Unified Communications Market Reaches $47 Billion, IDC Says

The global unified communications and collaboration market grew 29.2 percent year over year and 7.1 percent quarter over quarter to $13.1 billion in the fourth quarter of 2020, according to IDC. Revenue growth was also up 24.9 percent for the full year 2020 to $47.2 billion, IDC notes. 

For the full year 2020, public cloud UCaaS revenue increased 21.2 percent to $16.4 billion.

Collaboration (including video conferencing software and cloud services) revenue increased 45 percent annually to reach $22.1 billion. In fact, for a market historically driven by business voice products (phone systems), revenue now is driven by conferencing. 

source: GM Insights 

Sales of IP phones declined 20.4 percent year over year, to about $1.9 billion, IDC reports. 

Enterprise videoconferencing systems (such as video conference room endpoints) increased 12.4 percent to almost $2.6 billion.

The unified communications market always is difficult to explain, as it is a mix of many services and products, ranging from business phones to hosted communications services to enterprise hardware and software to access services such as SIP trunks. 

For example, revenue booked by Microsoft, Cisco, Zoom, Avaya and RingCentral totaled about $26 billion for the year. Those five firms represent 55 percent of total UCC revenues for the year, IDC figures suggest. 

Relatively little UCC market revenue is earned by connectivity service providers.

How Much Does Fixed Wireless Matter?

You can get a robust debate pretty quickly when asking “how important will 5G fixed wireless be?” in the consumer home broadband market. Will it matter? 

Probably. But it also matters more to some than to others, and will matter even if the net result is installed base market share shifts of just a few percentage points. So there is no actual contraction between cable operators saying “fixed wireless is not a threat” and a few firms arguing it will be highly significant as a driver of revenues. 

Keep in mind that the home broadband market generates $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

T-Mobile has zero market share in that market. Taking just two percent means new revenues of perhaps $4 billion annually. That really matters, even if cable operators minimize the threat. 

“Addressable market” is a key phrase. Right now, 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. 

The point is that, up to this point, T-Mobile has had zero addressable home broadband market to chase. Verizon has had 20 million homes to market for that purpose. AT&T has been able to market to perhaps 62 million homes; Comcast 57 million homes and Charter about 50 million homes. 

So T-Mobile and Verizon have the most market share to gain by deploying fixed wireless. And the value will not necessarily be that fixed wireless allows those two providers to “take half the market.” The revenue upside from share shifts in low single digits will be meaningful. 

Some might counter that early fixed wireless will not match the top cabled network speeds. That is true. But it also is true that 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.

It is conceptually possible that untethered access could eventually displace a substantial portion of the fixed networks business, longer term. 

Up to this point, mobile networks have not been able to match fixed network speeds or costs per gigabit of usage. But that should change. 

Mobile network speeds will increase at high rates, with a rule of thumb being that speeds grow by an order of magnitude every 10 years. One might argue that is less capacity growth than typically happens with fixed networks. +

 

source: Voyager8 

But that might not be the relevant context. What will matter is how much speed, at what price points, mobile or fixed wireless solutions must offer before becoming a reasonable choice, compared to fixed access. 

Assume that in its last release, 5G offers a top speed of 20 Gbps. The last iteration of 6G should support 200 Gbps. The last upgrade of 7G should support 2 Tbps. The last version of 8G should run at a top speed of 20 Tbps.

At that point, the whole rationale of fixed network access will have been challenged, in many use cases, by mobility, as early as 6G. By about that point, average mobile speeds might be so high that most users can easily substitute mobile for fixed access.

To be sure, cost per GB also has to be roughly comparable. But, at some point, useful bandwidth at a reasonable enough price could allow wireless solutions to take lots of market share from cabled network providers. 

 

We never get away from debates about “which is the better choice?” in the connectivity or computing industries. Nor do we generally remember that “one size fits all” rarely is the case. Additionally, all choices are conditioned by “when, where, by whom and why” technology must be deployed. 

