Internet Access Speeds Change, Consumer Demand Not So Much

About 51 percent of U.K. customers now buy broadband operating between 30 Mbps and 100 Mbps, according to Ofcom. A quarter of households buy services running slower than 30 Mbps.

About 20 percent purchase services at speeds between 100 Mbps and 300 Mbps. About three percent buy service at speeds greater than 300 Mbps. 

source: Ofcom 

From a supplier’s point of view, increasing available speeds without the ability to boost revenue is an unattractive option. Consumers, for their part, always evaluate speed versus price, buying based on value. They tend not to buy the “best possible” service, but packages that represent value: “enough value for a reasonable price.”

The same dynamics happen in the U.S. market, where in the fourth quarter of 2020, about 8.5 percent of customers purchased gigabit speed access. 

Fully half of U.S. customers purchased service operating at speeds between 100 Mbps and 200 Mbps, according to Openvault. 

source: Openvault 

By about 2025, Ofcom expects the percentage of households buying service at speeds greater than 300 Mbps to remain at about the same percentage of U.K. households. But customers purchasing service at speeds between 80 Mbps and 300 Mbps could grow to 23 percent of households. Roughly half of customers will buy service operating between 55 Mbps and 80 Mbps. 

source: Ofcom

Consumer broadband always is a combination of supply and demand: what internet service providers are willing and able to provide to customers with value and price sensitivities. And Ofcom forecasts suggest a fairly stable market over the next five years.

Online Events Change User Expectations

Online events come with different attendee expectations than in-person events, a major study by Bizzabo finds. 

Bizzabo analyzed data from 967 events (358 in-person, 618 virtual) between September 2019 and September 2020 as well as data on 660,000 attendees (105K in person, 556,000 virtual). 

“Engagement” for virtual events is lower than for in-person events, based on “check-in” rates (people who actually show up, compared to people who have registered to attend). Live or virtual, people only attend about 20 percent of available sessions. 

Compared to live events, virtual events are widely viewed as opportunities for learning, but not for networking. But learning in virtual formats was said to be less than in live settings. 

Expectations for “networking” are four times lower in the virtual format. Also, virtual events are not viewed as “fun” experiences. 

source: Bizzabo

source: Bizzabo

Here are the findings on virtual event prices.

source: Bizzabo

As you might guess, virtual event attendees are more concerned with learning than networking, which is harder in the virtual format than live events. 

source: Bizzabo

Whether virtual or live, most attendees attend 20 percent of available sessions.

source: Bizzabo

You can view here a discussion of the Bizzabo findings. 

SMBs Will Keep IT Services They Adopted During Pandemic

A new survey of small and mid-sized businesses in Australia, Canada, the United Kingdom and United States by Analysys Mason suggests post-pandemic technology priorities will focus on the ability to sustain operations remotely. That means higher spending on mobility services, information technology support for remote workers, more use of cloud applications, replacing desktop PCs with notebooks and tablets, as well as boosting fixed broadband connectivity. 

source: Analysys Mason 

The survey also shows what you might have expected: firms tried--when possible--to continue operations remotely.

“The most urgent priority for many SMBs is to ensure that their business can continue to operate remotely for as long as necessary,” said Analysys Mason. “This includes improving mobile and fixed communications for remote employees.”

Some 38 percent of SMBs in the United States, for example, prioritize mobile connectivity and 33 percent of SMBs in the United Kingdom prioritize fixed connectivity. Ensuring that all of their IT assets can be managed from the cloud will be another key focus, particularly for medium-sized firms (36 percent) and small businesses in the U.S. (36 percent) and the U.K. markets (33 percent). 

Providing remote IT support for their remote employees will be increasingly important for mid-sized firms (38 percent) and SMBs in the United States (36 percent).  

5G adoption was cited as important by 26 percent of Australian SMBs and 29 percent of U.S. SMBs. some 25 percent of Australian SMBs also plan to focus on adopting cloud infrastructure services or cloud based software (SaaS) solutions in the next 12 months. 

Firm tactics have varied by the severity of revenue decline. Hospitality firms have been hardest hit, while financial insurance real estate were the least affected, along with healthcare. FIRE is among industries where remote work is easiest to achieve. 

source: Analysys Mason 

Likewise, firm responses largely correlate with industry ability to continue normal operations while workers are remote. The biggest single change most firms took was to increase use of collaboration tools. Some 35 percent to 45 percent of firms report having done so.

