What is "Voice?"

Our understanding of words in the communications sometimes changes. “Broadband” used to be formally defined as any data rate of 1.5 Mbps or higher. These days, speeds up to 25 Mbps often are considered narrowband, as voice, at 64 kbps, once was defined as narrowband. 

“Voice” has meant “people talking to people.” At some point in the future, it might more often mean “people talking to computers.” 

By the end of 2018, according to research firm Voicebot.ai, 66.4 million U.S. adults owned smart speakers, up 40 percent from 2017. In 2018, according to PwC’s Global Entertainment & Media Outlook, 88 million smart speakers were in use in 20 key markets. 

That number is expected to rise at a 38.1 percent compound annual growth rate,  through 2023, when 440 million units are expected to be installed in those markets. 

source: PwC

In 2018 there were 942 million fixed network telephone lines in use globally. In 2023 there might be 440 million smart speakers in use in 20 countries, according to Voicebot. 

source: ITU

And that does not include the routine use of voice commands by users on smartphones. 

source: Adobe Analytics

It will not take long, with growth rates as high as 40 percent annually, for voice interface usage to overtake the number of voice lines in service. 

source: Pew Research

Service Providers Might Gain $77 Billion in New Revenue, Lose Just a Bit Less Than That, to 2023

According to Technavio Research, video entertainment, music, voice and messaging revenues for service providers will grow about $77 billion--roughly 13 percent on a compound annual basis--between 2019 and 2023. It is not actually very clear what all that means, if a correct forecast.

Other credible forecasts suggest total industry revenue will grow by perhaps one percent a year to 2022. All of which suggests net growth will be low, losses balanced almost exactly by losses.

source: Technavio

The way we can understand the different forecasts is to understand that one forecast looks at revenue growth from new products, without considering losses in legacy product lines, while the other is a look at net changes in revenue, including both gains and losses.

Beyond that observation, projected shifts in consumer spending on communications and entertainment products have to be evaluated against actual past behavior. 

Consumer spending does not change too much from year to year. Nor does the percentage of income spent on various categories change too much. 

source: IDC

In Myanmar, a new mobile market, spending per household might be as high as eight percent of total spending. In Australia, communications spending (devices and services) might be just 1.5 percent of household spending.  

In South Africa, households spend 3.4 percent of income is spent on communications (devices, software and connectivity). In Vietnam, communications spending is about 1.5 percent of total consumer spending.

In the United States, all communications spending (fixed and mobile, devices, software and connectivity, for all household residents) is perhaps 2.7 percent of total household spending. U.S. household spending on communications might be as low as one percent of household spending, for example. 

Even spending on video streaming, which is climbing, might not have affected aggregate video subscription revenues too much. What has changed is the allocation of spending between linear and over the top services. 

Also, prices for connectivity services are dropping. From 2000 to 2018, mobile and fixed line charges in Europe and other developed markets have dropped by as much as 59 percent, while fixed network services dipping by as much as 48 percent. 

source: Frontier Economics

So even if usage climbs, and new products are added, unit prices are under pressure. The point is that we have to distinguish between product line growth or decline, total market growth and decline and differences between firms and markets.  

Yes, consumer demand has shifted, and is shifting. But consumer spending for communications, audio and video arguably has changed very little, in terms of aggregate spending. 

Has any Telco Demonstrated Major Success as a Platform?

One hears quite a lot of talk about how connectivity providers can become platforms. Telefonica, for example, has for some time deliberately tried to recast itself as a digital enabler or platform, not a connectivity supplier, and its experience illustrates just how hard that transition might be. 

So what is a platform? Electricity, one might argue, is a platform. But that probably shows the weak version of “platform.” Electricity enables lots of other use cases and businesses, without any direct business relationship between the electricity provider and businesses built on the use of electricity. 

In that sense, the old “dumb pipe” analogy continues to hold, even for a so-called platform. 