The global choice of internet protocol rather than asynchronous transfer mode as the foundation for all next-generation networking is among the exceptions. That really did result in an “all or nothing” outcome. 

But few other choices are so stark. Consider access network platforms. Decades ago there were serious--if brief--debates about whether “fiber or satellite” technologies were “better” for wide area networks. There was speculation about whether “Wi-Fi or mobile” was the better platform for phone connectivity.

There were debates about whether fiber to the home or hybrid fiber coax was “better” for consumer broadband access. 

Now there are arguments about whether local connections, unlicensed wide area low power networks or mobile networks are “better” for internet of things sensors. 

Such questions, while valid, always have to be qualified by the issue of “better for whom?” It might not make sense for a public network provider to consider HFC as a foundation access technology. It virtually always is a logical choice for a cable operator, for the moment.

 “At some point,” optical fiber is universally seen as the technology of choice for telcos and other “cabled media” providers. But wireless remains the key approach for satellite, wireless ISPs and mobile operators. 

What is “better” cannot be determined without knowing the “for whom” part of the business context; the “when?” part of the discussion or the “under what other circumstances?” detail. Fiber to the home might be the “ultimate” choice, but “when to deploy” or “where to deploy” also matter. 

U.S. cable operators in 2020 had at least 69 percent share of the installed base of accounts, according to Leichtman Research Group. Telcos likely had something less than 28 percent of the installed base, accounting for share held by independent internet service providers (wireless, fixed and satellite). 

source: FCC, Bloomberg 

Without government support, FTTH might never make business sense, in some locations. In other cases the business case is so marginal and risky that an alternative, such as fixed or mobile wireless, might well be the alternate choice. For a telco, a “fiber” upgrade might make sense when existing copper facilities must be retired in any case, and where need is not driven by revenue upside, merely facilities replacement. 

For a cable operator, an FTTH overlay could make near-term sense to support business customers, but not yet consumers. But fixed wireless might also make sense for cable operator “edge out” operations, and for the same financial reasons that telcos used wholesale as a way to enter geographically-adjacent markets. 

The questions are even broader when looking at total demand for broadband access. In terms of total connections, in the U.S. market 75 percent of all internet access connections use mobile networks. Just 16 percent use cable HFC, while perhaps 8.6 percent of connections use either fiber or copper telco connections, while everything else--including satellite and fixed wireless--represents less than one percent. 

source: FCC

The point is, how much faster do untethered services need to be--assuming roughly equivalent terms and conditions of usage and price--before a significant percentage of home broadband users consider an untethered solution a functional substitute for fixed network access?

Matching headline speeds might not matter, as most consumers do not buy those services. Untethered options simply have to be “fast enough, priced well enough” to contend for significant share of the home broadband market.

5G Private Network Infrastructure Might Grow at 40% CAGR

The global private 5G market is better evaluated as representing sales of  local area network infrastructure than connectivity provider services, even if there is overlap between the two markets. 

The 5G portion of the private networks market is estimated to be $924 million in 2020, growing at a 40-percent compound annual growth rate to 2028, when annual sales might reach $13.92 billion.  

That is best underwood as the value of infrastructure products and services sold to enterprises running such networks, even if there will be some connectivity provider revenue when acting as system integrators, and a bit of additional connectivity revenue overall. 

source: Polaris Market Research 

Hard to Know Long-Term Impact of Remote Processes

Nobody knows yet the mix of positive and negative long-term impact of remote working and learning outcomes. In the short term the impact is likely deemed to be far better than expected. Many employees and employers report their belief that productivity, for example, is as good as was expected in the pre-Covid-19 setting.

The unknown issue is long-term effect on employee skill development, enculturation of new employees, innovation, applied creativity and team building. In the near term, all firms are running off of accumulated social capital: already-formed relationships, business culture understanding (“how we do things”) and social and professional networks. That is as true in the connectivity and data center business as in any other industry.