Adoption of all other technologies increased, but generally not more than 15 percent. The survey also suggests that firms will tend to keep using those new tools once the pandemic has ended. 

source: Analysys Mason 

source: Analysys Mason 

Definitions always are crucial when examining the small and medium business communications market. Analysys Mason uses a definition of “small business” including all entities with up to 99 employees. The firm defines a “medium” business as an entity with between 100 and 999 employees.

AT&T Reaffirms Commitment to Content and Content Distribution

When AT&T outlined its market focus at its recent investor day, three priorities were named: broadband connectivity; software-based entertainment and “fantastic storytelling.” Many opposed the acquisitions of DirecTV and TimeWarner, preferring that AT&T remain focused on its connectivity business.

In the wake of the spinoff of DirecTV into a separate asset 70 percent owned by AT&T, it would be tempting to say AT&T is unwinding its move into content ownership and media revenue models. That does not seem to be the case. 

Of the three areas of focus, connectivity represents one. Content distribution represents one. Content creation adds one. To be sure, AT&T generates a majority of its gross revenue from mobility alone. 

source: AT&T 

Still, video distribution generated 14 percent of gross revenue in 2020 and 4.4 percent of free cash flow, with the balance starting to shift away from linear and to streaming. That will change in 2021 as the DirecTV assets are moved outside of AT&T. The move still will produce about $1 billion in free cash flow for 2021, though.

Moving out the DirecTV results, as shown in the following chart, mobility generated 58 percent of free cash flow in 2020. Video content production generated 17 percent of free cash flow, just a bit behind the business wireline segment. 

source: AT&T

One way of describing matters is that AT&T free cash flow generation is led by mobility, with significant contributions from business fixed network customers and the WarnerMedia assets. Fixed network consumer operations generate about nine percent of free cash flow. 

Perhaps a key insight is that overall revenue growth is projected to be in the one-percent range. That is consistent with external estimates made for the global connectivity business as well. 

For a firm the size of AT&T, operating in mature fixed and mobile markets, long-term growth arguably has to come from lines of business outside the traditional core. The impact on cash flow generation could be even greater, as AT&T says the incremental profit margin for each HBO Max streaming customer is extremely high.

“We currently earn 90 percent in margin from each retail subscriber that we add,” said Jason 

Kilar, WarnerMedia CEO. That is akin to what other hyperscale application providers add when gaining an additional user. 

Software as a service margins might be in the 72 percent range. Facebook gross margins are in excess of 80 percent. So the HBO Max streaming service has free cash flow implications far higher than the linear DirecTV service, which might be in the 11-percent range. 

The point is that incumbent tier-one service providers (attackers are the exception) will have to create new lines of business, of some size, to fuel revenue growth. They simply are running out of runway to do so on the strength of their core connectivity businesses. 

So far, content ownership and video distribution have had the most immediate impact on gross revenues and free cash flow, though hopes are substantial for additional growth in business services related to edge computing and internet of things. So far, those businesses are young enough that they are not materially contributing to revenue or free cash flow. 

So critics might be underestimating AT&T’s commitment to content services.

AT&T Somewhat Skeptical about Fixed Wireless, But it Might be a Choice for 70% of U.S. Buyers

AT&T does not believe that customers consuming between one and five terabytes of home broadband data will be best served by a mid-band fixed wireless home broadband product.

“Well, the large consumption that we are anticipating over the next five years will be hard to meet with a wireless-only solution,” said Scott McElfresh, AT&T Communications CEO. There will be places where fixed wireless does make sense, he added. 

“There will be portions of the footprint that will not be economical to serve with fiber,” said McElfresh. “And we would intend to put at the edge of our fiber network this wireless C-band asset, along with our other mid-band spectrum to serve some of the limited use cases that we think are available for a fixed wireless solution.”

“But that's not our primary focus for that band, and that's not our primary focus to serve that heavy demand with broadband,” he noted.

At least in part, the issue is upstream bandwidth, where the difference between downstream data and upstream data has traditionally shown a 10:1 ratio. But AT&T CEO John Stankey argues that the ratio is heading to “something more like 5:1.”