Other analogies make more sense. Android is a better example of a platform because a business relationship actually exists, and the owner of Android gains business value from each business relationship, as did Microsoft and Apple before it. That is the latest version of the notion of platform Telefonica and others seek. 

Other logical examples exist. As Amazon and Alibaba are platforms for commerce and Netflix arguably is a platform for content, the key point is that a viable platform involves a business relationship between the platform and its enabled services or products. And that business relationship generates revenue for the platform. 

The digital era will place greater expectations on telecom operators as customers turn to digital service providers to support a broader range of services and use cases, says Steve Vachon, TBRI analyst. But will they? 

Connectivity providers now operate in an ecosystem including content suppliers, web-scale application providers, device and computing services entities. So the hope is that Telefonica--and other connectivity suppliers--can create more value for partners using their network.

source: Gartner

That has been true for Akamai’s content delivery network, and other CDNs, clearly. But substantial revenues from “platform” capabilities are hard to find, compared to other approaches such as moving into adjacent parts of the ecosystem. 

Comcast bought NBCUniversal and became a content owner and movie studio, theme park operator and content network provider. AT&T bought TimeWarner and similarly became an owner and producer of content, provider of content networks and operator of theme parks. 

If mobile edge computing (sometimes called infrastructure edge computing) succeeds, mobile operators will generate platform revenues from enterprises that buy edge computing services. But that is some ways off, it appears. 

In the meantime, it remains hard to pinpoint significant revenues from “platform” operations.

Small Business Survey Illustrates Trade-Offs

A new survey of how U.S. small businesses are behaving provides a good example of how unintended consequences, externalities and trade-offs work in the real world. The ScaleFactor survey looked at small business thinking about hiring and technology, including artificial intelligence.

Most of us might generally consider rising pay rates to be a good thing. But higher pay rates and benefits also mean it is more costly for a small business to hire a new employee, and that seems to be constraining hiring by small businesses.

Health care costs were a big reason new employees were not hired, the survey found. But the wider use of technology-based accounting and back office software also has caused more smaller firms to avoid hiring chief financial officers as well.

That illustrates a key trade-off: higher wages and more jobs might both be desired public policy outcomes. But the two tend to be inversely related. Choices.

Economics has been at times called the dismal science. The phrase has had a number of meanings, originally expressing a fear that human population growth was destined to outstrip food production. But the term also has been used by some to decry social implications of markets.

The more useful framework might be the sense of discipline and informed making of choices every resource allocation and policy entails. The issue is not so much “dismal” outcomes; more the notion that choices must always be made.

Means are scarce; ends unlimited. Another way of putting it is that appetites are unlimited; resources limited.

Some might liken the idea to the phrase “no free lunch,” meaning principally that resources are scarce and that choices have to be made.

That is illustrated best by the term opportunity cost, the foregone benefits a person, firm or other entity misses out on because resources were committed to another use. The notion of “trade-offs” is helpful, in that regard.

The other popular phrase related to economic thinking (allocation of scarce resources, trade-offs, opportunity costs)  is “no gain without pain.” Choices between multiple competing claimants for resources must always be made.

To some extent, the discipline is supposed to help people and entities make better choices (more efficient use of resources; avoiding waste).

Externalities are one example of applied economics thinking. An externality is a cost or benefit received by a third party because of a transaction between two others. Pollution is the now-classic example.

Some might liken that concept to the notion of unintended consequences. Public or private policies are intended to solve one particular problem, but also have other unintended consequences.

This does not mean dismal outcomes are to be expected. It does mean benefits always must be weighed against costs, and with at least some view to possible direct externalities.

How Much Upside from Mobile Substitution for Fixed Internet Access?

Strategy always is affected by a firm’s assets and liabilities. Consider U.S. fixed networks. Comcast, Charter and AT&T have 50 million to 60 million residences in each of their service areas. Verizon has but 14.6.

So relatively speaking, Verizon has much more to gain by attacking outside its fixed network footprint. It also has a smaller installed base to attack, compared to the other three biggest fixed network service providers.