Every entity can, in the short term, sacrifice the intangibles provided by face-to-face interactions, both internally and in terms of relationships with customers and prospects. What remains untested is the long-term impact, as social capital decays. 

Consider opinions on remote learning. A recent survey by McKinsey found that, on average, teachers in all eight countries ranked online instruction at a score of five out of ten. In Japan and the United States, nearly 60 percent of respondents rated the effectiveness of remote learning at between one and three out of ten. 

source: McKinsey 

As always, “averages” can obscure big differences. In Japan, only two percent of teachers felt that online classes were comparable to learning in person; most felt it was much worse. So did most U.S. teachers. 

Just five percent of U.S. teachers agreed that online and remote instruction was as good as in-person teaching.

source: McKinsey 

Conversely, 32 percent of Australian and German teachers deemed remote learning to be as effective as in-person learning. Some 33 percent of Canadian teachers and 30 percent of Chinese teachers thought online instruction was as good as in-person teaching. 

The larger point is that the long-term impact of virtual or remote processes--ranging from education to sales--cannot yet be assessed. Results may well vary by industry, job roles and functions, worker age and experience, cultures and nations. 

Equally challenging will be an assessment of widespread hybrid or flexible work patterns. Knowledge worker or office worker productivity is notoriously hard to measure and the range of hybrid work scenarios might be quite disparate. 

Why No Telco is Likely to Become a "Platform"

Enron’s failed effort to create a bandwidth trading market similar to energy trading operations provides an insight into why it is so hard to create telco services platforms. For starters, Enron did not actually operate as a neutral third party supporting transactions. Enron actually purchased capacity from various service providers and then made that available for purchase by customers. 

It operated not so much as a bandwidth exchange but as a wholesaler. Of course, the intention was to outgrow the wholesaler function and eventually function as any other commodities market. Service providers hated the idea. 

The last thing in the world they wanted was to certify their core products as “commodities,” in the sense of “low value, low profit margin” products with little in the way of differentiation. The fear was more akin to telecom products being viewed as “lower value” sugar or flour, rather than “high value” gold or rare earth elements. 

Many would argue that the effort also failed for other reasons, apart from telco resistance. The information and network operating systems actually were not robust enough, and liquid enough, to support the hoped-for ease of transactions. Think of the value of a bandwidth exchange as “bandwidth on demand” and you get some sense of the issues. 

“Bandwidth on demand” is not ubiquitous on any single telecom network, for consumer, retail business customers or enterprises. Though a few locations, well supplied with optical fiber and virtualized network operations capabilities, might theoretically support near real time  bandwidth on demand, that is not possible at most locations. 

Something possibly closer might be feasible for the few global wide area core networks and key landing stations, internet points of presence, hyperscale data centers and key colocation centers. But even there the capabilities required to support full bandwidth on demand arguably do not exist. 

Much the same problem exists for connectivity products other than IP bandwidth, including voice, messaging and enterprise private network services. 

The issue is whether communication networks can become actual platforms, in the sense Enron envisioned it. Among the practical problems is that Enron--not the service providers themselves--would own and operate the exchange. 

It all boils down to “who makes the money” and “how” the money is made. Even when understood as a business-to-business marketplace, a bandwidth exchange, for example, a key principle is that buyer and seller transactions volume is how the platform makes money. 

Some might argue that ubiquitous communication networks are two-sided markets, as users connect to user, and telcos make more money, in some cases, based on usage volume.

But that is not the definition of a two-sided market, much less a platform. A platform does not own the resources its users buy and sell. Telcos do own their facilities and do create the products they sell directly to buyers. 

A communications service uses a traditional “pipeline” model, where a product is created by an entity and then sold to customers. So telcos are not platforms simply because the product allows entities to connect. 

The connectivity service provider revenue model consists of creating a capability and then selling that to customers. That makes a telco a user of the “pipeline” model, not the “platform” model. 