As significant a change as that might be for a fixed network, the challenge is harder for a spectrum-constrained platform such as mobility, which never has the bandwidth provided by a cabled network. 

As always, firm strategy hinges on supplier assessment of their own strengths and weaknesses. T-Mobile and Verizon have much more to gain from taking home broadband share than does AT&T, and fixed wireless is the fastest, most affordable way to do so. 

T-Mobile has had zero market share in home broadband, as it has no retail fixed network business. Verizon has a retail fixed network business, but covers a small percentage of U.S. homes. 

Both firms stand to gain millions of accounts--especially where they do not presently offer any service--using mobile or fixed wireless. 

Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 18.6 to 20 million. To be generous, use the 20 million figure. 

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to. 

T-Mobile and Verizon have the most market share to gain by deploying fixed wireless.  

“We choose to serve our customers that demand high-speed bandwidth with fiber, and we will utilize our wireless networks to serve those other niche use cases in areas where fiber economics do not make sense,” said Jason Kilar, AT&T WarnerMedia CEO. 

“We think that mid-band spectrum has its role,” said Stankey. “It has its role in being a premium mobility product.” But mid-band spectrum has issues supporting indoor coverage, he argued. “And we think there's better ways to kind of deal with what's going on inside most of the walls of society,” namely fiber to the premises. 

All that can be reasonably argued. But McElfresh also said “our vision would be to have over half of our portfolio or 50 percent of our network covered by that fiber asset” by about 2025, building at about a three million to four million annual rate. 

Proponents of fixed wireless might make exactly the same point: half of U.S. households buy broadband services running between 100 Mbps and 200 Mbps, with perhaps 20 percent of demand requiring lower speeds than that. 

So even if fixed wireless offers lower speeds than cable hybrid fiber coax or telco FTTH, it might arguably still address 70 percent of the U.S. market.

Must Telcos Become Platforms to Become Orchestrators?

Is it necessary for connectivity providers to become a full platform to generate significant revenues from cloud-based, internet of things and edge computing solutions? How much orchestration has to occur so connectivity offers add value? The answers may well determine how successful most telcos will be in the next era. 

Also, how much orchestration of value can occur--and provide revenue growth--without a full shift to a “platform” role? That might be the more-important question, as few telcos can realistically expect to become the center of a big ecosystem, and operate as a true platform. 

Today, virtually all telcos operate as “pipe providers,” not in the direct sense of supplying connectivity services, but in the broader sense of creating a product and then selling it directly to customers. Telcos have that in common with most businesses, in most industries, most of the time. 

source: Accenture 

Accenture consultants have used a tripartite model of the potential evolution of telco services, beginning with “connectivity provider” and growing to become a “connectivity-plus-plus” provider. That would include adding roles in edge computing, security services and internet of things, for example. 

The future role of “industry orchestrator” does not actually require a switch to a “platform” business model. It does require working with third parties to create new services bundling connectivity with line of business solutions, likely in some industry verticals. 

What is important is that such an evolution does not require any telco to become a platform. It “only” requires adding more value to existing connectivity products, to provide higher value, and thereby reap a higher share of “solution” revenues. 

source: Accenture 

In large part, the move “up the stack” or “across the value chain” towards end user applications is necessary simply because the core connectivity business is close to saturation, with little revenue growth from business-to-business or consumer lines of business. 

Growth will necessarily have to come from new products beyond connectivity, as hard as that will be to achieve. That is one reason the industry has created the multi-access edge computing concept. It might allow a richer value proposition solving more business problems than “communications.” 

source: IBM Institute for Business Value 

Think of the way hyperscale data centers have created ecosystems of application, support and connectivity options for customers colocated inside the buildings. While often not a switch to a full platform model--which would require that the data center operator gets a percentage of all transactions between partner use of its platform--still uses the principle of the ecosystem to provide higher value for colocated partners, and thereby drives real estate value and revenue. 

Discomfort is Almost Always an Indication that Free Thought Really is at Work

 "Free speech" necessarily makes rulers uncomfortable at times. So does "free thought." 

Unfortunately, ideas we disagree with sometimes also makes us uncomfortable at times. Some are moved to reduce that discomfort by banning ideas they do not agree with. That totalitarian impulse is no more praise worthy for citizens than it would be for government leaders.