How Long Before Telecom Revenue Returns to 2019 Levels?

How long will it take for global telecom revenue to return to 2019 pre-pandemic levels?

Perhaps the good news is that, right now, based on development of vaccines, it seems as though the second quarter of 2021 might see an end to most economy-affecting prohibitions and impediments to normal levels of commerce. 

The bad news?

If so, we might not see a return to early 2019 levels of revenue until perhaps 2023, according to Analysys Mason. A worst-case scenario delays recovery to 2019 levels until some time after 2024.

Note that these forecasts were made in May 2020, and might well change. Here is Analysys Mason’s May 2020 forecast, with a range of cases from mild to severe impact. Also note that the "moderate" scenario tracks the "mild" scenario closely. Some might argue that means the "moderate" recovery case is almost the same as the "best case" forecast.

In the moderate case, we return to 2019 revenue levels by perhaps 2023. The "worst case" is almost impossible to anticipate, in terms of time of recovery.

source: Analysys Mason 

The bright spots are residential broadband (assuming strength in internet access but weakness in linear video and voice), business unified communications and internet of things.

source: Analysys Mason 

Many seemingly believe that all the past year’s emphasis on remote work and remote learning “must” be good for connectivity providers, and to be sure, some evidence can be cited, such as an increase in broadband  subscription rates in the United States, in the third quarter of 2020, for example. Net additions in the first quarter were the highest since 2015, while in the second quarter, net additions were about triple the rate for the same quarter of 2019. 

The story overall is not that bright, as most service providers, in most markets (perhaps nearly every market) have seen a dip in revenues in 2020. Mobile operators, for example, have seen declining revenues for roaming, since people were not traveling as much as usual. With businesses operating in restricted mode, if at all, usage was down there as well. Many small businesses have gone bankrupt, so customer additions were negative in that sense. 

At the same time, costs increased as firms scrambled to support a sudden surge of at-home work patterns. In the first quarter of 2020,revenue declined about 2.2 percent globally, according to ResearchandMarkets. Some service providers saw revenue “growth rate” declines as high as 12 percent in the first quarter alone, including telcos in the U.S. market. 

source: TBR 

Profits might diverge from the revenue declines in some cases, as some firms take steps to restructure. But top-line growth will tend to suffer at most firms. In India, for example, fixed network subscribers dipped nearly seven percent, year over year, in September, while mobile accounts shrunk by about two percent.  

source: TRAI 

We might well be prepared for surprises, though. In past recessions, telecom revenue has rebounded relatively quickly, and revenue dips were shallow. But the pandemic has not been a "typical" recession, leaving open the possibility that recovery could be on a different pattern.

U.S. Cable Upstream Peak Traffic Grows 47% Since March 2020

U.S. cable TV networks, which have 70 percent of the installed base of broadband connections, have seen cumulative downstream peak traffic growth since March 1, 2020 of 27 percent, with peak upstream growth up 47 percent since March 1, 2020, says the NCTA.

Throughout the pandemic, provider backbone networks have shown no signs of congestion, the group also  notes. 

source: NCTA 

Can Overbuilder ISP Market Share Exceed 30 Percent?

One key metric for any internet access overbuilder (any internet service provider competing against both a cable operator and a telco) in a market is take rate: the percentage of addressable homes that sign up for service. 

The reason is that a rule of thumb suggests an ISP competing as an overbuilder has to get about 30 percent share to be sustainable. The corollary is that the business case for other incumbents can get perilous, as that leaves 70 percent share for all the other providers.

It might help if the incumbents have multiple revenue streams to rely on (voice and video entertainment being the most common, plus business services). Still, a viable overbuilder dramatically reshapes both market share and profitability profiles for incumbents. 

Ting Internet seems to have overall take rates of 28 percent. In the past, Ting has estimated it would get about 20 percent take rates  within the first 12 months of active marketing, with a goal of reaching 50 percent over five years. 

In the past, Ting Internet has reported 30 percent take rates, so the latest data suggests that is a reasonable expectation for the markets Ting chooses to address. 

As was the case for overbuilders in the video entertainment business, and now with triple-play and internet access overbuilders, it has proven difficult to reach 20 percent market share after several years of operation.

As even the most-successful overbuilders have discovered, being the market leader is difficult, as the leader’s market share, in a competitive three-way market, might not exceed 30 percent or so of homes (potential accounts).

EPB in Chattanooga, Tenn., for example, is the poster child for overbuilder hopes, having gotten as much as 45 percent of consumer market share in its service area (with share defined as revenue-generating units, not “accounts” or “homes”).

EPB’s internet access share might be about 27 percent, its video share lower than that. An interesting statistic, in that regard, is that about eight percent of EPB’s internet access customers buy the gigabit service.

EPB’s market share is highly unusual in most overbuilder markets, as EPB arguably competes with Comcast, not AT&T, which has negligible video share in Chattanooga.

In a triple-play market, that is important. Comcast might have 61 percent video share, while EPB might have 36 percent share, leaving only three percent video share held by AT&T. Essentially, EPB has become the number-two provider, relegating AT&T to third place, something that is not the case in most other U.S. markets where three mass market fixed network suppliers compete.

Telcos Not Much Closer to Success in Enterprise Solutions Market, ABI Research Says

Telcos might not be much closer in 2021 to a goal of becoming relevant in the cloud-based enterprise solutions market, Don Alusha, ABI Research senior analyst suggests. 