Nor is that a two-sided revenue model. All revenue comes from sales of access, subscriptions or rights of use. That is a classic one-sided pipeline model. 

As an automobile must have tires, so a communications service must offer the value a buyer seeks, which is connectivity, using one or more essential protocols and features, to the relevant locations, persons or devices. Still, the revenue model is a traditional pipeline approach: the connectivity provider owns and creates the product sold to customers.

A true platform does not own the actual products purchased using the platform, and makes money by a commission or fee for using the platform to complete a transaction. A ridesharing platform does not own the vehicles used by drivers. A short-term lodging platform does not own the rooms and properties available for rental. An e-commerce site does not own the products bought and sold using the platform. 

As always in real-world commerce, there are some hybrid models, where a platform might also sometimes act as a pipeline, when using the platform. House brands sometimes are created and sold by the operators of a platform. In such cases, the platform owner also acts as a pipeline product supplier on the platform. 

Whether a firm can act as the organizer of an ecosystem, a platform or not creates or limits business model opportunities, especially around “how” a firm earns its money. Keep in mind that most businesses, most of the time, have a “pipeline” or pipes  revenue model. 

It is not an easy analogy. Some might say the issue of who pays matters, in that regard. Some might point to new services as an area where telcos actually do operate in a two-sided market, as do media companies. 

Sales volumes and product relevance matter for any revenue model, for any firm. Additional issues, such as scale and value creation, are important for platforms. For a platform, scale leads to more value creation. For a pipeline model, scale leads to lower unit costs. 

A real platform creates value that is directly supplied by its users, rather than created by a product supplier. Recommendations, for example, add value to platform buyers and are directly created by users, not the platform or the sellers using the platform. 

Consumers and producers can swap roles on a platform. Users can ride with Uber today and drive for it tomorrow; travelers can stay with AirBNB one night and serve as hosts for other customers the next. Customers of pipe businesses--an airline, router or phone suppliers, grocery stores-- cannot do so.

Some day, efforts might again be made to create platforms for the parts of the connectivity business. It will remain a difficult challenge. Any telco hoping to become "the" platform for trading would have to be a carrier-neutral broker, and not be an owner and operator of network services in a direct sense.

By definition, that calls for a neutral third party. So it will remain difficult for any single telco to emerge as a universal platform.

Remember Enron Bandwidth Trading? That was a Proposed Platform

With the emergence of platform business models, the issue is whether telecommunications firms can act as platforms or two-sided markets. Enron tried to create such a platform in 1999.

A platform acts as a marketplace or exchange, and makes its money facilitating transactions between buyers and sellers. A platform typically does now own the actual products being purchased. 

A two-sided market facilitates transactions between buyers and sellers. In some cases, a two-sided market earns revenue from at least two parties to a transaction. A newspaper or magazine can be thought of as using a two-sided market model, earning recurring fees from subscribers and advertising from firms who want to put messages in front of those customers.

Complicating matters, some argue any two-sided market is a platform; or that any platform is a two-sided market. Others would disagree with one or both propositions. 

Some argue a two-sided market is a functional definition of a platform, bringing buyers and sellers together. Others might argue that a platform and a two-sided marketplace are not synonymous. 

Operating systems sometimes are said to be examples of platforms and two-sided markets. The OS might be a platform, but it is not a two-sided market, only a tool used to create a two-sided market. Apple’s IoS supports the AppStore, which brings together developers and users. But the OS is not itself a market. It is better considered a platform. But the point is that two-sided markets and platforms are, in fact, not synonymous. 

source: ExcellentWebWorld 

Videogame consoles, on the other hand, might be viewed both as enablers of a two-sided business model and an ecosystem, the creation of which is one common function of a platform. In an ecosystem, participants might create buyer-seller connections on either side of the platform (buyers with buyers; sellers with sellers), not just buyers and sellers. EBay or any similar marketplace provides an example of an ecosystem.

So do many other app-based platforms including ridesharing, short-term accommodations or other forms of asset sharing or rental. 