AT&T, by virtue of its smallest ISP customer base, likewise is a less-inviting target. Of all the biggest four service providers, AT&T has the greatest need for a platform better able to compete for internet access customers.

T-Mobile US, with virtually no fixed network assets, has talked about attacking the installed base of cable internet access customers, for example, because cable has the lion’s share of customers to be taken.

source: Mobile Experts

Comcast has 45 percent take rates for internet access; Charter 48 percent; AT&T 26 percent and Verizon 48 percent.

Of the four biggest fixed network ISPs, Verizon has the greatest upside from out-of-region market share gains, while AT&T gains most from lower-cost access infrastructure of all types.

Cable operators, as the market leaders in internet access, have the most share to lose. Comcast and Charter are among the service providers with the most potential exposure, as both have big footprints and relatively high ISP market share. Verizon has relatively high share, but a much-smaller number of customers.

The ability to use the mobile platform to take fixed network internet access share therefore very much appeals to T-Mobile US, Verizon and AT&T.

At least in part, the big push by Comcast and Charter to supply gigabit speeds is a reflection of that exposure. Cable hopes its lead in gigabit internet access will provide protection against the assault from mobile and wireless alternatives.

Will Telco Acqusition Strategies Have to Change?

Over the last few decades, many mobile service providers have grown their revenues by making horizontal acquisitions of similar firms in different geographies. In recent years about $119 billion worth of transactions have happened in the telecom industry.

source: IMAA

There is a simple reason for merger and acquisition activity: for many firms, organic growth pales in comparison to acquisitions as a way of building revenue volume.

source: Zayo

That might be especially true if the global telecom industry continues to see slim revenue growth, overall. But something important also might happen: Horizontal acquisitions might offer some opportunity for synergies, but if the acquired assets also have low growth, the acquirer winds up a bigger company, with greater revenue volume, but profit margins that are not changed much.

Earlier waves of acquisitions had a different set of assumptions, including the ability to buy growth. If growth is negligible, then horizontal acquisitions will lift gross revenue, but perhaps not growth.

The signs that horizontal acquisitions are not paying off so well is the present trend where firms divest portions of their businesses that were bought not so long ago. The same might be said for vertical acquisitions that did not supply sufficient revenue growth.

source: STL Partners

That suggests a different path: acquisitions that are vertical, adding new types of assets. Another option is a move into new segments of the value chain beyond connectivity, for example, that offer higher growth rates.

What might become more difficult are horizontal acquisitions that add heft, and possibly cash flow, but not growth. In many cases, that will mean moving out of territory or out of country, if regulators will not allow particular companies to gain more market share in the domestic market.

The point is that though acquisitions will likely continue to be important, it is not so clear that horizontal strategies are going to work as well as they did a couple of decades ago.

PTC Academy Grows to 3 Events in 2019

The 2019 PTC Academy series is ramping up substantially, with not one,  but three events to be held throughout the Asia-Pacific region.

The first PTC Academy course is being held in Bangkok 23-25 September 2019, with the theme Executive Insight for Exceptional Leaders and is open for registration. This course will be closely followed by additional offerings of this theme for classes in Hong Kong and Beijing in December.

PTC Academy events have continued to evolve over the last three years and represent a fantastic opportunity to allow our future leaders the chance to explore what skills they need to develop in leading, managing change, and transitioning to senior leadership roles.

We received fantastic feedback from our most recent event held in Bangkok, not only from those that attended the PTC Academy, but also from their management that sent them – it is seen not only as highly relevant, but also time and cost effective.

The expansion of the PTC Academy into Hong Kong and Beijing is just the first planned phase of extended outreach. Next year, we will look to add India, another option in China, and potentially the Pacific Islands.We encourage senior executives to send their rising stars! If you are already part of the PTC Academy Alumni, please help support this PTC Outreach Initiative by telling your colleagues and management about this year’s exciting course. More details outlining this year’s program can be found here.