That should surprise almost nobody, as the application value chain now rests on the internet, software platforms, and the cloud. That allows near-zero distribution and near-zero transactional costs, Alusha says. 

Direct competition from hyperscalers is a factor as well. Amazon offers multiple devices for either edge or on-premises deployments: Snowcone, Snowball, Wavelength, Outposts, and Greengrass IoT, for example. 

Hyperscalers also are already deploying enterprise digital solutions, most of which are usage- or subscription-based instead of upfront, capex-based solutions that telco solutions arguably require, says Dimitris Mavrakis, ABI Research senior research director. 

Telco operators will need to adapt to opex models to survive, especially in the small and medium enterprise (SME) segments of the market, he says.

“2020 has seen AWS, Google, and Microsoft all advancing and underlining their telco ambitions to provide enterprise connectivity solutions” says Mavrakis.

“Their existing ties with enterprises for cloud storage, as well as their general openness toward service-based offerings, will make them particularly attractive to enterprises,” says Leo Gergs, ABI analyst. 

That might also include hyperscalers supplying access services as well, he says. 

Hyperscalers are leading the market in consumption economics, says Alusha. In a sense, that is a continuation of a trend we saw a decade or two ago, as the enterprise software business became “consumerized,” with many consumer apps adopted first by employees and then supported by enterprise IT. 

Enterprise IT of the past was based on high switching costs, relatively low volume, high price, and a pay-up-front capital investment model. 

The future purchase pattern will instead be based on high volumes, low pricing, and an opex model. 

Telcos and their suppliers are not yet ready to fully embrace consumption economics, says Alusha. 

Telecommunications is an asset-intensive industry with expertise in managing factories and supply chains, developing technologies, and understanding the cost of goods sold, inventory turns, and manufacturing. 

Human-intensive services are entirely different, Alusha says. For example, in services and opex-based models, technology providers do not manufacture a product to then sell it. Instead, they sell a capability or knowledge, created “at the same time they deliver it,” he says. In other words, software is sold as a service, not a product. 

Loon Uses AI to Steer Balloons More Effectively

Loon’s navigation system’s most complex task--steering balloons--now is assisted by artificial intelligence, specifically deep reinforcement learning, a type of machine learning, Loon says. 

Overall, the RL system kept balloons in range of the desired location more often while using less power, according to Loon. 

source: Loon 

Reinforcement learning enables an agent to learn by trial and error in an interactive environment using feedback from its own actions and experiences, Loon says. “As far as we know, this is the world’s first deployment of reinforcement learning in a production aerospace system.”

This contrasts against the conventional approach of the automated system following fixed procedures artisanally crafted by engineers, Loon notes. 

In this case, RL helps optimize flight in the face of time-varying winds, partial visibility of the wind field surrounding the balloon, not always having enough power for the ideal maneuver and frequent decision points. 

Google AI teams hope that beyond Loon, this work on stratospheric navigation can serve as a proof point that RL can be useful to control complicated, real world systems for fundamentally continual and dynamic activity. 

Global Telecom Revenue Will Reach 2019 Levels in 2023

The telecom industry will take until 2023 before its revenue exceeds that for 2019, according to Analysys Mason, with 2021 revenue growth of about one percent. 

The industry will see a US$43 billion fall in 2020 revenue, a 2.7 percent drop, driven by lower mobile roaming revenues, business services and prepaid mobility. 

“One third of this will be recouped in 2021,” said Stephen Sale, Analysys Mason research director for consumer services.

The company sees no significant revenue from 5G in 2021. “It’s not a game changer for consumers,” he said.

Global WAN Services Revenue $76 Billion in 2020

The global enterprise wide area networks business generates about US$75.9 billion, TeleGeography says. 

MPLS represents 43 percent of that revenue; dedicated internet access 16 percent; SD-WAN two percent and local access (leased line and Ethernet connections from customer premise to carrier point of presence) 38 percent.

source: TeleGeography 

Earlier in 2020 I estimated $48 billion in 2020 enterprise WAN (long haul only) spending, which is very close to TeleGeography’s latest estimates. Global public network service revenues are about $1.7 trillion or so. So public network WAN service revenue represents about 4.4 percent of total public network revenues, with the WAN portion (excluding local access) being $46.6 billion or about 2.7 percent of global public network revenues. 

Some estimates put global public network revenue at a higher level around $2 trillion annually, in which case WAN services represent about two percent of total public service revenues. 

Not included in such figures are private WANs operated by hyperscalers and application providers, as they build and own their own networks. Nor would it be surprising if such buyers had a preference for dark fiber purchases or leases, rather than “lit” services. 

Using 2025 as a starting point for carrier SD-WAN services, it has taken five years to reach two percent share of total WAN service provider sales, or about 3.4 percent of total long-haul revenue, excluding local access. 

The expectation is that SD-WAN will cannibalize MPLS. 

Among the trends the latest TeleGeography data cannot show is the global shift to private networks for enterprise WAN traffic. 

By 2016, more than 70 percent of all internet traffic across the Atlantic was carried over private networks, not on public WAN networks. Obviously, that also means no revenue was earned directly by public service providers for carrying that traffic.

On intra-Asian routes, private networks in 2016 carried 60 percent of all traffic. On trans-Pacific routes, private networks carried about 58 percent of traffic.