Sometimes buyers become sellers; sometimes sellers become buyers. 

True, two-sided businesses bring buyers and sellers together. The credit card market provides an example, where the cardholders and merchants are brought together in payment transactions by the third party acting as the clearinghouse. In that scenario, Visa or MasterCard act as the clearinghouse, while the two sides of the buyer-seller transaction are retailers and customers. 

Health maintenance organizations mediate transactions between patients and doctors. Many ad-supported content or media businesses are two-sided marketplaces, if not platforms. Magazines, newspapers, TV and radio stations and most programming networks or video production studies operate as two-sided markets, if not always as platforms. 

Social networks and search engines are classic two-sided markets, with advertisers and consumers being the two parties brought together by the platform, operating as a two-sided marketplace. To return to the question: can connectivity services suppliers create two-sided markets, or become platforms?

Yes and no. “Yes” as owners of media and content properties earning different types of revenue from different sets of users: earning money from consumers who buy subscriptions to content and also earning money from sellers who want access to the consumer or customer base using advertising. 

“Yes” when a connectivity provider owns a marketplace in e-commerce, ridesharing, lodging or any other product, making its money as a fee or commission on marketplace transactions. 

But “no” when referring to any connectivity service sold to either consumers or business customers. Platform operation is conceptually possible. 

The platform model was unsuccessfully promoted by Enron in 1999 when it proposed bandwidth trading exchanges, for example, Enron proposed creating a trading exchange for bandwidth purchases on the model of trading exchanges for other commodities such as corn, sugar, gold or copper. 

Were such an exchange feasible, it would allow some third party to facilitate bandwidth purchases by buyers and sellers in roughly the same manner as accomplished by any consumer e-commerce site. The platform would makes its money as a fee for facilitating such transactions, without owning any of the actual network assets. 

So far, it has proven impossible to create true platforms for connectivity services, though media operations sometimes can use two-sided market revenue models.

Telecom Revenue Recovery in Asia Pacific: How Soon?

Retail connectivity service provider revenues tend to track gross domestic product growth or contraction, so it would not be surprising to learn that the economic recession caused by Covid-19 public health measures have caused retail service provider revenue to contract, in Asia and the Pacific region. 

Always, telecom service spending tracks household income. So when income falls, telecom services spending tends to dip as well. During the Covid-19 economic lockdowns, when people were working from home, lower travel also meant lower roaming revenues, for example, though counterbalanced to some extent by higher spending on broadband access services.  

Virtually everyone expects a rebound as economic activity accelerates. So how fast will the Asia-Pacific recovery occur? It depends. Global tourism is expected to remain below pre-pandemic levels till 2023 and delay economic recovery in tourism-dependent economies, so that also is an issue. 

 source: World Bank

Among major economies of the Asia region, only China and Vietnam have followed a V-shape recovery path with output surpassing pre-COVID-19 levels in 2020, a World Bank report says.

Most of the other countries have not seen a full-fledged recovery in terms of either output or growth momentum, the World Bank says. 

By the end of 2020, output in the four other major economies had rebounded but remained on average around five percent below pre-pandemic levels, with the smallest gap in Indonesia (2.2 percent) and the largest gap in the Philippines (8.4 percent). 

 source: World Bank

As you might expect, economic contraction has been particularly severe and persistent in some of the small island economies with output in 2020, remaining more than 10 percent below pre-pandemic levels in Fiji, Palau, and Vanuatu. 

Longer term, it is possible that growth over the next decade could be as much as 1.8 percentage points lower than pre-Covid-19 projections for the region excluding China. 

Still, China and Vietnam already are on pre-Covid growth paths. Indonesia and Malaysia will be back to 2019 later levels this year. Thailand and the Philippines will do so by late 2022, the World Bank estimates. 

Connectivity service provider revenues should track those developments quite closely, with the caveat that tourism-heavy economies will take longer to recover than export-oriented economies.