmented reality, visual health applications) also will occur either indoors or in stationary or low-speed settings ideally suited to private 5G or small cell supported public networks, with local processing (edge computing).

The point is that many of the brand-new use cases (beyond faster mobile internet) will happen in settings where millimeter wave coverage is not a great issue. Most usage happens in a small number of cell sites for any network (2G to 5G). Those cell sites always are in urban areas. So 5G “coverage” is a bit of misplaced concern.

Even when wide area 5G coverage is supported, the really-high bandwidth features (gigabit or higher) will not be supported everywhere. The trade offs of coverage versus capacity remain.

So the place to look for truly-new use cases is in areas other than “faster smartphone access.” It is the urban places, indoors and outdoors, where millimeter wave and edge computing exist, where the new use cases and revenue opportunities will emerge.

The point is that ubiquitous 5G coverage is not necessarily required for the development of most new 5G-enabled apps and use cases. Those are going to happen in the dense urban areas--or inside enterprise facilities--where most economic activity takes place.

Telecom Long Ago Left "Regulated Monopoly" Behind, Only to Encounter a Possibly Worse Regime

There have been brief periods over the past couple of decades when it might have seemed possible some parts of the telecom business might escape the utility characterization (slow growth dividend stocks). In some part, the burgeoning growth of the mobility business in developing parts of the world produced revenue growth fast enough to fuel that belief.

Some specialized providers might claim to have done so (they grow faster and do not pay dividends), and innovation in new technologies and services will continue.

But many tier-one service providers--most clearly in the developed countries--have not escaped their slow-growth roots. The changes have largely been for the worse.

While some providers might have chafed at their regulated roles, and a few considered themselves lucky enough to operate as unregulated monopolies, the main service providers in developed nations continue to operate in tough markets that produce flattish to negative revenue growth rates.

source: STL Partners

The four largest European markets--United Kingdom, Italy, France and Germany--are shrinking, as are the U.S. market and India. China continues to show higher growth rates, according to STL Partners.  

Keep in mind that telecom revenue tends to grow at about the rate of growth for the economy. So we should never be too surprised when industry revenue growth anywhere hovers at or just below the overall rate of economic growth.

source: STL Partners

In fact, it must be noted that the telecom industry now faces an arguably-worse environment than it did in the highly-regulated markets it once faced. Rate of return regulation produced slow innovation and slow growth, but highly-predictable revenue and profit. 

Exposure to competition produces none of those advantages, but also increases risk and uncertainty. The unexpected rise of the internet, in addition to service provider competition, has not helped, either. But it is what it is. 

Spectrum Prices are Dropping Because Business Model Requires Lower Prices

Some regulators are going to be shocked to find out that the historically high value of spectrum used for mobile communications is unsustainable. Bidders now have many reasons to value even needed spectrum at lower rates than in the past.

And the reasons have everything to do with supply and demand. End user and customer demand for use of internet data keeps climbing. So one might think spectrum prices also must keep climbing. Not so, because supply and demand is changing.

It is increasingly possible to use spectrum more efficiently. Small cell architectures, for example, allow more intensive spectrum reuse.

Also, an order of magnitude more spectrum is going to be commercialized, and that spectrum will feature wider channels that are more spectrally efficient. Coding also is more efficient. It is easier to aggregate unlicensed spectrum, which becomes a functional substitute for licensed spectrum.

Mergers will mean that specific companies will find they have more available spectrum to use. And new spectrum sharing techniques mean previously unusable spectrum becomes available.

Also, the characteristics of millimeter wave spectrum mean that more effective bandwidth is possible for every megaHertz of available spectrum

In other words, if ways to use fair amounts of spectrum without a license become possible; if the physical supply of spectrum grows substantially and the cost of using small cell architectures grows, we should expect lower spectrum prices.

To make an analogy, spectrum is beachfront property, but we are making more beach. Over the past few years, some have worried about the cost of 5G spectrum, although spectrum prices are dropping, generally speaking, in part because there is a huge increase in supply, and because mobile operators must now more carefully weigh the cost of new spectrum against expected financial return.  

Also, firm strategies now vary. Some firms believe use of unlicensed spectrum will be more important. Others substitute small cells for additional spectrum. Some need additional spectrum more urgently than others, based on present holdings.

On the demand front, if it becomes clear that revenue per bit continues to decrease, then the ability to wring revenue out of any fixed amount of spectrum decreases as well. That means mobile operators simply cannot afford to pay higher prices for spectrum, as the expected return on those assets is effectively lower.

If average revenue per account keeps dropping, then average cost to supply bandwidth also has to decrease. Architecture can help. But spectrum prices also must drop.

Demand also is affected by the fact that early adopters tend to spend more than later adopters. That applies to whole regions and countries as well as between regions and countries. Later adopters are lighter users, either for behavioral reasons (they use the internet less) or for cost reasons (they have less money to spend on internet access).

The big takeaway is that we should expect spectrum prices to fall, as demand increases dramatically. 

T-Mobile US Becomes a Bank

T-Mobile US is getting into the mobile banking business. More important, perhaps, it is becoming a bank. That move, as much as anything beyond its earlier move into the video subscription business, illustrates the moves T-Mobile US and other connectivity providers feel they must make to generate revenue growth as the mobile business reaches saturation.

Canadian telecom firm Rogers has been a bank for some years, though it does not appear to generate appreciable revenue. In structuring its offers, T-Mobile US might not actually believe th move will generate much revenue, either. But the offers could increase new subscribers and contribute to lower account churn.

source: T-Mobile US

T-Mobile MONEY is available nationwide. The no-fee, interest-earning, mobile-first checking account is smartphone based and apparently available to non-T-Mobile US customers.

Under some circumstances, T-Mobile will pay four percent interest on the first $3,000 of deposits, with one percent on every dollar over $3,000, so long as the customer is a current T-Mobile US postpaid mobile user and agrees to deposit at least $200 monthly into the account.

source: KPMG

To be sure, there are many aspects to mobile banking, ranging from using a mobile banking app to mobile payment. T-Mobile has chosen to become an actual banking entity. Verizon and AT&T once tried to become mobile payment platforms, but have abandoned the effort.

T-Mobile US is betting that banking is a very sticky feature, and that its way-above-market interest rates will be doubly attractive.

U.S. Consumers Do Not See Compelling Need for Gigabit Access, Study Suggests

Consumers show interest in gigabit speeds but that interest does not necessarily translate to adoption, a new study by Parks Associates suggests. Consumers fail to see a compelling need for gigabit services, as few households require the performance levels of these services, the firm says.

Some 22 percent of U.S. broadband households buy a service operating with speeds ranging from 100 Mbps and 999 Mbps, the most common service tier cited by survey respondents who say they know their speeds, according to Parks Associates.

Some six percent of respondents say they buy a gigabit service.

About 39 percent of respondents do not know their broadband speed.

But Parks Associates also says interest in upgrading to that speed of service has declined over the past two years.

“Interest in gigabit speeds has declined, due partly to limited availability, but also as households prioritize cost over speed,” said Craig Leslie, Senior Research Analyst, Parks Associates. “Of the US broadband households that switched services in the past year, 50 percent did so to get a better price, while 36 percent switched to get better speeds.

“Households are not seeing the benefits to speed upgrades,” Parks Associates says.